A former boss of what is now the Co-operative Group has accused its leaders of blocking prominent members from standing for the board and undermining the principles of the 171-year-old mutual society.

Sir Graham Melmoth, who revived the Co-operative Wholesale Society (CWS) when he ran it between 1997 and 2002, said he believed the current board was using the recent turmoil at the group as an excuse to exclude talented longstanding members from board elections.

The group announced on Thursday that three people would stand for the three member-elected board positions under its new rules. They are Hazel Blears, who stands down as a Labour MP at next month’s election; Ruth Spellman,the chief executive of the Workers’ Educational Association; and Paul Chandler, the former head of the fair trade group Traidcraft.

Melmoth said that nominating only three candidates for as many posts meant the election would not be properly contested. He also said in a paper sent to the Guardian that candidates with stronger ties to the group were weeded out.

“The second Co-op principle says: ‘Co-ops are democratic organisations controlled by their members. Men and women serving as elected representatives are accountable to their members.’ There’s nothing in the principle about screening out ‘undesirables’ before the members are allowed to decide on their representatives themselves,” he wrote.

He said members would probably have elected Dame Pauline Green, the president of the International Co-operative Alliance; and Nick Eyre, the Co-op’s former group secretary, but they were eliminated from a group of six candidates put forward by the Co-op’s members’ council.

Green said recruitment consultants ran police and financial checks on her and took up her references but she was told on Tuesday she did not have enough commercial experience. The board also wanted “fresh” cooperators, she was told.

“It’s all a bit bizarre, really,” she said. “I’m disappointed there was no opportunity for members to have a proper election after they agreed to this new governance process to help the group through the crisis.”

Britain’s biggest customer-owned group was plunged into turmoil two years ago when bad debts soared at its banking arm. The near-collapse of the bank exposed the group’s chaotic internal workings and helped drive it to a £2.3bn loss for 2013.

Richard Pennycook took over as chief executive after Euan Sutherland walked out in March 2014, branding the group ungovernable. Under reforms drawn up by the former City minister Lord Myners, the group’s board of mainly lay members has been shrunk and the majority of its directors are now businesspeople.

The Co-op returned to profit last year and Pennycook said on Thursday that the group’s “rescue phase” was complete. Melmoth complimented Pennycook on the improved financial performance.

Melmoth was hailed as the Co-op’s saviour for overhauling its management and fending off a bid by the entrepreneur Andrew Regan that would have ended its mutual status.

CWS merged with Co-operative retail services in 2000. Melmoth said the merger with United Co-ops in 2007 was the root of the group’s troubles.

“We should not rewrite history as an excuse to interfere with members’ rights to elect as their representatives ‘ordinary’ co-operators in good standing, nominated in good faith,” he said.

New chairman Allan Leighton said: “The first principle of the governance reforms, unanimously approved by members last year, was that board birectors would be individually and collectively qualified to operate on the Board of an organisation of the scale and complexity of the Co-operative.

“Candidates had to meet strict selection criteria, demonstrating clear commercial acumen as well as a strong affinity with the co-operative model. The three chosen candidates will only join the Board if approved by a member vote at this year’s annual meeting.”

• This article was corrected on 11 April 2015 because it erroneously referred to Richard Pennycook’s involvement in the recruitment of Co-operative Group executives.