Why we should take the co-op­er­a­tive busi­ness model more se­ri­ously

Saskatoon StarPhoenix - - BUSINESS -

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.

MUR­RAY FUL­TON

DIONNE POHLER

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