Friday, February 22, 2013
What is a Cooperative Enterprise vs. Corporate Enterprise?
A Corporation has a top-down structure. The simplified pyramid is one where employees take directives from supervisors, who take directives from managers, who take directives from the CEO, who reports to the Board of Directors. The corporation itself has an independent identity that is owned by shareholders, “who are not personally liable for the debts and legal liabilities incurred by the corporation . . . This safeguards assets and properties of the individual shareholders, and as such, is more attractive to potential investors” (Corporation Types, 2013). It seems obvious, therefore, that the primary concern of corporate shareholders is profit. Shareholders elect a Board of Directors (BOD) that is ultimately responsible for the operation of the business, although it is not involved in the day-to-day operations of the corporation. The BOD hires a Chief Executive Officer (CEO) to whom all employees report and who is responsible for the daily operations and decisions.
A Cooperative has a bottom-up structure with a similar pyramid structure with the exception being how power is distributed. The employees are co-owners and have equal power and decision making autonomy. As owners, the employees elect members to certain positions of authority but not with the same sort of position power that one would have via promotion in a more traditional corporation – instead, this is a role of leadership whereby the member elected is representative of the owner-membership. In an article titled ‘The Mondragon Cooperative Experience: Humanity at Work’, authors Jose Luis Lafuente and Fred Freundlich provide an excellent overview of the power every employee has within a Cooperative Enterprise:
The two roles of OWNER and WORKER are somewhat in tension, but they are also
complementary, two sides of the same coin. When co-owners act as workers, accepting the
expertise and “local authority” of others, they know that they have ownership rights that they can
and should exercise to assure accountability and fairness, and this knowledge helps keep things in
balance. The rights and responsibilities balance helps us promote participation in operational
decisions and we put a great deal of emphasis on practices that encourage participation and self
management. (Lafuente & Freundlich, 2012)
As co-owners everyone within the Cooperative is responsible, and thereby liable – this is another critical difference when compared to a Corporation. For example, if the business is experiencing financial hardship, employees in a Cooperative would jointly make decisions like reducing salaries and restructuring to improve the situation and keep the business in operation for the good of all. Mondragon Corporation is an excellent example of a Cooperative Enterprise.
Mondragon Corporation is the embodiment of the co-operative movement that began in 1956, the year that witnessed the creation of the first industrial cooperative in Mondragon in the province of Gipuzkoa.
Although the Mondragon Corporation began in 1956 it has made headlines internationally in recent years as in light of the international economic crisis that resulted in many villainize capitalism and the traditional corporate structure that emphasizes profit and has a disproportionate division of wealth within the organization. Journalist Richard Wolff makes this argument in the subtitle of his article, ‘Yes, there is an alternative to capitalism: Mondragon shows the way’, which states: “Why are we told a broken system that creates vast inequality is the only choice? Spain's amazing co-op is living proof otherwise” (2012). Wolff emphasizes that in our modern world we have made the choice to buy-in to a capitalist organization of production, where private owners establish enterprises, select their directors and make all decisions – a handful of people making every economic decision that affect those who do most of the actual productive work. He empathizes with powerless workers as must accept and live with the results of all directional decisions made by the BOD and major shareholders, who select their own replacements (Wolff, 2012). It is obvious that Wolff is anti-capitalism and there are many who share this opinion. Regardless of one’s perspective, however, the example illustrated by Mondragon Corporation is a more than acceptable alternative.
Mondragon Corporation is actually a conglomerate, or network, of several Cooperative Enterprises. Wolff identifies four groupings within Mondragon: industry, finance, retail, and knowledge (2012). This diverse grouping of independent co-ops work together within Mondragon cooperatively as well – which is a very unique business model that continues to grow and thrive 57 years after its formation:
The network idea was triggered by the first generation of leaders taking the cooperative idea and
applying it not only inside the business, but among the businesses as well. They felt that their
dramatically new approach to enterprise was probably not going to be well-understood by
conventional companies in finance, insurance, research, etc. so they decided to create their own.
They also believed it would be difficult for what were then small firms to prosper on their own over
time, that they would not only need these key services, but also that if they joined forces, they would
find the support they needed during downturns as well as synergies and opportunities during upturns.
(Lafuente & Freundlich, 2012)
Mondragon’s guiding principles (Figure 1) have proven successful.
It is interesting to consider and even compare the Mondragon Corporation’s network and structure as relating more to a democratic government of and by the people as being more similar in theory than it is to a traditional capitalist corporation.
Figure 1: Mondragon’s Basic Cooperative Principles
© 2013 Management Innovation eXchange
The guiding principles support this supposition:
The core is occupied by education as the basic principle that nourishes all the others, together with
the sovereignty of labor, that is, broad employee ownership. These are shielded by the five other
principles internal to each individual cooperative company; the instrumental and subordinated nature
of capital, democratic organization, open admission, participation in management and wage
solidarity. The outer ring features three principles that are related to cooperatives’ external
projection: inter-cooperation, social transformation, and universality. (Lafuente & Freundlich, 2012)
Mondragon Corporation’s business philosophy is contained in its Corporate Values:
• Social Responsibility
This philosophy is very appealing – it presents an image of a utopian community – but one owner-worker is open and honest in the reality: “We are not some paradise, but rather a family of co-operative enterprises struggling to build a different kind of life around a different way of working” (Wolff, 2012). The people make the difference, and the same can be said for many traditional corporations whose histories tell an inspiring human relations story.
Many corporations today have profit-sharing programs and include owner-workers at every level of employment. They are not Cooperatives, however, but when the founders and decision-makers have a transformational and humanistic vision whereby they empower their employees, improve communities, and are responsible and ethical they can be equally relevant and appealing.
How would the experience of change operate in these two kinds of organizations?
Facilitating change in either environment would present different challenges depending upon the magnitude of the change and who was affected. Within the Cooperative Enterprise, the employee has a certain level of autonomy to make decisions and implement changes that are related to their work and / or customers. In some corporations, empowered employees are also given this sort of authority, but often employees have to get permission from their supervisor. Ina traditional corporation, as the magnitude of the decision increases it is necessary to move higher up the chain of command to get permissions or directives. Major changes within a Cooperative – like restructuring a division, implementing a new initiative, etc. – would take a lot more time and involve more people (everyone in the enterprise if they all choose to be involved). The same change in a corporation would be determined by a small group – the BOD and CEO – so implementation could be much faster. Facilitating change within an organization can be challenging:
Change agents need to understand the power structures and informal dynamics in their organizations,
including culture. They must recognize that resistance to change is likely and is not necessarily a
bad thing – there is potential to use resistance in a positive way. It is important to know the forces
impacting the organization and the individuals within them, as well as the internal and external
stakeholders that will impact and will be impacted by the change process. . . . Resistance to change
is the desire to not pursue the change. Resistance can stem from a variety of sources, including
differences in information, perceptions, needs, and beliefs. In addition, existing informal and formal
systems and processes have the potential to act as impediments to change. (Cawsey, Deszca, &
Once the change decision is made within a Cooperative Enterprise, however, the buy-in is implicit since everyone affected is involved in the change decision. It should be much easier to implement change, therefore, in a Cooperative even though the approving the change will take more time, effort, and involvement from everyone within the organization.
Cawsey, T. F., Deszca, G., & Ingols, C. (2012). Organizational Change: An action oriented toolkit (2 ed.). Thousand Oaks, CA: Sage Publications, Inc.
Corporation Types. (2013). Retrieved from Companies Incorporated : http://www.companiesinc.com/corporation/types.asp
Lafuente, J. L., & Freundlich, F. (2012). The Mondragon cooperative experience: Humanity at work. Management innovation exchange. Retrieved Feb 20, 2013, from http://www.managementexchange.com/story/mondragon-cooperative-experience-humanity-work
Wolff, R. (2012, June 24). Yes, there is an alternative to capitalism: Mondragon shows the way. Retrieved Feb 20, 2013, from the guardian: http://www.guardian.co.uk/commentisfree/2012/jun/24/alternative-capitalism-mondragon