Does Practice Reflect Purpose?

Why is your co-op structured as a co-op? How important is your co-op structure to your daily operations? How much of a role does your co-op structure play in your marketing? your employee training? your public/community relations? your strategic planning? What is the role of membership in your co-op's organization and in its operations? (Do members mostly serve as: a captive market? a basis for product selection and service development? a ready source of capital?)

These are important questions for every co-op's leadership to address, especially in the process of strategic planning for the co-op's future. As is true with any organization, but especially for co-ops, a successful group needs a clear purpose with a common understanding among its leadership of that purpose. Equally important, for ongoing success as a business and as a cooperative, is that the co-op create standards (goals, targets, procedures) for its performance that will allow an assessment of how well the co-op fulfills its purpose through operating practices.

From my experience in working with scores of consumer goods co-ops throughout North America, I suspect most readers would respond that their co-op structure is a vital element of the foundation of their business and that it has ramifications that extend throughout all aspects of their operational and organizational functionings. However, my observations are that, more often than not, the co-op structure is poorly understood by many of our co-ops' leadership and is, in practice, more of a tangential aspect of our daily operations than a driving force. More often than not, the stated purpose is to operate a successful co-op. But in fact, actual practice reflects goals and controls established solely around key variables for operating a successful business, measures having little to do with being a cooperative. Why is this especially important? Because co-ops are businesses established to do more than provide return on investment for their members. Especially at the retail co-op level, the purpose of a coop is broader than can be measured solely by pure business standards. Different co-op schools of thinking exist, but they all share some acknowledgement of the fact that co-ops exist for social purposes as well -- to provide a service valuable for members, to provide consumer control in an economic sector, to bring honesty and integrity into the marketplace, to build a business that is community-oriented rather than profitoriented, to build economic institutions focused on social justice, and/or to provide democratic ownership and control of the business form. Different co-op groups and members will emphasize different aspects ofco-ops' social aims, but all hold this dual nature of co-ops to be true.

So, why is this an important issue for co-op boards? Directors have a far-ranging responsibility to oversee the business and ensure, on behalf of its member/ owners, that their common interests are being properly and prudently served. To do so, directors and management alike study the performance standards of similar businesses and assess their operations against those measurements. However, these sources provide few, if any, standards related to the membership structure or social aims ofco-ops that can be used to measure the co-op as a whole. Perhaps even more importantly, there are very few models to use. Many co-ops do business by copying what they see in the marketplace, but privately-owned businesses don't provide models for anything more than, at best, the operating systems of the co-op. In this area co-ops must be more creative and innovative than their competitors.

Setting performance goals

What measurable goals are used by successful coops in these areas? Historically, co-ops have, at the very least, established goals and standards in the area of membership -- the percentage of sales to members, the percentage of a community that are co-op members, member attendance at annual meetings, percentage of members voting in an election, and others. Those coops that consider their governance and organizational aspects to be an integral part of their operations know how their co-op measures on such "key indicators" and regularly set targets in these areas based on stated goals.

I recently conducted an informal survey of over twelve U.S. consumer co-ops regarding their performance and goals in these areas. I spoke with the person most responsible for membership (generally the membership director). Although these co-ops were specifically selected because of their reputation in terms of membership activities, the findings indicate there is room for improvement.

The co-ops I interviewed ranged in membership size from 1,600 to 35,000 (or approximately 3,000 to 60,000 individuals). In terms of the percentage ofthe community holding memberships, very few co-ops had any idea; they estimated their "share" to be from approximately 1% to 40% -- with most in the range of 5-10%. However, three of the co-ops indicated that over 30% of their local community are members of the co-op -- all three of which have been around more than forty years and are looked upon as outstanding examples of consumer co-op success. It seems unlikely that this high percentage of the community as members is a coincidence with their long-term, on-going success.



The Calgary Co-operative Association, Ltd.

Calgary, Alberta

The Calgary Co-op (not among the co-ops reviewed in the accompanying article) is indisputedly North America's largest local consumer co-op, with an astounding record of success, innovation, and growth. Consider these statistics on this consumer co-op leader:

founded: 1956

overview of operations: operates 13 one-stop shopping centers providing groceries, pharmacies, housewares, dry goods, clothing and automotive centers. Also, the co-op operates one store for agricultural building supplies, four travel agencies and a "prefabrication plant" for "do-it-yourself" construction supplies.

annual sales: $509 million

number of members: 304,000 active (approx. 410,000 individuals)

percent of community as members: 70% of Calgary residents

attendance at annual meeting: 1400 members

percent of sales to members: 97%

member investment: $50 required share investment

member benefits: patronage refund paid in each year of the co-op's operations; average paronage refund has been 4-5%

number of employees: 3600



In terms of percentage of sales to members, the co-ops again had a wide range of responses -- from 38% to 99%, with the majority in the 70-80% range. Again, very few indicated that they pay much attention to this important ratio. As for how much members spend, surprisingly, all but two co-ops had difficulty estimating members' average purchases; those two responded $800 and $2,000/year -- very different numbers.

In governance areas, the co-ops interviewed had more interest and aspirations but still very few stated goals. Average attendance at the annual meeting ranged from less than 1% to 5%. Here, the larger co-ops came in with the relatively smaller average attendance, although the co-ops with the least focus on membership activities had the next smallest percentages. In terms of the percentage of members voting in an election, the responses were even more varied -- from less than 1% to 30% -- with most in the 3-5% range. Every single co-op indicated an interest in increasing the percentage of members voting in an election, although very few have a goal in the area.

In terms of member involvement and participation, the co-ops interviewed fell into two basic categories: 1) those whose member involvement opportunities include in-store and operations-related work (e.g., making signs, bagging products, trimming produce, product sampling, etc.) and 2) those whose member involvement opportunities largely revolve around co-op governance activities (e.g., committees) and events. In this second category, many co-ops demonstrate some very innovative ways for member/volunteers to work together on special projects. In addition to serving on the co-op's committees and helping with membership events, coop volunteers do the following: run a "shopping for shut-ins" program, call all new members, call members to respond to suggestions, organize annual picnics, distribute items to local food banks, help with and teach cooking classes, show free movies, conduct a children's book reading program, hold a book sale to raise money for co-op development, sponsor an "adopta-highway" segment, hold craft fairs, do special projects (recycling, environmental shopping awareness, etc.), and repair low income housing.



Schools of Cooperative Theory

Cooperatives are understood and promoted differently at various times, by various people, in different countries and under different political systems. Four distinct schools of thought have emerged:

The Cooperative Commonwealth School

It philosophy: the cooperative movement should aim to embrace all fields and permeate all activities of economic and social organization until it becomes an all-inclusive system. This was the stated objective of the Rochdale Pioneers and many early 19th century cooperators.

  • Chief features: places no limits on the possibilities of co-ops to expand and spread into all fields. It assumes the possibility of a totally cooperative social order.
  • Proponents: Robert Owen, J.P. Warbasse, George Keen
  • Today this thinking is generally regarded as highly idealistic, doctrinaire and utopian, as not practical nor realistic in present-day society. However, it has proven to be possible in a totally cooperative type of local community as the kibbuzim, Hutterites in Canada, etc.

The School of Modified Capitalism

Its philosophy: cooperatives are essentially capitalism with a slightly different set of rules. Cooperatives serve mainly to restrain the capitalist system and curb its excesses. Cooperatives are also useful for situations that are not attractive to capitalist business, where profits are uncertain or marginal. Cooperatives should not eliminate profit-making but rather try to get everyone into the act.

  • Chief features: views capitalism as the model and fundamentally legitimate form of business, co-ops as an adaptation of that model
  • Proponents: many of the large U.S. agricultural marketing co-ops, many credit union leaders
  • This school of thought is not widely supported outside of North America

The Socialist School

Its philosophy: cooperatives are essentially a socialist institution, oriented to left-wing ideology. One branch of this school sees cooperatives from a public and social rather than a private and individual viewpoint, while another sees them as junior partners of the State in a centrally-planned socialist economy.

  • Chief features: the State per se should be the commanding and final authority over all economic activity; cooperatives are an ingtegral part of government planning and are subsidiary to State enterprise.

The supporters of the Socialist School are numerous in some countries of Western Europe and are dominant in communist and developing countries.

The Cooperative Sector School

Its philososphy: cooperatives are a distinct economic sector in their own right. Cooperatives are essentially different from both capitalism and public enterprise, though they have some features of one and some of the other and thus may be considered a "middle way" between the two. The ideal economy is one that has a good balance of public, cooperative, and private sectors.

  • Chief features: it sees cooperatives as co-existing with the other two sectors (public and private or capitalist) and all three complementing one another in building a strong economy and a good social order.
  • Proponents: numerous in Europe, esp. Scandinavian countries; strong in Canada, Israel, Japan; Georges Fauquet, Moses Coady, Alexander Laidlaw.
adapted from "The Cooperative Sector," by Alex Laidlaw; July 1974.

For the Future

Surprisingly few of the co-ops interviewed have stated goals in any of these areas; however, most thought it would be a good idea to pay more attention to these areas. Clearly, the most important indicator areas would be: percentage of sales to members, average patronage by members, percentage of the community as members, percentage of members voting in an election, and some goals related to member investment (e.g., increase the average or the number of those at the maximum investment level).

The final survey question asked membership directors to reflect on what is needed by their co-op to have a strong, loyal membership base for the future. Here responses fell into two basic categories: 1) those who feel that the primary focus needs to be the store's operations, that the co-op needs to be competitive and distinguish itself at the store level ("the store will sell the co-op"), and 2) those who feel that the co-op needs to actively focus on membership promotion, recruitment and management to maintain a strong membership base.

Respondents in the first category emphasized noticeably better service (than the competition), honesty and fairness in store operations, consumer-oriented information and perspectives ("the co-op buys food for you, not sells food to you"), things such as cleanliness/ atmosphere/appearance, location, and prices.

Those who emphasized active membership programs cited the need for the co-op to be different and for members and non-members to understand fundamentally how the co-op is a different type ofbusiness. To do so, one respondent described a new program to make employees more aware of what a co-op is; another described a bi-weekly in-store newsletter to cashiers that informs them of co-op events and activities and how to promote memberships. Other comments included: make sure co-op governance doesn't seem inaccessible; emphasize members' participation opportunities; make sure members are enthused about and understand the vision of co-ops; keep co-op membership relevent to members; and don't lose sight of what makes co-ops different. While operational excellence and high standards are, without question, important, these co-ops feel that more is needed for the co-op to survive and thrive.

What does this mean for the co-op board member? Overall, remember that your very important role as guardians of the co-op's organizational structure is equally as important as your role as trustees of the coop's operational performance. Make sure that all directors thoroughly understand what it means to be a co-op -- how this business structure differs from and is similar to other corporate structures and what this means in terms of the board's role and functions. Be sure that the ownership structure and the vision co-ops have for economic distribution systems is an integral part of the way you approach discussions about the coop's future. Look at how other co-ops integrate their organizational and operations functions. Make sure that everything the co-op does and the way it's done is thoroughly consistent with the co-op's purpose.

Perhaps most importantly, set clear and (if possible) measurable standards for the co-op's organizational activities of the co-op. Strive for balance in operating a responsible, successful business and accomplishing the broader, social aims of the co-op. Establish performance standards and accountability for activities in both areas. In summary, make sure that the co-op's practices reflect and reinforce the co-op's purpose.

See other articles from this issue: #039 March - April - 1992