In the late 1950s, the CCF under Lloyd Stinson had made modest increases from its previous standing, and some party members believed that the NDP was well-positioned to replace the Liberals as the main opposition to Dufferin Roblin's Progressive Conservative government.
There was a growing belief among NDP Members of the Legislative Assembly (MLAs) that Paulley, while a good representative of labour interests, could not lead the party to victory at the polls.
In 1968, he faced a leadership challenge from MLA Sidney Green, a labour lawyer from the riding of Inkster in north-end Winnipeg.
Green claimed (probably correctly) that he was not challenging Paulley on ideological grounds, but his campaign was nevertheless depicted by some as "radical left".
Paulley, in turn, was depicted as representing an "old labourite" demographic, unable to reach out to a younger voters or communities which had not previously supported the CCF and NDP.
During the campaign, eight NDP MLAs signed a letter calling for Paulley to be re-elected such that he could stand aside for Edward Schreyer the following year.
Paulley responded to this endorsement by claiming that he had long regarded Schreyer as the best choice to be his successor, though he was somewhat ambiguous as to whether he would actually resign if re-elected.
Despite making a half-hearted attempt to retain power, he resigned as leader the following year and Ed Schreyer ran to replace him.
The group in question convinced the Progressive Conservative and Liberal parties to avoid competing against each other in certain ridings, such that a single "anti-socialist" candidate could be offered.