Is there any gain in pain? Reflections on the Co-operative Group in the news

It has been an extraordinary period for the UK’s largest co-operative over recent months and weeks. Commercial challenges, financial losses, capital constraints are not uncommon in business. But what has turned this into a very modern celebrity business crisis has been internal conflict, played out in such a public setting.

When I was young, I was told ‘if you can’t say anything nice, don’t say anything’ and it is fair to say that those words have come to mind more often recently, as the leaks, briefings and comment spill over. As I wrote in the Huffington Post recently, it is an odd form of corporate self-harming, as many of those involved and reviews conducted are or were paid for by the Co-operative Group itself – so that’s either honesty (one of the co-operative values) or an overly masochistic view that there’s no gain without pain.

At the same time, of course I accept that this is a legitimate public topic. There is a need for radical change, to raise standards, cut costs, borrow less and then invest more, innovate again. And when a business is owned by millions of members, then there is going to be public interest in what those changes are.

Although this story is far from complete, with results and reviews to come and capital calls to cushion the Co-operative Bank, I do at least get a sense behind the scenes of an emerging consensus over the need for change. Far more of the talk is about the right kind of change – how, in other words, rather than whether. If so, that in itself is a corner turned.

I am interested too in how those most closely involved have also instinctively rallied round to support each other. I am astonished by the resilience and character showed by staff at the Co-operative Group, with the awful drama they have faced. I am proud of co-operative members who pop up at random in the media, unscripted, unpaid for, but with a passion and hope for the Co-operative that is the signal of something still special that has been tested but not broken. And of course there is the reminder in my daily work and contact with our own members that this is just one co-operative and there are six thousand that are trading well, ahead of the economy at large.

This idea of resilience is an entirely contemporary and compelling business issue. Companies that go from good to great, and that last are resilient. The great strength of the Co-operative Group is precisely that it has faced real crises a number of times over its long life. The corporate raiders, for example, have tried before, are trying and will try again.

Each time, the Co-operative Group has emerged stronger, more agile as a result of the experience. Each time, it has drawn strength by becoming more distinctively co-operative rather than less. No-one can take the same outcome for granted – it has to be earned. But for all the foibles, its character and values as a mutual business have always been a source of renewal.

Some years ago, I contributed a chapter on co-operative character to a book by the think tank Demos, focusing on individuals rather than enterprises. In more recent work, nicely supported by the employee-owned, mutual business Arup, Demos now defines resilience as “the capacity of an individual, community or system to adapt in order to sustain an acceptable level of function, structure, and identity.” The subtle point is that survival is not about continuity, but about the change that enables that continuity.

Robert Owen, the pioneer of co-operation, was also fascinated by the idea of character. Penning the first of his “Essays On The Formation Of Character” in 1812, Owen saw character as a set of habits, behaviours and beliefs that were formed by the environment in which people operated. Character was not fixed. It emerged from people’s circumstances, but could in turn shape or reinforce the context and community that people lived in.

On January 1st, 1816, Owen opened the New Institution for the Formation of Character — two buildings financed out of company profits for learning and leisure, including the world’s first workplace nursery, or creche. As soon as children were able to walk, they were taken into the creche and, at the age of three, they entered the infant school. The teachers were specifically instructed to be kind and encouraging to instil self-confidence.

Is there any gain in pain? Probably not. But if pain is a symptom of a great business bringing itself to a point of change and the chance of renewal, then pain for now, it just has to be.

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Foraging for innovation – lows and highs of a co-operative life

It has been a roller-coaster of a few days.

The CEO of the Co-operative Group has bowed out after a weekend in which his pay and bonus was front page news. What he was paid to do though wasn’t, he felt, achievable. Every step of this poker game seems to have been leaked to the press, which is a rare return to the worst days of the demutualisation attempt by Andew Regan – when one executive went to jail for leaking confidential information.

There will need to be change and renewal at the Co-operative Group and the hopeful signal is that of a clear strategy and purpose underway, to be championed by the capable new (interim) CEO, Richard Pennycook, and his team. This is a very challenging time, but it helps to remember that this is not the first time the business has been tested and it has always emerged as a stronger, more agile, resilient enterprise.

The highlight of today, in contrast, was something deeply co-operative, which was a visit to Glasgow’s Greencity Wholefoods. Babs, pictured here with me below, confesses that “my first love is warehousing”, which is a perfect fit for one of the 40+ members of a wholesaling worker co-operative.

While the Co-operative remains an ethical retailer, because of its ownership structure, Greencity, which only stocks from ethical suppliers, has had to delist some of the former ethical business wonder kids that, with investor ownership, have grown by being sold off to big business – Rachel’s Dairy, Ben and Jerry’s. As a result, they are on a constant search for product innovation, particularly from Scottish suppliers.

One of these, Babs shows me, is Sea Buckthorn Juice. It is labelled as ‘wild and Scottish’ – “just like us” she laughs. Sea Buckthorn is a shrub that you find on the coastlines. The product is gathered by a collaborative enterprise of foragers. Its bright orange berries are full of vitamin C and E, omega oils and minerals. Low carbon, sharp tasting… It is quite something.

Enterprises such as Greencity give me plenty of hope for the co-operative model. It is never so easy in business to organise around ethical values at scale, but if there is a right way to do it, it is to turn those values into a source of innovation – or to return to those values as a source of renewal.

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Co-operatives and executive pay

There have been debates on how much to pay managers and wider staff in the co-operative sector right from the early days.

As perhaps with any issue of economic fairness, there have tended to be two schools of thought. The first is that there might be a universal standard of fairness, that a co-operative can embrace. The second is that what matters is ‘process fairness’, in which executive pay is considered openly and appropriately by members, reflecting the democratic governance model of member-owned coops.

An example of a universal approach may be, for example, that you get out what you put in. The training co-op Zebra Collective has a flat management and pay structure, and pay is decided according to how much training and how much administration staff members do. Or it may be an egalitarian principle of equal pay. At SUMA, the wholefood co-operative, all staff are paid an equal salary and share from success in an equal way through dividends. Others, like Co-opportunity, have equal basic pay but pay a large divided based on a series of weighted factors which differ between individuals.

With the Spanish worker co-operative Mondragon, winner recently of an FT global business award, there has long been a ratio set between top and bottom pay. The original ratio was up to 1:6 and was chosen as a way of encouraging managers to raise pay if they needed a pay rise themselves. In the 1980s, the ratio grew to 1:15 – as too many managers were being lured away by higher pay elsewhere. Fairness, after all, in a competitive market sits alongside the test of effectiveness. Alongside this, pay at Mondragon is set according to measures which include productivity and absenteeism and measures of how well staff members get on with other people (constituting 20 per cent of the pay decision).

There tends to be something of a difference, though, between worker-owned co-operatives on the one hand and consumer-owned and enterprise-owned co-operatives on the other. The member benefit for one is about fulfilling work, including earnings, while for the other it is about the gains of trade – and executive pay, including valuing the role of executive leadership, is part of a primarily commercial set of judgements on how to achieve that.

So, there is no single right answer. What matters is that there is an open conversation with members on these issues – executives are paid with members’ money and what is paid to them to get the job done, whether too much or too little, is ultimately down to members. These are not issues hidden away from sight – in fact, there has been healthy and lively debate within the member governance of The Co-operative Group in recent years around issues of pay and co-operative values, from exploring the living wage through to details in the accounts on who among senior staff was paid what when they left. Debate like this can be a sign of strength.

But when you run a democratic model, process matters. The last period has seen what from the outside has sometimes looked like a trickle of media comment that reflects one group of decision-makers criticising another and vice-versa. That is no way to operate, let alone co-operate.

In Mondragon Co-operative, salaries are called anticipos, because they are intended to be seen as advances on future wealth creation. That must be right. Rather than talk about executive pay in the distorted frame given to us by mainstream business, of ‘compensation’ and ‘entitlements’, the focus should be on what will deliver success for members, in line with their values, over time.