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