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.

One new co-operative business every day of the working week

There are 6,169 co-operative enterprises in the UK and these are owned by 15.4 million members.

The number of co-operatives is increasing at a rate of 6% per annum, averaged over the last four years, which is represents around 250 new co-operatives a year – around one new co-operative every working day of the week.

There is also a diversity of co-operative forms, in the UK and overseas. There is continuous experimentation around key issues, such as the nature of membership, interest in community benefit and new models of financing. At the same time, they operate with a strong, local connection. The study we did to track what happened to money spent in a Co-op food store in Lincolnshire showed that every pound spent is recycled five times before the last penny leaves the local economy.

Earlier this year, we commissioned a draft working paper on the business advice needs of co-operatives. The paper – What are the business advice needs of co-operatives Working Draft – is neither formal nor our view but it provides for an interesting and diverse set of comments on how the co-operative sector can be further supported in the years to come.

I have set down my own views in a speech today for the Co-operative Enterprise Hub on what I see as the seven lessons for co-operative development:

  1. Go with the flow
    The growth of the sector is organic and is shaped most significantly by the commercial success of the largest co-operative enterprises.
  2. Start next to success
    It is clear that co-operatives in the UK are not, and never have been, spread evenly across the economy. They tend to cluster in various ways, and successful co-operatives are even more clustered.
  3. Focus on excellence
    There is a confusion of brands, in terms of social enterprise, mutuals, employee ownership and co-operatives and more to do to work in an inclusive way across these communities of interest and action and to project co-operatives as a model of excellence for delivering what these set out to achieve rather than somehow protect our turf as an alternative to them.
  4. Join up the delivery
    There is more demand for advice, including paid for and peer advice, particularly on co-operative matters than is felt to be available.
  5. Think sectors
    The greatest success has been seen in sectors where there is a need and a model that is developed and championed by a sector development body.
  6. Make it easier to do the right thing
    There are also horizontal changes, such as understanding of the co-operative option, which have to be tackled.
  7. Harness innovation
    Tough times are ones in which innovation is more important than before, as a source of new commercial value.

Of course, the story of the Co-operative Bank looms large over the sector, as something that can impact our reputation – but there are six thousand and more independent co-ops and mutuals trading well in the wider world. There is also a world of opportunity out there over the next period for growing co-operatives even more than today:

  • The Evergreen Initiative in Cleveland, USA, launched in 2007 shows how to renew a local economy in a bootstrap way.
  • The Wales Co-operatives and Mutuals Commission can set out a new agenda to set the pace for the UK as a whole.
  • In Italy, co-operatives get tax relief and pay the money instead, of around 3% of surplus, into funds for co-operative development fund.
  • In a few countries, co-operatives have a dominant role in the economy. In Finland, the co-operative sector is said to account for 21% of GDP, in Switzerland 16% and in Sweden 13%.
  • In countries, such as Portugal and Denmark, there are national programmes for the creation of young people’s co-operatives. Here, over one million young people are out of work. In 2014, we will be asking for your help to search for self-help, co-operative solutions for young people.

We have high hopes and ambitions for our model of business. If we do things right and do them together, there is no upper limit to what can be achieved through co-operation.