Large Co-operatives

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.

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.