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Rory Ridley-Duff, 2016 Exploding the myth that “FairShares is too complicated”… Members of the FairShares Association have studied the ownership, governance and management systems in some of the world’s most successful worker and solidarity co-operatives. Being prepared for ‘complexity’ makes facing it simpler. Let’s start by considering how the world is…
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A ‘Simple’ Guide to FairShares
Jan 2016
Dr Rory Ridley-Duff, Reader in Co-operative and Social EnterpriseSheffield Business School, Sheffield Hallam University
Contact: [email protected]
Reader Director Co-Founder Chair
Rory Ridley-Duff, 2016
Rory Ridley-Duff, 2016
Exploding the myth that“FairShares is too complicated”…
• Would you rather use something that is easier to explain but harder to operate, or something that is harder to explain but easier to operate?
• The FairShares Model may appear more complex because it is the product of practice – it deals with the complexity of reality to make running enterprises simpler.
• Dumbing down complexity can make things easier to explain, but it also results in more confusion, cost and (real life) complexity when you have to deal with the way the world is (rather than how you want it be).
Rory Ridley-Duff, 2016
Exploding the myth that“FairShares is too complicated”…
• Members of the FairShares Association have studied the ownership, governance and management systems in some of the world’s most successful worker and solidarity co-operatives.
• Being prepared for ‘complexity’ makes facing it simpler.
Let’s start by considering how the world is…
Rory Ridley-Duff, 2016
In the beginning…• How do enterprises begin?
Founders
One or more people have an idea that they think will make money and/or improve societal or environmental well-being.
Rory Ridley-Duff, 2016
In the beginning…• How do social enterprises begin?
Founders
Evidence from Sustainable Enterprise Solutions (SES) suggests that social enterprises are far more likely to be started by groups of people. In contrast, most private enterprises are started by one person who goes self-employed.
Rory Ridley-Duff, 2016
And then…• How do enterprises develop?
Founders
Founders usually have two relationships to their (social) enterprise. They direct it (and become Directors) and they work for it (provide its Labour).
Founders usually work in their (social) enterprise, at least initially.
They provide Labour.
Labour
Rory Ridley-Duff, 2016
And then…• How do enterprises develop?
Founders
That might be the end state. Some Founders seek to employ only themselves.
Founders usually work in their social enterprise, at least initially.
They provide Labour.
LabourSo, founders start to recruit other people to help them produce goods and services.
They recruit Labour.
Many, however, choose to (or are forced by demand) to recruit more labour so they can expand their operations.
Rory Ridley-Duff, 2016
And then…• How do enterprises develop?
Founders
Labour may be provided by volunteers, contractors and suppliers (both individuals and other enterprises) and by owner-members and employees. Whatever their legal status, they are the sources of labour for the enterprise.
LabourAfter start-up, founders continue to improve skills in producing goods and services.
They continue recruiting and developing Labour.
Rory Ridley-Duff, 2016
And after that…• How do enterprises develop?
Founders
In a ‘production for use’ economy, workers consume their own produce and only sell surpluses in markets. Under ‘production for market’, labour is prevented
from consuming its own produce (under threat of prison). Labour is required to produce for ‘others’ then use the market to obtain goods for themselves.
People might labour for themselves (i.e use the goods and services they have laboured to produce).
In food, energy, sports and arts co-ops, people may ‘produce to consume’ and only become sellers as a by-product of their primary interest / activity.
Labour
Users
If the goods / services meet needs, there will be people who want to use them (which creates more demand for labour).
Rory Ridley-Duff, 2016
And after that…• How do enterprises develop?
Founders
To become stable, an enterprise needs a sufficient number of users to ensure the demand for labour continues (regardless of whether the enterprise operates a ‘production for use’ or ‘production for market’ system).
Labour
Users
There may be only a few (large scale) users and/or many thousands of small scale users.
Rory Ridley-Duff, 2016
And finally…• How do enterprises expand?
Founders
Non-user investors may not be needed. However, more complex projects (that involve building things) will usually benefit if helped by non-users’ finance capital.
But remember that founders, labour and users of an enterprise’s products / services are still continually investing time, effort and skills. They invest human, intellectual and social capital, and could provide finance capital as well.
Labour
Users
Enterprises can expand more rapidly with the help of non-users who invest additional time, skills and money
Investors
Rory Ridley-Duff, 2016
Now let’s ask pertinent questions…• If this is how world is, why do we design organisations
to not recognise all the interests necessary for survival?
Founders
Let’s take a closer look at the complexity of ‘simple’ enterprises to understand where that complexity comes from.
If an enterprise does not recognise all stakeholders necessary for survival, it creates complexity because relationships are more likely to require legal remedies and expensive systems for legal compliance.
Labour
Users
Why do we not automatically invite people in all of these groups to become legal members of the enterprise?
Investors
Rory Ridley-Duff, 2016
Why do ‘simple’ enterprise designs lead to more ‘complexity’?
• ‘Complexity’ is a state in which no single interest group has a monopoly of knowledge and effective production cannot proceed without a negotiated consensus on how to own, govern and manage the enterprise.
• Thriving and sustainable enterprises find ways to navigate the convergent and divergent interests of (social) entrepreneurs, providers of labour, users of goods/services and their communities of practice.
• If ‘normal’ organisations are ‘complex’, why are so many organisations designed to exclude vital stakeholders?
Let’s see who gets excluded in each design.
Rory Ridley-Duff, 2016
More questions (about private enterprise…)• Firstly, how does a private enterprise (no investors) fail
to deal with complexity?
Founders
Private enterprises (without investors) exclude labour, users and investors from membership.
Instead they contract with them in ways that lead to exploitation……and conflict.
Labour
UsersThesegroups are not recognised as owners of the products and wealth their interactions create.
Investors
Founders must engage with the complexity, bureaucracy and expense of commercial contract law and employment law to address failures of the constitution. The ‘simple’ constitution fails to address the complexities of attracting labour and satisfying users.
Founders acquire exclusive control over IP needed to generatewealth
Rory Ridley-Duff, 2016
More questions (about private enterprise…)• How does a private enterprise (with investors) fail to deal
with complexity?
Founders
Private enterprises (with investors) leads to competition between founders and investors to extract wealth from labour and users.
Labour
Users
These groups remain excluded from a fair share of the wealth their interactions with each other create.
Investors
Founders can address the relationship with investors (through modifying Articles of Association), but it still fails to address the complexities of satisfying product/service users and providers of labour.
Rory Ridley-Duff, 2016
Questions about charitable enterprise…• How does a charitable association fail to deal with
complexity?
Founders
Charitable associations get money from donors, grant givers, members and sympathetic lenders.
Users become beneficiaries, but are not allowed to determine how wealth is allocated to meet their needs.
Labour
UsersNone of these groups are supposed to profit from the wealth created by stakeholder interactions.
Donors / Members
In a charity / non-profit, founders are guided by trust law (in relation to donors and users who are beneficiaries), but constitutions still struggle with the
complexities of labour relations and borrowing money from investors.
Beneficiaries
Rory Ridley-Duff, 2016
Questions about charitable enterprise…• How does a charitable foundation fail to deal with
complexity?
Founders
Charitable foundations attract social investors (rich individuals, corporate sponsors, ‘impact’ investors, and governments).
Users may fund beneficiaries by purchasing the products of labour, but they still have little power to control how the wealth created is allocated.
Labour
UsersIt is still the case that none of these groups are supposed to profit from the wealth created by stakeholder interactions.
Social Investors
Beneficiaries
Rory Ridley-Duff, 2016
Questions about co-operative enterprises…• How does a worker co-operative fail to deal with
complexity?
Founders
Worker co-ops often try to usurp their founders’ power (who may retaliate by leaving or de-mutualising to prevent loss of power). Users may still be the beneficiary but have no collective power to allocate wealth.
Labour
UsersLabour becomes the main beneficiary of the wealth created by stakeholder interactions.
Social Investors
Beneficiaries
In a worker co-op, the complexities of labour relations are addressed, but contractual relations with investors and/or users are unaddressed.
Founders may come to resent their own marginalisation by a growing labour force.
Labour can make social investments through capital contributions
Rory Ridley-Duff, 2016
Questions about co-operative enterprises…• How does a user (consumer) co-operative fail to deal
with complexity?
Founders
User / consumer co-ops limit workers’ and founders’ power, and might regard them as having a conflict of interest.
Workers can benefit as users (e.g. become a consumer member of a co-op store), but they still have no power as workers to allocate wealth.
Labour
UsersUsers / consumers becomes the main beneficiary of the wealth created by stakeholder interactions.
Social Investors
Beneficiaries
In a consumer co-op, founders address the complexities of relations with users (customers), but still resort to complex, bureaucratic and
expensive contracts (with investors and/or providers of labour).
Users can make social investments through capital contributions
Rory Ridley-Duff, 2016
Advances in European Co-operation…• The European Co-op Society addresses complexity by
encouraging the co-ownership of ‘users’ (> 75%) and ‘non-users’ (< 25%)
Founders
A Non-user isnot a founder, not a provider of labour and not a user or consumer of goods/services.
Labour
Users
Across the co-op movement these groups are considered ‘users’.
Investors
Rory Ridley-Duff, 2016
…led to FairShares Solidarity Enterprises• This development shifted the debate in the direction of
solidarity co-operatives (a multi-stakeholder approach to social enterprise).
Founders
FairShares co-operatives and companies can issue shares to recognise investors as members.
Labour
UsersEvery FairShares enterprise recognises founders, labour and/or users as classes of member.
Investors
FairShares values and principles can be operationalised through association, co-operative or company law.
Rory Ridley-Duff, 2016
FairShares Solidarity Enterprise• Constituting as a FairShares Solidarity Enterprise is based on
how the world is when all interests in an enterprise are treated as having equal legitimacy, but this does not automatically release an association, co-operative or company from the complexities of contract / employment law…
• It opens a pathway to reducing the direct and indirect costs of legal compliance by making provisions for alternatives.
• Founders, workers, users and investors can invoke clauses in the constitution to: – 1) share intellectual property; – 2) engage in new modes of exchange (outside the market);– 3) resolve disputes using mediation, and; – 4) institute shared ownership, governance and management.
• This enables members to lighten the burden of ‘compliance’.
Rory Ridley-Duff, 2016
FairShares Worker co-operative (or Employee-Owned Enterprise)
Founders
Labour
Users
User members may not be needed if the enterprise sells only to other businesses(a B2B enterprise)...
Investors
Rory Ridley-Duff, 2016
FairShares User co-operative (or User-Owned Enterprise)
Founders
Labour
UsersLabour members may not be needed if users and producers are substantially the same group of individuals.(e.g. a food or tenants co-operative).
Investors
Rory Ridley-Duff, 2016
FairShares ‘First Generation’• All FairShares enterprises have an orientation that
encourages co-operative management and governance.
Founders
A ‘first generation’ FairShares enterprise still has founder members.
Labour
UsersA ‘first generation’ FairShares enterprise is more likely to have discreet member groups
Investors
First generation status ends when all founder shares have been cancelled (on death, dissolution, or voluntary surrender by founders).
Rory Ridley-Duff, 2016
FairShares ‘Second Generation’• All FairShares enterprises have an orientation that
encourages co-operative management and governance.
In its second generation, a FairShares enterprise has no founder members.
Labour
Users
In companies and co-ops, power is acquired by User / Labour members through ‘member share issues’.
In all FS enterprises, group rights to participate in governance are equalised over time.
Investors
By the second generation, labour and/or users acquire control by actioning the wealth / power transfer mechanisms built into the FairShares Model.
Rory Ridley-Duff, 2016
Conclusions• FairShares is structured to reflect real-world complexities
in order to make running a social enterprise simpler.
• The simplicity is achieved by invoking the constitution to remove the burden of legal compliance with systems that exist to manage conflict with excluded groups…
• …but it cannot reduce the burden of compliance with laws used to incorporate the enterprise (association, co-operative and company law).
• FairShares is based on the research-informed assumption that inclusive co-operative management addresses complexity to simplify management.
Rory Ridley-Duff, 2016
Resources to support FairShares• FairShares Website: www.fairshares.coop
• FairShares Community: www.fairshares-association.com
• Technical Support: www.fairshares.coop/wiki
• FairShares Novel: The Dragons’ Apprentice
• FairShares Book: The Case for FairShares
• Academic Conference Paper
• Academic Journal Article
• Learning and Teaching Materials
