Patrick Gray, Coop Group troubles and Comments

Looking for solutions for good governance and administration of democratic enterprises

Patrick Grey of Midcounties Cooperative talks good sense regarding the reform of the governance and management of the Cooperative Group. In recent times the democratic character of the large corporate consumer cooperatives has been poor.  The elections to the regional councils have low participation and the electors are poorly informed on who they are voting for and what these folk stand for.  The result is that only few in the know, vote, a perfect condition for coterie capture, even if unwitting. The elected members seem to be in a bubble and poorly informed.  Engagement with the general membership is all but non-existent and in so far as there is democracy at all it is in purdah. Apparently those elected have to commit to a vow of non communication with outsiders because of commercial confidentiality;  the new cover up all, as business eats up the public sector.  As if this was not bad enough the enterprises administration has become a disaster. New thinking is needed and reforms made to both the democratic governance and management conducive to an enterprise with a  social purpose  and democratic.   This at least maintaining in good order the commonwealth trust, built upon the efforts of past members, that larger  cooperatives represent if acting as such. The reality is that  enterprises true to cooperative principles  need to negotiate the difficulties of surviving within an economy  based on market capitalism.   Under these conditions it is a difficult to remain in the long-term and at scale a viable enterprise true to operative cooperative principles, it needs special skills and a supporting culture which include clear do-able principles and practice, enterprise with adaptability without loosing  cooperative purpose.

The Myners report has an element of shock and awe about it, bombast can put people’s backs up.  A take or leave it “I know best and will decide for your best interest”  is the prevalent attitude.  However it seems that he has not exaggerated, and the cooperative group seems in hoc to an array of  corporate banks.  These may become twitchy and call in their debts and exposure could go critical.  Any debt expositor to the post Cooperative Bank will be will tend to make the Cooperative Group a  debt serf to the vulture funds that now largely own the  bank.  The ambiguous “brand” of “ethical’ is the weak cord that might stay a dismembering and devouring of cooperative assets by  corporate capital of much of what is left of compromised  cooperative commonwealth that the group represents. Consumer cooperative are only one aspect of what cooperatives represent but they are the most prominent form in the UK.   The Cooperative Group seem to have managed to be poor in  both its democracy and management.  Some of what are under the Cooperative UK banner are nominally instrumental cooperatives. Democracy is in effect nearly non-existent, membership is generally passive if not dormant.  This is generally even worse with many other mutual forms, such as mutual insurance, building societies, credit unions, as is also the case also with trade unions.  Associational solidarity as  democratic practice is generally at a low ebb.  We no longer live in a culture which values a moderated collectivism that an associational democratic enterprise requires if it is to be vital.  Membership all too often  relegated as a category and instead customer/customer is pressed as a substitute to membership or citizenship. Membership is based on one vote per person and not on a franchise  proportional to units of ownership or purchasing power. A fundamental characteristic of democratic enterprises, cooperatives and mutuals is that they have an egalitarian core or commons to them that substantiate equitable relationships.  These have to be operative to mean anything.  Lip service will usually be made by mutual functionaries to this but the conduct all too often tends to managerialism,  with the large salary culture copied from management in the private sector. Take all,  power and money is seen as the mark of the “professional”.  The  functionaries in mutuals  are sometimes weakly held to account and democracy amounts to going through the motions in poorly attended AGMs. An improvement in the democratic quality of a mutual or cooperative enterprises might prompt better cooperative management practices.

Cooperative enterprises and mutuals have to cope with the challenge of operating in a  financial and corporate dominated market.   The goods and services need delivering to sufficient standards, while  the enterprise covers  costs and gradually builds  up assets through retention of surpluses. This obvious fact needs repeating as all to often idealist hopes are expected.  As enterprises in a mutual form their capital raising potential is limited.  Ordinary companies especially public limed companies ( PLCs)  will unusually access the financial markets, stock exchanges, and corporate banks.  These will tend to want to maximize liquidity and hold within them huge sums monetary wealth, the main holdings being corporate funds, hedge funds and sovereignty funds, pension funds playing a lesser role and personal share holdings even less.  The notion of a share holding democracy has  little substance.  Much finance is dedicated to extracting profit through speculation,  trading in contrived financial derivatives, bundled debts, hedges, or trading in  raising and falling share values. A lesser  portion is invested in the real economy, productive industry or services. But when  investment opportunities arrises for making profits  the financial markets and investment banks can supply finance at a huge scale, this gives the capitalist system great powers, all too often serving narrow interests at  cost to others.   Highly developed modern economies do not need all the finance available and this tends to direct much capitalist finance into seeking a return in speculative activity, making these as investments ,   short-sighted , short-term and unstable. Never the less much our society has been wittingly or unwittingly incorporated into it and it has immense power of self replication and expansion while drawing on our savings, pensions and purchases.

In contrast mutual and cooperative investment base are on a much smaller scale and modest. The investments are usually more long-term and directed to the “real” economy.  More potentially can be done with less with good planing and competence.  With cooperative venture capital is usually raised through the use of withdrawable shares in IPSs ((Industrial and Provident Societies).    Consumer cooperatives will usually have this legal form.  which was first established by an act in 1852  giving a legal form to the emerging cooperatives. Providence and prudential attitudes was natural to the largely working class founders of cooperatives, mutual associations, including trade unions . These were often influenced by non conformism, such as the primitive methodists.  They instinctively had a semi-detached attitude to establishment, institutional power so built their own self-help organizations, unions, medical aid societies, penny banks, friendly societies and cooperatives. This  gradually empowered  the common people and was happening at the time the voting franchise was being extended and by the end of the 19C this became a base to the increasing political power of the working class. This grew upon a movement based on democratic economy giving empowerment and self help through  direct agency.

An important component but not only one, was the raising of dedicated capital and finance.  William King in 1828 pointed out the importance of  raising dedicated finance for the formation of cooperatives and the  Rochdale pioneers, 28 of them, self financed their venture, having learned from other previous cooperative projects by investing  £1 each, a sum  then worth more than today.  In 1872 the consumer cooperatives set up the Cooperative Industrial Bank to hold deposits belonging to  cooperative societies  which then became the base capital for loans to fellow cooperatives. This was to eventually become the Cooperative Bank , which has sadly become  compromised.  The Cooperative bank was mainly a creature of the consumer cooperatives which in the 1980s were not supportive of the then emerging worker cooperatives.   The important point to learn is that by and large cooperatives are safest borrowing from within a mutual self-supporting relationship and not too exposed to debts outside this relationship.

The Mondragon cooperatives, after an initial worker cooperative was set up in 1956, soon then went on to setting up a credit union like enterprise, the now Bank, Caja Laboral. They were obliged then to raise their capital from within their community and workforce.  They were operating within a potentially hostile political settlement and were obliged to depend largely on their own resources, by means of direct agency. This gave them a sound foundational platform onto which they were able to form incubatory conditions that allowed them to spin-off new cooperatives which were  linked in a federative   mutually supporting relationship.  While the Mondragon cooperatives were in federal relationship they all were autonomous , free to break away and if going bankrupt screened from contagion of other cooperatives.  When it became clear  that the debts of FAGOR the founder   Mondragon Cooperative would infect the whole federative corporation,  it was cut off and allowed to go into liquidation.The Cooperative Bank was a PLC 100% owned by the Cooperative Group but the disastrous amalgamation with the Britannia Building Society  exposed it to the financial markets through the capital base of the Britannia being dependant on bond holders. This allowed the vulture funds to buy the devalued bonds from the bond holders.  Financial autonomy had been seriously compromised A cooperative sector needs to be semi-detached and screened from contagion from the finacial markets if it is to retain its integrity as cooperative and remain autonomous.  The  Cooperative Bank had some problems which seem to have been manageable if it had remained as a small basic bank growing organically but it got into serious trouble when it parodied other banks  including mis-selling. Growing through acquisitions can incorporate enterprises that do not have a cooperative culture so compromising cooperative integrity. This has become a problem  both with the Cooperative Group and the Mondragon Corporation.   It was not only incompetent cooperative governance but bad advice from consultants of J P Morgan that ended the Cooperative Bank.   The worst of it was that this has led to contagion of the Cooperative Group which is now distress selling of capital assets, farms and property, built up by generations of members.  The Group is  mired in crisis and scandal.  The one positive development is the tin opening of the goings on in the group, more transparency and information to the members was long overdue.

The Myners report and the Kelly revieww all point to bring in a PLC form of governance into the Cooperative Group.  Talk of moving the headquarters near the City illustrate their ethos of subordinating cooperatives into just an appendage of Corporate and Financial Capitalism ruled by governance brought in from management and business University departments.  But saying all this is well and good, the fact is that there has been a failure of governance and enterprise administration.  The need is to develop effective management that is conducive to  democratic integrity and social purpose of what cooperative principles imply.  To these principles a commitment to a living wage policy and wage solidarity within human scale wage differentials is needed.  The large salaries paid to the  CEOs at the Cooperative Group indicates that a powerful element see the Cooperative Group as just another capitalist corporate body with the exception that it does not have shareholders, but instead  nominally answerable to an apathetic  membership.   But we live in the world we live in and the big consumer cooperatives have been severely compromised in this regard .  Cooperative and mutual forms are sometimes used instrumentally as means to hang a business for a consortium of people and are only nominally cooperative.  Historically even cooperatives which started with a social purpose have tended over time to emulate the norms  prevailing in society. Cooperative principles and practice as a minority ethos need effort to maintain as effective.   The consumer cooperatives with their origins from the Rochdale Cooperatives of 1844 and their pioneering predecessors have gradually tended to ape practices from prevailing in society.  This has happened to the Kibbutz movement in Israel  were the early cooperative ethos has withered and there are indications that this tenancy has set in at the iconic Mondragon Corporation.  All organizations need to renew and adapt and if they are  not to decay and die.  The challenge for the coop group is to meet its problems, reform while trying to save the coop baby.  This is unlikely to be an easy task. They need,   can do and candor to recover.

The Midcounties Cooperatives seem to have retained some cooperative integrity, that is judged from the remarks coming from  them and have been able to innovate, be  good employers and seem a sound enterprise.  This despite their recent clumsy mishandling of price tariffs of  electricity prices with the Energy Cooperative. They have retained some autonomy and are not fully incorporated into the Cooperative Group.  Any further consolidation of consumer cooperatives might be questioned and a possible way forward is to break up the group into autonomous Cooperatives , allowing administration to be more connected to, worker , member and customers.  While large-scale enterprises are sometimes needed cooperatives are more likely to retain their integrity at a modest scale.  A problem with cooperatives is how to be effective at scale while retaining subsidiarity,  Traditionally cooperatives have dealt with scale by the use of federative relationship of smaller units working together and linked through secondary mutual enterprises. A federative relationship also has the advantage of bulk heading the federative relationship, by having some separation of enterprises, so that if one fails this does not pull the others down.. See NB 3. below

There has been a suggestion that the Cooperative Group be reformed into a multi stakeholder cooperative, with half the voting power being given to the workers and the remaining retained by the customer members.  This would work in a partnership element, like that with the paternalistic John Lewis Group which with whatever short fall as a cooperative is a succesful enterprise.  This is likely to incentivize the workforce, but will lead to a weakening of the influence of the consumer members.  The present elected members have a flawed mandate as it stands.   The Cooperative Group workforce are anxious for their jobs  and seem inclined to back the Myners review. Given how the Cooperative Group has been consolidated into a corporate behemoth something like a PLC governance might be the only effective solution in the medium   term until a new form of effective cooperative  governance can be developed. But once a PLC type governance is established and there is already a hybrid form, it will be difficult to change.

The benefits of solving the problems of good democratic governance at the Cooperatives at scale have implications beyond the cooperatives.  Success in this field could inform the reconstruction of a public sector based on economic democracy.  The challenge is to escape the force field created by the culture of corporate and financial capitalism and its methods and instead create a significant sector of effective enterprises based on alive democratic governance, this done from with in the world we live in. Democratic enterprises need to be freed of triangulation, and develop forms of governance and administration that do not undermine an alive democratic culture that directs them towards equitable and inclusive outcomes, sourly now needed. There is no reason why an economy cannot be made up by plurality of forms allowing the development of different sectors to address problems and needs that cannot be solved by the  current economic near monoculture. Work  and experimentation needs to be done to develop  a counter positional economy that works and has sufficiency. It needs a critical mass of support. Can it be done?

A first step could be an awakening  of greater  mutual and cooperative membership activism.  The inter net might help if used in a way that links people beyond capricious superficiality, perhaps organization like 38 Degrees are pioneering methods that can have wider applications. This could be a starting point as a means to engaging a wider public to take an interest in  cooperatives and mutuals, after all they should as coops and mutuals belong to us as members.  We often hear of share owner activism but rarely of cooperative and mutual membership activism. As membership is based on one person this should be a field of activism, this as relationships, if not absolutely egalitarian, is at least equitable, so calling us to proper stewardship, in defence of cooperative and mutual integrity. In doing so we defend enterprises that hold  in democratic trust,  commons, which are potentially there for all. This makes  good governance and effective administration of democratic enterprises a key issue to be solved.

More information on the issues raised here can be found on;  Bibby on Cooperation and Dave Boyle,s  Blog  Please see blog roll on left hand side of screen.  Cooperative News is also a good source  of information

NB:

1. Myners reply to Patrick Grey  LInk here 

2. Letters to Guardian about Coop Group  Link here

3. Several views on the Co-operative Groups future Link here

4.  Myners final published report via Guardian Ma7 th Link here 

Needs some editing!

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