Executive capture is not a modern phenomenon. Members were complaining about their society managers in the 1850s. In those days it wasn’t sophisticated boardroom power struggles, just managers running off with the takings. But the theme is the same. If a co-operative is an association of people set up to provide for their needs, how can we ensure our employee managers are really running the enterprise in our interests?
Of course this problem isn’t confined to the co-op movement. Experts have long pondered the ‘agent/principal’ problem when managers act in their own interests rather than for their investors’. A series of corporate governance initiatives and reports have unsuccessfully tried to address this problem, each following a corporate collapse. Enron, WorldCom, Rover, Northern Rock, RBS, HBOS, Lloyds TSB, Southern Cross, City Link… The procession seems unstoppable.
Democracy throws another spanner in the works. An oligarchy, a clique, often seems to seize dominance by election and then suppress legitimate opposition.
Robert Michels coined his Iron Law of Oligarchy in 1911, which states that a self-reproducing, self- defining ruling clique is unavoidable in all representative democracies. He eventually joined Mussolini’s fascists to celebrate the inevitability of oligarchy. Most people would however still agree with Churchill’s quip that democracy is the least worst form of government.
In the aftermath of the Co-op Group implosion, we have a new governance structure intended to balance the interests of members and executives. It has the three parties recommended in classical ‘separation of powers’ theory: a legislature to make the decisions, an executive to enact them and a judiciary to ensure the other two do what they are supposed to.
But, under the current Group rules, how well does the annual meeting, board and council (including the senate) measure up to this ideal?
Many co-operatives and democratic organisations, such as Mondragon and John Lewis, use this ‘triple board’ model. In contrast, oligarchic regimes tend to put all three roles in one wrapper – for example the Chinese Communist Party (and arguably the European Commission).
But in these ultra-connected, frenetic times when financial fortunes are made and lost in micro-seconds and political fortunes in not much longer, aren’t these arrangements too slow and too inflexible? Do we really still need this cumbersome, energy sapping representational bureaucracy? There are alternatives.
Many radical co-operatives practice active democracy and consensus decision-making. They require active involvement by the beneficiary members of co-ops, in their governance. Radical Routes is a British example. If you want to borrow money from Radical Routes to set up a housing or worker co-op, its governance has to conform to this model and the co-op has to send representatives to the quarterly gatherings of Radical Routes co-ops to report their financial and co-operative performance to their peers. It’s messy, like most dealings between human beings, but it works.
Yes, you may say, it might work in a tiny housing or bakery co-op – but at bigger scale?
My co-op, Suma, has 150 headstrong worker members who will not be ‘ordered around’ by ‘directors’ – even those elected by themselves. By prioritising self-management and active involvement of individual members, we get an organic self-maintaining governance that ‘just happens’ by the ongoing interaction of active members. So the board has a co-ordinating rather than a directing function.
Again, it is messy, but the evidence of its effectiveness is excellent business performance and member benefits, and managers cannot take control of the co-op.
Still tiny compared to the Group? How about the 14,000 Italian social care co-ops? Most have less than 100 members, to avoid the need for executive management and maintain a collective governance ethos. If a social co-op grows too big, they must bud off a new co-op. They call this ‘strawberry patch’ development in the way strawberry plants send out runners to make new plants.
However, these individual self- governing co-ops network in vast voluntary consortia – the largest of which has a thousand member co-ops. At that scale, the consortia wield significant political and economic power. In Britain we tend to grow individual coops until we need professional executive managers and then we complain we lose control of them. Are the Italian consortia a practical alternative?
It’s an interesting thought. What would the Co-op Group and other large UK co-ops look like if we followed the Italian example?
Combating management capture will be discussed at the Ways Forward 4 conference. Click here to find out more about the conference, which takes place on 21 January in Manchester.
Article by Bob Cannell