Time to extend the seven co-operative principles?

The seven co-operative principles were last updated and formally adopted by the International Co-operative Alliance in Manchester in 1995. They are based on the eight original Rochdale Principles,...

The seven co-operative principles were last updated and formally adopted by the International Co-operative Alliance in Manchester in 1995. They are based on the eight original Rochdale Principles, and have been updated amended periodically. But now further change is needed.

The Pioneer’s first shop on Toad Lane, Rochdale
The Pioneers’ first shop on Toad Lane, Rochdale

The world doesn’t stand still. Over the last few decades we have seen enormous changes in the world – and the co-operative movement needs to adapt to those changes to continue to offer a different solution to social needs. Co-operatives have the power to be a dominant player in the economy, bringing a long-term approach to economic development and stability in the marketplace.

However, most of the movement exists as an island of sanity in a sea of rampant capitalism. We may not like it, but we need to live with that and at the same time grow ourselves out of it.

Increasing personal greed

There is increasing disparity between those with the most and those with the least. The FTSE 100 average top pay : average pay stands today at 143 : 1. This ratio has doubled in the last six years, and trebled since 1998. This, together with a lowering of taxation on the rich, has led to the increasing inequality in wealth – now the top 1% in the world own more than the remaining 99%.

There has been an unwillingness by governments to tax the rich, in what, in many countries, has been a race to the bottom to attract the super-rich. In the UK, we have seen a reduction in the top rate of income tax from an eye-watering 99.25% in 1939, which stayed at 98% until 1974 and only dropped below 75% in 1985. In 1939 Britain, there was no point in a business person paying themselves big money, as 99.25% of it went straight to the tax authorities. They got their rewards from their status in the community rather than in cash. Now that has changed, greed is allegedly good, and the super rich compare the size of their yachts or the gyms in their basements like schoolkids in a playground.

This accumulation of private wealth by the rich has also been assisted by the increasing weakness of labour in the employment marketplace caused by the weakening of labour unions and an increase in the number of self-employed people, who are largely unrepresented.

At the same time, we’ve seen an increasing corporatism in the co-operative movement itself. This has largely come about because of shrinkage of our market share in the UK. The “Co-op” (taken as a whole federated movement) was the UK’s largest grocer in the 1960s; it is now the fifth. This has resulted in an increasing number of staff – and managers in particular – transferring into the company rather than being home-grown. They may have good retailing skills, but many will lack an innate understanding of the co-operative difference – and are not given enough training to change this.

One of the changes this has brought about is the idea that senior employees need huge salaries. Former Group chief executive Euan Sutherland was paid 330 times that of the lowest-paid staff member during his 10 months at the organisation –  surprisingly, this didn’t bring much opprobrium on him or the remuneration committee that agreed it. We’ve all got used to high pay; Mr Sutherland was criticised for other things.

In Spain, Mondragon operates on its own set of principles, and while these are not radically different to those set out by the ICA, they do include the important addition of “Wage Solidarity”. The organisation shares incomes equitably. The top salary ratio is capped in most of the co-ops at 6 : 1, although this is sometimes stretched in some of the larger co-ops to 8 : 1 to try to reduce the poaching of top management by other businesses.

The Rochdale Pioneers saw co-operatives partly as a way for consumers to escape the exploitation of owners of the retail industry. But they also saw income equality as part of the co-op mission, giving members “a chance of participating in the profits” of labour, “removing it farther out of the reach of men with a little capital to realise princely fortunes out of the energy and industry of the people”.

Capping top salaries is already a more popular policy among the general public than is generally recognised. Recent research by Harvard Business School and Chulalongkorn University shows that on average, people around the world think a ratio of 4.6 : 1 (top pay : lowest pay) is the ideal. On 23 Nov 2014, over a third of the normally conservative Swiss voters supported a legally enforced overall salary cap of 12 : 1 for all businesses in Switzerland. The campaign was backed by the Swiss TUC and other social organisations.

Even some management consultants agree; the late Peter Drucker argued that any CEO-to-worker ratio larger than 20 : 1 would “increase employee resentment and decrease morale”.

What about the workers?

Our history in the UK of a dominant consumer co-operative movement, with smaller agricultural and worker co-operative communities, has led to the engagement of a co-operative workforce becoming a much lower priority. There is a distinct lack of formal, constitutional employee engagement in most larger consumer societies, although there are exceptions such as Midcounties, which has a seat on the board reserved for staff.

Eroski, part of the Mondragon Corporation, has an entirely different structure. The worker co-operative movement has a different view of the world, and in the world-wide movement this has never really been resolved.

The Mondragon approach is that if the workers aren’t involved, it isn’t a co-op at all. They still adhere to the old motto that in a co-op, “labour hires capital, not capital hires labour”. As a result they have real worker engagement in the business, which in turn increases moral and productivity. Eroski has won Spain’s best customer service award three years running.

However, most retail co-ops, which dominate the UK movement, operate on a democratic system that only encourages membership – and the vote that goes with it – to consumers. The workforce has no automatic stake in the governance (unless they are also consumers) and their position in the workplace is often hard to differentiate from workers in similar commercial enterprises, whether family firms or plcs.

Destabilisation of the marketplace

In the UK we have seen the removal of restrictions on re-selling company shares, which has initiated the invention of the “day trader”. Hardly anyone today invests in company shares; instead, they trade them constantly.

Past regulations prevented the direct selling of shares; instead, sales had to go through a registered broker, and they couldn’t be resold until the share certificate was in the broker’s hand – they had to hang on to shares for a least a couple of days.

These changes, which allow the instant resale of shares, also mean company secretaries have little or no idea who owns which shares at any point in time. This means shareholder democracy is effectively impossible and AGMs are dominated by the relatively small proportion of shareholders who hold onto their shares over time.

Hedge funds and venture capitalists are increasingly taking control of public companies, and when they are located in tax havens, remove from view the real ownership of companies. These are organisations that have nothing to offer except the ability to borrow, invest the borrowed money, get a quick return, sell up, pay back the loan, keep the profit and move on. They are one more intermediary between the individual who wants to save or invest and the business that needs investment.

We have also seen the invention of ‘options’ and ‘futures’ as things that can be traded, even though they don’t really exist. This trading of virtual commodities has brought a bizarre element of fantasy onto the markets which detaches them even more from real life. This has increased the power of City traders; manufacturers, service providers and agriculturalists have lost out to the speculators.

Co-ops are one exception to these new share market conditions, as they are non-traded entities in which you can only invest for the long term. We are still only a fraction of the global economy, and if we can grow our share in size and scope, the world economy would be fairer and more stable.

If we want to expand and develop a co-operative economic order, then we need to counter the issues outlined above – and we can start with some additional principles.

 

What could these additional principles be?

Subsidiarity of Capital to Labour

extra principle 1

Co-operatives ensure that capital, including co-operative capital, is a tool used by working people, not a controlling force over them. To this end they will ensure that workers have an appropriate democratic membership stake in any co-operative that employs them.

We need to address the issue of workforce engagement. Is it really any different when “capital hires labour” if that capital is the property of the members of a consumer co-operative? The workforce is still working for an organisation they don’t control, and can only influence if they become consumer members.

The Eroski model – and it’s certainly not unique in retail co-ops – is a 50/50 split between workers and consumers, and certainly seems to work well.

So in my view, we should see some level of ownership and control by the workforce in all co-ops that employ people, the level of ownership reflecting the individual circumstances.

Fairness in Remuneration

extra principle 2Co-operatives ensure that all staff are remunerated on a fair and balanced wage scale that is appropriate to the size and scope of the enterprise, but never exceeds a  12 : 1 ratio (highest wage : lowest wage).

Although research suggests 4.6 : 1 as a fair pay ratio, that would be difficult to implement without a transition, and larger co-operatives need a bit more flexibility.

My view is that a ratio of 12 : 1 is an achievable reality. If an organisation pays the UK “living wage” to its lowest-paid staff, and they then earn a typical John Lewis bonus of 20%, the top person can get almost £250,000.

We also need to remember that this is not a target or recommendation, it’s a maximum, above which an organisation could not call itself a co-op. There are co-ops out there working really well on much lower ratios, and some on a flat 1:1, so a reduction at some point in the future should not be ruled out.

Commitment to Co-op Development

extra 3Co-operatives are committed to growing the co-operative form of business. At least 10% of every co-operative’s annual profits are dedicated, in cash or in kind, to developing and financing the start-up and growth of other co-operatives.

While one in seven of the world’s population are members of co-operatives, co-ops only provide one in 30 of the three billion jobs worldwide, so there is a lot of scope for further growth.

The US and UK overseas development departments both favour the co-operative model, but are less supportive on home turf.

We need to use our own funds to grow our co-op economy; if the Rochdale Pioneers had waited for a government grant, we wouldn’t have a movement today.

Principle 6, co-operation among co-ops, gets us to prioritise trading together, but we need to pool our funds to support growth and development as well.

 

While the ICA is not reviewing the Co-operative Principles this year, it is working on guidance Notes to “help bring the principles into contemporary terms, as much has changed in our world since 1995 and the principles are no longer entirely exhaustive in they way they delineate a certain code of ethics for co-operative enterprises”. These guidance notes will be put out for consultation by the ICA later this year, and a final version will be shared at the General Assembly and Global Conference in Antalya, Turkey in November 2015.

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