A cookbook for co-operatives

Co-operation started with food, when the Rochdale Pioneers set up shop. If we thought of growing the co-operative sector like preparing a meal, what would be our cookbook?

First the ingredients. Co-ops are people centred businesses, and so they start with people’s needs and stand or fall by the extent that people work together and take responsibility. But they can’t be just any people. They have to be a little bit organic – willing to put their ego aside and to work with others. There are many entrepreneurs in the co-operative sector, but theirs is the entrepreneurialism of the team. It is not for everyone even if most people have skills of co-operation and can learn more; what we have always called ‘co-operative education’.

Second the timing. Some co-ops are rapid, pop-up businesses that emerge in response to crisis. When the Star Inn in Salford was put up for auction, it was the only pub left within a twenty minute walk. Local people rallied together to raise the money to save the pub. When foot and mouth disease struck farmers in Lincolnshire, the local independent co-operative helped to organise them into a co-op, so that they could keep more of the money from the livestock in future. Other businesses take time, because they rely on relationships. Sometimes co-ops can be slower to start as a result. But they can also be slower to fail, as well, because having people onside is key to survival when things get tough.

Third, the preparation. There is no one chef for the co-operative sector. It is a plastic model that is constantly being renewed and reinvented. One of the fastest growing areas is co-operatives with multiple constituencies of members (sometimes called ‘multi-stakeholder’) – with new approaches developed for their design and governance. But it can help to have recipes and for many initiatives, there will be a template or set of examples that can be drawn upon and adapted. Co-operatives UK runs a programme called The Hive, with support from the Co-operative Bank, as part of its continuing commitment to an Ethical Policy. One way or another, there is advice out there for would-be co-operatives.

It is an exciting time to be in the co-operative sector, with a strong commitment to its growth from leading politicians, reflected in this week’s Ways Forward conference in Manchester. We are a bottom up movement, so the state can’t create co-operatives directly but it can challenge a business environment which privileges investor ownership, to create a more sustainable balance with which co-operatives can thrive. Co-operatives UK is working with our members and partners of the sector to feed ideas into this process.

And like the best food, after all the work, with co-operative success comes the sharing.

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How to double the UK co-operative sector

I am speaking today at a conference organised by the Labour Party on different models of ownership. This follows an open and substantive report on new technology and co-operative and mutual models of business in today’s economy from last year – the Alternative Models of Ownership report.

One of the manifesto commitments Labour made going into the last election was an aspiration to see the UK co-operative sector double in size.

In the co-operative sector, we are not waiting for national government and we will work with all parties in power. The Lib Dems deserve credit for backing renewable energy co-ops when in government, the SNP for overseeing a renewal of farmer co-operatives and local food in Scotland.

But the commitment by Labour, with input from the Co-operative Party, is an unprecedented recognition of the power of co-operation to spread entrepreneurial action, to harness innovation and to engage communities and workforces at a time of risk.

As the Confederation of British Industry (CBI) said recently: “it is vital that employees are engaged with and motivated by the businesses they work for and co-operatives can be a way of delivering this.” The think tank IPPR has published an excellent agenda for action to promote co-operative and employee ownership. Worldwide, Oxfam last month pointed to the way in which successful co-operatives are successful in helping to spread wealth.

It helps in Brexit times, of course, that co-operatives tend to have rooted ownership, contributing to local economies and, as pioneers of the Fair Tax Mark, believe in the values of social responsibility when it comes to paying tax.

Here is a wonderful video of one recent community co-operative, Glenwyvis Distillery, supported through the Hive Programme backed by the Co-operative Bank.

So, how would a government go about creating the conditions for that growth?

The co-op sector itself has developed its own bootstrap ambitions and actions under the theme of Do It Ourselves in the form of a National Co-operative Development Strategy. This recognises that growth is of value if it is growth not just in turnover, but the growth of people’s participation and the spread of values of equality and sustainability. It also looks at examples of successful co-operative sectors across the world, in research by the Co-operative College. Regions such as Basque Spain, Emilia Romagna in Northern Italy and countries such as Finland, Brazil and Switzerland benefit from a ‘co-operative effect’.

On the back of this, I will suggest that there are four key steps for policy action to accelerate co-operative action.

Labour four steps

This is an open conversation, not limited to our sector or to any one brand of politics. It is a good time to imagine what our economy could be.

What are your ideas?

Fake Non-Profits – lies, damned lies and Carillion’s non-profit companies

One of the ripples that has emerged out of the failure of Carillion is the use by private companies of ‘non-profit’ companies as a front for delivering public services.

What could be more trustworthy than a community enterprise which makes no profit out of essential services?

Well, the answer is that these can be fake non-profits, simply serving as a way for investor-owned outsourcing companies to launder the proceeds.

In June 2013, Carillion (then John Laing Ltd, subsequently Carillion Integrated Services Ltd) was awarded the contract by Ealing and Harrow Councils to run their library services for ten years, covering:

• Six static libraries

• Libraries back office support services

• Home Library Service

• Schools Library Service.

But there was a fig leaf thrown in, in the form of a non-profit company with a heartwarming name – Cultural Community Solutions, responsible for day-to-day management.

When we look at the accounts submitted to Companies House, the story becomes visible. Cultural Community Solutions made no profit because it looks as if it has paid all of its profit out to others including companies in the Carillion family. From year to year, gross profit is simply eaten up by the ‘administrative expenses’. In 2016, they were exactly the same figure.

As a non-profit, they could also do something that other commercial, or indeed in-house services, could not, which is to claim discretionary relief on business rates payable on library premises. As with the big fostercare companies financed by offshore venture capital, designed to escape taxation, the financial profits this non-profit passed through to Carillion were in every possible way a gift from the taxpayer.

This then is not a non-profit company. It is a for-profit operation, masquerading as a non-profit and presumably using time honoured techniques of transfer pricing – a device for corporate groups to shift monies between legal entities through inflated charging.

Devices like these, some charitable, have been used in the leisure sector as well. This is one part of public services where true social enterprises, like Freedom Leisure, Fusion Lifestyle and GLL, have a successful track record. Outsourcing companies have sought to get back into the market through a similar device of non-profit trusts. Serious questions surely now need to be asked about these.

It is not a new issue. Wolves will snap up some sheep’s clothing if they see a bargain and allowed to get away with it. In 2012, Social Enterprise UK’s Shadow State report helped to shine a light on companies like A4E, banned that same year from calling itself a ‘social purpose company’, since its primary purpose was always shareholder profit.

Cultural Community Solutions wasn’t a Community Interest Company, a specific form of social enterprise, nor necessarily marketing itself as a social enterprise, but it appears as if it was assumed to be such by some commentators.

Anyone can call themselves a non-profit, just as many can claim to be a social enterprise, but there is an underlying first principle that needs to be recognised, as in the International Statement of Co-operative Identity, which is that of independence.

The Financial Conduct Authority for example, rightly tests co-operative and community benefit societies against this measure of independent ownership and control, including any close links that societies may have. We need that same test more widely when claims of being community are made – in the name or in the legal form of a company.

If a business is set up with a dependency on others, whether state or private investors, the nature of the company will ultimately reflect the interests of those dominant partners.

The Co-op as Campaign – taking action on modern slavery

Unadulterated food was the first campaign of the co-operative movement, a natural offshoot of efforts by members to meet their own needs in the nineteenth century. In the late twentieth century, the Co-op campaigned with its members on issues of international debt and climate change – an unadulterated planet.

In a sign of its return to health, the Co-op has returned to campaigning. With 4.6m members, a decision was taken in May 2017 to campaign on the issue of Modern Slavery. Since then, building on the core focus of reducing the risk of slavery in its supply chains, the campaign has had three aims:

  • awareness of slavery – research the Co-op ran in 2017 suggested 4 out or 10 people in the UK do not know what modern slavery is;
  • extension of Project Bright Future which is the Co-op’s unique scheme to provide a pathway back to paid employment for victims of Modern Slavery; and
  • greater support from all of civic society for victims of modern slavery to assist their recovery.

Bright Future had an initial launch in March 2017, with independent evaluation by University of Liverpool in November 2017 and Parliamentary Roundtable coverage in January 2018.

The Co-op is now recognised as the leading business voice in the UK on the issue – a member of the Home Secretary’s Business Against Slavery Forum, on the Expert Panel for the Evening Standard’s Slavery campaign chaired by Cardinal Nichols of Westminster, with a report due to be published imminently and often held up by the Home Secretary and the UK’s Independent Anti-Slavery Commissioner as the model for businesses to follow.  In November the Co-op became only the sixth company – and the first UK company – to be recognised for leadership on the issue with the Thomson Reuter’s Stop Slavery Award for work on victim support.

The Co-op has worked openly and collaboratively with other co-operative societies, with a number engaged in Bright Future. Alongside this, Co-operatives UK has shared resources with our members – https://www.uk.coop/resources/modern-slavery

The call is now out for members to sign up. There is now a very clear, simple and effective way for anyone to support the campaign – by writing to their MP to ask them to support Lord McColl’s Private Members Bill which is easily done by clicking on the #FreeforGood campaign.  All you need to do is click, enter your postcode, your email address and – ideally – add in a line to the letter saying you are a co-operator and… press send.

Co-operative values are about working together. When you co-operate, you raise the limit of what could otherwise be done. In this case, a return to business health and a return to campaigning means that the Co-op is helping to transform the lives of some of the most vulnerable and exploited people in our country and the world.

Davos – the world’s problem-solving summit… for those who cause so many of the world’s problems

The agenda is a tribute to its organisers, identifying so many challenges that an unequal and unsustainable world faces. But who is the agenda for? This is the trouble with Davos. It is the world’s problem-solving summit for those who cause so many of the world’s problems in the first place.

Oxfam has just published an update on its work on global inequalities. 82% of wealth created worldwide went to the top 1%. The poorest half saw no increase at all. Oxfam together with a wider alliance called Fight Inequality is calling, among other things, for wider ownership. Quite right and co-operatives are one proven way to disperse ownership more broadly

So, as the world’s business elite starts the World Economic Forum in the snow and slopes of Davos in Switzerland, we are publishing a report on the co-operative alternative – showing how the world’s largest co-ops share ownership, control and profits with tens of millions of people.

The report by Professor Johnston Birchall is on the governance of large co-operative businesses across the world. It is a comprehensively revised and updated second edition of a classic work, examining how the world’s largest co-ops ensure that their customers, employees and suppliers have meaningful influence over what the businesses do.

The findings are encouraging. Good governance can’t be taken for granted, but done well, it allows for that magical mix that the Davos participants are talking about – inclusive innovation and a formula of economic success that empowers the many and not the few.

Anyone up for worker co-operatives out of the private sector ashes?

So, Carillion.

Once proud in construction, you are now the largest UK corporate failure in today’s public service outsourcing market. And there are others knocking on that door, not least Four Seasons, desperate to restructure and which looks after 17,000 vulnerable and elderly adults.

Is anyone up for a mutual solution?

We know from our research that often businesses fail from the top, but the expertise and the knowledge to make a success is in fact in the workforce. In a number of countries, such as Spain, this has prompted a careful and well thought through programme to save jobs through worker ownership.

With Carillion, the work is so much project-based that there would be a natural team for many service contracts that could form the basis of an employee-owned worker co-operative. This could offer public sector contractors an alternative to bringing services in-house, though of course that’s possible, or to retendering anew, or worse a shotgun contract let on poor terms to Carillion’s competitors.

Of course, there are also subcontractor affected, with the option that they could form a co-operative consortium to take on the contract with former Carillion staff at the core. In ways, Carillion – with its array of contracts, sub-contracts and debt now evaporated – was a somewhat dysfunctional conduit for small businesses to participate in public sector contracts. Co-operative consortia, without the dividends, exec pay, low-balling or black listing, and with values closer to those of public services, could be a more functional replacement.

The UK insolvency procedure doesn’t encourage these kinds of approach. Workers are assumed to be creditors, waiting for and their position in the pecking order, unless the business itself can be taken forward and staff kept on. But there is sense in it. Insolvency law is not in itself a bar, although of course this adds a degree of complexity.

What is needed is a regulatory pathway, where Central Government, which after all has done work for many years on public service mutuals, creates a route that the administrator, public sector commissioners and Carillion’s local project staff can use to work together to explore delivery of the same contract, or adapted where needed, through the formation of worker co-ops.

Jumping from projects in a giant corporate to a values-based worker co-operative is not just a technical and legal transition but a cultural shift, so it is one that the wider co-operative and employee owned world needs to come together to support, bringing to life the extraordinary potential of worker ownership. We’d have to step up as an proactive partner.

I’d welcome your comments and suggestions on this.

Perhaps something good could yet come of this extraordinary market failure.

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?