Co-op Group: finding the way forward

There’s a lengthy assessment by John Harris in today’s Guardian G2 section of what has gone wrong at the Co-op Group and what perhaps can be done to put things right.  I’m mentioning it partly because a number of people today have contacted me asking if I was the author:  I’m not, but I understand the confusion.

The Guardian did reuse some material of mine on cooperative history for a sidebar attached to the piece and whilst the sub-editors helpfully remembered to attribute this to me, they curiously omitted to add John’s by-line to the main piece.  Just so you know!

John quotes Jo Bird of Co-operative Business Consultants in the article.  Jo is the prime organiser of the Ways Forward: Cooperative Renewal conference, taking place on Friday 16th May in Manchester.  This is a follow-up to the very successful first Ways Forward event in mid-Jan.  I’ve been asked to speak at one of the sessions on “corruption v transparency in cooperatives”, a theme which is all too topical, I fear.  More on the conference in a later blog, I think.

Pay differentials in cooperatives

I resisted the temptation recently to comment on the issue of apparently excessive executive pay in the Co-operative Group when the story broke, although the question of pay in coops is something I’ve discussed here before.

I’ve been tempted back to this subject by a piece in today’s FT from Luke Johnson, the businessman who made a fortune from the Pizza Express restaurants and now has interests in, among other things, Giraffe and Patisserie Valerie. My eye was caught by Johnson’s comment that “I am not convinced large salaries are that effective in delivering superior results… I think paying a chief executive 100 or even 200 times the basic pay of the lowest-paid worker in a company is both ineffectual and bad for capitalism”.

I once argued at a national cooperative conference that cooperative businesses should take a strong ethical position on executive pay and have a pay differential of no more than 20 times the lowest paid employee. I’m not sure I was popular with the CEOs present, but even this sort of ratio is open to challenge: is any human being’s work really worth twenty times somebody else’s?

More recently, and partly in the light of the Co-operative Group pay issue, I’ve been pondering this again. I do recognise that a pay differential rule in coops of, say, 1:20 would unduly affect very large coops. The chief executive of a cooperative business turning over, say, a few millions of pounds would probably find their pay even at twenty times minimum wage broadly in line with those of other similar-sized non-cooperative businesses; the chief executive of a multi-billion pound cooperative business would not. So a pay differential rule could mean large coops struggled to find senior staff with appropriate experience elsewhere (since humans being humans, not many people accept pay cuts) or encourage coops to stay small. Neither is necessarily desirable.

Whilst it would be nice to think that other cooperatives could replicate the position at the workers’ coop Suma, where all staff receive the same wages regardless of the work they do, this is not going to happen. I had hoped that the issue of executive pay in cooperatives was going to be on the agenda at the forthcoming Québec summit (Monique Leroux, the CEO of host cooperative Desjardins, has herself had her pay entitlement queried by members) but it doesn’t now seem to be happening. So in the interim, my tentative proposal would be something along these lines.

Cooperatives should pay staff at the living wage level, not just the minimum wage rate. There should be a norm of coop pay differentials being no more than 1:20, and the ratio should be published annually in members’ reports. And there should be a ‘comply or explain’ principle, so that coops which exceeded the 1:20 ratio should be obliged to state why they’d chosen to do so.

The Co-op Group: breaking up is hard to do?

I commented in this blog a few weeks back about the suggestion floated by Vivian Woodell of the Phone Co-op that one way forward for the Co-operative Group could be to restructure itself as a series of autonomous regional societies. I see this idea has now resurfaced, this time from Patrick Gray in a piece today in the Guardian’s Comment is Free blog.

Patrick Gray is the elected President of the Midcounties Co-operative Society, one of the country’s more go-ahead independent coops. He talks of the Group in due course considering “a staged process of allowing its regions to spin off (taking their share of debt with them), putting them back under the direct control of local members as self-governing societies”.

This is an intriguing idea, putting completely into reverse the moves in the cooperative movement over recent decades towards the ‘one big society’ – or in other words, towards what we now know as the Co-operative Group. Midcounties is one of a very small number of regional societies not to have allowed itself to fall into the Group’s embrace.

I can see that there could be attractions in the idea of the Group unravelling recent history and establishing a network of autonomous regional cooperatives, which would presumably continue to share the already-existing joint buying group and the national coop brand. I could see how these regionals could, for example, choose to structure themselves as multi-stakeholder coops, inviting employees to participate (and perhaps invest) jointly with the shopper-members. Perhaps other individual investors could also be brought into the governance framework.

Could this really be achieved, however? I imagine the drive would have to come from one or more of the Co-op Group’s existing seven Regional Boards and whether the current composition of these Boards is adequate to the task is a moot point. It would be easier to start in Wales and in Scotland, where there are strong national cooperative development agencies and where there could be political support for the idea of new retail coop societies. I admit to pondering as well whether this idea could work in my own part of England, Yorkshire, where the former Yorkshire Co-op disappeared first into United NorWest and then into the Group a decade or so ago.

Downsides? Management energy and effort being distracted into these restructures at a time when the Group is in need of focusing on its core business activity. And perhaps a longer term worry that smaller regional coops would struggle to find the competent senior management they would need to succeed. What we wouldn’t want to end up with is a network of unsuccessful mini-Co-op Groups across the country.

How to empower your money

An old friend, someone I first got to know a long time back when we both lived in the same housing cooperative, has emailed. She and her partner are currently in the middle of running a community share issue, where they’re hoping to raise the money to buy a much-loved local pub as a jazz music venue. They’re at the nerve-racking stage when they’re very close to raising the amount of money they need and have their fingers crossed that the final amount they’re after will come in.

I know the feeling: the town where I live has a little local pub renowned for its atmosphere and real ale, which the community has recently rallied round to save through a successful community share issue. The pub is due to reopen under cooperative ownership in a matter of days.

It’s important that we discuss ways that we can empower our money, in order to ensure that it is put to work for the same goals as we ourselves have, and I therefore welcome the growth in the community share movement in recent years. I’m not sure I can do a direct plug for my friend’s initiative (journalistic ethics and all that) but I can certainly help by mentioning the Microgenius website  which acts as the central point of contact for all current community-led share offers. Microgenius is worth bookmarking and checking regularly.

What makes – or should make – a coop ethical?

I’ve been thinking about what we should, as communities and societies, expect of cooperative businesses when it comes to their social and environmental performance.

Cooperatives want to claim the ethical high ground – but in fact if you look at the current internationally-agreed Co-operative Principles, it’s only the last Principle, number 7, which asserts that cooperatives are something more than businesses run in order to maximise economic returns. And the way this is worded (“Co-operatives work for the sustainable development of their communities through policies approved by their members”) is, let’s be honest, pretty woolly.

The International Co-operative Alliance, the custodian of the Co-operative Principles, has agreed that each of the seven Principles should be accompanied by much more detailed Guidance Notes and it is currently inviting comments and responses for the three Guidance Notes already in draft form, including that for Principle 7. You’ll find the information on the ICA’s website here.

I’ll admit that, as it stands, I’m not wildly impressed by the draft Note for Principle 7. But rather than carping from the sidelines, I thought I ought to get stuck in and offer some thoughts of my own on what such a Guidance Note should contain.

So that’s what I’ve done. My submission to the ICA is focused on the concept of the triple bottom line (social and environmental as well as financial performance) and I try to offer a number of very practical proposals for ways that cooperatives worldwide should be encouraged to meet social and environmental objectives. For example, I propose that cooperatives should commit to meeting the ILO Declaration on Fundamental Principles and Rights at Work (this includes the elimination of discrimination at work and to the right of employees to trade union representation). In relation to the communities in which they operate, I argue for a commitment that cooperatives undertake to pay the full corporate tax due in the country/countries in which they operate, and to formally renounce measures to reduce their tax liability. Some suggestions for good practice in relation to supply chains and to socially responsible investment are also in there.

In relation to environmental good practice, again I’ve tried to suggest a series of practical measures which can be recommended to cooperatives. I also propose that, if a commitment to environmental sustainability is to be core to a cooperative’s business operations and more than ‘greenwash’, it needs to be directly ‘owned’ by a cooperative’s Board of Directors.

If you’re interested, you’ll find my ICA submission on my website here. I also hope you’ll thin of making your own contribution to this debate and consultation. The ICA is giving us a real opportunity to hold a wide-ranging debate about exactly what an ethical cooperative business should mean. It would be a shame to miss the chance.

On capital and cooperatives

My series for the Guardian on the theme can coops compete? comes to an end today, with the final piece now published (here).  It’s about the often tetchy  relationship between coops and capital.

As you’ll see,  I begin the piece with a quote from coop pioneer George Holyoake who wrote in 1878 that “Capital is like fire, or steam, or electricity, a good friend but a bad master”.  The problem of capital  – as we saw last year when the Co-operative Bank had to nuzzle up to the hedge funds – remains as acute today as in Holyoake’s time.  How do you satisfactorily defend member self-determination in cooperatives when investors are there as well, wanting their share of the cake?  How do you fill the capital gap, if you can’t access equity?  (Is the – highly controversial – answer in fact to accept investors as fellow-stakeholders in the business and devise a multi-stakeholder coop model which gives them membership rights too?)

I’ve felt for a long time that the big issue facing the cooperative movement at the moment is this one of capital, and I’m pleased that the International Co-operative Alliance has recognised this in its strategic Blueprint for a Co-operative Decade.  I’m currently playing a small part in relation to a UK working party that’s exploring capital solutions internationally for cooperative banks and insurers, which we hope will feed in to the ICA’s recently established ‘Blue Ribbon’ commission on capital.

The Guardian piece explores some of the possibilities around member-provided capital.  And I also float the idea that cooperatives need to develop financial instruments to tap into the growing pool of ethical/socially responsible investment capital, most of which (ironically) currently finds its way into plcs.

Yes, there are cooperative success stories out there

A small workers’ cooperative in the town where I live asked me over the weekend if I would write a short article for their forthcoming customers’ newsletter.  They were concerned that the media coverage of the Co-operative Group’s trading and governance problems would be encouraging the idea that all cooperatives were badly run. Could you point out, they asked me, that workers’ coops are still an excellent business model?

I’ve been happy to send across a short piece which I hope does what they’re after.  Because they’re right: it is very important that the message gets through that the Co-op Group is only one of around six thousand coops in Britain, even if it is far and away the largest.

We don’t knock the whole plc model just because a company like Woolworths hits the buffers, and we shouldn’t allow the cooperative business model to be dismissed on the back of the Group’s shortcomings. (But having said that, the Group should make us think very carefully about how management and corporate governance is to be organized in coops.)

I’d define a well-governed coop as one which is true to its cooperative principles, one which gives its members real engagement in its strategic management, and – not least  –  one which also is successful in trading terms.

There are, I’m pleased to say, quite a few cooperatives which could make a case for being in the short-list when it comes to being well-governed.  I’m going to mention one, and it’s not because they bribed me with a free vegetarian lunch when I visited their headquarters at Elland just off the M62 a week or two back.

Suma, the wholefood wholesaler which operates as a workers’ coop, had its most successful year in its thirty-something year history last year, increasing turnover from £30m to approaching £34m.  Net profit was up too, so the coop was able to pay its members a significant bonus. (Suma practises wage parity, by the way).

There’s clearly some entrepreneurial flair at work, and I was interested to be told of the way they are working to grow their export trade which is now responsible for more than a tenth of turnover.  But they also have worked hard to make their strategic management structures work, without having other obvious models to follow. Suma’s six-strong management committee is responsible for the strategic direction of the coop: members are elected to serve a maximum of two two-year terms, and there is built-in gender balance.  Operationally, Suma has Function Area Co-ordinators, responsible for the different areas of the business.

Suma talks of its aim being to provide a high-quality service to customers and a rewarding working environment “within a sustainable, ethical, co-operative business structure”.  It looks like they’re not doing too badly in meeting these aims.