1. The ethical alternative: co- operative values and principles This topic introduces the co-operative model of enterprise by explaining the internationally recognised values and principles that underpin it. These values and principles are integral to the identity of co-operatives and provide them with an inherent advantage over other forms of business organisation. Democratic Enterprise

2. Learning Goals evaluate the relevance of the co-operative values and principles to business and society in the twenty-first century; analyse the effect of the principles on the operation of co-operative enterprises; discuss the concept of a co-operative advantage and ways in which it can be utilised.

3. Key Arguments The co-operative values and principles are as relevant to business and society in the twenty-first century as they were when they were first devised over 150 years ago. The values and principles can be used to distinguish co- operative businesses from other models of enterprise. The co-operative advantage provides the potential for co- operatives to sustain a competitive edge over traditional forms of enterprise.

4. Introduction A co-operative is a business. It resembles any other business in the sense that it trades in the market and utilises the factors of production (land, labour, and capital) in order to produce a good or service. What makes the co-operative business model unique? To the casual observer, there may seem to be little difference between a co-operative food retailer and an investor-owned food retailer. This is because both retailers will have very similar operations, processes, stock, supply chains, and pricing. Co-operatives differentiate themselves primarily through their values and principles.

5. Definition of a co-operative The International Co-operative Alliance (ICA) defines a co-operative as: an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. http://www.ica.coop/coop/principles.html There are other definitions of what constitutes a co-operative. The following definition is generally adopted for co-operative research or study in the US: ‘a cooperative is a user-owned, user-controlled business that distributes benefits on the basis of use.’

6. Values (1) What are values? principles or standards of behaviour; one's judgement of what is important in life. Oxford English Dictionary

7. Values (2) Co-operative values: self-help self-responsibility democracy equality equity Solidarity In the tradition of the earliest co- operative founders, co-operative members today believe in the practices of : honesty openness social responsibility caring for others

8. Values (3) Co-operatives are not unique business models because they have values (most companies do – even oil companies!). It is the manner in which co-operatives put their values into practice that distinguishes them; they do this through their principles.

9. Principles (1) What is a principle? a fundamental truth or proposition that serves as the foundation for a system of belief or behaviour Oxford English Dictionary

10. Principles (2) Co-operatives are guided by the following principles: 1.voluntary and open membership 2.democratic member control 3.member economic participation 4.autonomy and independence 5.education, training, and information 6.co-operation among co-operatives 7.concern for community

11. 1. Voluntary and open membership Co-operatives are voluntary organisations. They are open to all persons who wish to use the co-operative’s services and who are willing to accept the responsibilities of becoming a member. Of critical importance, membership is non-discriminatory in respect to age, gender, social background, race and ethnicity, political and religious beliefs. In addition, membership of the co-operative should not be influenced or restricted by external entities such as the government or state laws. Membership is obviously restricted in some ways however e.g. there must be a job available for someone to become a member of a worker co-operative.

12. 2. Democratic member control Co-operatives are democratic organisations controlled by their members. This means that people who join should actively participate in setting the co-operative’s policies and making decisions. Individuals serving as elected representatives are accountable to the membership. In ‘primary co-operatives’ members have equal voting rights; in other words, ‘one member, one vote’. ‘Secondary co-operatives’, which are federations made up of several co-operatives, are also organised in a democratic manner.

13. 3. Economic member participation (1) Members contribute equitably to the capital of their co-operative over which they exert democratic control. Part of that capital is usually the common property of the co-operative. Capital in a co-operative is an instrument. By that we mean that capital is necessary for the successful operation of the business but it is not the driving force behind the enterprise. Capital is a means to an end – to provide benefits to members – rather than an end in itself.

14. 3. Economic member participation (2) The principle of member economic participation also helps to determine how profit (known as surplus) in a co- operative is treated. Members are entitled to a share of the surplus generated by the co-operative; the amount a member receives is based on the amount of the trade he/she conducts with the business in a particular year.

15. 4. Autonomy and independence Co-operatives are autonomous, self-help organisations controlled by their members. If they enter in to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co- operative autonomy. This principle helps to protect the member-based ownership structure of co-operatives.

16. 5. Education, training, and information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public – particularly young people and opinion leaders – about the nature and benefits of co-operation. Education of the three main stakeholders in a co-operative (the members, the public, and employees) is crucial to ensure the sustainability and long-term success of the co-operative. J. Voorhis, A New Look at Principles and Practices of Cooperatives (Washington: Cooperative League of the U.S.A, 1966), p. 11. Q. Is this principle unique to co-operatives?

17. 6. Co-operation among co- operatives Co-operatives serve their members most effectively, and strengthen the co-operative movement, by working together through local, regional, national, and international structures. Two ways of co-operating: form secondary co-operatives (‘co-ops of co-ops’) – e.g. ICA, Co-operatives UK, Crédit Agricole. individual co-operatives sharing resources, expertise, and risk.

18. 7. Concern for community Co-operatives work for the sustainable development of their communities through policies approved by their members. Early co-operatives were set up with the purpose of creating self-sustaining communities based on commonly owned land and the principles of co- operation. Example: The Co-operative Group runs the community development fund, Green Schools Revolution, and the Enterprise Hub. http://www.co-operative.coop/join-the-revolution/

19. Principles in practice The ICA principles do not apply to all co-operatives in every business situation, but they do serve as a crucial guide. For example, housing co-operatives cannot feasibly have an open membership policy since they have a limited amount of housing stock. There is a much simpler way of distinguishing co-ops from other businesses by asking three key questions: Who owns from the business? Who controls the business? Who benefits from the activities of the business? If the answer to all three questions is the members then it is a co- operative.

20. The co-operative advantage What advantage has a co-op over other forms of enterprise? A competitive advantage can be created by providing added value to customers, something more than what can be offered by your competitors, coupled with the harmonisation of each process or function in a company to achieve its objectives. P. Ghemawat and J. W. Rivkin, ‘Creating Competitive Advantage’ Harvard Business Review, 1998.

21. The co-operative advantage (2) Ownership Structure Member needs Business operations Co-operative values Member benefits and profitability Co-operative Advantage

22. The co-operative advantage (3) Optimising the co-operative advantage involves: 1.Defining it – ask the members what the want. 2.Delivering it – embed the co-op difference in your business activities. 3.Measuring it - track the benefits the co-operative delivers to its members, customers, employees, local community, and stakeholders; more than financial reporting e.g. http://www.scotmid.com/sr.php. 4.Communicating it – tell everyone who needs to know!

23. Summary Co-operatives and investor-owned businesses may share some values in common but it is the manner in which values are put into practice that makes co-operatives different. Co-operatives distinguish themselves from other forms of enterprises through their principles. The co-operative values and principles serve as a guide rather than strict rules for how these enterprises should act. The ‘co-operative advantage’ is crucial to the competitiveness of co- operative enterprises in the market.

24. Resources and Support The International Co-operative Alliancehttp://www.ica.coop/al-ica/. The Fairtrade Foundation http://www.fairtrade.org.uk/. The Co-operative – Good with Money http://www.goodwithmoney.co.uk/good-with-money/. Business in the Communityhttp://www.bitc.org.uk/. The Plunkett Foundation http://www.plunkett.co.uk/. The Equality Trusthttp://www.equalitytrust.org.uk/.

25. References and Reading Birchall, J. ‘The Co-operative Values and Principles: A Commentary’ Journal of Co-operative Studies 30 (1997): 42–69. International Co-operative Alliance (ICA). ‘Statement on the Co-operative Identity’. http://www.ica.coop/coop/principles.html. Maxwell, W. A History of Co-operation in Scotland. Glasgow: Scottish Section of the Co- operative Union, 1910. Nilsson, J. ‘The Nature of Cooperative Values and Principles: Transaction Cost theoretical Explanations’ Annals of Public and Cooperative Economics 67 (1996): 633–53. Voorhis, J. A New Look at Principles and Practices of Cooperatives. Washington: Cooperative League of the USA, 1966. Webb, T., L. Benander, L. Cirillo, and C. Lagier. Making the Most of Our Cooperative Advantage. Greenfield: Cooperative Life, 2006.