The ethical alternative: co-operative values and principles

This topic introduces the co-operative model of enterprise by explaining

the internationally recognised values and principles that underpin it.

These values and principles are integral to the identity of co-operatives

and provide them with an inherent advantage over other forms of

business organisation.

Democratic Enterprise

Learning Goals

• evaluate the relevance of the co-operative

values and principles to business and society in

the twenty-first century;

• analyse the effect of the principles on the

operation of co-operative enterprises;

• discuss the concept of a co-operative

advantage and ways in which it can be utilised.

Key Arguments

• The co-operative values and principles are as relevant to

business and society in the twenty-first century as they

were when they were first devised over 150 years ago.

• The values and principles can be used to distinguish co-

operative businesses from other models of enterprise.

• The co-operative advantage provides the potential for co-

operatives to sustain a competitive edge over traditional

forms of enterprise.

Introduction

A co-operative is a business. It resembles any other business in the

sense that it trades in the market and utilises the factors of

production (land, labour, and capital) in order to produce a good or

service. What makes the co-operative business model unique? To

the casual observer, there may seem to be little difference between

a co-operative food retailer and an investor-owned food retailer. This

is because both retailers will have very similar operations,

processes, stock, supply chains, and pricing. Co-operatives

differentiate themselves primarily through their values and

principles.

Definition of a co-operative

The International Co-operative Alliance (ICA) defines a co-operative

as:

an autonomous association of persons united voluntarily to meet their common

economic, social, and cultural needs and aspirations through a jointly-owned and

democratically-controlled enterprise.

http://www.ica.coop/coop/principles.html

There are other definitions of what constitutes a co-operative. The following definition

is generally adopted for co-operative research or study in the US: ‘a cooperative is a

user-owned, user-controlled business that distributes benefits on the basis of use.’

Values (1)

What are values?

principles or standards of behaviour;

one's judgement of what is important in

life.

Oxford English Dictionary

Values (2)

Co-operative values:

• self-help

• self-responsibility

• democracy

• equality

• equity

• Solidarity

In the tradition of the earliest co-

operative founders, co-operative

members today believe in the

practices of :

• honesty

• openness

• social responsibility

• caring for others

Values (3)

Co-operatives are not unique business models

because they have values (most companies

do – even oil companies!).

It is the manner in which co-operatives put

their values into practice that distinguishes

them; they do this through their principles.

Principles (1)

What is a principle?

a fundamental truth or proposition that

serves as the foundation for a system of

belief or behaviour

Oxford English Dictionary

Principles (2)

Co-operatives are guided by the following principles:

1. voluntary and open membership

2. democratic member control

3. member economic participation

4. autonomy and independence

5. education, training, and information

6. co-operation among co-operatives

7. concern for community

1. Voluntary and open membership

Co-operatives are voluntary organisations. They are open to

all persons who wish to use the co-operative’s services and

who are willing to accept the responsibilities of becoming a

member. Of critical importance, membership is non-

discriminatory in respect to age, gender, social background,

race and ethnicity, political and religious beliefs. In addition,

membership of the co-operative should not be influenced or

restricted by external entities such as the government or

state laws.

Membership is obviously restricted in some ways however e.g.

there must be a job available for someone to become a

member of a worker co-operative.

2. Democratic member control

Co-operatives are democratic organisations controlled by their

members. This means that people who join should actively

participate in setting the co-operative’s policies and making

decisions. Individuals serving as elected representatives are

accountable to the membership. In ‘primary co-operatives’

members have equal voting rights; in other words, ‘one

member, one vote’. ‘Secondary co-operatives’, which are

federations made up of several co-operatives, are also

organised in a democratic manner.

3. Economic member participation (1)

Members contribute equitably to the capital of their co-

operative over which they exert democratic control. Part

of that capital is usually the common property of the co-

operative. Capital in a co-operative is an instrument. By

that we mean that capital is necessary for the successful

operation of the business but it is not the driving force

behind the enterprise. Capital is a means to an end – to

provide benefits to members – rather than an end in itself.

3. Economic member participation (2)

The principle of member economic participation also

helps to determine how profit (known as surplus) in a

co-operative is treated.

Members are entitled to a share of the surplus

generated by the co-operative; the amount a member

receives is based on the amount of the trade he/she

conducts with the business in a particular year.

4. Autonomy and independence

Co-operatives are autonomous, self-help organisations

controlled by their members. If they enter in to

agreements with other organisations, including

governments, or raise capital from external sources, they

do so on terms that ensure democratic control by their

members and maintain their co-operative autonomy.

This principle helps to protect the member-based

ownership structure of co-operatives.

5. Education, training, and information

Co-operatives provide education and training for their members,

elected representatives, managers, and employees so they can

contribute effectively to the development of their co-operatives.

They inform the general public – particularly young people and

opinion leaders – about the nature and benefits of co-operation.

Education of the three main stakeholders in a co-operative (the

members, the public, and employees) is crucial to ensure the

sustainability and long-term success of the co-operative.

J. Voorhis, A New Look at Principles and Practices of Cooperatives

(Washington: Cooperative League of the U.S.A, 1966), p. 11.

Q. Is this principle unique to co-operatives?

6. Co-operation among co-operatives

Co-operatives serve their members most effectively, and

strengthen the co-operative movement, by working together

through local, regional, national, and international structures.

Two ways of co-operating:

• form secondary co-operatives (‘co-ops of co-ops’) – e.g. ICA,

Co-operatives UK, Crédit Agricole.

• individual co-operatives sharing resources, expertise, and

risk.

7. Concern for community

Co-operatives work for the sustainable development of their

communities through policies approved by their members.

Early co-operatives were set up with the purpose of creating self-

sustaining communities based on commonly owned land and

the principles of co-operation.

Example: The Co-operative Group runs the community

development fund, Green Schools Revolution, and the

Enterprise Hub.

http://www.co-operative.coop/join-the-revolution/

Principles in practice

The ICA principles do not apply to all co-operatives in every business

situation, but they do serve as a crucial guide. For example, housing co-

operatives cannot feasibly have an open membership policy since they

have a limited amount of housing stock.

There is a much simpler way of distinguishing co-ops from other businesses

by asking three key questions:

• Who owns from the business?

• Who controls the business?

• Who benefits from the activities of the business?

If the answer to all three questions is the members then it is a co-

operative.

The co-operative advantage

What advantage has a co-op over other forms of enterprise?

A competitive advantage can be created by providing added

value to customers, something more than what can be

offered by your competitors, coupled with the

harmonisation of each process or function in a company

to achieve its objectives.

P. Ghemawat and J. W. Rivkin, ‘Creating Competitive

Advantage’ Harvard Business Review, 1998.

The co-operative advantage (2)

Ownership Structure

Member needs Business operations

Co-operative values

Member benefits and profitability

Co-operative Advantage

The co-operative advantage (3)

Optimising the co-operative advantage involves:

1. Defining it – ask the members what the want.

2. Delivering it – embed the co-op difference in your

business activities.

3. Measuring it - track the benefits the co-operative delivers

to its members, customers, employees, local community,

and stakeholders; more than financial reporting e.g.

http://www.scotmid.com/sr.php.

4. Communicating it – tell everyone who needs to know!

Summary

• Co-operatives and investor-owned businesses may share some

values in common but it is the manner in which values are put

into practice that makes co-operatives different.

• Co-operatives distinguish themselves from other forms of

enterprises through their principles.

• The co-operative values and principles serve as a guide rather

than strict rules for how these enterprises should act.

• The ‘co-operative advantage’ is crucial to the competitiveness of

co-operative enterprises in the market.

Resources and Support

The International Co-operative Alliance

http://www.ica.coop/al-ica/.

The Fairtrade Foundation http://www.fairtrade.org.uk/.

The Co-operative – Good with Money

http://www.goodwithmoney.co.uk/good-with-money/.

Business in the Community http://www.bitc.org.uk/.

The Plunkett Foundation http://www.plunkett.co.uk/.

The Equality Trust http://www.equalitytrust.org.uk/.

References and Reading

Birchall, J. ‘The Co-operative Values and Principles: A Commentary’ Journal of Co-operative

Studies 30 (1997): 42–69.

International Co-operative Alliance (ICA). ‘Statement on the Co-operative Identity’.

http://www.ica.coop/coop/principles.html.

Maxwell, W. A History of Co-operation in Scotland. Glasgow: Scottish Section of the Co-

operative Union, 1910.

Nilsson, J. ‘The Nature of Cooperative Values and Principles: Transaction Cost theoretical

Explanations’ Annals of Public and Cooperative Economics 67 (1996): 633–53.

Voorhis, J. A New Look at Principles and Practices of Cooperatives. Washington: Cooperative

League of the USA, 1966.

Webb, T., L. Benander, L. Cirillo, and C. Lagier. Making the Most of Our Cooperative

Advantage. Greenfield: Cooperative Life, 2006.