Co-Op is Not Indicative of the Mutuals Model

By Simon Morris On Thursday, April 10 th, 2014 · no Comments · In , ,

The near collapse of UK retail chain Co-Op has prompted a volley of criticism of the politically popular mutual model. However, a new government report suggests that the Co-Op incident isn’t indicative of the effectiveness of the widespread business model. Could this argument hold any weight and what does it mean for the future of the mutual business model?

The mutual business model is an umbrella term ascribed to several different ownership models. Most commonly, particularly in the case of The Co-Operative, it refers to the extent that shareholders hold democratic control of business operations and a share in its profits.

This holds especially true for the Co-Operative, as the name would attest to. Established in 1844, The Co-Operative Group, which today includes a wide variety of ventures including banks, grocery chains and pharmacies, was founded specifically as a consumer co-operative; a company owned and run by the people.

This means that the Co-op is the very definition of a business that follows the mutual model, with over 7 million members. Therefore it would be logical to conclude that the recent financial troubles of the company would be indicative of the effectiveness of the business model.

Not so, according to a report carried out by Paul Myners, the Groups senior independent director. With the purpose of recovering the company from its economic woes, Myners carried out the report to determine how overhauling the company’s board room would aid it in this purpose.

He listed a raft of potential reforms for the group that mirror those already commonly put into practise by other successful Co-Op’s around the world. Britain has roughly 3,000 consumer owned co-ops, including retailer John Lewis and building society Nationwide.

Johnston Birchall, from the University of Stirling, recently conducted a study into the effectiveness of the mutual business model. He studied 60 of the 1,465 co-operatives internationally that are recorded to have a turnover of at least $100 million.  He went on record with his findings.

Birchall said that: “The best models of co-operative governance, such as the Desjardins Group [a financial services provider in Canada] and Fonterra in New Zealand, the world’s largest dairy exporter, are designed to put the right mix of people and skills on to the board, with a very clear line of accountability to the ultimate owners.”

He then elaborated on the point, saying that: “You get it wrong if you don’t have the right skills, or, you have the right skills but are not accountable to the membership.” This mirrors the fact that of the companies surveyed, most had fewer than 15 members on their board. It also explains why the investigation suggested that the Group needs to slim down its 21 member board to no more than ten.

Simon Morris readers, this proves that the mutual model can be effective in business, but that it must be handled efficiently. With these changes, Co-Op has a very real likelihood of recovering from its issues and once again contributing significantly to the UK economy.

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