Save Our Co-op – Vote for Reform

As many of you will know I have been working with the Co-operative Group as an independent advisor for the last three months as part of a team developing Governance Reform Proposals. On 30th August those proposals need a 66% majority at the Co-op Group Special General Meeting. It seems to me vital that they are passed.

Co-op News reports that a petition has been launched by Co-operative Business Consultants urging a rethink of the proposed reform. The petition has proved a rallying point for many people with legitimate worries about the way the current proposals deal with the issue of member control of the society. There is also anxiety about the trend towards corporate domination in our neo-liberal world.

I think that passing these reform proposals is the best way forward on both of those points. The Group will still be a co-op with its status entrenched. Its assets will remain under the control of that co-op and its employees will still work for that consumer co-op.

I understand why people feel as they do after the bruising experiences of the last year or two. However, this is a time for clear thinking and a calm rational approach. The vote a week on Saturday will decide the future of the assets built up in CWS and then the Group over 150 years. It will also affect the jobs of 87,000 people.

So let me explain why I believe that for this co-op in this situation, these reforms offer positive benefits.

The petition advocates a board composed of a majority of directors elected from the membership. But is that required by the ICA Principle?

Let’s look at what the Principle 2 actually says:

“Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.”

For many co-ops that means a majority of elected directors from the membership but that is not the only way of complying with it.

Survival in the market demands a high level of skill and experience – especially when a business is as big and diverse as the Co-op Group. That has been acknowledged most recently by Prof Johnston Birchall in a research project on governance in large co-ops around the world. He acknowledges the importance of member voice, member representation, outsider expertise and effective management. A balance is needed between these elements. At this time the Co-op Group is in need of a boost in member voice and outsider expertise. In my view the reforms provide that.

The Group’s recent failings resulted at least in part from the nature and composition of its board and the process of decision-making where the executive is separate from the directors. It would be irresponsible to ignore those problems and refuse to agree proposals to impose greater control on the executive than was achieved under the previous system. Under the reforms directors will be equipped to fully participate in business decisions and will be held to account both by all members through direct OMOV meetings and other decisions and by the member elected Council of activists.

It is unclear how the system proposed in the petition would remedy the problems of governance that have brought the Group to this pass. The petition’s proposal, while based on OMOV, seems to remove a key part of the Nomination Committee’s role. To be effective in making sound business decisions as part of a team with the Executives and in challenging them on their plans and proposals, the spread of skills on the board needs to match those required at a particular time. The Board is best placed to assess that and appointing the independent people seems the obvious way to achieve it. To get the right people as Independent Non-exec Directors, a sophisticated recruitment process needs to be carried out.

The reforms allow for that. They also ensure contested elections for three board places and empower the membership using OMOV to reject any Independent Non-execs at the first AGM after their appointment and to remove any director during their term. That gives the members control while giving the best possible chance of effective business decisions.

The ICA President Pauline Green and Ed Mayo of Co-operatives UK both urge support for the reforms on the basis that members have sufficient control.

Rule 118 protects the powers of each organ: the Council, the members using OMOV, and the board. It is a balanced institutional structure. However, the members elect the Council and can remove directors so they ultimately control both of those bodies and so could radically change the governance structure if they chose. That gives a possible route to a new governance structure and certainly ensures that both Board and Council will have to respond to demands for change. There is also a commitment by the current Board and Executive to a full review of governance in three years’ time.

The vote on 30th August is for or against the current proposals. Those proposals are agreed by the current board and have been the subject of extensive consultation with the active members – through Regional Committees and the existing structure. They have been substantially changed during that process.

If they are rejected, the rules will remain unchanged and that would leave the Society and its business in a challenging position. Time is of the essence at this pivotal moment in the history of British Consumer Co-operation. See Richard Pennycook’s video on both the reasons for the speed of the process and the risks and consequences of voting these proposals down.

I understand the comment about autonomy in the petition but when you operate in the market place, as all co-ops do, bank loans and other credit comes with strings to protect the lenders’ interests. That leads to some loss of control and does not imperil autonomy in the sense of causing a change of ownership, which is what the ICA Principle deals with. Once you take on debts, you have to deal with the consequences. Under the old governance system the Group took on the debt. Now we have to deal with the consequences of that.

The reform proposals address the governance problems that caused the Group to lose so much control to the Banks and to make such unwise business decisions. Without the full Nomination Committee process and the appointment of INED’s, who will be required to become members, those problems will not be remedied and we are at risk of losing, sooner or later, yet more of the accumulated asset value of the Co-op Movement as well as imperilling many of our 87,000 employees’ jobs.

In my view, this is not a time to reject reforms on the basis of a simplistic view of member control with fingers crossed in the hope of avoiding more problems.

For everyone who cares about our Movement this is a time for responsible solidarity in support of reform.

Then the Group can seize the opportunities of a new culture of member involvement, the expansion and rejuvenation of the active membership base through the Council, local structures and initiatives, and the use of digital communication.

© Ian Snaith 2014 Creative Commons LicenseThis work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.

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5 Responses to Save Our Co-op – Vote for Reform

  1. Ian, I am disappointed that you have aligned yourself with these proposals. I fear we can only agree to disagree. But in a spirit of friendly dialogue I would respond briefly to your key points as follows

    • A board composed of a majority of directors elected by the membership

    Yes, I do believe that this is required by the ICA Principle of democratic member control, save in very temporary and exceptional circumstances. You may of course argue that this is such a circumstance, but in that case why specify in the rules that a majority of directors must always be ‘independent’ of members (surely a contradiction in terms for a co-operative)?

    Co-operatives UK has until now taken a similar approach, insisting for instance that any rules submitted to them for approval must include a board with a minimum of 75% of directors elected by and from the membership (indeed, the Co-operative Enterprise Hub would only pay the registration costs of new co-ops on this basis). This makes it difficult to understand Co-operatives UK’s endorsement of the proposals.

    • Survival in the market demands a high level of skill and experience

    I could not agree more, and the Group has paid a heavy price for ignoring that. But do you really believe that such people cannot be found among our existing millions of members?

    I completely support the role of a Nominations Committee in ensuring that board candidates are suitably qualified in those terms (and I would set the bar high), but members should then be entitled to make a choice among such candidates based on their perception of who will best serve the co-operative’s needs. This should include satisfying themselves that candidates understand that a co-operative serving its members requires a different approach from a plc.

    Any major gaps in skills and experience remaining after such a process could then be filled by giving powers to the board to co-opt up to two additional directors.

    • The vote on 30th August is for or against the current proposals

    True, and one might ask why there is no choice in the matter. Would it not have been more democratic to allow amendments to these proposals, or even the possibility of an alternative?

    While the proposal to introduce one member one vote (subject to a trading qualification) is welcome, is it not ironic that ordinary members have been given no say in this process, and the hands of future generations of members have been tied by the rule requiring any future changes to be agreed by the board?

    • Autonomy and independence

    I cannot agree that this ICA Principle is primarily about a “change in ownership” (though that could certainly be an ultimate consequence). These are the exact words:

    “Co-operatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.”

    Documentation sent to elected members over the summer stated very clearly that “the Group’s banking syndicate need assurance that the Group will implement significant governance changes”. Is this what you mean when you say that the vote “will decide the future of the assets built up . . . over 150 years”? Either way, it appears that democratic member control is being undermined at the behest of providers of capital from external sources. Autonomy and independence this is not.

  2. Ed Mayo says:

    Given Martin’s comments on model rules, if anyone wants to see the underlying Co-operatives UK approach to co-operative identity, in line with the ICA Principles, they can find this on http://www.uk.coop/identity

    If you are following this dialogue, our statement on the Group’s proposals, looking at compliance with ICA Principles, is also worth reading, rather perhaps than taking from second-hand sources, and this, along with our full set of submissions on governance, is on http://www.uk.coop/pressrelease/co-operative-group-announces-governance-reform-proposals

  3. The Co-operatives UK document on co-operative identity is a very helpful document. In particular it notes:

    “The fourth principle (autonomy and independence) could come first in any analysis, as it is logically prior to any other principle. It establishes that what we are considering are separate business entities. Without this initial qualification, there is no basis for considering the qualities of an organisation because its identity is fundamentally fluid as it rests on decisions beyond its control.”

    The pressure put on the Group by its banking syndicate to adopt these proposals (see http://www.thegrocer.co.uk/channels/supermarkets/the-co-operative-group/co-op-reform-vote-banks-promise-capital/371009.article) raises serious questions in this regard.

  4. isn says:

    Thanks for your comment, Martin.

    I understand your unhappiness with the changes that were approved on Saturday but, as you say, we can only agree to disagree and engage in friendly dialogue. Now we must all work together for business success and the development of vibrant and effective member participation through the governance mechanisms and trade with the society.

    To take your points one by one:

    Majority of Elected Directors

    I am not sure that we are very far apart since you “completely support the role of a Nominations Committee in ensuring that board candidates are suitably qualified in those terms (and I would set the bar high)”. The rationale for the system adopted was that the board as a whole needs a particular balance of skills and the appointment of the independent non-execs seeks to ensure that while preventing excessive dominance by executive board members. Exactly the process you advocate is used to fill three places on the board. The powers and role of the members e.g. in approving or rejecting the independent appointees, removing any director in extremis, and the two year terms as well as the role and powers of the activist Council and Senate seems to me to provide effective member control. It certainly comes closer than the old system did to giving a chance to effectively control over the executive.

    I would add that there is scope for much thought, debate and research on the implications of the Berle and Means’ separation of ownership and control argument for co-operatives – particularly large consumer co-operatives. Their members also often lack any incentive to use their democratic rights in meetings and elections. I think that the new Co-op Group structure is a serious attempt to tackle that problem as it is tackled in the UK PLC context, but with serious and effective co-operative safeguards (as above). Over the years, I have been as guilty as everyone else of assuming that “control” of co-operatives could operate in a simplistic way.

    Survival in the Market

    Again, we seem to agree. I hope that the new system will result in exactly those people from our existing membership joining the board, whether by appointment and endorsement or contested election. Those who are not existing members will be required to join and to establish their support for Co-operative Values and Principles as well as their competence and experience on business issues.

    Limited Choice last Saturday?

    Time was a major pressure and, for any reform to be possible, proposals had to be acceptable to those with voting power. A process of having a potentially infinite number of members’ meetings with votes on amendments and then new proposals at a later meeting would not have met the urgency of the situation.

    Autonomy and Independence

    In our market economy as it operates, if you enter loan agreements which give powers to the lenders you inevitably compromise autonomy and independence. Maybe the moral is that co-operatives need to borrow sparingly if they really want to retain independence and acknowledge the threat to autonomy posed by loan as well as (outside) share capital. Wasn’t that the traditional approach? It went alongside slow organic growth. Hopefully we can return to that. Some societies still have a fairly strict borrowing limit in their rules so that member permission is needed for borrowing beyond a certain level.

    Thanks for your comment as well, Ed. The links are very helpful.

  5. Paul Tinnion says:

    I do think we should talk about real life, not about theoretical OMOV powers that will never be used. The independent NEDs on the board will control the organisation, along with the executives. The Council cannot hold them to account as it largely only has functions, not powers. I served for nine years on just such a council of an NHS trust. As any such NHS governor will tell you, these are weak bodies, having few powers. But the powers they do have are crucial: they appoint the board. The nomination committee is their committee, not the board’s. It’s welcome that board remuneration will be set by the Council, but to separate this from appointment is very strange. I regret that the Council cannot be trusted to appoint the board – I think this would have worked very well, using consultants and with board members on the nominations committee.

    “Bolting on” three MNDs is better than nothing, however, but on the whole I’m pleased my region voted against.

    We must try to make it work, of course.

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