Co-op accepts chief's resignation - interim CEO appointed

The group's chief financial officer Richard Pennycook has been appointed as interim chief executive.

Mr Sutherland had handed a letter of resignation to Co-op chairman Ursula Lidbetter yesterday, claiming the business had become 'ungovernable'.

His move came just days after claiming his efforts to overhaul the business had been undermined by a high-level leak of his £3.6 million pay deal.

It is thought there have been unsuccessful efforts to persuade Mr Sutherland to stay. He was hired from B&Q owner Kingfisher last year and given the job of turning around the struggling Co-op Group, which is expected to announce losses of £2 billion for 2013.

In an emergency call last night following the letter, board members agreed to a shake-up of its structure which will split off representatives elected from its membership from the core "plc" type board overseeing the running of the business.

A source said of Mr Sutherland's resignation: "He resigned on a point of principle. He didn't do it lightly.

"A series of events led him to the conclusion that the business was ungovernable and that there were people trying to stop the reforms that were necessary."

The leaking of details about his bumper pay deal - which he was said to feel was an attempt to destabilise him and prevent him pushing through changes - was reported to be a factor in his decision.

In a statement issued this afternoon, Mr Sutherland said: "It is with great sadness that I have resigned as chief executive. I have given my all to the business and had hoped to be able to lead its revival. However, I now feel that until the group adopts professional and commercial governance it will be impossible to implement what my team and I believe are the necessary changes and reforms to renew the group and give it a relevant and sustainable future.

"Saving The Co-operative Bank and with it The Co-operative Group from administration was a huge task, but the changes required do not stop there, with fundamental modernisation needed to safeguard the 11 future for our 90,000 colleagues and millions of members.

"The group must reduce its significant debt and drive major efficiencies and growth in all of its businesses, but to do so also urgently needs fundamental governance reform and a revitalised membership."

Mr Sutherland added: "I will not accept the retention payments and long term incentive payments previously agreed for the delivery and protection of value in the group and the bank, even though this was successfully delivered."

Ursula Lidbette said: "It is with deep regret that I accept Euan's resignation. Last year, Euan and his team saved the The Co-operative Bank, without recourse to the taxpayer, and in doing so rescued the Group from the biggest crisis in its 150-year history. They have worked night and day to renew the organisation and to give it a sustainable future.

"Euan's resignation must now act as a catalyst for the real and necessary change which the group must go through."

Earlier today, Labour and Co-operative Party MP Meg Hillier criticised Mr Sutherland's actions, saying: "Obviously he has got a timetable and things have to be done, but he is jumping the gun and completely ignoring the mutual ethos of the Co-operative Group."

She added: "Strong leadership in a mutual model doesn't mean throwing a fit and throwing your toys out of the pram when something like your salary is leaked.

"This is a very big ... PLC-style salary in a co-operative group. No doubt he believes he is worth that, but then he shouldn't be so upset that it has been leaked. If he thinks he is worth it he should explain it or if he is embarrassed it has leaked he shouldn't take it."

The Co-operative Group has been dragged down by woes at its Co-op Bank business, where a £1.5 billion black hole was found in the accounts following a disastrous takeover of former Staffordshire building society Britannia. The bank had to be rescued by investors in a deal that saw the Co-op left with just a 30 per cent stake.The bank also saw the departure of disgraced former chairman Paul Flowers after alleged drugs offences.

The overall Co-op Group is facing large-scale job cuts after its terrible year, with around 50 of its 324 bank branches slated for closure.

It has around 4,000 stores nationwide and a workforce of 100,000. Based in Manchester, it is the umbrella group to independent regional co-operative businesses such as the Midcounties and the Midlands Co-op, which have seats on its board.

The two Midlands operations run more than 300 food stores, travel agencies, funeral directors, pharmacies and post offices, employing nearly 20,000 people across the region.