Changes in the law can help the movement to grow

Co-operatives need capital if they are to grow in a world where their vision is needed more than ever. Since the global financial crisis, there is a widespread...

Co-operatives need capital if they are to grow in a world where their vision is needed more than ever. Since the global financial crisis, there is a widespread consensus that attitudes have changed and people are ready to consider business options that put human need above human greed.

Historically, co-operatives were funded by cash deposited by members, at a time when bank accounts were confined to the well-off. But the world has changed in 150 years and people now offered endless options when it comes to financial services no longer need to rely on the co-op as a safe haven for their cash.

Many of the key issues around the topic of co-operative capital have been outlined in documents like the International Co-operative Alliance’s recent Blueprint for a Co-operative Decade, which sets out a road map towards more sustainable and participatory ways of doing business by 2020.

Investor-owned companies have always been able to raise capital from those looking for a profitable financial return on their money. Traditional “equity capital” entitles shareholders to a proportionate share of the capital value of a company, plus any profits in the value of the business. Since its beginnings, the co-operative movement has used a very different model.

Legal writer and researcher Ian Snaith, a consultant to law firm DWF LLP, explains: “The essential issue is that by definition co-ops do a number of things very differently. With one member, one vote, one dividend, investors have less influence and control.

“The other main issue is that normally co-operatives offer a limited return on capital be it shares or loans. Profits are usually distributed if at all according to transactions i.e. purchases in stores. Those things mean co-ops can’t use share capital in the same way PLCs do where the more shares you have the more you increase percentage of profit.

“By their definition, co-ops can’t offer those things which are obviously attractive to investors. But some take the view that our structures could vary without compromising the co-operative model. What the ICA Blueprint is trying to do is develop a way forward and stress the advantages of what the co-op model can offer society at large when compared to investor-owned businesses.”

Mr Snaith points out that in other parts of Europe like France, Spain and Italy, co-operatives have much tighter legal structures and the UK has a broader range of choices when it comes to setting up co-operatives.

But in Europe it is also possible for non-user investors belonging to bodies like trade unions and local councils to financially aid the development and expansion of co-operatives. He would like to see similar opportunities here in the UK and more legislative reform to give co-operatives easier access to the capital they need.

“The financial crisis gives an opportunity to encourage people to invest in organisations, but we need legal frameworks which are more user-friendly and which do not put us at a disadvantage when compared to PLCs.”

Mr Snaith agrees that in a world more largely sympathetic to the co-operative model, people also need to know what they are choosing when faced with the option between a co-operative or an investor or privately- owned business.

The ICA is encouraging the co-op movement to help them build a credible strategy which people can understand and believe in — one they want to see equipped with the right financial mechanisms through which co-operatives can use their funds without compromising commitment to the co-operative ideal.

It is also promoting and encouraging the funding of co- operatives through the sharing of ideas and experiences around capital and finance to develop different ways of working to suit different sizes of co-operatives — and meet the needs of an increasingly wide range of sectors.

One of the ICA’s immediate goals is to identify institutions which can work together to help businesses large and small needing capital bring money together in larger sums.

Initiatives like the Global Development Co-operative, which is targeting investors with an interest in international development, are already playing a major role in accelerating global trade between co-operatives.

The Community Shares Unit, backed by Co-operatives UK, is also delivering a wide range of opportunities for community enterprises from co-operatively owned shops, pubs and businesses to renewable energy and the Microgenius web platform, which aids on-line investment.

And Ian Snaith believes the signs are very encouraging. “Legislation and better frameworks are necessary but not sufficient on their own,” he says.

“They have to be there to allow us the opportunity to do things but they are not a magic bullet. Fundamentally we need better ways of investing in co-operatives but also ways which stay true to the co-operative identity. I am confident we can achieve that.”

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