My 2013 blogging in review

The WordPress.com stats helper monkeys, all open/ free software, prepared a 2013 annual report for my blog. Thank you!

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 10,000 times in 2013. If it were a concert at Sydney Opera House, it would take about 4 sold-out performances for that many people to see it.

Click here to see the complete report.

Five co-operative trends for 2014

In the spirit of possibility, as much as prediction, here are five hopeful trends I see for 2014:

1. The emergence of ‘open co-operative’ models that blend the ideas of free (or libre) software, open knowledge and democratic social enterprise, for example in work for a new vision for the economy coming out of Ecuador.

2. The growing movement around the ‘commons‘, from community woodlands to new garden cities.

3. The welcome reinvention of the Co-operative Group, the UK’s largest co-op, with a patient forward plan for renewal before its AGM in May 2014.

4. The spread of community share offers to save enterprises that people care about – a rooted and democratic form of community capitalism.

5. Co-operatives Act – due in the Summer of 2014, the result of our campaigning and Treasury backing, this will be the first consolidated act for co-operative societies for around fifty years, setting legislation for coops on a new clean, modern footing.

Best wishes to all involved in fostering a more ethical economy in 2014. Let’s work together wherever we can.

More UK share offers in co-operatives than in the stock market

It is great news this week that the Treasury will openly encourage increased investment in the country’s co-operative sector. The first new consolidated act for co-operatives since 1965 has been introduced into parliament, along with a fivefold rise in the limit for any one investment into a co-operative business (from £20,000 of withdrawable share capital to £100,000).

Laid before Parliament by Treasury Minister, Sajid Javid, the move comes on the back of focused campaigning by Co-operatives UK and our member over recent years. We have lobbied for the multiple pieces of legislation covering societies to be overhauled, including a rise in the limits on investment, in order to help co-operatives grow and avoid over exposure to debt finance.

Withdrawable share capital is used by co-operative businesses, large and small, such as consumer retail societies and agricultural co-operatives. It enables shareholders to withdraw their capital with relative ease, whilst still protecting the financial security of the business. The previous cap on investment by a member at £20,000 has seriously restricted the ability of many co-operatives to raise cash for expansion and capital investment. We estimate that the new limits, for example, will be worth around £5.3 million to the co-operative agricultural sector.

Today’s move will also be of significant benefit to small-scale co-operatives, where local people come together through calls for ‘community shares‘ to save neighbourhood assets, such as village shops, sports centres, heritage buildings and pubs. They are also used to finance community energy projects and regeneration initiatives.

Our research shows that there have been more community share offers for local and community enterprises than Initial Public Offerings for UK-listed companies in the last five years (182 share offers compared to 108 IPOs). Smaller sums, to be sure, but larger numbers. In 2013 alone, there have been almost 60 share offers, expecting to raise £15 million from over 15,000 supporters.

We need to be pretty careful to safeguard and support the quality of such offers, and avoid the obvious risks in some of the Wild West practices of peer to peer and crowd funding for enterprise, but the rise in share limits does confirm the arrival on the mainstream of a new asset class for ethical investment – locally based, co-operative and open to all.

The appetite and commitment to do business the co-operative way has not waned, and the Treasury decision is a vote of confidence in the strength and potential of the co-operative and mutual sector.

How are you doing today? A new guide to measuring performance in mutuals

How are you doing today?

If you are a business, then what I am asking about is your performance.

For investor-owned firms, this is typically going to be measured by return on capital over time. For co-operative and mutual businesses, it concerns, on our definition of performance, ‘the delivery of value to members over time and at least cost.’

For co-operatives worldwide, there tends to be a constitutional commitment to a set of core values and principles, which give different flavours to what is meant by value. More widely, over the last twenty years (thinking back to the first Social Audits we did at the New Economics Foundation for Traidcraft, Body Shop and then VanCity in Canada), there has also been a flourishing field of ‘triple bottom line’ accounting – codified in the Global Reporting Initiative and, this week, the welcome International Integrated Reporting Framework.

Understanding performance, however, is not the same as trying to measure it. The beauty of co-operative models is that members own and control the business, so they have a direct line of sight on what is going on, and a voice in shaping it. If you save your village shop, by forming a co-operative to do so (with support perhaps from the award-winning Plunkett Foundation), then the presence of the shop itself is as good a statement of performance and impact as you can get. Trying to do a triple bottom line report (or indeed social return on investment) can strangle the whole enterprise if you are not careful, through sheer distraction. That was one of the lessons perhaps of the ill-starred ‘community business’ models in Scotland in the 1990s.

But for coops and mutuals at larger scale, such as consumer cooperatives running a range of shops, measurement does help to paint an overall picture that would otherwise be far less clear. For a number of years, Co-operatives UK has offered our members a recommended set of key indicators on financial, non-financial and environmental performance. This has been guided by the Co-operative Performance Committee – chaired by Professor John Arnold and a forum that brings together representatives from the co-operative business sector to advise our work around this – such as the annual ‘performance monitor’ we produce for the Boards of consumer co-operative societies.

When we looked across the cooperative and mutual business sector more broadly, what we found was that:

A. the indicators we were recommending were only used by a number of consumer retail co-operatives, rather than more widely;
B. it is hard to select a handful of indicators anyway, given the growing sophistication of ‘triple bottom line’ and social impact reporting; and
C. looking across the co-operative sector, everyone tends to use different measures of performance, that reflect their own area of business.

So, in looking forward, we then engaged with international initiatives around co-operative performance metrics, such as the Canadian-based Co-op Index and the research community on ‘measuring the co-operative difference‘, and we experimented with measures, such as measuring the local economic benefit of co-operatives – with a case study of Lincolnshire Co-operative Society. This tracked what happened to money spent in a Co-op food store in Lincolnshire and showed that every pound spent is recycled five times before the last penny leaves the local economy. Spend it elsewhere or online with other national brands, it is hoovered out, not just nationally but to tax dodging havens overseas.

As is often the case with measurement and reporting, these were of some value, but the methodologies were cumbersome and common sense says that if it is hard to do, then it is hard to get people to do it. As a result, the Co-operative Performance Committee decided that, while we can point co-ops to key sources of advice on triple bottom line reporting, such as the Global Reporting Initiative, our recommendations for co-ops large and small should focus in on a few key indicators only. These ten indicators cover headline metrics on financial, non-financial and environmental performance:

1. Annual turnover
2. Return on Capital Employed
3. Co-operative distributions
4. Staff profile
5. Community investment
6. Resource use
7. Member profile
8. Member satisfaction
9. Trade with members
10. Customer satisfaction

Alongside this, we have published a guide, Simply Performance, free to download, for co-operatives, large or small, wishing to measure their performance, including their wider social and environmental impact. Written by Philip Monaghan of Infrangilis, this includes case studies of co-operatives and mutuals that are tracking their performance in a practical and helpful way – including Midlands Co-operative, SUMA Wholefoods, Anglia Farmers and GLL (Greenwich Leisure).

So, how are you doing?

If you are a co-op or mutual, finding the answer is not that complex. You simply need to know your members, understand what it is they value and keep track of how you are delivering that for them … in line, of course, with the values you profess.

What does it mean to be wealthy?

The legend of King Midas dates back to the early days of Greek mythology and tells the story of a King, for whom everything that he touched turned to gold. Like all folk stories, the tale can be told in different ways. Aristotle reports that he died of hunger. Other versions say that he was rescued by the gods, when he repented after turning his daughter, Zoe (or ‘life’) into gold. Here in one story that has lasted over centuries is the conundrum of wealth. Is wealth the accumulation of money and property that can enable us to do the things that what we want to do, or is it those things themselves?

The artist and critic John Ruskin in the nineteenth century declared that there is no wealth but life – and in doing so, he was declaring himself for King Midas’ daughter: family, relationships, purpose, meaning, wellbeing – these to Ruskin are then true wealth. But the story of King Midas doesn’t necessarily so neatly line up with that – legends never do. He was, after all, already a King, with kingly possessions and a kingdom’s obedience. So, an alternative interpretation is that wealth may be gold – something that is scarce, desired, tradeable – but there are limits to wealth. In wealth, as in life, balance is everything.

The property that King Midas accumulated, gold, is scarce, famously so, and tradeable, reliably so. It is emblematic of wealth, in the sense that a stock of wealth today is something that we believe will allow for a flow of benefits and entitlements tomorrow. The term ‘capital’ captures both this sense of wealth, and offers an accounting framework for how future benefits may be valued or, if your wealth is in a form akin to a metal that rusts, depreciated. There are, of course, more forms of capital than money or precious metals – mainstream economics includes, typically, land, labour and physical structures and equipment – but, conventionally, the value of such capital can still be measured in terms of money. It is not gold per se. But, with a reference price, it can be counted in terms of gold coins.

What marked out King Midas though was not that he had too much gold. That is a different legend, the one of Croesus. It was that he loved gold so much that he turned other things, including those that had value of a different form, into gold. In terms of economics, this comes to the heart of the issue of wealth – what forms and combinations of capital do combine to increase the flow of benefits and services more widely. How wealth is spent is easier to trace. How wealth is created over time in the most effective way remains, if not a mystery, certainly a conundrum.

There can, for example, be more forms of capital than those that are measured in traditional economic terms. One model of this is to characterise four forms of capital – environmental capital, human capital (including knowledge, skills and health), physical capital and social / organisational capital (including legal, political, community, family, organisation and firms). This feels more encompassing, but, in turn, less likely to be reduced to the calculus of money. Even if there are attempts from time to time to do just that, putting a price, or a shadow price, on what is outside of conventional markets in order to understand or adjust for wealth that can’t be counted in gold, there are limits. What price parenthood? What price the butterfly?

There is a long tradition of radical economic thinking that argues that prices established in money terms in the context of a market trade between two or more parties is blind to these wider forms of potential wealth, because they suggest that it is possible or even desirable to cash them in for money. John Ruskin, in the nineteenth century context of the British Industrial Revolution, had a name for this. He distinguished ‘wealth’, as life giving, and ‘illth’ as economic activity that created ugliness and unhappiness. One hundred years later, President Kennedy sparked a debate that continues today about the measurement of wealth in national accounts – again contrasting what is measured in economic terms as wealth as measuring all but that makes life worthwhile. The ‘Nobel Prize’ Economist Herbert Simon argued that most wealth was created on the back of a common inheritance from previous generations. A more recent prize winner, the late Elinor Ostrom focused on wealth outside of the market, in the form of commons. These are ideas reflective of the co-operative tradition of commonwealth and common ownership.

The challenges these perspective throw up are far more than the issues of unconsidered costs, which might lead you to consider such ‘externalities’, or narrow measurement, which might tell you to broaden your national accounts or indicators of progress. The crunch issue is the extent to which we can draw down one form of capital, in order to build another. After all, it has been a hallmark of modern economic development that it draws into the market those activities that were previously outside of the field of monetary exchange, whether household work or subsistence farming… and assigns a lower status to what is left.

Some forms of capital, though, cannot simply be cashed in. Some environmental assets, such as the diversity of species, may have a value beyond a narrow market price (that is, in turn, ‘discounted’ over time, leading inexorably to a short-term view of what may be long-run assets). But they may also be critical to our survival, in which case no amount of money gain will capture quite what we are doing. This is the argument of Herman Daly, a pioneer of the field of ecological economics. What we take for economic growth is, in his words, uneconomic growth.

In short, then, to assume that wealth is narrowly financial is as impoverished an account of economic life as assumptions of poverty that start and end with income and expenditure. It is important, but far from the whole story – and in turn may be a framing that becomes problematic, for example if today’s economics rights and rents are at odds with a climate constrained world tomorrow. Today’s wealth may not be that of tomorrow.

But, as with the legends of old, these are claims that have life that is sometimes unconstrained by the fact and evidence to back them. It is a tendency of us all to look to stories that confirm our existing beliefs, rather than to keep a genuinely open mind. I was pleased this year to be part of a Wealth Commission set up by the University of Birmingham, which was an attempt to explore some of the facts that lie behind one of the most enduring challenges of our day – how to generate and distribute wealth and prosperity in ways that are self-reinforcing rather than self-defeating. My contribution was to help explore these competing ideas of wealth.

The legend of King Midas echoes today. Our own balance of wealth has shifted in recent years, in terms of a less even distribution of people, for all the widening of growth around the world, who are able to share in prosperity. It has also shifted in terms of a perceived decline of the quality or sustainability of the social, civic and natural environment, just as the reach of financial factors in decision-making is larger than ever.

So, what does it mean to be wealthy? It suggests, I think, that you have the means, the mindset and the relationships that allow you to sustain what matters all around you.

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After a bone shaker of a week – 3 things to remember

OK, it has been the worst week for the co-operative sector for a long time – a real bone-shaker for those of us involved. Our movement is in the spotlight to an extent we’ve rarely experienced before but so far this light has not been kind, or illuminating of the true strengths and successes of co-operative and mutual enterprises.

I have appreciated the many messages of goodwill. Alan Middleton, passionate advocate of good governance in coops, reminds me that sometimes it is not the system that messes up, but people. We have had that in spades with the clown antics of the former Bank Chair.

David Button, behind many a successful agricultural cooperative, was in touch to say “obviously this is a personal tragedy to individuals but this should not overshadow the whole movement and the essential and fantastic work that is being done by co-operatives across all sectors in the UK and in the world. If ever there was a need for an independent organisation, speaking for the whole movement and with a rational approach to key issues it is now and of course it exists as Co-operatives UK and thank goodness it does.”

The three things that might get lost in all the noise and that seem to me to be worth fighting for are:

1. Despite the focus, there are many, many great coops (over six thousand) across the economy – and with support from across members of all political parties and none.

2. Looking forward, there is an entirely new leadership team in at the Co-operative Bank and the wider Co-operative Group, with hopeful vision and ambition. The new Group Chair, for example, is an outstanding co-operative business leader, Ursula Lidbetter, with a proven track record.

3. The future still seems very positive. This week, Co-operatives UK held a Pop-Up Thinktank on co-operative innovation with leading economists and business specialists from across the UK. Worldwide, the co-operative sector has a turnover 54 times the global turnover of Coca-Cola. We are confident about business ahead.

Many co-ops come out of adversity so perhaps new challenges create new strengths. I hope so. One of the co-operative values is responsibility and we have to take responsibility for what went wrong, as well as what should now happen. The challenges of the Co-operative Bank will lead to some deep learning.

It may be that, as the Financial Times suggested this week, the Co-operative Bank didn’t get into trouble because it was a co-operative, and therefore different, but because it was a bank – but still sadly no different to the others. Apparently, there is a word for that, the academics tell me – isomorphism.

We are businesses that aim to be different and we certainly don’t expect to be immune to stretch and stress. But I look forward to the focus moving back to participation, service and value for the fifteen million member owners of thousands of effective co-operative enterprises across the UK.

What’s missing in the debate on the NHS? People.

The announcements this week on improving care and patient dignity in the NHS are welcome, but the one set of people that seem to me to be missing from the framework is the public.

There are over two million members of NHS Foundation Trusts. They ought to be a bedrock on which a participatory NHS can be built – after all medical professionals are expert on medical treatment, but patients are expert on what care and dignity feels like when receiving that treatment.

It is ten years ago to this week that the Act creating Foundation Trusts came into force. I was involved at the time, advising on the framework for participation. So I have put together a short report, Ten Years After, reflecting on progress over that time.

In reality, the role of membership in Foundation Trusts, as they have widened, has become more token. There are some exceptions, not least in the mental health field, just as there are exceptional health mutuals outside of the NHS. Worldwide, 300 million people are covered by health coops and mutuals. Membership is something which all mutuals have to focus on and I set out some practical recommendations which could help to restore some of the more active role for members that was core to the original vision.

There is more to do to create a health service based on genuine mutuality between the professionals and the public.

Over six thousand co-operatives and growing

For all the troubles that have hit the Co-operative Bank, as earlier with other banks, there are over six thousand co-operatives across the UK, owned in turn by 15.4 million people.

Co-operatives are businesses that are owned by the people that are involved in the everyday life of the business. One new co-operative starts every working day.

The survival rate for new co-operatives is also far higher than for business at large. One in three conventional businesses goes out of business within three years of starting. For co-operative enterprises, that is only one in twenty.

For five successive years the co-operative sector has outperformed the UK economy, growing by 20% since 2008. Across the nations of the UK, our turnover is now £36.7 billion. Worldwide, the co-operative sector has a turnover 54 times the global turnover of Coca-Cola.

Examples of this commercial success story are:

  • In farming, 65% of all farmers in Scotland, an expanding sector, are now members of an agricultural co-operative.
  • Co-operative schools have doubled their number every sixteen months, with now over 500 co-operative schools in England.
  • There are now one million members of credit unions in Britain. These are financial co-operatives, lauded most recently by the Archbishop of Canterbury, who asks all churches to work with their local credit union.
  • Co-operative Energy is challenging the big six retail energy giants. The percentage of UK consumers who would recommend their energy supplier is 30% overall but an amazing 97% for Co-operative Energy.

It is a strength of co-operative businesses like this that they benefit by being more inclusive. For example, 37% of directorships are held by women in co-operatives, compared to 13% of leading companies.

We are in tough competitive markets and we use our co-operative model as a source of competitive advantage.

Co-operatives benefit from high levels of customer and workplace loyalty. They give a voice to employees and customers, creating space for their ideas for product and service innovation.

Research comparing co-operatives shows that the more participatory the business is, the more productive it is.

There are over six thousand co-operatives in the UK and we are still confident, savvy and growing.

Winter-cold salty kisses – how six thousand co-ops help people to come together

I wrote in August about the inspiring story of Hastings Pier and how it could be renewed through community ownership, after the research we published by Jess Steele on piers and heritage assets.

There is a new chapter now, as the call has gone out to raise community shares for the pier. This is an open offer, allowing people to invest co-operatively in the renewal and participate in the future life of the pier.

They have raised 20% of the share capital they need, which is a brilliant start.

One person who has contributed is Chris. He worked on the pier itself many years ago, calling bingo numbers.

He also had his first kiss beside it – what in a poem he sent in, he called “winter-cold salty kisses huddled up on the shingle, under the shelter of wood and iron.” A lot more went on for others under the pier, he added as a comment to me, but without elaborating.

Meanwhile, the Kings Arms in Shouldham has raised all the member investment it needs, with the backing of Stephen Fry, to save a very special community pub. Success.

Co-operatives are in the news at the moment, but meanwhile six thousand co-ops across the UK help people to come together.

It’s about members

What happens to the Co-operative Bank over the next period comes down to who owns what, when the dust settles and whether that helps one of Britain’s great recent ethical businesses move forward.

How to operate with minority external investors is something we explore in a new report we have released, called Good Governance in Minority Investor Owned Co-operatives – a review of international practice by the distinguished academic, professor Johnston Birchall.

The reasons for a hybrid model with external investors can vary. It may be an investor-owned business that is considering moving towards full co-operative, member-ownership, as in the case of the efforts of supporters trusts in football. It may be a co-operative business on the opposite path, towards demutualisation. Or it may be a co-operative or mutual, needing to bring in new investor equity alongside existing co-operative capital.

The main case studies are to be found in the fields of agricultural and financial co-operatives, with the addition of businesses, notably in the insurance field, that are part-owned by co-operatives:
 

  • In the last 20 years, agricultural co-operatives have faced enormous pressures to grow into large agri-food businesses, so as to compete with transnational corporations that threaten to reduce them to the –increasing unprofitable – role of a marketing co-operative. In order to move along the supply chain they have needed masses of capital, sometimes far more than they could raise from their members. Some of them, notably dairy co-operatives in Ireland and Switzerland, have put their ownership stake into a holding company and then floated the co-business on the stock market. Examples of co-operatives that have taken steps of this form include Kerry Creameries, Glanbia and Emmi. However, most co-operatives have resisted this option and have found other ways of raising capital that do not compromise farmer ownership.

 

  • In financial services, Credit Agricole is the largest French mutual bank, but for historical reasons at the national level it still has a substantial private equity stake, though at the regional and local levels it consists of independent co-operative banks. Kenya Co-operative Bank was owned by agricultural co-operatives, but it floated on the stock market and put its farmer ownership stake into a holding company.

 

  • Some co-operatives have invited in a minority investor-ownership stake and then decided that it was a mistake – examples include the French co-operative bank, BPCE, and the American insurance provider, Nationwide Mutual. So they re-mutualised, back to 100% member ownership.

The report focuses on the key role of good governance and how this can be designed to work from the outset. As I see it, what underpins good governance, in turn, has to be good membership.

The Co-operative Bank in the UK has an unusual structure, in that it is not owned by its customers but by a consumer co-operative whose business includes food retailing, travel, funerals and other services. Its membership and governance are pooled with the wider business of the Co-operative Group. Co-operative banks in Europe have a two tier system of local and national banks, directly owned by their bank customers. In some countries, such as Sweden and Japan, retail co-ops are not allowed to have their own bank, because the regulators see banking as a dangerous activity that should be isolated from other (potentially loss-making) activities – who now would say they are wrong?

Conversely, when things have indeed gone wrong, some co-operative banks turn to their members rather than external investors to make up the losses. In Japan, the Norinchukin Bank made losses that were exposed during the 2008 banking crisis, having purchased worthless US securities at a time when the rating agencies were saying these were triple A secure. The bank turned to its members, who are farmers, to return it to solvency. The financial gap was around $900m, and they members indeed made up the loss.

Membership is vital. it could be argued that UK financial mutuals have tended over time to anaesthetise the role of members – Building Societies for example by having to treat customers automatically as free members and looking for additional capital from non-members. There are some member rights (a fact exploited in the wave of demutualisation from the 1980s) but less member responsibilities. Successful co-operative banks, such as Rabobank, focus on their members, both in the way they do business and in governance, which for them is a complex but effective two-tier structure.

Where things go wrong, as they have for example with Britannia Building Society being merged into the smaller, successful Co-operative Bank, then it may be that there is not enough co-operative member control, genuinely reflective of the customer base, rather than too much.

In the immediate context, for the Co-operative Bank, it is likely that money will want to talk and shape what emerges. But whether or not this happens, over time, for a bank to be genuinely different to its competitors in serving customers, it is membership that matters.