Co-oppundit 2012

MEANS AND METHODS
– appropriate ways of conducting a member-controlled enterprise

VIABILITY
A member-controlled enterprise needs always to be conducted so that it remains, totally viable, solvent and liquid. They also need to be operated so as to provide sufficient operating surplus to cover any risks incurred when conducting the enterprise. However, they should not be driven by the aim of ‘profit maximisation’ – instead they need to be focused upon securing ‘resource-optimization’. The collective interest of the members shall always be place ahead of any other considerations, and it is not in the interest of members to trade at a loss.

WHAT MEMBERS WANT
Members want their enterprise to be run primarily for the mutual benefit of the membership, this means that it shall run with - Integrity, honesty, fairness, equivalence and openness (transparency).

Location is also a decisive factor; for unlike investor-controlled business, member-controlled enterprises locate their activities for the benefit of members not for profit maximisation. Nevertheless, any decision as to location must be made taking account of the need for viability.

WHAT MEMBERS DON'T WANT

Member-controlled enterprises should not be involved in any of the following practices, for they are clearly not in the best interest of their members: - any form dishonest practice, manipulative marketing schemes, speculation (gambling), corruption, bribery or patronage, any form of nepotism, cronyism or favouritism, or any arrangements that will allow the enterprise to be dominated by the providers of finance.

BALANCE
"Efforts to secure economies of scale must always be balanced with the needs of co-operative and mutual organization"

In member-controlled enterprises a different approach is required to many economic decisions because there is the need to balance the advantages that may accrue from economies of scale* with the need to operate in ways that will sustain effective human relationships.

Many co-ops & mutuals start small and grow organically into large and complex organisations, frequently outstripping the capacity of their elected leaders and managers and/or their capacity to finance expanding operations. Of necessity, the pressure to deliver economic benefits to members almost inevitably results in their seeking economies of scale. These might be achieved through mergers between smaller enterprises or amalgamation with a larger enterprise. However, in the process many of the fundamental characteristics of a member-controlled enterprise often become lost. Organisations that were once small, local, and based upon a form of direct democracy find themselves needing transformation into much more highly developed enterprises. To achieve this metamorphosis successfully requires both committed leaders of the highest calibre and the full involvement of the membership. The unintended outcomes of enlargement are often alienation of the membership and the loss of essential organisational purpose, which in turn commonly leads to demutualisation.

*NOTE: Economies of scale result when an enterprise obtains cost advantages (savings) through expansion. They commonly arise in purchasing (bulk buying of goods or materials), management (increased specialisation of managers), finance (obtaining lower-cost finance when borrowing and/or gaining access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of sales or output), and technology (spreading costs such as research and development). Conversely, diseconomies of scale may also arise, especially in organisational terms.

The importance of equivalence

The prices set for goods or services provided are determined by the market within which they operate. However, in all dealings with members the criterion of equivalence shall apply, with all members treated on an equal basis. This replaces the practice of profit maximisation commonly operated in the individual transactions of commercial businesses. Such arrangements include offering secret ‘deals’ to some people, charging ‘what ever the market will bear’, and paying different rates for labour of the same value. Fairness and transparency must be the basis of trading within co-ops & mutuals.

Co-operatives and mutuals - to be valued for what they deliver
last updated: February 2012 © Edgar Parnell 2012