* Co-op boss Sutherland offers to resign
* Source says difficult to see him staying on
* Co-op to report full-year earnings on March 26
* Sutherland not immediately available for comment
By Brenda Goh and Paul Sandle
LONDON, March 11 (Reuters) - The chief executive of Britain's Co-operative Group, Euan Sutherland, has offered to resign after a tumultuous 10 months in the job, saying he believes the mutual group is 'ungovernable', a source close to the matter said.
Sutherland's intention to quit the group, whose businesses include a bank, supermarkets and funeral homes, sparked an emergency board meeting on Monday to discuss reforming its unwieldy governance structure to bring a higher level of corporate experience to the highly indebted group.
Sutherland's resignation letter follows his outburst on the group's social network Facebook at the weekend that accused unidentified board members of seeking to undermine him by leaking details of his 3.7 million pound ($6.15 million) pay package - more than double his predecessor - to the media.
The public row between Sutherland and members of the board resisting his efforts to turn the group into a more conventionally run business, such as the retailer Tesco , marks a major turning point in its 170-year history.
The former boss of Kingfisher's home improvement chain B&Q has described 2013 as the worst year for the group after it was rocked by the discovery of a 1.5 billion pound ($2.5 billion) capital hole in its banking arm and a drugs scandal involving the unit's ex-chairman, Methodist minister Paul Flowers, who had little banking experience.
"We appear to have disaffected people who are determined to make life difficult and embarrassing for The Co-operative," Sutherland told employees on Facebook.
A spokesman for the Co-op declined to comment on Sutherland, the details of his allegations, or the future of the group. Sutherland, who joined in May just before the scale of the banking arm's problems was uncovered, was not immediately available to comment.
DIFFICULT TRANSFORMATION
Britain's biggest mutual is owned by its 7.2 million members. Its board is entirely non-executive, and is elected from regional boards and independent Co-operative Societies.
"I don't think this will break the group but it certainly shows that attempts to reform it into a more mainstream business are going to be difficult if not impossible," Andre Spicer at the Cass Business School said.
"It's also going to be a very, very tough position to attract someone of a similar kind of stature."
The source said it was difficult to see Sutherland staying on as chief executive. The source declined to be named due to the sensitivity of the matter.
Sutherland, a Scot who trained at Coca Cola, and who has almost two decades of retail experience, was due to announce changes to his executive team on March 17 ahead of the group's full-year results on March 26.
The Co-op is selling assets such as its farming business and is expected to report a record loss of over 2 billion pounds stemming from its banking unit.
The group had promoted itself as a more ethical alternative to the country's banks and big business.
But Cass's Spicer said the group's reputation for being a more ethical outlet was dissolving fast, with life-long members closing their accounts in the wake of the banking scandal.
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