Co-operative Identity and Co-operative Management (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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Co-operative Identity and Co-operative Management
by Peter Davis*

(Source:  Report of the Special Workshop on ICA Co-operative
Identity Statement - From Theory to Practice, 17-21 Aug,1997
Jaipur, India, pp.32-41)

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The growth in power and influence of management and the withering
of democratic content in many of the larger Co-operative societies was
one of the key issues that prompted the review of Co-operative Identity
by the ICA. Another was the question of why bother to be a Co-operative
at all? Whatever may be said in public many managers, unsure as to the
answer to this question, have in the past, in the process of concentrating
on their responsibility for the "business", ignored falling membership
participation.

The ICA draft documents on Co-operative Identity fail to address let
alone resolve these problems. It is not an affirmation of the "promise"
of Co-operation as a democratic movement (Into the 21st Century:
Co-operatives Yesterday, Today and Tomorrow, ICA Background
Paper, 1995) but a definition of its social and economic purpose that we
require. To pretend as the backgound paper does that key decisions are
taken by ordinary members through the democratic process is merely to
perpetuate a myth that ignores management and creates cynicism in the latter
rather than the commitment that the movement so urgently needs.

Politically - correct statements using the language of European social policy
and business ethics just will not do. Honestly, social responsibility, and
equal opportunities are important criteria upon which the performance of
all organisations should be judged not just Co-operatives. Democracy is a
distinctive feature of the Co-operative form but one that without the
recognition of the role and importance of management in the decision-
making process remains singularly hollow.

The Role of Managers
--------------------------
Co-operative managers need a clear statement of their role and their
specifically Co-operative identity in terms of Co-operative objectives
or mission. Such a statement is not an attempt to define a "perfect
Co-operative" (Statement on Co-operative Identity: A Background paper
ICA, 1995) but to provide working criteria for the direction and purpose
of all Co-operative organisations irrespective of their function. Whilst
Co-operative management has no recognition and no sense of its distinctive
Co-operative purpose democracy will continue to be undermined and the
development of the strategic management of Co-operative organisations will
remain problematic and random. Yet the draft Statement on the Co-operative
Identity simply reiterates the old formula of "common economic, social and
cultural needs and aspirations" (see the clause Definition). Nor does the
following statement of principles concerning Democratic Member Control
(principle 2) and Autonomy and Independence (principle 4) address how
a well informed and powerful management, with little understanding or
sympathy for the Co-operative movement, can be prevented from
mobilising a majority of normally uninvolved Co-operative members to
sell off for immediate short term gain the assets accumulated by past
generations. Indeed "common...economic needs" could well be the
justification for the sell off or transfer of the co-operative organisation's
assets to a capital based organisation.

The Unifying Purpose?
----------------------------
We need a clear statement of the unifying purpose of Co-operation that can
cover the wide diversity of Co-operative activities across the globe. This is
not provided by the 6th principle which asserts rather than persuades that
co-operation between Co-operatives is best. Unfortunately, it is not always
in Co-operatives' "common economic...needs" to trade together. And as we
have no other statement of Co-operative purpose what else does this sixth
principle refer to?

Co-operative associations today need more than ever to hold two primary
over-arching common Co-operative purposes in addition to their functional
business-based immediate purposes as providers of products and services.
First, all Co-operators have in common their individual vulnerability and
powerlessness in the marketplace and the inadequacy of their personal
wealth to meet their needs for subsistence and welfare. Secondly, for
association or co-operation to be practised by economically vulnerable
people they must act together (this requires a strong sense of their
community of interests). Thus we can say that;

The first Co-operative purpose is therefore to redress imbalances in market power.

Secondly, all Co-operative associations should exist to strengthen the idea
and practice of community amongst their membership both as an intrinsic
good and because it is this acting together in unity that is key to successful
association.

The Co-operative's purpose, therefore, is to unite and involve its members
in an economic and social community to provide countervailing market
power and access to economic and social resources that as individuals the
membership would not be able to accumulate for themselves.

The Definition Needed
---------------------------
An amended definition of Co-operative identity should therefore, read as
follows:

"A Co-operative is a voluntary, democratic, autonomous association of
persons, whose purpose is to encourage members to grow in community
and to act collectively both for the intrinsic value of being part of a living
community and to overcome their problems of economic dependency and
need by providing access to, and ownership of the means of subsistence
and welfare.

Co-operatives, as they grow, develop managerial strategies, structures and
policies that enhance their ability to meet these Co-operative purposes".

Measuring Management Performance
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These amendments to the draft definition of Co-operative identity enable
a much sharper evaluation of the effectiveness of Co-operative management.
It implies three clear Co-operative criteria upon which management
performance can be judged in the Co-operative context :

a)	The first criterion being the strengthening of unity, involvement and
	community within Co-operative membership.

b)	The second being the accumulation of collective and individual
	economic resources by members.

c)	The third and final criterion being the extent of democratic
	involvement exercised by members.

These three criteria are in addition to, not in place of, existing functional
business criteria.

Co-operative management that seeks to achieve the purpose outlined above
and is made fully accountable for their achievement must avoid those values
that are drawn largely from the culture of MBA and main stream
management training programmes. As Reimer Volkers has put it
"... where the membership orientation is replaced by mere customer
orientation ... change in the Co-operative character of the society is
inevitable." (Volkers, ICA Review of International Co-operation,
No. 87, 1994 p48).

Co-operative Values
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Only when Co-operative management is directed by a clear statement of
Co-operative purpose, upon which appropriate values and principles have
been constructed, can it begin to differentiate a Co-operative management
culture. For this reason we need a statement of Co-operative values that
emphasises the purpose as well as process of Co-operation.

The statement of Co-operative values should read :

"Co-operatives are based on the values of community, people before capital,
self-help, mutual responsibility, democracy, quality, equity, service and
stewardship."

These additional values of community, people before capital, quality,
stewardship and service to others can hardly be said to be new. Their
re-emphasis now, however, is particularly important and relevant. It enables
us to define the principle governing Co-operative management practice and
culture and suggests the inclusion of a further key principle addressing this
question into the existing draft statement.

The Principle of Community?
-----------------------------------
However, to attempt, as the official draft does, to place Community as a
"new" 7th principle is almost to rewrite Co-operative history. Co-operation
has always been based upon the recognition of community of interests and
the attempt to make that community a living reality. This "new" 7th principle
unfortunately externalises something that is central and interior to
Co-operative Identity itself. Co-operatives should of course be interested
in the wider community as should any socially responsible business. This
is not something that differentiates Co-operatives from other types of
business, even if Co-operatives may justly claim to have their roots in
their local communities. It dilutes our understanding of true Co-operative
identity and should be reformulated into the interior Co-operative value that
community has always been, both as an intrinsic good or purpose, and in
order that the process of Co-operation is effectively supported.

A Principle on Management?
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I urge that the really new 7th principle that can help the movement address
the problems we face should be under the heading of Co-operative
Management, viz :

Co-operative Management
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"Co-operative management is conducted by men and women responsible
for the stewardship of the Co-operative community, values and assets.
They provide leadership and policy development options for the
Co-operative association based upon professional training and Co-operative
vacation and service. Co-operative management is that part of the
Co-operative community professionally engaged to support the whole
membership in the achievement of the Co-operative purpose."

It is by the incorporation of Co-operative management as part of the
Co-operative community and as representing an important principle of
Co-operation itself that we can work out the tension, produced through
increasing  scale, between management and democracy within the
Co-operative enterprise. It is on this basis that we can and must include
Co-operative executive management on the main boards of Co-operative
societies.

I do not in any way wish to imply any down-grading of the importance of
lay elected directors nor of the excellent work undertaken in director training
and development programmes (which in the UK I have had the privilege
and pleasure to contribute to). These initiatives are essential, but alone lay
directors in the modern world are no real match for the authority of the top
team of professional executive managers running the society day by day.

Managers on Main Boards
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The real danger to Co-operation lies in the fact that at present we have a
legal myth of main board responsibility without that board's membership
carrying sufficient professional authority. That authority will only be
available to the main board when its lay membership is strengthened by
being joined by members of the executive management committed to the
Co-operative purpose. Without the latter commitment, of course, I readily
accept that our democratic process and social and economic purpose will not
have been strengthened. Top management and the elected members must
operate as  a united team, collectively accountable to the whole membership,
if the Co-operative process is to be reinforced and its purpose fulfilled.

A clear, membership-focused statement of Co-operative purpose,
underpinning a strong statement of the principle of Co-operative
management, can empower the professional Co-operative managers and
at the same time improve the ability of lay members to assess management
performance and ensure the integrity of the Co-operative identity.

The sterile separation of commercial and social in Co-operative activity must
be swept aside and the Co-operative project seen as a whole. This means
ensuring that the responsibility for leadership and the development of
strategic and truly Co-operative responses includes senior members of
the top management team as appointed members of the main board,
alongside the otherwise elected lay directors. The commitment by top
managers to the Co-operative purpose and their adherence to a short
statement of Co-operative management principles will provide a succinct
criterion for appraising management's Co-operative performance and
enable lay members better to understand and defend, if necessary, the
integrity of their Co-operative society. The establishment of a principle of
Co-operative management (see above) enables the Co-operative enterprise
to be managed professionally and Co-operatively in such a way that
democracy and involvement will remain key aspects of Co-operative
practice. The clear definition of Co-operative purpose (see above) gives
the Co-operative society, of whatever type, the strategic direction within
which Co-operative management must work and against which their
performance can then be appraised.

Programmes of Training and Education
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Finally, we need to stress that at the end of the day no statement on paper
is worth very much unless we develop the management and organisational
training and development resources to motivate and empower Co-operative
managers and members. Clear professional leadership builds unity and
encourages democratic participation in the Co-operative community in both
economic and social terms. To understand what is to be the content of the
training and education referred to in the 5th principle, therefore, requires
that we know why we want to co-operate in the first place. The aim of
understanding our purpose as well as our process must inform much of the
content of Co-operative education and training for managers as well as
members. To define that purpose in terms of the need to off-set the
economic and social vulnerability of the individual in the market place is
not idealism but the common Co-operative identity upon which the
responsiveness to specific needs of members in the diversity of
Co-operative provision must be understood.

A fuller account of the approach in this article can be read in my
Discussion Paper in Management Series No. 95/1 Co-operative
Management and Co-operative Purpose : Values, Principles and
Objectives for Co-operatives into the 21st Century, published by
the Management Centre, University of Leicester, price 2.00
plus p & p.

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Are Co-op managers servants or leaders?
An Extract from a fringe meeting speech at the
recent Co-operative Congress by Dr. Peter Davis
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There is a vacuum of leadership at the top of many co-operative businesses.
Professional management struggling in co-operatives to ensure the survival
of their business are tempted to see co-operative values as a diversion from
their real needs.

This mistaken view arises from a received wisdom that co-operative
management operates separately as a technically competent civil service
functioning purely or mainly in terms of specific technical, legal and
commercial contexts.

Today mainstream management thinkers recognise that the practice of
management is value led. Yet by our recently defining co-operative identity
without any reference to management we have continued to misrepresent the
management function as being simply a matter of techniques. How can we
expect to strengthen mutuality and co-operation when we continue to
pretend that we can separate co-operative management from co-operative
leadership? These managers are the most central and crucial channel,
facilitator and controller of information and decision making within the
modern co-operative business. They have knowledge and skill far and away
beyond that of the competence of elected board members individually or
collectively. Anyone that seriously believes that top executive management
are not going to have influence over policy strategy and mission in
co-operative organisations today and haven't done so in the past is refusing
to face reality.

To expect the Board when confronted by a chief executive with the backing
of his or her management team to be able to exert leadership independently
and pro-actively of management is a myth. It threatens to undermine
co-operative democracy by creating cynicism in both parties, and weaken
entrepreneurship in the co-operative sector just when co-operatives need
it most.

Let's be clear about what's wrong with this set up. It is not the case that it
gives management too much power. It's more that it leaves them with too
little responsibility for the way they exercise that power. It enables
co-operative managers to see themselves as civil servants trying to steer
the ship of state despite its democratic encumbrances.

It leads to a conspiratorial mentality of them and us by both the management
and the board. It leads to a divided organisational culture just when we most
need unity of vision and purpose.

It leaves our most precious heritage - our co-operative values and principles
- in the hands of the elected board members and outside the competence of
our executive management team. Our values should be understood to be a
central tool of management practice in the co-operative context. They are the
defining point in our mission, our differentiation in the marketplace, and are
central in giving us that unique opportunity for competitive advantage that
mutuals can exercise in a market economy.

To be effective co-operative organisations today need to harness
professional management skills to co-operative values. Managers must be
recognised as being part of the co-operative identity and central to the
achievement of the co-operative purpose. Without the whole hearted
understanding and commitment by management we cannot expect our
ideals and values to produce tangible results into the next century.

Today effective co-operative management development must combine
co-operative values and purpose with the commercial context if we are to
succeed in turning around and growing co-operatives business. To achieve
this end we need Co-operative management development and continued
board member development. I believe the best organisational context for this
would be if societies implemented the original recommendation of the
working party on corporate governance and adopted a unified Co-operative
board led by the appointed chief executive and supported by the chief
financial controller and possibly the head of marketing.

This is not a proposition based on ideology or blind faith. We have practical
examples of Co-operative values applied in the context of professional
marketing strategies and total quality management delivering significant
market differentiation and competitive edge to co-operative products and
services. Co-operative management development is by definition a value
led management development that provides the basis for a professional
management with enhanced legitimacy. Such a management can provide
the focus and leadership to ensure a coherent and effectively led
co-operative main board.

Only a professionally led united main board can provide the leadership
to implement relevant total quality management and human resource
management strategies to achieve market leadership in cost and
product/service quality. At the same time I believe there is a strong case
for arguing that mutual values and structures provide the most appropriate
context for the implementation of these management techniques.

The paradox in the democratic process is that it works best when there is
a unified leadership based on a shared culture and clearly articulated shared
values. Separation of powers managed through committees will divide us,
sap at our vitality and reduce our ability to respond to the challenges that
confront us. The model for the State is not appropriate for a market based
membership association. Co-operatives need to communicate, mobilise and
engage their members in their unique mixture of commercial and social
purposes.

A unified board can held achieve this by :

a)	making the CEO take formal responsibility for the role of leadership
	that she/he exercises informally at present;

b)	abolishing the them and us mentality of separated powers for the
	united team approach;

c)	strengthen democracy by increasing the status of the board which
	the inclusion of two or three of the top management as appointed
	members would bring;

d)	make managers see the co-operative enterprise as a unified whole
	not as many do at present as a "retail" business with member
	relations tacked on for historical reasons;

e)	enable the board to remain firmly and by a large majority a directly
	elected board, but with a collective competence that will enhance its
	reputation and encourage the most able members to stand for
	election.

It's not really a question of whether managers should be servants or leaders.
Co-operative managers need to be leaders who serve. This requires a board
structure that recognises their leadership role by having them on the Board
as full members and also recognises their servant role by ensuring that the
CEO see themselves as being responsible for leading a team (of
predominantly directly elected lay members) reflecting the purpose for
which the co-operative was established namely to serve its members
needs by uniting them in association.

Managers leading boards on the basis of values rather than manipulating
them through the exercise of superior knowledge and skill is the way to
establish the identity and pride in co-operative organisation that will ensure
the commitment and unity of all its stakeholders.

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* Mr. Peter Davis is the Director, Unit for Membership-based
Organisations, University of Leicester, U.K.