As companies lean into stakeholder capitalism, Mike Mercer urges cooperators to consider what stakeholder cooperativism could look like. This week’s Principle 6 Newsletter is a call to claim ownership of the original business model designed to elevate customers, suppliers, workers and community members.
“Democratically structured business enterprises like co-ops can lead the way toward better inclusivity,” Mercer writes. “In fact, the elevation of fairness and inclusivity could be the greatest stakeholder distinction opportunity available to co-ops. There is much work to do but the day should come when co-ops can demonstrate a tangible commitment to society as the standard-bearers for economic inclusivity.
While you’re thinking about stakeholder cooperativism, take a moment to consider how “cooperation among cooperatives” could cement the co-op community’s leadership in this area. NCBA CLUSA is on a mission to document Principle 6 collaborations across the country so we can identify trends, document best practices and share this knowledge with you—our fellow cooperators!
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Principle 6 Newsletter – Stakeholder Cooperativism
February 9, 2022
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
– Excerpt, “Statement on the Purpose of a Corporation,” Business Roundtable signatories, 8-19-19
The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company. – 2020 Davos Manifesto, World Economic Forum website, 2-5-22
The movement for a democratic economy is a different kind of revolution. It relies on the momentum of activists, grassroots leaders, and progressive politicians, but it also involves unlikely allies like…foundation leaders, as well as impact investors and progressive business leaders: innovators who are stewards of wealth. Also involved are mayors and governors, economic development leaders, and nonprofit directors. It’s an unlikely stew of talent and fire and boldness. – Kelly and Howard, “The Making of a Democratic Economy,” 2019
Like Stephen Stills said, “There’s something happening here, what it is ain’t exactly clear…”
In 1970, Milton Friedman wrote a much-quoted article in Forbes that essentially said that the duty of a corporation (and its board and management) was singularly to its shareholders. In retrospect, five decades later and—according to some—one decade from climate catastrophe, Friedman’s opinions are regarded to have laid the groundwork for a long run of extractive capitalism, where workers, communities and natural resources are but factors of production. Now, shrouded in pronouncements from the likes of the Business Roundtable and the Davos World Economic Forum, the corporation is said to have responsibilities for other stakeholders, beyond shareholders.
In the shadows of these modern-day corporate epiphanies, cooperatives, worker-owned businesses (ESOPs), B-corps, foundations, civic organizations and other “non-extractive” entities are starting to realize that they are in vogue with the times. They can all claim ownership structures that are designed to elevate attention to the common good. What the world’s largest corporations are professing to be is essentially what co-ops and others have long considered as their modus operandi. While cynicism toward the legitimacy of kinder and gentler stock corporations grows, a fundamental question should emerge among cooperative business organization: If “stakeholder capitalism” turns out to be a hollow promise (many think it will), would a critical review of “stakeholder cooperativism” stand up to the test?
If “stakeholder capitalism” turns out to be a hollow promise (many think it will), would a critical review of “stakeholder cooperativism” stand up to the test?
Let’s pretend to be cynical about the idea of stakeholder cooperativism for a moment. We might think, “OK—the big corporations are a tad greedy when it comes to chasing profits and accumulating wealth, but a bunch of that flows into our 401K plans, right? It’s long been said that free market capitalism is what makes this country great, creating wealth and jobs along the way. The standard of living could be better, but it’s near the top of the food chain. A little wealth concentration, underemployment and political power is a small price to pay for all the progress. The corporate chieftains know that they might have pushed things a little too far, but they made a promise to pay more attention to employees, customers, suppliers and their communities—and even published it in the WSJ and NYT. And the big co-ops are running just like the big corporations, growing as fast as they can and making as much money as competition will let them. Capitalists in co-op clothing. Stakeholder cooperativism is bunk. Cooperativism isn’t even a word.”
Cynics never build anything. Let’s move on…
In many ways, co-ops are the purest form of democratically-owned business enterprises. One vote per member, solid liturgical foundation (values and principles) and no disinterested owners. That puts members solidly at the top of the stakeholder hierarchy. Nowhere is this more evident than in the early days of new co-op formation. “By the members and for the members” is the common refrain. Even in the mission statements of long-established co-ops, there is often prominent reference to the well-being of members.
But ask the members if they feel like special stakeholders. In many cases they will sing the praises of their co-op, returning loyalty with their patronage of the products/services being offered. But, too often, one will hear things like, “yeah, I do my banking at the credit union, they’re OK” or “I get my electricity from the power company and it ain’t cheap!” At some co-ops, members are essentially regarded as customers—arranged in data analytics as profit centers. From there it is a slippery slope to the “customers-as-factors-of-production” criticism leveled at the big corporations.
Member-centricity is a significant competitive advantage. There are countless examples of member-centric co-ops producing the best growth and profitability results. The same applies in any form of enterprise structure. Focus on those being served, execute well and project helpfulness—good results usually follow. Putting members at the top of the stakeholder hierarchy does not require the exercise of pure democracy. All successful co-ops are structured as representative democracies, members elect a board and the board hires management. But the culture must embrace the notion that being a member is a higher plane of existence than just being a customer.
All successful co-ops are structured as representative democracies.
Key to achieving any co-op mission is a well-trained and highly motivated group of employees. Attention to their well-being is critical in the stakeholder hierarchy. Living wages, good benefits, routine training and intentional mentorship are just a few of the ingredients that help employees view the co-op as their avocation, something more than just a job. There is ownership in avocation. There is dignity in the work. There is internal belief in the co-op mission. In a worker co-op, the members are the employees, in every way. Other co-ops would do well to consider themselves as worker co-ops—in part. There have been more than a few annual meetings at large co-ops where the employees formed the quorum for voting purposes. That alone should make employees essential in the stakeholder hierarchy.
Most co-ops excel at making employees feel like stakeholders. But there are some where the turnover numbers and the Glassdoor postings don’t correlate with a strong culture of employee “ownership.” Almost universally, a weak stakeholder connection to employees leads to a poor stakeholder connection with members. The pedestrian saying that “happy employees lead to happy members” is often true in practice. The pursuit of happiness is a significant step in the direction of achieving genuine stakeholder connection—with employees and members.
Every business needs to put suppliers and business partners on the stakeholder hierarchy at some level. No organization can manufacture and distribute everything that it takes to create exceptional member benefit. Suppliers are often kept at a distance from a legal perspective. In fact, co-ops struggle to avoid unfavorable one-sided liability contracts with large suppliers. But co-ops have a higher gear when it comes to suppliers and business partners. They can collaborate with each other. In fact, purchasing co-ops are fundamentally in the business of leveraging influence with third-party suppliers. There is an opportunity to enhance influence by collaborating across the economic sectors, the exercise of the 6th Cooperative Principle. Once relationships with suppliers are contractually established, they should become stakeholders in the success of the co-op.
Despite the emergence of digital anywhereness, much of stake-holding is a locational construct. For that reason, the place where employees live and where members conduct their lives matters to the well-being of a co-op’s primary stakeholders. Call it community. Increasingly, global issues like hunger, poverty and climate are drawing co-ops into the global community. Co-ops are said to be a key part of the emerging democratic (or civil) economy, an alternative to extractive free-market capital supremacy. The point is that every economic enterprise regards community as a stakeholder to some degree. Co-ops are structured to do it best.
Every economic enterprise regards community as a stakeholder to some degree. Co-ops are structured to do it best.
Co-ops are likely subjected to higher expectations when it comes to engagement with community. In recent history, the 7th Cooperative Principle was added to accentuate the importance of awareness and engagement with community. Co-ops can work together to help communities build locally controlled solutions for employment, healthcare, homecare, education, finance and many other needs. The civic infatuation with trying to land the next big corporate warehouse with massive tax incentives is largely over. Communities are looking for deeper and more sustainable ways to reinstate vitality. While it’s not clear where community sits in the co-op stakeholder hierarchy, it would be safe to say that it should be moving up in the years ahead.
With respect to society, co-ops are designed to reach those who are less fortunate and those who have been excluded from opportunity. Gender, faith, ethnicity and lifestyle are among the societal differentiators. Democratically structured business enterprises like co-ops can lead the way toward better inclusivity. In fact, the elevation of fairness and inclusivity could be the greatest stakeholder distinction opportunity available to co-ops. There is much work to do but the day should come when co-ops can demonstrate a tangible commitment to society as the standard-bearers for economic inclusivity.
All of this leads to another question: If a progressive foundation offered a grant to purchase full facing pages in the Wall Street Journal and the New York Times (akin to the Business Roundtable strategy) and two hundred CEOs of America’s largest cooperatives were willing to affix their signatures to a pledge…
What would the manifesto for Stakeholder Cooperativism say?
Stay tuned,
Mike