Month: March 2014

Governance of Large Co-ops

Big in co-operative news right now is the troubled leadership of the Co-operative Group. Controversy has consumed the group’s management and led to the resignation of its leader, Euan Sutherland. One of my favorite reporters on the topic, Anthony Murray, has been following the developments closely for Co-operative News. He reports that fault lies with the directors, described in an analysis report. But doubt has been cast on the governance of large co-ops in general, and some have questioned their sustainability.

How does governance of large co-ops work successfully? Without knowing how widespread the co-op model is, one does wonder. But there are a variety of successful solutions. Murray has some answers in an article showing that co-operative governance works at scale. The article links to a very interesting report by Professor Johnston Birchall called The Governance of Large Co-operative Businesses. Birchall points out in the introduction that 1,465 co-operatives worldwide create over $100 million in annual revenue (or turnover).

The answers to governing large co-ops, Birchall explains, are diverse and difficult to define in discrete categories. To begin with, worldwide co-operatives have many different ownership structures. In general terms, the sponsor of the report Co-operatives UK, has developed some general quality standards in a “Corporate Governance Wheel,” the hub of which is: A. Focus on the purpose of the co-operative. Then in a continuous circle around this purpose is: B. Carry on the work of governance in an effective way; C. Perform effectively in clearly defined roles; D. Ensure appropriate and effective member participation; and E. Develop the capability of the governing body to be effective.

As for the Co-operative Group, Murray reports on how the future board may look. The new management structure being considered could consist of a Vorstand model. This is a structure that includes a supervisory board that oversees the management board. Supervisory boards can be found in successful large co-operatives that Birchall analyzes including the Zen-Noh co-op in Japan, the Fonterra co-op in New Zealand, and the SOK co-operative group in Finland.

Co-operatives — large and small — are ubiquitous and governed successfully worldwide, as Birchall’s report makes clear. More research like this will build a broader understanding of co-operative models, as diverse as they may be, and build their reputation as practical business solutions.

Together

Together is the title of a video, currently on the ICA website. The 40-minute video was produced by CECOP – CICOPA Europe,  m30m S. Coop [sic], and producer Leire Luengo. It covers co-operatives in four countries: France, Poland, Italy, and Spain. As ICA states, the video shows the resiliency these co-operatives offer their members. They’ve done it with innovative ways to adapt to years of economic changes.

In Aisne France, a troubled manufacturing company converted to a co-op as a solution to the 2008 financial crisis. Called Fonderie de l’Aisne, an auto parts manufacturer, they diversified as a co-op into other areas. The resulting success has contributed to the Aisne region, and heritage, by sustaining the business and keeping it locally owned.

In Poland, the mineral water co-op, Muszynianka, founded in 1951, has adapted and thrived. In the nineties, the Polish economy changed from a planned economy to a market economy. The adjustment was difficult for Polish co-ops, but an interviewee points out that it was also liberating as the workers came to realize the impact their contribution had on business results. Muszynianka was previously a co-operative, but a state-owned one. By the time of the 2008 crisis, the company saw no slow down in business.

In Italy the video introduces social co-operatives, first formed in the 1970s. Law 381 from 1991 is noted, which has allowed social co-operatives to thrive throughout the country. Gruppo Cooperativo (CGM) is the largest network of social enterprises in Italy. As I mentioned in my last post, Richard Wolff emphasizes the importance of government backing for co-op development; Italy is an example he points out. Social co-ops in Italy provide social services and work integration for disadvantaged people. The co-ops interviewed have been able to retain staff  during economic uncertainty. Benefitting Italy as a whole, the co-ops running these social services save the government money.

Finally, the video visits Mondragon, a co-operative group in Spain. Mondragon was reviewed in the movie Shift Change. However, Together covers different co-ops, including an electric car project involving many co-ops. Like Shift Change, Together features Fagor Electrodomésticos — the co-op that has been a lighting rod for bad press due to going into bankruptcy. But the Fagor news has overshadowed how large and diverse Mondragon is, as is evident in this video. Again, resiliency is the key for Mondragan and the Basque region — without it, they can’t rely on agriculture or natural resources, like petroleum. The end of the video quotes a Mondragon leader who says they are a model for future business and society.

These four European co-ops have economic and social benefits. They also have a contender in the U.S.: the Evergreen co-operatives in Cleveland. I look forward to hearing a lot more about them.

New Economics and Distribution of Wealth

Richard Wolff, the author of Capitalism at Work: A Cure for Capitalism, is a popular economist right now. He recently presented in a video, linked here, posted on the Democracy at Work website where he emphasizes that people are looking for an alternative to capitalism. Then he presents a solution: democratically run work places. 

The video is 2 hours and 19 minutes long. At the 1 hour, 35 minute mark, he discusses co-ops and shared profits. One interesting approach he mentions is giving consumers an option to buy co-op produced consumer goods with explicit labeling.

Political backing is an important asset for a successful co-operative movement, and Wolff points to Italy where the government will give unemployed people the option of opening a co-op with a cash incentive. Instead of unemployment payments, a lump sum is given to those that are willing to gather a group of people and start a co-op.

The distribution of capital is an approach endorsed by Wolff. But, as I mentioned in my last post, this is the thinking of other economic thinkers, too.

Wolff sounds like Gar Alperovitz (Books: What Then Must We Do? and America Beyond Capitalism) who stresses the impending necessity for systemic change to capitalism. Dating back to September 2012, the video linked here, is one of many where Alperovitz points out the requirements for an alternative. He says: “It begins with the question: who owns the capital?” Worker ownership and the experiments are important. He starts talking about this at about 17:42.

But what is important to remember, as Alperovitz points out in a recent Real News interview in January, is that co-ops are practical idealistically. That is, they are politically practical. This quote is from the January 27th interview, linked here: 

“[The] Interesting other thing about [co-ops] which is very important, particularly for liberals and the left to think about: if you’re doing this kind of work and it’s practical and it really is serious, not rhetoric and slogans, you find people who think of themselves as moderates and conservatives — small business people — who say: that’s a good thing to do at the local level. These [co-op worker/owners] are not the national ideologues. And you find…people working hard, they’re trying to better the neighborhood, trying to better themselves, they’re doing productive work. That’s a good idea. And we’re surprised at how you break through ideologies if it’s practical.”

Co-ops and Political Change

Co-ops could and should affect political policy. This is the thinking that I’ve read from several perspectives recently. And in a recent Co-operative News article linked here, the word manifesto is used to promote change.

Anthony Murray, a co-op focused journalist who also works with the International Co-operative Association (ICA), wrote the Co-operative News article which focuses on a recent meeting (in Britain of course) to address co-operatives being part of a social movement.

What happened at the meeting suggests that co-ops are part of a large social movement. The meeting was led by the the Social Economy Alliance. Six papers are outlined in the article that aim to modify government policy. Each paper offers co-ops as part of a solution. Central to what the government must do is address social concerns — a strong theme throughout, rooted in socially-based business models. Here’s a quote from proposal 4 called The Bare Necessities: Making Markets Work: “Social, co-operative, mutual and community owned enterprises are the key to the solution, sidestepping the struggle between statist intervention and private profiteering through real people power. This is good old-fashioned entrepreneurship grounded in a genuine connection and commitment to the community.”

In the US, others are discussing a larger change, too. Two notable experts come to mind: Gar Alperovitz and Marjorie Kelly. Alperovitz is author of America Beyond Capitalism. He suggests some kind of systemic  alternative is needed to the system of capitalism. Kelly is author of Owning Our Future who has a great term for a new kind of economy called a generative economy, as opposed to standard capitalist markets that are extractive.

The group in the UK is trying to tackle these issues, and its efforts pose something very significant by appealing to government. Richard Wolff, an American economist, says there is an inevitable political presence co-ops will have as they start to scale up. More about him in my next post.

Co-ops linked with policy and government present a real solution for society. Time will tell what kind of broader acceptance, and challenge to them, will take place.

Large Co-operative Trouble

As I write this, there are huge challenges for Britain’s Co-operative Group which is having cash problems as reported by the Guardian. Its financial services sector is facing losses that arose from bad loans, and the co-operative was downgraded by rating agencies. Co-operative News also reported that the executive group was seeking to double its pay, linked here.

This co-operative is suffering from financial management issues we’re familiar with at many large corporations. Should co-op principles have been able to prevent these problems? Is this co-operative group too big? At what point do co-ops cross over and function as non-co-ops? The challenge to Mondragon in Spain is another example with the bankruptcy of Fagor.

Some solutions are being considered. Journalist Andrew Bibby, a Guardian reporter, has focused on co-ops in his reporting. On January 21st he reported that a group of British co-operative activists met in Manchester to think of solutions to Britain’s major co-ops challenges. These proposed solutions pose some good questions about the situation with the Co-operative Group and large co-ops in general, see Bibby’s article here. At the meeting some ideas were:  

1. Dividing into smaller parts: “splitting the giant Co-operative Group into a series of mutually supportive but autonomous regional co-operatives societies.”

2. Improved interaction: “members should be able to interact with their co-operative through meetings at individual shop level. He also suggested that co-op members should be prepared where necessary for creative tension and conflict.”

3. Learn from other large co-ops: Creating smaller units is not necessarily the answer. The large co-op, Canadian co-operative bank Desjardins in Canada, was cited as a successful co-op model.

He describes the meeting as reminiscent of the pioneering days of co-ops. (The co-op movement in the UK started, arguably, in 1761 with the first co-op of the industrial revolution. See Bibby’s co-op timeline here.) As the co-op movement expands, the sustainability of large co-ops, and where they can go wrong, will need to be considered closely.

Co-operative News Reports on the Success of John Lewis

Co-operative News Reports on the Success of John Lewis

This story by Co-operative News has increased my fascination with the John Lewis retail chain, known as the John Lewis Partnership (JLP): a British retail chain owned by 91,000 employees.

JLP, which also owns Waitrose, is going to pay all of its employees the equivalent to almost 8 weeks pay as a bonus for its 2013 performance. This reward might not seem lavish, but to me the scale of this successful enterprise is what is truly impressive.

Co-operative News (itself a co-op which I look forward to writing about in a future post), quotes a professor at Cass Business School, Ajay Bhalla.

“So, what drives the success of a firm such as JLP?,” asked Prof Bhalla. “Our research here at Cass shows that the ownership culture of employee-owned businesses, which supports higher employee engagement and links employee initiative-taking to superior performance, is at the heart of success of firms such as John Lewis.”

What a great example of sharing wealth, and in this case, benefitting 91,000 people. But there is something else about JLP: longevity. John Lewis gave the partnership to the employees in 1929! There’s a lot to be learned here.

Measuring the Global Co-op Economy

There has been an ongoing effort by the International Co-operative Alliance (ICA) to report on the contribution co-ops have made to the worldwide economy. It is an impressive share of revenue generation, and likely more than most people realize. But co-ops and their success can offer more to the world economy than the traditional value that is based on income produced. Reporting the results of successful co-operatives is becoming more dynamic as the ICA tracks worldwide co-operative progress.

The Global 300

In October 2006, ICA published a report measuring the top 300 co-ops worldwide. The report, called the Global 300, measured the impressive revenue (turnover) created by the world’s biggest revenue generating co-ops. As the Guardian (November 2013) would later point out using Global 300 metrics, “If you still think cooperative groups are limited to small grocery stores in hippie towns, think again. Co-ops have become major forces in the banking, insurance and retail industries.”

By 2010, the Global 300 report listed revenues totaling $1.6 trillion. This put co-ops in 9th place when compared to the GDP of countries. This report put the top 300 into five sectors:

  • Agriculture, the biggest being Zen-Noh in Japan with nearly $57 billion
  • Banking, the biggest being Crédit Agricole Group at almost $104 billion
  • Consumers Goods, the biggest being ReWe Group (Zentral-AktiengesellscharFU) in Germany at almost $50 billion
  • Insurance, with Eureko in the Netherlands making $28 billion
  • Workers, Industrial, Artisanal and Service Producers, with Mondragon in Spain making $23 billion

By the time the ICA had published metrics in the 2013 report, the combined revenues produced by the top 300 co-ops had surpassed $2 trillion.

Beyond Measuring Financial Performance

By 2013, a reformatted report counted over 2000 co-ops worldwide that generated over $2.5 trillion in combined revenue. The financial metrics of the global 300 were still tracked in the report and divided into slightly different categories of: insurance (41%), agriculture and food industries (28%), wholesale and retail (21%), banking (5%), industry and utilities (3%), and health and social care (1%).

But revenue generation is not the only way to measure co-op success. To address other success indicators beyond Global 300 metrics, The World Co-operative Monitor Project was established in 2012, formed by the ICA and The European Research Institute on Cooperative and Social Enterprises (Euricse). The 2013 report, called Exploring the Co-operative Economy, analyzes co-ops more holistically focusing on:

  • Organization Description: metrics that focus on operational model, type of organization, sector of activity, and location.
  • Operational Impact: metrics that describe the organizations members, employees, and volunteers.
  • Financial Performance: reported financial metrics.

As the report says:

“In particular, several researchers focused on the fact that co-operatives’ economic efficiency cannot be evaluated using the traditional economic and financial indicators used to measure for-profit enterprises. It has considered that co-operatives’ goals cannot be simply reduced to profit maximisation or economic and financial wealth, but are for the maximisation of benefit for their members or, in the case of social co-operatives, for the community. As a result, any analysis ought to consider, for example, the difficulties in interpreting the economic profits of co-operatives due to member compensation. Indeed, profits often results in a ‘net zero surplus’ because of the distribution of the gross income to members. On these bases, appropriately adapted financial indicators can contribute to the interpretation of organisational efficiency but cannot be used to evaluate effectiveness.”

A federation of co-ops, for example, can be measured in revenue, number of united co-ops, or number of employees. The world’s biggest revenue-generating agriculture co-op, the Zen-Noh co-op, in Japan generates $64 billion in sales, consists of 1,173 co-operatives, and employs  more than 12,000 people. The Mondragon co-op in Spain, by comparison, generates $19 billion annually, but employs and supports around 80,000 people.

Defining a co-op 

The definition of a co-op can be problematic, as the Guradian points out. The ICA definition: “A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” Further characteristics are defined by the ICA such as values, including equity and solidarity. 

Co-op models vary, and made segmentation necessary for the the “population under study” for Exploring the Co-operative Economy. Co-op types which impact the co-operative economy included:  co-operatives, mutuals, co-operative of co-operatives/mutuals, co-operative groups, co-operative networks, and non-co-operative enterprises.

As time goes on, “the World Co-operative Monitor project intends to propose and promote an improved methodology for data collection and analysis of co-operatives worldwide.”

As an alternative to wealth distribution, co-ops can also redefine how we measure a successful economy.

Co-ops and Saving the World

Hello:

I’m Chuck and I wanted to give some background for the development of this blog. Ten years ago, I began to wonder about growth — the accumulation of resources — and whether this can be a solution for everyone. Or does it unnecessarily create winners and losers? This idea led me to the book Beyond Growth by Herman Daly. He explained that measuring economic growth needs to be connected to the actual natural resources available, and not on metrics that exclude them, like GDP. My Amazon review of the book “Growth Isn’t Everything” praises Daly’s ideas on resource analysis. Growth, and the challenges of it, ties into the social challenges of equality, and ultimately environmental problems.

As social and environmental problems have increased, I’ve continued to read other authors that have thought about solutions including E. F. Schumacher, Thomas Frank, Noam Chomsky, Gar Alperovitz, Jean Jaques Rousseau, William Greider, and others. To me, social and environmental problems can be traced to a source: control of wealth. This is the conclusion the Occupy movement put in the public conscience with an emphasis on the 1% that has consolidated wealth.

The basic assessment that there are finite resources on the planet that Daly emphasizes, and a consolidation of resources resulting in social and environmental strife, shows me that some kind of sharing needs to take place.

This is where co-ops come in. There are many resources on the web that explain what a co-op is better than I can. See the International Co-operative Association (ICA) website for a great definition of what a co-op is linked here.

Co-ops are a solution. They are practical and implemented worldwide to the tune of generating $2.5 trillion in income. What is done with that income, and whether even measuring income is the best metric, are questions to be considered.

I started this blog to track ideas related to co-ops. The next post will discuss how the ICA measures the biggest co-ops in the world.

Thanks for reading,

Chuck