Should the language used to frame the debate around co-operative capital be changed?
This question was discussed at the UK Society for Co-operative Studies annual conference, held in Newcastle on 3-4 September, in a session by David Bromilow, a member of the Co-operative Group’s members’ council, and Cliff Mills, consultant at Anthony Collins Solicitors.
They looked at the meaning of co-operative capital, suggesting ways for co-ops to improve.
Mr Bromilow examined the value of co-operative principles.
“The Rochdale pioneers believed they had to come up with a set of principles, because in companies the bottom line was profit,” he said.
“The modern view about co-ops is that members provide share capital, co-ops buy shops to make profit, a dividend is given to members and then members spend more and go back to shopping, making profit.”
He argued that the modern day co-ops were characterised by low capital, and low return, using an analysis based on an actual co-operative’s reporting in 2015.
“The zombie co-op’s characteristics are: funded by reserves and creditors, low benefits for members, high level of legacy share capital, little member participation, little understanding of co-operation, no distinction between members and customers, and community spending through charities,” he said.
“The member doesn’t actually own the co-op; what they have invested in is given the rights to invest the benefits. They buy themselves a right to share profits, but no right to the business, should it be sold.
“The compensation that you require for that participation has to be constructed in a different way. Once you hit the minimum share capital there’s no incentive to go beyond that,” he added.
Joining the debate, Vivian Woodell, chief executive of the Phone Co-op and board member of the Midcounties Co-operative, said: “We need to defend the concept that co-op members own the co-op.”
He added that co-operatives need reserves in order to redistribute profit.
“I accept that there is a need for reserves in various formats,” said Mr Bromilow. “The one issue is that there has to be a certain amount of reserves. The larger the fund of reserve capital, it removes control away from members because capital doesn’t ask questions.
“It should be looked at in year blocks.”
In the second presentation, Cliff Mills explored the need for a mechanism by which a person’s savings could be used to support the co-operative economy.
“When we talk about the subject of capital we use certain language,” he said. “All these words – investment, equity, return on capital/investment, shareholder value, all come from the language of another type of businesses, we need to use our own language.”
He added: “The language is problematic. We need some more neutral language to describe what a member does. Unless we recognise that, we fall into a number of traps.
“First, we accept the language and accept that it applies to co-ops. Second, we risk that our organisations are to be viewed and monitored in the way that other organisations are – that maximising shareholder value is key, for example.
“The need to reflect on how we describe today what it means to fund a co-op and should be cautious of using language which doesn’t fit.”
Reflecting on the experience of the Rochdale Pioneers, Mr Mills said that one fundamental point was that a very small amount of money was able to be accumulated and used.
He highlighted how the idea of investing in companies was “straightforward” and “very powerful”.
“Everyone knows what a share in a company means; the Plc proposition is about maximising value,” he added. “But you wouldn’t read it in the article of association of companies. They don’t tell you the purpose for what they do, they tell you what they do.
“But what is the co-operative proposition? If we would expect there to be an alternative for which we can use our capital, how do we express that?
“The co-op might say entrust us with your savings, we will do our best to provide the products and services you need in a way which is in the best interest of you and the community, according to ICA’s co-operative principles.”
Mr Mills said co-ops need a clear proposition as an alternative to the Plc share model.
“We need to have organisations that will attract people’s capital. What is needed? A financial instrument, the equivalent of a share, which needs to be fully loss absorbing,” he added.
Withdrawable share capital was no longer working, he warned, as it was inappropriate to current regulation and modern financial services.
“There needs to be a commitment to trade for the public benefit, expressing the purpose,” he said.
Mr Mills thinks creating a new proposition requires changes in governance, democratic ownership involving users and staff, and visionary leadership.
“The concept of people placing substantial amounts of savings needs to be proved, demonstrating this can work so a wider opportunity to adopt this approach can be copied by others to attract interest in the way of funding,” he said.
“None of this happens without vision or leadership. We need to work with the visionary leaders, who can see that there is an opportunity to attract capital.”
In this article
- Anthony Collins Solicitors
- board member
- Business models
- Cliff Mills
- David Bromilow
- Financial services
- Midcounties Co
- Midcounties Co-operative
- Phone Co
- Social Issues
- Telecommunications Resellers
- The Co-operative
- The Co-operative Group
- UK Society
- Vivian Woodell
- United Kingdom