Co-oppundit 2011

The existing systems of governance operated by many large-scale CMEs, in common with many other organisations of widely differing forms, have essentially proved to be ‘unfit for purpose’

Systems that were designed to operate in small locally based organisations are clearly not adequate for large-scale, geographically spread organisations. The reality of the weaknesses of many organisational models needs to be accepted and new approaches towards organisation and governance developed.

CMEs should be purpose-driven and the first function of organisation and governance should be to ensure that they deliver upon their purpose

Separation of functions
One of the prerequisites in building democratic institutions is the separation of functions. For example: generals are employed to fight wars but they are subject to the control of elected representatives of the people; judges, the courts and the police are appointed to administer the laws of the land but law-making is in the hands of the people’s representatives. Likewise, in CMEs there should be a clear separation of functions to maintain their effectiveness and to ensure that they continue to pursue their fundamental purpose.

In large-scale CMEs single-level board structures do not provide an adequate framework for the overall control of purpose-driven organisation. An effective supervisory-level board is required with the capacity to ensure that the enterprise remains true to its original purpose, always functions in the best interest of their members and provides a stronger defence mechanism against both internal and external hijack.

Purpose and objectives

The Board of Guardians should be continually be asking the question:

"What is the best way to achieve the CME's purpose
- how can we intervene in the marketplace in the best interest of the members?"

To ensure that:

• The focus of the enterprise is always the delivery of the CME's purpose

• Membership is properly valued and constantly promoted

• A pool of effective member leaders are developed

• All senior executives receive adequate training on how to function within a CME

• Proper capacity-building programmes are provided for the development of effective members

• The a remuneration policy is designed and implemented that supports the achievement of the CME's purpose

• The enterprises in not in any way involved in speculation

The board of Guardians (The BG) requirements:

• BG members must be directly elected by members
• BG members shall serve for a longer term than directors on the first tier board - say 5 years
• The BG shall receive the financial auditors report and comment upon it, also a report prepared upon the state of ‘Co-operation’ within the CME
• Professionally qualified persons may serve on the BG none of the CME’s own executives can be allowed
• Members are barred from standing for election on first tier boards for a period of at least three years after serving on the BG.

The threat of demutualisation
Two fundamental problems are evident in many organisations, the first being that too often the essential purpose of the organisation becomes lost within the vagaries of day-to-day operations and the second being that all organisations are prone to hi-jack by those individuals who contrive to ensure that the organisation serves their objectives as individuals, rather than actively perusing the essential objectives of the organisation. (All to often organisations are inhabited by 'Corporate Drones' - individuals that have no commitment to the purpose of the organisation but are adept at using their position to maximise their own benefits, and where possible will hijack control of the organisation.)

Many Co-operatives and Mutuals, throughout the world, have been subject to demutualisation*, the ultimate form of hijacking, within the UK, up until now, building societies and agricultural co-operatives have been the main targets. In many parts of Europe consumer co-operatives have been lost form various forms of de-mutualisation as a direct result of the loss of member control. In most cases the organisations in question were at the first stage of the process effectively taken over by their professional managers.

In recent times UK retail co-operatives have avoided the fate of de-mutualisation although an attempt to take over the CWS (now the Co-operative Group) in 1997 was foiled in what became known as ‘the Lanica affair’. Nevertheless, irrespective of more recent changes in the Industrial & Provident Societies Acts, de-mutualisation remains a constant threat whenever real control slips away from the membership.

In practice, the effective control over many UK consumer co-operatives is now, to all intents and purposes, in the hands of professional managers. As I put forward in my presentation to the ‘Monks Commission’ in 1999: “The de-facto purpose of many consumer co-operatives had become ‘to maintain and enhance the standard of living of the senior executives” (The same could also be said of the many commercial financial institutions that were at the root cause of the current economic crisis).

* See: DEMUTUALIZATION OF CO-OPERATIVES: REASONS AND PERSPECTIVES by Zvi Galor

Co-operation means: Better Organisation - a Better Deal - Better Living
last updated: March 2011 © Edgar Parnell 2011