the co-operative

the co advantage - operative advantage Creating a successful family of Co-operative businesses The Report of the Co-operative Commission January January 2001 The Report of the Co-operative Commission

The Report of the Co-operative Commission January 2001

January 2001 www.co-opcommission.org.uk Contents

Introduction by Tony Blair Preface by John Monks 2 Summary of the Co-operative Commission’s recommendations 4 Process and overview 10 Chapter 1 – Re-establishing the Co-operative Advantage 12 Chapter 2 – Successful Co-operative Business in the Twenty-first Century 28 Chapter 3 – Membership, Participation and Securing the Co-operative Movement's Legacy 38 Chapter 4 – Effective Management for Change and Development 50 Chapter 5 – National, Regional and Local Structures 62 Chapter 6 – The Social Economy and Co-operation 72 Chapter 7 – Mission Statement and Next Steps 82

Annexes 1 The Co-operative Commission 88 2 Terms of reference 90 3 The ICA statement on the Co-operative identity 91 4 Submissions 92 5 CWS within the Co-operative Movement 94 6 Counsel’s advice 96 7 The Co-operative Independent Commission 1958 100 8 Co-operative milestones 102 9 Glossary of terms 104

Preface by John Monks

Preface by John Monks, Commission Chair

A renaissance of the Co-operative Co-operatively owned business have not Over the past 20 years small businesses Movement in the UK is long overdue. functioned effectively. Efficiency levels have have been seen as the engine for change not matched the best of public companies. in the economy. I see no reason why many Over the past 11 months it has become in this generation should not look to clear to me, as it has to my fellow The Co-operative Movement today has Co-operatives as a natural vehicle through Commissioners, that the Co-operative many strengths. The scale of business which to pursue their entrepreneurial Movement has the potential to step up makes it one of the UK's biggest retailers. ambitions. It should be as easy and as its impact on both business and society. It operates across sectors from food to natural to set up a Co-op, as it is to pharmacy, from financial services to travel. establish any other form of business. We know, from the evidence that we have There are many dedicated people working received, that there is much that could be within the Co-operative Movement who I am grateful to my fellow Commissioners, done to boost the performance of many have the commitment and the imagination drawn both from within and outside the of the current businesses. Indeed it has to transform the Movement and make a Co-operative Movement, who have brought no alternative if it is to survive. real impact on national life. The Co-operative extensive knowledge and experience to our ethos can be in tune with an age that is deliberations. We have had first class support We can also see opportunities to expand increasingly disillusioned with corporate from the staff of the Commission and from our the Movement into new areas that cry out greed and lack of ethical standards advisers. Most of all we benefited from the for Co-operative solutions. But above all, displayed in some parts of the private sector. wealth of information and opinion provided we believe that Co-operative principles for us by the individuals and organisations are highly relevant to society in an age One of the Movement's greatest that go to make up the Co-operative of unprecedented change. weaknesses is the widespread image Movement who took up our invitation of the Co-op as an old-fashioned retail to submit evidence for our consideration. The purpose of this Report is to show how store chain incapable of meeting the that potential can be turned into reality. expectations of today's consumers. The Commission's work is now complete.

Our vision, as set out in the mission statement Changes are being made. Some local It is up to the Co-operative Movement which we commend to the Co-operative Societies have broken free of the old to decide whether it is prepared to Movement, is one of a revitalised image and make a real impact in their grasp the opportunity and to put these Movement which challenges conventional local communities. The Co-operative proposals into practice. enterprises by building a commercially Bank is a model of transformation and successful family of businesses that how to seize the moment and the mood. If it fails to do so; if it picks and chooses offers a clear Co-operative advantage. Lord Morris and his team are now putting between the recommendations rejecting in place new structures to take forward the radical and the difficult, or if it adopts In successful Co-operatives, the ethical the Co-operative Group (CWS) Ltd., our recommendations but fails to values of honesty, openness, social which has been created following the implement them, then I fear for the future responsibility and caring for others, can merger of CWS and CRS. of the Movement. give an edge over businesses driven simply by the profit motive. That edge helps build Our job has been to look beyond these But, if it adopts them with enthusiasm and commercial success, and that, in turn, first steps and to plot a journey that can commitment and implements them in full, provides the resources to strengthen the take the Co-operative Movement on to then I believe the prospects can be as bright ethical dimension. Where Co-operatives a higher plane: where business efficiency as at any time in the Movement’s history. have failed to match their potential this matches the best in the plc sector; where virtuous circle has been broken; the way the Co-operative principles strengthen the business has been conducted has not our business; where, through our work always reflected the ethical values and in the community, we raise awareness the links between the members and their of the value of co-operation. January 2001 The Report of the Co-operative Commission 2–3

left to right: Graham Melmoth, John Monks and Tony Blair at the launch of the Co-operative Commission, February 2000

the commission’s work is now complete; it is up to the co-operative movement to decide whether it is prepared to grasp the opportunity and to put these proposals into practice Summary of the Co-operative Commission’s recommendations

Mission statement: “to challenge conventional UK enterprise by building a commercially successful family of businesses that offers a clear co-operative advantage"

Summary of the Co-operative Commission’s recommendations

In some cases these recommendations compared with that of major 12.1 External auditors should be have been abbreviated: the full competitors and peer employed to help guarantee the recommendations are to be found Co-operative Societies. transparency of the accounting at the end of each chapter. procedure. Social performance improvement 12.2 The Strategy Group of CRTG should Chapter 1 – Re-establishing the 7 The Co-operative Union should be made up of Chief Executives of Co-operative Advantage establish challenging Key Social Societies and the Controller, CWS Commercial performance Performance Indicators (KSPIs), for Retail, for the time being, should be improvement performance in relation to Co-operative the CEO of CRTG and be a member 1 Boards of Co-operative Societies and social goals and should monitor of the Strategy Group. must establish challenging targets the performance of individual Societies 12.3 The governance of CRTG should for the commercial performance of objectively against those targets. be reformed. their Society. 8 Boards of Societies should 12.4 Each member of the Strategy Group 2 The commercial performance ensure that the Society’s KSPIs should have a vote proportional to targets should include Return on are presented to the Society’s the purchase volumes of their Society Capital Employed, which should members annually. through CRTG. achieve a minimum of 10 per cent 12.5 Clear terms of reference for CRTG as a first step. Social auditing should be established. 3 All Societies should urgently review 9 The Co-operative Union should 12.6 The CEO of CRTG should produce the performance of each of their develop a standard system for strategic and annual plans for various business sectors to ensure social reporting, so that there is approval by the Strategy Group. that each can achieve and/or consistency across the Movement. 12.7 Delivery of the service to members maintain financial viability over 10 The Co-operative Union should of CRTG should be based on a the medium/long term. produce an annual report on the revised form of contract. work of the Commercial and Social 13 The Commission, given the reform Societies’ performance Performance Panel to be presented of CRTG, recommends that all 4 In order to implement and to Congress. Societies should now join CRTG. monitor the commercial and social performance of Societies, the Reinvesting the profit Financial services Co-operative Union should be given 11 Reinvestment in the business must 14 CWS should develop and implement responsibility for establishing always have the first claim on profits, an integrated business strategy for a Commercial and Social but where a Society is trading its two financial services subsidiaries, Performance Panel. profitably, the Commission CIS and The Co-operative Bank, in recommends that the minimum order to harness the latent synergies Financial auditing commitment to the members and between the two businesses. 5 Co-operative Societies should the community dividend should 15 CWS should review the governance conform to accounting standards be 10 per cent of the profit and that structure of both CIS and The and adopt a standard system the ratio distribution of individual Co-operative Bank with a view of financial reporting. to community dividend should be to appointing some external 6 Boards of Societies should around 70 per cent to 30 per cent. and appropriately experienced ensure that the Key Commercial independent non-Executive Performance Indicators (KCPIs) Co-operative Retail Trading Group Directors to the Board of each are presented to members at (CRTG) institution. the Society’s AGM to record 12 To enhance the successful the performance of the Society performance of CRTG further: The Report of the Co-operative Commission 4–5

Chapter 2 – Successful Co-operative 17.5 It may also be desirable to appoint Chapter 3 – Membership, Participation Business in the Twenty-first Century Sectoral Brand Panels to examine and Securing the Co-operative Branding and image those branding issues that affect Movement’s Legacy 16 Societies should explore further specific businesses common to Membership opportunities for co-ordinated more than one Society. 22 The Board of every Society should activity including the benefit of aim to ensure that an increasing a national distribution system; The Co-operative logo proportion of the Society’s customers the development of standard store 18 The Co-operative Brand Panel become members, and that an formats, layouts and fascia; and should consider the long-term increasing proportion of the Society’s common purchasing of store future of the existing logo (‘clover business is conducted with members. fixtures and fittings. Societies should leaf’ design) which some research 23 All Societies should up-date and also examine the merits of using a indicates is perceived by the public refine their membership records common support system across as not reflecting the modernising urgently to delete the names of all businesses. approach now being adopted by obviously dormant members and 17 The Commission recommends that: the Co-op. A future logo could establish a membership file that 17.1 A Co-operative Brand Panel should reflect the modern partnership accurately reflects current be established to develop a common that will be created among membership. Societies should national Co-operative branding Co-operative businesses. thereafter maintain regular contact approach for the Movement. with their members so that the 17.2 All Societies should ensure that the e-commerce and new technologies membership becomes a valued brand identity for each of their core 19 Retail Societies should urgently asset to the Movement. businesses is compatible with and consider how greater use of the 24 The Commission recommends that: reinforces the national branding of Internet can deliver benefits for 24.1 Societies should agree and adopt the Co-operative Movement. members and customers. CWS a design for a national Co-operative 17.3 Where the Co-operative brand is should consider the establishment membership card. being undermined by failure of any of a business technology advice 24.2 The Movement should work to retail Society to meet the brand centre/service to provide a realise the full value that its requirements, the Co-operative consultancy service to Societies membership provides. Brand Panel should report to the wishing to introduce new technologies 24.3 The Movement should give further CWS Board which may withdraw and to encourage best practice consideration to accelerating permission for that Society’s technology dissemination the current proposals for the continued use of the Co-operative throughout the Movement. co-ordination into a single Movement logo or access to CRTG. database of the customer/member 17.4 All Societies should, under the aegis New sectors records of constituent organisations. of the above Panel, explore and 20 A New Ventures Working Group 24.4 The adoption of common technical resolve the issues surrounding the should be established with a platforms within the Movement introduction of appropriate common remit to identify new or fledgling should be promoted. branding of each Co-operative sectors where a gap may exist 24.5 Efficiency and effectiveness business under an umbrella national for a Co-operative solution. in membership administration branding approach that encourages 21 In moving into new areas, the mistakes should be optimised. the cross-selling of products of fragmentation of the past must 24.6 The goal should be that for a throughout the Co-operative not be repeated. In delivering new Co-operative Movement member Movement. products and entering new markets their membership card is there should be a common brand, recognised whenever the member common performance standards, undertakes transactions with any and shared services. Co-op business. Summary of the Co-operative Commission’s recommendations

The Co-operative advantage: “excellent products or services with distinct competitive benefits derived from our values and principles, our rewards for members or our commitment to the communities we serve"

24.7 The Retailer Financial Services 26 Co-operative membership should 29.4 The Boards and Chief Executives of Committee should be given a more be encouraged among customers Retail Societies should give careful formal status with responsibility of The Co-operative Bank, CIS and consideration to the Counsel’s for overseeing this work. other business areas in addition advice received by the Commission 25 The minimum shareholding of £1 for to the traditional base of food as part of our investigations into the members should be maintained for retail customers. protection of Co-operative entitlement to vote within Societies. 27 The Co-operative Union, in order Movement assets. Individual Societies should retain to build a strong membership base the right to determine whether an across the country, should establish Chapter 4 – Effective Management increased shareholding or purchase and promulgate best practice in for Change and Development qualification is required before the recruitment and participation Boards, management and staffing nomination to elected office. of members. 30 Best practice in relation to the size 25.1 All Societies should adopt best 28 Societies should encourage of the Boards for Societies should practice in increasing participation employees to become members be the lowest number that achieves and strengthening democracy via of the Co-operative Movement the principle that elected members a range of tried and tested balloting themselves and to participate should always have a majority on procedures, including postal/ actively in the Society’s internal the Board whilst achieving the telephone balloting and the democracy via a ‘reserved representation from the other provision of referenda. employee member constituency’. constituencies as outlined within 25.2 Societies’ membership development the recommendations. policies should provide access Securing the Co-op’s assets 30.1 Accordingly, the Commission to adequate information on the 29 This is a critical issue for the recommends that the maximum performance of the business, Co-operative Movement. size of Boards should be 15, except including the Key Commercial and The Commission recommends: in the case of CWS, where the Social Performance Indicators, a 29.1 All Societies should, as a matter of maximum ideally should be new timetable of meetings to make urgency, put in place rules to make 20 members. them more accessible to members it clear that current members are 31 Members of the Board elected from and structural changes to encourage custodians of the assets. amongst the membership of the participation by younger members 29.2 Societies which have not yet Society must always be in a majority of the Co-operative Movement. adopted the seven model on the Board. Nevertheless, the 25.3 The Movement should undertake amendments designed to set high Commission recommends that: a high-profile recruitment campaign turnout thresholds as a defence 31.1 The Chief Executive and Financial across the country in order to against hostile takeovers or Controller, as a minimum, should develop a mass membership base. attempts at ‘demutualisation’ and/or serve on the Board. 25.4 The Commission recognises that to secure the transfer of assets to 31.2 Employees should be recognised some Societies are considering another Co-op organisation, should as important stakeholders and experimenting with increasing the do so at the earliest opportunity. should be encouraged to participate minimum shareholding for new 29.3 The Government should introduce actively in the Society’s internal members and the Commission legislation to secure Co-operative democracy via a reserved employee looks forward to the results of assets for the future as is member constituency with at least such initiatives being shared with commonplace in many other two seats on the Board. Employees the Movement. European countries. may continue to stand as consumer representatives but the total number of employees on the Board (in any capacity) should not exceed one-third. The Report of the Co-operative Commission 6–7

31.3 Boards should introduce a skills 37 Irrespective of the size of Society Chapter 5 – National, Regional and audit and should be empowered or the electoral processes adopted, Local Structures to fill any skills gaps identified by it must be emphasised that Board Lifelong learning the appointment of two external members, once elected are not 40 The Co-operative College should independent Directors. delegates representing any lead, on behalf of the Movement, 32 Within CWS, each major trading particular constituency, rather the development of a modular business should have its own they serve on the Board to oversee Co-operative and mutual enterprise management executive, as is the competitive and commercial programme, capable of being used currently the case in The success of the Society as a whole at all stages of learning and available Co-operative Bank and CIS. The and must always act selflessly in both within Societies and outside respective management executives its best interests. the Movement. would remain responsible to the 38 The Commission recommends CWS Board through the CWS Chief that the Boards of all Societies Co-operative Foundation Executive Officer. should adopt best practice in 41 A Co-operative Foundation should 33 The Co-operative Union should, after relation to equal opportunities be established to promote the values appropriate consultation, establish policies and should incorporate and principles of the Co-operative the quality and qualifications reports on equal opportunities and Labour movements. required of candidates to serve within the social report. 42 The Foundation should work with on the Boards of Co-operative 39 The Commission recommends the proposed Social Economy and Societies as independent non- that Societies should review their Community Task Force to help Executive Directors. remuneration policies in order implement the recommendations 34 The Co-operative Union should to reward appropriately senior of the Government’s report on have the ability to appoint up to managers in order to attract Enterprising Communities to raise two advisers to work with the Boards talented people from outside community development venture of consistently under-performing the Movement. The remuneration funds and to encourage public and Societies and the Rules of the package should be based upon the private sector investment in under- Co-operative Union should be profitability and social achievements invested communities. amended to facilitate this, which of the successful Co-operative 43 The Foundation should be non-profit- would then become a condition business and not on turnover alone. making and the Board should be of membership of the Union. representative of the Co-operative 35 Ongoing training for all Directors Societies which choose to contribute should be addressed regularly by and should include representation all Society Boards. The Co-operative from the wider Labour Movement. Union and the Co-operative College 44 The Foundation should be financed should develop a new qualification from the community dividend with that meets the minimum an initial capital injection to enable requirements for elected Directors it to commence its activities. to execute their duties and responsibilities adequately. 36 The Commission recommends that an age limit for Board members within Societies should be set at 68. Summary of the Co-operative Commission’s recommendations

45 In considering applications from National issues for UK Government Chapter 6 – The Social Economy individuals or organisations, the 49 The Commission requests that, in and Co-operation Commission recommends that the future appointment of members Social Economy and Community both Boards of Societies and the of the Regional Development Task Force Co-operative Foundation must give Agencies (RDAs), the Government 53 The social enterprise sector is an priority to funding projects which consider the nomination of at least integral part of the Co-operative relate directly to the principles and one Co-operative Movement Movement. A Social Economy practice of co-operation and which nominee to the Board of each RDA. Summit meeting hosted by The help translate the values of mutual 50 We are aware of the thorough work Co-operative Bank and supported support, solidarity and community being carried out by the Company by the Co-operative Union and the into practical action. Law Review. We recommend that UKCC should be held during 2001. a similar approach should be 53.1 It should bring together leading Political structures and affiliations established to develop the future players in the UK’s social 46 The Co-operative Party and the legal framework of the social economy, Government Ministers Labour Party should work together enterprise and mutual sectors as and international experts, to in a new partnership to increase a whole. The aim of such a review address the funding difficulties participation and political activity should be to develop a simple, encountered in the UK for social and the Co-operative Party should modern, efficient and cost-effective enterprises, the feasibility of be the only Co-operative body to legal framework for carrying out creating a social economy venture affiliate to the Labour Party. business activity and meeting the capital fund and the current legal social goals of these sectors. This limits in the UK on the scale of The Co-operative Press new legal framework should be Co-operative shareholdings. 47 The Co-operative Union should established within the lifetime of 53.2 The Summit should provide an initiate discussions with the the next Parliament. opportunity to launch a new Social majority shareholder with a view 51 A modernising bill should be put Economy and Community Task Force to requesting the Board of the before Parliament to recognise bringing together the three wings of Press to carry out a review of the in law the Co-operative form of the Labour Movement to develop an Co-operative Press, in order to common ownership. holistic approach to strengthening broaden the editorial content 52 The Commission requests that the the social enterprise sector in the UK. of the Co-operative News, so that UK Government should consider, 53.3 The Commission recommends that it encompasses and supports the as an immediate step, extending the Labour Party should incorporate wider Co-operative Movement. the remit of an existing Government into its manifesto for the next Minister within the Cabinet Office, General Election a commitment Regional issues to have responsibility for the for the next Labour Government 48 Regional Co-operative Councils promotion of Co-operative enterprise. to examine how it can implement should work together with the measures to expand the UK’s Co-operative Union and should social economy. have a seat on the Union’s Central Executive. Housing 54 The Government should promote amongst local authorities that are considering transferring their housing stock to the private sector the Co-operative model of social housing. The Report of the Co-operative Commission 8–9

UKCC and the Co-operative Union Implementation 55 The Commission welcomes the 58 Co-operative Retail Societies news that the Union and the should seek new ways of deepening UKCC intend to establish a full their co-operation at a trading strategic alliance to progress level, particularly in adjacent further the overall policy geographical areas. development of the Co-operative 59 The Co-operative Union should and social enterprise movements. actively seek to ensure the 56 This new strategic alliance should commitment of all sections of the become the national voice for the Movement to the implementation of promotion of social enterprises the Commission’s recommendations. in the UK and should develop In order to review progress on the a framework to provide services, implementation of the Commission’s support and training. Report, it is recommended that the Co-operative Union report formally Chapter 7 – Mission Statement and on this matter no later than Next Steps Congress 2006. Mission statement 60 The Commission recommends 57 The Commission recommends that that the Co-operative Movement to express its fundamental purpose should prepare for its renewal the Co-operative Movement should in the twenty-first century by adopt as its mission the following reinterpreting and reinvigorating form of words: the principles that it has always “To challenge conventional stood for, to make them relevant UK enterprise by building to the present day. a commercially successful family of businesses that offers a clear Co-operative advantage.” 57.1 The Movement should seek to implement the mission in a consistent, committed and co-ordinated manner at all levels of the organisations that make up the Co-operative Movement and should ensure all employee and Director training starts from and builds upon this foundation. 57.2 The Movement should seek to live up to and strive towards the ‘stretching goal’ that this mission represents over the coming years. Process and overview

Process and overview

The Co-operative Commission was set Co-operative business’. In other words, the to determine how the Co-operative up in February 2000, with the backing of sector must succeed both as a business, Movement can best be structured to Tony Blair, following a call by leaders of in terms of its performance – and as meet the challenges of the next millennium. the Co-operative Movement. The members a Co-operative, meeting its social goals. A copy of the draft terms of reference for of the Commission comprised business the Commission is attached. leaders, politicians, trade unionists and The birth of the Commission In the 1950s, Hugh Gaitskell, then Leader co-operators, under the Chairmanship On 14 January 2000, a letter was sent of the Labour Party, chaired a Commission of John Monks, General Secretary of to the Prime Minister, signed by Lord to review the structure of the Co-op. We the TUC (see Annex 1). Graham of Edmonton (Chairman of the believe that the time is now ripe for a new United Kingdom Co-operative Council), Commission to help define and demonstrate The Commission was asked to take an Graham Melmoth (Chief Executive of the relevance of co-operation for the independent look at the sector, against Co-operative Wholesale Society Ltd.), twenty-first century and how it contributes the immediate background of the (then) Len Fyfe (now Lord Fyfe of Fairfield, but more fully to the values which we all share." pending merger of the two largest UK at the time Chairman of CWS and Chief Co-operatives, CWS and CRS (which took Executive of Midlands Co-operative The Prime Minister responded promptly, place in April 2000). This created a national Society Ltd.), and Pauline Green (Chief in the following words: Society which accounts for over half of the Executive and General Secretary of the total sector, the other half being located Co-operative Union). The letter read: “I am pleased to respond to your request in around ten regional Societies, and thirty to help set up and sponsor a Commission to or so local and community Co-operatives. “The Labour Movement in the UK has investigate and propose ways to modernise three wings: the Labour Party, the Trade the Consumer Co-operative Movement. The wider background was one of long-term Unions and the Co-operative Movement. I agree with your desire to modernise decline of the sector, in terms of numbers All are united in their commitment to achieving the Co-operative Movement. I also agree of Societies, market share, and profitability. economic efficiency and social justice. that this means that the Co-op should be Nevertheless, the sheer size of the We are writing to you as the Leader of the successful both as a business and in making Co-operative Movement still surprises those Labour Party to ask for your assistance in a significant contribution to political not familiar with it. The Co-op is a significant helping in the further development and education and community development. retailer, with a turnover of over £8 billion, modernisation of the Co-operative Movement. I have asked John Monks to take on a customer base of 10 million, upwards of For 150 years, the Co-operative the role of Chair, and I know that you 90,000 employees, and assets with a Movement has sought to provide high have members of the Commission with market value of perhaps £5 billion. Within quality ethical services to consumers and an appropriate balance of business and the Co-op ‘family’, there are notable success to involve itself in community developments. political skills from within the Labour and stories, such as The Co-operative Bank, As it faces the new millennium, we believe Co-operative movements. I am sure that while the Co-op is the leading player in it needs to review its strategy and structures they have the expertise needed to make markets as diverse as funeral services and in order better to meet its historical goals, the Commission a success. farming. On the other hand, overall, the and to do so in a modern setting. I am delighted to help in the establishment return on the Movement’s assets is well Such a review needs to be fundamental. of the Commission, and to support your below comparable performance in plcs. It needs to be done openly and fairly. And it desire for a fundamental review." needs to include co-operators from all parts All this makes the Co-op in general, and of the Movement, as well as others from The launch of the Commission CWS in particular, attractive to the ‘de- amongst the Labour Movement who share The launch of the Commission was publicly mutualiser’. The Co-op has firmly rejected our goals and have the commercial and announced on 24 February 2000, and this idea, and has equally firmly fought political expertise to contribute to thinking the Commission met for the first time on off predators: nevertheless, there is now through the optimal future for the Co-op. 29 February 2000. The members of the a widespread acceptance that the best For this reason, we are requesting that Commission came from a wide variety of long-term defence is to run a ‘successful you sponsor and help appoint a Commission backgrounds and for several, this was the The Report of the Co-operative Commission 10–11

first time they had been exposed to the with its work it began to be a catalyst for national Society and the regional Societies, intricacies of the Co-operative Movement. change even before its deliberations were covering issues like the governance of the That, however, was seen as a strength, complete, and it has been noticeable that Co-operative Retail Trading Group. The in that the majority of the Commission there has been, over the last 12 months, last of the hearings received presentations were bringing fresh minds and different a new focus on the equal importance on the measurement of both commercial experiences to bear – while the minority of the two ‘sides’ of co-operation, the and social goals, and on new technologies. who had experience of the Co-op, either commercial and the social. as elected representatives or as officials, The remaining three meetings in October, were able to ensure that, whilst remaining In addition to the large number of November and December concentrated independent, the Commission did not external submissions, technical reports on drawing conclusions from the hearings, become remote from the practical and advice were commissioned from and on the detail of the recommendations realities of co-operation. In addition, the respected independent advisers and themselves, conscious that the co-operators on the Commission ensured consultants including: Leslie Butterfield recommendations had to be radical, but the work of the Commission was as of Partners BDDH, L.E.K. Consulting; deliverable. The example of the 1958 transparent as possible, taking full UBS Warburg; KPMG; Hay Management Independent Co-operative Commission account of the views of the Movement. Consultants; Cobbetts solicitors and IBM. (see Annex 7) was very much in the minds In addition the Commission received advice of those drafting the Report. That earlier The Commissioners had been given a remit, from Christopher Nugee QC and David report had been prescient in its analysis, and as part of the original terms of reference Richards QC. A number of Co-operative right in nearly everything it recommended: (see Annex 2). They now divided that remit Societies also supplied the Commission and yet the Movement had failed to into a list of broad ‘areas for discussion’, with copies of statistical and research implement it. That must not happen this time. which were used not only to guide the work that they had undertaken and which work of the Commission and its advisers, proved of interest during our deliberations. Overview but also in the series of regional hearings The Movement needs modernisation that took place during the summer of 2000. The Commission would like to place on record and that has to be done from within, by The fundamental question asked was: its thanks to the Trades Union Congress the very people, the Boards and Chief “What is the vision of the Co-operative for providing office accommodation and Executives, who are most immediately Movement as we enter the new century – to Roger Poole, Assistant General Secretary affected by the proposed changes. We in terms of commercial objectives and of UNISON, who acted as independent have to rethink and review co-operation, social goals?" This led to two supplementary Chair of the regional hearings. in the interests not just of the Co-operative questions: “How close to delivering the Movement, but of the wider Labour vision are we?" and “What structures do The work of the Commission Movement as a whole. The Co-op needs we need to close the gap between the The Commission met formally on nine to listen to all its stakeholders, to admit its vision and the reality?" occasions. The first two meetings ensured failures and weaknesses, and to act now a common level of understanding about the to get things right for its members, for its Over the following six months these questions trading environment, and the fundamental customers, its employees, and the wider were addressed, both through receiving commercial issues. The third meeting community in which it trades. If it does evidence from a range of experts and focused on the financial services sector, not grasp this opportunity and modernise interested parties, and through a large and on the issue of securing Co-operative now, there is a very real chance that it will number of thought-provoking individual assets. The fourth meeting looked at not survive to celebrate the bicentenary and collective submissions (see Annex 4), democratic structures, and also the wider of those original Rochdale Pioneers together with extensive debate at regional Co-operative Movement, and its political who in 1844 created an innovative and hearings, at the Co-operative Congress in arm the Co-operative Party. The fifth meeting inspirational business model, which was May 2000, at the Labour Party Conference looked at corporate governance and unique in combining commercial and in October 2000 and in the pages of Co-op legal issues, and also focused on CWS, social goals, in a new form of enterprise News. As the Commission proceeded and on the relationship between the which has, so far, stood the test of time. social goals provide a competitive advantage leading to commercial success Chapter 1 – Re-establishing the Co-operative Advantage The Report of the Co-operative Commission 12–13

13 The Commission’s role 20 Reinvestment in the business 13 The distinctive character of Co-operatives 21 Allocating the profit 14 Analysis 21 Positive contributions 15 Commercial performance 21 CRTG performance 16 Social performance 22 CWS Agriculture 18 Social auditing 22 Associated Co-operative Creameries 19 The virtuous circle 24 Financial services 20 Social goals 26 Recommendations

Co-operative Retail turnover Total Co-operative Movement by category (%) 1999 number of outlets 1999

Funerals, etc Non food 164 Superstores 44 Dairy 4 4 Travel 521 Food/grocery Motor Food 2,295 trades 11 55

Others 590 Non food 13

Travel 13 Specialist 1,029

Source: Co-operative Union Source: Co-operative Union

They exist as distinctive organisations performance has been accompanied by 1 because they also have Co-operative and the sale of assets to fund trading losses. social goals, which they wish to achieve. This is clearly unacceptable as other than The Commission’s role Notwithstanding these social objectives, a short-term palliative. however, the Co-operative Movement, 1.1 The Commission has interpreted its in its various activities, needs to deliver 2.4 The failure relative to the market role as having three aspects. First, based consumer satisfaction and to achieve a on the part of most of the Retail sector on its terms of reference, to analyse the surplus on its operations. In the markets must be arrested. In today’s competitive performance of Co-operative Societies in which Co-operative businesses operate commercial environment such failure and of the Movement as a whole during there is a need to keep pace with private is penalised more severely than ever. the recent past decades. Second, to sector provision. Failure to achieve the The Co-operative Movement cannot make recommendations as to how the required commercial success will mean be sustained simply on the basis of its commercial and social performance of failure to achieve the social goals. social commitment. Societies and the Movement can be improved. Third, to set both the analysis “Lessons to be learned from plcs 2.5 It is essential for all Societies to generate and the recommendations for change in include a genuine performance culture annually expanding trading surpluses; to the context of the current and future characterised by intolerance of poor achieve a minimum of ROCE, to increase social and economic considerations and performance, proper accountability of net profits and to increase market share. concerns – including the need to develop senior executives, a more flexible and The setting and meeting of such key the social economy – which are facing adaptable approach and more effective financial performance indicators is an the Co-operative Movement. The first key staff training." A co-operator, Manchester imperative across the whole of the Retail step in moving towards this objective is to regional hearing Consumer Movement. re-establish the Co-operative advantage. 2.2 In some areas of business, notably 2.6 Other relevant commercial performance 1.2 In attempting to discharge these in attempting to compete with the large targets must be set in relation to the activity responsibilities the Commission has multiple stores and supermarket chains, of the individual businesses. Meeting attempted to be radical – prompted by it has failed to perform adequately. these targets – with management and staff the measure of shortfall in performance Indeed, there has been a long-term, incentives to achieve them – is an essential of significant parts of the Movement's significant under-performance in the part of achieving the surplus from which activities – and yet to root this radicalism majority of the Retail sector within the the funding for reinvestment and expansion, in an understanding of the beliefs and Movement, caused by a lack of vision; a maintenance of the real value of the commitment of Co-operators and the failure of co-operation, and poor direction assets and funding for community and historic mission of the Movement. We and management of businesses across individual member dividends can be met. believe that, with the correct remedial the sector. This commercial failure has action, this historic mission can be forced remedial changes in management 2.7 It is imperative that Co-operatives, as carried forward during the twenty-first structures, mergers, and closures. However, customer-owned organisations, should century to the benefit of our citizens. these forced developments have been provide outstanding customer satisfaction, inadequate to prevent substantial loss of in terms both of the quality of goods market shares and the majority of the Retail and services and of benefits. Indeed 2 Movement is facing an uncertain future. the Co-operative Movement should be providing the benchmarks for quality The distinctive character 2.3 Despite the fact that parts of the and service in the sectors and areas in Co-operative Movement are clearly which it operates. This cannot be said of Co-operatives successful, across the Retail sector as a to be the case over a wide range of whole, performance has been inadequate the Movement's activities. Unless the 2.1 Co-operatives are more than businesses. and declining. In recent years, this poor majority of the Movement's activities Re-establishing the Co-operative Advantage

Co-operative trade accounted for by top Retail Societies (%) Top 10 Retail Societies Turnover (£m) %

100 CWS (Retail turnover only) 3,809 45.4 United Norwest 779 9.3 80 Midlands 610 7.3 Yorkshire Co-operatives 400 4.8 60 Anglia Regional 253 3.0 Ipswich & Norwich 250 3.0 40 Oxford, Swindon & Gloucester 246 2.9 West Midlands 206 2.5 20 Lincoln 206 2.5 Scottish Midland 204 2.4 0 Total 6,963 83.1 1980 1985 1990 1998 1999 Top 10 Top 20 Excludes intra Movement trade – all figures on a 52 week basis Source: Co-operative Union Source: Co-operative Union – 1999 statistics can emulate the best then the inexorable, achieves the commercial success which 3.4 The various tables also demonstrate slow decline of the Movement will continue. is the pre-condition and basis for delivering that the performance of the Co-operative the social objectives. Movement, notwithstanding some notable 2.8 Ironically, the size of the Co-operative islands of success, has not achieved either Movement's retail businesses makes the “Our business has been built up from the commercial or social goals. Regarded Co-op one of the largest retailers in the energies and the contributions of members as a set of commercial organisations – UK, yet this notional dominance is not and employees over many generations; and in particular the retail sector – it has translated into the kind of commercial we hold it in trust for the sake of previous under-performed to a degree which can cultural dominance which, say, Boots has and future generations." A co-operator, be said to threaten the future existence and which the major supermarket chains Loughborough regional hearing of Co-operative businesses and of the are attempting to achieve. potential of the Movement itself as a progressive, social force in a modern 2.9 In certain sectors and in certain types 3 consumer-oriented society. of operations, e.g. large department stores and superstores, it is unlikely Analysis 3.5 A variety of factors can be advanced that the decline can be arrested. The which have led to the under-performance customer offering in these activities is 3.1 Overall there is a significant gap between of a substantial section of the Co-operative seen as inferior to conventional business the Movement's commercial objectives Movement. The evidence collected and competitors. Hard decisions are likely to and its actual performance. There has been presented to the Commission suggests have to be taken here, and the Movement differential performance for sectors, but, that the main factors involved in success may have to countenance moving out of overall, sales have declined in real terms. The and failure can readily be summarised. large department stores and superstores overall profitability of the Retail Movement altogether, as have some Societies already. is lower than most other industry 3.6 The main factors involved, not However, the successful growth in other participants in the retail sectors. Significantly, necessarily in order of importance and newer areas such as travel and The profits across the retail sector have not not present together in all cases, are: Co-operative Bank indicates the growth been sufficient to achieve a return on capital Inadequate strategic direction of potential for the Co-operative model, building employed above the rate of inflation. businesses by Societies’ Boards. on the Co-operative business advantage. Lack of quality management and 3.2 There are, however, a number of inadequate employee training. 2.10 The Co-op is also burdened with an examples of commercially successful An inability to motivate and involve unfortunate, old-fashioned image. It is Societies and there should be a greater Co-operative employees fully in essential to the future successful growth exchange of best practice between Co-operative businesses. of the Co-operative Movement that this Societies in order to increase overall Concentration on meeting social goals general poor image is addressed and a performance, as a first step to bringing at the expense of, or without reference new branding strategy is developed. In the majority up to the level of the best. to, commercial performance. achieving the essential changes to become The Co-operative Bank's position has Unwillingness to take commercially successful Co-operative businesses in demonstrated that growth and improving necessary decisions, e.g. closure of a modern consumer environment it economic returns can be generated perennially loss-making activities. is imperative that the principal focus alongside, and in part through, ethical Failure to innovate in terms of of the businesses is on providing the and responsible trading practices. products, services, or organisation. customer with a uniquely satisfying Failure to adopt modern, successful product. This was the basis of the success 3.3 The charts and tables throughout this marketing methods and practices. of the Co-ops in their heyday, it must chapter indicate the nature and extent Failure to keep pace with business become so again. The desired success in of the problems faced by the Movement sector competitors. achieving social goals will only be attained and its lack of success in meeting its An inability to take advantage of if the Movement, in all its operations, commercial and social goals. the cross-selling potential of the The Report of the Co-operative Commission 14–15

Balance sheet – Co-operative Retail Societies Co-operative Retail Societies’ trading profit – last 10 years (£m)

1998 1999 170 (£m) (£m) 160 Fixed assets 2,450 2,370 150 Net current assets/liabilities 129 346 140 Long term liabilities 962 1,074 130 120 Net assets 1,617 1,642 110 Share capital 308 277 100 Reserves 1,309 1,365 90 80 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: Co-operative Union Note: The declline in the last four years is principally attributable to CRS Source: Co-operative Union

Movement as a whole. negative factors and the presence of commercial objectives and social goals. An, as yet, unfulfilled potential of their positive obverse that explain the Commercial activities must generate the Movement to communicate its success. For instance, the success of a sufficient surplus to ensure the re- capability to respond to developing the smile Internet banking service can development of the business; the consumer demands for trust and be attributed to strong innovation and payment of individual customer social concern in the delivery of goods capable marketing allied to an efficient economic benefits; and the payment and services. business approach. The refurbishment of a community dividend. Without a Failure to measure and set clear of the CWS Welcome stores has also surplus the business will decline and goals for both commercial and social been related to the same two factors. social goals will not be met. performance. A number of Societies have recently taken Lack of the active involvement steps to involve their membership actively of properly informed members and to expand it as part of a more dynamic 4 in the affairs of the Co-operative strategy from the Boards of these Societies. businesses. A few Societies have closed loss-making Commercial Lack of pressure on management and activities to improve the overall position Boards for change. of their businesses and raised their level performance Lack of focus on commercial of profitability. Again in connection with performance. social goals and activities some Societies 4.1 Some valuable work on performance Reluctance to change poor have, on the back of improved commercial measures has already been presented management or recruit new performance, involved themselves to the 2000 Co-operative Congress by management externally. in a positive and productive manner in the Co-operative Union. The issue to Fragmentation of the Movement. community development projects and be faced by Societies is ensuring that Lack of co-operation between Societies. support for other Co-operative ventures relevant performance measures, and locally and regionally. particularly commercial performance 3.7 Each one of these factors on its own measures, are met on an on-going basis. would be sufficient to create substantial 3.9 Failure to meet commercial performance problems for Co-operative businesses. In measures entails failure to meet social 4.2 The key performance measures are many cases more than one of the factors goals on an on-going basis. The fact that those that relate to the generation of a are present and account for the deteriorating some Societies have failed to meet the trading surplus. Increased turnover or commercial performance of substantial former, but have continued to meet social even increased market share alone will sectors of the Co-operative Movement. goals by the sale of assets is a matter for not guarantee that a trading surplus will serious concern, not congratulation. be achieved; any expansion of trading “There was a need to achieve excellence must be profitable (within a reasonable in terms of customer satisfaction, in 3.10 Being a Co-operative is not an excuse trading period) for it to be justified. terms of providing high quality, being for poor commercial performance. The price competitive and offering value Return on Capital Employed (ROCE) 4.3 The assets of the business, human for money. This was seen as a means must be raised, and other measures and physical, must be employed of improving bottom line performance, of performance must reflect the effectively and efficiently and must as well as being a practical means of maximum that can be achieved without generate an adequate return. This is delivering Co-operative values and compromising Co-operative principles; true whether it is the Return on Capital giving additional credibility to our wider for example the existing market share Employed (ROCE) which is being used goals as a Co-operative." A co-operator, must be at least maintained. or a more general measure such as the Manchester regional hearing proportion of profit in the value added 3.11 It is important that all involved in the by the business to its inputs in terms of 3.8 By contrast where there have been Co-operative Movement appreciate that wages and capital employed. successes then it is the absence of these there is no choice or conflict between Re-establishing the Co-operative Advantage

Performance of the Co-operative Movement compared with competing industry sectors 1998 (%) Return on Capital Employed by sector 1999 30

25

20

15

10

5

0 s l y y & * r s d p s n ve nit air y 00 to et o -o oe rals icia Tra u D ac 1 Mo rk fo o h e pt m res m ts SE ma on rs C S un O om to ar mis FT er N aile F C s Ph he up ret C S

Note: *FTSE100 excludes financial institutions, FTSE100 and Co-op 1998 numbers. Source: L.E.K., Datastream, Company Reports

4.4 These and other measures of surplus comparing retail Societies with equivalent would enable benchmarking to improve, and profit can also be used to compare the plc competitors. Other performance over time, the performance of the whole performance of Co-operative businesses measures, e.g. net trading surplus, which Co-operative retail sector. with similar trading operations in the plc should achieve a minimum percentage of sector. In relation to both the food and turnover, appropriate for the nature of the 4.11 The Co-operative Union would non-food sectors, the Co-operative retail business, to allow for reinvestment and be the body ultimately responsible for performance compares very unfavourably the payment of individual and community adjudicating on the performance of on the measure of ROCE. In these dividends; gearing ratios, and market individual Societies, against the KCPIs; competitors, which correspond with the share (which should be maintained or deciding what remedial action was to be majority of Co-operative retail activity, increased) should also be used. recommended or imposed, and setting it is not unusual to find returns of up to appropriate commercial performance 20 per cent achieved in the most successful See recommendation 2 benchmarks for all Societies. Societies supermarket chains such as Tesco (see should adopt a standard system of table page 24). Overall the Co-operative 4.8 However, it is important that managers financial reporting so that there is retail sector achieves barely 5 per cent. and directors are aware of the necessity consistency across the Movement. It is with this in mind that we are of securing year on year trading surpluses recommending a minimum ROCE as on turnover, from which must be generated See recommendations 5 and 6 a first milestone for Co-ops. Failure to the funds for reinvestment in the growth achieve this should result in remedial of the business; the finance to provide action30 being taken by the Movement. individual member dividends and other 5 Poorly performing Societies affect the customer benefits; and the funds to health25 of the Movement as a whole; establish the community dividend in support Social performance their performance must be brought of the achievement of the broader social up20 to the level of the best. goals. Accordingly, Societies should urgently 5.1 Though we take the view that the review the performance of their various achievement of a far higher and sustained 4.515 The Boards of Co-operative Societies business sectors to determine their long- level of commercial performance by have a responsibility urgently to establish term viability. all businesses within the Movement challenging10 Key Commercial Performance is its first and overriding priority and fully Indicators (KCPIs) and to monitor their See recommendation 3 in line with the Co-operative purpose, performance objectively against those nonetheless the Co-operative Movement 5 targets, while respecting Co-operative 4.9 We believe that the Co-operative must also achieve its social goals. Indeed, values. The performance indicators should Union has an important role to play at the achievement of social goals is both be0 presented to members at the AGM. the level of the Movement as a whole the outcome of enhanced commercial in setting and monitoring appropriate performance and – properly articulated, See recommendation 1 commercial performance measures. communicated, and delivered – exerts For this reason we wish the Co-operative a positive feedback on the achievement 4.6 Where it becomes apparent that a Union to establish a Commercial and of improved commercial performance. Society is failing to meet its KCPIs, then Social Performance Panel. an interim report should be presented “It’s being a Co-operative and expressing to members at the Half Yearly Meeting. See recommendation 4 Co-operative values and principles that should differentiate us from a plc, this 4.7 Performance targets should be set 4.10 One role of the Panel would be to set difference should be more clearly promoted in relation to ROCE – Return on Capital common KCPIs for Societies to adopt in the marketplace. Co-operatives are poor Employed – which is a valuable benchmark to measure their individual commercial in advertising their principles and values when comparing the performance of one performances, submitting these to the and the Co-op difference." A co-operator, retail Society with another and when Panel for scrutiny on an annual basis. This Loughborough regional hearing The Report of the Co-operative Commission 16–17

Andrew Knox and smile staff at The Co-operative Bank’s customer service centre in Stockport

smile – the Internet bank A Co-operative case study

The Co-operative Bank’s reputation for puts the customer firmly in charge of smile recruited 200,000 account innovation was demonstrated again their finances. It was also the first holders in just 10 months – more than during 1999 with the successful launch Internet bank to reach the BS7799 80 per cent of whom are new to of smile, the UK’s first full Internet bank. British Standard, for its information The Co-operative Bank. security management system. smile made an immediate impact with high profile advertising, PR and its fresh Customers of smile can do their banking and innovative approach. on the Internet from anywhere and at any time. They also have the 24 hour smile offers a comprehensive range of support of the smile service centre banking products including some of the and can use any of 18,000 Post Offices best priced products on the market, and to do their banking. Re-establishing the Co-operative Advantage

Comparison of Co-operative with the FTSE100 top 20 companies ranked by 1998 turnover (£bn)*

45 40 35 30 25 20 15 10 5 0 r I r i co ell e AT co BT ry eo ** ys IC BA S B e ss ica e s n O o Sh v B es bu g op ns M& hK om le tr ish tem rco P& Am nile T ins Dia o- ve it llc ire en gf ys a P U Sa C In Sm e W C in S M B o W & K Ae lax ble B G Ca

Note: *Excludes financial institutions. **Black area indicates the inclusion of the figures for CIS and The Co-operative Bank Source: L.E.K., Datastream

businesses worldwide such as BP Amoco Co-operatives, by developing Peer Group 5.2 Hence, accompanying the setting, and British Telecom. Winners of the 1999 Verification; a mutual association of monitoring, and meeting of commercial Social Reporting Award included Shell organisations completing social audits or performance targets there should be International and The Co-operative individual co-operators willing to be trained a similar framework in relation to social Bank. However, while there is a strong as social auditors to allow verification performance targets. Like the commercial corporate involvement in these initiatives, of another Co-operative’s social audit. indicators, the Key Social Performance there is a legitimate concern that some This could be done under the aegis of Indicators should be presented to members shareholder-owned companies are using the Co-operative Union. at the AGM, but where a Society is failing social auditing as a marketing tool and to meet the required indicators, an diluting the extent to which it acts as a 6.5 Taking account of the above interim report should be presented tool for the empowerment of stakeholders. discussion, all existing Societies should at the Half Yearly Meeting. The Co-operative sector in the UK and be prepared to commit to a social worldwide has a leadership role to play in audit. Performance would be measured See recommendations 7 and 8 contributing to the development of social against pre-stated criteria relevant auditing in ways that maintain sufficient to all stakeholders, independently 5.3 Again this would be the responsibility quality standards. and objectively audited by an outside of the Co-operative Union's Commercial organisation appointed at a Society's and Social Performance Panel. There 6.2 Social auditing sets out the social Annual Meeting, against a standard would be a parallel procedure for impact of an organisation’s activities. It to be set by the Co-operative Union monitoring the performance of Societies uses a toolkit of indicators, benchmarks, (as outlined above) and the results against Key Social Performance stakeholder dialogue and public reported to the Society's following Indicators (KSPIs) as for KCPIs. reporting. There are emerging standards AGM and, collectively, presented to in the field, such as AA1000 as well as Congress by the Union. Such a procedure 5.4 The Co-operative Union would be initiatives such as SA8000, the Global would allow benchmarking to be carried responsible for adjudging whether Reporting Initiative and SIGMA – each out and standards raised by emulation Societies were performing adequately addressing a component of social of the best-performing Societies. against the published KSPIs and setting reporting or the integration of social, appropriate social indicators. environmental and economic reporting. 6.6 The social objectives of the Co-operative Movement must be 5.5 In determining both KCPIs and KSPIs, 6.3 It would not be appropriate, at this implemented in such a way that they the Co-operative Union should consult stage, to make conducting a social help to promote – among the public with leading external experts in this field audit a regulatory condition of being at large – the value of the distinctive in developing appropriate benchmarks. a Co-operative, as this will add costs Co-operative principles. We believe that to Co-operative start-ups. Instead, the Co-operative Movement as a whole social auditing should be encouraged should share common attainable goals, 6 as good practice and perhaps, potentially, which will help presently disparate a condition of membership of the sections of the Movement to support Social auditing Co-operative Union, after an initial trading each other. The work of the Commercial period. In addition, the Co-operative and Social Performance Panel should 6.1 Social auditing was originally Union should develop a standard system encompass this task. pioneered by the Co-operative sector, for social reporting so that there is in particular the Scottish community consistency across the Movement. See recommendation 9 business movement together with the New Economics Foundation. It is now 6.4 Again a further possibility would be 6.7 The Co-operative Union should being used by organisations as diverse to reduce the costs of social auditing, produce an Annual Report on the work of as local LETS barter schemes and global particularly for community-based the Social and Commercial Performance The Report of the Co-operative Commission 18–19

The Co-operative virtuous circle

Panel which would be presented to the at least as well as the private sector, surplus between redevelopment and Co-operative Congress. by ethical and responsible trading, expansion and the community and and by delivering economic benefit individual member dividends. See recommendation 10 to customers. Commercial success must secure a balance of distribution 7. 5 In this way successful Co-operative 6.8 Since the Co-operative values of the surplus generated between the businesses – based on the belief that give a competitive advantage to the competing demands of reinvestment co-operation is a superior form of social Co-operative businesses, it is essential in the development of the business, the organisation – can be redeveloped. that the benchmarks set for both community dividend, and the individual Moreover, the achievement of regular and the` social and commercial goals of dividend to continue the virtuous circle. expanding trading surpluses – secured individual Societies are reached. The by the continuous meeting of appropriate Co-operative Union should have the “In the Co-op you have an organisation business performance targets – will ability to appoint two advisors to work that is as democratic and as Co-operative enable necessary reinvestment to take with the Board of a consistently under- as the ideal may be, but if it is not a place and the social goals to be met performing Society. commercially successful business from the surplus. In this manner the full addressing the crucial business issues Co-operative vision can be delivered. 6.9 We also believe that a common and of the day, it would not continue to exist generally accepted mission statement to in the twenty-first century but on the 7. 6 While it is obviously necessary for a which all parts of the Movement would other side of the self same coin to ignore constant monitoring of the performance subscribe, as discussed in Chapter 7, can the Co-operative aspects, we would lose of trading competitors to be undertaken assist in motivating all in the Movement the plot..." A co-operator, Manchester at all levels, we believe that a more to work in a concerted and co-ordinated regional hearing formalised mechanism of support and manner to achieve its common goals, information exchange is required within commercial and social. 7. 3 It is clear that in some areas of the Movement itself. Benchmarking Co-operative Movement activity the virtuous within the Movement to enable the rapid circle has broken down. The breakdown copying of best practice – supported by 7 affects all three elements of the virtuous training and other support mechanisms – circle, sometimes all three together. is undoubtedly the best way of ensuring The virtuous circle the common development of all parts 7. 4 Hence we see the issues for the of the Movement. Accordingly, the 7. 1 The virtuous circle theory underlying Co-operative Movement – in terms of the Co-operative Union, in liaison with the operation of the Co-operative new vision required to sustain and expand Societies, should establish Key Social Movement suggests that attainment the Movement in the twenty-first century Performance Indicators. of social goals provides a competitive on the basis of the establishment of a advantage leading to commercial sustainable virtuous circle – as three-fold: 7.7 In this context, it is worth examining success, which then reinforces the A reinterpretation of the historically the social goals of Co-operative ability to meet the social goals. valid principles and social goals of businesses and how their successful co-operation in modern concepts achievement can enhance the 7. 2 The problem with this theory is that, to and language and connecting with competitive advantage of Co-ops. work, the social goals of the Co-operative modern concerns. Movement must be articulated, Strong marketing of the Co-operative 7. 8 Before doing so, it is important to communicated, and accepted by society advantage at national level in terms recognise, at the outset, that there is a at large, and particularly by customers, of the already suggested formulation significant difference between charitable so that they can fulfil the role of business of ‘Effectiveness, Responsibility, support given by Co-operative Societies drivers. Competitive advantage must and Reward'. – which is laudable in itself and helps be maintained by efficient operation A clear and positive distribution of the to raise the community profile of the Re-establishing the Co-operative Advantage

Social goals Competitive advantage

Customer economic benefit Increased customer loyalty and better prices Member benefit Increased democratic participation Employee stakeholders Align staff goals with organisational goals. Retention and recruitment. Better customer service Ethical corporate culture Clarity of purpose for employees/customers Campaigning for the consumer Creates trust in the brand Community investment Closeness to and understanding of community, recruitment of customers, members and employees Social enterprise initiatives Influence at local/regional level Democratic participation Sense of enfranchisement for customer shareholders; responsiveness to customer needs Civic and community education Increased understanding of the benefits of the Co-operative approach leading to greater community support and customer loyalty

Source: Based on L.E.K. presentation to the Co-operative Commission

Movement, particularly locally – and the 8.5 Through the use of the community Reinvestment is essential for two reasons, fulfilment of the strategic social objectives dividend a Society can become an both of which are highly relevant for the of the Movement. In so separating integral part of the local and regional Co-operative Movement. these two aspects of the activities of business and social economy. Societies Co-operative businesses, we do not will be able to undertake involvement 9.2 First, it is necessary to ensure that the wish to deny the relevance or value of in such actions as the establishment physical establishments and the human charitable donations given by customers of Social Venture Capital Funds; resources of the Movement's businesses and members or their effectiveness in involvement in Small Business Services; are adequate to meet the demands made ‘attaching' customers to Co-ops, but and participation in developing and on them by customers; have modern and simply to clarify the direct and strategic implementing regional development attractive premises and well-qualified aspects of Co-operative social objectives. strategies through Regional Development and trained management and staff; are Agencies, including in particular strategies able to introduce new technology at an for Co-operatives’ development. adequate pace; and are keeping in line 8 with likely future market developments. 8.6 Nor should the latent interest of Social goals consumers in ethical issues be under- 9.3 Second, reinvestment will be necessary estimated. A MORI poll in June 2000 if new sectors and new enterprises are to 8.1 The social goals and their relationship indicated that though there may only be developed as recommended in Chapter with the potential competitive advantage be around 5 per cent of ‘ethical activists’, 2. Reinvestment is not only essential, of Co-ops are illustrated in tabular only 20 per cent are uninterested in therefore, to provide a sustained level of form above. ethical issues. This leaves some 75 per service delivery to customers, but also to cent of consumers who are potentially provide for the expansion of Co-operative 8.2 A successful Co-operative business convertible to ethical activism to businesses in existing successful areas must, therefore, be able both to deliver one degree or another and also to an and in the new, exciting areas of business meaningful economic benefits to its appreciation of Co-operative values. growth where we believe the Co-operative customers/members and to make a advantage can be demonstrated. contribution to the wellbeing of the 8.7 The challenge, for all in the Movement, local community where it is based and is to define and to set social goals that 9.4 There is ample evidence from our own from which it draws its employees. are in line with modern society's perceived research and from the Movement itself and expressed needs. The further that reinvestment has been neglected 8.3 One prerequisite for a Society challenge is then to demonstrate that for some years in a substantial part of establishing a mechanism for, and the Co-operative Movement can deliver the Movement. Partly this is the result of a commitment to, the achievement meaningfully against these goals on trading failure and the loss of surpluses, of Co-operative social goals is to have a consistent basis, both to its customers but this is a ‘chicken and egg' problem; a strong Board with clear views on and the community. the trading failure partly results from its Co-operative identity and its twin inadequate reinvestment in the past and commercial and social objectives. It will currently. What is clear is that the current then need to assert and to communicate 9 trend must be reversed. the ‘Co-operative advantage' to its members and to its customers. Reinvestment in 9.5 Where reinvestment is required it should only be undertaken as part of 8.4 The active engagement of members, the business the new business strategy and not as for instance via Member Groups, in the a short term ‘fix’ and only where there is pursuance of the social goals (see page 80) 9.1 Reinvestment throughout the Movement a prospect of a good return. This renewed is another important means of ensuring is the first priority and should have first investment will need to be accompanied the achievement of social objectives. claim on any surpluses generated. by a process of rationalisation and the The Report of the Co-operative Commission 20–21

Number of Co-operative Retail Societies 1958-2000

932 859 801 743 680

539

357 282 260 237 225 206 145 112 102 87 79 64 54 52 48 46

1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Source: Co-operative Union

closure of uncompetitive sectors. iii In order to meet the Societies’ a positive contribution to the Movement’s Such investment must be assessed and Co-operative and social goals we performance and to its image. It is worth implemented in the context of a long- recommend that a third area of balancing our specific and general term strategic plan for the business. allocation from the profits should criticisms contained in the above analysis be to a community dividend. with a record of areas of Co-operative 9.6 The positive effect on performance Where Societies are achieving profitability performance which indicate that a modern of refurbishments within the CWS estate and their funding position permits, they commercial approach – though it is (Welcome stores) is a clear demonstration should seek to ensure that a minimum of imperative that it be sustained – can of the enhancing impact of reinvestment. 10 per cent of that profit is for the allocation enable a strong showing to be made. However, the common perceptions of to the members’dividend andthe community success frequently lag years behind the dividend. It may be that where greater reality. It is imperative, therefore, that levels of profitability are achieved or as 12 Co-operative Societies establish more part of a stakeholder dividend initiative a effective, consistent, and co-ordinated larger share of the profit may be allocated CRTG performance communication of the positive impacts of to the members, the community or indeed such investments on customer offerings the employees. The Commission believes 12.1 It is pleasing to be able to report in relevant catchment areas. that the ratio distribution of individual to that in respect of CRTG and its role as community dividend should be around a national purchasing agency, there is 10 70 per cent to 30 per cent. good news. 10.3 By adopting this formula, Societies 12.2 CRTG has been one of the major Allocating the profit will ensure that their commercial success stories of the Co-operative operations are financially sound and Movement over the last decade. It has 10.1 The calls on the surplus of the that they have appropriate access to grown by 174 per cent over that period Co-operative Movement are no different new investment funds. However, they will and now accounts for 90 per cent of today than they were in the days of the also be making an absolute commitment the Movement's food trade. Moreover, Rochdale Pioneers. As discussed to returning surpluses to the individuals it provides a rebate that is equivalent previously, they must be used for the and to the communities in which they to almost 3 per cent of sales to member profitable development of the business. have been earned. Societies. In assisting the development Any surplus needs should be split between of the CRTG, retail Co-operative Societies individual and community dividends. See recommendation 11 have demonstrated that, when they co-operate at a national level, they can 10.2 The surplus of a Society should be achieve much greater commercial success. channelled into three core areas: 11 i Reinvestment throughout the Retail “...CRTG, this has been one of the great Society must always have the first Positive contributions successes in recent years... we must build claim on profits. Societies should on the success of CRTG and continue its invest where they are able to achieve 11.1 Though, as the above paragraphs democratic development." A co-operator, the appropriate return – that is one indicate, we are critical of the performance Loughborough regional hearing which is above the cost of the of the majority of the Co-operative Retail members’ funds they are committing. sector, nonetheless it would be unfair and 12.3 It is clear that a Movement which ii After reinvestment in the business, all inaccurate to give the impression that co-operates to achieve national scale, Societies should allocate a part of the there were not examples of successful but which retains its capacity for local profit to be returned to members as operations within the wider Movement. delivery, can achieve increasing an individual dividend in proportion A number of Co-operative Societies commercial benefits. The success of to their purchases. have been able in recent years to make CRTG has been driven by ten factors: Re-establishing the Co-operative Advantage

Co-operative share of grocery trade (%)

25

20

15

10

5

0 1957 1967 1977 1987 1997 1998* 1999* 2000*

Source: TNS Till Roll Trade Services*

i The establishment by CWS of a single 12.6 Such an approach could yield buying point and requiring member significant benefits in terms of common 13 Societies to give up their own branding and image, uniform offerings, buying teams. and cost savings. CWS Agriculture ii Forcing the suppliers to deal only with CRTG and therefore preventing 12.7 Notwithstanding the success of CRTG 13.1 The Co-operative Movement through them bypassing CRTG with in terms of its overall performance, it is CWS also remains the country’s biggest ‘special deals’. clear that regional Societies have concerns commercial farmer and is thus unique iii Development of a professional about the current structure of CRTG. in being involved in all stages of the food category management team. In particular, these centre around: chain from plough to plate. The historic iv The buying team's accountability for the The concern about loss of control of commitment of the Movement to the bottom line performance of a large CRTG as a result of loss of Societies' provision of wholesome, unadulterated proportion of the Movement's stores. majority control of CWS Board following produce has recently struck a real v Momentum created by CRTG's own its merger with CRS in April 2000. commercial chord as concerns over success story. A perceived need for transparency salmonella, BSE and genetically modified vi The clear and direct management to demonstrate equal service levels food have massively heightened consumer style that allows the category and rebates as those which CWS awareness and demand for food products management function the freedom Retail receives. of guaranteed origin and quality. to take all day-to-day decisions. Concern over service levels and costs vii Discipline in delivering commitments of CWS distribution system. 13.2 However, the current crisis in to suppliers. farming has resulted in losses for the viii Commitment of founding partners 12.8 Both CWS and the regional first time since the 1920s, raising serious and newer members of CRTG. Societies would like to see CRTG questions about continued practice ix Commonality of purpose. develop its services further, and for in this sector if the national situation x Flexibility in its operations. this to happen there is a requirement does not improve. to formalise its structure without 12.4 In 1999 CRTG generated a pool undermining the factors that have made equivalent of rebates that is equivalent it a success. We believe these concerns 14 to almost 3 per cent of sales and is more are valid, but that they can be allayed than the trading surplus of the entire by a number of specific structural Associated Movement. changes in the relationship between CRTG, CWS, and the retail Societies, Co-operative Creameries 12.5 Over the longer term the Movement and in the contractual arrangements would benefit greatly through shared for service and delivery. 14.1 Associated Co-operative resources in other activities within the Creameries (ACC) is the manufacturing food trade; in particular: See recommendations 12 and 13 and distribution arm of CWS. Its origins The development of a national are as a federal dairy business, becoming distribution system. “The structure of CRTG is good as it is, a wholly-owned subsidiary of CWS as Marketing services such as advertising. but if we are to get more brands of goods a result of the North East merger. From Development of standard store and cheaper commodities, we really need its core business of milk processing formats, layouts and fascia. to upgrade CRTG and bring it into the and doorstep delivery it expanded into Purchasing of store fixtures and fittings. wider business – a kind of CRTG Mark II.” temperature controlled distribution Purchasing and provision of IT equipment A co-operator, Edinburgh regional hearing and subsequently took on CWS ambient and services such as EPOS systems. temperature distribution too. In addition, in 1997 the two remaining CWS manufacturing businesses – Goliath The Report of the Co-operative Commission 22–23

The Co-op Welcome store in Northolt

Welcome stores A Co-operative case study

The launch and roll-out of over New build and acquisition strategy was on an unprecedented scale. All CWS 250 Welcome convenience stores to focus on these formats and a major convenience stores will be converted in the last couple of years has been refurbishment programme was launched. to Welcome by 2003. a major success for CWS and highlights its firm commitment to community In early 1999, CWS trialled its new format The bright bold colour scheme and retailing. for convenience stores under the Co-op fresh new look stores, with the emphasis Welcome fascia. The results were on convenience, have now become Following a major strategic review of its excellent and customer feedback was a familiar sight in CWS trading regions, food activities, CWS decided to focus on very positive. are a hit with customers and are doing more of what it did best, namely outperforming the market. retailing through market town The decision was taken to roll out the supermarkets and convenience stores. striking blue and yellow Welcome format Re-establishing the Co-operative Advantage

Benchmarks – Return on Capital Employed

24 Tesco Sainsbury Asda Safeway Morrison Co-op equivalent 21

18 15 12 9 6

3 0 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99

Note: The competitor data is from the Report of the Competition Commission 2000. ROCE is defined as operating profit as a percentage of shareholdes’ funds plus long-term debt. The Co-op figures are not strictly comparable – they comprise total Retail Society trade, not just food. However they only include CWS retail businesses, and not The Co-operative Bank or CIS. The figures are taken from Co-operative Union Co-operative Statistics, and refer to trading surplus as a percentage of shareholders’ funds pus long-term liabilities. Year 2000 figures not available.

(safety footware) and Robert Howarth 15.4 The research undertaken by the to market changes and for the quality of (shirts/corporate wear) were added to Commission has made it clear that the its service through the most up-to-date the ACC portfolio. extent of the changes taking place within facilities including call centres and the the UK retail financial services market Internet. It recently developed and is unprecedented in modern times. launched smile, the UK’s first full Internet 15 Traditional distinctions between banking bank, to considerable accolades. The products and insurance and investment Bank currently makes relatively few sales Financial services products are becoming blurred, consumers of insurance and investment products to are becoming better educated about its customers. Its services and products 15.1 The issues that must be tackled financial products, and the marketplace are delivered profitably, ensuring that by the Co-operative Movement are not is demanding much better value for money. CWS enjoys an upper-quartile rate of confined to the retail consumer sector. The pace of consolidation and merger return on its investment for the benefit Considerable challenges also need to activity within the industry is accelerating, of CWS members. In 1999, the Bank be faced in the successful Co-operative with scale economies and access to new reported its sixth consecutive year of business areas of banking and insurance and larger customer bases being key record profits with a return on CWS in order to ensure their future success. drivers in a market where margins are capital of 35 per cent. However, the Bank slimmer, and becoming more so, than in is faced by competitors of substantially 15.2 The Movement is fortunate to have the past. Many insurance companies greater size and resource levels, and may (through CWS) two very successful have entered the banking market, many well be disadvantaged in the future in businesses in the field of retail financial banks now have extensive insurance and terms of its ability to invest and achieve the services – the Co-operative Insurance investment activities and we have seen required economies of scale and product Society (CIS) and The Co-operative Bank. the emergence of ‘Bancassurance’ and breadth to meet the changing market. However, in an increasingly competitive ‘Allfinanz’ as traditional banks, insurers market that has been undergoing and investment houses become integrated 15.7 Although its customers participate in significant structural change and retail financial services businesses. New significant numbers in the formulation of consolidation for many years, the technology is influencing these changes the Bank’s ethical policies and community Commission was surprised by the low and is acting to increase the competitive involvement ‘customers who care’ level of collaboration and co-ordination pressures, and has also assisted new programmes, customers currently have so far between CIS and the Bank. It is competitors to enter the market. no membership rights in either the Bank understood that, in spring 1999, CWS or its parent Society, CWS, related to commenced a review of its financial 15.5 Against this background of rapid their product or account holdings. services subsidiaries within the context industry change and increasing of the changes taking place within the competitive pressures, it is interesting 15.8 CIS has also developed a successful financial services market and that this to compare the strengths and operating and growing business which includes review is ongoing. models of the two Co-operative financial considerable operational and financial services businesses. strength, a reputation for good value and 15.3 CIS and The Co-operative Bank service, a rapidly modernising product have historically developed and operated 15.6 The Co-operative Bank has clearly portfolio, and the largest direct insurance largely independently of each other, demonstrated a successful and modern sales force in the UK. Its business model with quite different approaches to the business model that includes first-class is very different to that of the Bank, marketplace and to channels of distribution service and marketing based upon the however, in that it relies on the single and service. Both now have significant Bank’s distinctive brand positioning, distribution channel of home service customer bases, with more than three million product and technological innovation, and and does not manage its business for CIS customers and two million Co-operative its multi-channel approach to customer the benefit of CWS members or report Bank customers, but with only a relatively sales and service. The Co-operative Bank profitability as such. CIS policyholders small overlap between the two. is well known for its speed of response are not members of CIS or indeed CWS The Report of the Co-operative Commission 24–25

Comparison of Co-operative with the FTSE100 top 20 companies ranked by thousands of employees* Total number of employees 1998

300

250

200

150

100

50

0 . i I er co ry ys kil BT AT er co o ss eo ** S n da O A IC at xo v es bu ns to B ish o C Ba g op M& rco a P& B re la nile T s ve en gf m ots ia o- a ran G al G U ain In R in P A o D C M G rs S K B B ive Un

Note: *Excludes financial institutions. **Black area indicates the inclusion of the figures for CIS and The Co-operative Bank Source: L.E.K., Datastream

and have no membership or ownership and in many ways these strengths are a long-term decline in prominence rights, unlike the typical policyholders of complementary. Equally, there would because of an inadequate response a mutual insurance company, but in many appear to be significant opportunities to the new challenges of the market. ways CIS operates its business as if it to utilise the large individual customer were a mutual insurer. It is not known how bases of each institution by cross-selling See recommendation 14 many CIS customers are members of its the combined products of both. Similarly, parent Society, CWS, but it is believed to it would be surprising if there were 15.14 Finally, the Commission has some be a very low percentage. The home not also opportunities to gain some concerns about the governance structure service distribution method, on which CIS operating efficiencies by combining of both CIS and the Bank, where it is currently relies exclusively has traditionally some administrative and back-office believed that modern standards of served it very well. However, today it is activities. The imperatives of the corporate governance could be better generally considered to be relatively high changing marketplace would appear met. Financial services institutions today cost and is in long-term decline within the to suggest that such synergies should are complex and quite specialised UK financial services industry. be actively sought. Equally, the success businesses operating in rapidly changing of other major UK retailers in the field markets. The non-Executive Directors of 15.9 The Bank has been at the centre of personal financial services would suggest both the Bank and CIS are appointed by of efforts to cross-market financial that the Co-op could have a significant CWS from amongst the Board members services products to Co-operative retail opportunity in the future with a combination of CWS (apart from the Chief Executives customers throughout the Movement, of CIS and Bank products carefully of the Bank and CIS, who serve on each which have included Co-op Instant Access marketed to Co-op shoppers. other’s Boards). It would seem unreasonable Savings Accounts, Co-op Cash Mini-ISAs to expect even the most able and and Shop-and-Save for Co-op shoppers 15.12 The changes in the financial talented Directors of CWS, be they lay as well as an extensive programme to services industry and the market, Directors or Corporate Member Chief install ATM cash dispenser machines in described in 15.4, make it likely that Officers, to have sufficient knowledge and Co-op convenience stores. To date, prospering as independent entities in experience compared to the Executive of no CIS insurance products have been the future will be increasingly difficult the Bank or CIS. Given the complexities cross-marketed to Co-operative retail for the Bank and CIS. Both are relatively and challenges of these businesses, the customers although it is believed that small compared to the big battalions Commission believes that the Boards worthwhile opportunities could exist. of the opposition, and both could be would be considerably strengthened by strengthened by much closer collaboration the appointment of some external, and 15.10 There has been some collaboration together. We would not wish to imply that appropriately experienced, independent between CIS and The Co-operative Bank, either can not survive separately, but non-Executive Directors, and recommends but so far it has been quite limited. Under rather that success and prosperity are that CWS actively considers this. its banking licence, the Bank provides likely to become progressively more the deposit account facilities for the difficult, and significant resources are See recommendation 15 CIS savings account introduced by CIS likely to be needed to stay the course. about three years ago, and also the cash component within CIS’s successful range 15.13 With these observations as a of Individual Savings Accounts. CIS context, it seems very important that is providing the payment protection, CWS takes a holistic view of its financial buildings and contents insurance services businesses and actively develops products being offered by the Bank an integrated business strategy towards alongside its new mortgage product. the retail financial services market. It would be regrettable if two of the 15.11 It seems clear that both CIS and Movement’s best and most successful the Bank have considerable strengths, businesses were to start experiencing Re-establishing the Co-operative Advantage – Recommendations

Recommendations Chapter 1 – Re-establishing the Co-operative Advantage

Commercial performance improvement Societies’ performance Society is failing to meet the required indicators, an interim report of KCPI 1 4 achievement should be presented to the Society’s Half Yearly Meeting. The Commission recommends that the The Commission recommends that Boards of Co-operative Societies must in order to implement and monitor the Social performance improvement establish challenging targets for the commercial and social performance of commercial performance of their Societies, the Co-operative Union should 7 Society and monitor their performance be given responsibility for establishing objectively against those targets. a Commercial and Social Performance The Commission recommends that the The targets must take account of the Panel. The Panel should establish Key Co-operative Union should establish, benchmark performance of major Commercial Performance Indicators after appropriate consultation with competitors and the best performing (KCPIs) in the various business sectors leading experts in the field, challenging Co-operative Societies. and should report regularly, including at Key Social Performance Indicators least annually to Congress, on whether (KSPIs) for performance in relation to Societies are achieving the KCPIs. Co-operative and social goals. Following 2 this, the Union should monitor the Financial auditing performance of individual Societies The commercial performance targets objectively against those targets. The should include particularly Return on 5 KSPIs should aim to reconnect the Capital Employed, which should achieve commercial and social goals of the a minimum of 10 per cent as a first step, The Commission recommends that Co-operative Movement and ensure that together with other performance measures Co-operative Societies should conform all members and employees understand e.g. net surplus (which should be sufficient to accounting standards and adopt a how fundamental this is to the future to allow for reinvestment and the payment standard system of financial reporting, success of the Movement. of member and community dividends), and both of which are established by the market share (which as a minimum should Co-operative Union Accounting be maintained and ideally should be Standards Committee, so that there 8 increased) and gearing. is consistency across the Movement. Boards of Societies should ensure that the Society’s Key Social Performance 3 6 Indicators are presented to the Society’s members annually. Where a Society is The Commission recommends that all Boards of Societies should ensure that failing to meet the required indicators, an Societies should urgently review the the KCPIs are presented to members interim report of KSPI achievements should performance of each of their various at the Society’s AGM to record the be presented to the Society’s members. business sectors to ensure that each can performance of the Society compared achieve and/or maintain financial viability with that of major competitors and peer Social auditing over the medium/long term (3-5 years). Co-operative Societies. (The starting If such assurance cannot be provided in points for some targets would be those 9 respect of any sector, the Society should recommended by the Co-operative consider other Co-operative options to Union in its Report to the May 2000 The Co-operative Union should develop achieve the required performance and/or Co-operative Congress). Key a standard system for social reporting, withdraw from the sector. Commercial Performance Indicators so that there is consistency across the should also distinguish between branded Movement. One possibility would be to and non-branded activities. Where a develop a Co-operative Social Audit The Report of the Co-operative Commission 26–27

CD-ROM (or software downloadable than the minimum to both members and from the web), accredited with the the community dividend after reinvestment 13 AA1000 standard. This would allow in the business, and recommends that as a more standardised and straightforward part of a stakeholder initiative the Society The Commission, given the reform of route to enable Societies to complete should be encouraged to consider some CRTG, recommends that all Societies a social audit than is currently available. allocation to the employees. should now join CRTG.

Co-operative Retail Trading Group Financial services 10 (CRTG) 14 The Commission recommends that 12 the Co-operative Union should produce The Commission recommends that CWS an annual report on the work of the The Commission recommends that, takes active steps to develop and implement Commercial and Social Performance to enhance the successful performance an integrated business strategy for its Panel to be presented to Congress. of CRTG further: two financial services’ subsidiaries, CIS External auditors should be employed and The Co-operative Bank, in order to Reinvesting the profit to help guarantee the transparency harness the latent synergies between of the accounting procedure. the two businesses. Both are successful 11 The Strategy Group of CRTG should Co-operative businesses but have be made up of Chief Executives of historically operated largely independently The Commission recommends that in Societies and the Controller, CWS of each other. However, both now face considering the distribution of profits, Retail, for the time being, should be the challenges of a highly competitive there are the following priorities: the CEO of CRTG and be a member market undergoing rapid and fundamental Reinvestment in the business. of the Strategy Group. However, CRTG change: scale, operating efficiencies, A dividend for members in relation to should consider in the long-term distribution power and cross-marketing their purchases. the possibility of a dedicated CEO are becoming ever more important, customer A community dividend. for CRTG. preferences are more demanding and the The governance of CRTG should be traditional distinctions between banks Reinvestment in the business must always reformed so that the Chairman of the and insurance/investment companies have the first claim on profits. Societies Strategy Group is elected from the are fast disappearing. must invest where they are able to achieve non-CWS members of the Group. the appropriate return – that is, one which Each member of the Strategy Group is above the cost of the funds they are should have a vote proportional to the 15 committing on behalf of their members. purchase volumes of their Society through CRTG. The Commission recommends that CWS Where a Society is trading profitably and Clear terms of reference for CRTG reviews the governance structure of both its funding position permits, the Commission should be established and set out. CIS and The Co-operative Bank with a recommends that the minimum commitment The CEO of CRTG should be required view to appointing some external and to the members and the community to produce strategic and annual plans appropriately experienced independent dividend should be 10 per cent of the profit for approval by the Strategy Group non-Executive Directors to the Board of and that the ratio distribution of individual and to report back on progress. each institution. to community dividend should be around Delivery of the service to members of 70 per cent to 30 per cent. CRTG should be based on a revised form of contract, expressly providing The Commission recognises that some for the benefits and obligations of Societies will be able to allocate more membership. setting the agenda for the next decade Chapter 2 – Successful Co-operative Business in the Twenty-first Century The Report of the Co-operative Commission 28–29

28 General 28 The new co-operation – common branding 30 Building the brand 32 Modernising the Co-op logo 32 e-commerce and new technologies 34 New sectors 36 Recommendations

the Co-op – commercially, technologically, 1 economically, and socially – must 2 reinvent itself for an expanding role in General the twenty-first century. The new co-operation

1.1 We took the view that our work would 1.5 Co-operative principles and practice – common branding be setting the agenda for the Co-operative should be seen as part of a modern Movement for the next decade. market economy. In the USA, for “Businesses like Asda are known from Hence, the recommendations we have example, 25 per cent of US citizens Inverness down to Bournemouth with the made should enable the Co-operative belong to credit unions. Co-operation same common brand, why should we not Movement to take its place as a key part is an international practice and the be the same...common branding of the of the social and economic development UK Co-operative sector should and Co-operative logo...would be an excellent of the UK, in the context of the globalising can lead the way again in the modern idea." A co-operator, Edinburgh regional economy, during the next 10 years. context, as it has before. hearing

1.2 Co-operation offers to the consumer 1.6 A key element of the ‘new' co-operation 2.1 The Co-operative brand was not built and to the citizen in this new century should be a positive Co-operative branding, simply to succeed in the social conditions a unique socio-economic response covering all areas of Co-operative activity in which it was launched – it was built to their demonstrable, but in some and supported by all Co-operative to last. Today, it must succeed not by cases, unarticulated needs. These Societies. This will enable a positive, relying upon distant past successes, range from the desire for the active reassuring, and self-reinforcing image but by putting its house in order and involvement of the final consumer in of the Co-op across all sectors to be by renewing and representing itself influencing the nature of the products developed and communicated to as a desirable and enduring brand. (goods and services) on offer to customers. It will also facilitate the This remodelled message can be them; to an increasing feeling of wider educative role of the Movement increasingly attractive and relevant anonymity in the face of large national in relation to the values and principles to new generations of consumers. and global transnational companies; of co-operation. Rebranded products and services to the fear of the impact of new sold efficiently and ethically in technologies; and to the desire for 1.7 The Co-operative Movement's traditional sectors of the economy, trust in commercial relationships. involvement with the broader Labour and new products developed to meet Movement needs to be strengthened in new social and economic needs, can 1.3 A new focus is required on developing relation to the development of economic provide a vital and viable future for business areas where the Co-operative and social policy linked to the wider the Co-operative Movement in the advantage can be demonstrated, and in application of Co-operative principles twenty-first century. some cases moving out of old ones. and the emerging ‘social economy'. Two important areas where Co-ops are To achieve this strengthening there is 2.2 Notwithstanding this clear potential likely to be able to demonstrate their a requirement for institutional change. for development of Co-operative Co-operative advantage are long-term (In Chapter 5 we make a number of business, there is considerable work to care provision for the elderly and the proposals in this area concerning be done and problems to be overcome. expansion of credit unions. the future of the Co-operative Union Some of the Co-operative Movement’s and the Co-operative Party, and the own research has drawn the following 1.4 The Co-op must, therefore, be seen establishment of a new body, the conclusions on branding: to be actively involved in expansion into Co-operative Foundation.) “The Co-operative Movement, as a new sectors and also to be embracing homogenous entity, is not something and using new technology, including that many people seem to recognise e-commerce. In all these various ways these days. The businesses... do not Successful Co-operative Business in the Twenty-first Century

Market positioning – Shoppers who trust the big retailers (%)

80

70

60

50

40

30

20

10

0 Boots the Marks & Tesco Co-op Asda The Body Safeway Sainsbury Chemist Spencer Shop

1998 1999 Source: Henley Centre 1999

seem to add up to a ‘brand’ at present... fascia. It should also entail the cross- the second is the brand identity for each if anything they have in common an selling of Co-operative Movement sectoral business e.g. food retail, travel apparent lack of... products throughout the Movement or financial services and the third is the – stature at local, regional, and national levels. brand of the individual Society at regional – competitiveness or even local levels. – modernity 2.7 In the context of promoting – aspirational value”. cross-selling, it is our understanding 3.2 The regional/local character of that currently there is relatively little Co-operative Societies is a distinctive 2.3 Yet, the Co-operative brand and all cross-fertilisation between different asset that needs to be built in to the it stands for is potentially an enormous Co-operative businesses and Societies. overall commercial equation. However, asset for the Movement. The process is being hampered by there is an overwhelming argument for a incompatibilities of IT systems and data. universal subscription to a national brand 2.4 At its best it can provide a highly The potential for commercial benefits and the brand image. As far as customers attractive proposition for customers, from cross-selling and from the ability to are concerned the Co-operative brand producing strong business performance refer customers from one Co-operative should be a national brand they can trust plus a demonstration of Co-operative business to another is considerable. and from which they can expect a high values and principles. Consistency is To realise that potential we must quality and socially responsible product. critical; a customer's attitude to the exploit the latent synergies that exist In this way we believe that branding as Co-operative brand proposition can in the Movement. such should be seen as a strategic, be formed by a single unsatisfactory national strength, to which is added at experience, in a single local store or with 2.8 The development by the Co-operative sector, region, and even locally an extra a single product or service provided. Movement of a single Internet web site positive commercial element. It is clear that there is a huge potential would considerably enhance the ability to develop greater synergy between the of the Co-op to communicate a positive, 3.3 This strategic approach will entail Movement's different offerings. clear common branding via the Internet. agreement by Societies to: The systems and processes by which 2.5 However, questions need to be raised 2.9 But the development of a new brand it is delivered. as to why certain customer-facing and brand image for the Movement The standards adopted and applied activities are deliberately marketed represents far more than a revamping in practice. without reference to the Co-op brand. of stores or even the development of The sharing of customer research If the answer is that customers are cross-selling. It represents a renewed amongst Societies. believed to be resistant to buying the belief in the values and the advantages products from a Co-op-branded outlet, for both consumers and citizens of 3.4 A Co-operative Brand Panel then this would point to obvious serious co-operation as a response to modern representing all sections of the Movement flaws in the brand image. Accordingly, economic and social life in the UK in should be set up to establish, develop, radical and remedial action will be the twenty-first century. and maintain the procedures for the required in order to rectify this situation. national brand.

2.6 The Co-operative Movement must, 3 See recommendation 16 as a priority, establish and invest in a high quality national brand strategy Building the brand 3.5 We believe it essential that the that brings coherence and consistency commitment of the whole Movement to what the Co-op is, what it looks like 3.1 The Commission recognises that is secured for the renewal and the and what it offers across the country. there are three levels to the Co-operative consistent application of a national This should be articulated through the brand. The first is the overall umbrella Co-operative brand throughout all adoption of common store formats or brand of all Co-operative businesses; business sections of the Movement. The Report of the Co-operative Commission 30–31

Vera Dent and Floss Billingham at the Nethercrest care home

Care homes A Co-operative case study

West Midlands Co-operative Society acquisition now maintains a bed rate A Care Home Group Manager with moved into the care homes sector of 95 per cent and is to be redeveloped specific nursing experience has been in 1998, when it acquired a 19 bed to increase bed capacity by 50 per cent. introduced and the homes will be residential home in Codsall, in the Relationships with Social Services are consolidated and the training plan belief that involvement in care homes excellent and a waiting list speaks well expanded and developed. fits ideally with Co-operative values of the home operation. and principles. In 2000, the Society took ownership of The Society implemented new two additional care homes at Castle procedures, trained staff and gained Meadows and Nethercrest in Dudley, Investors in People accreditation. bringing in 153 additional beds. The home which was only half-full at Successful Co-operative Business in the Twenty-first Century

3.6 In view of the fact that a number of core 4.2 A new logo should reflect the 5.4 However, these opportunities beg a businesses are marketed without reference modern partnership that exists range of questions for the Movement if to the Co-op brand, it is recommended amongst Co-operative businesses technology is to deliver its full potential: that KCPIs should differentiate between and the modernity of the new Co-op What products and services should the business generated from Co-op-branded approach, and would reinforce the member enterprises deliver and in what activities and non-Co-op-branded activities. modern, common branding we have way do the selected customers of each The intention would be to reduce and recommended. The Co-operative of the enterprises wish to be dealt with? eventually eliminate non-branded Brand Panel, as part of this work should What are the measurable efficiency activities, in favour of the adoption and accordingly consider the long-term targets and where are the current promotion of the unique Co-operative future of this logo. bottle-necks in the business processes brand, supported by the various other of the Co-operative businesses? measures we have proposed, such as See recommendation 18 What are the appropriate common a new national branding strategy, new business processes of the Movement logo etc. and to what extent should there be 5 a central focal point for brand 3.7 Where the Co-operative brand is development, business practice being undermined by failure of any retail e-commerce and development and the monitoring of Society, the Co-operative Brand Panel common issues and opportunities? should be required to report this view to the new technologies What are the appropriate business CWS Board who may withdraw permission models for the member enterprises for that Society's continued use of the 5.1 The Commission has also examined and to what extent can common back- Co-operative logo or access to CRTG. the role of new technology – including office processes be combined? Further examination is required to the rapid emergence of e-business in the What are the opportunities of synergy determine whether the ‘Co-operative’ UK – as it relates to the business models between enterprises that have description could also be removed from of Co-operative enterprises. fundamentally different business those Societies who are undermining the models (e.g. banking/ insurance, Co-operative brand. 5.2 Technology can play a crucial role retailing, travel, etc)? in the success of the Movement and See recommendation 17 its member enterprises. Experience 5.5 The effective use of technology and demonstrates that the key to gaining particularly the emerging technology competitive advantage from technology of the Internet depends entirely on the 4 lies in its integration into a clearly articulated extent to which technology is integrated Modernising the and understood business strategy. into the business objectives. 5.3 In its work, the Commission has 5.6 An excellent example of the Co-op logo identified a range of opportunities whereby Co-operative Movement's e-commerce technology can contribute to success: capability, when led boldly and 4.1 Some of the evidence from submissions Improved delivery of products and imaginatively and embracing new and independent evidence gathered by services through e-commerce. technology is the successful launch the Commission suggests that – in the More efficient running of Co-operative of smile – The Co-operative Bank's context of developing a new approach to businesses. successful Internet banking operation. branding – the Co-op should consider More effective running of the A combination of considerable market adopting a new logo to replace the ‘clover Movement itself. and technological research, allied to an leaf’ which is perceived by some as not Faster communication and sharing entrepreneurial spirit, and a perception reflecting the modernising approach now of best practice. of the need among potential customers being adopted by the Co-op. Automation of back-office functions. for trust, lies at the root of this example The Report of the Co-operative Commission 32–33

Children at Greenwich Leisure’s Waterfront Leisure Centre

Greenwich Leisure A Co-operative case study

Greenwich Leisure Limited (GLL) is London’s employee-controlled board has managed The new structure has proved a great most successful social enterprise. Greenwich’s leisure centres ever since. success. Three new facilities have been built and new services developed in In 1993 Greenwich Council faced a GLL was the first of its kind. Twelve other existing centres. These include swim 30 per cent reduction in the funding of local authorities have since followed this clubs, fitness centres and gym clubs. leisure centres, which would have led to model rather than handing over leisure closures and redundancy. services to private enterprise. Since 1993, costs of running the service have been halved, income has more Faced with this crisis, the local authority and The model used by GLL combines the than doubled. its workers created a new type of business benefits of private management, the which has since opened new centres and dedication of stakeholders including GLL also boasts London’s most effective increased employment. A not-for-profit both staff and customers, and public social inclusion access policy, with one in two industrial and provident society with an accountability and ownership. borough residents holding Greenwich cards. Successful Co-operative Business in the Twenty-first Century

of Co-operative commercial innovation in connection with the introduction of 5.15 The Commission therefore believes in the new product area. e-commerce, the case for automating that a modern Co-operative Movement back-office functions such as payroll must integrate the new opportunities 5.7 e-commerce could be used by the processing is already made. Business presented by technology into the values Co-operative Movement with particular process outsourcing is well established and undertakings that have provided advantage in the travel sector. The in the commercial world. historic value. potential here is considerable both in terms of innovation in direct customer 5.13 The importance of giving due 5.16 To enable the Movement to exploit services and the automation of back- consideration to the adoption of new effectively the potential that new office support functions. technologies cannot be over-estimated. technologies can offer, CWS should However, the relationship of technology consider providing a business technology 5.8 e-commerce is also becoming to business change is a complex one. advice centre/service to Societies. Such fashionable in relation to food and non- On the one hand, technology can enable a service would be able to monitor the food retail activity, providing options for new possibilities that can be used to gain use of new technology by competitors, customer choice and delivery. However, it competitive advantage. On the other to advise Societies and other branches is not clear what proportion of the market hand, the evolving marketplace and of the Movement on the implementation it will eventually take up. business environment can demand of technologies appropriate to their specific practical responses from technology. requirements and to advise of technology 5.9 Before any heavy investment in best practice within the Movement. e-commerce in the Co-operative retail “We should seek competitive advantage sector is undertaken it would seem through delivering businesses and services See recommendation 19 prudent to pilot a few schemes around that humanise the business processes, the country and to monitor the response such as banking, funerals, insurance, from Co-operative customers and to social housing, residential care homes, 6 analyse the full economics of the provision. domiciliary care, information services and transport. We should consider new New sectors 5.10 Assuming that it can be fields and not allow ongoing decline demonstrated that there is a valuable and through the erosion of existing business." 6.1 No business can afford to stand still important e-commerce market in which A co-operator, Manchester regional hearing and the Co-operative Movement should the Co-operative Movement can deploy be examining the current opportunities its unique comparative advantage then it 5.14 In this complex relationship, for the development of new Co-operative would seem preferable to organise the successful companies are able to businesses, as did the pioneers of the business(es) at the level of the Movement balance “the art of the possible" (the Movement in the nineteenth century. as a whole. technologist’s contribution), with the “art We believe that there is an opportunity of the practical" (the business manager’s to build upon the existing Co-operative 5.11 With a unified approach and a high contribution). Ultimately this balance is values to sound commercial effect by profile presence, the size of the rewards achieved because the culture of the examining the opportunity to enter for all participating Societies would be organisation supports it. Both the business sectors in which the Co-op is significantly greater than if there are technology team and the business team not currently represented but where its competing regions and localities, with within Societies must establish a dialogue values are likely to be highly relevant. an array of web site addresses serving that is driven by their overall business only to confuse the customer and strategies. This is the fundamental “The Movement must widen its trading condemn the Co-operative brand to an prerequisite for the successful use of format, we must have alternative forms uncertain e-commerce future. technology in delivering a Co-operative of Co-operative trading, blind reliance Movement that is relevant, successful, on food retailing could prove fatal." 5.12 Notwithstanding a degree of caution and true to its values in the future. A co-operator, Oxford regional hearing The Report of the Co-operative Commission 34–35

6.2 Typically these might be sectors where Co-operative Societies, the UKCC, CIS, high levels of trust and social values are The Co-operative Bank and external necessary and desirable, but where current consultants. providers (for whatever reason) seem unable to operate effectively overall. “...we need visions for new forms of The Co-operative advantage is capable enterprise for the twenty-first century. of demonstrating its ability to meet the The recent success of Poptel and ‘appetite for trust’ that is emerging from the Phone Co-op indicates these contemporary consumer-led society. opportunities." A co-operator, Edinburgh regional hearing 6.3 Two categories of business come to mind in this connection: long-term care 6.6 The New Ventures Working Group of the elderly and the expansion of credit should consult with the appropriate unions. In categories such as these, agencies in order to determine Co-operative values are likely not only which sectors would benefit from to be socially relevant, but also to have Co-operative involvement. significant commercial relevance. We believe these are areas of business See recommendation 20 to be explored in detail by the Movement. They are types of business opportunity 6.7 In moving into new areas, the where socially valid and commercially Commission strongly recommends that sound Co-operative propositions can the mistakes of fragmentation of the past be developed. must not be repeated. It is essential in delivering new products and entering 6.4 An entry into (or exit from) a sector, new markets that there is a common of course, constitutes business strategy brand, common performance standards, at the highest level – and a major financial and shared services. These developments commitment for a particular Society, would, in this way, become the as well as creating implications for the Co-operative Movement's equivalent to Movement as a whole. It is proposed franchising. This in no way would preclude therefore that a Working Group should ownership through joint ventures of a be established with the remit of: number of Societies. Moreover, proposals Identifying new or fledgling sectors would have to be submitted to the where a gap may exist for a Boards of Societies for their approval. Co-operative solution. Expressing the nature of the “It would be nice to have care Co-ops etc, Co-operative advantage in that sector. and obviously I’m supportive of the need Drawing up high-level cost benefit for more forms of Co-operatives, but we scenarios for each. won’t get those by doing a long list of what might be." A co-operator, Oxford 6.5 Given the experience of the regional hearing Co-operative Union in a wide range of markets, it is proposed that this work See recommendation 21 stream should be led by the Co-operative Union, under a New Ventures Working Group with inputs from CWS and other Successful Co-operative Business in the Twenty-first Century – Recommendations

Recommendations Chapter 2 – Successful Co-operative Business in the Twenty-first Century

Branding and image Where, in the view of the Brand Panel, e-commerce and new technologies the Co-operative brand is being 16 undermined by failure of any Retail 19 Society to meet the brand requirements, The Commission recommends that to the Co-operative Brand Panel should be The Commission recommends that Retail back up the development of nationwide required to report its view to the CWS Societies should urgently consider how branding within the food retailing sector Board which may withdraw permission greater use of the Internet can deliver and also to achieve significant cost savings, for that Society's continued use of the benefits for members and customers, Societies should explore (within the Co-operative logo or access to CRTG. and how through its engagement in framework of CRTG) further opportunities All Societies should, under the aegis e-commerce, efficiencies and cost savings for co-ordinated activity including the of the above Panel, explore and resolve can be made. benefit of a national distribution system; the issues surrounding the introduction the development of standard store of appropriate common branding of The Commission further recommends that formats, layouts and fascia; and the each Co-operative business, under an CWS should consider the establishment common purchasing of store fixtures and umbrella national branding approach of a business technology advice fittings. Societies should also examine the that encourages the cross-selling of centre/service to provide a consultancy merits of using a common support system products throughout the Co-operative service to Societies wishing to introduce across all businesses for administrative Movement. new technologies and to encourage best tasks such as payroll processing, etc, the It may also be desirable to appoint practice technology dissemination merging of databases and cross-referral Sectoral Brand Panels to examine throughout the Movement. systems, and upgrading to compatible IT those branding issues that affect systems across the Movement. specific businesses common to more New sectors than one Society. 20 17 The Co-operative logo The Commission recommends that The Commission recommends that: 18 a New Ventures Working Group led A Co-operative Brand Panel appointed by the Co-operative Union – and with by the CWS Board with membership The Commission recommends that the appropriate representation from drawn from key Co-operative Societies, Co-operative Brand Panel should, as part CWS, other Co-operative Societies, including The Co-operative Bank of its work, consider the long-term future the UKCC, CIS, The Co-operative Bank and CIS, led by the CWS Executive of the existing logo (‘clover leaf’ design), and external consultants – should be Management team and supported which some research indicates is established. The remit of the Working by professional advisors, should be perceived by the public as not reflecting Group should cover: identifying new or established to develop a common the modernising approach now being fledgling sectors where a gap may exist national Co-operative branding approach adopted by the Co-op. A future logo for a Co-operative solution; expressing for the Movement. For the work of the could reflect the modern partnership the nature of the Co-operative advantage Panel to carry authority it must be able that will be created among Co-operative in that sector; and drawing up high-level to demonstrate on creation that its businesses. cost benefit scenarios for each. The New membership is properly representative Ventures Working Group should consult and inclusive of the Retail Movement. with appropriate agencies in order to All Societies should ensure that the determine which sectors would provide brand identity for each of their core potential for profitable Co-operative businesses is compatible with and involvement. reinforces the national branding of the Co-operative Movement. The Report of the Co-operative Commission 36–37

21

The Commission recommends that in moving into new areas, the mistakes of fragmentation of the past must not be repeated. In delivering new products and entering new markets there should be a common brand, common performance standards, and shared services. A key element in any new venture is that of staff training (particularly for those in direct contact with customers). There needs to be an understanding of Co-operative values and principles and the ability to communicate these to customers. a revitalised membership informed and fully involved in democracy Chapter 3 – Membership, Participation and Securing the Co-operative Movement's Legacy The Report of the Co-operative Commission 38–39

39 General 44 Commitment to change 39 A strong membership 44 Extending participation to stakeholders 40 Types of membership 46 Securing the Co-operative Movement’s legacy 40 The individual dividend 47 Securing assets 42 New areas of membership 48 Recommendations 42 Employee membership 42 Democracy and increased member participation 44 Equal opportunities on Societies’ Boards

potential membership. Ways of enabling and monitoring the strategic direction of 1 membership to become available to a the Co-operative businesses and of the wider group of potential members, for senior executives working with the Board General example in The Co-operative Bank and to develop the strategy and managing CIS, need to be considered. the businesses against clear and 1.1 Successful Co-operative businesses monitored business performance targets. require a large and widespread membership 1.5 This reference to CIS and The that is supportive of the broad principles Co-operative Bank customers indicates “...it’s our values of democracy, equality, of co-operation and the participation of the importance of securing a customer base equity, solidarity, as well as self help an active, informed, and representative from which, if the Co-operative advantage and self responsibility, which are unique elected membership. The current estimate is sufficiently strongly perceived in the Co-operative values and the ones where of membership of the UK Co-operative context of the consumer offering, future we can put clear blue water between Movement, of around 10 million, we membership will be drawn. ourselves and our competitors... where believe is a substantial overestimate and we refer to values we need to be absolutely the true membership figure may be less See recommendation 22 clear as to what they are." A co-operator, than two million. Membership records Loughborough regional hearing need to be improved to reflect the correct 1.6 We took the generally accepted view figure on which membership development within the Movement that those members 1.10 Management of any business, and policies can then be based. participating in the democratic process particularly of Co-operative businesses, will always be a small minority. Our concern should be based on partnership with 1.2 The Commission considers that the was that the current minority was not the employees of the organisation. fragmented structure of the Movement necessarily representative – for instance Our research suggests that this is an means that it has not obtained the value in age structure – either of the membership area where improvement is imperative that exists in its membership. Specifically, as a whole or of the consumer population if the reforms of the direction and the lack of a co-ordinated identity means at large. management of Co-operative businesses that the scale and weight of the Co-op’s are to succeed. membership are not recognised by opinion 1.7 Some Societies, notably Oxford, formers, the media and the general Swindon & Gloucester, have taken steps public. Also commercial opportunities, successfully to increase participation in 2 involving cross-marketing between the elections, via postal voting, and to increase members and/or customers of various membership substantially. They have also A strong membership Co-operative businesses are wasted. initiated a debate on the issue of multiple stakeholder participation in Co-ops. 2.1 It is of fundamental importance 1.3 However, the Commission notes that These developments and discussions to the Co-operative Movement to the Retailer Financial Services Committee, need to be carried forward more generally recognise that its future is linked to comprising representatives of CWS, CIS, in the Movement. its ability to build a strong membership the Bank and other Societies, has made across the country. proposals to establish a Movement 1.8 Within a modernised membership membership/customer database from the structure it should be possible – as some 2.2 Whilst recognising the positive records of constituent organisations, and Societies have – to involve members in work undertaken by some Societies that co-ordinating the customer files of decision-making in a more active manner to improve their membership registers, CWS, CIS and the Bank will be the first step. than is the case generally. the current claimed membership of the Co-operative Movement in the UK is 1.4 Currently membership is only available 1.9 It is also important that there is a clear substantially overstated, because of via membership of retail Societies. This understanding within Societies of the the failure of the Movement properly to situation excludes a considerable roles of the elected members in approving maintain up-to-date membership registers. Membership, Participation and Securing the Co-operative Movement's Legacy

Key Co-op difference indicators for 1999 vs 1998 for Society & size groups of Societies

New members as % of total membership Members’ dividend as % of Society turnover 7 0.7

6 0.6

5 0.5

4 0.4

3 0.3

2 0.2

1 0.1

0 0 Large Medium Small Total Large Medium Small Total

1998 1999 Excludes: CWS, NCC, Shoefayre and the productive sector Source: Co-operative Union Key Performance Indicators

2.3 Accordingly, the existing membership for a Co-operative Movement member their regular communication and information registers of all Societies should be membership card is recognised whenever both about the commercial performance reviewed so that the Movement has clear the member undertakes transactions of a Society and its execution of its agreed and concise records for future membership with any Co-operative business. social goals both via their local store and development work. through direct mailings. See recommendation 24 See recommendation 23 3.4 The Commission recognises however, that individual Societies may wish to 2.4 We consider that the new ‘clean’ 3 consider experimenting with increasing membership registers should be established the minimum shareholding for new as soon as possible so that an accurate Types of membership members. The Commission would picture of Co-operative membership can welcome the results of such initiatives be ascertained. We also believe that it is 3.1 The Commission deliberated upon being shared with the Movement. important that Societies should maintain the current £1 shareholding required regular contact with their members for membership of a Society. There See recommendation 25 through the new membership register so was strong support both in the public that the members become valued assets submissions received and at regional of the Movement. hearings for this to be increased as a means 4 of making membership meaningful and “Active membership is what makes as a demonstration of Co-operative The individual dividend Co-operatives not only distinctive and commitment on behalf of the member. effective, but also gives them a potential 4.1 Developing a mass membership will business advantage, and this voluntary 3.2 However, the historical membership/ require Societies to re-establish the link component of Co-operative business shareholder contribution of £1 would need with the members’ dividend. In contrast which by building upon a sense of to be increased very substantially to maintain to a Loyalty Card, the dividend has two ownership can unlock levels of knowledge, its value in current prices. In considering distinct elements: it is payable only to sharing, commitment and involvement membership and shareholding – and taking members and it is an allocation of profit, that other businesses can not." account of a number of submissions on the when the amount of profit is known. But, A co-operator, Edinburgh regional hearing issue and of the origins of the Movement the dividend will need to be substantial; – we have come to the view, that, in order it will need to be paid regularly. It will also 2.5 Societies should agree and adopt to achieve a maximum increase in need to be perceived as an integral part a design for a national Co-operative membership throughout the country, the of membership, and a key element of membership card to be issued to all current £1 minimum shareholding should participation. The dividend should be members and to include details of the be maintained. This would not preclude clearly associated with the success of member’s host Society. In addition the individual Societies from setting, as some the Co-operative Movement. Retailer Financial Services Committee now do, other minima for standing for office. should give further consideration to 4.2 Achieving these objectives for the accelerating the current proposals for the 3.3 The Commission further recognises dividend is conditional on the commercial co-ordination into a single Movement that some economically active members success of the individual Co-operative database of the customer/member records may not wish to spend a great deal businesses. It will also be important to of constituent organisations. In addition it of energy in the direct democracy of ensure that the Commercial Performance should give consideration to promoting the the Movement, but may, nonetheless, Indicators and the Social Performance adoption of common technical platforms have a sense of pride in being associated Indicators and how they are being met within the Movement to optimise both with a visibly socially-conscious business. by the businesses are communicated efficiency and effectiveness in membership Members therefore must be fully valued to members, as part of the process of administration and to pursue the goal that by the Movement and should receive explaining the dividend distribution. The Report of the Co-operative Commission 40–41

Children in Glasgow with fruit from the Fruit Barra

The Co-opportunity Programme A Co-operative case study

The Co-opportunity Programme is an Its mobility means that different partner groups. Encouraging membership incremental programme of activities groups can share resources and increase and keeping clear records is a key that foster the development of food their joint buying power, and no permanent volunteer responsibility. Co-operatives in the West of Scotland as space is needed. It is a service-oriented part of the Govan Healthy Eating Project. Co-op, providing ready access to The aim of the Barra is to meet immediate affordable high quality fresh fruit and local need and make a start towards It uses a step ladder approach in response vegetables, all sold at fruit market prices. developing community food Co-ops. to difficulties experienced in starting a food Co-op. The Fruit Barra in Glasgow is a The Barra is run on a contractual basis – good example of small voluntary-based which clearly lays out the expectations Co-ops working in partnership with local and responsibilities of the partner authority projects. Membership, Participation and Securing the Co-operative Movement's Legacy

improved commercial performance of 5 6 Societies. But it will also mean becoming fully involved in developing the overall New areas of Employee membership commercial strategy of the Co-operative businesses for which they are working membership 6.1 In creating a modern Co-operative and in the drive to achieve the social culture in the retail sector, employees will goals of co-operation. 5.1 Currently, membership of the play a fundamental role. Where examples consumer Co-operative Movement exist of employees being properly See recommendation 28 can only be achieved via membership valued, and understanding the values of of a retail Society. This excludes a vast co-operation, it is clear that they become constituency of potential Co-operative important ambassadors and front-line 7 members. It is our view that membership recruiters for the Movement. should be open to customers of Democracy and existing and new non-retail Co-operative 6.2 Management of any business, and organisations, such as customers particularly of Co-operative businesses, increased member of The Co-operative Bank and CIS. should be based on partnership with the staff of the organisation. Our research participation See recommendation 26 suggests that this is an area where improvement is imperative if the reforms “...the Co-operative Movement can “Two tier membership, so you were actually of the direction and management of complement the vast range of public a member of your local Co-op, but that Co-operative businesses are to succeed. sector activities which are essential to gave you the membership nationally to Encouraging employees to become members the cultural, economic and social needs other Co-ops." A co-operator, Loughborough and making that membership meaningful of working people." A co-operator, regional hearing should become an important focus of Manchester regional hearing management and of Societies’ policy. 5.2 This potential source of new members 7. 1 It has been demonstrated that the may be encouraged to join once the national “...Co-operative workers actually have a current participation of members in the branding and the basis of cross-selling, weaker financial stake in the success of democratic activities of the Movement linked to the use of the new national their business, we’re therefore proposing is at a level that is too low to ensure that membership card, are established. We a new concept, the employee dividend, genuinely representative decisions are believe this would radically alter the the principle that the surplus generated being taken. perceptions of the Co-op for a whole new by Co-operative businesses should be generation as well as drawing back earlier shared with staff as well as members." 7. 2 One of the social objectives must generations of those who experienced a A co-operator, Manchester regional hearing be a high level of real membership positive, if different, form of co-operation participation within the democratic in their youth. 6.3 Our recommendation is that procedures and activities of Co-operative employee members – as stakeholders organisations. This should include See recommendation 27 within the Movement – should be consultation on policy development; encouraged to become members of the access to adequate information on the Society and have a reserved employee performance of the business; and postal member constituency from which they balloting to achieve greater participation should be able to elect employee in elections. Revised timetables of Director(s) (see Chapter 4). This change meetings should be introduced to make will be a positive means of reinforcing the them more accessible to members. key role of employees in achieving the The Report of the Co-operative Commission 42–43

Mehnaz Begum and Andy Cox trialling Instant Membership at Oxford, Swindon and Gloucester Society

Membership recruitment A Co-operative case study

Oxford, Swindon and Gloucester factors. There is complete integration The Society also provides support with Co-operative Society has helped lead of member recruitment with retail activities aimed at new members and the way with its impressive member operations and marketing, ensuring that from these sessions, members often recruitment programme. campaigns reach all customers and not go on to attend regular member group just the traditional membership base. meetings and become more active. Ending the ‘secret Society’ was their first goal. By making membership a highly Delivering a dividend to encourage The work continues. The long-term aims visible in-store campaign, conducted to customers to become members is are to persuade most regular customers the same professional standards as food important and this is linked to the to become members, encourage more marketing, it switched from losing 500 Society’s profit through in-store material people into active membership and offer members a year, to gaining over 20,000. with messages such as “What does £1 members more opportunities to be buy you? – a share in the profits and a say consulted on Society policies. Central to this success is a number of in the business.” Membership, Participation and Securing the Co-operative Movement's Legacy

7. 3 Societies should consider structural should perceive that the Co-op is more changes to encourage participation by 9 interested in their issues and concerns, younger members of the Co-operative than the simple profit orientated plc Movement. It is important that the Commitment to retailer is prepared to be. These are the Co-operative Movement is regarded by first benefits that customers of Co-ops the young as being as relevant to their change should expect. social and environmental concerns as organisations such as Greenpeace and 9.1 It must be recognised that for increased “I feel that one of the features of the Friends of the Earth. meaningful membership participation, the Movement in the last 40 years has been current leadership of the organisations the ability for independent organisations 7. 4 Relations with local media should be within the Co-operative Movement must to thumb their noses at reality, raid the cultivated and newsworthy events, when themselves embrace change and promote reserves which other generations have they occur, should be well publicised. In increased participation through contested built... I think we have to protect it from this way the role and nature of Co-operative elections. A key failure of the 1958 those Boards who refuse to merge or activity in the local economy and Commission Report was that the leadership refuse to transfer engagements." communities can be communicated to of the day chose to dilute and assimilate A co-operator, Edinburgh regional hearing a wide audience. Local newspapers and the changes required rather than being a the local media generally tend to be widely champion of change. 10.2 Most of those customers who choose appreciated, and particularly where local to become members of the Co-op will events and personalities are involved, can 9.2 The Commission believes that it is probably do so to enjoy the traditional provide important and regular channels for essential that the Boards of all Societies benefit of Co-op dividend, an allocation local and regional Co-operative Societies. should commit themselves to opening up to members of a share of the Society’s the Movement as widely as possible, and profits, in proportion to their patronage of to accept wholeheartedly the changes the Society. A proportion (usually relatively 8 we have proposed. If this is done then modest) of members will choose a more the Co-operative Movement can have substantial relationship with the Society Equal opportunities on a revitalised membership base and one and will seek to participate actively in the that is more fully involved in the Society’s democratic procedures, including Societies' Boards democracy of the Movement. ultimately seeking election as a Director of the Society. Thus, all consumer 8.1 It is important that all groups in society Co-operatives have in common these should be encouraged to play an active 10 groups of consumers, i.e. customers, part in Co-operative Movement activity shopping members and active members, and democratic control. There is no Extending participation that have interests in the Society. The suggestion that any positive discrimination success of Co-ops today depends crucially would be required or desirable. What is to stakeholders on the Society knowing, understanding and required is that – through more active satisfying the interests and requirements contact and consultation with all members 10.1 Consumer Co-operatives are owned of these groups of people, alongside those and implementation of the various other by those customers who are members. It of other groups that also have interests in measures we have recommended to follows from this that providing the best the Society. increase democratic participation in the possible service to its customers should Movement’s activities – the groups that be the driving imperative of retail Co-ops. 10.3 In recent times, groups of people are currently under-represented at Board Their customers should experience with an interest in an organisation and executive level should increase that service that is better than that provided have become known as stakeholders. representation, i.e. women, young people, by peer competitors, whose objectives There have been many definitions of and ethnic minorities. include a return to investors. Customers stakeholders. Two, which help to The Report of the Co-operative Commission 44–45

Ann Morrison of UAOS, and Aberdeen Angus cattle

Ulster Agricultural Organisation Society A Co-operative case study

UAOS plays a major role in supporting the range from large food processors such The Co-operative has successfully managed agricultural sector in Northern Ireland. as ‘Fane Valley’ to primary producer to develop a partnership with processors Co-operatives such as Aberdeen Angus and retailers to supply Aberdeen Angus It was established in 1922, as an umbrella Quality Beef Ltd (AAQB). cattle for a niche market. organisation with responsibility for the promotion and development of Each member Co-operative contributes In a difficult agricultural environment agricultural, fishery and other rural an affiliation fee based on turnover and UAOS has an important role in helping Co-operatives in the province. in return UAOS provides a range of to meet the needs of the agricultural support services. Co-operative sector. Over the years the organisation has evolved and currently has over 48 UAOS is helping Aberdeen Angus affiliated members drawn from a variety Quality Beef (AAQB) put together a of agricultural and rural sectors. Members business plan to expand its operation. Membership, Participation and Securing the Co-operative Movement's Legacy

explain the concept of stakeholders, on the issue of extending participation imperative that the democratic traditions are as follows: in governance to groups of stakeholders, of the Movement are maintained, i.e. one “A stakeholder in an organisation is any beyond consumer members. Various member, one vote and that Societies take group or individual who can affect or ‘multiple stakeholder’ models have been steps to ensure that the existing status of is affected by the achievement of the considered, including the worker-consumer Co-operatives is not jeopardised, i.e. that organisation’s objectives." R Freeman structure adopted by Grupo Eroski, the this extension to democratic participation More compelling, from a commercial point distribution division of the Spanish does not contribute to the process of of view, is “Those groups without whose Mondragon Corporacion Co-operative. demutualisation that we oppose. support the organisation would cease Governance structures involving various to exist." Stanford Research Institute. stakeholder groups have been considered in some parts of the UK Co-operative 11 10.4 Few could argue that customers, Movement. The Commission thinks that this shopping but non-active members, and discussion should be continued at local, Securing the active members are groups without whose regional, national, and international levels support the organisation would cease to and that as a minimum, efforts should be Co-operative exist. We suggest that this also applies made to ensure that ‘structured’ consultation clearly to the employees of Societies, of various stakeholder groups should be Movement’s legacy those who fund Societies, other members encouraged. It will be for individual and organisations of the Co-operative Societies to decide how far they wish to 11.1 The introduction of up-to-date Movement and the communities in which go in this direction and how formalised membership registers, the systematic Societies operate. There may be other they wish to make the discussion. recruitment of new members, and extending groups, but our purpose here is not to participation to other stakeholders will provide an exhaustive list of stakeholders. “...a reward scheme for loyal Co-op users, enable the Movement better to protect Rather, we seek to highlight the main, it should be a scheme whereby those its legacy assets from carpetbaggers. different interests that Co-operatives must who attempt to live with the Co-operative However, it is also important for the serve. We think that it is vital for Societies commonwealth by using Co-operatives Movement to look at other mechanisms to seek to satisfy each of these stakeholder wherever possible are rewarded for their that can offer protection. groups, as they seek to achieve the loyalty and for attempting to live the commercial and social performance Co-operative way." A co-operator, Oxford “If one wants to make Co-operatives improvements that we have recommended. regional hearing more successful one needs to tie Co-operatives more closely to the 10.5 We consider that there is a series 10.7 One stakeholder group that we members and one of the problems we of levels of engagement by stakeholder do wish to involve more actively in the have at the moment is that in nearly every groups in the affairs of the Society. governance of Co-operative businesses case the Society is very distant from the These are illustrated in the table opposite. is that of the employees; hence, our members and the members therefore All Societies should consider carefully the recommendation for the creation of a have little interest or knowledge about most appropriate levels of participation of reserved employee constituency, from how their Society works...I want to find their key stakeholders in the affairs of the which and by which some Directors mechanisms whereby management Society and should establish efficient would be elected to the Board. are accountable to the Board and the and effective processes to facilitate and Board are directly accountable to derive the maximum benefits from the 10.8 However, whatever changes are the members." A co-operator, chosen levels of participation for each made to the structures and governance Loughborough regional hearing group of stakeholders. of consumer Co-operatives, it is imperative both for democratic and for legal reasons 11.2 Given recent unwelcome commercial 10.6 There has been discussion in recent that control should continue to reside challenges to the position of parts of the years within the Co-operative Movement with consumer members. It is also Co-operative Movement we believe that The Report of the Co-operative Commission 46–47

The four levels of stakeholder participation

Levels Characteristics

Listen The stakeholder in all groups is seen as being of enough significance to the interests of the Society that comments made by members of it are taken into account. Consult The stakeholder group’s importance is seen to be sufficient that the Society seeks its views through structured consultation processes, such as market research and meetings. Involve The Society sets up permanent and structured ways for the stakeholder group to interact with it and to influence its practices and strategic direction. Govern The stakeholder group is of such importance that it has a formal role in the governance and policy making of the Society, including Board representation.

Source: Oxford, Swindon and Gloucester Co-operative Society’s submission to the Co-operative Commission

it is imperative to protect the substantial are incorporated in a company vehicle. themselves in this regard and find asset base of the Movement. It is The Co-op's assets cannot be permanently permanent solutions...such as trust important to recognise that these assets secured as a charitable foundation and status." A co-operator, Loughborough have been built up over many decades hence a separate corporate vehicle would regional hearing of ‘self-investment' and are a ‘legacy' to be required to be set up. Though this the current generation of co-operators. would not be impossible, there are a number 12.5 The procedures and the financial and There needs to be a clear recognition of practical implications, including fiscal legal arrangements would be rather more that current members are custodians of issues and cost. However, such a route complicated than this summary view the assets. Hence, the assets should not could be worthwhile exploring for CWS suggests, but it represents an outline of be sold for the financial benefit of the and for the top 10 large Societies. The how Co-op assets could be defended via current generation of members. For this Commission sought the advice of David a trust structure. The Commission takes reason we have recommended that Richards QC on the protection of assets. the view that though an attack on CWS immediate steps are taken to safeguard He commented: “Any attempt to achieve is not necessarily imminent, CWS should the total assets of the Movement in a ring-fencing through appropriate provisions speedily commission a report by legal trust or to establish an alternative legal in the Rules of a Society will be inadequate, and financial experts to prepare for form of protection. for the simple reason that the Rules can the establishment of a trust to protect always be altered. An effective structure the members’ assets. must, I think, involve a transfer of ownership 12 of assets, albeit in a way which will enable See recommendation 29 assets to continue to be used by the Securing assets Co-operative Society.”

12.1 The Industrial and Provident 12.4 Using CWS as an example, a Societies Act (1965) leaves to the company vehicle could be established Society’s own Rules provisions about as a holding company within which the distribution of surplus assets on assets of CWS (including if appropriate dissolution. Therefore it is essential that shares in CIS and the Bank) could the rules provide that upon dissolution be held. The company might have two the assets should be transferred, for classes of shares: ‘A' shares and ‘B' example, to some other body with similar shares. The A shares would belong to objectives. If no such body exists, the CWS members and the CWS Board rules should provide that the assets would run the holding company. The must then be used for similar charitable B shares would be held by a group of or philanthropic purposes. trustees – nominated by CWS, but separate from CWS Board members – 12.2 The most obvious method of securing and would only be used in the event of assets would be to place the assets of an ‘attack' on CWS. Under the specified Societies in a ‘trust’. However, this is not conditions, e.g. a hostile takeover bid necessarily the simplest route. Nonetheless or an attempt at demutualisation, the it probably offers the most secure method trustees would use the B shares to of defence of the assets of co-operators block the unfriendly attack and defend that have been built up over decades. the assets.

12.3 In essence there are two types “It’s quite clear that we can’t rely on the of asset trust. There are those whose Co-operative Act to provide predator purposes are charitable and those which protection, Societies should look after Membership, Participation and Securing the Co-operative Movement's Legacy – Recommendations

Recommendations Chapter 3 – Membership, Participation and Securing the Co-operative Movement's Legacy

Membership effectiveness in membership To encourage more informed, active administration; pursuing the goal participation in the Movement’s activities, 22 that for a Co-op Movement member Societies’ membership policies, their membership card is recognised promoted by the Member Relations The Board of every Society should aim whenever the member undertakes Officers, should provide access to ensure that an increasing proportion transactions with any Co-operative to adequate information on the of the Society’s customers become business. performance of the business, members, and that an increasing The Retailer Financial Services including the key commercial and proportion of the Society’s business Committee should be given a more social performance indicators, a new is conducted with members. formal status with responsibility for timetable of meetings to make them overseeing this work. more accessible to members, and structural changes to encourage 23 participation by younger members 25 of the Co-operative Movement. The The Commission recommends that all aim of all this is to encourage greater Societies should urgently up-date and The Commission recognises that the £1 member participation in the Society, refine their membership records to delete shareholding has only a nominal value. A including consultation with members the names of obviously dormant members key goal of the Co-operative Movement in the course of policy development. and establish a membership file that in the twenty-first century is to encourage That the Movement undertakes a high- accurately reflects current membership. a mass membership. Therefore, we profile recruitment campaign across The Commission further recommends recommend that there should be no the country in order to develop a mass that Societies should maintain regular increase in the minimum shareholding, membership base. contact with their members so that the but that this recommendation must be membership becomes a valued asset to linked to a high profile recruitment The Commission recognises that some the Movement. campaign throughout the country. Societies are considering experimenting Further, the Commission recommends: with increasing the minimum shareholding The minimum shareholding of £1 for for new members and the Commission 24 members should be maintained for looks forward to the results of such entitlement to vote within Societies. initiatives being shared with the Movement. The Commission recommends that: Individual Societies should retain the Societies should agree and adopt right to determine whether an increased a design for a national Co-operative shareholding or purchase qualification 26 membership card to be issued to is required before nomination to all members and to include details elected office. The Commission recommends that of the member's host Society. All Societies should adopt the best Co-operative membership should be The Movement should work to realise practice in the Movement for increasing encouraged among customers of The the full value that its membership provides. participation and strengthening Co-operative Bank, CIS, and other It should give urgent consideration to: democracy via a range of tried and business areas in addition to the – Accelerating the current proposals tested balloting procedures, including traditional base of food retail customers. for the co-ordination of the customer/ postal/telephone balloting and the member records of constituent provision of referenda (where organisations into a single Movement appropriate). The Rules of all Societies 27 database. should include the requirement for an – Promoting the adoption of common election manifesto to include details The Commission recommends that the technical platforms within the of the qualifications and relevant Co-operative Union, in order to build Movement, optimising efficiency and experience of the candidate. a strong membership base across the The Report of the Co-operative Commission 48–49

country, should establish and promulgate another Co-op organisation, should best practice in the recruitment and do so at the earliest opportunity. participation of members. Boards of The Government should introduce Societies should be encouraged and legislation to secure Co-operative assets be prepared to exchange examples for the future as is commonplace in of best practice. The Co-operative Union many other European countries. should be used as a clearing house for The Boards and Chief Executives of new ideas and innovations related to Retail Societies should give careful ensuring stronger democratic structures. consideration to Counsel's advice received by the Commission as part of our investigations into the protection 28 of Co-operative Movement assets.

The Commission recommends that Societies should encourage employees to become members of the Co-operative Movement themselves and to participate actively in the Society's internal democracy via a ‘reserved employee member constituency'. Societies should consider carefully the most appropriate levels of participation of its key stakeholders in the affairs of the Society and should establish efficient and effective processes to facilitate and derive the maximum benefits from the chosen levels of participation for each group of stakeholders.

Securing Co-op assets 29

This is a critical issue for the Co-operative Movement. The Commission recommends: That all Societies should, as a matter of urgency, put in place rules to make it clear that current members are custodians of the assets. Those few remaining Societies which have not yet adopted the seven model amendments of the Co-operative Union designed to set high turnout thresholds as a defence against hostile takeovers or attempts at ‘demutualisation’, and/or to secure the transfer of assets to people policies and systems that are in line with best practice Chapter 4 – Effective Management for Change and Development The Report of the Co-operative Commission 50–51

51 General 58 Remuneration and incentives 51 Board structure and size 60 Recommendations 52 Directors’ qualification and training 54 Implications of the new Board structure for Societies 54 Employee Directors 54 Summary of Counsel’s advice 56 Equal opportunities

managements and by Boards, are a 1.7 Employees should be encouraged to 1 critical aspect of the reforms required to participate in their community as part of achieve the necessary culture change in their own development, and to reinforce General the least well performing sectors of the the link between Co-operatives and retail sector of the Movement. As argued society in general. One particular area 1.1 Changes in the operation and structures earlier in the Report, the Co-operative where Co-operatives can set an example of Co-operative Societies to achieve their Union has a key role to play in this regard, and make a difference is that of equal successful development are necessary. on behalf of Societies, in establishing, via opportunities. They should develop a If such changes are to be introduced at a Commercial and Social Performance meaningful diversity agenda that should an appropriate pace then there is a need Panel, a common set of commercial and be implemented in the workplace and for effective pressure for change to be social performance indicators. community and regularly measured introduced into Co-operative businesses and reported on. Co-operatives should where it is currently weak or absent. “Co-ops are also born out of the be models of best practice. Equal communities they serve... it’s vitally opportunities and diversity should be 1.2 This will entail creating high quality important that Co-ops develop and viewed not only in the context of social leadership at Director level in the operate a community-based approach responsibility, but also as a business businesses and the development of in everything they do." A co-operator, imperative, thereby completing the professional and qualified management. Oxford regional hearing ‘virtuous circle’ which would be mutually The Movement must be able to attract beneficial to the business and society. and to keep management and employees 1.6 To support this culture change, of the highest quality, rewarded not only Co-operative Societies should develop 1.8 Co-operatives should encourage by attractive remuneration packages, people policies and systems that are employees to join the appropriate trade but also by a feeling of belonging to in line with best practice, whilst still union and also encourage participation a dynamic, expanding organisation reflecting Co-operative principles. in the business based on ‘partnership’ to which they are committed. They must be demonstrably fair and with employees and their representatives encourage the recruitment, development where appropriate. There should be 1.3 Remuneration and incentives and retention of quality employees at participation between parties in the packages for senior employees will all levels. Policy and practice must be management of change, where it is need to be modified to ensure that they clearly linked to the objectives of the in the long-term interests of the business are related to relevant profit/trading organisation. Societies must ensure and its employees, with effective surpluses and not simply to turnover. that reward is related to achievement of communication a prerequisite to its these objectives, improving individuals’ successful achievement. 1.4 On the issue of Board representation capabilities and their contribution to the for employees the Commission took the business. People-related performance view, after considering a number of indicators must be defined, measured 2 options, that the preferred method of and reported on regularly, along with the enabling the employees of Co-operatives key business measures. Board structure to be represented at Board level was via a ‘reserved constituency'. Hence, “From where I’m sitting I actually see officers and size employees would be encouraged to spending a lot of time on the road actually become members of the Society and this travelling to meetings, and see members’ 2.1 There was considerable discussion employee member constituency alone education and political education being as to the desirability of a two-tier Board would elect Board member(s). separated and I’m just wondering structure, but on balance – bearing in whether we spread the available mind the nature of the Co-operative 1.5 The institution and monitoring of resources too thinly." A co-operator, Movement – the Commission took the organisational performance targets, by Oxford regional hearing view that all that could be achieved by Effective Management for Change and Development

a two-tier Board could also be achieved unacceptable. Therefore, the Commission by a restructuring of the main Board to is recommending that the CEO and the 3 include the relevant stakeholders. Financial Controller should be seen to share fiduciary responsibility. In addition Directors' qualification 2.2 In relation to the size of Boards, the the practice adopted by some Societies Commission took the view that the Boards in setting out the responsibilities of the and training of Co-operative Societies should be management executive in the Rules of constructed so that they are significantly the Society should become the norm 3.1 The Commission believes that smaller in number than at present while for all Societies. the Co-operative Union should, after still respecting Industrial and Provident appropriate consultation, establish legislation. The current best practice in 2.5 It is also important that the proper the quality and qualifications required this area would suggest a Board size of distinction is maintained in Societies of candidates prepared to serve on the between 10–12 for medium and large between the responsibilities of the Board Boards of Co-operative Societies as Societies. We recognise that this Directors and the management executive. external independent non-Executive is the status quo for a majority of retail The elected Board should approve and Directors. The Union should compile Societies with some of the larger monitor the achievement of the commercial a pool of suitable candidates. Societies adopting a bigger Board size. and social performance targets whilst also approving the overall business strategy of 3.2 The Commission believes that the 2.3 There is a strong case for reducing the Society. The management executive Co-operative Union should have the the current size of Society Boards to is required to work with the Board to ability to appoint up to two advisors the lowest legal number required develop the approved strategy and to work with the Boards of consistently which ensures that the elected members manage the business in line with the under-performing Societies and the Rules are in a majority – accordingly we would strategy approved by the Board. of the Co-operative Union should be expect Board membership to be a amended to facilitate this, which would maximum of 15. The exception to this See recommendation 31 then become a condition of membership general rule will be the CWS main Board of the Union. that has wide Movement responsibilities 2.6 The Commission believes that within and where the maximum can be CWS each major trading business should See recommendations 33 and 34 raised to 20. have its own management executive as is currently the case in The Co-operative 3.3 Recognising the complexities of a See recommendation 30 Bank and CIS. In addition to providing rapidly changing business environment, the more focused management this similar Co-operative Union and the Co-operative 2.4 Whilst recognising that the Boards level of focus could develop at Board College in consultation with leading business of Co-operative Societies must by law level. This would allow the CWS Board to schools should consider developing a new have a majority of elected Directors, the make management more accountable qualification that meets the minimum Commission’s research demonstrates across the diverse businesses which requirements for elected Directors to that in a practical way a Society CEO plays make up CWS and should allow appropriate execute their duties and responsibilities a major role in the operation of the Board. comparison analysis of all CWS businesses. adequately. This new qualification – or This ad hoc arrangement may not place its academic, professional or experienced upon CEOs the same fiduciary responsibility The respective management executives equivalent – should be mandatory for any as the elected Directors. There have would remain responsible to the CWS candidate seeking election or re-election been occasions where CEOs of Societies Board through a Chief Executive Officer. as a Director from the beginning of 2003. have deliberately misled the Board and could claim that legal responsibility rests See recommendation 32 See recommendation 35 with the elected Directors. We believe that this ad hoc arrangement is 3.4 The issue of ongoing training for The Report of the Co-operative Commission 52–53

Pupils at NEMCO in Newcastle

NEMCO Music Teachers A Co-operative case study

NEMCO is a flourishing Co-operative, With support from the City Council has increased from 16 to 32. The range run by teachers, which grew out of and the Musicians Union, the teachers of musical instruments available has Newcastle City Council’s musical grouped themselves together as a also broadened. instrument teaching service. Co-operative, which contracts directly with the schools. NEMCO has managed this success by In 1995, Newcastle Local Education introducing a wider range of instrument Authority was facing budget cuts and The results have been spectacular. teaching options, staggered payment was being forced to make all peripatetic Newcastle City schools now enjoy more plans, and discount schemes with local music teachers redundant. The LEA musical instrument teaching than ever musical shops. wanted to continue to offer the service before. Hours taught in schools has to its schools, but could no longer afford increased by over 67 per cent, whilst the At the heart of the business lies the belief directly to employ the teachers. number of teacher members of NEMCO in the value of music in education. Effective Management for Change and Development

all Directors should be a regular item addressed by Society Boards and 5 6 a skills audit to help identify skills gaps on Boards should be introduced. Employee Directors Summary of Counsel’s

3.5 The Commission believes that a 5.1 Evidence from both regional hearings advice combination of better qualified and trained and submissions indicates that there is elected Directors and the appointment no overall consensus on the question of 6.1 The Commission received advice of external non-Executive Directors is the employee representation on the Board. from Christopher Nugee QC regarding best way of meeting the obligations laid The argument outlined by those who the duties of Directors of Co-operative on the Directors of the businesses. object to employee representation is that Societies. The following is a summary of employees should seek election to office the Commission’s conclusions, based on 3.6 We also believe that it is essential for as members of the Society and should Counsel’s advice. A full transcript of that the future success of the Co-operative not represent the employees directly, advice is printed in Annex 6. Movement to address the problem that if successful in that election, but rather exists in some Societies and Boards that should have the long-term interests of the 6.2 Directors of Co-operative Societies are mainly composed of Directors in their Society at heart. The counter argument (like Directors of companies) have a duty 70s and 80s. to this position is that if we are to to deploy such skills and experience as encourage employees as stakeholders they have to the benefit of the organisation. See recommendation 36 in the business then they need their own They are obliged to fulfil the role allocated electoral arrangements in relation to by a Society’s Rules carefully, prudently representation on the Board. We believe and responsibly. Though a Board may, 4 that a satisfactory compromise is for the and should, take external advice where a employee members of a Society to have Board lacks expertise, great care ought Implications of the a ‘reserved constituency' that will elect to be exercised in routinely bringing Board Director(s). external professionals into the Boardroom new Board structure where as well as being an expensive See recommendation 37 resource they may well have a destabilising for Societies effect on existing executive management. “...the Movement has always believed To assist Directors in discharging this 4.1 With the establishment of the new that the Co-op workforce remains one duty of skill and competence, the Board structure the CEO and Financial of its greatest assets..." A co-operator, Commission believes that there is a role Controller will have joint fiduciary Edinburgh regional hearing for non-Executive Directors, at least in responsibilities with the rest of the main the larger retail Societies. Board. It will be imperative that the 5.2 In this way employees will be responsibilities of the Board and empowered to play a full part in the 6.3 The fiduciary duties which apply management are clearly defined in the affairs of Societies and the Movement, to Directors of Co-operatives are the Rules and Constitution of each Society. but within democratic Co-operative same duties of loyalty, honesty and In particular, the Board should approve structures. We take the view that this good faith, which apply to Directors of the targets and strategy and monitor will provide both an acceptable and companies. This fiduciary duty might be the performance – taking account of a challenging new mechanism for characterised as a duty for the Director appropriate benchmarks – both employees to participate in the to give their undivided loyalty to the commercial and social – while the businesses for which they work, while Society. A Director, though able to take management would manage the preserving the unique Co-operative account of wider interests, must not business in line with overall strategy mode of consumer-owned organisations. subordinate the interests of the Society approved by the Board. to those wider interests. The Report of the Co-operative Commission 54–55

Tyrone O’Sullivan and miners at Tower Colliery

Tower Colliery A Co-operative case study

Tower Colliery is a remarkable success April 1994 and offered for sale to the They have bought out a coal distribution story. The miners of the colliery at public as part of the privatisation of the company, developed a new visitor centre, Hirwaun, near Aberdare, fought for the whole industry. converted methane gas to electricity, right to buy the pit with their redundancy promoted a credit union for the local area pay from British Coal, which claimed it A buyout team of six miners, representing and are the largest non-public sector was no longer economically viable. Five the whole workforce, was formed and miners employer in the area . They have also formed years on, the last deep mine in Wales is were asked to invest £8,000 each on a an alliance with a company to develop on a sound financial footing. one person one vote basis to buy the pit. another mine, which will be up and running in 2003, and will create 200 new mining jobs. The colliery has been in existence since Since then, the colliery has gone from the nineteenth century and was capable strength to strength, generating a regular The success is down to the determination of producing 900,000 tons of coal per turnover of £25 million and now employs and commitment of the miners to save year. It was closed by the Government in 300 people who are all shareholders. their pit. Effective Management for Change and Development

6.4 One facet of this fiduciary duty which impact should be taken into account. as well as internally, about its values may arise within the Co-operative sector However, it would not be legitimate for and philosophies and how it wants to concerns conflicts of interest. The duty of a Director to vote in a way that materially do business. Furthermore there is the undivided loyalty demands that not only prejudiced CWS’ ability to be a successful obvious need to comply with legislation, must Directors act in the best interests of Co-operative business. Directors must as failure to do so carries a financial penalty the Society whose Board they serve on weigh the arguments and come to a along with damage to the Movement’s but they must not disclose for the benefit decision which is in the best interests of reputation and public image, and impacts of those who may have nominated them CWS and not of any corporate member on employees, customers and clients. any information received in that capacity, or other body. It follows that Directors be notwithstanding that this may conflict they representatives of corporate members 7. 3 Expectations of fair treatment at work with a separate duty they have to a or of a geographical area cannot be have quite rightly increased, as people nominating society, region or another mandated to vote in a particular way; have become more aware of their rights Co-operative body. they must weigh the arguments. and of equal opportunities issues in general. This in turn influences their aspirations to 6.5 The Commission believes that these 6.6 These are often difficult areas and join, or continue to work for, employers issues are perhaps best highlighted by perhaps easily overlooked. The issue of with good employment practices. analysing them in the context of CWS Directors’ duties and position in conflict which now has a pre-eminent position situations should be more expressly 7. 4 Active equal opportunities within the consumer Co-operative addressed in the Rules of Societies, with management can also open up new Movement. The scale and diversity of Directors receiving appropriate training on opportunities and improve market share the CWS Group is such that it is difficult these often complex issues. It is important by broadening the customer base, to envisage a Board elected entirely by that Boards and individual Directors, particularly where they can identify with the democratic process being equipped particularly those on the Boards of federal the specific policies and practices e.g. to deal with the complex and diverse Societies, are alert to these issues and gender, disability, race and age. Conversely, problems that will arise within the CWS are appropriately advised. bad practice can lead to a loss of Boardroom. Since the democratic reputation and customers, particularly as process cannot be relied upon to fill Co-operative businesses are perceived any skills gaps at Board level, and since 7 as having, or are expected to have, high external advice, for the reasons alluded regard for equal opportunities. to will prove on its own an unsatisfactory Equal opportunities solution, the Commission’s view is that “We need to be seriously concerned this is best addressed by the appointment 7. 1 Equal opportunities for all is a about our age and race profile among of a small number of external non-Executive fundamental component of the our members... and if we look around this Directors with requisite skill and experience Co-operative agenda, not just for social room today we can see perhaps a little bit to assist elected Directors. Even if we and ethical reasons, but as sound more about the age gap. This is a matter assume the appointment of non-Executive business practice. This is especially the that we should grasp if we are to be an Directors on the CWS Board, issues may case given the Movement’s customer ongoing movement with relevance and arise in the CWS Boardroom where a and employee base; for example 60 per resonance in the twenty-first century." decision which would be in the best interests cent of Co-operative customers and A co-operator, Loughborough regional of CWS would prejudice the interests of employees are women. hearing a corporate member, a particular region or part of the wider Movement. Given 7. 2 Equal opportunities policies and 7. 5 In summary, the legal, social and the federal Co-operative nature of CWS, procedures go to the heart of the the business cases are interwoven its Co-operative culture and history and Co-operative Movement’s structure and and compelling and contribute to the provision in its Rules to promote businesses, because internal policies policy and practice becoming part Co-operative principles, such a detrimental send out a clear message, externally of everyday working. The Report of the Co-operative Commission 56–57

Elaine Woodfiner with a customer at the Stockport Late Shop

Late Shops A Co-operative case study

Over the past four years, the number and operation of the stores was thoroughly The success of the ‘Going for Blue’ of food convenience stores operated investigated, resulting in the development programme led to United Norwest being by United Norwest Co-op throughout of a number of striking blue and aqua shortlisted in the IGD Multiple Retailer the North Midlands and North West has Late Shop pilot stores. To date over 100 of the Year Awards 2000, alongside Asda, doubled to over 300, making it the clear of United Norwest’s stores have been Tesco and Iceland – a rare achievement market leader in its region. converted to the new colour scheme. for a regional retailer.

Around three years ago, United Norwest The new format has been very well undertook extensive customer research received by customers and members, into the development of a new concept with an average sales increase of convenience store to take the Society 16 per cent and profit margins up through the first part of the new millennium. 31 per cent due to improved product Every aspect of the design, range, feel mix, particularly in the fresh food area. Effective Management for Change and Development

7. 6 One of the biggest challenges for Positive recruitment programmes away that is representative of the one in business today is to respond to constant from the normal labour market e.g. in which they operate, thus ensuring that and frequent change. To attract and areas with a high population from members of the community identify retain employees and customers and ethnic minorities. and do business with them. enhance business competitiveness, Publication of the organisation’s policy and They must ensure that policies and it is vital to keep up with best practice. commitments in all job advertisements. procedures not only comply with By doing so, ideas are stimulated and Training in equal opportunities to keep legislation as a minimum, but also more open and attractive policies and employees up to date and aware of go further to set an example to other procedures are encouraged. their responsibilities, so that it is seen employers, therefore maintaining as being integral to the business. and emphasising the Co-operative 7.7 Best practice in equal opportunities Active participation in equal opportunity Movement’s values as a social and can be seen as a dynamic process, related groups and organisations e.g. ethical employer, with whom achieving a balance between the needs Business in the Community, Equal customers will seek to do business. of the organisation and meeting those Opportunities Commission. Best practices can be shared throughout of the individual, whilst promoting the the Movement by communication with fundamental values of equality. “...if you want to establish a co-operation its more advanced exponents e.g. those which is really going to mean anything, featured in the case studies and the 7. 8 Good examples of best practice are: I think we have got to have a reinvestment Co-operative Union. Furthermore the Setting standards (Key Performance and a resurgence of housing co-operation." Society can gain assistance from Indicators) for equal opportunities and A co-operator, Oxford regional hearing various specialist bodies, such as the measuring and reporting on them, as Equal Opportunities Commission, part of the regular business review with 7. 9 Practice in the Co-operative The Commission for Racial Equality senior management and the Board. Movement varies, driven by individual and The Disability Rights Commission, Regular communication with employees Society priorities: particularly in respect of setting and customers, using surveys, focus To support Co-operative initiatives and performance standards and measuring groups, briefings, newsletters and illustrate the difference, it is essential and reporting progress against them. electronic media as appropriate to that leadership and commitment to update them regarding progress the equal opportunities continue to be See recommendation 38 organisation is making on equal demonstrated at the most senior levels opportunities issues. Conversely, such in Co-operative organisations and communications also provide important are effectively communicated both 8 feedback as to, for example, whether internally and externally. newly introduced policies are Benchmarking, sharing best practice Remuneration and understood and are working in practice. and setting performance indicators In addition to a grievance policy, that will monitor progress towards a incentives the provision of a confidential help diverse workforce is necessary, line or nominated supporters for together with ensuring these results 8.1 Commensurate with the ambition of employees who may believe they are fully and openly reported, “warts being a successful Co-operative business, are being harassed or bullied. For and all". Statistics and reporting must it is essential for retail Societies to attract a variety of reasons staff feel isolated not be seen as an end in themselves, and retain the highest quality of employee and unable to confide in friends, however, but as a way of contributing particularly at senior management level colleagues or managers but need to the business by using all available in competition with the private sector. support and guidance to resolve resources to best effect. Competition for such people has never a particular situation. A confidential Co-operatives must continue been greater and Societies must have support mechanism will allow this to develop strong links with the the freedom and the will to attract their to happen. community, and employ a workforce fair share of such individuals. The Report of the Co-operative Commission 58–59

8.2 It is perhaps not surprising to observe See recommendation 39 that in general the remuneration systems for management in the Co-operative sector 8.6 More generally, for all employees are not in line with the private sector. In a human resources strategy should be particular, there is less focus on incentives adopted by Co-operatives to include: and therefore a diminished relationship Competitive remuneration linked to between performance and reward. For comparable market rates. example, annual and long-term plans are Modern flexible working practices. the exception in the Co-operative sector, Excellent training and development but the norm among plcs of comparable policies. size to the top 20 Co-operative Societies. Clear accountability linked to quality While not suggesting rewards in line with performance appraisal processes. some over-generous bonuses in the plc Team bonuses based on individual unit sector, the Commission believes that some or branch performance. strong element of incentives, consistent As employee shareholders, a share in with the maintenance of Co-operative the distributed profits of Co-operative principles, must be appropriate, given Societies. the urgent need to improve performance. The corollary, of course, is that persistent 8.7 The introduction of any changes failure to achieve targets should result should be with due regard to consultation in management changes. with the relevant trade unions.

8.3 Societies should review their remuneration policies in order to reward better both current and potential senior managers, based upon the profitability of the successful Co-operative business and not on turnover.

8.4 We would expect the key elements of the remuneration packages for senior executives might include: A market-based salary. An annual financial incentive scheme based on an appropriate financial indicator. A long-term (e.g. 3 years) incentive plan linked to the achievement of key measurable targets from the 3-year business plan.

8.5 Societies should review their policies in relation to openness concerning renumeration policies and examine the best practice initiatives within the plc sector in this field. Effective Management for Change and Development – Recommendations

Recommendations Chapter 4 – Effective Management for Change and Development

Boards, management, and staffing foster the performance culture required in a successful Co-operative 34 30 business, it is essential that Boards should introduce a skills audit. Boards The Commission recommends that the The Commission recommends that the should be empowered to fill any skills Co-operative Union should have the best practice in relation to the size of the gaps identified by the appointment of ability to appoint up to two advisors Boards for Societies should be the lowest two external independent Directors, to work with the Boards of consistently number that achieves: and the Commission recommends under-performing Societies and the Rules The principle that elected members should that Boards should do so. of the Co-operative Union should be always have a majority on the Board... amended to facilitate this, which would Whilst achieving the representation then become a condition of membership from the other constituencies as 32 of the Union. outlined within the recommendations. The Commission recommends that Accordingly, the Commission recommends within CWS each major trading business 35 that the maximum size of Board should be should have its own management 15, except in the case of CWS, where the executive as is currently the case in The The Commission recommends that on- maximum ideally should be 20 members. Co-operative Bank and CIS. In addition going training for all Directors should be to providing more focused management a regular item addressed by all Society this similar level of focus could develop Boards. Recognising the complexities of 31 at Board level. This would allow the CWS a rapidly changing business environment, Board to make management more the Co-operative Union and the The Commission acknowledges that accountable across the diverse businesses Co-operative College, in consultation members of the Board elected from which make up CWS and should allow with leading business schools, should amongst the membership of the Society appropriate comparison analysis of all develop a new qualification that meets must always be in a majority on the CWS businesses. the minimum requirements for elected Board. Nevertheless the Commission Directors to execute their duties and recommends that: The respective management executives responsibilities adequately. This new The Chief Executive and Financial would remain responsible to the CWS qualification – or its academic, Controller as a minimum should serve Board through a Chief Executive Officer. professional or experienced equivalent – on the Board. should be mandatory for any candidate Employees should be recognised as seeking election or re-election as a important stakeholders who should be 33 Director from the beginning of 2003. fully involved in the decision making process and should be encouraged The Commission recommends that to become members who participate the Co-operative Union should, after 36 actively in the Society’s internal appropriate consultation, establish democracy via a reserved employee the quality and qualifications required The Commission recommends that member constituency with at least of candidates prepared to serve on the an age limit for Board members within two seats on the Board. Employees Boards of Co-operative Societies as Societies should be set at 68. may continue to stand as consumer external independent non-Executive representatives but the total number Directors. The Union should compile of employees on the Board should a pool of suitable candidates. not exceed one-third. In order to close the skills gap that exists on Societies’ Boards, and to The Report of the Co-operative Commission 60–61

37

Irrespective of the size of Society or electoral processes adopted, it must be emphasised that Board members, once elected, are not delegates representing any particular constituency; rather they serve on the Board to oversee the competitive and commercial success of the Society as a whole and must always act selflessly in its best interests. 38

The Commission recommends that the Boards of all Societies should adopt best practice in relation to equal opportunities policies and should incorporate reports on equal opportunities within the social report. The Co-operative Union should promote best practice in equal opportunities and encourage its application in all Societies. 39

The Commission recommends that Societies should review their remuneration policies in order to reward appropriately senior managers in order to attract talented people from outside the Movement. The remuneration package should be based upon the profitability and social achievements of the successful Co-operative business and not on turnover alone. Societies should review their practices in relation to openness concerning remuneration policies and should implement the relevant recommendations of the Co-operative Union’s corporate governance code of best practice. the movement needs a more effective, united and co-ordinated voice Chapter 5 – National, Regional and Local Structures The Report of the Co-operative Commission 62–63

63 General 67 Regional structures 63 National representational structures 67 Local structures and action 64 The Co-operative Women’s Guild 68 UK Government action 64 The Woodcraft Folk 68 UK legislation 64 Lifelong learning 70 Recommendations 65 The Co-operative Foundation 66 The Co-operative Party – the political voice 67 The Co-operative Press

1.4 Regionally, there is not only a need between the consumer retail Co-operatives 1 to become actively involved in the and the wider Co-operative Movement new regionalism emerging and centred involved in social enterprises. This has General in England around the Regional been institutionalised by the creation of Development Agencies (RDAs), but the UKCC that has largely represented 1.1 Within the UK there are national, also the specific regional dimension of the non-retail movement. regional, and local dimensions of the the Movement's activities involving an Co-operative Movement. At all these avoidance of self-defeating competition “...if we want to promote co-operation levels change is needed. and promoting greater co-operation to the public at large and, in particular, between Co-ops. The common to opinion formers in the various tiers 1.2 Locally, at the level of the Co-operative branding we recommend of Government, we need to ensure communities where Co-ops are located elsewhere in our Report should that the voice of co-operation is more there is a requirement for successful considerably assist, both in promoting co-ordinated in the future than it has Co-operative organisations to become greater co-operation and avoiding been in the past." A co-operator, Oxford valued service and community support unnecessary competition between regional hearing organisations in their local communities, Societies in the same catchment areas. following the lead of the best practice 2.2 It is clear from public submissions across the Movement. 1.5 In Scotland, Wales and Northern received and evidence taken during the Ireland analogous intensification of regional hearings, the Movement believes “It’s a bit like the Gordian knot, we spend the relationships between the various that the UKCC – under the previous that much time looking at why things parts of the Movement, aimed also at Chairmanship of Lord Carter and the were the way they were and if you try maximising the synergies and avoiding current Chairmanship of Lord Graham to unpick a Gordian knot you never self-defeating competition, is required. and with the executive support of will, you’ll pick at it and you pick at it David Dickman – has undertaken and pick at it, and that’s what we do, 1.6 At UK level, the Movement needs a some important and valuable work in we pick at it all the time trying to solve more effective, united, and co-ordinated promoting and developing the concept of the problem, but it never works, the voice to ensure commonality of purpose, Co-operative enterprises across the UK. only solution to the Gordian knot is you diversity of local action, and the active take a sword to them, you cut them promotion of Co-operative principles 2.3 The existence of two national level down and you start from scratch, so what at the highest levels of Government bodies suggests a lack of unity of we need in our membership organisation and in public debate. In particular this purpose and outside organisations may is innovation, more participation and will entail promotion of Co-operative be confused as to the roles of the two bodies control by membership and above all, principles and action in the context of and why there cannot be one organisation vision from the Movement’s leaders." the development of social enterprise speaking for the Co-operative Movement A co-operator, Edinburgh regional hearing and the social economy. in its broadest sense.

1.3 It is essential that the link between 2.4 We therefore welcome the proposed Co-operatives and their local communities 2 merger of the administrations between is developed and extended. The potential the UKCC and the Co-operative Union for local action – enshrining Co-operative National and the broad agreement that the two ideals – is considerable. Nothing will better organisations will work more closely reinforce the rebirth of the Movement representational together in the future. nationally than the evidence that its local roots in voluntarism are thriving and are structures 2.5 Indeed, the Commission understands delivering services required and prized that the two organisations will proceed to by local communities. 2.1 At UK level, there is a lack of synergy a full strategic alliance with a national National, Regional and Local Structures

remit that would include promoting the 3.2 Outside the Movement, the Guild its founding, it has seen itself as part development of the social economy and undertook a wide range of campaign of the broad Co-operative Movement. social enterprise and in so doing recognise work to secure changes in legislation to Its education programme and activities the wider Co-operative Movement and emancipate women. The Guild’s work are organised on a Co-operative basis the social enterprise sector as full ensured that maternity benefits were and centre upon equality, peace and partners with the retail movement. included in the 1911 Insurance Act; they social justice. campaigned for improved health care 2.6 This new alliance acting as the for mothers and infants through school 4.3 Financial support for the organisation national voice for the promotion of social clinics and they were also influential is given at Society level, although it has enterprises should develop a proper in the suffragette movement. received some core funding from framework to provide business advice, national bodies. support and training for potential and 3.3 The achievements of the Women’s existing Co-operative enterprises. Also, Guild both within the Co-operative 4.4 Whilst the Commission does not intend the Co-operative Union should develop Movement and wider society, cannot to make any specific recommendations the co-ordination of best practice as be overestimated. 80 per cent of Co-op concerning the Woodcraft Folk, we do experienced within the regions. members are women. The current place on record our appreciation for the President of the Co-operative Congress, work they do in promoting Co-operative 2.7 The Co-operative Union, acting as Pat Wheatley, for eight years was Secretary ideals to young people. In addition, the a clearing house to promote innovation of the National Guild which together with Woodcraft Folk have suggested the and best practice within the Movement the Women’s Guild has devoted much of formation of a joint Woodcraft Folk/ will have as a key aspect of its work its finance and efforts to the promotion Co-operative initiative modelled upon the modernising the Movement and and education of women. successful TUC Youth Academy, which promoting Co-operative aims and would be run in partnership with the values to the wider community. 3.4 The Commission, whilst not making Co-operative College. This would link any specific recommendations in relation with the Young Co-operators courses to the Women’s Guild, wishes to place currently held at the College. The 3 on record its gratitude for the support, Commission reviewed this proposal encouragement and determination with interest and commends it to the The Co-operative of its members to advance the cause Movement for further discussion. Women’s Guild of co-operation throughout the local communities in which they serve. 5 3.1 Established in 1883, the Women’s Guild has set out to educate and raise 4 Lifelong learning the confidence of women co-operators within their own autonomous organisations. The Woodcraft Folk 5.1 The Commission is pleased to Sponsoring women as candidates acknowledge the progressive work of the for places on the Boards of Societies, 4.1 For over seventy-five years, the Co-operative College since its inception sectional Boards and eventually as Woodcraft Folk has been working with in 1919, and in particular its exciting aims Directors of local Societies, the Guild children and young people, aiming to to build upon the historic strength of the pioneered many reforms within the develop their self-confidence and ability College through the recently published Movement, in order to further the cause to play a positive role in society. strategic plan. of women co-operators – in particular the campaign for ‘open membership’ 4.2 The Woodcraft Folk currently runs 5.2 The vision within the plan seeks to which allowed more than one member 500 groups and has 13,000 adults, young create a resource for the whole of the per household. people and children as members. Since Co-operative and Mutual Enterprise The Report of the Co-operative Commission 64–65

(CME) sector which will ensure the It was there to provide good food, to related schemes with equipment and highest quality standards in their work. avoid rampant profiteering. But from an Education Fund, supporting schools the earliest time it was committed to bidding for technology/language/sports 5.3 The College is the major provider a larger social role, to promote its values college status. of credit union training; has worked beyond those of food retailing. with Co-operative development 6.4 The challenge for the Movement workers on an NVQ-based management “We in the Co-operative Movement have is to build on this success, to spread programme; works closely with the all of the building blocks, we have cradle the good ideas to all areas of the Plunkett Foundation for Co-operative to grave co-operation, we are able to country and to encourage creativity Studies; and through the Adapt offer people control over every single bit and imagination in projects to maximise programme (funded through the of their lives if they want it." A co-operator, the impact of Co-operative ideals. European Social Fund), has taken work Manchester regional hearing The development of new Co-ops in developed with CWS on Co-operative residential care for older people and the values and principles to small and 6.2 It is still the case today that thousands use of resources from the Government’s medium sized Co-operative enterprises. of individuals and many communities Children’s Fund to develop Co-operative are unable to take part in the decisions solutions for child care are just two 5.4 The Commission believes that the that shape their lives. The Co-operative ventures which desperately need time is right for the College to lead on Movement still has a major role to play support if they are to develop from behalf of the Movement the development in providing access to education and concepts into reality. of a modular Co-operative and mutual training, supporting lifelong learning and enterprise programme entitled ‘Learning developing innovative ways of working in 6.5 Despite the tremendous success and Citizenship and Community through local neighbourhoods to help regenerate of some local community initiatives, Co-operative and Mutual Enterprise’. The some of the most deprived communities the overall impact of the Co-op in programme should be capable of being in the UK. tackling issues such as social exclusion, used at all stages of learning; available regeneration and empowering local both within the Societies and outside 6.3 There are already excellent people is relatively small. This is partly the Movement; and should be fundable examples of successful community due to the failure of the businesses to via various DfEE programmes including initiatives supported by local generate the profit necessary for a more the Learning and Skills Council. Co-operative Societies, many of which robust and significant programme of are highlighted in this Report, where community action and partly due to See recommendation 40 Co-ops are working with partners in the lack of co-ordination and consistency local authorities and voluntary groups of approach of the projects that to improve opportunities for local people. are implemented. 6 One example is Lincoln Society’s Aims in the Community, where members 6.6 It is difficult to support long-term The Co-operative collaborate in local projects. Some and sustained community activity unless of the organisations in which they there is a reliable source of funding Foundation volunteer time are involved in economic available, but it is sustained action over regeneration such as Investors in Lincoln, a period of time that results in tangible 6.1 The original Rochdale Pioneers were Urban Challenge and Gainsborough change that leads to real improvements quite clear that the Co-op was not just Regeneration. Some have social or in the lives of local people. a business. They understood that the environmental goals such as the Lincoln notion of ’self help’ was a community YMCA, Groundwork Lincolnshire and 6.7 The Commission is recommending philosophy. The original Rochdale store Lincoln Employment Accommodation that in order to address these needs was there to give its members control Project. The Lincoln Society also has a Co-operative Foundation should be over the forces that shape their lives. a Healthcare Fund supporting health- established to help complement and National, Regional and Local Structures

reinforce the impact of Societies’ wider Labour movements where such relate directly to the principles and individual community initiatives. education promotes an understanding practice of co-operation and which help of the value of strong communities and to translate the values of mutual support, 6.8 There is a need to carry out research gives local people access to a wider solidarity and community into practical and development work to explore new social arena. action. The Foundation should also direct ideas about how communities work. funds towards projects that serve The Co-op should be a major player 6.11 The Foundation would become the areas from which the funds have in developing such policies and should a catalyst for promoting the values and been earned in order to secure a real be able to exercise considerable principles of the Co-operative and wider community dividend for people at influence in shaping future economic Labour movements. It would recognise local, regional and national level. and social policies at local, regional and embody the fact that Co-operatives and national levels. The excellent work represent the individual as entrepreneur See recommendation 42 and 43 being carried out by Communicating and consumer; trade unions represent Mutuality is leading the way in this area the individual in the workplace; and the 6.15 The Foundation can help to and its innovative approach should be Labour Party represents the individual give the Co-operative Movement a central element in the research and as citizen. The Foundation should a much stronger voice in shaping the development work of the Foundation. become a focal point for economic development of policies by providing and social discussion within the whole a practical way of making real “Why should people sacrifice their time and Labour Movement. improvements at local level. It can be energy to develop new Co-operatives... a means to achieve many of the aims if they cannot be sure that the effort 6.12 The Foundation would help of the founders of the Co-operative they’re putting in is of lasting benefit to to ensure that community activities Movement to educate and empower their communities." A co-operator, could be funded over the long-term local people and to hºelp them to Oxford regional hearing so that real benefits could be gained shape their own lives and to control from the Co-op’s investment. It will their destiny. 6.9 The Foundation is designed to be help to ensure that community projects the national recipient of the community are of a consistently high quality and See recommendation 45 dividend particularly for those Societies that they meet the goals of the that do not already have active local Co-operative Movement. programmes which promote 7 Co-operative activity. 6.13 We recommend that Co-operative Societies should contribute to The Co-operative Party See recommendation 41 establishing and funding the Foundation and that individual co-operators should – the political voice 6.10 The Foundation would translate the be able to make donations to the values of mutual support, solidarity and Foundation if they so wish. 7. 1 The Co-operative Party fulfils community into practical action by: an important function in seeking to Funding sustainable Co-operative See recommendation 44 promote Co-operative interests through initiatives. its participation in politics. Through its Funding research in new areas of 6.14 The Board of the Foundation should long-standing links with the Labour Party, Co-operative activity. be fully representative of the Societies it engages Co-operative members in the Funding community initiatives that bring that contribute (possibly in a similar way work of the Labour Party. This involves fulfilment to local people and enrich to CRTG) and should also include a programme of political education the environment in which they live. representation from the other wings carried out through a number of weekend Funding political and citizenship of the Labour Movement. It should give schools and events, plus the national education within the Co-operative and priority to supporting projects which summer school. The Report of the Co-operative Commission 66–67

Co-operative Party MPs and Peers from the Co-operative Party’s Parliamentary Group

7. 2 The Co-operative Party currently News, the world’s longest-established 9.2 Regional Co-operative Councils should has a large number of elected advocates Co-operative newspaper, which was play a key role in the evolving structure including 27 Westminster MPs; 2 MEPs; founded in 1871. of the modern Co-operative Movement, 7 Members of the Scottish Parliament; linking with the development of regional 5 members of the Welsh Assembly 8.2 The Co-operative News sells economies through the new regional and over 700 Labour and Co-operative approximately 11,000 copies a week – structures emerging at that level. councillors. the majority of which are bought by consumer Co-operative Societies for 9.3 Analogous structures and linkages 7. 3 The last two years have seen the internal distribution. As a business the should be established in Scotland, Wales, Co-operative Party become the leader Press is financially independent (though and Northern Ireland. in the development of new mutual policy 51 per cent owned by CWS), with its initiatives at the same time as overhauling own Board. 9.4 In the future appointment of its core advocacy activities. In addition, members of the Regional Development the work of its elected advocates has 8.3 Income for the Press comes from two Agencies, the Government should be ensured the successful promotion sources: sales of publications and sales requested to consider the nomination of Co-operative ideals at all levels of advertising space, both of which are of a Co-operative Movement nominee of government. declining and place the future of the within each region. Co-operative News in serious jeopardy. 7. 4 The Commission recommends See recommendation 49 that links between the Co-operative See recommendation 47 Movement and the Labour Party should be strengthened nationally and locally 10 to reflect the increasing importance of 9 co-operation. The Co-operative Party Local structures should remain the political interface Regional structures and is the appropriate body to affiliate and action to the Labour Party. The Labour Party 9.1 Regional Co-operative Councils are and the Co-operative Party should seen as being an important component 10.1 The local dimension of Co-operative work together on a new partnership to for the promotion of Co-operative activity is not only important as part of increase participation in political activity. enterprise in Scotland, Wales and the the distinctive commercial offering of regions of England. They have the Co-operative Societies, but also because See recommendation 46 potential to develop a distinct the reconstruction of communities is an Co-operative agenda throughout the integral part of the modern political UK, bringing together retail Societies and agenda. Co-operatives directly and by 8 the Co-operative Development Agencies the support of social enterprise in its (CDAs), Social Enterprise Agencies broadest sense are capable of reviving The Co-operative and other sectors of the non-retail community life. The delivery of a variety Co-operative Movement. Their valuable of new or disappearing community Press contribution should be recognised services, to provide support to various through the possible allocation of one societal groups, e.g. the elderly, people 8.1 The Co-operative Press Ltd. is an seat on the Central Executive of the with disabilities, single parents, the socially independent secondary (federal) Co-operative Union to be filled by an disadvantaged, is an important role Co-operative Society whose role is the elected representative of the RCCs. that Co-ops should fulfil as part of their dissemination of news and information social mission. to the Co-operative Movement. It fulfils See recommendation 48 this role by publishing the Co-operative 10.2 As some Societies have shown, National, Regional and Local Structures

working with other groups equally the view that the framework is in need committed to social and community 12 of a fundamental overhaul similar to that enterprise can provide a much-needed proposed for companies. expansion of services to the local UK legislation communities. Co-operative Development 12.7 We believe that a new modernised Agencies, such as the Durham 12.1 Many of the laws governing the legal framework should provide Co-operative Development Agency, social enterprise and mutual sectors consistency, clarity and conciseness one of the largest in the UK, or others originate from the nineteenth century so that the law is accessible and easily in areas such as Northern Ireland, can and their relevance to the twenty-first understood by all those who wish to engage develop a variety of local businesses century is highly questionable. in the sectors – from the start-up to the to benefit people, communities, and the large mutual. environment, supported also by funding 12.2 In effect, the current legislation is from the European Union. largely a consolidation of nineteenth 12.8 We are aware of the thorough century law. It has failed even to keep work being carried out by the Company 10.3 A local dimension relating Co-operative pace with the framework of company Law Review. The Government is activities to the communities in which law, which itself is in need of radical committed to modernising company they are located is, therefore, an essential overhaul as evidenced by the current law and regulation in a way that promotes component of future Co-operative thoroughgoing Company Law Review. the competitiveness of UK business. development. An example of this might The review aims to develop a simple, be the broadening of the role of local 12.3 The Commission believes that modern, efficient and cost-effective retail stores to become ‘community Co-operative Societies must demonstrate framework for companies carrying service centres', offering, under the on a regular basis to the Registrar of out business activity in the UK. Co-operative banner, a range of other Friendly Societies that they continue services including, for example, banking, to operate as Co-operatives, in order 12.9 The Company Law Review was other financial services, travel, post office to retain their legal status. launched in March 1998 by the DTI. facilities, etc. An independent steering group was 12.4 Unlike in some other countries, formed to oversee the management there is no legal recognition in the UK of the review bringing together those 11 of the Co-operative form of common with expert knowledge of company law ownership. There is also no statutory matters. The review has considered UK Government action recognition of the principles of the a wide range of issues including International Co-operative Alliance. company registration procedures 11.1 The Commission believes that the and corporate governance. Government should develop stronger 12.5 We conclude that there is an liaison and supportive linkages with the urgent need for modern legislation that 12.10 The social enterprise and mutual Co-operative Movement at various levels. enshrines the ICA principles (see Annex sectors are an integral part of British 3) as well as providing the Co-operative business activity. They require laws 11.2 The UK Government should Movement with freedom of choice on which enhance rather than impede be encouraged to recognise the how best to protect its assets. competitiveness. We believe that Co-operative advantage as a key the Government’s commitment to component of the ‘Third Way’. The See recommendation 51 modernisation must extend to the Co-operative sector, embracing the mutual and social enterprise sector. rising tide of ‘new mutualism' can and 12.6 The Commission has also We recommend therefore that a similar should play an active role in bridging considered evidence relating to the approach should be established to the gap between commerce and community, legal framework governing the social develop the future legal framework of between private and public sectors. enterprise and mutual sectors. We take the social enterprise and mutual sectors. The Report of the Co-operative Commission 68–69

See recommendation 50

12.11 The Commission believes that the UK Government should consider, as an immediate step, extending the remit of an existing Government Minister within the Cabinet Office, to have responsibility for the promotion of Co-operative ideals and to act as the main point of contact for the Movement, seeking to highlight its concerns and aspirations to the Government. The Commission also recommends that the Scottish Parliament and the Welsh Assembly should also consider such a measure.

See recommendation 52 National, Regional and Local Structures – Recommendations

Recommendations Chapter 5 – National, Regional and Local Structures

Lifelong Learning 43 Political structures and affiliations 40 46 The Commission recommends that the The Commission recommends that Foundation should be non-profit-making The Commission recommends that the Co-operative College should lead, and the Board should be representative of the Co-operative Party and the Labour on behalf of the Movement, the the Co-operative Societies which choose Party should work together on a new development of a modular Co-operative to contribute (possibly in a similar way to partnership to increase participation and mutual enterprise programme CRTG) and should include representation and political activity and that the entitled ‘Learning Citizenship and from the wider Labour Movement. Co-operative Party should be the only Community through Co-operative and Co-operative body to affiliate to the Mutual Enterprise’, capable of being used Labour Party. at all stages of learning, available both 44 within the Societies and outside the The Co-operative Press Movement and fundable via various The Commission recommends that the DfEE programmes including through Foundation should be financed from the 47 the Learning and Skills Council. community dividend with an initial capital injection to enable it to commence its The Commission recommends that Co-operative Foundation activities. The Commission further the Co-operative Union should initiate recommends that individual co-operators discussions with the majority shareholder 41 should be able to make donations to the with a view to requesting the Board of Foundation if they so wish. the Press to carry out a review of the The Commission recommends that Co-operative Press, in order to broaden a Co-operative Foundation should be the editorial content of the Co-operative established. This would be an exciting 45 News, so that it does not rely upon new opportunity to promote the values contributions solely from the Retail and principles of the Co-operative and In considering applications from individuals sector, but encompasses and supports wider Labour movements. or organisations the Commission the wider Co-operative Movement. recommends that both Boards of Societies and the Co-operative Foundation must Regional issues 42 give priority to funding projects which relate directly to the principles and practice of 48 The Commission recommends that the co-operation and which help translate the Foundation should work with the proposed values of mutual support, solidarity and In the context of devolution, the Regional Social Economy and Community Task Force community into practical action. Co-operative Councils are seen as being to help implement the recommendations an important promoter of Co-operative of the Government’s report on Enterprising enterprise in Scotland, Wales and the Communities, to raise community regions of England since the creation development venture funds and to of the Regional Development Agencies encourage public and private sector (RDAs). Therefore, the Commission investment in under-invested communities. recommends that they should work together with the Co-operative Union/ UKCC and could possibly have a seat on the Union’s Central Executive. The Report of the Co-operative Commission 70–71

National issues for UK Government 52 49 The Commission requests that the UK The Commission requests that in the Government should consider, as an future appointment of members of immediate step, extending the remit of an the Regional Development Agencies, existing Government Minister within the (RDAs), the Government should be Cabinet Office, to have responsibility for requested to consider the nomination the promotion of Co-operative enterprise of at least one Co-operative Movement and to act as the main point of contact. nominee to the Board of each RDA. The Commission also recommends that the Scottish Parliament and the Welsh Assembly should also consider 50 a similar measure.

We are aware of the thorough work being carried out by the Company Law Review. We recommend that a similar approach should be established to develop the future legal framework of the social enterprise and mutual sectors as a whole. The aim of such a review should be to develop a simple, modern, efficient and cost-effective legal framework for carrying out business activity and meeting the social goals of these sectors. This new legal framework should be established within the lifetime of the next Parliament. 51

The Commission is convinced by the argument that a modernising bill should be put before Parliament to recognise in law, for the first time, the Co-operative form of common ownership and deal with the securing of Co-operative assets already referred to in recommendation 29. businesses that trade profitably and for a social purpose Chapter 6 – The Social Economy and Co-operation The Report of the Co-operative Commission 72–73

73 General 78 Extending the boundaries of co-operation 73 Uniqueness of credit unions 79 Meeting the social enterprise challenge 73 Role of ICOF and ICOM – 79 Essential changes required in legal framework finance for social enterprise 80 What are our social goals? 74 The development of the 81 Recommendations Co-operative housing sector 76 Social enterprise in the twenty-first century 76 Social Investment Task Force

enterprise sector. However, it is clearly in Credit unions tend to have 1 the interests of the Co-operative Movement exceptionally low defaults – partly that it should support and sponsor the because of the common bond. General further and future development of social For the same reason, they tend to have enterprise and the ‘social economy' in its low advertising and promotional costs. 1.1 The Commission took an early broadest sense at national, regional, and As social businesses, even established decision to expand its remit to cover the local levels in the UK, and also at European credit unions tend to enjoy support broader issue of the development of and international level. from local firms, local government, social enterprise and the social economy religious or community groups. generally. We were much encouraged, and confirmed in our decision, by the 2 2.4 Of particular importance – it is response of the submissions received. estimated that between 50-75 per cent Not only did we receive submissions from Uniqueness of of the money saved and loaned through social enterprise organisations themselves, a credit union is spent within the local but also, a number of submissions from credit unions economy. Credit unions share many of Co-operative organisations and from the characteristics of building societies individuals set co-operation itself in the 2.1 Credit unions are the acorns of the and other mutuals. The demand for credit context of the more general development financial sector. They provide financial unions today is, in part, a consequence of social enterprise. We have been further services to millions of people across the of the privatisation of so many mutuals. encouraged that the Government in world. In Ireland, half of the population is Credit unions fill a gap in the market for establishing the Social Investment Task in a credit union. In the United States and locally owned, democratically controlled Force has already recognised the integral Canada, the figure is 25 per cent, there financial institutions. part that the social economy has to play are strong credit union movements in in overall economic development. the Caribbean and fast developing movements in the Far East and in Eastern 3 1.2 The social economy is growing in size and Central Europe. and importance, there are around 670 credit Role of ICOF and ICOM – unions, with a membership in excess of 2.2 In the UK by contrast, 22 years after 285,000 in the UK and assets of £179 million, the passing of the Credit Union Act, credit finance for social and the potential for growth in this sector unions serve fewer than 300,000 people, is considerable. Worker Co-operatives, just 0.4 per cent of the population. The enterprise of which there are around 1200 in the UK, penetration of credit unions has been and housing Co-operatives, have also disappointing, particularly given the 3.1 Industrial Common Ownership seen steady growth and, of course, if the £10-15 million of public money that is spent Finance Ltd (ICOF) provides loan finance voluntary sector and housing associations annually on credit union development. Two to employee owned Co-operatives and to are included, the total economic and factors contribute to this: the UK’s credit social enterprises. As such it is the sister social impact of the social economy is union legislation is among the most organisation of the Industrial Common significant in terms of GDP. restrictive in the world whilst at the Ownership Movement (ICOM) which same time regulation of credit unions provides legal and registration services for 1.3 The Co-operative Movement may has been inadequate. businesses wishing to use such structures. thus be seen as part of the wider family of businesses that trade profitably and for 2.3 The credit union advantage lies in four 3.2 ICOF’s raison d’être is to help people a social purpose; this being the broadly main areas: take more control of their own economic accepted definition of social enterprise. Credit unions do not have to pay lives. They achieve this by lending at risk In terms of sheer size the Co-operative significant dividends to external to those who are often excluded from Movement dominates the social shareholders. mainstream financial provision, providing The Social Economy and Co-operation

loan finance and business advice that represents common ownership and 4.2 The empowerment of tenants through enables people to own and control the Co-operative enterprises throughout Co-operatives is in many ways vital businesses in which they work or which are in the UK. Although primarily concerned following the demise of social housing their neighbourhood. In 1976 ICOF received with advancing the cause of democratic provision by local authorities and the shift £250,000 of central Government money employee ownership (especially in of responsibility for the management and but since then they have made a profit the form of worker Co-operatives) maintenance of estates to tenants. The entirely from their own resources. ICOF’s it is also involved in developing other potential assets are substantial. A recent companies include Community Capital innovative forms of co-operation merger of housing Co-operatives in the which lends to community businesses and including ‘Co-operative consortiums’ Grampian region in Scotland has seen social enterprises and ICOF plc which lends made up of small businesses or self- the establishment of a new fully mutual to employee-owned businesses. employed individuals. organisation, wholly controlled by its tenants and with assets of over £20 million. 3.3 Examples of the types of enterprise 3.6 Since 1976, ICOM has registered over which ICOF supports include: 2,700 Co-operatives whether they are 4.3 There is currently no legal framework PS Refrigeration, a successful employee worker Co-ops or one of the many new in UK housing law in which rights of buy-out based in Nottingham. forms being built. occupancy of residential property can Slaidburn, in rural Lancashire, a arise from membership of a democratic community Co-op buy-out of village mutual provider. This lack of a proper store and post office. 4 legal and administrative framework for Bookprint 2000, a phoenix rescue by Co-operative housing creates numerous disabled people against all odds in The development practical administration difficulties – South Wales, which saved their former it also denies members legal protection Remploy factory. of the Co-operative of their rights. Poptel, one of the UK’s leading Internet service providers. housing sector 4.4 The development and expansion Phone Co-op, the highly rated Co-operative of the Co-operative housing sector is phone service. 4.1 The Co-operative housing movement also of mutual importance to the wider Ashiana project, which provides has, during the past twenty-five years, Co-operative Movement. Housing language and business training in the conclusively demonstrated that the Co-operatives are concerned to ensure Sparkbrook area of Birmingham. application of the Co-operative principles that members are educated and informed Buzz Co-operative, a highly successful to the provision and management of about the principles and practice of bus company based in Harlow. housing delivers quality cost-effective co-operation; this practical understanding housing services and creates sustainable of the Co-operative principles is vital to 3.4 However, for ICOF, there is constant communities. However, despite its their success. pressure to raise lending capital in more proven benefits, the Co-operative share issues but competition for ethical housing sector remains small and 4.5 Potentially, members of housing investment has increased sharply and disadvantaged. Housing Co-operatives Co-operatives could be an important the promotion of funds which they own or manage less than 0.1 per cent source of new members for established have available to lend. Whilst ICOF is of the UK’s housing stock. This contrasts retail Co-operatives, but because of successful in getting its loan capital sharply with other European countries the lack of a direct link between the out as well as getting it back, it has to in which housing Co-operatives make development of housing Co-operatives do all of its own promotions which can a major contribution to the provision and the retail Co-operative sector this be expensive for a small organisation. of quality affordable housing. A leading cross-fertilisation of membership and example is Norway where housing Co-operative ideals rarely happens. 3.5 ICOM is a non-profit membership Co-operatives provide 14 per cent of organisation that promotes and all housing in a highly developed system. See recommendation 54 The Report of the Co-operative Commission 74–75

Staff at Annabelle’s Restaurant in London – a successful social enterprise

Social Enterprise London A Co-operative case study

Social Enterprise London is the regional a social purpose, like community trusts approach to the way social enterprises agency tasked with the job of promoting and trading charities, to work together at are being promoted and developed. social enterprise in London and increasing a regional level to support the growth of the scale of the social economy. the sector. In some areas specialist support has been given to employee buyouts and new models It is a positive example of how different The strength of SEL’s partnership approach of work organisation for disadvantaged parts of the Co-operative sector such as has given it a policy voice with the key groups and people with disabilities, such worker Co-ops and credit unions can join players in London Government. SEL is using as Annabelle’s Restaurant. This work has with other types of business that trade for its influence to develop a co-ordinated produced very impressive results. The Social Economy and Co-operation

allowing innovation and service to flourish certain is that, without the new inspiration 5 as both the social means and the social for co-operation, the basis of which we objective of profitable operations. hope to have set out in this report, and the Social enterprise in the effective commitment of co-operators, 5.3 These combined issues – necessary the positive development of a strong twenty-first century globalisation, consumer alienation, social economy will not happen. successful co-operation – point to the 5.1 The resume of the breadth and need for the expansion of successful development of social enterprises co-operation (the very reason for the 6 and their relevance to the Co-operative Commission being established) and the Movement as the largest player in the need for co-operation and collaboration Social Investment social economy suggests that the current at all levels between the various century could witness – notwithstanding the organisations which make up the social Task Force movement towards a global economy – economy. At local, regional, national, a resurgence of the development of European, and international levels the 6.1 The Chancellor’s Report on Enterprising co-operation and social enterprise more need is first to understand and then to Communities, prepared by the Social generally. Indeed, a persuasive case explain the importance of developing Investment Task Force, recommends five could be made for the necessity of the social economy. Nor does this mean specific areas for action: the development of social enterprise, some soft option in economic terms. A Community Investment Tax Credit to particularly of co-operation, as a We are, throughout this report, stressing encourage private investment in under- balancing accompaniment to that the ‘profit imperative’. By this we mean invested communities, via Community very globalisation. In this way the scale the need, if the Co-operative Movement Development Financial Institutions that and anonymity of globalisation may be is to deliver against its social objectives, can invest in both not-for-profit and ‘softened’ by consumers’ involvement to ensure by efficient trading the profit-seeking enterprises. in key areas of the economy, particularly continuous development of surpluses A Community Development Venture those dealing with consumer goods, which can then be devoted to securing Fund as a matched funding partnership consumer credit, and social goods, e.g. the social goals, among which should between Government on the one hand long-term care of the elderly. These are also be included the popularising and and the venture capital industry, all areas where direct contact with the expansion of co-operation itself. entrepreneurs, institutional investors, product, a strong element of service, and banks on the other. and trust are required. “Co-ops should not be seen as an answer The monitoring of banks’ lending activities to market failure, instead they should be in under-invested areas, leading to 5.2 We do not consider that these are seen as an alternative people-centred way disclosure of each bank’s performance. simple issues, but their resolution may of doing business. Co-operative enterprises Greater latitude and encouragement hold some part of the key to easing the are opportunities to harness the skills, for charitable trusts and foundations apparent alienation of consumers in energy, enthusiasm and commitment of to invest in community development the modern, rapidly changing, and ordinary and extraordinary for mutual initiatives. technologically dominated world. benefit." A co-operator, Loughborough Financial and other support for Community A recent report by the International regional hearing Development Financial Institutions, Association of Investors in the Social including new mechanisms to collect Economy suggested that, for instance, 5.4 Whether the new century will, in funds at wholesale level which can then banking regulation is too important to be fact, see a considerable expansion of be channelled into Community left solely to banking regulatory authorities co-operation and with it the social Development Financial Institutions. and that banking in the absence of a social economy will partly be determined by context is poorly regulated. Co-operative economic and social forces that cannot 6.2 These five key recommendations set banking provides this social context, be predicted with certainty. What is more out how £1 billion of private finance can The Report of the Co-operative Commission 76–77

Annette Howie, who bought her car with a loan from Capital Credit Union

Capital Credit Union A Co-operative case study

Capital Credit Union is a democratic, Capital first opened in 1989 in Edinburgh, services. Products include savings member-owned and controlled financial and has had a high street presence since facilities and low cost loans as well as services Co-operative for public service 1995, providing members with access to free life insurance and an option to insure employees in Edinburgh and their families. services on a full-time basis. regular deduction against sickness, accident or redundancy. As an independent, non-profit, volunteer- Capital is now a leading credit union. With based organisation, its aim is to provide assets of over £6.5 million it provided Capital’s Board of Directors have an quality services to meet the needs of members with a dividend return of 4 per extensive range of skills and experience, members within the credit union cent for the financial year 1998/99. It has providing effective management with a philosophy. 7,000 members and is committed to member focus. extending access to low cost financial The Social Economy and Co-operation

be invested into the UK’s most deprived bring together social enterprise partners areas. In this way the aim is to develop 7 and representatives from the retail sector the enterprise and wealth vital to building from around the UK, the Labour Party and sustainable communities that will provide Extending the the Trade Union Movement to discuss in long-term growth for the future. depth how to pursue further co-operation boundaries of between all sections of the Co-operative 6.3 Already active in community Movement in the UK. development and itself forming a co-operation substantial part of the social economy, 7. 4 The Summit should seek agreement to the Co-operative Movement must seize 7. 1 The potential for expansion of establish a permanent Social Economy and the opportunity presented by the Co-operative endeavour is enormous, Community Task Force with the administrative Government’s positive stance on the but to develop and expand, co-operation support of the Co-operative Union. The Task development of the social economy to needs supportive government both at Force would be a tripartite body bringing enlarge and deepen its activity as the national and regional level. A realigned together the three wings of the Labour leader of the social economy movement. third sector can play a significant role in Movement, the Co-operative Movement, The social economy should no longer the development and expansion of the UK the Labour Party and the Trade Union be seen as a marginal, add-on area of economy. However, there also needs to be Movement. Unlike a previous tripartite business for the Co-operative Movement, a realisation that the social enterprise sector body, the Council of Labour which was but rather as an integral part of its is an equal partner with the retail sector of largely unfocused and did not connect mission and its activities. If the ending of the Co-operative Movement. Sustaining with local communities, this new Task Force social exclusion is to be made a reality small enterprises of a Co-operative nature should be firmly rooted within the local then the social economy is the means to is as important to the whole Movement as community and undertake ongoing research establish and to maintain the inclusive protecting the larger retail sector. and development projects designed to society which underlies the Co-operative create a holistic Co-operative approach Movement’s own agenda. 7. 2 Co-operation provides a clear alternative to economic development. The Task Force to the private sector in fulfilling commercial would also act as an interface with central 6.4 The exclusion of many people in objectives and encouraging the development government, the Scottish Parliament, the deprived areas from access to finance of successful sustainable communities. This Welsh Assembly, the Northern Ireland can be remedied by the development of fact has to be recognised at the highest Assembly and the RDAs as well as other credit unions. There is an urgent need to level. In developing organisations based public bodies. The Task Force should expand their coverage very substantially. on the attitude and ethos of co-operation, meet on a formal and regular basis and A number of Co-operative Societies, for we have the chance to develop a fairer, should be encouraged to approach the example Lincoln, have been active in balanced society in which each community new Co-operative Foundation for financial providing management time for the can play its part. support to strengthen and promote setting up of credit unions in their areas. social enterprise initiatives across the UK. This activity should be regarded as 7. 3 The submissions received from social As an immediate step, the Commission is a mainstream activity for Societies. enterprise partners all indicate that whilst requesting the Labour Party to include a Moreover, The Co-operative Bank they are undertaking positive and productive commitment in its next general election should become more closely involved. work, they are in some cases hindered by a manifesto for the Labour Government to A transition, over time, can be envisaged lack of a proper legal framework and in some examine how it can utilise the development of a number of individuals ‘graduating’ cases a feeling that they are operating of the social enterprise sector to strengthen from credit unions to holding accounts alone. The Commission is recommending the social economy, build local communities with The Co-operative Bank. Seen in that a ‘Social Enterprise Summit’ should be and tackle social exclusion. this way credit unions are clearly an held in 2001, hosted by The Co-operative integral part of the financial economy, as Bank with the support of the Co-operative See recommendation 53 indeed they are in the USA. Union and the UKCC. The Summit should The Report of the Co-operative Commission 78–79

8 8.4 In addition, the Commission feels that 9.3 It is also important that the the Co-operative Union and the UKCC – implementation of the recommendations Meeting the social in their new form – should have a national of the Government-commissioned Social remit to represent and to promote activity Investment Task Force should take enterprise challenge and policy research in the area of the social account of the need to provide sufficient economy (the latter via the Co-operative flexibility for Co-operative Societies to 8.1 Clearly, as with our views on the future of Foundation which we propose should be invest in community development the Co-operative Movement, we see a clear set up). These new national roles and projects. development path for the social economy on activities are discussed in more detail in the basis of a combination of new business Chapter 5. Here we simply state that such “...need for Co-operative commercial dynamism coupled with a new covenant of a strong national level promotion is an strategy that matches the highest ethical trust with the owners and customers of social essential element in the development of standards in the industry." A co-operator, enterprise. The task for the broader social the social economy in the UK. Oxford regional hearing enterprise movement is to prove its intrinsic worth to the consumer, to the general public, See recommendation 56 and to government. We believe this is achievable and that the Co-operative 8.5 The present Industrial and Provident Movement has a key role to play in developing legislation is out-dated. The Commission and promoting the social economy and welcomes the Company Law Review and its potential economic and social roles. calls on the Government to implement a similar approach to the social enterprise “We should promote social inclusion and and mutual sectors. ensure that we work closely with other self- help Co-op and Co-operative groups to develop initiatives to meet people’s needs. 9 Social goals must be an integral part of our business and we must measure and monitor Essential changes these through social and Co-op audits." A co-operator, Loughborough regional hearing required in legal

8.2 In connection with the promotion of social framework enterprise, the Commission is pleased to acknowledge – as a constructive move – the 9.1 The Commission is aware of the rigorous agreement that the Co-operative Union will work being carried out by the Company provide administrative services and Law Review and believes that a similar professional back-up to the Industrial Common approach should be established to develop Ownership Movement (ICOM). This will the future legal framework of the social ensure that ICOM is able to maximise enterprise and mutual sectors as a whole. existing resources and minimise outgoings. 9.2 The aim of such a review should be to 8.3 The Commission is also pleased to develop a simple, modern, efficient, and record the agreement reached between cost-effective legal framework for carrying the UKCC and the Co-operative Union to out business activity and meeting the social integrate their administrative work. goals of these sectors. This new legal framework should be established within the See recommendation 55 lifetime of the next Parliament. What are our social goals? what are our social goals?

This represents the collective view of Creation and membership officials of Co-operative Societies present at the MRO regeneration Consultation Meeting at Stanford Hall on October 10, 2000. In implementing social goals, Co-operatives should: Proactively promote, create and Overview support a sustainable environment in which new and existing Co-operatives Social goals should: can form and grow through financial Be central to Co-operative enterprises and practical support. to represent the interests of all Regenerate and reinvest in stakeholders. communities. Encourage active citizenship. Enable and empower stakeholders. Create a Co-operative enterprise Caring and ethical economy, think globally and act locally within the Co-operative Movement. behaviour Inform and educate to raise awareness of Co-operative values and activities. Every level of business should: Be SMART (specific, measurable, Reflect social goals and promote achievable, realistic and timed). ethical behaviour. (Examples of ethical behaviour cited include active engagement in fair trade, human rights, Process animal rights, racial/sexual equality, fair investment policies, fair employment In implementing social goals, policies, and minimising negative Co-operatives should: environmental impact). Undertake social audits. Where possible, proactively trade Take the opportunity to market the with other Co-ops. Co-operative advantage. Challenge the status quo to achieve Provide channels of communication social goals. between community and resource providers to develop a culture of consultation with all stakeholders. The Report of the Co-operative Commission 80–81

Recommendations Chapter 6 – The Social Economy and Co-operation

Social Economy and Community can implement measures to expand the Task Force UK’s social economy.

53 Housing The Commission recognises that the 54 social enterprise sector is an integral part of the Co-operative Movement and The Government should promote amongst appreciates the difficulty that the third local authorities that are considering sector can face because of a lack of a transferring their housing stock to the modern legal framework and of available private sector, the Co-operative model financial support. The Commission of social housing. recommends that a Social Economy Summit Meeting, hosted by The UKCC and Co-operative Union Co-operative Bank and supported by the Co-operative Union and the UKCC 55 should be held during 2001 under the Chairmanship of John Monks. The Commission welcomes the agreement that the Co-operative Union The Summit Meeting, which would bring will provide administrative support to together leading players in the UK’s ICOM and to the UKCC. Also, the social economy, Government Ministers Commission welcomes the news that the and international experts should Union and the UKCC intend, at the same particularly address the funding time, to establish a full strategic alliance difficulties encountered in the UK for to progress further the overall policy social enterprises, the feasibility of creating development of the Co-operative and a social economy venture capital fund social enterprise movements. and the current legal limits in the UK on the scale of Co-operative shareholdings. 56 The Commission recommends that the summit should also provide an The Commission recommends that this opportunity to launch a new Social new strategic alliance should become the Economy and Community Task Force national voice for the promotion of social which would be a tripartite body bringing enterprises in the UK and should develop together on a permanent basis the a framework to provide services, support three wings of the Labour Movement and training for potential and existing to develop a holistic approach to Co-operative and other social enterprises strengthening the social enterprise and should assist the development and sector in the UK. co-ordination of social enterprise/social economy representation at national and Furthermore the Commission recommends regional levels. that the Labour Party should incorporate into its manifesto for the next General Election a commitment for the next Labour Government to examine how it the new vision of co-operation for the twenty- first century Chapter 7 – Mission Statement and Next Steps The Report of the Co-operative Commission 82–83

83 General 83 What should be the Co-op’s mission statement? 83 Guidelines for the statement 84 The mission: challenging convention ‘the Co-operative advantage’ 84 Implementation of the mission 85 Recommendations 86 Next Steps

Give coherence to the activities of 2.2 In addition to the above, we sought 1 different parts of the business. contributions from Commission Act as a vision for the future members themselves; from academic General development of the business. writings; from CWS; and from the Movement at large (via Co-op News 1.1 In the context of the Co-operative “Co-operative businesses must achieve and the Commission's own web site). Movement, the formulation of a mission their business success through the statement represents an ‘encapsulation' consistent practical application of 2.3 Various themes emerged. These may of the already established principles of Co-operative values and principles, be summarised as follows: Co-operation. The aim of the statement our values and principles are integral Considerable disparity within existing would be to encapsulate – for members to our activity, not some kind of add-on Societies' missions as to whether and employees – the vision of feature. We must set out to be the their ‘aim' was to serve ‘customers' co-operation for the twenty-first century, consumer’s champion, we must work to or ‘members'. linked to the common branding of unite rather than to divide the interests of Similar disparity as to whether ‘profit- all Co-operative Movement ventures producers and consumers, to provide for seeking' formed a part of their aims. and activities. our members’ needs in a sustainable way." A broad range of current views as to A co-operator, Oxford regional hearing the ‘aims' of Societies, but with clusters 1.2 There is a clear acceptance by of agreement in four main areas: the Commission and by all associated – Generic service benefits. with the Co-operative Movement that 2 – Co-operative principles and values. Co-operative Societies combine both – Community focus. a commercial and a social purpose. What should be the – Success. These purposes/objectives should not be seen as opposites; rather they should Co-op's mission be regarded – particularly in this modern 3 age – as offering the opportunity to statement? achieve breakthrough strategies for Guidelines for the co-operation in new and, in some areas, 2.1 To formulate a mission statement for mature markets. Co-operatives we consulted widely on statement the nature and precise wording of the 1.3 Mission statements can sometimes statement. The process involved: 3.1 Above all the mission statement be dismissed as mere ‘window dressing'. Reviewing existing Societies' mission should be audacious and expressed in The Commission however believes that statements. specific terms; i.e. it should not simply be for the Co-operative Movement in the Conducting a content analysis of those a statement of existing competencies or twenty-first century, the principle of a Societies' ‘positioning' and an appraisal vague ambitions. defined mission – a stretching goal – is of common elements. an excellent way of expressing the social Reviewing the recent inputs from 3.2 To an extent, therefore, it should purpose of the Movement and integrating advisers to the Commission. be reasonable to inspire positive this with the essential commercial Reviews of some other company adoption and commitment at all levels mechanisms for achieving the social goals. mission statements. of the organisation, and indeed of the Development of an appropriate Movement as a whole. 1.4 The mission statement will seek to: template for a single mission statement. Guide the overall direction of the Advancement of a number of 3.3 Ideally, the mission statement should business. suggestions for debate by the be brief, intelligible, without qualification, Inspire and direct the efforts of Commissioners. and memorable. Taking account of the management and employees. substantive inputs and meeting these Mission Statement and Next Steps

structural criteria was difficult. As might Supporting this: be expected, there was considerable The ambition of excellent products and discussion within the Commission before services because effectiveness is the a consensus emerged. ‘sine qua non’ of our business. The notion of ‘distinct competitive 3.4 However, we believe that the following benefits’ based on the three pillars of our statement meets the criteria and can Co-operative values, our unique member serve the Co-operative Movement and its ownership and our community focus. constituent parts for some considerable time to come. We would like to think that See recommendation 57 the Rochdale Pioneers would have approved. 5 4 Implementation of The mission: challenging the mission convention – ‘the 5.1 The Commission is aware that Co-operative advantage’ mission statements can – however well devised – be the subject of cynicism. Our mission is: Nonetheless we believe that not to have “To challenge conventional UK enterprise attempted to encapsulate the over- by building a commercially successful arching mission for the Movement as we family of businesses that offers a clear see it at the beginning of the twenty-first Co-operative advantage.” century would have been an abdication of responsibility on our part. 4.1 What do we mean by a ‘Co-operative advantage’? See recommendations 59 and 60 We mean: “Excellent products or services with 5.2 What is critical is how effectively distinct competitive benefits derived the mission is ‘sold' to Co-operative from our values and principles, our organisations. Literature on this subject rewards for members or our commitment suggests that there are three distinct to the communities we serve.” stages in this process: i Communicate and explain the mission. 4.2 There are a number of important ii Create belief in the mission by elements to this statement: demonstrating its successful application. The notion of ‘challenge’, effectively saying iii Solidify ‘emotional' commitment to there is another way of doing business. the mission. The word ‘build’, which implies more To which we would add a fourth: than maintenance and suggests both iv Thereafter, ensure all employee and investment and commitment. Director training starts from and builds The idea of the ‘Co-operative upon this foundation. advantage’, offering consumers a real choice in a number of different sectors. The Report of the Co-operative Commission 84–85

Mission statement: “to challenge conventional UK enterprise by building a commercially successful family of businesses that offers a clear Co-operative advantage"

Recommendations Chapter 7 – Mission Statement and Next Steps

Mission statement Implementation 57 58

The Commission recommends that to Co-operative retail Societies should seek express its fundamental purpose the new ways of deepening their Co-operation Co-operative Movement should adopt at a trading level, particularly in adjacent as its mission the following form of words: geographical areas. “To challenge conventional UK enterprise by building a commercially successful family of businesses that offers a clear 59 Co-operative advantage." The enlarged Co-operative Union should The Movement should seek to implement actively seek to ensure the commitment the mission in a consistent, committed, of all sections of the Movement to the and co-ordinated manner at all levels implementation of the Commission's of the organisations that make up the recommendations. In order to review Co-operative Movement and should ensure progress on the implementation of the all employee and Director training starts Commission’s Report, it is recommended from and builds upon this foundation. that the enlarged Co-operative Union reports formally on this matter to The Movement should seek to live up to Congress no later than 2006. and strive towards the ‘stretching goal’ that this mission represents over the coming years. 60

The Commission recommends that the Co-operative Movement should prepare for its renewal in the twenty-first century by reinterpreting and reinvigorating the principles that it has always stood for to make them relevant to the present day. Mission Statement and Next Steps next steps

Our work having been completed We urge the Co-operative Union, to secure a vibrant future for the it is for the Co-operative Union and the the Co-operative Party; CWS, all Co-operative Movement in this other Co-operative Movement bodies Co-operative Societies; The Co-operative new century. to which the various recommendations Bank and CIS; and all other parts of the are addressed, to consider the individual Movement to work together from this recommendations, taken as an interlinked moment to sign up to and implement set of proposals. our recommendations and, in so doing,

John Monks Alan Donnelly Lord Fyfe of Fairfield

Hazel Blears MP Mervyn Pedelty Bill Connor

Lord Simon of Highbury CBE David Pitt-Watson Gerard Hill

Bob Burlton Pauline Green Alan Middleton The Report of the Co-operative Commission 86–87 annexes Annex 1 – The Co-operative Commission

1 3 5

2 4 6

The Co-operative Commission

1 John Monks 3 Hazel Blears MP 5 Lord Fyfe of Fairfield (Life Peer) Born 5 August 1945 Born 14 May 1956 Born 10 April 1941

Current position Current position Current position General Secretary, Trades Union Labour MP for Salford. Member of the House of Lords. Congress. Vice Chair, Labour Home Affairs Chairman, Unity Trust Bank plc. Chairman, Co-operative Commission. Departmental Committee. Offices Offices Offices Former Director, The Co-operative Bank. Member of the British Government and Former Salford City Councillor. Former Director, CIS. EU Competitiveness Councils since 1997. Former Principal Solicitor for Manchester Former Chairman, CWS. Member of the Chancellor of the City Council. Former Chief Executive, Midlands Exchequer’s Standing Committee Member of the Labour Party’s National Co-operative Society. on EMU. Policy Forum. Member of the Learning and Skills Council. In October 1999, appointed Deputy to 6 Gerard Hill Member of ACAS from 1979 until 1995. Ian McCartney MP. Born 27 October 1966 Currently a Visiting Professor to the Currently the Labour Party’s School of Management at UMIST, Development Co-ordinator. Current position Manchester. Membership Development Officer, 4 Lord Simon of Highbury CBE CWS Scottish Co-op. 2 Alan Donnelly (Life Peer) Born 16 July 1957 Born 24 July 1939 Offices Vice President, Scottish Midland Current position Current position Co-operative Society. Secretary, Co-operative Commission. Advisor to the Cabinet Office on the Former CWS Director. CEO of Sovereign Strategy. modernisation of Government. Chairman, Northern Infomatics Appointed by President Prodi to advise Applications Agency. on Institutional Reform within the European Union 1999. Offices Member of the European Parliament for Offices Tyne and Wear from June 1989 until Former Group Chief Executive and then retirement from the Parliament in Chairman, BP. January 2000. Former Minister of State in HM Treasury Former Leader of the European and the DTI as Minister for Trade and Parliamentary Labour Party. Competitiveness in Europe 1997-1999. Board Director of Unity Trust bank 1987 Former Vice President of the European until 1989. Round Table and a member of the CBI Former National Finance Officer of Presidents Committee. GMB Trade Union. Previously a non-executive Director of Former member of National Executive the Bank of England. Committee, the Labour Party. The Report of the Co-operative Commission 88–89

7 9 11

8 10 12

7 Mervyn Pedelty 9 Bill Connor 11 Pauline Green Born 16 January 1949 Born 21 May 1941 Born 8 December 1948

Current position Current position Current position Chief Executive, The Co-operative Bank. General Secretary, Union of Shop, Chief Executive and General Secretary, Distributive and Allied Workers. Co-operative Union. Offices Member of the Executive Committee Offices Offices of CWS. Former Labour Leader of Skelmersdale Member (LP and Co-op) London North, Director, CIS. Council. European Parliament 1989 until 1999. Deputy Chairman, Unity Trust Bank. Member of the National Executive Leader of the Group of the Party of Fellow of the Institute of Chartered Committee of the Labour Party 1990 European Socialists 1994 until 1999. Accountants. until 1997. Leader, European PLP 1993 until 1994. Fellow of the Chartered Institute Member of the General Council, sitting Parliamentary Assistant, Co-operative of Bankers. on the Executive Committee of the TUC. Movement 1986 until 1989. President, Co-operative Congress 1997. 8 David Pitt-Watson 10 Bob Burlton Born 23 September 1956 Born 7 June 1948 12 Alan Middleton Born 18 August 1941 Current position Current position Commercial Director, Hermes Lens Chief Executive, Oxford, Swindon and Current position Asset Management. Gloucester Co-operative Society. Freelance writer and lecturer.

Offices Offices Offices Deputy Chair, Labour Finance and Director, CWS from 1992. Director, Lincoln Co-operative Society. Industry Group. Director, The Co-operative Bank Associate, Co-operative College. Former National Finance Director from 1993. Chairman, Co-operative Cleaners. and Assistant General Secretary, the Chairman, The Co-operative Union. Deputy Chairman, Shoefayre. Labour Party. Member of the Board, Chairman, Co-operative Production Former Executive Member, Deputy Chair, Co-operative College. Board. Labour Finance and Industry Group. President, Co-operative Congress 1999. Member of the Central Executive of the Non-executive Director, Pensions and Director, Heart of England Training and Co-operative Union. Investment Research Consultancy 1990. Enterprise Council. President, Co-operative Congress 1998. Councillor, Opposition Leader on Finance and Personnel, Westminster City Council, 1986 until 1990. Annex 2 – Terms of reference

The Co-operative Commission’s terms of reference adopted at its first meeting on 29 February 2000

in which they trade and to political Determine the factors which have 1 education. influenced its successes and failures Co-operative enterprises have a including: Introduction distinctive role to play in their – Business strategies. communities and can do this whilst – Ownership and control. We believe that the principles first maintaining high standards in – Scope of its activities. enunciated by the Rochdale Pioneers employment and in their relations – Relationships with members and and subsequently adopted and with stakeholders. customers. periodically updated by the International – Engagement with communities. Co-operative Alliance (ICA) – (see opposite) We also recognise that partly as a – Relevance of its contribution to are an important part of the beliefs of result of modest performance by some consumer issues and political the three wings of the Labour Movement. Co-operatives in recent years, the education. We believe they have a significant and Movement has been under threat Review and make recommendations ongoing contribution to make to the from those who seek to destroy its on the structures for the ownership, future of the Labour Movement as a Co-operative structures and to profit control and management of the whole and to the commercial, political from the liquidation of assets built up Consumer Co-operative Movement and social life of the country. by prior generations of co-operators. for the future. We believe it to be a matter of priority Review and make recommendations We acknowledge that consumer that the Co-operative Movement for a structure that will ensure a Co-operatives are the most established takes measures to ensure its successful substantial and continuing contribution and successful part of the Co-operative continuation to support and build on its by the Co-operative Movement to its Movement in the UK. There is now a contribution to the Labour Movement. wider goals. growing need and desire for that sector Propose a realistic course of action to give active support and encouragement to improve the effectiveness, to the newer, innovative Co-operative 2 performance and contribution to developments in the economy which society of the Co-operative Movement, are assuming a new importance for job Scope with suggested avenues for creation and social inclusion. commercial strategy development. The Commission will have as its aim Involve and, as far as possible, seek We also recognise that the structure and the encouragement of conditions and the agreement of relevant Boards, strategies of the Co-operative Movement changes which will facilitate the management and employees to any must continue to change with the times achievement of the goals set out above. proposal. if it is to apply those principles to the In particular, the Commission will: Involve and inform members of the conditions of the UK in the twenty-first Ensure that consumer co-operation thinking and conditions of the century and to make them meaningful brings its support and experience to Commission. for the Labour Movement in the next bear on the development of the wider century. In particular we believe that: Co-operative sector of the UK Co-operative enterprises must economy. demonstrate their ability to compete Review and measure the success of in the marketplace, by delivering the consumer Co-operative Movement products and services as well as in meeting its commercial and social the public company sector. goals. Co-operative enterprises should continue to make and, indeed, to increase their contribution to consumer rights, to the communities Annex 3 – The ICA statement on the Co-operative identity The Report of the Co-operative Commission 90–91

The ICA statement on the Co-operative identity

Definition 3rd principle 6th principle A Co-operative is an autonomous Member economic participation Co-operation among Co-operatives association of persons united voluntarily Members contribute equitably to, and Co-operatives serve their members to meet their common economic, social democratically control, the capital of their most effectively and strengthen the and cultural needs and aspirations Co-operative. At least part of that capital Co-operative Movement by working through a jointly owned and is usually the common property of the together through local, national, regional, democratically controlled enterprise. Co-operative. Members usually receive and international structures. a limited compensation if any on Values capital subscribed as a condition of 7th principle Co-operatives are based on the values of membership. Members allocate Concern for community self-help, self-responsibility, democracy, surpluses for any or all of the following Co-operatives work for the sustainable equality, equity and solidarity. In the purposes: developing their Co-operative, development of their communities tradition of their founders, Co-operative possibly by setting up reserves, part of through policies approved by their members believe in the ethical values of which at least would be indivisible; members. honesty, openness, social responsibility benefiting members in proportion to their and caring for others. transactions with the Co-operative; and supporting other activities approved by Principles the membership. The Co-operative principles are guidelines by which Co-operatives put 4th principle their values into practice. Autonomy and independence Co-operatives are autonomous, self- 1st principle help organisations controlled by their Voluntary and open membership members. If they enter into agreements Co-operatives are voluntary with other organisations, including organisations, open to all persons able governments, or raise capital from to use their services and willing to accept external sources, they do so on terms the responsibilities of membership, that ensure democratic control by without gender, social, racial, political their members and maintain their or religious discrimination. Co-operative autonomy.

2nd principle 5th principle Democratic member control Education, training and information Co-operatives are democratic Co-operatives provide education and organisations controlled by their training for their members, elected members, who actively participate in representatives, managers and setting their policies and making employees so they can contribute decisions. Men and women serving as effectively to the development of their elected representatives are accountable Co-operatives. They inform the general to the membership. In primary public – particularly young people and Co-operatives members have equal opinion leaders – about the nature and voting rights (one member, one vote), benefits of co-operation. and Co-operatives at other levels are also organised in a democratic manner. Annex 4 – Submissions

Submissions

Co-operative Society submissions MSF (Leeds General) CWS Birkenhead Branch Anglia Regional Co-operative Society The Co-operative Party Lancashire CDA Brixham Co-operative Society Hounslow & Spelthorne Co-operative The Labour Party Channel Islands Co-operative Society Party UpStart Workers Co-operative Chelmsford Star Co-operative Society Waltham Forest Co-operative Party Poptel CIS Reading & District Co-operative Party Social Enterprise London Colchester & East Essex Co-operative Wolverhampton Co-operative Party Durham CDA Society Yorks & Humberside Co-operative Party Two Piers Housing Co-op Co-operative Press Ltd Wansbeck and Berwick Branch East Midlands Co-op Council Co-operative Union Co-operative Party Eastern Region Co-operative Council CWS Board Haringey Branch Co-operative Party Equal Exchange Trading Ltd CWS Regions: Leicester West Co-operative Party Job Ownership Greater Nottingham Co-op CWS Cambridge Regional Co-op National Association of Co-operative North East & Cumbrian Co-op Officials Northern Ireland Co-op Bristol CWS Branch Committee Co-operative Productive Board Scottish Co-op Co-operative Accounting Standards South Midlands Co-op Committee Individual submissions Heart of England Co-operative Society Co-operative Futures Roy & Patricia Stuttard Ilkeston Consumer Co-operative Society Jim Lamb Ipswich & Norwich Co-operative Society CRU Open University Duncan Chew Leeds Co-operative Society CWS Manchester Regional Board Kevin Robertson Lincoln Co-operative Society (Provisional) Jeffrey Boss Lothian Border & Angus Co-operative CWS Members Relations, Doncaster Tony Bodley Society CWS Members Relations, Huddersfield Peter Collier Midlands Co-operative Society CWS Members Relations, Humberside Carmel Keogh Oxford, Swindon & Gloucester CWS Members Relations, Merseyside D Strode-Willis Co-operative Society CWS Members Relations, Barnsley Geraint Day Penrith Co-operative Society Heriot-Watt University Social Enterprise Catherine Tarling Plymouth & South West Co-operative Institute Chris Godbold Society Home Counties Branch Committee John Courtneidge Radstock Co-operative Society Southern Division G Brown Raunds Co-operative Society University of Leicester Glyn Thomas Scotmid Co-operative Society Industrial Common Ownership Finance Ltd/ Ian Mason Sheffield Co-operative Society Industrial Common Ownership Movement Graham Guest Southern Co-operatives Ltd Institute of Chartered Accountants M Powell Tamworth Co-operative Society MCS Party Council Leics Region Edgar Evans The Co-operative Bank Reading Branch Committee Brian Townsend The Woodcraft Folk Communist Party of Britain G Darby UKCC South East Regional Co-operative Council Daryl Barker United Norwest Co-operative Ltd Southampton Area Co-operative G Bober West Midlands Co-operative Society Ltd Development Agency Alan Jackson Building Societies Association Kit Seyd Other submissions CWS Humberside Branch John Walker TUC CWS Barnsley Branch Basil Loveridge USDAW CWS Doncaster Branch RN Franklin UNIFI Trade Union CWS Liverpool Branch Burt Cross The Report of the Co-operative Commission 92–93

MD Mathieson Regional hearings A Coomber In addition to contributions from a number of individual co-operators, the following VA Gander persons gave formal evidence to the Commission at regional hearings: Muriel Gee R Harrington-Vail Oxford Edwin Martin Vivian Woodell – President, Oxford, Swindon and Gloucester Co-operative Society Shaun Fisher Frank Jones – Chair, Bristol Branch CWS Neil Wareham Peter Begley – Director, CWS Kenneth Allchin Stephen Yeo Loughborough Steffan ap Dafydd David Hudson – Vice Chair, South Midland Regional Board, CWS Howard Perrow Simon Butler – CWS Board member Sonya Conwell Stuart Parker – Director, Lincoln Co-operative Society Alan W Judd Stephen Yeo – Chair, Co-operative College Management Board W Gatherer Dorothy Runnicles – Director, Raunds Co-operative Society Doreen Tonkin Bill Eyres Edinburgh Gerald Sandison Graeme Reynolds – CWS Scottish Board Audrey Purr Joe Hill George Conchie Frank Whitelaw – USDAW Alex Gordon VN Bingham Manchester Derek Smyth Robin Stewart – Vice Chair, CWS Board Richard Bickle Kevan Nelson – Unison, North West Region John E Smith Bill Eyres – CWS Manchester Regional Board Jim Craigen Peter Rogan – CWS Manchester Regional Board Hilda & David Smith Brenda Pearson – CWS Regional and MRCs (formerly CRS) Edgar Parnell Len Burch London Rosemary Watts Erskine Holmes – Northern Ireland Co-operative Society Kevin Hogarth Baroness Thornton – Social Enterprise London Joe Perry Malcolm Corbett – Social Enterprise London CJ Richell Russell Porteus – North East and Cumbrian Co-operative Society Barbara Rodgers Bob Harbour – Chair, South East Co-operative Society Ivor Zott Sean Bish – Leeds Co-operative Society Kate Whittle Jean Whitehead – Eastern Region Co-operative Council RA Bunn Ashley Baldwin Acknowledgements Geoffrey Whiteley The Co-operative Commission would like to thank the following people for their E Rattery invaluable assistance during the Commission’s work throughout the year: David Smith Iain Malcolm, Neva Brahmbhatt, Roger Poole, Mike Smith, Phil Wilson, Muriel Jeffs Leslie Butterfield and Michael Lloyd. Johnston Birchell DM Pate T Jolley CH Benda Annex 5 – CWS within the Co-operative Movement

CWS within the Co-operative Movement

Since the merger of CWS and CRS the sector, while its share of the assets of the Note: CWS figures include former CRS. *Travel turnover for CWS new Society (which changed its name Movement is even more significant, given excludes the turnover of the managed service provided by CWS for a number of independent Societies. Latest estimate including to Co-operative Group (CWS) Ltd, in its ownership of The Co-operative Bank managed services and other recent developments takes CWS January 2001) now accounts for more and Co-operative Insurance Society (CIS). share to approximately 53%. than half the turnover of the Co-operative Source: Co-operative Union Co-operative Retail turnover Jan-Oct 2000 (these figures should be used as a guide only)

CWS share of total Movement turnover 2000 (%)

Food Dairy Non food

All other Societies 45.1 CWS 54.9 All other Societies 51.4 CWS 48.6 All other Societies 72.2 CWS 27.8

Funerals Travel* Motor trades

All other Societies 40.3 CWS 59.7 All other Societies 67.7 CWS 32.3 All other Societies 74.6 CWS 25.4 The Report of the Co-operative Commission 94–95

1999 sales – turnover less VAT (£m) 1999 trading surplus (£m) Note: Sales exclude Bank. Net assets include Bank at £264m and CIS at a nominal £0.1m share capital value. Warburg Dillon Reed, for the Commission, considered that, on an adjusted value basis, 5,000 100 CWS/CRS (including the Bank and CIS at estimate market value) accounts for 92% of the total asset value of the Movement. 80 CRS sales and surplus are for year to January 2000. Assets and 4,000 reserves are at transfer, April 2000. Net assets are defined as 60 fixed assets less long-term liabilities.

Sources: All other Societies: Co-operative Union Co-operative 3,000 40 Statistics 1999. CWS: Report and Accounts January 2000.

20 2,000

0 1,000 -20

0 -40 CWS CRS All other Bank CWS CRS All other (continuing Societies (continuing Societies business) business) 1999 net assets (£m) 1999 reserves (£m)

1,500 1,500

1,250 1,250

1,000 1,000

750 750

500 500

250 250

0 0 CWS CRS All other CWS CRS All other (inc Bank) (at April 2000) Societies (inc Bank) (at April 2000) Societies Annex 6 – Counsel’s advice

Advice given by Christopher Nugee QC in conference on 7 July 2000

Counsel had been instructed to advise different duties in different companies and company context, the Courts have generally on the position of Directors of it is relevant to look at the balance of duties suggested that the test under Section Co-operative Societies. The conference taken on by Directors and officers, provided 214 of the Insolvency Act 1986 applies was attended by Ian Snaith, Roger Jones, that balance is reasonable. The case makes generally. On this basis, a Director should Cliff Mills and Kevin Jaquiss of Cobbetts. it clear that: reach the conclusions or take the steps The following note summarises the advice a) A Director is not required to exercise which would be reached or taken “by a given on the issues discussed. a greater degree of skill and judgement reasonably diligent person having both: than his own actual experience. a) The general knowledge, skill and Background b) He need not give the company or experience that may reasonably be 1 There is no legislation setting out the Society his continuous attention and expected of a person carrying out the duties of a Co-operative Director. The need not attend all meetings (though he same functions as are carried out by statute does refer to a Committee of should try to do so). that Director in relation to the company; Management but the only legislation c) Subject to the provisions of the Articles and dealing with the duties of its members (in the case of a company), a Director is b) The general knowledge, skill and is the legislation dealing with fraudulent justified in trusting the officials unless experience that that Director has." or wrongful trading. he has some reason not to do so. 7 It is not possible to rule out a Court 2 This mirrors the position in relation to 4 If, therefore, you have a situation following this line against a lay Director company Directors and there is no logical in which a business is run in effect by of a retail Co-operative Society and distinction to be drawn between the duties managers (as is the case in many retail importing an objective element. However, of a company Director and the duties of a Co-operatives), it is sensible from the point account would have to be taken of the basis Co-operative Director. Both flow from the of view of the Directors to ensure that on which Directors of Co-operatives are basic principle that the property and they are not precluded from delegating appointed and the culture of the organisation. business of a corporate body belongs to the responsibility to officers and/or a Chief This culture involves Directors being company or Society. The Directors who act Executive. Mr. Justice Romer in the City elected for the purpose of exercising for the corporate body are agents acting for Equitable case laid great stress on the democratic control over the organisation. a principal and have the implied duties of Articles of the company determining the In broad terms, a Director might say in agents: extent to which Directors were entitled relation to his appointment “you knew a) A duty of skill and care or competence. to delegate responsibility. It is therefore I was a plumber" but could not say This is a duty to do the job reasonably important to ensure that a Society's “you knew I wasn’t careful". carefully and could be described as a constitution matches the reality of the ‘negligence type’ duty. way in which it is run. 8 The remarks of Lord Justice Scott b) Fiduciary duties flowing from the fact in the Barings case may be relevant. that they are agents who have control 5 The case also makes it clear that a He indicated that, the more senior and of someone else’s property. Any person Director who has special skills must deploy highly paid the executive, the greater in that position attracts a quasi-trustee them. This means that the Directors of a degree of skill and responsibility to be analysis; they are not strictly trustees federal Society who have relevant skill and expected from him. It would appear to but are treated as such and owe all the experience as executives of a corporate follow from this that, in the Co-operative fiduciary duties of loyalty, honesty and member must deploy that skill and context, a high level of skill and good faith. experience on the federal Board. It is not competence is to be expected from open to them to say that some lower highly paid executives and a much lower Duties of skill and competence standard appropriate to a ‘lay Board’ applies. level from non-paid non-executives. 3 There is a clear and detailed exposition in the City Equitable case which confirms 6 The further question is whether any 9 The following principles emerge: that Directors cannot properly be treated as objective test of skill and competence a) A Director of a Co-operative Society trustees because it is not possible to say in applies, particularly in the context of larger cannot be careless, imprudent or general what their duties are. There are retail Co-operative Societies. In the irresponsible. The Report of the Co-operative Commission 96–97

b) He or she must understand the role and to do so. The lay members of the Board of executives. All of this suggests that should be: therefore have to rely on the executives there may be a role for independent i) given a copy of the Rules and told to (although, as has been said, executives non-executive Directors in larger retail read them of corporate members who sit on federal Co-operative Societies. ii) taken through some form of induction Boards might be expected to take their in which his or her attention is drawn to own view). This being the case, it is Fiduciary duties the particular functions of the role. unsatisfactory to have a constitution which 14 All the fiduciary duties which apply to c) It is not acceptable for a Director to does not reflect what is going on on the company Directors will apply to Directors turn up to meetings without reading ground. If any case concerning Directors’ of Co-operative Societies. The phrase used the papers or thinking about them. duties came to Court, the Judge would look by Lord Upjohn in the Boulting v ACTT case, first at the constitution. If the constitution ‘undivided loyalty’ is a good way of 10 The reference to the ‘functions’ carried makes lay Directors responsible for expressing the position. out by a Director in Section 214(4) of the management of the organisation, there is Insolvency Act is a reference to the a risk that the Judge will say that they must 15 An illustration of the principles appears functions of being an agent of a corporate take the consequences of having taken on in the case Charterbridge Corporation v body. It is not possible to say that the a role which they were not capable of Lloyds Bank in which Mr. Justice ‘functions’ of a Co-operative Director differ fulfilling. This risk should not, however, Pennycuick dealt with the duties of the from the ‘functions’ of a company Director. be over stressed; in practice the legal Directors of a subsidiary company who are The Co-operative background is relevant to principles would be drawn from the nominated by the parent. This situation is the skill and competence which the Director facts of the case and the delegation of a persuasive analogy to the situation of may bring to the exercise of those functions. responsibility, provided there is a power Directors of federal Co-operative Societies of delegation in the Rules, would generally nominated or appointed by corporate 11 It is not possible to say, as a matter of exonerate the Directors. members. The principle which emerges general principle, that the level of skill and from the case is that the Directors of the competence to be expected of a Director 13 It is a part of the duty of care of subsidiary cannot sacrifice its interests to varies by reference to the size of the a Director to take advice if a point is the interests of the group. The question is organisation. It is appropriate to consider reached where he or she is no longer able whether an intelligent and honest man this in the context of a proposed sale to deal with the issues which arise in the could have believed that the transaction in of land: Boardroom. There also comes a stage question was for the benefit of the subsidiary. a) The duty to take care to get a proper where, in a business which is not Another way of putting the point is that the price is the same duty however large performing, the Directors have to question Director cannot subordinate the interests of the price may be. the performance of the executives and will the subsidiary to those of the group. b) A Director who is not a valuer is not have to take external advice. There is a required to try to make his own potential lacuna in the normal Co-operative 16 This suggests that a Director appointed assessment of value – he can (and structure in these circumstances arising or nominated by a corporate member of should) take advice from the executive from the absence of skilled and a federal Co-operative Society is strictly and act on that advice unless it is independent non-executive Directors. This limited in the account he or she can take of obviously misconceived (for example might be addressed by some form of ‘health the interests of the corporate member in because it conflicts with advice given check’ service to establish whether the the federal Boardroom. However, it is clear by a professional valuer). system of delegation and monitoring in a from the decision in Harries v Church particular society was effective. Great care Commissioners (dealing with the duties 12 This analysis brings one back to the is required in bringing external professionals of trustees) that there is a balance to be importance of the Rules. A lay Director into the Boardroom. The cost involved struck. In that case, it was decided that the of a large retail Co-operative Society may be difficult to justify in a Society in trustees are under a duty to get a return on cannot deal with the significant questions of financial difficulties and there is a serious investments, but they can have an ethical retail strategy which will arise. Indeed, he or de-stabilising effect in having external policy provided they do not subordinate the she might be in breach of duty if they tried professionals looking over the shoulders need to get a return to that policy. Annex 6 – Counsel’s advice

17 Translating these principles to the business’. The fact that the Act gives an federal Co-operative Society is under Co-operative Movement, the position is Industrial & Provident Society power to a duty (in accordance with the agency that a Director of a Co-operative Society accept a transfer of engagements shows principles previously discussed) to keep is a Director of that Society and not of that a ‘rescue’ of this kind is a proper thing confidential information which he or she the Movement. However, provided he to consider but this does not detract from receives in the Boardroom and not to use or she does not sacrifice, subordinate the need for the Directors to look at the or disclose that information. The duty or ignore the interests of the Society in long term interests of the receiving Society. of ‘undivided loyalty’ requires that the question, he or she can take account Assuming that the Society does not have an information be used only for the benefit of a wider interest. independent object of rescuing Societies in of the federal Society. difficulty (and the position there would be 18 These issues are brought into focus far from clear), it is questionable whether 23 Equally, however, the Director will, on in circumstances where a Co-operative the Directors of a receiving Society could the face of it, be under a duty to disclose to Society proposes to take a transfer of properly embark on a transaction which the corporate member information which engagement of another Society which is would ruin that Society, even if there were he receives which is relevant to the in financial difficulties. It is not legitimate strong reasons in line with Co-operative corporate member’s business. The case of in that situation to say that, because any principles or the interests of the Halifax BS v Stepsley (which dealt with the surplus in either Society goes to the Co-operative Movement for doing so. conflict of interest affecting a solicitor who Co-operative Movement, there is no need acted for a Mortgagor and a Mortgagee and to consider the effect of the transfer on Conflict of interest received information from the Mortgagor the transferee’s business. Difficult questions 20 The case of SCWS v Mayer which was prejudicial to the Mortgagee) might arise if it was a separate object of demonstrates the potential dangers for makes it clear that a person in this a Co-operative Society to rescue other the Directors of a subsidiary company who situation may have conflicting duties of Societies in financial difficulties, but in the are nominated by the parent. In that case, confidentiality and is not absolved from his absence of any such provision the Directors the Directors were found to have acted duty to one party by his duty to the other. of a transferee Society must look at the oppressively towards a minority because transaction and decide what, if any, effect they acted in the interests of SCWS rather 24 This creates a real and significant it has on the Society’s ability to continue than in the interests of the company. problem, to which there are three possible to deliver Co-operative services. However, it is clear from Lord Denning’s solutions: decision in the Boulting case that it is a) The federal Society could authorise 19 This point can be illustrated by acceptable in principle for a Director to be disclosure. In practice, within federal reference to the history of CWS. CWS has a nominee provided he or she does not act Societies, this may be the solution built a large and solid retail business out in accordance with instructions given by which is adopted. However, disclosure of a series of rescues and has to consider the nominating Society. of commercial information to corporate the impact the failure of any members who are represented on Co-operative Society would have on its 21 Specific issues arise from the fact that the Board is unfair to those who are not image. However, CWS is committed to the corporate members of federal represented. Theoretically, the running a ‘successful Co-operative Co-operative Societies who nominate unrepresented Societies could allege business’. This phrase provides a helpful members of the federal Board are in breach of duty unless the position was background when considering the duties competition with each other (there being addressed in the Rules. of Directors of CWS (or any other no agreed common commercial strategy b) The corporate member agrees not to Co-operative Society). In considering for all Societies). be party to any confidential information whether to take a transfer of engagements which its nominee receives as a Director from a Society in difficulty, the Directors 22 One area where a nominee Director on the federal Board. It may be that an must take steps to establish (by reference might have difficulty in this context is that arrangement of this kind is implied with to figures) whether and to what extent the of confidential information. There can be the power in the Rules to nominate. transfer would impact on the Society’s no doubt that a Director nominated by There is, however, a practical difficulty ability to run a ‘successful Co-operative a corporate member on the Board of a about this, in that it may be extremely The Report of the Co-operative Commission 98–99

difficult for a Director who receives must be aware that they are still running the balancing exercise in relation to information on the federal Board to put a business and not a charity. the three elements of a ‘successful that information out of his mind when Co-operative business’ set out above. dealing with an issue on behalf of the 26 Issues arise from the fact that corporate corporate member. members of federal Societies enter into 28 The same broad general principles c) Discussion of issues where there is a contracts with those federal Societies. apply to an employee who serves on conflict of interest could be delegated This means that Co-operative Directors of the Board of the Co-operative Society, to a sub-committee excluding the federal Societies find themselves voting on whether or not the employee is in place as Director affected. contracts with their Society. As a matter of an ‘employee representative’. An employee law, their interest in those contracts ought representative might be under a duty to 25 Issues may arise on the federal to be disclosed to the membership rather articulate the position of employees and it Board where a decision which is in the than to the Board; the common provisions would be entirely legitimate for him or her commercial interests of the federal Society in company Articles permitting disclosure to to make reference to good employment might prejudice the interests of a corporate the Board are a relaxation of the basic rule. practices. There is, however, no specific member. A Director nominated by that It follows that a federal Society which trades Co-operative principle dealing with the corporate member might think it right to with its corporate members should have a rights of employees and an employee vote against the proposal and an issue then provision in its Rules dealing with disclosure representative cannot, in any event, arises as to whether, in so doing, he or she of interest. subordinate the interests of the Society would be in breach of fiduciary duty to the to the interests of employees. federal Society. In approaching a situation 27 Similar but separate questions arise such as this in the context of CWS, the in relation to lay members of the Board 29 The high level of interaction between provision in CWS’s Rules that it is an object of a Co-operative Society who are federal Societies and their corporate of CWS to promote Co-operative principles nominated or elected from a particular members at executive level may on is relevant and can be taken into account. geographical area. Such a Director might occasion place an executive of the federal The culture and history of CWS are also be placed in difficulties, for example, by a Society in the difficult position of being relevant. There might, therefore, be reasons proposal to close stores in his or her area. asked for commercially sensitive why it was inappropriate for CWS to take a The principles which apply are as follows: information by a Director nominated by particular course of action which was a) The Director cannot be mandated by a corporate member. On the face of it, the commercially beneficial but which would be his or her region to vote in a particular Director is entitled to the information as seen outside the Society as high handed or way and must listen to debate in a Director, although the executive would abusive. In that situation, a Director of CWS the Boardroom. be entitled to suggest that the request nominated by a corporate member could b) The Director cannot take into account ought to be made in the Boardroom or legitimately make these points and might in casting his or her vote the effect the to refer it to the Chair. However, even this also vote against the resolution on the basis vote would have on his or her ability puts the executive in a difficult position that the proposal ran contrary to CWS’s to be re-elected. and federal Societies should set up systems commitment to be a successful c) It is, however, entirely appropriate and channels of communication in advance Co-operative business. However, it would for the Director to articulate and to avoid it happening. The key is that the not be legitimate to vote against a proposal pass on concerns expressed in the people involved should be sensitive to the if this would materially prejudice CWS’s region; that is the proper function issues and understand the systems and ability to meet the other two elements of of a Director in this position and he their purpose. its corporate aim. CWS’s power to trade or she should express his or her has to be used within its original purposes, own experience and the views of which include its history and culture, so members in the region. that it would be inappropriate for CWS to d) In making a decision, the Director can trample on other Co-operative Societies. take into account any commitment of To that extent, there is a distinction from the the federal Society to the Co-operative position of a company but the Directors Movement, but should still carry out Annex 7 – The Co-operative Independent Commission 1958

The Co-operative Independent Commission 1958

The present Report is not the first report The majority report comprised 51 the Commission assumed, without of a Co-operative Commission, as that recommendations, many of which refer spelling it out, that the dividend was honour belonged to the Co-operative to issues and debates long forgotten. a sine qua non of a Co-operative. Independent Commission, which Recommendation 13, for example, However, recognising that Societies reported in 1958. Set up by resolution proposed the clearly radical idea that were increasingly paying out dividend at the Edinburgh Co-operative Congress “the Movement should be more willing which they should have retained, it of 1955, it was chaired by Hugh Gaitskell, than it has been in the past to recruit from recommended that Societies should and had Tony Crosland as secretary. Grammar Schools and Universities". stabilise dividend at a level “high enough The other members of the Commission, Similarly the idea that “the ideal number to act as an effective inducement to all selected as “suitable persons not of societies is in the region of 200 – 300" trade, but not so high that it cannot be engaged in Co-operative management (Recommendation 18) has long been maintained for a period of years ahead; or administration”, were Miss Margaret overtaken by events. and they should allocate the remaining Digby, Professor D T Jack, Dr J B Jefferys, surplus, and any increases in the surplus, Lady Hall, Colonel S G L Hardie, However, there is much in the Report that to reserve" (Recommendation 3). Mr. J T Murray and Alderman F Pette. was ahead of its time and is still in many ways relevant. The Commission was clear In looking at the financial performance The background to the Commission was about the respective roles of Boards, of the Movement, the Commission the rapid changes which were taking and of Management. “Boards should was again ahead of its time in terms place in retailing following, amongst concentrate on major policy and ultimate of introducing return on capital as the other things, the end of rationing and supervision, leaving the detailed crucial measure, and recommending the start of self-service. The Co-op was management to the paid officials" that “investment decisions should be losing market share – but still had (Recommendation 10), and “all societies taken on the basis of a comparison 30,000 shops and 250 factories. There ... should, if necessary with the help of relative rates of return on capital" were two separate Wholesale Societies, of outside business consultants or (Recommendation 29). Even more one for England & Wales and one for the Co-operative Union, create a clear significantly, it recommended that Scotland – and there were 967 Retail management structure, with unambiguous “the greater proportion of Co-operative Societies, of which 166 operated only job specification and an explicit chain capital expenditure in the next few years one shop, while 650 had fewer than ten. of command" (Recommendation 12). should take place, not in the production, Those Societies were together paying but in the retail field" (Recommendation dividends to customer members in excess This theme was further expanded 27). In part flowing from this, the of £40m per year – but this was often at on with regard to CWS, where the key Commission recommended that a the expense of retained income, and there recommendation (Recommendation 37) “Co-operative Retail Development were major concerns about the ability of was that the then full-time elected Board Society should be set up, to plan and the Co-op to fund its future development. should become part-time, and “confine operate national chains of specialist itself to supervising and sanctioning shops" (Recommendation 45), involving Following 35 meetings spread over major policy, and altogether eschew “the surrender of the notion that a local almost three years, a range of visits, and interference in detailed management". Society can claim a permanent monopoly formal and informal consultations, the of Co-operative trade in its own area". Commission produced its report which, The Commission had much to say on unfortunately, also contained a Minority the subject of dividend and price policy, Finally, recognising that the Movement Report from Colonel Hardie, dissenting arguing that the Movement should “sell was likely to be faced with on-going from the main findings, by recommending at market prices and treat dividend as change, it recommended “that the the establishment of a single national a residual" (Recommendation 1) that is, Movement should formally examine Society for England & Wales (plus one for it should aim to match local competition, both major constitutional issues, and Scotland) combining retail, wholesaling and not expect the dividend to compensate also its basic trading policies, at least and manufacturing interests. for high prices. Concerning the dividend, once a decade" (Recommendation 51). The Report of the Co-operative Commission 100–101

What happened next? least once a decade went unheeded Regrettably, not a lot. The idea of thereafter, and with some notable a Retail Development Society led to exceptions, the Commission the establishment of Shoefayre, but little recommendations were ignored, else happened immediately. In 1964, or brought about by force of though, the Board of CWS grasped the circumstances, rather than freely nettle and set up a Joint Reorganisation adopted. Committee under Sir Leonard Cooke, which reported in August 1965. This The lessons are obvious! report (the JRC Report) led rapidly to the replacement of the then full-time CWS Board with an elected part-time Board, and brought in professional management, in a structure which has broadly lasted until today.

This led in turn in the late 1960s, to a programme of tackling declining market share, the old fashioned image, and inadequate shops with the launch of the Co-op logo, the first national TV advertising campaign, and Operation Facelift, a national refurbishment programme.

At the same time, the Co-operative Union published, in November 1967, a Regional Plan, aimed at reducing the tally of Societies from 467 (there having been a large number of failures and forced mergers in the meantime) to a more realistic 50. Its report, almost ten years after the Independent Commission, said: “If the serious warnings of the Independent Commission had been heeded, the Movement would be in far better shape to withstand the impact of new problems which have developed".

The activities of the late 60s and early 70s led to a halt in the decline – even briefly in the mid 70s a period when the Movement was showing growth again. But the Independent Commission’s call for a formal re-examination of the constitution and trading policies at Annex 8 – Co-operative milestones Fenwick Weavers Rochdale Pioneers I&P Act CWS established CIS established Co-operative Union established Co-operative News published Co-operative Bank established CWS manufacturing commenced Co-operative Productive Federation Co-operative Guild Women's International Co-operative Alliance 1,439 Co-operative Societies boycott PATA 1,385 Co-operative Societies Profits Tax Co-operative Party established Co-operative College established CWS retail established Ten-year plan introduced First Self-Service Shop opened National Co-operative Chemists 30,000 Co-operative retail shops Independent Co-operative Commission Society Footwear established Co-operative off-licences Restrictive Trade Practices Act Co-operative Stamps introduced Co-operative principles revised

1769 1844 1862 1863 1867 1870 1871 1872 1873 1882 1883 1895 1900 1906 1914 1916 1918 1919 1934 1935 1942 1945 1955 1956 1959 1961 1964 1965 1966

Co-operative milestones

The following are some of the key events that have significantly contributed towards shaping the Co-operative Movement we have in the UK today:

1769 Fenwick Weavers Co-operative Society established and in the subsequent years many other Co-operatives were formed with varying degrees of success. 1844 Rochdale Pioneers Society established, starting a period of phenomenal Co-operative growth. Based on their eight ‘Rochdale rules’, including distributing a share of profits according to purchases that came to be known as ‘the divi’. 1862 Industrial and Provident Societies Acts (I & P Act) for the first time gave Co-operatives corporate status providing a proper legal framework for Co-operatives. The first I & P Act had been enacted in 1843. 1863 Co-operative Wholesale Society (CWS) established originally called the North of England Co-operative Wholesale Industrial and Provident Society Limited; the Scottish CWS followed in 1868. 1867 Co-operative Insurance Society (CIS) established. 1870 Co-operative Union established (initially known as the Co-operative Central Board) as an outcome from the first national Co-operative Congress, held in 1869. 1871 Co-operative News first published. 1872 The Co-operative Bank established, initially as the CWS Loan and Deposit Department, registered as separate wholly- owned subsidiary of CWS in 1971. 1873 CWS entered manufacturing and later became substantially involved in importing, ship owning and in many overseas ventures, including joint CWS/SCWS tea estates. 1882 The Co-operative Productive Federation established bringing together producer owned (workers’) Co-operatives – now a committee of the Co-operative Union. 1883 Co-operative Women’s Guild established. 1895 International Co-operative Alliance (ICA) established and held the first international congress in London. 1900 A total 1,439 Co-operative Societies now registered. 1906 ‘Abortive boycott’ on the supply of branded goods to Co-operatives imposed by the Proprietary Articles Trade Association, to prevent Co-operatives paying ‘divi’ on such goods. Calls for a national Society to encompass all consumer Co-operatives by the President of Co-operative Congress, JC Gray. 1914 The number of consumer Co-operatives was 1,385, the process of amalgamation had started that has continued to this day; by the year 2000 the number of Societies had fallen to a total of 45. 1916 Profits Tax applied to Co-operatives for the first time, resulting in CWS paying £1 million in tax for the year. 1918 Co-operative Party established, as a Department of the Co-operative Union, leading to direct Parliamentary and local government representation under an electoral agreement with the Labour Party. 1919 Co-operative College established, first based in Manchester and in 1945 relocated to its current site at Stanford Hall, Loughborough. 1934 CWS retail established, becoming Co-operative Retail Services (CRS) in 1957, with the purpose of opening shops in ‘Co-operative deserts’ and taking over failing retail Societies. 1935 Ten-Year Plan for Co-operative development introduced, which was intended to encourage Co-operatives to expand into areas not yet served by Co-operatives. 1942 First Self-Service Shop opened by the London Co-operative Society. By 1950, 90 per cent of all the self-service stores in the UK were operated by Co-operatives. 1945 National Co-operative Chemists (NCC) established becoming the first national chain of Co-operatively-owned retail outlets. 1955 British Co-operatives operating 30,000 retail shops reaching their peak in terms of market penetration; having market shares for food of 20 per cent and 12 per cent of non-food; and with 13 million people reported to be in membership. 1956 Independent Co-operative Commission set up, initially only to consider Co-operative production, but widened to include retailing, which came to be known as the ‘Gaitskell Commission’; publishing its report in 1958. 1959 Society Footwear (renamed ‘Shoefayre’ in 1964) established in a bid to form new national chains of non-food shops. 1961 Co-operatives operate their first ‘off-licences’, hitherto having maintained the abstinence policies of the founding fathers. 1964 The abolition of resale price maintenance as a result of the introduction of the Restrictive Trades Practices Act, heralding intensive price competition in UK retailing. The Report of the Co-operative Commission 102–103 set up Regional amalgamation plan Co-op logo launched Millom Co-operative Society Dividend Stamps introduced ICOM Scottish CWS merged with CWS Second regional amalgamation plan CDA established Co-op Great Britain proposed to CRS LCS Hunting prohibited on CWS farmland 25 Societies resolution RACS to CWS ICD formed NECS to CWS UKCC established Collapse of Norco Report on Corporate Governance CWS manufacturing sold to Hobsons CRTG established by CWS Co-operative Identity Statement CWS Dividend Card pilot affair Lanica CWS Dividend Card roll-out Co-operative Commission established CWS/CRS merger CWS Responsible Retailer Campaign smile Philip Thomas appointed CE of CWS Ban on South African goods

1968 1969 1971 1973 1974 1978 1979 1981 1982 1985 1987 1990 1991 1993 1994 1995 1997 1998 1999 2000

1965 Dividend Stamps introduced as an alternative to the traditional methods of paying the ‘divi’, and as a response to the adoption of trading stamps by other food retailers; individual Societies operated their own stamp schemes. CWS launched the national Dividend Stamp scheme in 1969. Publication of the Joint Reorganisation Committee Report. CWS full-time elected Directors discontinued (a practice which dated from 1906). 1966 Co-operative principles revised by the International Co-operative Alliance (ICA), with a view to making them more relevant to a wider variety of fast-growing Co-operatives throughout the world. A Regional Plan, promoted by the Co-operative Union, called for the amalgamation of the then existing 680 Societies into 55 regional Societies. CWS appointed its first ‘outsider’ Chief Executive, Philip Thomas, who was killed in a plane crash less than two years later, before the completion of the programme of radical change he introduced. 1968 Operation ‘Facelift’ launched and the first national ‘Co-op logo’ was introduced. 1969 The failure of the Millom Co-operative Society highlighted in the BBC TV ‘Nationwide’ programme, creating apprehension in the minds of Co-operative members throughout the UK as to the safety of their investments in Societies. Dividend Stamps scheme introduced. 1971 The Industrial Common Ownership Movement (ICOM) established, becoming the central organisation for the ‘new wave’ of worker Co-operatives. 1973 Scottish CWS merged with CWS, following difficulties with the SCWS Bank; CWS now became directly involved in retailing. 1974 A second regional plan launched, which called for the amalgamation of the then existing 260 Societies into 26 regional Societies. 1978 National Co-operative Development Agency (CDA) established by government, mainly promoting worker Co-operatives; it was wound up in 1989. 1979 Co-operative Congress President, J H Perrow, calls for the formation of ‘Co-op Great Britain’. 1981 London Co-operative Society transferred to CRS. Hunting with hounds prohibited on CWS farmland (not fishing or shooting). 1982 Co-operative Congress resolves to reduce the number of Societies to 25. 1985 Royal Arsenal Co-operative Society transfers to CWS. Ban on South African goods (lifted 1992). 1987 Institute of Co-operative Directors (ICD) formed. 1990 North Eastern Co-operative Society transferred operations to CWS, on the basis of new management arrangements. 1991 United Kingdom Co-operative Council (UKCC) established, for the first time providing a single body representing all forms of co-operation in the UK. 1993 Report on Corporate Governance launched, leading to a ‘code of best practice’ for the conduct of the affairs of Co-operatives, issued in 1995. Collapse of Aberdeen Northern Co-operative Society (NORCO). 1994 Sale of CWS food factories to Hobsons. Co-operative Retail Trading Group (CRTG), joint purchasing group, established by CWS. The 150th Co-operative Congress called for a single UK Society by the year 2000. 1995 New Co-operative Identity Statement adopted by the ICA Centenary Congress, held in Manchester. CWS Responsible Retailer Campaign launched. CWS commences Dividend Card pilot. 1997 The ‘Lanica’ affair. Efforts to take over CWS by city businessman repelled. 1998 CWS rolls out Dividend Card nationally. 1999 Co-operative Bank sets up smile, the Internet bank. 2000 Co-operative Commission established. CWS/CRS merger finalised.

For a detailed listing of UK Co-operative historical events visit the following web site: http://www.co-op.ac.uk/cch/resources/history/timeline.htm With thanks to Edgar Parnell. Glossary of terms

Glossary of terms

ATM Automated Teller Machine. Board The Board of Directors. BOGOF Buy one get one free. Central Executive The Board of the Co-operative Union. CEO Chief Executive Officer. CIS Co-operative Insurance Society. Communicating Mutuality A policy development and campaigning body set up by the Co-operative Party as a secondary Co-operative. Community dividend That part of the surplus spent supporting local community activities. Co-operative Congress Annual gathering of UK co-operators (includes AGM of the Co-operative Union). Co-operative Party Political wing of the UK Co-operative Movement. Co-operative Press Publishers of Co-operative News, the official newspaper of the UK Co-operative Movement (weekly paper). Co-operative Group (CWS) Ltd The new name for the merged CWS and CRS. Co-operative Union The representative body of the consumer Co-operative Movement in the UK. CRS Co-operative Retail Services, now merged with CWS to form Co-operative Group (CWS) Ltd. CRTG Co-operative Retail Trading Group. A food buying and marketing group operated by CWS on behalf of itself and the majority of Co-operatives. CWS Co-operative Wholesale Society Ltd. Now Co-operative Group (CWS) Ltd. Director A member who has been elected to serve on the Board of a Co-operative Society. Financial Controller Head of Finance. ICOM Industrial Common Ownership Movement. IGD Institute of Grocery Distribution. Individual dividend That part of the surplus paid to members. ISA Individual Savings Account. KCPI Key Commercial Performance Indicator. KSPI Key Social Performance Indicator. Management Executive (or Executive Management team) The top management team (not normally Directors). Member A person who holds a share in a Co-operative Society. Member Relations Officers (MROs) Employees who interface most closely with members. Membership records List of members. RCC Regional Co-operative Council. RDA Regional Development Agency. ROCE Return on capital employed. Rules The rules approved by the members and registered with the Registrar of Friendly Societies. UKCC United Kingdom Co-operative Council. ©The Co-operative Commission Designed and produced by Fishburn Hedges Photography by Emmerichwebb Typeset by New Leaf Printed by Royle Corporate Print on paper made from chlorine-free bleached pulp and awarded the Nordic Swan environmental label the co-operative

the co advantage - operative advantage Creating a successful family of Co-operative businesses The Report of the Co-operative Commission January January 2001 The Report of the Co-operative Commission

The Report of the Co-operative Commission January 2001

January 2001 www.co-opcommission.org.uk