Shockwaves ran through the global co-op movement last year when Canada’s Mountain Equipment Co-op was sold to a private equity company in the US.
The ensuing dispute, with angry members claiming a lack of consultation in the decision and alleging executive capture of the co-op, leading to poor decision making, is a case with implications for co-ops around the world, in terms of co-op law and effective governance.
The consumer co-op, which sold outdoor leisure gear exclusively to members, announced its demutualisation and sale to US investor Kingswood Capital in September. The following month members tried to have the sale halted in court to give them time to put together a co-operative buyout but this was quashed by the judge.
The Save MEC group has now launched an appeal, which has implications for co-op regulation: the group says the Companies’ Creditors Arrangement Act (CCAA) – a federal law that gives financially troubled businesses the opportunity to restructure their affairs – was used to over-ride a co-op law.
They say: “In consultation with our lawyers, we’ve decided to seek declaratory relief through the British Columbia Court of Appeal. The basis of the Appaeal will address that members ought to be permitted to participate in decisions about the co-op that they own, how this case was conducted, and the application of the CCAA in a way that overrules the BC Cooperative Association Act.”
They add: “It’s important to note that this appeal won’t stop the sale. MEC and their lawyers have worked really hard to construct a sale process that would be next to impossible to overturn. An appeal of a sale order like this would almost definitely not be approved. And if we lost the appeal, we’d actually be setting a precedent that this pathway – bad law as it is – was endorsed by two levels of courts. We can’t take that risk.”
Instead they want to set a legal precedent that protects co-op law and will help prevent other co-ops from meeting the same fate as MEC.
“What we can do is challenge the entire process, and ask the Court of Appeal to declare that the co-op structure and decision-making rules weren’t respected, that our rights as members and owners were infringed, and that the CCAA should not be used to remove the rights of co-op members/owners to be involved in major decisions about the future of their co-op.
“A decision in our favour could safeguard every other co-op in Canada – and it could possibly set the scene for further action to take back our co-op.”
The implications of this case have been discussed by co-operators at international level, with round tables hosted by apex body Co-operatives and Mutuals Canada. CMC’s executive director André Beaudry, executive director of apex body Co-operatives and Mutuals Canada, said co-ops would have to look at their legislative framework and consider when to tell members that secured debt could lead to operations being put at risk.
This year CMC will host legal and governance tables, with co-op CEOs, chairs, in-house legal counsels, chief financial officers, and retired co-operative leaders.
Meanwhile the Save MEC campaign has set up a working group to consider future options – which could include forming a replacement co-op, and building a new NGO to safeguard co-ops in Canada.
On the Group’s Facebook page, the campaign has widened to a discussion of the nature and workings of co-operation itself: members have debated whether co-operation is a philosophical stance or a more prosaic matter of securing member benefits.
And Steve Grant, a former staff member and board director at MEC, outlined a set of ideal bylaws which co-ops should adopt to ensure they do not share its fate, by ensuring the board remains independent from the executive.
- Any indication of preference for candidates can not be expressed by the board or organisation in any manner
- All limitations on nominees, candidates and elections must be in the Rules, not in policies.
- The organisation must provide the members with an easily accessed discussion forum, controlled and moderated at arms length.
- The board can only reject nominees for election to the board, for a very narrow range of disqualifications, such as being a member in good standing and free of convictions for fraud. In every election, the election materials must include names of rejected candidates and the reasons.
- The board must inform the members of all filed member grievances and the outcomes.
- Terms of office must be limited to two conscutive years and 4 years in total.
- The revolving door between management and board must be slammed shut. No exceptions, ever.
- Board and top management remuneration is easily available to the members.
- Board and committee meeting agendas and minutes, and all policies are easily available to the members. This is important because MEC was exercising controls which should have been Rules, as policies that were concealed from the members. Policies are created by the board and not subject to member approval.
- Election materials must include voting histories of any incumbents.
Campaign members have also been using the page to recommend co-op and independent vendors of outdoor gear as an alternative to the former co-op. Examples include Hub City Cycles Community Co-op in Nanaimo, which does bike repairs and sells accessories, used and Frankensteined bikes.
They have also been highlighting co-operative and community-owned ski resorts in Canada, including My Mountain Co-op, on Shames Mountain, BC; Mount Cain on Vancouver Island; and Mont Orignal and and Mont Adstock in Quebec.