Should we become a Co-op? The following are some of the questions we get asked on a regular basis concerning Co-operatives. What is a Co-operative? A Co-operative is owned by its members on an equal basis. Each member has one vote in how the Co-op is run. Most Co-ops divide any profit in some combination of the following ways: Bonuses to workers Dividends to members Interest on members shares Re-investment in the company Donations for charitable or similar purposes Some Co-ops have rules which stop them paying profits to their members, these are usually referred to as being ‘not for profit’ companies, a very misleading term because they are there to make profits, they just can’t distribute them to their members. Co-operatives are Collectives A common misconception. A relatively small number of Co-operatives are collectives, where every member has an equal say in every management decision (Co-ops which are limited liability partnerships often fall into this category). The vast majority of Co-ops have conventional line management and supervisory structures like any other business, the difference being that the board of directors are elected by the members on a democratic basis. What legal structures do Co-ops have? Co-operatives exist which use every legal structure aside from sole trader. The choice of legal structure very much depends on the nature and purpose of the Co-operative. What defines a Co-operative? Co-operatives are broadly defined by three main features; They are primarily businesses (i.e. they conduct a trade). They demonstrate a commitment in their governing documents to the internationally recognized Co-operative values and principles (link). They posses a democratic structure (one member/one vote). Labour vs. Capital One of the most important things to remember about Co-ops is that they are all about reversing the basic capitalist model of Capital hires Labour which means, in practice, that rich investors pay other people to make money for them. In most businesses this is reflected in wealthy investors owning the business and reaping the rewards for other peoples work. In a Co-op the reverse is true, Labour hires Capital. The members borrow or invest their money to achieve their goals then reap the rewards themselves. What are the benefits of being a Co-op? All Co-operatives have, by definition, made a public commitment to a recognized system of values and principles. This gives them a valuable brand identity. Co-operatives have greater stakeholder involvement and commitment which has direct economic benefits (e.g. Co-ops generally have far more loyal customers than other companies in the same line of business and workers in a worker Co-op tend to be more productive than in other more non co-operative businesses). It is difficult for one person or a small group to take control of a Co-operative. Co-operatives are often Mutual in nature and, as such, can benefit from tax breaks. Co-operatives are part of a wider international movement. Some types of Co-operative can sell shares whilst still being democratically owned. And what are the downsides? Co-operatives have made a public commitment to ethics and have to be seen to uphold those values and principles. Adhering to ethics can make things more expensive. Greater stakeholder involvement requires more time and resources. Due to their democratic structure it is difficult for any one individual (or group of individuals) to exert tight, long-term control over a Co-op. Democracy can lead to “decision by committee” which can result in “analysis paralysis” or “built by committee” solutions- vision can be lost due to too many compromises. This is particularly common in collectives. Having said that, this problem can usually be managed fairly easily by having robust decision making systems in place. Co-operatives can find it harder to get grants which other social enterprise or voluntary organisations might get. Co-operatives can find it harder to raise commercial funding, though this is only really a problem for very large Co-ops. What kinds of Co-ops are there? There are a huge variety of Co-operatives, the list below outlines some of the more common ones. Housing: The Co-operative owns housing stock and the tenants are its members. Consumer: The Co-operative provides a service to it’s members (e.g. the Co-operative group runs shops which it’s members use, the phone co-op provides telecoms services to it’s members) who ultimately control and benefit from it. Utility Co-operative: A form of consumer Co-operative which provides utilities (such as gas, broadband or electricity) to its members. Community: A Co-operative whos members are part of a geographical community or community of interest. The Co-op undertakes activities which benefit the community. Social: The Co-operative provides social services to its members. Care: The Co-operative provides care services to its members. Worker: The members of the Co-operative are the workers in that business. Consortia: A co-operative consortium is an organisation which provides services such as marketing, administration and management for its members (e.g. the Co-operative Retail Trading Group buys products for most of the Co-operative retail societies in the UK). Marketing: A Co-operative which acts as an agent for its members, employing economies of scale to be more effective. Its members are usually other businesses (e.g. the Best Western Group is a Co-operative of hotels). Secondary Co-operatives: A form of Marketing Co-op where all the members are other Co-ops. Agriculture: A form of secondary Co-operative where its members are farmers. They often own things like grain stores or large farm equipment which is used by their members and/or act as a buyer for their members, negotiating bulk discounts. Credit Unions: A Co-operative where members pool their money. Multi-stakeholder: A Co-operative which is owned and controlled by more than one stakeholder group, such as workers and consumers. Building Co-operative: A Co-operative set-up to build housing for its members (who own the results). Are their special grants available for being a Co-op? Yes, although Co-operatives tend to be more oriented towards business activities and tend to pursue loans rather than grants (there are special loan funds as well) and most Co-op specific grants are only given as part of a loan package. How does being a Co-operative relate to ‘The Co-op’? ‘The Co-op’, famous for its nationally recognised logo, is a member of a wider movement of Co-operatives. Individual Co-operatives may join this movement through an organisation called Co-operatives UK, or through their individual regional Co-operative Councils. When you start a Co-op you are joining an international family of enormous size, ranging from two person businesses through to multi-billion turnover retail companies, how much you wish to participate in this wider family is always up to you. Aren’t the employees of a Co-op barred from being its Directors? No, that’s a charity. Who runs a Co-op? Most Co-ops are run by elected boards of directors. The members appoint the board from their own number each year and may co-opt non-members on for specific reasons. Some Co-ops use a collective structure where all the members actively participate in decision making and the board is effectively all the members. What is the difference between a Co-op and a Social Enterprise? A social enterprise is usually defined as ‘an enterprise which provides both business & social benefit’. All Co-ops are social enterprises, because the democratic nature of their ownership and voting structures is fundamentally social. Some Social Enterprises are Co-operatives, but the majority are not. If I invest more in a Co-op than someone else do I have more say in how it is run? No, this is the major difference between Co-ops and other businesses. Regardless of how much you invest you only have one vote. There are some Co-ops which bend this rule to allow for external investment, but these are very much exceptions to the rule. Why should I start a Co-op? If you are a group or partnership (with at least three partners, or two and an intention to bring in more partners later) you should seriously consider being a Co-op. Virtually all Co-op structures are limited liability structures, so you are protected in the event of a business failure. Co-operatives can be structured to be particularly tax effective for all their members. Will every new employee become a member? No, when you form the company you decide who can become members and set the rules for membership. In most Co-ops there is a minimum probationary period before new employees can even apply for membership and even then the existing members have to approve the application. What happens to the assets if the company is dissolved? Like any other business the assets are divided up amongst the members on some agreed basis (such as time served). There is a type of Co-op having what is called ‘Common Ownership’ where the assets are given away to like minded organisations in the event of dissolution. This is commonly used in conjunction with a “not for profit” clause. Such Co-ops are usually able to attract grant funding like other not for profit organizations (though they can find things a little more difficult if the workers control the Co-op) but cannot benefit from mutual tax trading status. Who should think about setting up a Co-op? Anybody, in the first instance. Some specific examples might be: People who own businesses & are thinking about retiring. You could help your workforce create a Co-operative to take the business of your own hands. This can be done tax-efficiently through the use of Employee Share Ownership plans. Groups who use common utilities Groups who buy common things Groups who want to run their own business on a democratic basis Who are the members? One of the most important questions you need to answer before going down the Co-operative route is “who are the members going to be”. The members are the people who ultimately control and benefit from the Co-operative.  Sometimes this is fairly obvious (e.g. a group of people setting up a small business will probably be a worker Co-op, a group of villagers setting up a village shop will likely be consumer members) but it is worth having a think about. One of the more interesting options to consider is whether to become a multi-stakeholder Co-operative or not. In a multi-stakeholder Co-op more than one group of stakeholders are members, such as worker members and consumer members. Multi-stakeholder Co-ops can be very effective but you do need to think carefully about the detailed governance arrangements (e.g. does each class of member have an equal say in how things are done and/or an equal share of the benefits?). Okay, I want to set up a Co-op, what do I do now? Go to the enterprise hub, fill in the form, then we will arrange a meeting to talk about your ideas, how to progress them and what support we can offer. Are all of the answers above hard and fast? No, there are many different structures used in Co-ops, for example a Co-op can have a share structure. Contact us and explain what you want to do and we will talk it through.  We’re a local authority looking at Co-operatives as an outsourcing option A few key bullet points: Most outsource Co-ops are multi-stakeholder, with strong representation from the workers and lesser representation from the consumers/service users and other interested parties. To make it work, you need genuine buy-in from all the stakeholders. Imposing a Co-operative model on stakeholders (particularly workers) is a recipe for disaster. Reality check: Many workers will be primarily concerned about their pensions and terms and conditions. It is likely that only a minority will buy-in for ethical/ideological reasons. Bear in this mind in any negotiations. Get the unions onside early, they can make or break a project. Allow the new organization genuine independence. This means a lot of quality negotiation at the start, don’t be tempted to push forward and “worry about the details later”.. this will likely result in lots more problems in future. Be realistic about what you can achieve; Look at the same for less or more for the same as your models. If you want More for less you’re going to be disappointed. If you get it right, a 20-30% cost saving is not unrealistic in the new Co-operative. Be prepared to invest up front for a long term return. One of the things which is most likely to result in failure is under-capitalising a new organization when it starts. As well as outsourcing “big hitters” such as housing, care, waste disposal, works and leisure services you may also want to consider things like legal services and IT services, which can work well as small worker Co-ops. Some examples of Co-operatives which could be relevant to local authority outsourcing considerations: Greenwich Leisure (leisure services) St.Andrews Housing Co-operative (housing) South Shropshire Homecare Co-operative Limited (homecare) The Co-operative Childcare (childcare) The Software Co-op (IT support) Anglia Farmers (Agricultural.. but an excellent example of joint purchasing arrangements in practice) For further advice on public sector outsourcing you can apply to the Mutual Information Service at http://www.mutuals.org.uk/.

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