The Co-operative Group needs a radical boardroom overhaul if it is to survive the traumatic shocks of the past year, the City veteran charged with reforming the troubled chain of supermarkets, funeral homes and pharmacies has warned.

Lord Myners, Labour’s City minister during the banking crisis, described a “dysfunctional” board in which some directors did not know the difference between debits and credits and “clearly out of their depth when financial concepts and terminology are used”.

He said he realised within 30 minutes of his first board meeting in January that the board was not up to the job, with discussions ranging from “some want a dividend, some want low prices, some want to do social good and some want free-range chickens”.

Publishing a 180-page report, Myners said the board – currently made up of members of the co-operative movement such as nurses, farmers and public-sector workers – was “stuck in denial” over what he called a “near ruinous” failure of governance, which led to the near-collapse of its bank last year. None of them had quit – although some had been forced out – and he questioned why some of them remained.

“This board is not competent to perform the duties expected of it,” he said, as he called for the Financial Conduct Authority to broaden the scope of its investigation from the bank to the wider group.

“Radical decisions on governance need to be taken soon … if the Co-op, as my mother knew it, is to be saved,” said Myners. “The decision lies in the hands of elected democrats. I have done all I can do.”

Myners unexpectedly quit the Co-op board last month, but agreed to stay to complete his review.

Making no apology for setting out in “stark terms” the need for urgent reform, he warned that bank lenders owed £1.4bn by the group – which lost £2.5bn last year – could force fire sales of its prized businesses to get their money back, or increase the borrowing rate they charge on their loans.

Myners said the Co-op would not go bust as it could always sell its funeral homes business for £1bn if necessary.

His attacks on the current members of the board sparked warnings that it might now be even more difficult for his reforms to be passed at the annual meeting in 10 days’ time. In heated exchanges at the Treasury select committee, Andy Love, a Labour and Co-op MP, questioned Myners about democratic representation of the members under his proposals. But officials at Unite – concerned about the 90,000 employees of the group – urged members to back Myners as he was “the only game in town at the moment that can deliver a future for the group and our members”.

Chairman of Guardian Media Group until 2008, Myners warned that one idea of winding the Co-op into a charitable foundation to fund its social purposes could leave little cash behind.

Setting out his plans for reform to the Co-op’s current governance structure of “labyrinthine complexity”, Myners also called for an investigation by the City regulator into a report the Co-op commissioned from investigators Kroll into leaks from the boardroom . He also suggested a review of the £1 membership fee – one and a half week’s salary when the Co-op was set up in the 19th century – the equivalent to £675 now.

Myners first published an outline of his reforms in March after chief executive Euan Sutherland walked out after just 10 months, branding the group ungovernable after his £6.6m pay deal was leaked to the Observer.

“The loss of Euan Sutherland is a catastrophe for the Co-op. He was the right man and forced out by some people who should lower their heads in shame because they certainly did not behave in a way that Co-operative values and principles suggest that they should,” said Myners.

His reforms are little changed from the original, which recommended replacing the current board of 15 representatives from the regional boards – which represent the 8 million members who own 78% of the group – and five from the 22 independent societies that own the remainder. A national membership council would be set up and a one-member, one-vote system created rather than the current system, which he says is more like one vote per 10,000 members.

Myners, appointed in December, insisted he had not quit because of opposition to his proposals.

“I have myself witnessed repeated instances where there has been a denial of responsibility, corrosive suspicion, deliberate delay and a practice of hiding behind values in order to deflect or stifle criticism and protect self-interest. It was the combination of these factors, when discussing the approval of this year’s accounts, that obliged me to resign as a director of the group after only four months,” Myners said. The board members had been waiting for him to sign the accounts so they would have the confidence to sign them too, he said.

He was defiant as he published his reforms: “It would be completely irresponsible to change my diagnosis because the prescription is unpalatable and hard for some elected members to accept.”

The annual meeting of the Co-op is due to vote on resolutions related to his reforms on 17 May and Myners recommended the reforms be adopted by next year’s annual meeting, with the new boardroom structure in place by November this year. He said he hoped the Co-op would allow the media entry to this month’s AGM.

For the full 180 page report by Lord Myners:

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