Ed Mayo: I work in the co-operative sector. Co-ops are different and much of this, as I see it, comes down to the fact that co-ops tend to be characterised by complex purpose.

We are set up primarily to meet needs, not to generate profits. Our owners have overlapping interests, as they are both investors and participants in the enterprise (such as customers or workers). We are expected to live up to seven different (internationally agreed) principles and how we do that – our culture – is shaped by a range of ethical values.

Telegraph pole outside a co-operative nursery, Seoul

A tide of simplicity

In contrast, the wider business environment within which we operate is increasingly characterised by assumptions of simple purpose: return on capital for external investors.

In most markets, the shift to simple has shaped institutions and policies, such as accounting standards or taxation, that are designed to encourage performance against that purpose. As a result, as co-ops, we are often swimming against a tide of simplicity.

How do co-ops around the world track their performance or design their reporting systems? This is the topic next week in London (neatly falling in the UK Co-operatives Fortnight with its theme of the Co-operative Difference) for an international symposium on co-operative accounting and reporting, organised by the great co-op business school, Sobey (from St Mary’s Halifax, Canada).

Accounting, set up to make clear what is true and fair, is a case study of simplicity versus complexity in business. The move to harmonise international corporate accounting standards over the last decade looks to reduce the costs of complexities at a global level of different accounting traditions – a worthwhile goal (even if somehow in the process, the complexity of delivering global standards further reinforces the dominance of the big four accountancy firms).

But the drive for accounting simplicity can cross over into an attempt to reduce diversity. From time to time, international accounting policy makers want to move member capital from an asset, co-invested in a joint endeavour, to a liability, assuming that it is a promise of money owed by the business to those who participate in it. Why? For simplicity only, as if all companies could be treated as if they were owned by investors, rather than other stakeholders. But for financial co-operatives, among others, a move like this could mean instant closure.

For and against

Simplicity in business, in terms of return on capital, has significant strengths of course, including these five:

1. Decision-making. It is easier within the business to judge trade-offs and investment opportunities.
2. Capability. There are plenty of tools to draw on, plenty of expertise to bring in.
3. Communication. Not surprisingly, simplicity is easier to communicate. Expectations are clearer, the chance for conflict reduced.
4. Comparison. With net profit, return on capital and share prices, it easier to see and to compare how a business is performing.
5. Accountability. Simpler purpose makes simpler accountability, because it is clearer what to account for – less room for people who use complexity as a source of obfuscation.

Staircase at the National Co-op Centre, Warsaw

But simplicity becomes an obstacle, when the context changes and these same strengths turn to weakness:

X Decision-making. Chasing financial results, like share price, makes companies act for the short-term rather than on long-term drivers of success.

X Capability. More subtle aspects of the business, such as culture, are less valued.

X Communication. The purpose of making someone else money is not motivating for the workforce or for customers.

X Comparison. Simple metrics can be misleading, encouraging conformity rather than diversity and learning.

X Accountability. Wider social responsibility or stakeholder concerns are sidelined, generating the potential for risk and backlash

The case for complexity is that businesses operate in complex and fast-moving environments. To succeed, they need sufficient complexity in their own feedback and learning systems to adapt and improve.

One example is innovation. The two most common sources for business innovation are workers and customers. Where you are owned by your workforce, or by your customers, as in the co-operative model, you stand a better chance of capturing those ideas and adapting in line what they offer.

A second example is loyalty. Where people identify personally and collectively with the purpose of a business, going beyond simply making money, they are likely to be more engaged and more loyal to the business, as workers, suppliers or as customers.

The third example is the challenge of sustainable development, increasingly the focus of policy concern and action. Business is challenged to act on a complex array of risks and opportunities that are hard to reduce to simple metrics.

Taking these, the case for complexity in business can perhaps be expressed in these five characteristics:

1. Realism. The context within which companies operate is complex, so matching this can lead to more realistic decisions.
2. Responsiveness. Embracing complexity encourages a culture of openness and enquiry, helpful for listening and learning.
3. Safety. Companies that look at their interactions with the world through a lens of complexity are less likely to be blindsided when risks arise.
4. Strategy. In complex models, no one aspect is weighed alone without addressing the totality, supporting companies in moving forward in an integrated way.
5. Sustainability. The challenges of sustainability are complex and companies that succeed will be those able to sense and adapt to hard-to-predict changes.

There are other, more philosophical grounds too to affirm complex purpose – as a counter to the ‘financialisation’ of life, as an expression of freedom and as a component of cultural diversity.

The search for middle ground

As I see it, the response of business policy in many jurisdictions is to mitigate the weaknesses of simplicity, by interventions that encourage and require compensating actions to restore some complexity.

In a European context, stakeholder engagement and to a degree, stakeholder accountability, is a longstanding tradition. Having workers on the boards of German companies (co-determination), a tradition with roots post-war in the co-operative model, has been good for the German economy.

The Nordic countries have led the way on gender diversity, again with the argument that company boards need mixed perspectives rather than narrow unity – just one more example of the ‘law of requisite variety’: that you have to be able to reflect the complexity of your context in order to succeed in that context over time.

In the UK, the draft new governance code from the Financial Reporting Council is an overt attempt to move listed companies towards a greater degree of complexity – encouraging a focus on long-term purpose, engagement with the workforce, values and culture.

To that extent, companies are being encouraged to be more co-operative, more complex. And these are areas in which co-ops have tended to lead – on values for example. As I point out in my book, Values: how to bring values to life in your business, values evolved as a collaborative decision-making tool in the context of complex options. Values are a short-cut way of making decisions – as one co-op procurement lead says to me, “values are our handrails.”

So, should co-ops also move the same way, adding to complexity, further complexity?

My view by and large is no. There are of course some of those opportunities, evident in the rise of more participatory tools for decision-making, and the hopeful interest in multi-stakeholder models of governance.

I would argue that if co-ops need to change, it is usually towards more simple complexity.

An example is the UK’s consumer retail co-ops. For larger and more longstanding co-ops, there can always be a degree of drift in the sheer accumulation of expectations. To succeed, a co-op needs to be clear on how it makes a difference to its members.

Lincolnshire Co-operative has been going through exactly this process, with some support from us at Co-operatives UK. Successful, with over 250,000 members, and 150 years under its belt, the Chief Executive, Ursula Lidbetter has supported a process where the Board and members develop a clear forward purpose for the society: a few words, simple to say but still rich and complex in content and intent for what makes it so different as a business.

With a clear focus on what matters, what value is for members, it is then easier to choose the metrics that can paint a picture, alongside other forms of feedback, of performance. Merthyr Valley Homes tracks a range of indicators, including spending in the local economy and weekly levels of litter. The results are open to the members: residents and staff. For one social club in Yorkshire, the lead indicator is barrels of beer sold weekly. Members tell them what else they should be doing – the benefit of a participatory co-op, but key indicators help to balance that complexity of expectation with a more simple story of performance over time.

That is something which we are helping with, through the development of guidelines for the co-operative sector in narrative reporting.

More simplicity or more complexity?

The balance between simple and complex is one many others have considered. The words of Oliver Wendell Holmes, a late nineteenth century US Supreme Court Justice, are worth the repetition: “for the simplicity that lies this side of complexity, I would not give a fig, but for the simplicity that lies on the other side of complexity, I would give my life.”

The great mathematicians and philosopher Alfred North Whitehead, said in a lecture a century ago: “we are apt to fall into the error of thinking that the facts are simple because simplicity is the goal of our quest. The guiding motto in the life of every natural philosopher should be, ‘Seek simplicity and distrust it.”

I appreciate the modern Law of Conservation of Complexity, also called Tesler’s Law, after Larry Tesler, the computer scientist who is credited with inventing cut/copy and paste. This states: Every application must have an inherent amount of irreducible complexity… The only question is who will have to deal with it.

The implication is that designers can help ensure that the simple is not over-simplistic and the complex is not over-complicated. Computers, since Tesler’s days at Xerox have become more complex in terms of technology but more simple in terms of ease of use. In turn, complex software, such as the open source Unix operating programme suite, might be designed on the basis of simple subsets, collaboratively assembled, that do a single task well.

In business, it seems that simplicity alone is of value, complexity a necessary constraint. In terms of business philosophy, simplicity sells.

Ceiling at a coop and trade union education centre, Helsingor

I argue the opposite. There is a value to complexity, and a growing value at that. And yet, the need for simplicity remains a necessary constraint.

Like a flock of birds, wheeling in the sky, complex systems can emerge from simple rules, while retaining a function, of collective intelligence, what Geoff Mulgan calls ‘the bigger mind’ – or to the observer, beauty – which can’t simply be reduced down to those rules.

For my colleagues in the co-operative sector, the moral is that we should embrace complexity – and promote our understanding on how best to organise around it.

——————-

Footnote

This is all an example perhaps of a wider challenge that goes to the heart of a generation of debates on economics. A substantive body of work looks to redefine wealth and progress beyond the simple aggregate of money flows in the economy (or Gross Domestic Product), to integrate the context of unpaid labour, well-being, economic externalities and sustainability thresholds.

What we have learned is that while a new map (such as the triple bottom line) can sometimes become part of the landscape itself, a static description is not enough. There needs to a dynamic perspective that integrates things – a theory of change.

You can, for example, have as many different forms of ‘capital’ as you like in your (satellite) national accounts, but if they don’t make it easier to build an account of what is happening across the complexity of those domains, they don’t necessarily help. Of course, the simple option, which is to use money as a common denominator simplifies may help even less if it assumes that we can buy our way out of one or another dimension of collapse in environmental functions that are critical to habitable life.

The United Nations Sustainable Development Goals gives one interpretative framework and offers an important reference point. It is good to see it used by so many co-ops and Fairtrade organisations worldwide in their planning. And yet, as a complex array, it does not resolve the challenge of displacing the dominant simplicity of economic growth.

The struggle for what Paul Ekins and Manfred Max-Neef many years ago called ‘Real-Life Economics’, reflecting the complexity of human nature and natural systems, continues…

Republished from Ed Mayo’s Blog

Photo by bdesham

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This is the idea behind investment clubs. Individual members tout companies they believe in. The club pools funds and invests in a selected company.

Co-op Principal began an investment club aimed at supporting cooperatives. In addition to keeping money local and providing capital to organizations with a social mission, members learn about investing.

Extracted from: http://www.coopwatercooler.com/discussions//building-to-co-op-movement-base-with-investment-clubs

Canadian co-op studies scholar Brett Fairbairn locates a tension in what he asserts to be the “dualistic” view of cooperatives, characterized by the twin set of economic and social goals. Within that framework, “industry” people (for Fairbairn, often managers) tend to focus on the primacy of economic goals while viewing social goals as a secondary expense, while “movement” people (Fairbairn introduces the wonderful phrase “arbiters of cooperative purity”) perceive the social mission as the primary raison de etre of cooperation.

The jump to applying this time-tested model to investing in cooperatives was first made in Minneapolis in 2013, when Co-op Principal was established. Club members agree to invest $50 per month, and they meet monthly (often at a local brewery) to discuss and vote on co-op investment opportunities. Since its founding, Co-op Principal has had a five-figure capital impact on its local co-op economy, and the club has generated annual returns for its members in the 2-4% range.

The vision of Co-op Principal’s founders was not simply to create a club in their city, but to spread the model across the country. To advance this agenda, they created a parallel non-profit intended to house model documents and provide support to other groups looking to get their own clubs going. Since its establishment, a similar club is now up and running in Boston, and at least three more are in the process of organizing for early 2017 launches. Active conversations are also now underway around how the growing of network of clubs can contribute resources to the non-profit for the purpose of developing the sort of shared plug-and-play online infrastructure that could drastically simplify the process of both starting new clubs and operating existing ones.

In short, co-op investment clubs are easy to set up (and hopefully will become even easier in the coming year) and have the potential to boost any community’s co-op movement in a number of positive ways. As such, every committed cooperator should seek out such a club in their community and, if it doesn’t exist, reach out to Co-op Principal for advice about starting one. Through small monthly investments and building a welcoming community of committed co-op enthusiasts, a robust network of cooperating co-op investment clubs could form the foundation of a reinvigorated co-op movement.

Extracted from: http://thecp.coop/

The Cooperative Principal provides start-up know how and on-going education to everyday people who come together to invest in a radically different, co-operative future.

 We were frustrated with Wall Street and the lack of alternatives so we did some homework. While the name investment club carries some baggage, as legal entities investment clubs are granted some benefits that we can actually use to change the status quo. Most importantly, they can reduce the financial hurdle that often exists if you want to do something interesting, outside of Wall Street with your money. So, we started the Cooperative Principal to provide start-up know how and on-going education to everyday people who come together to invest in a radically different, co-operative future.

In order to make it easier for folks to start and run local investment clubs, we founded the Cooperative Principal. In terms of organizational structure, think of a bike wheel where the center or hub is the Cooperative Principal (CP), a Minnesota based non-profit. This center hub serves the local clubs that are at the end of the spokes, around the wheel. The CP provides the education, documents and some administrative support to make starting a legal, properly registered club easier. Then, on an on-going basis, the CP provides investment ideas and analysis, facilitates local clubs connecting with each other and promotes the growth of the larger co-op movement.

This is the beauty of CP Investment Clubs, people who on their own can’t afford to invest in their values now have a vehicle to do so and co-ops have access to a new source of capital.

Beyond the dollars and cents, there is a social and educational component to The Cooperative Principal. Members meet in person a minimum of 4 times per year, ideally in a social setting (think microbrewery!) and the clubs operate in a cooperative, democratic manner. Based on investment analysis from the central non-profit, or their own research, members discuss and vote on where to put their pooled funds. Club members are both participating in their own democratic organizations and supporting the co-op economy in a way that is only possible by working together.

Extracted from: http://www.sharesavespend.com/blog/investment-club-reimagined

The Cooperative Principal is a new nonprofit organization that provides know-how and ongoing education to help start and run a local investment club—all with the goal of supporting cooperatives, organizations owned and operated for the benefit of their members.

Even though investment clubs aren’t as wildly popular as they once were, they still offer a great way to build your investment acumen. They can also provide the opportunity to learn about businesses, in my case co-ops in my community, and meet like-minded people.

At every meeting a member of our club presents an investment opportunity. The state I live in, Minnesota, leads the nation in business related co-ops, so we have many options to discuss. Then we vote on where to put our pooled funds. We have invested in five cooperatives so far including food, maple syrup and an investment co-op that buys and develops real estate in our community.

 A few important takeaways

1. Systematic investing, whether through an investment club or on your own, is important for people of all ages.

2. Supporting local and regional co-ops through periodic investments is a great way to link money and your values.

3. Investment clubs can give you a forum to pool money with like-minded people and make a meaningful impact on your community and region.

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In the story of co-operative enterprises worldwide, there can be a powerful alignment between the ‘hard side’ of business structure and ownership, and the ‘soft side’ of business values and culture. There are 1.6 million co-operative enterprises worldwide, linked in theory under a common statement of identity and set of values. In the book Values, I look at the practice of this and the extent to which co-ops live up to their stated values.

A guest contribution from Ed Mayo, Secretary General of Co-operatives UK,

Values are what matter to us, what motivate us. As such, values have the power to encourage voluntary action and effort that goes beyond the narrow limits of individual self-interest. Values help us to work together.

How do values fit with models of organisation?

In commercial business, where participation is subject to contract and compensation, there are times when that same voluntarism, or ‘discretionary effort’ in the jargon, is critical to the enterprise. This insight underpins a new wave of attention to ‘employee engagement’ in many countries.

A different way to approach the case for investing in intrinsic values is the extent to which they can drive positive norms and behaviours, such as loyalty or ideas for innovation, in customers, suppliers or employees. The extraordinary success of open source or free software, the importance of volunteering in civil society, the power and reach of faith communities, are examples of institutional activity that are dependent on the free and willing collaboration of people on the basis of sufficient overlap of values and purpose.

There is plenty of evidence that businesses with strong sets of values perform better than those without. Research on around 700 firms, using five years of data compiled by the Great Place to Work initiative, suggests that, while there is no performance link with firms that have simply published a set of values, there is a strong positive link with those firms whose values are seen within the company to be prominent.

At their best, shared values create a northbound train – the effect of everybody focused on the same direction. At their worst, a clash of values can distract and destroy any business.

At the same time, it is mistaken to think that business behaviour you might not approve of is not shaped by values. They may just be the wrong values – for example, of power, status or personal greed. To effect change, though, values are still where you have to start. If you are concerned with fairness and democracy, for example, the question is what forms of ownership and control best fit with those values?

What the research can’t prove, though, is whether this is correlation or causation. Is it the case that the best-performing firms are so well organised that, as an illustration of their high performance, they have strong, embedded values? Or is it the case that those values help to reinforce and even drive that high performance?

The same research concludes that going public reduces the extent to which companies can focus on ‘integrity as short-term decisions can carry undue weight. Privately-owned companies (including venture capital-backed organisations) tend to have higher levels of integrity than publicly-quoted companies.’

The ultimate owners set the formal rules and structure of the business. While values are not transmitted in a top down way – contrary to the myths of business leadership – the structures of power in an enterprise shape the values that drive the business.

In listed companies, the owners are the investors. In a co-operative, they are the members. In a co-operative, values and/or their associated principles are typically included in the articles of association, giving a mandate for action. There is a parallel here with B Corporation, the growing field of companies that write public benefit into the articles of the firm. There are hopeful moments like this in the life of many a business, such as when a business founder retires and explores employee ownership as a way to take it forward, when ownership opens up and offers a way to lock in the values of the firm for good.

In the story of co-operative enterprises worldwide, there can be a powerful alignment between the ‘hard side’ of business structure and ownership, and the ‘soft side’ of business values and culture. There are 1.6 million co-operative enterprises worldwide, linked in theory under a common statement of identity and set of values. In the book Values, I look at the practice of this and the extent to which co-ops live up to their stated values.

As Professor David Wheeler, President and Vice Chancellor of Cape Breton University, Canada, says: ‘don’t look to a static list of stated principles, when what really matters is the development, articulation and evolutionary processes that surround them.’ But there is some evidence to suggest that, at the very least, businesses with distinctive values may act in distinctive ways. The global values offer a prompt, or default, for co-operatives that can then be a reference point for its members. In France, co-ops are now required to conduct an independent audit for members at least once every five years to assess their co-operative difference.

In many countries, ethical values are core to the brand values of co-ops. The UK consumer research magazine Ethical Consumer, drawing on an extensive database of ethical screening, states that co-operative businesses are in the top third of ethical performers in 80% of the markets that they surveyed, and are the top performers in 23% of markets.

Values are the hidden side of any business. There is a toolkit to run enterprises in a way that facilitates dialogue and behaviour around values – from participatory processes for articulating values and recruiting for values through to integrating values in the supply chain. This toolkit on values is one perhaps that can help to make business part of the solution and not simply part of the problem when it comes to the big challenges facing the world.

Ed Mayo is Secretary General at Co-operatives UK and author of a new book, Values: how to bring values to life in your business.

Values is published by Greenleaf and available on http://www.greenleaf-publishing.com/online-collections/values

Photo by swisscan

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