When a cooperative’s capital comes from its members

If you know the seven internationally agreed Co-operative Principles, you’ll know that the third is the one about capital.  It’s titled ‘member economic participation’ and the first sentence begins “Members contribute equitably to, and democratically control, the capital of their co-operative”.

This is the Principle which seems most out of kilter with the way that the British cooperative movement (or at least the retail side) has chosen to operate in modern times. It’s true that we all chip in £1 to become a member of the Co-operative Group or one of the independent regional societies, but that hardly amounts to much of a contribution to the capital of these businesses.

Co-operatives UK’s Ed Mayo mentioned in the last issue of Co-operative News the case of the Japanese cooperative bank Norinchukin, which he says was rescued by its own members.  He goes on to say, in relation to the Co-op Bank, “this was not an option we had today and there is a lesson both about what membership means in co-operatives and where our capital comes from”.

As a matter of fact,  the Co-operative Group (the Bank’s current owner) already has the legal powers to issue transferable shares to its members in the form of what its rule book calls Member Investor Shares.  As I mentioned in a Guardian piece back in June, were the Group to pursue this idea, it would create a major new financial instrument for cooperatives.  (I accept, though, that now is not a good time to do it!).

From across the Atlantic, however, comes just such an initiative.  I’ve been hearing from senior staff at Canada’s Desjardins about the way that this cooperative bank and insurer has successfully raised over a billion Canadian dollars from its members in a capital share issue launched last year.  True to cooperative principles interest is limited, being set at no more than the average yield of Canadian government 5 year bonds (or 4.5%, if higher).

I’m hoping to get more details about this innovative way of raising cooperative capital shortly and will share what I find out.

Sneezing in Manchester: the wider effects of the Co-op Bank’s difficulties

There’s a twitchy feel at the moment around Manchester’s cooperative quarter, where I was this morning.  This is the historic area near Manchester’s Victoria station where many of the most important institutions in the British cooperative movement (including Co-operatives UK, the Co-operative College and the Co-operative Press) have their offices… just down the road from the Co-operative Group’s sparkling (hubristic?) new office block.

The twitchiness comes of course from the Group’s current financial plight, brought about by the capital shortfall faced by its subsidiary, the Co-op Bank. The Bank will be going public soon on the precise deal it is proposing to its corporate and private bondholders.  But there is an expectation that the Group will be entering a period of considerable retrenchment – and that this will directly affect many other parts of the coop movement which directly or indirectly rely on the Group’s support.

This is the drawback of having the ‘one big society’ which the British coop movement talked about and debated for almost a hundred years before finally the Group came together at the start of this century.  When things go well, big can be beautiful.  But having all your coop eggs in one basket means risking much more when things go wrong.  As a senior figure in the movement put it to me today, “When the Group catches cold we all sneeze”.

Talking of the Bank and its need for private capital, Co-ops UK has moved quickly to commission coop historian and academic Johnston Birchall to write a report on experiences elsewhere in the world where cooperatives have brought in external minority investors.  Johnston’s report Good governance in minority investor-owned co-operatives is out today, and looks very valuable.  I hope to read it and offer some comments tomorrow. In the meantime Co-ops UK’s Ed Mayo has a thoughtful blog on the same subject.  Well worth a look.