This document has been made available in electronic format by the International Co-operative Alliance (ICA) 

Book Review : Co-operative Management: A Philosophy for Business by Peter Davis and John Donaldson (1998)

Oct., 1998
(Source: Co-op Dialogue, Vol. 8, No. 2, July-Sept, 1998, pp.35-36)

ISBN 0 9530586 0 3, pp.130; price per copy £15.50 (UK & Europe) £16.50 (rest of the world)
Published by New Harmony Press, Cheltenham, UK

This book is a provocative work stimulating arguments on the nature of Co-operative Management. It is meant to contribute to ‘a long-overdue debate on the conceptual problems of translating co-operative identity and basic values/principles into a framework of co-operative commercial management practice’.  Prof. Peter Davis is founder Director of the Unit for Membership Based Organisations in the Management Center, University of Leicester.  He has twice been chairman of the British Society for Co-operative Studies and is a special adviser to the ICA Development Trust. Mr. John Donaldson is a researcher on the business ethics.

Co-operative Management is a subject which has been rarely highlighted, partly due to hesitation to entering the sanctuary of top managers who might reject the objective observation from outsiders, and partly due to widely held perception that there might be no distinct features from the mainstream theory and practice.  This explains why there were very few literature on this subject.  One exception is ‘Principles of Co-operative Management’ written by Mr. Isao Takamura, the former President of Co-op Kobe as
well as the JCCU, which had projected the empirical studies on roles of Top Management based on his experiences in the consumer co-operatives for 40 years.

Although the authors and Takamura had taken quite different approaches in dealing with the subject, it’s noteworthy that they reached the similar conclusion stressing the urgent need to establish the professional management backed by the co-operative values and principles.

This book consists of six chapters.  Chapter One notes mainstream management decision-making process find difficulty in responding to demands on business put by the changing environment in terms of sustainability, distributive justice, ethical standards, health safety and welfare.

The authors explain the reason for this is the absence of a relevant set of human-centered values at the core of management practice and insist the necessity of alternative models of management based on the values and philosophy.  Chapter Two traces the development of management theories; from Henri Fayol and Elton Mayo, to “scientific management” of Frederick W. Taylor, the human relations school and “contingency” theory, identifying their key assumptions together with the ideas of some critics. The authors identify a need for making the values and philosophical assumptions of management theories explicit.

Chapter Three discusses the role and possibilities for co-operative form of business in providing access to the labour market which is increasing insecurity. The authors suggest the value basis and the quality of the professional leadership exercised by managers will continue to be a determining factor in resolving the labour market problems.  Chapter Four discusses the actual and possible role of business ethics in continuing review of the gap between theory and practice in business, which has been prompted by financial scandals or actions in restraint of trade.  Outlining the main ethical theories, the authors question whether business ethics can be a cure for business ills. It is concluded that business ethics can usefully contribute as part of a balanced structure for business.

In Chapters Five and Six, the authors present a set of principles for Co-operative Management and discuss on applying these to the practices.  They recognized in these years co-operative values have received extensive analysis that has led to the adoption of the ICA Statement on Co-operative Identity at the Centennial Congress in 1995 but pointed out the co-operative movement has not yet linked these values coherently to a practice of co-operative management.

It’s true the way to operationalize co-operative identity in social and commercial terms has not been properly debated. They brought a set of principles together in the context of business management, which they claim could provide the basis for Co-operative Management. The selected seven principles are:

1.  pluralism
2.  mutuality
3.  individual autonomy
4.  distributive justice
5.  “natural” justice
6.  people-centredness
7.  multiple role of work and labour

The authors claim Co-operative Management is a philosophy of management that can be applied irrespective of ownership structure. They admit that co-operatives have not so far developed a truly Co-operative Management philosophy and as a matter of fact private sector firms with management that has caught the mood of the market are already ahead of co-operative sector, mentioning examples of the Body Shop and supermarket chains (Tesco and so on).  They illustrated the case of the Co-operative Bank as the best example of applying Co-operative Management.  Mr. Terry Thomas, as the chief executive of the Bank introduced its ethical policy programme and realized “the turnaround in its fortunes from a marginal and loss making, low profile part of the CWS” to “the high profile positive co-operative brand in the British co-operative movement ‘s postwar history”.

Here, I’d like to make two comments.  First of all, the authors take note of the Japanese-style management, citing Ronald Dore who postulated two types of business enterprises, the ‘company law model of the firm’ and the ‘community model of the firm’, contrasting the British management and Japanese one.

In the former model, the interests of shareholders are paramount while managers are the agents of shareholders. In the latter model, the firm is seen as a team in which all constituencies have the common interests in the prosperity of the firm while managers are expected to play a trustee’s role.

As widely known, the Japanese management system is characterized by the groupism or long-term employment and business relationship based on trust and loyalty and takes forms of lifetime employment, the rule of seniority, in-house trade union and keiretsu, which have been seen to be major contributors to the Japanese economic catch up strategy.

However, many of those elements turned to be the impediments in the face of the global competition led by Anglo-American capitalism. The Japanese business leaders praised the superiority of the Japanese system until the beginning of nineties, but now lost self-confidence in it and rushed to adapt to the ‘global standard’.

The chain of financial crises in the Asian economies since last year also put spurs to this direction.  It seems there is only one option for the future management style.  However, it is also clear that both models have advantages and shortcomings. They are not likely to converge in the foreseeable future , because the different value systems rooted in the predominant culture will persist for the time being, and at this moment it is advisable to learn lessons from each other.

Secondly, how Co-operative Management is linked with corporate governance ?  On the role of the co-operative management, the authors classify ‘civil servant’ approach and value-based one. The former approach is functionally and legally oriented, placing the emphasis upon division of responsibilities between policy development by lay board (democratic process is concerned) and immediate tasks of operation and implementation by managers (commercial process is concerned).  In this model, governance and business policy are legally the responsibility of the lay leadership.

In contrast, the authors propose the latter approach stressing a new role of leadership for managers.  As they put it, “the professional management has responsibility for the overall leadership of the co-operative, including ensuring the functioning of membership democracy and governance.”  It is right, especially to the British consumer co-operatives in which CEO is not part of the board except for one society and the Co-operative Union recommended to co-opt Chief executives in the board.  However, it’s also important that the board have the effective checking and monitoring function to the conducts of management.

The Japanese consumer co-operatives presents the other extreme case in which the top management is part of the board as the executive president or the managing director.  In some societies those in top management position dominate the boards since they concentrate information based on business practices while lay board members are mostly housewives who are representing the views of the majority membership but not necessarily equipped with enough knowledge and information.

The classic notation of ‘management control’ presented by Berle and Means does fit most typically to these co-operatives where one member has one vote and there are no institutional investors who can exert influence through their representatives in the board or accumulated votes in the general assembly.

Such unrestrained power of the top management may easily lead the abuse of power, corruption and other inappropriate behaviors. In order to cure these maladies, a right balance should be taken between management’s overall leadership and effective monitoring by the board. In this regard, it is of crucial importance to recruit and develop co-operative top management, train and empower lay board members, and improve governance.

In conclusion, the authors insist Co-operative Management can become the philosophy of modern management in the future, mentioning three reasons. Firstly, it represents what consumer want, given autonomous choices.

Secondly, it represents the logical development of management into a profession with a human-centred ethic at the core of its practice.

Thirdly, it is better placed to respond to the economic reality as it is developing. Thus, co-operatives are well placed to take full advantage of Co-operative Management and provide a model for others to follow.

The authors conclude by raising question whether Co-operative Management development can be mobilized quickly enough for them to be able to respond to the opportunities.

-Akira Kurimoto, Gen. Manager, Int'l Dept, JCCU, Japan