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 / Summer 2006 / Issue 43(originally published by Booz & Company)


A Cooperative Solution

Since the late 1990s, cooperatives have been experimenting with building more global reach. Growth — on both national and international scales — is the key for production cooperatives (such as dairy co-ops) because they need to increase their production as well as the scale of their logistics operations to compete with major industry players. Growth is also a major challenge for service cooperatives that have to play an increasingly difficult market-share game against leading professional companies. One alliance, Coop Europe, has been deliberately set up to encourage co-ops to join forces to negotiate with manufacturers, provide services, defend product quality, and provide an alternative to global chains such as Wal-Mart and Carrefour.

Success, in Europe or elsewhere, is not assured. Cooperatives have faltered at times. This happened most recently in the 1990s with Great Britain’s famous “building societies,” cooperative banks that had pioneered low-interest mortgages for their working-class members. In a series of publicly criticized moves, the boards of some major cooperatives rewrote the governance rules to make directors less accountable, sold the companies to more conventional businesses (for example, Lloyds Bank took over the Cheltenham & Gloucester Building Society), and allowed a few directors to pocket disproportionately large gains. Observers concluded that cooperatives, like many idealistic experiments, would simply not stand up against conventional business practice; they would need special legal protections to survive.

But the examples of Rabobank, the COOP group, the REWE Group, Migros, and many others show that special protections generally aren’t necessary. To be sure, the social benefits of cooperatives — such as their ability to help counter a stagnating labor market — provide a rationale for political support. But if cooperatives are being held back legally within Europe, it’s by a barrier that applies to all types of companies in the European Union: the restrictions that still make it difficult for businesses to transcend national boundaries.

Recently, the Commission of the European Communities passed a Statute for a European Cooperative Society (SCE), which will take effect this year. This SCE will, in the commission’s own words, “allow cooperatives to operate throughout the EU with a single legal personality and set of rules, in the same way as a Statute for a European Company (SE) will do for public companies limited by shares.” The resulting legal framework should prove instrumental in allowing cooperatives to operate freely across Europe, and to compete more effectively with other multinational enterprises.

Consensual Competitiveness
How well can cooperatives compete with fiercely entrepreneurial companies emerging in a globalizing world? That depends on how well the distinctive qualities of cooperative management succeed in the future. To many observers, cooperatives appear to be burdened with features that are liabilities in conventional business models. But cooperative leaders have learned, over the years, how to translate them into assets. For instance:

• Consensual decision making. Cooperatives typically cannot move without taking the time and effort to bring all participants to the table. As Arie de Geus says, “This involves more brains and more time up front — and therefore would seem to take an awful lot longer. But everybody who has worked with this system will tell you that the gain made in the implementation, both in speed and quality, outweighs by far the decisions made in conventional companies.”

Bert Heemskerk has found the same to be true during his tenure as chief executive at Rabobank. “Each time, you have to make your proposition extremely clear. You have to show that it fits Rabo’s mission and identity. But once you convince the members, the commitment you get is so strong, implementation is much quicker, and the solutions are better received in the market,” he says. Mr. Heemskerk also agrees that he gets better and more varied input than he would get at a traditional corporation; on top of that, the process of clarification forces the central organization to be sharper and more self-critical in the proposals it makes. Rabobank’s zeal about this process is proven by the fact that it is seeking to expand its membership even further.

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  1. George Cheney, Values at Work: Employee Participation Meets Market Pressure at Mondragon (Cornell University Press, 2002): In-depth sociological study of this famous long-term co-op, its Basque and Catholic cultural roots, and its adaptation to the global economy.
  2. Commission of the European Communities, On the Promotion of Co-operative Societies in Europe, February 23, 2004: European Union policy proposal supporting cooperatives; source of statistics for this article, with many links to background sources. Click here.
  3. Cole R. Gustafson, “Rabobank’s Offer to Purchase Farm Credit Services of America — A Case Study,” Department of Agribusiness and Applied Economics, North Dakota State University, December 2004: Fascinating case of the paradoxes of globalization as Rabobank attempts to expand in the U.S. Click here.
  4. International Cooperative Alliance Web site, The world’s most established co-op group, with 222 member organizations in 90 countries.
  5. Japanese Consumers’ Co-operative Union Web site: Comprehensive site for Japan’s co-ops. Click here.
  6. Rabobank Web sites:  Overview, with a link to its financial rating reports (Click here.), and succinct history from its American member company (Click here.).
  7. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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