Cooperative

1. Overview

The cooperative is a business structure owned and democratically controlled by its members, who can be the workers, consumers, or producers of the goods or services the business provides. The core purpose of a cooperative is to meet the common economic, social, and cultural needs and aspirations of its members, rather than to generate profit for external investors. This member-centric approach fundamentally distinguishes cooperatives from traditional capitalist enterprises. The problem that the cooperative model addresses is the inherent conflict of interest in conventional businesses between maximizing returns for shareholders and creating value for customers, employees, and the community. By aligning ownership with the people who are most directly affected by the business’s operations, cooperatives aim to create more equitable, sustainable, and community-oriented enterprises.

The origins of the modern cooperative movement can be traced back to the 18th and 19th centuries, with early examples like the Fenwick Weavers’ Society in Scotland (1761) and the Rochdale Society of Equitable Pioneers in England (1844). The Rochdale Pioneers are particularly significant for establishing a set of principles that have become the foundation of the modern cooperative movement. These principles, which include open and voluntary membership, democratic member control, and member economic participation, were a direct response to the social and economic hardships of the Industrial Revolution. Thinkers and social reformers like Robert Owen were instrumental in popularizing the idea of cooperative enterprises as a more just and humane alternative to the exploitative conditions of early industrial capitalism.

In the context of commons-aligned value creation, the cooperative model is highly relevant. By their very nature, cooperatives are a form of economic commons where the resources and wealth generated by the enterprise are managed and shared by the community of members. This internalizes the value created by the business, preventing its extraction by outside interests and ensuring that it circulates within the community. The democratic governance structure of cooperatives also reflects the principles of commoning, where resources are managed through collective decision-making and shared stewardship. As such, cooperatives provide a powerful legal and organizational framework for building businesses that are not only economically viable but also socially and environmentally responsible, contributing to the creation and preservation of shared wealth and resources.

2. Core Principles

1. Voluntary and Open Membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination.
2. Democratic Member Control: Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. In primary cooperatives, members have equal voting rights (one member, one vote).
3. Member Economic Participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership.
4. Autonomy and Independence: Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
5. Education, Training, and Information: Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public – particularly young people and opinion leaders – about the nature and benefits of cooperation.
6. Cooperation among Cooperatives: Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.

3. Key Practices

1. One Member, One Vote: This is the cornerstone of cooperative democracy, ensuring that decision-making power is distributed equally among members, regardless of their capital contribution.
2. Member Patronage and Surplus Distribution: Cooperatives often distribute any surplus (profit) back to their members in proportion to their patronage (how much they use the cooperative’s services). This practice reinforces the principle of member economic participation and ensures that the benefits of the cooperative are shared equitably.
3. Regular Member Meetings: Holding regular general meetings where members can participate in decision-making, elect representatives, and hold the board and management accountable is a key practice for maintaining democratic control.
4. Board of Directors Elected by Members: The board of directors, which is responsible for the strategic direction and oversight of the cooperative, is elected from and by the membership, ensuring that the leadership is accountable to the members.
5. Bylaws and Governing Documents: Cooperatives are governed by a set of bylaws that are created and can be amended by the members. These documents outline the rights and responsibilities of members, the structure of the cooperative, and the rules for its operation.
6. Community Investment: Many cooperatives invest a portion of their profits back into the community, supporting local initiatives and demonstrating their commitment to social responsibility.
7. Education and Training Programs: Successful cooperatives invest in educating their members, employees, and the public about the cooperative model and the specific industry in which they operate.
8. Networking with Other Cooperatives: Actively collaborating with other cooperatives at the local, national, and international levels strengthens the cooperative movement as a whole and can provide mutual support and business opportunities.

4. Implementation

Implementing a cooperative business model involves a series of deliberate steps, starting with a group of individuals who share a common need or aspiration. The first step is to form a steering committee to explore the feasibility of the cooperative idea. This involves conducting a needs assessment, market research, and developing a preliminary business plan. Once the idea is deemed viable, the next step is to recruit founding members who are willing to invest their time, energy, and capital to get the cooperative off the ground. This is a critical phase, as the commitment and shared vision of the founding members will be the driving force behind the new enterprise.

With a core group of members in place, the next step is to legally incorporate the cooperative and draft its bylaws. The bylaws are the constitution of the cooperative, defining its purpose, membership requirements, governance structure, and how it will operate. It is essential to involve the members in this process to ensure that the bylaws reflect their shared values and goals. Once the cooperative is legally established, the focus shifts to securing financing, hiring staff (if necessary), and launching the business. Throughout this process, it is crucial to maintain open communication and a democratic decision-making process to build trust and a sense of ownership among the members.

Key considerations for implementing a cooperative include ensuring that there is a genuine common need that the cooperative can address, building a strong and engaged membership base, and developing a sound business plan. Real-world examples of successful cooperatives are abundant and diverse, ranging from large agricultural cooperatives like Land O’Lakes to consumer cooperatives like REI (Recreational Equipment, Inc.) and worker cooperatives like the Mondragon Corporation in Spain. These examples demonstrate the versatility and resilience of the cooperative model across different industries and scales.

5. 7 Pillars Assessment

6. When to Use

• When a group of people shares a common economic, social, or cultural need that is not being met by the market.
• When there is a desire to create a business that is democratically owned and controlled by the people who use its services or work there.
• When the goal is to create a more equitable and sustainable business that prioritizes people and planet over profit.
• When there is a need to pool resources and share risks to achieve a common goal.
• When a community wants to create local jobs and keep wealth circulating within the local economy.
• When a group of producers wants to have more control over the marketing and distribution of their products.

7. Anti-Patterns and Gotchas

• Lack of Member Participation: If members are not actively involved in the governance of the cooperative, it can lead to a small group of individuals making decisions for the entire organization, undermining its democratic nature.
• Poor Management: Like any business, a cooperative needs competent management to be successful. Poor financial management, lack of a clear strategy, or inability to adapt to changing market conditions can lead to failure.
• Conflict Among Members: Disagreements and conflicts are inevitable in any organization, but in a cooperative, they can be particularly damaging if not managed effectively. A lack of clear communication channels and conflict resolution mechanisms can lead to a breakdown in trust and cooperation.
• Ignoring the Cooperative Principles: If a cooperative starts to prioritize profit over its members’ needs or abandons its commitment to democratic governance, it can lose its identity and purpose.
• Failure to Educate Members: If members do not understand the cooperative model and their rights and responsibilities, they will not be able to participate effectively in the governance of the cooperative.
• Competition from Traditional Businesses: Cooperatives often have to compete with larger, better-funded traditional businesses, which can be a significant challenge.

8. References

1. International Co-operative Alliance. (n.d.). Co-operative identity, values & principles.
2. National Cooperative Business Association CLUSA International. (n.d.). What Is a Co-op?
3. Wikipedia. (2024, October 26). Cooperative.
4. U.S. Department of Agriculture. (n.d.). How to Start a Cooperative.
5. University of Wisconsin Center for Cooperatives. (n.d.). Cooperative Principles.