Mondragon changes rules around the distribution of dividends

The measures were put forward by the board and approved by members at their annual congress

The world’s largest worker co-operative, the Mondragon Corporation, has adopted new rules on the distribution of dividends to members.

From January 2019, the dividend paid to members by individual co-ops that form of the group will depend on how financially stable they are, their ability to generate profit, and their capacity to pay their debts.

The measures were put forward by the board and approved by members at the group’s annual congress on 14 November, in which over 650 members took part.

The meeting’s report was published in Mondragon’s own publication, TUlankide.

According to the new rules, the co-ops will be able to distribute dividends only if they have a rate of return (the net gain or loss on an investment) above 9%.

Furthermore, co-ops must have a debt (EBITDA) ratio below 2.5, and a financial autonomy rate higher than 1. This is calculated by dividing a co-op’s own capital to its permanent capital (reserves).

Should these requirements not be met, Mondragon will be able to limit the individual co-ops from distributing dividends. In this case the distribution of dividends will be, at most, 50% of a co-op’s net surplus, compared to the current 70%. Co-ops meeting the requirements will be able to allocate 75% of their net surplus for the distribution of dividends to members.

The payment of interest for the contributions of the members to the capital (including the contribution to join the co-op and the accumulated dividends) will also be adjusted to the company’s financial progress and may not exceed 25%. It currently stands at 50%.

With the new requirements, the group aims to avoid crises such as the one at Fagor Electronics, Mondragon’s former domestic and commercial appliance manufacturer, which went bust in 2013.

To prevent similar scenarios, the group has also set a limit of 50% for voluntary reserves generated in previous years that can be used in a single year.

“The aim of the approved document is to strengthen the financial situation of the co-operatives and the sustainability of their businesses,” says the report, published by the group’s magazine.

The Mondragon Corporation includes 261 enterprises, of which 101 are co-operatives.

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