Academic journal article Review of Social Economy

The Involvement of Members in the Governance of Large-Scale Co-Operative and Mutual Businesses: A Formative Evaluation of the Co-Operative Group

Academic journal article Review of Social Economy

The Involvement of Members in the Governance of Large-Scale Co-Operative and Mutual Businesses: A Formative Evaluation of the Co-Operative Group

Article excerpt

Abstract This article focuses on the key question for co-operatives and mutuals of whether they can continue to be genuine member-owned and controlled businesses once they become very large. After providing a commentary on current attempts to revitalise member democracy in the UK consumer cooperative sector, it outlines the "mutual incentives model" developed by the authors to explain what motivates people to participate. The main part of the article then provides a formative evaluation of one very large co-operative society, the Co-operative Group. Drawing on a recent project carried out with funding from the Economic and Social Research Council, and in partnership with the UK Co-operative College, it discusses findings from datasets of 450 area committee members and a random sample of non-active members. The findings are structured according to the mutual incentives framework, including individualistic and collectivistic incentives, resources and mobilization factors. The conclusion is that the Group is having some success with its member participation strategy despite problems of scale. Steady, incremental improvements are identified that should enable the strategy to succeed, showing that there is no simple correlation between size and democracy.

Keywords: co-operatives, mutual incentives theory, size and democracy, stakeholder involvement

INTRODUCTION: SIZE AND DEMOCRACY IN MEMBER-OWNED BUSINESSES

When they are first set up, co-operative and mutual businesses tend to be small in scale and simple in structure. Their decision-making process tends to emphasize maximum involvement by members and the subordination of boards of directors and management teams to the will of the members expressed collectively through general meetings. Through effective market penetration, extension into new markets, takeover of other businesses, or merger with other mutuals or co-operatives, they grow larger, sometimes much larger than their founder members expected. They may also grow more complex, with geographic division into regions or functional division into specialist types of business. A key question for co-operative theorists and practitioners alike is whether such large-scale co-operative and mutual businesses can remain true to the principles on which they were originally founded, is it still possible for them to be governed by their members? If not, is it possible for representatives they have chosen effectively to govern on their behalf? One of the strongest arguments for the demutualisation of UK building societies has been that they are just too big and that an investor-owner model of governance will provide better oversight of boards and managers (Drake and Llewellyn 2001). When a hostile takeover bid was launched for the "CWS" (the UK's Co-operative Wholesale Society), one of the justifications for the attempt was that the co-operative had become too complex; the criticism was that it had become a conglomerate of several very different businesses which were poorly integrated, and its governance structure allowed for complacency among managers who effectively faced no sanctions against poor performance (Birchall 2000).

The purpose of this article is to explore this issue of size and democracy, and to draw some conclusions about whether, and under what circumstances, co-operatives can be both large and democratic. By size we do not just refer to the transition from a direct to an indirect democracy, or from a member-run business to a professionally managed one. These transitions are faced by cooperatives when they are still quite small, and are relatively well understood (see e.g., Dahl and Tufte 1973). Here, a large organisation is one that has developed to a level where most decisions are made by a management team and a board, and where members cannot be involved in day to day decision-making but can only hope to control the general direction of the business, and to call their elected directors and managers to account for their actions. …

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