Co-operatives need to embrace a new kind of governance

Much co-operative governance tries to wrestle with two roles: that the people making strategic calls are elected by members and that those people in the boardroom have the...

Much co-operative governance tries to wrestle with two roles: that the people making strategic calls are elected by members and that those people in the boardroom have the ability to ‘hold management to account’ for how they perform their role as stewards of members’ assets.

In the last edition of the News, Paul Gosling made the call for better training and guidance to enable directors of co-ops to better fulfill their function of scrutinizing management. It’s hard to demur from that; who could be against better qualified and better trained elected directors? But what if it’s the right answer to the wrong question?

Can you ever control management, anywhere, co-operative or otherwise? And what if the pursuit of this chimera was not only ultimately futile but one who’s continued pursuit brings the very notion of democratic control into disrepute?

Back in 1913, Italian sociologist Roberto Michels wrote about the Iron Law of Oligopoly, a tendency of the full-time staff within an organisation to become all-powerful. They control information flows and are professionalized experts in the matters being discussed and so can run rings around the volunteers representing members. In management schools, it’s called the ‘agent-principle problem’ and is at the heart of debates about power, membership and accountability (or should be).

Within co-operative circles, the response to this problem seems to be to try and keep up with the management as much as is possible, to be as skilled and knowledgeable as managers in order to be able to ask the pertinent questions and get to the bottom of what’s happening.

As an approach, it’s got more in common with the work of police trying to catch computer hackers; they’ll catch a few, but usually long after the damage is done, because the police are always one step behind the criminals, just as a board of volunteers are one step behind the executive.

And when it proves inadequate and there’s a real crisis, as we are now living through? The answer is to professionalise even more. Democracy is cited as the problem, with the inability of the process to deliver appropriately skilled scrutineers, or worse, people whose elevation owes little to their suitability to fulfill the role senior governors and more to the compromises of democratic politics.

That the real cause might be more existential and more nebulous is never on the table, such as whether a massive complex sprawling business can itself be managed, let alone scrutinised.

There’s another way of looking at this though that starts from a very different position, which is common in US consumer grocery co-operatives called policy governance.

Under this approach, boards don’t try to control managers as if they were an occupying army, but respect their expertise and lets them use it. The board here doesn’t fight with the management over power, but carves out a clear and sovereign role for itself that managers can’t ever take.

Policy governance is permissive rather than restrictive. Instead of checking that the actions of management were acceptable, it wishes to know only two things. Firstly, will the actions of management take the organisation closer to its goals as the democratically elected board have defined them, and secondly whether the board have stepped outside the framework laid down or not.

Policy governance gives managers targets that look like what success should look like. If an organisation has targets which are ultimately unmeasurable, then the board cannot say whether the money they’ve spent to achieve them has actually made an appreciable difference, in which case, why bother? It also defines what would be unacceptable in achieving those goals within the bounds of what board consider beyond the pale.

There are lots of benefits to this approach, but I want to quickly outline just four which, taken together seem to address some of our movement’s fundamental issues.

Firstly, a permissive approach means no nitpicking. When managers seek board approval, it moves focus away from the strategic (what are we here to do?) to the operational (is the height of shelving in our stores right?). I’ve been involved in boards in co-ops and outside of co-ops all my adult life, and the curse of the micro-managing committee members isn’t an aberration or an occasional hazard. It’s a structural flaw we’ve singularly failed to deal within 150 years of democratic governance, and we’ve tolerated poor governance as a result. In software terms, it’s not a bug but a feature.

This flows into the second benefit. A policy governance board doesn’t need directors with the understanding of a lifetime in retail or banking. Their expertise comes from their position as a representative of members and their skill is deployed not in second guessing expert managers, but in listening to what ordinary members want and need from their co-operative.

As board members aren’t scrutinising executives, they’ll not be judged against an unattainable level of executive oversight. So, instead of pretending democracy’s failure to elect the right people is the problem – a toxic idea which undermines the very notion at the heart of co-operation – we use democracy to do something very important and meaningful, which is to place the most important decision of all, of why and how and whether an enterprise should exist in the hands of the people who democratically own it.

That creates a third benefit for members. A policy governance board, freed from needing to keep pace and keep up, can stop and look around, and ask members what they want. It stops being a disconnected elite with long-career paths, all bound by a confidentiality clause, which prevents any of the people responsible for holding them to account.

Policy governance boards do not need to adhere to collective responsibility for all decisions. People understand different people can have different views, and that on big strategic questions, it’s rarely about the right answer as it is about the right process to get an answer. Members have the freedom to agree to disagree, as long as they all agree the process by which they came to any conclusion was fair and as it was supposed to be. And if the process wasn’t fair as it should be, then they should be telling members about it.

Policy governance boards tend to be more open and transparent as a result, since discussions about big bright futures need to take place in public with the people whose assets are at issue. It’s an approach that feels much more comfortable with the open-source world we live in rather than the command-and-control one which we used to.

That gives us the final benefit, that if the threshold for meaningful involvement gets lowered for directors, it gets lowered for members too. They can have a genuine role in this process above and beyond being one of the frankly appallingly low number who vote; I’d bet more than three per cent might be more interesting in participating in meaningful discussions in a variety of ways about what the point of a co-operative is and what goals might be set. A bigger bank, or get out of banking because it’s low margin and expensive? More pharmacies, or more housing instead?

The big decisions to merge with Britannia, to pursue the Verde acquisition and to buy Somerfield all had a massive strategic implications which get to the heart of what a co-operative business is there to do and for whom, and none of those people in whose name they were all done were involved in any of them.

A policy governance co-operative can be large or small. It might need several layers of management internally, with professional ‘scrutiny’ provided, but all subject to a power reserved only for members – the ability to say why the co-operative exists, what it should and should not be doing and how that manifests itself in the world.

It wouldn’t need a cumbersome structure that needlessly maps onto geographically located business units like the current area and region structure, but is based on members making contributions not based on where they live and how much time they have, but on their interest and ideas on the bigger picture. There’s simply no point in protecting a structure that’s democratic on paper only and which the overwhelming majority of its members have voted with their feet to completely disengage from.

Or to put it another way, policy governance helps an enterprise determine what its values and principles are and how it puts those into practice for the benefit of its members. It can help us do what we say on the tin.

• Dave Boyle is an elected member of the Co-operative Group and former Chief Executive of Supporters Direct.

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