Alternative Models of Enterprise and Ethics: The Co-op Standard

Diarmuid McDonnell Co-operative Education Trust Scotland

12/11/2012

Introduction

Despite the wide-ranging successes of co-operatives, in financial terms as well as in the development of sustainable communities, the study of these democratic forms of enterprise remains surprisingly absent from the curricula of most university business schools around the world.

The Invisible Giant

Co-ops defined

Co-operatives are businesses

• Member-owned• Democratically controlled• Distributes surplus to members

Accounting

International Accounting Standards Board (IASB) proposed changes to how co-ops treat profit distribution (2010) - http://www.uk.coop/pressrelease/co-operatives-uk-negotiations-new-accounting-rules-undermine-dividend

Due to their distinct ownership, governance and surplus distribution, co-ops pose significant accounting and ethical challenges

Value-driven

Co-op ValuesSolidarityEquityEqualityDemocracySelf-helpSelf-responsibility

Ethical ValuesOpennessHonestySocial responsibilityCaring for others

BUT... Google, Tesco and Barclays have values as well...

Values in action

Co-op Principles1. Voluntary and open membership2. Democratic member control3. Member economic participation4. Autonomy and independence5. Education, training and information6. Co-operation amongst co-operatives 7. Concern for community

All* co-ops subscribe to these principles – firm ethical foundation

Co-operatives globally (1)

Source: ‘Statistical Information on the Co-operative Movement’ ICA.

http://www.ica.coop/coop/statistics.html, accessed 29 September 2011.

Co-operatives globally (2)

The UK co-operative sector (1)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return

to co-operation (Manchester: Co-operatives UK), 2011.

No. of co-operative businesses in the UK:

5,450

No. of members: 12.8m

Turnover of co-operatives: £32.2bn

No. of people employed by co-operatives:

236,000

The UK co-operative sector (2)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-

operation (Manchester: Co-operatives UK), 2011. p. 23.

4352

473

386239

Number of co-operatives by country

EnglandScotlandWalesNorthern Ireland

The UK co-operative sector (3)

Source: Co-operatives UK. The UK co-operative economy 2011: Britain’s return to co-

operation (Manchester: Co-operatives UK), 2011. pp. 20-2.

2008 2009 2010

-4

-2

0

2

4

6

8

10

12

14

16

% Growth of the UK co-operative movement

Turnover Membership Co-operatives

Year

Growth %

Co-op benefits

• increased productivity and organisational stability (Blair, Kruse and Blasi, 2000; Lampel, Bhalla and Pushkar, 2010);

• increased levels of innovation and growth (Erdal, 2011); • more equitable societies and reduced inequality (Wilkinson

and Pickett, 2009);• benefits to community (Erdal, 2000); • impact during times of economic crisis and poverty reduction

(Birchall and Ketilson, 2009); • as well as more normative conjectures based on notions of

economic democracy (Dahl, 1986).

The Market

Shareholder value vs Member benefit

CSR cover for unethical practices?

Co-ops and market failures:• Fairtrade• Micro-credit• Sustainable employment• Positive externalities

Not a panacea to all of society’s ills BUT puts power in people’s hands to improve their lives

Case 1

Fairtrade and EnvironmentThe Co-operative Group:

Produced an Ethical Plan covering social goals, environmental targets, support for young people and communities, and fairtrade commitments.

http://www.co-operative.coop/join-the-revolution/our-plan/

Ethical practices driven by the members

Case 2

EmploymentMondragón Corporation:

• Implemented a crisis management plan – at firm-level and network-level.

• Retraining, relocation, social insurance, education fund.

Ethical practices driven by the members

Case 3

Finance and creditFinancial co-ops:• Suffered losses but not bailed out• Stable and risk-adverse• Lend to some of the poorest members of society

(credit unions)• More resilient during the crisishttp://www.ilo.org/global/about-the-ilo/newsroom/comment-analysis/WCMS_192406/lang--en/index.htm

Ethical practices driven by the members

Conclusion

Co-ops are not ‘perfect’ ethical enterprises – demutualisation (Northern Rock)

Ethical dilemmas are often faced at an individual level

“It’s the managers, not the model”