Why we should take the co-operative business model more seriously
Pohler and Fulton are professors at the University of Saskatchewan. This column is part of an occasional series written by professors at the Edwards School of Business that explores business topics. Society needs to take a serious look at the co-operative business model as an alternative to the standard investor-owned corporate model. Saskatchewan owes much of its development to co-operatives and some of its largest companies are cooperatives.
Federated Co-operatives Limited, for instance, was Saskatchewan’s largest company last year (and among the top 50 in Canada), with $8.8 billion in sales, and the co-operative retailing system as a whole employs more than 23,000 people across Western Canada.
Given the cracks that have emerged in standard investor-owned corporations that make up a substantial share of the U.S. and Canadian economies, it is important to look at sustainable alternative business models — the co-operative model is one of these. Let’s examine why.
Gerald Davis, a professor at the University of Michigan Ross School of Business, argues that the increase in income inequality, decreased upward mobility, uncertain employment and bleak finances observed over the last few decades (and which were highlighted post 2008) are a direct result of the rise of the “shareholder value” movement. Although the idea that a corporation’s goal is to maximize the value that can be returned to the owners — the shareholders — seems fitting, its implementation has not had the intended result. A key reason is the concentration of corporate ownership — in 2010, 75 per cent of the shares of the largest 1,000 American corporations were held by institutions, not individuals. Institutional shareholders, it turns out, are not able to adopt a long-term investment view. Instead, driven by competitive demands for higher and more immediate returns, they succumb to the “tyranny of the quarter.”
Although co- operative businesses must generate sufficient revenue over the long term to both cover costs and pay for investments, their ownership and governance structure is such that they are often able to take a longer-term perspective. A key feature of the co-operative model is that the members are both owners and users. As a result, the investors in a co-operative (the owners) are also the customers, suppliers or employees (the users). As a consequence, members are able to see the trade-offs that exist between the demand for short-term financial results and the need to provide high quality service on a day-today basis over the long term. Moreover, since co-op shares are not traded, co-op leaders are not slaves to the maintenance of the share price, but instead can focus on the fundamentals required to provide members with the services they require.
This is not to say that the co-operative model does not have its own share of problems, particularly as a co-operative business grows and prospers. These problems include cumbersome decision-processes, lack of member engagement, difficulty in raising capital, and an upcoming generation of leaders that may not understand the relative strengths of co-operatives and how to properly leverage the model. In addition, co-operatives often face a policy environment that does not recognize their distinctive character.
One of the keys to addressing these problems is to put a larger group of people to work at solving them. As a relatively unknown model, co-operatives are generally not taken seriously by business and policy researchers, and they have often been missing from undergraduate and graduate curricula in these areas.
Popular misconceptions range from the idea that cooperatives are non-profits designed to solve a social need to the idea that they are no different from other traditional businesses.
Neither of these conceptualizations is accurate. Even non-profit co-operatives have to operate as businesses, albeit ones where any “profits” must be invested back into the organization. And the cooperative business model is different from other business models as was previously outlined.
These features of co-operatives — both the strengths and the weaknesses — need to be better understood by the general public, policymakers and business and policy professors and students. Paying more attention to co-operatives — whether in the greater use of the model in a business environment, support for initiatives that encourage new co-op business development, integration into educational curricula, or deeper analysis of the model in academic research — can be expected to lead to improvements in how the model can be used and how some of its weaknesses can be addressed. In short, only by taking the co-operative model seriously can we begin to experiment with it to generate improvements over the long term.
Across Canada there are approximately 9,000 co-operatives with 18 million members and 155,000 employees. If we want to find alternative business models in a post-2008 economy where “shareholder” capitalism has fallen into disrepute, we all need to start taking the co-operative business model more seriously as one of the potential alternatives.
Dionne Pohler is an Assistant Professor at the Johnson-Shoyama Graduate School of Public Policy and an associate faculty member with the Edwards School of Business.
Murray Fulton is Professor and Graduate Chair. Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan.