Why we need to update the Co-operative Principles

The Seven Co-operative Principles were last updated and formally adopted by the International Co‑operative Alliance at Congress in Manchester in 1995 http://www.ica.coop/coop/principles.html
They are based on the eight original Rochdale Principles, and have been updated amended periodically.

Why change is needed
Unfortunately, whether we like it or not, the world doesn’t stand still. Over the last few decades we have seen enormous changes in the world in which we, the co-operative movement, have to survive.

In the past in the UK, and still today in some parts of the world, the co-operative movement is a powerful, and sometimes dominant player in the economy. Where they are, they bring a long-term approach to economic development and stability in the marketplace. However, most of the movement exists as an island of sanity in a sea of rampant capitalism. We may not like it, but that’s how it is, and we need to both live with that and at the same time grow ourselves out of it.

Increasing personal greed
There is increasing disparity between highest and lowest. The FTSE 100 average stands today at 143:1 (Top Pay: Average Pay) [1] and has doubled in the last 6 years, and tripled since 1998. This, together with a lowering of taxation on the rich, has led to the increasing inequality in wealth – now the top 1% in the world own more than the remaining 99%. There has been an unwillingness by governments to tax the rich, in what, in many countries, has been a race to the bottom to attract the super rich. In the UK, we’ve seen a reduction in the top rate of Income Tax from an eye watering 99.25% in 1939, which stayed at 98% until 1974, and only dropped below 75% in 1985. In the UK in 1939 there was no point a business person paying themselves big money, as 99.25% of it went straight to the Tax authorities, so they didn’t. They got their rewards from their status in the community rather than in cash. Now that has changed, greed is allegedly good, and the super rich compare the size of their yachts or the gyms in their basements like a bunch of school kids in the playground.
This accumulation of private wealth by the rich has also been assisted by the increasing weakness of labour in the employment marketplace caused by the weakening of labour unions and the increase in the number of self employed, who are largely unrepresented.
At the same time we’ve seen an increasing corporatism in the co-operative movement itself. This has largely come about from shrinkage of our market share in the UK. The “Co-op” (taken as a whole federated movement) was the UK’s largest grocer in the 1960’s, now it’s the fifth. This has resulted in an increasing number of staff, and managers in particular, who are imported rather than home grown. They may have good retailing skills, but outsiders transferring in lack the understanding of the co-operative difference, and have slowly diluted the co-operative culture.
One of the changes this has brought about is the idea that senior employees need huge salaries has entered our movement. Euan Sutherland was paid at a ratio of 330 times the lowest paid staff member during his 10 month stay as CEO at Co‑operative Group, and surprisingly this didn’t bring much opprobrium on him or the remuneration committee which agreed it, he was criticised for other things. We’ve all got used to high pay.

Mondragon operates on its own set of Principles, and whilst these are not radically different to the ICA Principles, they do include an important addition of “Wage Solidarity”. They share the incomes equitably. The top salary ratio is capped in most of the co-ops at 6:1, although this is sometimes stretched in some of the larger co-ops to 8:1 [2] to try to reduce the poaching of top management by other businesses.

The Rochdale Pioneers before them foresaw the mission of co-operatives as being partly to enable consumers to escape the exploitation of the owners of the retail industry, they also saw income equality as part of the co-op mission “by this means giving him a chance of participating in the profits of his own labour, and removing it farther out of the reach of men with a little capital to realise princely fortunes out of the energy and industry of the people”.[3]

Capping top salaries is already a more popular policy amongst the general public than is generally recognised. Recent research by Harvard Business School and Chulalongkorn University shows that on average, people around the world think a ratio of 4.6:1 is the ideal [4]. On Nov 23rd 2014, over a third of the normally conservative Swiss voters supported a legally enforced overall salary cap of 12:1 (Top Pay: Lowest Pay), for all businesses in Switzerland. [5] The campaign was backed by the Swiss TUC and other social organisations. Even some management consultants agree; the late Peter Drucker [6] argued that any CEO-to-worker ratio larger than 20:1 would “increase employee resentment and decrease morale.”

What about the workers?
Our history in the UK of a dominant consumer co-op movement, with still only a small agricultural or worker section, has led to us forgetting about the engagement of the workforce. There is a distinct lack of formal, constitutional employee engagement in most larger consumer societies, although there are exceptions such as MidCounties which has a seat on the Board reserved for staff.
Eroski, part of the Mondragon Co-op Corporation, has an entirely different structure. The worker co-op movement has a different view of the world, and in the world-wide movement this has never really been resolved. The Mondragon approach is that if the workers aren’t involved, it isn’t a co-op at all. They still work to the old motto that in a co-op “labour hires capital, not capital hires labour”. As a result they have real worker engagement in the business, and Eroski has the fabled “John Lewis” effect, and so have now won Spain’s best customer service award 3 years running.
However, the movement is dominated by consumer and agricultural co-ops, and most operate on a democratic system that only provides membership, and the vote that goes with it, to consumers. The workforce have no stake in the governance at all, and their position in the workplace is often hard to differentiate from workers in similar commercial enterprises, whether family firms or PLCs.

Destabilisation of the marketplace
In the UK we’ve seen the removal of restrictions on re-selling company shares which have effectively invented the “day trader”, so now hardly anyone invests in company shares any more, they trade them constantly. The regulations used to prevent anyone selling direct, they had to go through a registered Broker, and they couldn’t resell until the share certificate was in the Broker’s hand, so they had to hang on to shares for a least a couple of days. These changes, which allow the instant resale of shares also mean Company secretaries have little idea who owns which shares at any point in time, so shareholder democracy is effectively impossible, and AGMs are now entirely dominated by the relatively small proportion of shareholders who hold onto their shares over time.
We’ve got the dominance of “Hedge Funds” and “Venture Capitalists”, which increasingly are taking control of public companies, and when they are located in tax havens, remove from view the real ownership of companies. These are organisations that have nothing to offer except the ability to borrow – invest the borrowed money – get a quick return – sell up – pay back the loan – keep the profit & move on. They are one more intermediary between the individual who wants to save or invest and the business that needs investment.
We’ve also seen the invention of “Options” and “Futures” as something that can be traded, even though they don’t really exist. This trading of virtual commodities has brought a bizarre element into the fantasy world of the “markets” which detaches them even more from real life. This has increased the power of the city traders, and the real businesspeople; manufacturers, service providers and agriculturalists have lost out to the speculators.
Co-ops are, of course, the exception to these new share market conditions, as they are non-traded entities in which you can only invest for the long term. We are still only a fraction of the global economy, and if we can grow our share in size and scope, the world economy would be fairer and more stable.
If we are to create and develop a co-operative economic order, then we need to counter these changes in society, and we can start with some additional Principles.
The existing Statement of Values and 7 Principles all still largely holds good, but they don’t cover all the new circumstances we find ourselves in. These additions aim to bring the Principles up to date by adding 3 more.

8th Principle: Subsidiarity of Capital to Labour

Co-operatives ensure that capital, including co-operative capital, is a tool used by working people, not a controlling force over them. To this end they will ensure that workers have an appropriate democratic membership stake in any co‑operative that employs them.

We need to address the issue of workforce engagement. Is it really any different when “capital hires labour” if that capital is the property of the members of a consumer co-operative? The workforce are still working for an organisation they don’t control, and can only influence if they become consumer members. The Eroski model, and it’s certainly not unique in retail co-operatives, is a 50/50 split between workers and consumers, and certainly seems to work well. So in my view, we should see some level of ownership and control by the workforce in all co-ops that employ people, the level of ownership reflecting the individual circumstances. So we need to create a new Principle.

9th Principle: Fairness in Remuneration

Co-operatives ensure that all staff are remunerated on a fair and balanced wage scale that is appropriate to the size and scope of the enterprise, but never exceeds 12:1 (Highest to Lowest).

We need to address the salary issue. I feel we need to bite the bullet, and set a maximum salary ratio. The world may want it set at 4.6:1, and that’s not an unfair ratio, but to implement this now in existing organisations we need a bit more flexibility in the larger co-operatives. We need to remember we are still that island of co-operation in a sea of capitalism. My view is 12:1 is achievable in the real world right now. If a co-op pays the UK “living wage” to its lowest paid staff, and then they earn a typical John Lewis bonus of 20%, the top person can get almost £250,000. If they can’t budget their own lives to live really, really comfortably on that, they aren’t capable of running a large co-op, so they need to go.

We also need to remember that this is not a target or recommendation, it’s a maximum, above which an organisation cannot call itself a co-op. There are co-ops out there working really well on much lower ratios, and some on a flat 1:1, so a reduction at some point in the future should not be ruled out.

10th Principle: Commitment to Co-operative Development

Co-operatives are committed to growing the co-operative form of business. At least 10% of every co-operative’s annual profits are dedicated, in cash or in kind, to developing and financing the start-up and growth of other co‑operatives.

Lastly, we need to grow the co-operative economy. Whilst 1/7th of the world are co-op members, we only provide 1/30th of the 3 billion jobs worldwide, so this movement has lots of scope for further growth. The US and UK Overseas Development Departments both have the co-operative as their favoured model of economic development, but that’s just for others! Like most governments, back home they favour the capitalist model. Only a cynic would think that’s because politics has been privatised and most political parties are funded now by big business donors rather than members subscriptions. To understand who holds the power, you always have to follow the money!

We need to wake up and smell the (Fairtrade) coffee. We need to use our own funds to grow our co-op economy because no-one else will. If the Rochdale Pioneers had waited for a government grant we wouldn’t have a movement today. Principle 6 gets us to prioritise trading together, but we need to pool our funds to support growth and development as well. So we need the tenth Principle as well.

A proposal by Alex Bird, Spring 2015
Email: alex@alex-bird.com Twitter: @CoopAlex3
Join in the debate

Whilst the ICA is not reviewing the Co-operative Principles this year, they are working on some Guidance Notes to “help bring the Principles into contemporary terms, as much has changed in our world since 1995 and the Principles are no longer entirely exhaustive in they way they delineate a certain code of ethics for co-operative enterprises”. These Guidance Notes will be put out for consultation by the ICA later this year, and a final version will be shared at the General Assembly and Global Conference to take place in Antalya, Turkey in November 2015.


[1] http://highpaycentre.org/blog/ftse-100-bosses-now-paid-an-average-143-times-as-much-as-their-employees NB this is a different ratio basis to that used at Mondragon, and gives a lower figure.
[2] Some reports set this as high as 15:1 on occasions in the past, but this is officially denied, and is not current practice
[3] Rochdale Co-operators Almanac 1860  http://gerald-massey.org.uk/holyoake/c_rochdale_3.htm
[4] https://hbr.org/2014/09/ceos-get-paid-too-much-according-to-pretty-much-everyone-in-the-world/
[5] http://www.theguardian.com/world/2013/nov/24/switzerland-votes-against-cap-executive-pay
[6] Claremont Graduate University – http://en.wikipedia.org/wiki/Peter_Drucker


Why we need to update the Co-operative Principles — 1 Comment

  1. Pingback: Updating Cooperative Principles : Alex Brid | mutualsforecondemocracy