Article in Co-operative News (UK) by David Thompson 8 May 2014
For all the sins of the Co-operative Group, one thing it could have avoided, and still can, is the most obvious principle of co-operation: the sourcing of member equity capital.
Certainly the Co-operative Group needs to make many significant changes, but replicating the plc (public limited company) model is not by any means the only way out of the tortured circumstances.
There are many large, thriving consumer co-operatives in the world that the Group could emulate immediately. Access to member capital is a major practice to be learned and replicated from these successful consumer co-operatives.
Almost all of the British newspaper stories about the beleaguered Group make repeated reference to its lack of access to capital – which, more, critically is access to member equity. Equity should come from member-owners – a key co-operative principle. Since that problem is of the society’s own making, it can be self remedied.
At the moment, the lack of member equity means that demands are being made on the Co-operative Group to sell off major assets to pay down debt and reduce borrowings. This would bring the carrying costs of debt down to a level that can be covered by earnings. These heritage assets represent the purchasing loyalty and contributed capital of generations of members over 170 years, and selling them should be a last resort – akin to selling seed corn.
What if the Co-operative Group took a different look at how to get its debt down while bringing its equity up? Look at two consumer co-operative solutions standing ready to serve.
Japan: As of their 2012 results, the 138 Japanese consumer food co-operatives had a total of 19,742,000 members. That capital investment was made up of an average shareholding of £191 and an average member bond-holding of £337. The average capital investment of each of those 19.7 million co-op members was £528.
The Japanese consumer food co-operatives hold $6,336m in share capital alone, a sum which translates to an impressive £3.7bn.
Canada: The Calgary Co-op, founded in the 1950s, serves the region around the city of Calgary in the province of Alberta, and has become the largest consumer-owned co-operative in Canada. Sales through the year ending 2 November 2013 were over CAD $1bn (£641m).
At the end of 2013, the Calgary Co-op paid out the equivalent of £18.3m in dividends to members on their patronage for 2013. The average member share capital investment in the Calgary Co-op is CAD $406 (£219). In addition, undistributed member equity is CAD $433 (£234) – so the average member capital of those 440,000 members is a total of £453.
Due to its strong equity and capital position, and subsequent smaller need to borrow capital for current operations (and the additional costs that entails), the Calgary Co-op has only £1.8m pounds outstanding of long term debt which it needs to service. In terms of ‘keeping it in the family’ – or in other words, following the principle of co-operation among co-operatives – the Calgary Co-ops’ main lender is Credit Union Central, a co-operative of Alberta’s credit unions.
But back to the Co-operative Group. What if it had in place an equity and member-capital program like the examples in Japan or Canada? Let’s accept the claim that there are eight million members of the Co-operative Group who have at least a £1 share.
If those eight million were the average members of the Japanese consumer co-operatives they would hold £1.5bn of non-interest bearing equity in the co-operative and hold an additional £2.7bn of low-interest costing bonds. So, total member investment would be £4.2bn.
If those members were the average members of the Calgary Co-op, they would hold £3.6bn of non-interest bearing equity in the Co-operative Group.
Some will be quick to point out that not all eight million members would do this – but it is clear that with a good plan and strong leadership, many consumer co-operatives around the world have successfully accumulated similarly healthy levels of member equity.
With this level of access to both member equity and capital, the fiscal picture of the Co-operative Group would change dramatically. The massive costs of serving the present unsupported debt would be removed and the Co-operative Group could transform itself into a vibrant community retailer in Britain. It would also regain authentic member support and involvement, possibly leading to a renaissance of member participation.
The 1854 Almanac of the Rochdale Pioneers stated: “How many stores have languished for years, flabby in pocket and lean in limb because its shabby minded members starved it by hardly subscribing one pound each?”
In 1844, the Equitable Society of Rochdale Pioneers required members to have a share investment of one pound (two weeks’ wages) with the agreement to bring their share investment up to five pounds (ten weeks’ wages). Capital starvation for co-operatives came to an end in 1844. Ignoring history and a critical tool, it was allowed to return.
To put this impressive sum into perspective, in today’s world, the Rochdale Pioneers’ one week’s wages would be £517 as the opening share investment and £5,170 as the required full share investment put in over four years.
If the Co-operative Group is not just to survive but thrive, ‘flabby in pocket and lean in limb’ will not do. Like the pioneers of old, the Co-operative Group’s leaders need to ask members to invest capital in their business.
It is time to stop “shabby” capital and bring co-operative membership capital into the modern day. The Group can once again be a leader in the nation by providing goods and services to its member-owners and, through the voice of those same member-owners, making important ethical and economic changes in the marketplace.
The Group cannot succeed on borrowed capital from banks alone. The equity it needs is sitting in the pockets of the members. It is time for the members to once again be latter-day Pioneers and be the true owners of their co-operative.
• David J. Thompson, President of the California-based Twin Pines Co-operative Foundation, has been writing about and speaking on a larger role for “member capital” in co-operatives since the 1970s. Born in Blackpool, England, he immigrated to the US in 1962. Thompson helped initiate the National Co-operative Bank and was its first Director of Planning. Twin Pines Co-operative Foundation is the largest co-op supplier of equity capital to co-operative development organizations in the USA. www.community.coop