Self-management and pay equality at Suma

Suma, the long-established and highly successful wholefood distributor which is structured as a workers’ coop and which practises pay equality and multi-skilling, is the subject of an article by Jenny Carlyle in HR Magazine this month. Well worth a read. The web link is here.

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Cooperative governance, and how it could be better

Pauline Green, who has just stepped down as President of the International Co-operative Alliance, gave me a moving and inspiring interview yesterday for a feature I am writing for one of my clients, the International Co-operative and Mutual Insurance Federation. Pauline mentioned in passing the dire straits in which the ICA found itself at the start of this century, starved of funds and losing members fast. The achievement of Pauline and her colleagues since those dark days not only in stabilising the ICA but in making it an increasingly powerful and respected voice globally deserves proper recognition.

One sign of the ICA’s renewed energy is the determination with which it is trying to implement its current strategy, the Blueprint for a Co-operative Decade. This is represented among other things by the publications emerging from within the ICA. I enthused last week about the new Guidance Notes on the Co-operative Principles. Today I want to mention a second useful publication, on cooperative Corporate Governance.

As Pauline Green puts it in the foreword, “Governance is a key component of the co-operative difference. The cooperative values and principles call for an open, voluntary and democratic process of decision-making, and cooperative governance is an essential tool in applying those values and principles.” But as I think we all know, cooperative governance is not always all it might be. In fact, it can be pretty appalling.

Rebuilding the cooperative movement means among other things encouraging better governance, appropriate to the size and purpose of each individual coop. This new publication aims to start a debate. Among other things there’s a thoughtful account by Johnston Birchall on governance in large coops, and a (perhaps deliberately) provocative chapter from Cliff Mills, who criticises the old approach in the Co-op Group and calls for adequate professional expertise to be harnessed. And there’s a delightful account from Bob Cannell on Suma’s egalitarian – and highly successful – approach to governance and management. You’ll find the report here.

Suma is ‘coop of the year’

I’m not necessarily a great fan of prizes and competitions but I have to say that the workers’ cooperative Suma, based just a few miles away from here close to the M62 motorway, fully deserves their award from Co-operatives UK as Cooperative of the Year. I reported on their recent successes in a blog earlier this year (you’ll find it if you look back to my entries for mid-March).

As well as Ed Mayo from Co-ops UK the current TUC President Mohammed Taj visited Suma last week to present the award. The press release I’ve been sent includes a quote from Suma’s Bob Cannell, which is interesting if like me you’re interested in the relation between coops and trade unions.

“Suma has had a BFAWU [bakers’ and food workers union] branch for 30 years now and around 80% of our worker members are union members,” Bob is quoted as saying. “Union advice and support has proved invaluable over the years, for individual workers and for our co-operative, demonstrating that worker co-operatives and trade unions can work together for mutual benefit; it has certainly worked for us.”

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.

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.

How much should coops pay their top executives?

How much should cooperatives pay their senior managers?

This is, of course, a controversial question.  In the fall-out from the Co-operative Group’s current woes we can expect a lot of focus in the time ahead on the amount of money former Chief Executive Peter Marks took in pay and remuneration from his members’ society.  (The Treasury select committee has already had fun in prizing out from the Co-op Bank’s former boss Neville Richardson the size of his golden farewell:  you’ll find the exchange here).

Like all large companies, the Co-op Group has a remuneration policy for its senior staff.  The policy talks of “the importance of attracting, retaining and motivating senior executives of the appropriate calibre”, and says that base salary levels are reviewed usually annually “having regard to competitive market practice, in particular salary levels for similar positions in comparable companies”.  The base salary is only one part of the package.  There are four other components: pension contributions, an annual incentive plan, a long-term incentive plan and executive benefits (such as health care and company cars). There’s nothing unusual here:  this is the way things currently are in the world of executive remuneration.

Now it’s certainly the case that, speaking as a member of the Co-operative Group myself, I want someone running my society who knows what they’re doing and is paid for being competent in handling a multi-billion pound business. But how much is acceptable, and how much is too much?

Unlike most large companies where increasingly institutional investors are prepared to get uppity at the size of executive pay packets, cooperatives have only the members themselves to ask the difficult questions. So, ironically, coop bosses may come under less scrutiny over remuneration than they might if they worked in a plc.

Recently the Canadian financial cooperative Desjardins has been very actively discussing how much their President Monique Leroux and her executive colleagues should be paid.  Following some much-publicised heated debate in recent years, a policy on executive compensation went to the Group’s AGM in April this year where it was approved by the Desjardins’ members’ delegates (although a third of the delegates were unhappy enough to vote against it).  Desjardins says it aims to benchmark its level of executive pay against comparable pay in other financial cooperatives, rather than across the whole market.  This means that Monique Leroux’s remuneration is well below the median reportedly paid by all equivalent Canadian financial institutions  (for the record, her salary and incentives last year totalled about 2.15 million Canadian dollars, plus a further million dollars or so in pension contributions).

Presumably inspired by these discussions, Desjardins has commissioned the management consultants Bain & Company to prepare a paper for next year’s global cooperative Summit in Québec on executive remuneration generally in cooperatives.  We’ll wait and see what it says.

If cooperatives are to be genuinely ethical businesses, however, perhaps we need to tackle this question another way, by asking what sort of pay inequality is acceptable in the world we all share.  What sort of spread should there be between the highest paid and the lowest paid members of an organisation?

François Hollande announced last year that bosses of publicly owned firms in France should have a pay differential of no more twenty times the lowest paid worker, a move which he said was to ‘show solidarity’ with the low paid. Twenty times may still be a bigger differential than some cooperators might want to suggest, but it is considerably less than the 70:1 ratio which the Co-operative Group reported in its latest annual accounts.

There is, of course, another way of doing things.  The workers’ cooperative Suma has complete wage parity and still manages to run a multi-million pound business successfully.  Very successfully, in fact:  I hear that this year’s profits mean that the workers can give themselves a profit bonus equivalent to two months’ salary (rather better than the John Lewis partners’ bonus, note).  Another world is, indeed, possible.