Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

A Co-operative Dialogue

by ChrisCook Sat Jul 12th, 2008 at 07:41:45 AM EST

I have been engaged in a dialogue in relation to Co-operatives and demutualisation.

My correspondent is an Israeli, Zvi Galor,

Coop Galor

with a lifetime's experience in Cooperatives in both Israel and internationally. He is currently engaged in studying the phenomenon of demutualisation of Cooperatives, which is not just an Israeli phenomenon.

He has some interesting insights, and I was pleased that he understood so quickly the relevance to Cooperatives of the partnership approach I have been developing.


There is a slight different between us when speaking about demutualisation. You are offering a cure as how to avoid demutualisation of cooperatives with your model. I am trying to find out why demutualisation happened. What were the reasons for it, and if anything could have been done, may be demutualisation would have not happened.

I think that the only real differences between us are our respective starting points and our focus.

Your model or cure comes to repair, at least partly, a deep problem in the cooperatives of your country, and in many other countries as well: This is the basic understanding of what is a cooperative.

I believe the approach I am taking goes further even than that to the nature of "organisation" itself.  The conventional approach has always been to create "enterprises" - ie economic entities linking two or more individuals - as "organisations" which invariably take on a life of their own.

Such "organisations" - whether "Public" or "Private" in ownership; commercial ("for profit"), social ("not for profit") or charitable in aims; cooperative or competitive in terms of values - are all distinct from the individuals who nominally "own" and interact with them.

I believe that the UK LLP enables - for the first time - a new participative approach through the creation of frameworks within which members/ stakeholders self organise and that such self organisation in pursuit of agreed aims and based upon common values is an inherently "Cooperative" approach.

Applied in this way, an LLP itself does not do anything, employ anyone, or own anything but serves as a framework within which its member individuals interact.

Moreover, I believe that, contrary to the self serving "neo-liberal" ideology we are force fed, individuals are inherently more comfortable cooperating rather than competing.  The problem is that the prevalent legal protocols which govern our economic interaction mean that individuals have to make a conscious effort to cooperate against what would be their "rational" self interest.

There exist, in my view, two basic elements on which each cooperative stands:

(a) The ownership

The cooperative belongs entirely to its members individually and equally. This is not the case in your country where cooperatives belong to members collectively but not individually.

This is one of the main motives driving members, especially the case of the building societies in your country, which drove members to look for the demutualisation solution. Their individual share capital is worth almost ZERO, when the cooperative accumulative equity is huge, but doesn't belong to members because of a wrong understanding, IMO, of what is really a cooperative.

Your solution, which I have already discussed in an article about five years ago, about a similar law in Canada. The case criticised by me, is not a real one but a possible one, and was that if accepting this view we have a situation where a cooperative (enterprise) has two bodies of ownership.

One is, let say, 20% of external capital. This ownership is real one and 100% belongs to the investors. 80% of the cooperative belongs to the cooperative members, but collectively and  not individually.

Practically, this is the cooperative law in Canada and in your country which doesn't recognise that the member has an ownership in his cooperative to which s/he has paid during all the membership life in the cooperative.

The law stipulates to a degree that if all members of the cooperative would quit the cooperative, the equity will remain inside the "empty" cooperative and would not belong to the departing members or to their inheritors of their family, but would be transferred to members of another cooperative.

This is a moral twisting of the idea of the cooperative and not a logical approach IMO, and in the long run the destruction of the cooperatives in your country, as we have seen already in the UK.

Cooperative belongs entirely to its members individually. Each member has one and only one share capital which represents the member relative part in the ownership of the cooperative.

The value of one share capital equals to the total value of the equity of a cooperative DIVIDED by the number of members of the cooperative. So, the value of one share capital is variable and depends on the number of members in the cooperative in a given time and the real value of the cooperative at the same time. Following this approach would save the cooperative.

(b) The remuneration of the members

The cooperative is created by the members to render them the best possible service at the lowest possible cost. The consumer cooperative will sell to its members at the best possible quality and at the lowest possible cost.

The problem with the cooperatives in your country was that the leaders and the managers understood cooperatives as an enterprise where they should realise the highest possible profit (surplus) to show to members at the end of the year G.M.

But, no one realises that the profits in the operatives comes from members pockets through their participation in the cooperative business. The accumulation of profits in the cooperative creates the problem of what to do with them. I have discussed it much in my articles, but one of the ways is the dividends way.

The term dividend is an alien to the cooperative world. Dividends are remuneration to capital invested, when the cooperative remunerates members participation.

I am proposing what is essentially a new approach to "ownership" and indeed to "property" itself.

The UK LLP is the first example anywhere of what I term an "Open" Corporate. It is possible - merely by replicating the terms - to "clone" any other organisational form.

But why would one wish to clone something sub-optimal when one can strive for the optimal?

Such an "Open" Corporate allows a new synthesis between the collective and the individual which gives us the "Joint" responsibility of a "Partnership" - which is key to collaborative/cooperative partnership working - but without the individual "several" responsibility of partnership.

The limitation of liability is a different subject, and one where I ferevently believe that those who have such a privilege should give something back to Society in return for it - but I digress.

Within such "Open Corporate" frameworks it is possible to share risks and rewards in new ways, and in particular to do so proportionally. ie "shares" - but not as we know them, with a "Par" value expressed in conventional money.

More to the point, it is possible within such frameworks to allow investment and returns on investment not just in "money" - which we are accustomed to believe is constituted by IOU's issued by credit institutions - but in "money's worth" of goods, services, energy, land, labour and so on.

In summary, I believe that there is an optimal enterprise model, and that it consists of a "Cooperative of Cooperatives" or "Partnership of Partnerships".

The only way of proving this, is of course, to try and implement the model, and this does not in fact require any legislation at all, since individuals may simply consent to the relevant agreements and implement them.


You may wish to read more the case of the

Food Cooperative in Oklahoma

And

How to Establish a Cooperative: The Case Study of the Oklahoma Food Cooperative.(2003)

I am working now on the case of the demutualisation of Tnuva - a  marketing cooperative demutualised a year ago, so no one would help them now. What is interesting is the research of some of the members as how to save the cooperative and the ways they have undertook, and their failure.

It is rather a comprehensive paper of almost 150 pages with vast bibliography and is a continuation to my chapter about demutualization.  I have informed the Co-opNet forum a month ago. There are unfortunately, two further case studies that I would work on in the near future.

I do hope that I was able to explain you my views and my work

I think that the two key points are:

(a) the relationship of the individual to the collective - and the inadequacy of conventional legal entities to address this relationship; and

(b) the difference between remuneration of "productive" capital, and "financial" capital highlighted in the nature of the "dividend" and what it is actually remunerating in a Cooperative.


Display:

Such an "Open" Corporate allows a new synthesis between the collective and the individual which gives us the "Joint" responsibility of a "Partnership" - which is key to collaborative/cooperative partnership working - but without the individual "several" responsibility of partnership.

Do I understand correctly that his "new synthesis" relieves individual members of "joint and several" liability while giving them proportional ownership rights and liabilities?  Is this a provision of the current UK LLP?  Do you know the legal status of this concept in the US?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jul 12th, 2008 at 10:50:56 AM EST
ARGeezer:
Do I understand correctly that his "new synthesis" relieves individual members of "joint and several" liability while giving them proportional ownership rights and liabilities?  Is this a provision of the current UK LLP?  Do you know the legal status of this concept in the US?

It is not the Corporate status but the Limitation of Liability that protects the members from liability, absent fraud or "culpable negligence" (my phrase).

An LLP is not legally a Partnership but a Corporate body - like a Corporation. The fiduciary duty of "Designated Members" of LLP's is analogous to that of Directors to Companies.

The nature of a "Corporate" body is that it encapsulates the collective common purpose agreed by its Members when they subscribe to its constitution.

Proportional ownership etc is only the "default" position set out in one single page of LLP regulations based upon partnership principles.

eg if members do not otherwise agree then the default is proportionally equal shares; and in the absence of membership provisions, all members must agree the admission of a new Member and so on.

Most people using LLP's specify in a tailor made LLP agreement how the rights and responsibilities are to be shared, and in my experience this document is an order of magnitude simpler than conventional agreements/ contracts because it is consensual in nature, not adversarial.

In the US the closest entity to a LLP is an LLC.  An LLC is not technically a "Corporate" body because while it does have a  legal existence independent of its membership, this is not a continuing legal existence and - like a lease - it must have a definite term.

But an LLC will serve as a framework quite well, all the same, for the sort of structures I have in mind.

 

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jul 12th, 2008 at 12:05:15 PM EST
[ Parent ]
I profoundly disagree with:

Each member has one and only one share capital which represents the member relative part in the ownership of the cooperative.

which, in my opinion and experience, leads directly to demutualization as members' interests, economic situation, & etc change over time.  Secondly, valuing capital, labor, investment (of one sort or another,) and other member/co-op interactions without regard to time means long time members have a vested interest in preventing new members from joining as these new members will receive the same claims on assets as theirs thus diluting their 'take.'  Third, a membership share in a co-op is a financial asset and by 'locking-in' the potential deployment of such by members is impossible, effectively.  

There are many ways of increasing the financial flexibility of members while maintaining the co-op ideal.  The best way I've discovered is allow the co-op first rights of purchase, other members second rights, then 'outsiders' as the last resort.  

From a Capital Management POV having the co-op purchase member shares allows the co-op to build cash reserves as dividends are paid.  I'm a big fan of having the co-op build as large a working fund as possible for a number of reasons which I can go into if anybody wants to go there.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Jul 12th, 2008 at 12:44:11 PM EST
I agree with everything you say, from painful experience of membership of a housing Cooperative.  

The approach I take is to create a production or revenue sharing "Capital Partnership" between the "Investor" Members or "Capital Providers" and the users of Investment, with any productive asset being held by a "Custodian".

ie a "Cooperative" of Investors in a revenue or production sharing partnership with a "Cooperative" of users of investment.

Or for the Marxists among us, Labour working with not for Capital.

Long time service and/or "savings" may allow the acquisition of any such "nth's" / Units or "Capital shares" (ie rights to revenues) but IMHO in order to be consistent with Cooperative principles, it would not matter how many Units you have, you only get one vote.

There are no "dividends" per se: the revenues simply "pass through" the LLP framework to the members, albeit members could agree that an amount would be held by a "custodian" by way of reserve.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jul 12th, 2008 at 01:36:36 PM EST
[ Parent ]
Splitting "Capital Partnerships" (CP) and "Income Stream Investors" (ISI) is an extremely interesting idea for a co-op.  It very neatly divides those who are willing to put their bucks, pounds, and euros behind their beliefs - or mouths :-) - and are willing to take the long-term view or prefer capital accumulation from those who want, or need, a stream of payments or benefits from that capital.  The fights I've witnessed or observed have mostly been from those two camps which, in a sense, are antagonistic in the short term however much they unite in wishing to see the success of the co-op.    

IMHO in order to be consistent with Cooperative principles, it would not matter how many Units you have, you only get one vote.

I agree.  If a person wants to purchase more Units that's their relationship with the operational side of the co-op.  Management and Control issues should be decided by the members and workers - if the latter aren't also the former - based on the Industrial Democratic ideal.  Besides, those more financially invested GET a payback for their investment; asking for more is asking for double compensation, IMO.  

... there are no "dividends" per se ...

haven't been able to think of a better word.  I'd like to have something else to use -- got any lying around?  :-)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Jul 12th, 2008 at 03:12:21 PM EST
[ Parent ]
This is an important point, and is relevant to much more than cooperatives.

You can't be me, I'm taken
by Sven Triloqvist on Sun Jul 13th, 2008 at 07:35:07 AM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

Smudges

by Oui - Sep 23
9 comments

2034

by Frank Schnittger - Sep 10
5 comments

Faux Accompli

by Cat - Sep 14
16 comments

Civic Self Defense Resources

by gmoke - Sep 19
1 comment

Recent Diaries

Smudges

by Oui - Sep 23
9 comments

Civic Self Defense Resources

by gmoke - Sep 19
1 comment

Faux Accompli

by Cat - Sep 14
16 comments

2034

by Frank Schnittger - Sep 10
5 comments

The Focus Group

by THE Twank - Aug 31
10 comments

Labour grows up?

by Frank Schnittger - Aug 27
57 comments

Exhibit 1

by Cat - Aug 22
22 comments

EU Position Papers

by Cat - Aug 22
25 comments

PACER

by Cat - Aug 18
5 comments

More Diaries...