Proposed new governance rules will require every business to test its values

The Financial Reporting Council (FRC), UK based, is perhaps the most influential source of governance advice around the world, as originator in 1992 of the widely copied Corporate Code. Now, the FRC has torn up its previous code, with a radically rewritten version for consultation that stresses long-term success and proposes a new requirement for businesses to test its values across the business, from top to bottom.

The proposed text, issued last month, says that “Directors should embody and promote the desired culture of the company. The board should monitor and assess the culture to satisfy itself that behaviour throughout the business is aligned with the company’s values. Where it finds misalignment it should take corrective action. The annual report should explain the board’s activities and any action taken.

[For full disclosure, I have been a member of the FRC Stakeholder Advisory Council, representing the co-operative sector and a keen advocate for this change]

Sir Win Bischoff is Chairman of the FRC, and explains that “a Principle promoting the importance of the intrinsic value of corporate culture is a new addition to the Code. Building trust in business has to start in the organisation and forming a healthy corporate culture is integral to the credibility of a company.

For co-operatives, a requirement like this has been in place since 1995, which established a global set of values and principles, now widely used in laws and regulation around the world. Co-operatives UK will shortly be publishing a new international review by Professor Johnston Birchall of governance across large co-operatives, showing how the sector has given life to these core values and principles across widely varied cultures. Done well, values can create a powerful alignment across the business.

The FRC consultation runs up to the end of next month, and once the new code is issued, all companies with a premium listing on the London Stock Exchange are obliged to report against the code.

So, how can companies test their values?There are a range of options and if you want to guide to the field, including co-operatives as a case study, then an introductory toolkit for values in business is set out in my 2016 Routledge short book, Values: how to bring values to life in your business.

As a gift to shareholder companies coming to values for the first time in a serious way, here is a Checklist on Values in Business that I have used in the co-op sector.

Articulating values Does the organisation have an agreed statement of shared values? Are these values published and available? Are the values translated into expectations around everyday behaviour?

Leadership on values Is the strategy and direction of the organisation informed by its values? Do those with responsibility lead by example?

Governance on values Does the board consider values and track performance and risk in relation to them? Does the board consider external assurance and stakeholder feedback in relation to the values of the organisation? Are values integrated in the framework of policies approved by the board for the business?

The values fit Are the values in line with the core purpose or founding story of the organisation? Are the values the right ones, in terms of their fit with the wider market and society within which the organisation operates?

Ownership and awareness of values Do those involved in the business know what the values are? Do those in the business believe that the values are ones that they care about? Do the values inform the conversations, communication and planning of those within the business?

Integration of values Are values integrated in human resource management – such as performance review, learning and development and colleague recruitment and induction? Are values integrated into commercial relationships – such as buying decisions, supply chain management, and partnerships? Are values integrated into marketing – such as communication, product and service design and innovation?

Accountability on values Do values form part of the accountability framework of the business to its ultimate owners, for example in dialogue or in the articles of association? Do values form any part of what the business reports on or discloses externally? Are the interests and perspectives of stakeholders considered in the way that values are handled?

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The most co-operative region in Europe…

“Together we made more dreams come true than we ever knew we had” says Gianpiero Calzolari, the President of Granarolo, a dairy co-operative based out of the Northern Italian region of Emilia Romagna.

The co-op was founded in 1957 and is now the leading milk and dairy group in Italy, processing 850m litres of milk from its 1,000 + farmer members, with 17 production plants across Italy, six abroad, selling to 62 countries.

Emilia Romagna is known as the most cooperative region in Europe, with co-ops accounting for somewhere over forty per cent of the economy. The formula for success has been to start early – in the late nineteenth century – and to use all parts of the cooperative sector to support new ventures. Two of the most successful retailers, Coop Alleanza (consumer owned) and Conad (retailer owned), compete today, but it was the first that helped to found the second when they saw an opportunity to extend the cooperative model.

A linked reason for success has been the values at work, what one historical account of the region describes as a ‘collective mentality’, in which values such as solidarity, a spirit of collaboration and civic-mindedness were central.

After the Second World War, there was an explosive growth of coops, responding to the needs of a hard-pressed populace, and supported by intelligent political leadership over time.

The founders of Granarolo were share crop farmers, tenants on the land. Refused permission to bring cars onto their land, they carried the urns of milk to the processing centre for the co-op by bicycle.

Today, fresh milk consumption is in decline and the co-op has been fast to move into new products, from non-dairy milk to high end cheese. Visiting the cheese production, it was a moment to savour to eat a warm, two minutes old Mozarella.

Ten per cent of sales are now from innovative new products introduced to the market over the last five years

I believe our managers have to be better than those at multinational competitors, as they want to pay as little as possible for milk, whereas we want to create value” says the President.

The co-op is active in the wider sector, supporting a new coop for example in Tanzania, now with one thousand farmers delivering milk in Njombe, pasteurising the milk and converting it into yoghurt and cheese.

The have set up a Human Milk Bank in Bologna, for premature babies, with donor mothers, supporting improved infant Heath and survival rates and restoring an age old system of wet nurses.

I visited an extraordinary new food industry Park, FICO Eataly, which opened outside of Bologna last month and, with one hundred thousand square metres of space, is dedicated to Italy’s wonderful and diverse range of food and drink products. Co-ops such as Granarolo have a high Profile across the park, and are major investors. The idea is already being copied, with a French version, for French produce, coming in Lyons.

In Bologna, we have a very strong cooperative spirit“, says Calzolari. But across Italy, he sees a need for that spirit to drive change rather than continuity. “Many cooperative dairies are too small, so a lot of wealth is lost. What we need is more cooperation and less cooperatives.”

Exclusive interview: Santa Claus converts to a co-op

https://www.flickr.com/people/17728695@N00What got you interested in converting to a co-operative?

In Lapland, we have a sparsely populated country with a short summer and a long, hard winter. So the idea of people working together to get things done comes naturally. I have always admired the co-operatives I have seen in Finland, where there are more members, added together, than there are people.

Yes, we talked about privatisation, but it seemed mad to me the idea of a service to young children in the hands of venture capital and institutional investors. So, we looked at co-op models.

How do you work now as a co-op?

There are so many myths about Santa Claus and to be honest all that mystery helps the brand, so I am not about to reveal quite how we operate. But the co-operative structure is simple and is based, of course, on the values of elf-help.

The workshop naturally lends itself to a worker ownership ethos and giving ownership to those involved, or out on the sleighs helps to reinforce the Christmas spirit, even when we are at our absolute most busy.

We have adapted the co-op model of one person, one vote to a multi-species co-operative, with one elf, one vote / one reindeer, one vote and we are interested over time in whether we can bring children in as a separate membership constituency.  There are a lot of co-ops moving towards this kind of ‘multi-constituency’ model, of a 360 degree co-op which gives members rights to everyone involved. I wouldn’t say it is easy, and we have to work hard to build a common culture and set of values that are shared right across the enterprise. Over time, we could become what some people call a platform co-op – using technology to link members in a genuinely joint endeavour.

I do want to thank Co-operatives UK and the Co-operative Bank, which gave us valuable advice on converting to a co-op through the Hive Programme – that advice is open to all co-ops or would-be co-ops and the UK is a particularly good place to be registered in as a co-operative society.

What are the benefits of being a co-op, Santa?

In a word, people. We work in a fast-paced Christmas market, with the need for constant innovation. Every year, we have to up our productivity, because population levels worldwide are rising and that means, in particular, more young people than ever before. At the same time, with sleighs and sledges, we aim to operate a low carbon delivery network, based on biofuels and a circular economy model. We are big on automation, but ultimately Christmas is a people business. Young people around the world look to me. You can have all the artificial intelligence you want but still fail to get artificial intimacy.

Do you co-operate with other co-operatives – the ‘Principle 6’ approach?

Well, it is early days but we are very excited by the potential to source gifts from co-operative supply chains. Some of the vegan produce on offer in Chorlton in England from Unicorn Grocery, some of the Principle 6 label goods from US food co-ops, the award-winning champagne from the UK Co-op Group – all of these are good for spreading goodwill.

Do you have any advice for the 2.9 million co-ops you will fly over this Christmas?

Just be good. And remember that the secret of success is sharing it.

Pictures: Bailiwick Studios; Co-operative Heritage Trust

There is a successful European model of economic development … and it is called the social economy

New data prepared by economics professors Damien Rousselière and Anne Musson demonstrates that countries in Europe with higher levels of cooperative values in their society have seen higher levels of recent economic performance.

Forget the daily market news. The larger question for economic policy across countries is how to generate prosperity on an inclusive and sustainable basis.

Europe still offers some of the clues as to how to achieve this, even if, battered by austerity and sovereign debt, it has lost confidence in its own difference.

Values map

In June 2017, Dr Tom Crompton (Director, Common Cause Foundation) completed a map of cooperative values across the world, the first of its kind, testing the extent to which the public in different countries aligned themselves with the values at the heart of the co-operative model.

Euro values 2

The top three countries in Europe were Norway, Spain and Finland, nations perhaps not surprisingly with outstanding and strong cooperative enterprise sectors touching many or most households.

Picking up on this, Professors Damien Rousselière (Professor of Economics, Agrocampus Ouest, SMART-LERECO) and Anne Musson (Assistant Professor of Economics, Full-time Faculty, ESSCA School of Management, SMART-LERECO) have compared the results to more traditional economic data, to test the links:

“We estimate a correlation between wealth and cooperative values of European Countries, using an econometric model that take into account the variability of these values inside a given country. Due to missing data, analysis based on Cooperative Values Score cannot be computed for Malta and Latvia.”

“Economic wealth (as measured by Gross Domestic Product, GDP) and Cooperative Values Score (CVS) are highly correlated among European Countries. A 1% growth of GDP is linked with a growth in CVS between 0.22% (in Bulgaria) and 0.62% (in Luxemburg), with a mean of 0.37% for the European Union. This empirical finding is consistent with previous economic literature on growth and social capital which underlines an economic pay-off of the social economy (cooperative and non profit) sector.” 

cvseurope

This finding is important. It has long been argued that cooperation shapes economic competitiveness through the influence of culture. Mario Grondona, for example, has explored the role of culture in supporting or hindering economic development.  He found that there were three groups of characteristics that explained success: norms relating to individual behaviour (strong work ethic, individual accountability, agency); norms relating to co-operative behaviour (value generosity and fairness, and sanction those who free-ride and cheat); and norms around innovation. Professor Tim Kasser, similarly, has explored how values of egalitarianism and harmony link to improved child well-being and also to sustainable development (in terms of lower greenhouse gas emissions).

With the association found by Professor Rousselière and Musson, a European social model of economic development emerges, with one possible transmission mechanism in particular – the social economy of cooperatives, mutuals and non-profits.

Cooperatives are strong across Europe, with 141 million members and 4.7 million employees. It was European cooperative enterprises that were first to introduce an eight hour day in factories, the first to champion a minimum wage, the first to give business backing to the idea of national health and welfare services. Today, cooperatives and the wider Social Economy represent around 10% of all European enterprises.

Cooperatives Europe has been working with its member networks to call on the European Council to recognise the contribution of the cooperative sector – and the potential to create a Europe that is closer, not in terms of political integration but in terms of social cohesion, economic collaboration and democratic engagement.

These rich and varied cooperative networks include Housing Europe (European Federation of Public, Cooperative & Social Housing), CECOP (The European Confederation of Cooperatives and worker-owned enterprises active in industry and services), Copa-Cogeca (European agri-cooperatives), EACB (European Association of Cooperative Banks), Euro Coop (European Community of Consumer Cooperatives), EUSP (European Union of Social Pharmacies), REScoop (European federation of renewable energy cooperatives).

Cooperatives were involved at the start and at the heart of the European project. The European Commission on the back of its early 2017 White Paper on the Future of Europe starts by saying that Europe was once the future, pointing to the inspiration of the Manifesto di Ventotene, co-written by Ernesto Rossi while he was held prisoner by fascist authorities in the Second World War.

Rossi was the founder and member of a cooperative, and its exchanges were core to his ideas.

So the Manifesto calls for a free and united Europe, as the Commission White Paper points out. But the Manifesto also goes far further by suggesting how that Europe should be organised – with “industrial reform which will extend workers’ ownership in non-nationalized sectors, through co-operative adventures, employee profit-sharing, and so on.”

Yes, this Europe is still the future.

Folk tales as presents? A co-operative offer as a seasonal gift…

If you are looking for something a little different for seasonal gifts, how about a book of modern folk tales?

Knock Twice is a collection published by the co-operative think tank, the New Weather Institute and the Real Press. The book brings together short tales from earth scientists, experts on climate change and finance, archaeologists, writers, economists and, as a first foray into fiction, me.

As Andrew Simms, who edited the collection (and an earlier one called There was a Knock at the Door) explains. “After years of campaigning on the assumption that rational arguments would win, we need to try a different tack. Even with all the evidence in the world, it is our imagination that we need to exercise, if we are to find a new path and a sustainable economy,”

Try this introduction from ‘The Days of the Wolf Trial’ by Hamish Fyfe:

The wooden shaft of the axe burnt in the woodcutter’s hand as he sliced it down towards the wolf’s head. Doing so their eyes met, locked in loathing and wonder. Just then, the woodcutter landed his axe with terrifying force inches away from the wolf’s head, splitting the wood on which the animal lay entirely in two. The wolf and the man held their steady gaze with the force of centuries of mutual distrust and animus between their species. Neither flinched.

“‘I will spare you’ said the woodcutter, ‘but only that human justice can be done and your fate decided by the laws of men.’ The heart of the wolf sank at this…

Read on, or give on, by ordering your copy from Real Press, £8.99 here

Ten Sayings of Robin Murray

In preparation for a three minute talk I gave today at a memorial event for Robin Murray, convened by his family, I have looked through email exchanges with myself, Pat Conaty, Laurie Gregory and colleagues in the co-operative sector, in his role as a very distinguished Associate of Co-operatives UK. There is so much more value of course than I did justice to on my feet, so here are some (edited, note) sayings of Robin over time that I draw out that strike me as timely and profound.

1. Sharing

At the heart of cooperation is sharing. If your identity is about possession, about having, sharing is a threat. If you are open to a wider sense of identity and value, that comes from sharing and collective being, it is an affirmation. Hence the great importance of the experience of cooperation, of festivals and dance, or common meals, of working together on a common task.

2. Prisoner’s Dilemma

I spent today being shown around Crumlin Gaol, by one of the people who’d been interned there, talking social innovation, peace and reconciliation. Talk about cooperation! The Prisoner’s Dilemma which is all about individualism is in some ways the opposite of what seems to characterise life there.

3. Democracy

I am struck by the emphasis needed on the spirit and temper of democrats rather than the pre-occupation with institutional structures. Democrats are not defined by institutions but by their relationships and being. Democracy depends on democrats just as cooperation depends on cooperators.

4. Capital

The story of King Midas, and later versions (such as Volpone – “good morrow to the world. And next my gold. Open the shrine so I may see my saint”) are reactions to the expansion of commodity relations and the first transformation of money into capital. I’ve always felt uneasy about using the terms human capital, social capital and so on because it obscures the fact that money capital is ‘self-expanding value’ – it’s only raison d’etre is to expand. Human, social and indeed natural capital do not have this same impulsion. We risk losing ourselves in the infinity of monetary expansion to the exclusion of all else.

5. Against the normal

Many of the most successful social ventures are centred on propositions that invert the norm. Slow food as against fast food. Peer lending between those without assets. Jaime Lerner’s Curitiba that paid for your waste rather than taxed you for collecting it. Care co-operatives that are about relationships rather than customer services.

6. Four types of co-operative

We can perhaps make a distinction of four types of co-operatives:

– those formed to counter a market monopoly (e.g. consumer coops against wholesalers or monopoly retailers)

– those formed to undercut a structural monopoly (e.g. Community Land Trusts over land, or worker co-operatives over capital)

– those formed to realise the productive economies of co-operation, through specialisation, sharing of indivisible equipment or land, or knowledge and information

– those formed to create an alternative economy centred around some concept of the good life.

They are not exclusive, but they may involve different kinds of governance and forms of cooperation. And they may have different trajectories (with the fourth commonly dissolving into one or more of the others)

7. Market power

It is striking how many sectors of the economy are dominated by a few large firms. Here is the bind. We depend on these companies yet they abuse their position.

8. Long waves of cooperation

The Rochdale Pioneers came out of a counter movement in the 1840s. There was a surge of cooperation in the 1880s and 1890s in Europe in the wake of the long depression and of rural electricity coops in the US in the depression of the 1930s. Standing back, we see that just as there have been long waves of economic prosperity, so there have been long waves of cooperation.

9. Cooperatives and the state

Early co-operatives in the nineteenth century developed separately from the state, and often in conflict with it. It was a social economic movement to provide basic needs for urban workers, rural communities and small farmers, based on mutuality and self-help. By the late C19 it had become what Lord Rosebury called ‘a state within a state’, jealous of its autonomy. But from 1945 onwards, it was undercut in many spheres by the expansion of the welfare state. Education, health, social insurance, housing, libraries, many leisure services became services provided by the state not by self-help. Slow to innovate, the UK cooperative movement entered fifty years of economic retrenchment. Now perhaps we are entering a third phase. Now we have a retrenchment of the state and a resurgence of the cooperative and social economy movement. One key innovation may be a model of public social partnership, which marries the advantage of cooperative, self-managed decentralisation with the public ‘systemation’ that provides coherence to the complex and diverse ecology of a digital age.

10. Automation

Automation is coming but it does not dissolve the challenge of economic production. It does not solve the social design of technology and its control. It does not replace the growing need for relational services and human experiences. It does not solve the quest for the life affirming character of meaningful work. Attempting to build an alternative economics or politics without a connection to the practice of production, including virtual production of course, is like building it on sand.

A co-operative Europe – please take action

In or out for the UK, the future of Europe is being shaped right now, with the EU Council meeting on 15th of December to set a blueprint for the economy over the next ten years. This is the culmination of work kicked off by the EU President at the start of this year, in a consultation on the Future of Europe.

As I pointed out, in a blog post for Cooperatives Europe, in September, the early founders of the EU in fact envisaged a far more democratic economy with co-operative enterprise and employee ownership throughout. That vision of Europe is still to fight for.

To make an influence, we need co-operators and partners in the wider social economy to raise their voice. So I’d like to ask you to join our communications campaign through Thunderclap to show your support for a cooperative Europe that brings Europe closer to its citizens, values, a fairer society and the future.

The more people sign up, the stronger the cooperative voice is, so please do consider whether you can sign up with your personal social media accounts, organisation accounts, and ask your colleagues to sign up as well.

To support the campaign, please:

1 click on this link: http://bit.ly/2zFjIeu.

2 click the ‘support with’ Facebook/Twitter button.

3 share it with your contacts.

Cooperatives Europe will outline our own vision for a cooperative Future of Europe on December 11, for all the European institutions, inside and outside the European Union (EU) – the UK may leave the EU but we are still a European nation, open to a #CloserEurope through #coops.

Your help would be very much appreciated.