Co-operative Commission report

the co-operativeadvantageCreating a successful family of Co-operative businesses

The Report of the Co-operative CommissionJanuary 2001

the co-operative advantageThe R

eport of the Co-operative C

omm

issionJanuary 2001

January 2001 www.co-opcommission.org.uk

ContentsIntroduction by Tony BlairPreface by John Monks 2Summary of the Co-operative Commission’s recommendations 4Process and overview 10Chapter 1 – Re-establishing the Co-operative Advantage 12Chapter 2 – Successful Co-operative Business in the Twenty-first Century 28Chapter 3 – Membership, Participation and Securing the Co-operative

Movement's Legacy 38Chapter 4 – Effective Management for Change and Development 50Chapter 5 – National, Regional and Local Structures 62Chapter 6 – The Social Economy and Co-operation 72Chapter 7 – Mission Statement and Next Steps 82

Annexes1 The Co-operative Commission 882 Terms of reference 903 The ICA statement on the Co-operative identity 914 Submissions 925 CWS within the Co-operative Movement 946 Counsel’s advice 967 The Co-operative Independent Commission 1958 1008 Co-operative milestones 1029 Glossary of terms 104

A renaissance of the Co-operativeMovement in the UK is long overdue.

Over the past 11 months it has becomeclear to me, as it has to my fellowCommissioners, that the Co-operativeMovement has the potential to step up its impact on both business and society.

We know, from the evidence that we havereceived, that there is much that could bedone to boost the performance of manyof the current businesses. Indeed it hasno alternative if it is to survive.

We can also see opportunities to expandthe Movement into new areas that cry outfor Co-operative solutions. But above all,we believe that Co-operative principles are highly relevant to society in an age of unprecedented change.

The purpose of this Report is to show howthat potential can be turned into reality.

Our vision, as set out in the mission statementwhich we commend to the Co-operativeMovement, is one of a revitalisedMovement which challenges conventionalenterprises by building a commerciallysuccessful family of businesses thatoffers a clear Co-operative advantage.

In successful Co-operatives, the ethicalvalues of honesty, openness, socialresponsibility and caring for others, cangive an edge over businesses driven simply by the profit motive. That edge helps buildcommercial success, and that, in turn,provides the resources to strengthen theethical dimension. Where Co-operativeshave failed to match their potential thisvirtuous circle has been broken; the waythe business has been conducted has notalways reflected the ethical values andthe links between the members and their

Co-operatively owned business have notfunctioned effectively. Efficiency levels havenot matched the best of public companies.

The Co-operative Movement today hasmany strengths. The scale of businessmakes it one of the UK's biggest retailers.It operates across sectors from food topharmacy, from financial services to travel.There are many dedicated people workingwithin the Co-operative Movement whohave the commitment and the imaginationto transform the Movement and make areal impact on national life. The Co-operativeethos can be in tune with an age that isincreasingly disillusioned with corporategreed and lack of ethical standardsdisplayed in some parts of the private sector.

One of the Movement's greatestweaknesses is the widespread image of the Co-op as an old-fashioned retail store chain incapable of meeting theexpectations of today's consumers.

Changes are being made. Some localSocieties have broken free of the oldimage and make a real impact in theirlocal communities. The Co-operativeBank is a model of transformation andhow to seize the moment and the mood.Lord Morris and his team are now puttingin place new structures to take forwardthe Co-operative Group (CWS) Ltd.,which has been created following themerger of CWS and CRS.

Our job has been to look beyond thesefirst steps and to plot a journey that cantake the Co-operative Movement on to a higher plane: where business efficiencymatches the best in the plc sector; wherethe Co-operative principles strengthenour business; where, through our work in the community, we raise awareness of the value of co-operation.

Over the past 20 years small businesseshave been seen as the engine for changein the economy. I see no reason why manyin this generation should not look to Co-operatives as a natural vehicle throughwhich to pursue their entrepreneurialambitions. It should be as easy and asnatural to set up a Co-op, as it is toestablish any other form of business.

I am grateful to my fellow Commissioners,drawn both from within and outside theCo-operative Movement, who have broughtextensive knowledge and experience to ourdeliberations. We have had first class supportfrom the staff of the Commission and from ouradvisers. Most of all we benefited from thewealth of information and opinion providedfor us by the individuals and organisationsthat go to make up the Co-operativeMovement who took up our invitation to submit evidence for our consideration.

The Commission's work is now complete.

It is up to the Co-operative Movement to decide whether it is prepared to grasp the opportunity and to put theseproposals into practice.

If it fails to do so; if it picks and choosesbetween the recommendations rejectingthe radical and the difficult, or if it adoptsour recommendations but fails toimplement them, then I fear for the futureof the Movement.

But, if it adopts them with enthusiasm andcommitment and implements them in full,then I believe the prospects can be as brightas at any time in the Movement’s history.

January 2001

Preface by John Monks

Preface by John Monks, Commission Chair

The Report of the Co-operative Commission 2–3

the commission’s work is now complete; it is up to the co-operative movement todecide whether it is prepared to grasp theopportunity and to put these proposals into practice

left to right: Graham Melmoth, John Monks and Tony Blair at the launch of the Co-operative Commission, February 2000

In some cases these recommendationshave been abbreviated: the fullrecommendations are to be found at the end of each chapter.

Chapter 1 – Re-establishing the Co-operative AdvantageCommercial performanceimprovement1 Boards of Co-operative Societies

must establish challenging targetsfor the commercial performance oftheir Society.

2 The commercial performancetargets should include Return onCapital Employed, which shouldachieve a minimum of 10 per cent as a first step.

3 All Societies should urgently reviewthe performance of each of theirvarious business sectors to ensurethat each can achieve and/ormaintain financial viability over the medium/long term.

Societies’ performance 4 In order to implement and

monitor the commercial and socialperformance of Societies, the Co-operative Union should be givenresponsibility for establishing a Commercial and SocialPerformance Panel.

Financial auditing 5 Co-operative Societies should

conform to accounting standardsand adopt a standard system of financial reporting.

6 Boards of Societies should ensure that the Key CommercialPerformance Indicators (KCPIs) are presented to members at the Society’s AGM to record the performance of the Society

compared with that of majorcompetitors and peer Co-operative Societies.

Social performance improvement7 The Co-operative Union should

establish challenging Key SocialPerformance Indicators (KSPIs), forperformance in relation to Co-operativeand social goals and should monitorthe performance of individual Societiesobjectively against those targets.

8 Boards of Societies should ensure that the Society’s KSPIsare presented to the Society’smembers annually.

Social auditing 9 The Co-operative Union should

develop a standard system forsocial reporting, so that there isconsistency across the Movement.

10 The Co-operative Union should produce an annual report on thework of the Commercial and SocialPerformance Panel to be presentedto Congress.

Reinvesting the profit11 Reinvestment in the business must

always have the first claim on profits,but where a Society is tradingprofitably, the Commissionrecommends that the minimumcommitment to the members andthe community dividend should be 10 per cent of the profit and thatthe ratio distribution of individual to community dividend should bearound 70 per cent to 30 per cent.

Co-operative Retail Trading Group(CRTG)12 To enhance the successful

performance of CRTG further:

12.1 External auditors should beemployed to help guarantee thetransparency of the accountingprocedure.

12.2 The Strategy Group of CRTG should be made up of Chief Executives ofSocieties and the Controller, CWSRetail, for the time being, should bethe CEO of CRTG and be a memberof the Strategy Group.

12.3 The governance of CRTG should be reformed.

12.4 Each member of the Strategy Groupshould have a vote proportional tothe purchase volumes of their Societythrough CRTG.

12.5 Clear terms of reference for CRTGshould be established.

12.6 The CEO of CRTG should producestrategic and annual plans forapproval by the Strategy Group.

12.7 Delivery of the service to membersof CRTG should be based on arevised form of contract.

13 The Commission, given the reform of CRTG, recommends that allSocieties should now join CRTG.

Financial services 14 CWS should develop and implement

an integrated business strategy forits two financial services subsidiaries,CIS and The Co-operative Bank, inorder to harness the latent synergiesbetween the two businesses.

15 CWS should review the governancestructure of both CIS and The Co-operative Bank with a view to appointing some external and appropriately experiencedindependent non-ExecutiveDirectors to the Board of eachinstitution.

Summary of the Co-operative Commission’s recommendations

Mission statement: “to challenge conventionalUK enterprise by building a commerciallysuccessful family of businesses that offers a clear co-operative advantage"

Summary of the Co-operative Commission’srecommendations

Chapter 2 – Successful Co-operativeBusiness in the Twenty-first CenturyBranding and image 16 Societies should explore further

opportunities for co-ordinatedactivity including the benefit of a national distribution system; the development of standard storeformats, layouts and fascia; andcommon purchasing of storefixtures and fittings. Societies shouldalso examine the merits of using acommon support system across all businesses.

17 The Commission recommends that:17.1 A Co-operative Brand Panel should

be established to develop a commonnational Co-operative brandingapproach for the Movement.

17.2 All Societies should ensure that thebrand identity for each of their corebusinesses is compatible with andreinforces the national branding of the Co-operative Movement.

17.3 Where the Co-operative brand isbeing undermined by failure of anyretail Society to meet the brandrequirements, the Co-operativeBrand Panel should report to theCWS Board which may withdrawpermission for that Society’scontinued use of the Co-operativelogo or access to CRTG.

17.4 All Societies should, under the aegisof the above Panel, explore andresolve the issues surrounding theintroduction of appropriate commonbranding of each Co-operativebusiness under an umbrella nationalbranding approach that encouragesthe cross-selling of productsthroughout the Co-operativeMovement.

17.5 It may also be desirable to appointSectoral Brand Panels to examinethose branding issues that affectspecific businesses common to more than one Society.

The Co-operative logo18 The Co-operative Brand Panel

should consider the long-termfuture of the existing logo (‘cloverleaf’ design) which some researchindicates is perceived by the publicas not reflecting the modernisingapproach now being adopted by the Co-op. A future logo couldreflect the modern partnership that will be created among Co-operative businesses.

e-commerce and new technologies19 Retail Societies should urgently

consider how greater use of theInternet can deliver benefits formembers and customers. CWSshould consider the establishmentof a business technology advicecentre/service to provide aconsultancy service to Societieswishing to introduce new technologiesand to encourage best practicetechnology disseminationthroughout the Movement.

New sectors 20 A New Ventures Working Group

should be established with a remit to identify new or fledglingsectors where a gap may exist for a Co-operative solution.

21 In moving into new areas, the mistakesof fragmentation of the past mustnot be repeated. In delivering newproducts and entering new marketsthere should be a common brand,common performance standards,and shared services.

Chapter 3 – Membership, Participationand Securing the Co-operativeMovement’s LegacyMembership 22 The Board of every Society should

aim to ensure that an increasingproportion of the Society’s customersbecome members, and that anincreasing proportion of the Society’sbusiness is conducted with members.

23 All Societies should up-date andrefine their membership recordsurgently to delete the names ofobviously dormant members andestablish a membership file thataccurately reflects currentmembership. Societies shouldthereafter maintain regular contactwith their members so that themembership becomes a valuedasset to the Movement.

24 The Commission recommends that: 24.1 Societies should agree and adopt

a design for a national Co-operativemembership card.

24.2 The Movement should work torealise the full value that itsmembership provides.

24.3 The Movement should give furtherconsideration to accelerating the current proposals for the co-ordination into a single Movementdatabase of the customer/memberrecords of constituent organisations.

24.4 The adoption of common technicalplatforms within the Movementshould be promoted.

24.5 Efficiency and effectiveness in membership administrationshould be optimised.

24.6 The goal should be that for a Co-operative Movement membertheir membership card isrecognised whenever the memberundertakes transactions with anyCo-op business.


24.7 The Retailer Financial ServicesCommittee should be given a moreformal status with responsibility for overseeing this work.

25 The minimum shareholding of £1 formembers should be maintained forentitlement to vote within Societies.Individual Societies should retain the right to determine whether anincreased shareholding or purchasequalification is required beforenomination to elected office.

25.1 All Societies should adopt bestpractice in increasing participation and strengthening democracy via a range of tried and tested ballotingprocedures, including postal/telephone balloting and theprovision of referenda.

25.2 Societies’ membership developmentpolicies should provide access to adequate information on theperformance of the business,including the Key Commercial andSocial Performance Indicators, anew timetable of meetings to makethem more accessible to membersand structural changes to encourageparticipation by younger membersof the Co-operative Movement.

25.3 The Movement should undertake a high-profile recruitment campaignacross the country in order todevelop a mass membership base.

25.4 The Commission recognises thatsome Societies are consideringexperimenting with increasing theminimum shareholding for newmembers and the Commissionlooks forward to the results of such initiatives being shared withthe Movement.

26 Co-operative membership should be encouraged among customers of The Co-operative Bank, CIS andother business areas in addition to the traditional base of food retail customers.

27 The Co-operative Union, in order to build a strong membership baseacross the country, should establishand promulgate best practice in the recruitment and participation of members.

28 Societies should encourageemployees to become members of the Co-operative Movementthemselves and to participateactively in the Society’s internaldemocracy via a ‘reservedemployee member constituency’.

Securing the Co-op’s assets29 This is a critical issue for the

Co-operative Movement. The Commission recommends:

29.1 All Societies should, as a matter ofurgency, put in place rules to make it clear that current members arecustodians of the assets.

29.2 Societies which have not yetadopted the seven modelamendments designed to set highturnout thresholds as a defenceagainst hostile takeovers orattempts at ‘demutualisation’ and/orto secure the transfer of assets toanother Co-op organisation, shoulddo so at the earliest opportunity.

29.3 The Government should introducelegislation to secure Co-operativeassets for the future as iscommonplace in many otherEuropean countries.

29.4 The Boards and Chief Executives ofRetail Societies should give carefulconsideration to the Counsel’sadvice received by the Commissionas part of our investigations into theprotection of Co-operativeMovement assets.

Chapter 4 – Effective Managementfor Change and DevelopmentBoards, management and staffing 30 Best practice in relation to the size

of the Boards for Societies shouldbe the lowest number that achievesthe principle that elected membersshould always have a majority on the Board whilst achieving therepresentation from the otherconstituencies as outlined within the recommendations.

30.1 Accordingly, the Commissionrecommends that the maximum size of Boards should be 15, exceptin the case of CWS, where themaximum ideally should be 20 members.

31 Members of the Board elected fromamongst the membership of theSociety must always be in a majority on the Board. Nevertheless, theCommission recommends that:

31.1 The Chief Executive and FinancialController, as a minimum, shouldserve on the Board.

31.2 Employees should be recognised as important stakeholders andshould be encouraged to participateactively in the Society’s internaldemocracy via a reserved employeemember constituency with at leasttwo seats on the Board. Employeesmay continue to stand as consumerrepresentatives but the totalnumber of employees on the Board(in any capacity) should not exceedone-third.


The Co-operative advantage: “excellentproducts or services with distinct competitivebenefits derived from our values and principles,our rewards for members or our commitmentto the communities we serve"

31.3 Boards should introduce a skillsaudit and should be empowered to fill any skills gaps identified by the appointment of two externalindependent Directors.

32 Within CWS, each major tradingbusiness should have its ownmanagement executive, as iscurrently the case in The Co-operative Bank and CIS. Therespective management executiveswould remain responsible to theCWS Board through the CWS ChiefExecutive Officer.

33 The Co-operative Union should, afterappropriate consultation, establishthe quality and qualificationsrequired of candidates to serve on the Boards of Co-operativeSocieties as independent non-Executive Directors.

34 The Co-operative Union should have the ability to appoint up to two advisers to work with the Boardsof consistently under-performingSocieties and the Rules of the Co-operative Union should beamended to facilitate this, whichwould then become a condition of membership of the Union.

35 Ongoing training for all Directorsshould be addressed regularly by all Society Boards. The Co-operativeUnion and the Co-operative Collegeshould develop a new qualificationthat meets the minimumrequirements for elected Directorsto execute their duties andresponsibilities adequately.

36 The Commission recommends that an age limit for Board memberswithin Societies should be set at 68.

37 Irrespective of the size of Society or the electoral processes adopted,it must be emphasised that Boardmembers, once elected are notdelegates representing anyparticular constituency, rather they serve on the Board to overseethe competitive and commercialsuccess of the Society as a wholeand must always act selflessly in its best interests.

38 The Commission recommends that the Boards of all Societiesshould adopt best practice inrelation to equal opportunitiespolicies and should incorporatereports on equal opportunitieswithin the social report.

39 The Commission recommends that Societies should review theirremuneration policies in order to reward appropriately seniormanagers in order to attracttalented people from outside the Movement. The remunerationpackage should be based upon theprofitability and social achievementsof the successful Co-operativebusiness and not on turnover alone.

Chapter 5 – National, Regional andLocal StructuresLifelong learning 40 The Co-operative College should

lead, on behalf of the Movement, the development of a modular Co-operative and mutual enterpriseprogramme, capable of being usedat all stages of learning and availableboth within Societies and outsidethe Movement.

Co-operative Foundation41 A Co-operative Foundation should

be established to promote the valuesand principles of the Co-operativeand Labour movements.

42 The Foundation should work with the proposed Social Economy andCommunity Task Force to helpimplement the recommendations of the Government’s report onEnterprising Communities to raisecommunity development venture funds and to encourage public andprivate sector investment in under-invested communities.

43 The Foundation should be non-profit-making and the Board should berepresentative of the Co-operativeSocieties which choose to contribute and should include representation from the wider Labour Movement.

44 The Foundation should be financedfrom the community dividend with an initial capital injection to enable it to commence its activities.


45 In considering applications fromindividuals or organisations, theCommission recommends that both Boards of Societies and the Co-operative Foundation must givepriority to funding projects whichrelate directly to the principles andpractice of co-operation and whichhelp translate the values of mutualsupport, solidarity and communityinto practical action.

Political structures and affiliations46 The Co-operative Party and the

Labour Party should work togetherin a new partnership to increaseparticipation and political activityand the Co-operative Party shouldbe the only Co-operative body toaffiliate to the Labour Party.

The Co-operative Press 47 The Co-operative Union should

initiate discussions with the majority shareholder with a view to requesting the Board of the Press to carry out a review of theCo-operative Press, in order tobroaden the editorial content of the Co-operative News, so that it encompasses and supports thewider Co-operative Movement.

Regional issues 48 Regional Co-operative Councils

should work together with the Co-operative Union and should have a seat on the Union’s Central Executive.

National issues for UK Government 49 The Commission requests that, in

the future appointment of members of the Regional DevelopmentAgencies (RDAs), the Governmentconsider the nomination of at leastone Co-operative Movementnominee to the Board of each RDA.

50 We are aware of the thorough workbeing carried out by the CompanyLaw Review. We recommend that a similar approach should beestablished to develop the futurelegal framework of the socialenterprise and mutual sectors as a whole. The aim of such a reviewshould be to develop a simple,modern, efficient and cost-effectivelegal framework for carrying outbusiness activity and meeting thesocial goals of these sectors. Thisnew legal framework should beestablished within the lifetime of the next Parliament.

51 A modernising bill should be putbefore Parliament to recognise in law the Co-operative form ofcommon ownership.

52 The Commission requests that the UK Government should consider, as an immediate step, extending the remit of an existing GovernmentMinister within the Cabinet Office, to have responsibility for thepromotion of Co-operative enterprise.

Chapter 6 – The Social Economy and Co-operationSocial Economy and Community Task Force53 The social enterprise sector is an

integral part of the Co-operativeMovement. A Social EconomySummit meeting hosted by The Co-operative Bank and supportedby the Co-operative Union and theUKCC should be held during 2001.

53.1 It should bring together leadingplayers in the UK’s social economy, Government Ministersand international experts, toaddress the funding difficultiesencountered in the UK for socialenterprises, the feasibility ofcreating a social economy venturecapital fund and the current legallimits in the UK on the scale of Co-operative shareholdings.

53.2 The Summit should provide anopportunity to launch a new SocialEconomy and Community Task Forcebringing together the three wings of the Labour Movement to develop anholistic approach to strengtheningthe social enterprise sector in the UK.

53.3 The Commission recommends that the Labour Party should incorporateinto its manifesto for the nextGeneral Election a commitment for the next Labour Government to examine how it can implementmeasures to expand the UK’s social economy.

Housing54 The Government should promote

amongst local authorities that are considering transferring their housing stock to the privatesector the Co-operative model of social housing.


UKCC and the Co-operative Union55 The Commission welcomes the

news that the Union and the UKCC intend to establish a fullstrategic alliance to progress further the overall policydevelopment of the Co-operativeand social enterprise movements.

56 This new strategic alliance shouldbecome the national voice for thepromotion of social enterprises in the UK and should develop a framework to provide services,support and training.

Chapter 7 – Mission Statement andNext StepsMission statement57 The Commission recommends that

to express its fundamental purposethe Co-operative Movement shouldadopt as its mission the followingform of words: “To challenge conventional UK enterprise by building a commercially successful family of businesses that offers a clear Co-operative advantage.”

57.1 The Movement should seek to implement the mission in a consistent, committed and co-ordinated manner at all levels of the organisations that make upthe Co-operative Movement andshould ensure all employee andDirector training starts from andbuilds upon this foundation.

57.2 The Movement should seek to live up to and strive towards the‘stretching goal’ that this missionrepresents over the coming years.

Implementation58 Co-operative Retail Societies

should seek new ways of deepeningtheir co-operation at a trading level, particularly in adjacentgeographical areas.

59 The Co-operative Union shouldactively seek to ensure thecommitment of all sections of theMovement to the implementation ofthe Commission’s recommendations.In order to review progress on theimplementation of the Commission’sReport, it is recommended that theCo-operative Union report formallyon this matter no later thanCongress 2006.

60 The Commission recommends that the Co-operative Movementshould prepare for its renewal in the twenty-first century by reinterpreting and reinvigorating the principles that it has alwaysstood for, to make them relevant to the present day.


The Co-operative Commission was set up in February 2000, with the backing ofTony Blair, following a call by leaders ofthe Co-operative Movement. The membersof the Commission comprised businessleaders, politicians, trade unionists andco-operators, under the Chairmanship of John Monks, General Secretary of the TUC (see Annex 1).

The Commission was asked to take anindependent look at the sector, againstthe immediate background of the (then)pending merger of the two largest UKCo-operatives, CWS and CRS (which tookplace in April 2000). This created a nationalSociety which accounts for over half of thetotal sector, the other half being locatedin around ten regional Societies, and thirtyor so local and community Co-operatives.

The wider background was one of long-termdecline of the sector, in terms of numbersof Societies, market share, and profitability.Nevertheless, the sheer size of the Co-operative Movement still surprises thosenot familiar with it. The Co-op is a significantretailer, with a turnover of over £8 billion,a customer base of 10 million, upwards of90,000 employees, and assets with amarket value of perhaps £5 billion. Withinthe Co-op ‘family’, there are notable successstories, such as The Co-operative Bank,while the Co-op is the leading player inmarkets as diverse as funeral services andfarming. On the other hand, overall, thereturn on the Movement’s assets is wellbelow comparable performance in plcs.

All this makes the Co-op in general, andCWS in particular, attractive to the ‘de-mutualiser’. The Co-op has firmly rejectedthis idea, and has equally firmly fought off predators: nevertheless, there is nowa widespread acceptance that the bestlong-term defence is to run a ‘successful

Co-operative business’. In other words, thesector must succeed both as a business,in terms of its performance – and as a Co-operative, meeting its social goals.

The birth of the CommissionOn 14 January 2000, a letter was sent to the Prime Minister, signed by LordGraham of Edmonton (Chairman of theUnited Kingdom Co-operative Council),Graham Melmoth (Chief Executive of Co-operative Wholesale Society Ltd.),Len Fyfe (now Lord Fyfe of Fairfield, but at the time Chairman of CWS and ChiefExecutive of Midlands Co-operativeSociety Ltd.), and Pauline Green (ChiefExecutive and General Secretary of the Co-operative Union). The letter read:

“The Labour Movement in the UK hasthree wings: the Labour Party, the TradeUnions and the Co-operative Movement.All are united in their commitment to achievingeconomic efficiency and social justice.We are writing to you as the Leader of theLabour Party to ask for your assistance inhelping in the further development andmodernisation of the Co-operative Movement.

For 150 years, the Co-operativeMovement has sought to provide highquality ethical services to consumers andto involve itself in community developments.As it faces the new millennium, we believeit needs to review its strategy and structuresin order better to meet its historical goals,and to do so in a modern setting.

Such a review needs to be fundamental.It needs to be done openly and fairly. And itneeds to include co-operators from all partsof the Movement, as well as others fromamongst the Labour Movement who shareour goals and have the commercial andpolitical expertise to contribute to thinkingthrough the optimal future for the Co-op.

For this reason, we are requesting thatyou sponsor and help appoint a Commission

to determine how the Co-operativeMovement can best be structured to meet the challenges of the next millennium.A copy of the draft terms of reference forthe Commission is attached.

In the 1950s, Hugh Gaitskell, then Leaderof the Labour Party, chaired a Commissionto review the structure of the Co-op. Webelieve that the time is now ripe for a newCommission to help define and demonstratethe relevance of co-operation for thetwenty-first century and how it contributesmore fully to the values which we all share."

The Prime Minister responded promptly, in the following words:

“I am pleased to respond to your requestto help set up and sponsor a Commission toinvestigate and propose ways to modernisethe Consumer Co-operative Movement.

I agree with your desire to modernisethe Co-operative Movement. I also agreethat this means that the Co-op should besuccessful both as a business and in makinga significant contribution to politicaleducation and community development.

I have asked John Monks to take on the role of Chair, and I know that you have members of the Commission with an appropriate balance of business andpolitical skills from within the Labour andCo-operative movements. I am sure thatthey have the expertise needed to makethe Commission a success.

I am delighted to help in the establishmentof the Commission, and to support yourdesire for a fundamental review."

The launch of the CommissionThe launch of the Commission was publiclyannounced on 24 February 2000, and the Commission met for the first time on29 February 2000. The members of theCommission came from a wide variety ofbackgrounds and for several, this was the

Process and overview

Process and overview

first time they had been exposed to theintricacies of the Co-operative Movement.That, however, was seen as a strength, in that the majority of the Commissionwere bringing fresh minds and differentexperiences to bear – while the minoritywho had experience of the Co-op, eitheras elected representatives or as officials,were able to ensure that, whilst remainingindependent, the Commission did notbecome remote from the practicalrealities of co-operation. In addition, theco-operators on the Commission ensuredthe work of the Commission was astransparent as possible, taking fullaccount of the views of the Movement.

The Commissioners had been given a remit,as part of the original terms of reference(see Annex 2). They now divided that remitinto a list of broad ‘areas for discussion’,which were used not only to guide thework of the Commission and its advisers,but also in the series of regional hearingsthat took place during the summer of 2000.The fundamental question asked was:“What is the vision of the Co-operativeMovement as we enter the new century –in terms of commercial objectives andsocial goals?" This led to two supplementaryquestions: “How close to delivering thevision are we?" and “What structures dowe need to close the gap between thevision and the reality?"

Over the following six months these questionswere addressed, both through receivingevidence from a range of experts andinterested parties, and through a largenumber of thought-provoking individualand collective submissions (see Annex 4),together with extensive debate at regionalhearings, at the Co-operative Congress inMay 2000, at the Labour Party Conferencein October 2000 and in the pages of Co-opNews. As the Commission proceeded

with its work it began to be a catalyst forchange even before its deliberations werecomplete, and it has been noticeable thatthere has been, over the last 12 months, a new focus on the equal importance of the two ‘sides’ of co-operation, thecommercial and the social.

In addition to the large number ofexternal submissions, technical reportsand advice were commissioned fromrespected independent advisers andconsultants including: Leslie Butterfieldof Partners BDDH, L.E.K. Consulting; UBS Warburg; KPMG; Hay ManagementConsultants; Cobbetts solicitors and IBM.In addition the Commission received advicefrom Christopher Nugee QC and DavidRichards QC. A number of Co-operativeSocieties also supplied the Commissionwith copies of statistical and researchwork that they had undertaken and whichproved of interest during our deliberations.

The Commission would like to place on recordits thanks to the Trades Union Congressfor providing office accommodation andto Roger Poole, Assistant General Secretaryof UNISON, who acted as independentChair of the regional hearings.

The work of the CommissionThe Commission met formally on nineoccasions. The first two meetings ensureda common level of understanding about thetrading environment, and the fundamentalcommercial issues. The third meetingfocused on the financial services sector,and on the issue of securing Co-operativeassets. The fourth meeting looked atdemocratic structures, and also the widerCo-operative Movement, and its politicalarm the Co-operative Party. The fifth meetinglooked at corporate governance andlegal issues, and also focused on CWS,and on the relationship between the

national Society and the regional Societies,covering issues like the governance of theCo-operative Retail Trading Group. Thelast of the hearings received presentationson the measurement of both commercialand social goals, and on new technologies.

The remaining three meetings in October,November and December concentratedon drawing conclusions from the hearings,and on the detail of the recommendationsthemselves, conscious that therecommendations had to be radical, butdeliverable. The example of the 1958Independent Co-operative Commission(see Annex 7) was very much in the mindsof those drafting the Report. That earlierreport had been prescient in its analysis, andright in nearly everything it recommended:and yet the Movement had failed toimplement it. That must not happen this time.

OverviewThe Movement needs modernisation and that has to be done from within, bythe very people, the Boards and ChiefExecutives, who are most immediatelyaffected by the proposed changes. Wehave to rethink and review co-operation,in the interests not just of the Co-operativeMovement, but of the wider LabourMovement as a whole. The Co-op needsto listen to all its stakeholders, to admit itsfailures and weaknesses, and to act nowto get things right for its members, for itscustomers, its employees, and the widercommunity in which it trades. If it doesnot grasp this opportunity and modernisenow, there is a very real chance that it willnot survive to celebrate the bicentenaryof those original Rochdale Pioneers who in 1844 created an innovative andinspirational business model, which wasunique in combining commercial andsocial goals, in a new form of enterprisewhich has, so far, stood the test of time.


social goalsprovide acompetitiveadvantageleading tocommercialsuccessChapter 1 – Re-establishing the Co-operative Advantage

1The Commission’s role1.1 The Commission has interpreted itsrole as having three aspects. First, basedon its terms of reference, to analyse theperformance of Co-operative Societiesand of the Movement as a whole duringthe recent past decades. Second, tomake recommendations as to how thecommercial and social performance ofSocieties and the Movement can beimproved. Third, to set both the analysisand the recommendations for change inthe context of the current and futuresocial and economic considerations andconcerns – including the need to developthe social economy – which are facingthe Co-operative Movement. The first keystep in moving towards this objective is tore-establish the Co-operative advantage.

1.2 In attempting to discharge theseresponsibilities the Commission hasattempted to be radical – prompted bythe measure of shortfall in performanceof significant parts of the Movement'sactivities – and yet to root this radicalismin an understanding of the beliefs andcommitment of Co-operators and thehistoric mission of the Movement. Webelieve that, with the correct remedialaction, this historic mission can becarried forward during the twenty-firstcentury to the benefit of our citizens.

2The distinctive characterof Co-operatives2.1 Co-operatives are more than businesses.

They exist as distinctive organisationsbecause they also have Co-operative andsocial goals, which they wish to achieve.Notwithstanding these social objectives,however, the Co-operative Movement, in its various activities, needs to deliverconsumer satisfaction and to achieve asurplus on its operations. In the marketsin which Co-operative businesses operatethere is a need to keep pace with privatesector provision. Failure to achieve therequired commercial success will meanfailure to achieve the social goals.

“Lessons to be learned from plcs include a genuine performance culturecharacterised by intolerance of poorperformance, proper accountability ofsenior executives, a more flexible andadaptable approach and more effectivestaff training." A co-operator, Manchesterregional hearing

2.2 In some areas of business, notably in attempting to compete with the largemultiple stores and supermarket chains,it has failed to perform adequately.Indeed, there has been a long-term,significant under-performance in themajority of the Retail sector within theMovement, caused by a lack of vision; afailure of co-operation, and poor directionand management of businesses acrossthe sector. This commercial failure hasforced remedial changes in managementstructures, mergers, and closures. However,these forced developments have beeninadequate to prevent substantial loss ofmarket shares and the majority of the RetailMovement is facing an uncertain future.

2.3 Despite the fact that parts of the Co-operative Movement are clearlysuccessful, across the Retail sector as awhole, performance has been inadequateand declining. In recent years, this poor

performance has been accompanied bythe sale of assets to fund trading losses.This is clearly unacceptable as other thana short-term palliative.

2.4 The failure relative to the market on the part of most of the Retail sector must be arrested. In today’s competitivecommercial environment such failure is penalised more severely than ever. The Co-operative Movement cannot be sustained simply on the basis of itssocial commitment.

2.5 It is essential for all Societies to generateannually expanding trading surpluses; toachieve a minimum of ROCE, to increasenet profits and to increase market share.The setting and meeting of such keyfinancial performance indicators is animperative across the whole of the RetailConsumer Movement.

2.6 Other relevant commercial performancetargets must be set in relation to the activityof the individual businesses. Meetingthese targets – with management and staffincentives to achieve them – is an essentialpart of achieving the surplus from whichthe funding for reinvestment and expansion,maintenance of the real value of theassets and funding for community andindividual member dividends can be met.

2.7 It is imperative that Co-operatives, ascustomer-owned organisations, shouldprovide outstanding customer satisfaction,in terms both of the quality of goods and services and of benefits. Indeed the Co-operative Movement should beproviding the benchmarks for quality and service in the sectors and areas inwhich it operates. This cannot be said to be the case over a wide range of the Movement's activities. Unless themajority of the Movement's activities


13 The Commission’s role13 The distinctive character of Co-operatives14 Analysis15 Commercial performance16 Social performance18 Social auditing19 The virtuous circle20 Social goals

20 Reinvestment in the business21 Allocating the profit21 Positive contributions21 CRTG performance22 CWS Agriculture22 Associated Co-operative Creameries24 Financial services26 Recommendations

Co-operative Retail turnover by category (%) 1999

Source: Co-operative Union

Food55

Funerals, etc 4Dairy 4

Non food 13

Motor trades 11

Travel 13

Total Co-operative Movement number of outlets 1999


Food/grocery2,295

Non food 164 Superstores 44

Specialist 1,029

Travel 521

Others 590

can emulate the best then the inexorable,slow decline of the Movement will continue.

2.8 Ironically, the size of the Co-operativeMovement's retail businesses makes theCo-op one of the largest retailers in theUK, yet this notional dominance is nottranslated into the kind of commercialcultural dominance which, say, Boots hasand which the major supermarket chainsare attempting to achieve.

2.9 In certain sectors and in certain typesof operations, e.g. large departmentstores and superstores, it is unlikely that the decline can be arrested. Thecustomer offering in these activities isseen as inferior to conventional businesscompetitors. Hard decisions are likely tohave to be taken here, and the Movementmay have to countenance moving out oflarge department stores and superstoresaltogether, as have some Societies already.However, the successful growth in othernewer areas such as travel and The Co-operative Bank indicates the growthpotential for the Co-operative model, buildingon the Co-operative business advantage.

2.10 The Co-op is also burdened with anunfortunate, old-fashioned image. It isessential to the future successful growthof the Co-operative Movement that thisgeneral poor image is addressed and anew branding strategy is developed. Inachieving the essential changes to becomesuccessful Co-operative businesses in a modern consumer environment it is imperative that the principal focus of the businesses is on providing thecustomer with a uniquely satisfyingproduct. This was the basis of the successof the Co-ops in their heyday, it mustbecome so again. The desired success inachieving social goals will only be attainedif the Movement, in all its operations,

achieves the commercial success whichis the pre-condition and basis for deliveringthe social objectives.

“Our business has been built up from theenergies and the contributions of membersand employees over many generations;we hold it in trust for the sake of previousand future generations." A co-operator,Loughborough regional hearing

3 Analysis3.1 Overall there is a significant gap betweenthe Movement's commercial objectivesand its actual performance. There has beendifferential performance for sectors, but,overall, sales have declined in real terms. Theoverall profitability of the Retail Movementis lower than most other industryparticipants in the retail sectors. Significantly,profits across the retail sector have notbeen sufficient to achieve a return on capitalemployed above the rate of inflation.

3.2 There are, however, a number ofexamples of commercially successfulSocieties and there should be a greaterexchange of best practice betweenSocieties in order to increase overallperformance, as a first step to bringingthe majority up to the level of the best.The Co-operative Bank's position hasdemonstrated that growth and improvingeconomic returns can be generatedalongside, and in part through, ethical and responsible trading practices.

3.3 The charts and tables throughout thischapter indicate the nature and extent of the problems faced by the Movementand its lack of success in meeting itscommercial and social goals.

3.4 The various tables also demonstratethat the performance of the Co-operativeMovement, notwithstanding some notableislands of success, has not achieved eithercommercial or social goals. Regarded as a set of commercial organisations –and in particular the retail sector – it hasunder-performed to a degree which canbe said to threaten the future existence of Co-operative businesses and of thepotential of the Movement itself as aprogressive, social force in a modernconsumer-oriented society.

3.5 A variety of factors can be advancedwhich have led to the under-performanceof a substantial section of the Co-operativeMovement. The evidence collected andpresented to the Commission suggeststhat the main factors involved in successand failure can readily be summarised.

3.6 The main factors involved, notnecessarily in order of importance andnot present together in all cases, are:● Inadequate strategic direction of

businesses by Societies’ Boards.● Lack of quality management and

inadequate employee training.● An inability to motivate and involve

Co-operative employees fully in Co-operative businesses.

● Concentration on meeting social goals at the expense of, or without reference to, commercial performance.

● Unwillingness to take commerciallynecessary decisions, e.g. closure ofperennially loss-making activities.

● Failure to innovate in terms ofproducts, services, or organisation.

● Failure to adopt modern, successfulmarketing methods and practices.

● Failure to keep pace with businesssector competitors.

● An inability to take advantage of the cross-selling potential of the

Re-establishing the Co-operative Advantage

Top 10 Retail Societies Turnover(£m) %

CWS (Retail turnover only) 3,809 45.4

United Norwest 779 9.3

Midlands 610 7.3

Yorkshire Co-operatives 400 4.8

Anglia Regional 253 3.0

Ipswich & Norwich 250 3.0

Oxford, Swindon & Gloucester 246 2.9

West Midlands 206 2.5

Lincoln 206 2.5

Scottish Midland 204 2.4

Total 6,963 83.1

Excludes intra Movement trade – all figures on a 52 week basis

Source: Co-operative Union – 1999 statistics

0

20

40

60

80

100

1980 1985 1990 1998 1999

Top 10 Top 20


Co-operative trade accounted for by top Retail Societies (%)

Movement as a whole.● An, as yet, unfulfilled potential of

the Movement to communicate itscapability to respond to developingconsumer demands for trust and social concern in the delivery of goodsand services.

● Failure to measure and set clear goals for both commercial and socialperformance.

● Lack of the active involvement of properly informed members in the affairs of the Co-operativebusinesses.

● Lack of pressure on management andBoards for change.

● Lack of focus on commercialperformance.

● Reluctance to change poormanagement or recruit newmanagement externally.

● Fragmentation of the Movement.● Lack of co-operation between Societies.

3.7 Each one of these factors on its ownwould be sufficient to create substantialproblems for Co-operative businesses. Inmany cases more than one of the factorsare present and account for the deterioratingcommercial performance of substantialsectors of the Co-operative Movement.

“There was a need to achieve excellencein terms of customer satisfaction, interms of providing high quality, beingprice competitive and offering value for money. This was seen as a means of improving bottom line performance, as well as being a practical means ofdelivering Co-operative values and giving additional credibility to our widergoals as a Co-operative." A co-operator,Manchester regional hearing

3.8 By contrast where there have beensuccesses then it is the absence of these

negative factors and the presence oftheir positive obverse that explain thesuccess. For instance, the success of the smile Internet banking service can be attributed to strong innovation andcapable marketing allied to an efficientbusiness approach. The refurbishment of the CWS Welcome stores has alsobeen related to the same two factors. A number of Societies have recently takensteps to involve their membership activelyand to expand it as part of a more dynamicstrategy from the Boards of these Societies.A few Societies have closed loss-makingactivities to improve the overall position of their businesses and raised their level of profitability. Again in connection withsocial goals and activities some Societieshave, on the back of improved commercialperformance, involved themselves in a positive and productive manner incommunity development projects andsupport for other Co-operative ventureslocally and regionally.

3.9 Failure to meet commercial performancemeasures entails failure to meet socialgoals on an on-going basis. The fact thatsome Societies have failed to meet theformer, but have continued to meet socialgoals by the sale of assets is a matter forserious concern, not congratulation.

3.10 Being a Co-operative is not an excuse for poor commercial performance. TheReturn on Capital Employed (ROCE) must be raised, and other measures of performance must reflect themaximum that can be achieved withoutcompromising Co-operative principles;for example the existing market sharemust be at least maintained.

3.11 It is important that all involved in the Co-operative Movement appreciate thatthere is no choice or conflict between

commercial objectives and social goals.Commercial activities must generate a sufficient surplus to ensure the re-development of the business; thepayment of individual customereconomic benefits; and the payment of a community dividend. Without asurplus the business will decline andsocial goals will not be met.

4Commercialperformance4.1 Some valuable work on performancemeasures has already been presented to the 2000 Co-operative Congress bythe Co-operative Union. The issue to be faced by Societies is ensuring thatrelevant performance measures, andparticularly commercial performancemeasures, are met on an on-going basis.

4.2 The key performance measures arethose that relate to the generation of atrading surplus. Increased turnover oreven increased market share alone willnot guarantee that a trading surplus willbe achieved; any expansion of tradingmust be profitable (within a reasonabletrading period) for it to be justified.

4.3 The assets of the business, humanand physical, must be employedeffectively and efficiently and mustgenerate an adequate return. This is true whether it is the Return on CapitalEmployed (ROCE) which is being used or a more general measure such as theproportion of profit in the value added by the business to its inputs in terms ofwages and capital employed.


Balance sheet – Co-operative Retail Societies

1998 1999(£m) (£m)

Fixed assets 2,450 2,370

Net current assets/liabilities 129 346

Long term liabilities 962 1,074

Net assets 1,617 1,642

Share capital 308 277

Reserves 1,309 1,365


80

90

100

110

120

130

140

150

160

170

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Note: The declline in the last four years is principally attributable to CRS


Co-operative Retail Societies’ trading profit – last 10 years (£m)

4.4 These and other measures of surplusand profit can also be used to compare theperformance of Co-operative businesseswith similar trading operations in the plcsector. In relation to both the food andnon-food sectors, the Co-operative retailperformance compares very unfavourablyon the measure of ROCE. In thesecompetitors, which correspond with themajority of Co-operative retail activity, it is not unusual to find returns of up to 20 per cent achieved in the most successfulsupermarket chains such as Tesco (seetable page 24). Overall the Co-operativeretail sector achieves barely 5 per cent. It is with this in mind that we arerecommending a minimum ROCE as a first milestone for Co-ops. Failure toachieve this should result in remedialaction being taken by the Movement.Poorly performing Societies affect thehealth of the Movement as a whole; their performance must be brought up to the level of the best.

4.5 The Boards of Co-operative Societieshave a responsibility urgently to establishchallenging Key Commercial PerformanceIndicators (KCPIs) and to monitor theirperformance objectively against thosetargets, while respecting Co-operativevalues. The performance indicators shouldbe presented to members at the AGM.

See recommendation 1

4.6 Where it becomes apparent that aSociety is failing to meet its KCPIs, then an interim report should be presentedto members at the Half Yearly Meeting.

4.7 Performance targets should be set in relation to ROCE – Return on CapitalEmployed – which is a valuable benchmarkwhen comparing the performance of oneretail Society with another and when

comparing retail Societies with equivalentplc competitors. Other performancemeasures, e.g. net trading surplus, whichshould achieve a minimum percentage ofturnover, appropriate for the nature of thebusiness, to allow for reinvestment andthe payment of individual and communitydividends; gearing ratios, and marketshare (which should be maintained orincreased) should also be used.


4.8 However, it is important that managersand directors are aware of the necessityof securing year on year trading surpluseson turnover, from which must be generatedthe funds for reinvestment in the growthof the business; the finance to provideindividual member dividends and othercustomer benefits; and the funds toestablish the community dividend in supportof the achievement of the broader socialgoals. Accordingly, Societies should urgentlyreview the performance of their variousbusiness sectors to determine their long-term viability.


4.9 We believe that the Co-operativeUnion has an important role to play at the level of the Movement as a whole in setting and monitoring appropriatecommercial performance measures. For this reason we wish the Co-operativeUnion to establish a Commercial andSocial Performance Panel.


4.10 One role of the Panel would be to setcommon KCPIs for Societies to adopt to measure their individual commercialperformances, submitting these to thePanel for scrutiny on an annual basis. This

would enable benchmarking to improve,over time, the performance of the wholeCo-operative retail sector.

4.11 The Co-operative Union would be the body ultimately responsible foradjudicating on the performance ofindividual Societies, against the KCPIs;deciding what remedial action was to berecommended or imposed, and settingappropriate commercial performancebenchmarks for all Societies. Societiesshould adopt a standard system offinancial reporting so that there isconsistency across the Movement.

See recommendations 5 and 6

5Social performance5.1 Though we take the view that theachievement of a far higher and sustainedlevel of commercial performance by all businesses within the Movement is its first and overriding priority and fullyin line with the Co-operative purpose,nonetheless the Co-operative Movementmust also achieve its social goals. Indeed,the achievement of social goals is boththe outcome of enhanced commercialperformance and – properly articulated,communicated, and delivered – exerts a positive feedback on the achievementof improved commercial performance.

“It’s being a Co-operative and expressingCo-operative values and principles thatshould differentiate us from a plc, thisdifference should be more clearly promotedin the marketplace. Co-operatives are poorin advertising their principles and valuesand the Co-op difference." A co-operator,Loughborough regional hearing


0

5

10

15

20

25

30

Opticians

Travel

Community

stores Dairy

Pharmacy &

Chemists FTSE100*Motor

Supermarkets

Non food

retailers Co-opShoes

Funerals

Performance of the Co-operative Movement compared with competing industry sectors 1998 (%)Return on Capital Employed by sector 1999

0

5

10

15

20

25

30

Note: *FTSE100 excludes financial institutions, FTSE100 and Co-op 1998 numbers.

Source: L.E.K., Datastream, Company Reports


The Co-operative Bank’s reputation forinnovation was demonstrated againduring 1999 with the successful launch of smile, the UK’s first full Internet bank.

smile made an immediate impact withhigh profile advertising, PR and its freshand innovative approach.

smile offers a comprehensive range ofbanking products including some of thebest priced products on the market, and

puts the customer firmly in charge oftheir finances. It was also the first Internet bank to reach the BS7799 British Standard, for its informationsecurity management system.

Customers of smile can do their bankingon the Internet from anywhere and at any time. They also have the 24 hoursupport of the smile service centre and can use any of 18,000 Post Offices to do their banking.

smile recruited 200,000 account holders in just 10 months – more than 80 per cent of whom are new to The Co-operative Bank.

smile – the Internet bankA Co-operative case study

Andrew Knox and smilestaff at The Co-operative Bank’s customer service centre in Stockport

5.2 Hence, accompanying the setting,monitoring, and meeting of commercialperformance targets there should be a similar framework in relation to socialperformance targets. Like the commercialindicators, the Key Social PerformanceIndicators should be presented to membersat the AGM, but where a Society is failingto meet the required indicators, aninterim report should be presented at the Half Yearly Meeting.


5.3 Again this would be the responsibilityof the Co-operative Union's Commercialand Social Performance Panel. Therewould be a parallel procedure formonitoring the performance of Societiesagainst Key Social PerformanceIndicators (KSPIs) as for KCPIs.

5.4 The Co-operative Union would beresponsible for adjudging whetherSocieties were performing adequatelyagainst the published KSPIs and settingappropriate social indicators.

5.5 In determining both KCPIs and KSPIs,the Co-operative Union should consultwith leading external experts in this fieldin developing appropriate benchmarks.

6Social auditing6.1 Social auditing was originallypioneered by the Co-operative sector, in particular the Scottish communitybusiness movement together with theNew Economics Foundation. It is nowbeing used by organisations as diverse as local LETS barter schemes and global

businesses worldwide such as BP Amocoand British Telecom. Winners of the 1999Social Reporting Award included ShellInternational and The Co-operative Bank. However, while there is a strongcorporate involvement in these initiatives,there is a legitimate concern that someshareholder-owned companies are usingsocial auditing as a marketing tool anddiluting the extent to which it acts as atool for the empowerment of stakeholders.The Co-operative sector in the UK andworldwide has a leadership role to play incontributing to the development of socialauditing in ways that maintain sufficientquality standards.

6.2 Social auditing sets out the socialimpact of an organisation’s activities. Ituses a toolkit of indicators, benchmarks,stakeholder dialogue and publicreporting. There are emerging standardsin the field, such as AA1000 as well asinitiatives such as SA8000, the GlobalReporting Initiative and SIGMA – eachaddressing a component of socialreporting or the integration of social,environmental and economic reporting.

6.3 It would not be appropriate, at thisstage, to make conducting a social audit a regulatory condition of being a Co-operative, as this will add costs to Co-operative start-ups. Instead, social auditing should be encouraged as good practice and perhaps, potentially,a condition of membership of the Co-operative Union, after an initial tradingperiod. In addition, the Co-operativeUnion should develop a standard systemfor social reporting so that there isconsistency across the Movement.

6.4 Again a further possibility would be to reduce the costs of social auditing,particularly for community-based

Co-operatives, by developing Peer GroupVerification; a mutual association oforganisations completing social audits orindividual co-operators willing to be trainedas social auditors to allow verification of another Co-operative’s social audit. This could be done under the aegis of the Co-operative Union.

6.5 Taking account of the abovediscussion, all existing Societies shouldbe prepared to commit to a social audit. Performance would be measuredagainst pre-stated criteria relevant to all stakeholders, independently and objectively audited by an outsideorganisation appointed at a Society'sAnnual Meeting, against a standard to be set by the Co-operative Union (as outlined above) and the resultsreported to the Society's following AGM and, collectively, presented toCongress by the Union. Such a procedurewould allow benchmarking to be carriedout and standards raised by emulation of the best-performing Societies.

6.6 The social objectives of the Co-operative Movement must beimplemented in such a way that they help to promote – among the public at large – the value of the distinctiveCo-operative principles. We believe that the Co-operative Movement as a wholeshould share common attainable goals,which will help presently disparatesections of the Movement to supporteach other. The work of the Commercialand Social Performance Panel shouldencompass this task.


6.7 The Co-operative Union shouldproduce an Annual Report on the work ofthe Social and Commercial Performance


BP Amoco Shell

UnileverBAT

Tesco BT

SainsburyDiageo

Co-op** ICI BAM&S

SmithK B

Glaxo Wellco

me

Cable & Wireless

Centrica

Kingfisher

BAe Systems

Marconi

P&O

Invensys

Note: *Excludes financial institutions. **Black area indicates the inclusion of the figures for CIS and The Co-operative Bank

Source: L.E.K., Datastream

0

5

10

15

20

25

30

35

40

45

Comparison of Co-operative with the FTSE100 top 20 companies ranked by 1998 turnover (£bn)*

Panel which would be presented to theCo-operative Congress.


6.8 Since the Co-operative values give a competitive advantage to the Co-operative businesses, it is essentialthat the benchmarks set for both t̀he social and commercial goals of individual Societies are reached. The Co-operative Union should have theability to appoint two advisors to workwith the Board of a consistently under-performing Society.

6.9 We also believe that a common andgenerally accepted mission statement towhich all parts of the Movement wouldsubscribe, as discussed in Chapter 7, canassist in motivating all in the Movement to work in a concerted and co-ordinatedmanner to achieve its common goals,commercial and social.

7The virtuous circle7.1 The virtuous circle theory underlyingthe operation of the Co-operativeMovement suggests that attainment of social goals provides a competitiveadvantage leading to commercialsuccess, which then reinforces the ability to meet the social goals.

7.2 The problem with this theory is that, towork, the social goals of the Co-operativeMovement must be articulated,communicated, and accepted by societyat large, and particularly by customers, so that they can fulfil the role of businessdrivers. Competitive advantage must be maintained by efficient operation

at least as well as the private sector, by ethical and responsible trading, and by delivering economic benefit to customers. Commercial successmust secure a balance of distribution of the surplus generated between thecompeting demands of reinvestment in the development of the business, thecommunity dividend, and the individualdividend to continue the virtuous circle.

“In the Co-op you have an organisationthat is as democratic and as Co-operativeas the ideal may be, but if it is not acommercially successful businessaddressing the crucial business issues of the day, it would not continue to existin the twenty-first century but on theother side of the self same coin to ignorethe Co-operative aspects, we would lose the plot..." A co-operator, Manchesterregional hearing

7.3 It is clear that in some areas of Co-operative Movement activity the virtuouscircle has broken down. The breakdownaffects all three elements of the virtuouscircle, sometimes all three together.

7.4 Hence we see the issues for the Co-operative Movement – in terms of thenew vision required to sustain and expandthe Movement in the twenty-first centuryon the basis of the establishment of asustainable virtuous circle – as three-fold:● A reinterpretation of the historically

valid principles and social goals of co-operation in modern concepts and language and connecting withmodern concerns.

● Strong marketing of the Co-operativeadvantage at national level in terms of the already suggested formulation of ‘Effectiveness, Responsibility, and Reward'.

● A clear and positive distribution of the

surplus between redevelopment andexpansion and the community andindividual member dividends.

7.5 In this way successful Co-operativebusinesses – based on the belief that co-operation is a superior form of socialorganisation – can be redeveloped.Moreover, the achievement of regular andexpanding trading surpluses – securedby the continuous meeting of appropriatebusiness performance targets – willenable necessary reinvestment to takeplace and the social goals to be met from the surplus. In this manner the fullCo-operative vision can be delivered.

7.6 While it is obviously necessary for aconstant monitoring of the performanceof trading competitors to be undertakenat all levels, we believe that a moreformalised mechanism of support andinformation exchange is required withinthe Movement itself. Benchmarking within the Movement to enable the rapidcopying of best practice – supported bytraining and other support mechanisms –is undoubtedly the best way of ensuringthe common development of all parts of the Movement. Accordingly, the Co-operative Union, in liaison withSocieties, should establish Key SocialPerformance Indicators.

7.7 In this context, it is worth examiningthe social goals of Co-operativebusinesses and how their successfulachievement can enhance thecompetitive advantage of Co-ops.

7.8 Before doing so, it is important torecognise, at the outset, that there is asignificant difference between charitablesupport given by Co-operative Societies– which is laudable in itself and helps to raise the community profile of the


The Co-operative virtuous circle

Movement, particularly locally – and thefulfilment of the strategic social objectivesof the Movement. In so separating these two aspects of the activities of Co-operative businesses, we do not wish to deny the relevance or value ofcharitable donations given by customersand members or their effectiveness in‘attaching' customers to Co-ops, butsimply to clarify the direct and strategicaspects of Co-operative social objectives.

8Social goals8.1 The social goals and their relationshipwith the potential competitive advantage of Co-ops are illustrated in tabular form above.

8.2 A successful Co-operative businessmust, therefore, be able both to delivermeaningful economic benefits to itscustomers/members and to make acontribution to the wellbeing of the local community where it is based andfrom which it draws its employees.

8.3 One prerequisite for a Societyestablishing a mechanism for, and a commitment to, the achievement of Co-operative social goals is to have a strong Board with clear views on its Co-operative identity and its twincommercial and social objectives. It willthen need to assert and to communicatethe ‘Co-operative advantage' to itsmembers and to its customers.

8.4 The active engagement of members,for instance via Member Groups, in thepursuance of the social goals (see page 80)is another important means of ensuringthe achievement of social objectives.

8.5 Through the use of the communitydividend a Society can become anintegral part of the local and regionalbusiness and social economy. Societieswill be able to undertake involvement in such actions as the establishment of Social Venture Capital Funds;involvement in Small Business Services;and participation in developing andimplementing regional developmentstrategies through Regional DevelopmentAgencies, including in particular strategiesfor Co-operatives’ development.

8.6 Nor should the latent interest ofconsumers in ethical issues be under-estimated. A MORI poll in June 2000indicated that though there may only be around 5 per cent of ‘ethical activists’,only 20 per cent are uninterested inethical issues. This leaves some 75 percent of consumers who are potentiallyconvertible to ethical activism to one degree or another and also to anappreciation of Co-operative values.

8.7 The challenge, for all in the Movement,is to define and to set social goals thatare in line with modern society's perceivedand expressed needs. The furtherchallenge is then to demonstrate that the Co-operative Movement can delivermeaningfully against these goals on a consistent basis, both to its customersand the community.

9Reinvestment in the business9.1 Reinvestment throughout the Movementis the first priority and should have firstclaim on any surpluses generated.

Reinvestment is essential for two reasons,both of which are highly relevant for theCo-operative Movement.

9.2 First, it is necessary to ensure that thephysical establishments and the humanresources of the Movement's businessesare adequate to meet the demands madeon them by customers; have modern andattractive premises and well-qualifiedand trained management and staff; areable to introduce new technology at anadequate pace; and are keeping in linewith likely future market developments.

9.3 Second, reinvestment will be necessaryif new sectors and new enterprises are tobe developed as recommended in Chapter2. Reinvestment is not only essential,therefore, to provide a sustained level ofservice delivery to customers, but also toprovide for the expansion of Co-operativebusinesses in existing successful areasand in the new, exciting areas of businessgrowth where we believe the Co-operativeadvantage can be demonstrated.

9.4 There is ample evidence from our ownresearch and from the Movement itselfthat reinvestment has been neglected for some years in a substantial part of the Movement. Partly this is the result oftrading failure and the loss of surpluses,but this is a ‘chicken and egg' problem;the trading failure partly results frominadequate reinvestment in the past andcurrently. What is clear is that the currenttrend must be reversed.

9.5 Where reinvestment is required it should only be undertaken as part ofthe new business strategy and not as a short term ‘fix’ and only where there is a prospect of a good return. This renewedinvestment will need to be accompaniedby a process of rationalisation and the


Social goals Competitive advantage

Customer economic benefit Increased customer loyalty and better prices

Member benefit Increased democratic participation

Employee stakeholders Align staff goals with organisational goals. Retentionand recruitment. Better customer service

Ethical corporate culture Clarity of purpose for employees/customers

Campaigning for the consumer Creates trust in the brand

Community investment Closeness to and understanding of community,recruitment of customers, members and employees

Social enterprise initiatives Influence at local/regional level

Democratic participation Sense of enfranchisement for customershareholders; responsiveness to customer needs

Civic and community education Increased understanding of the benefits of the Co-operative approach leading to greater communitysupport and customer loyalty

Source: Based on L.E.K. presentation to the Co-operative Commission

closure of uncompetitive sectors. Such investment must be assessed andimplemented in the context of a long-term strategic plan for the business.

9.6 The positive effect on performance of refurbishments within the CWS estate(Welcome stores) is a clear demonstrationof the enhancing impact of reinvestment.However, the common perceptions ofsuccess frequently lag years behind thereality. It is imperative, therefore, that Co-operative Societies establish moreeffective, consistent, and co-ordinatedcommunication of the positive impacts ofsuch investments on customer offeringsin relevant catchment areas.

10Allocating the profit10.1 The calls on the surplus of the Co-operative Movement are no differenttoday than they were in the days of theRochdale Pioneers. As discussedpreviously, they must be used for theprofitable development of the business.Any surplus needs should be split betweenindividual and community dividends.

10.2 The surplus of a Society should bechannelled into three core areas:i Reinvestment throughout the Retail

Society must always have the firstclaim on profits. Societies shouldinvest where they are able to achievethe appropriate return – that is onewhich is above the cost of themembers’ funds they are committing.

ii After reinvestment in the business, allSocieties should allocate a part of theprofit to be returned to members asan individual dividend in proportion to their purchases.

iii In order to meet the Societies’ Co-operative and social goals werecommend that a third area ofallocation from the profits should be to a community dividend.

Where Societies are achieving profitabilityand their funding position permits, theyshould seek to ensure that a minimum of10 per cent of that profit is for the allocationto the members’dividend and the communitydividend. It may be that where greaterlevels of profitability are achieved or aspart of a stakeholder dividend initiative alarger share of the profit may be allocatedto the members, the community or indeedthe employees. The Commission believesthat the ratio distribution of individual tocommunity dividend should be around 70 per cent to 30 per cent.

10.3 By adopting this formula, Societieswill ensure that their commercialoperations are financially sound and that they have appropriate access to new investment funds. However, they willalso be making an absolute commitmentto returning surpluses to the individualsand to the communities in which theyhave been earned.


11Positive contributions 11.1 Though, as the above paragraphsindicate, we are critical of the performanceof the majority of the Co-operative Retailsector, nonetheless it would be unfair andinaccurate to give the impression thatthere were not examples of successfuloperations within the wider Movement. A number of Co-operative Societies have been able in recent years to make

a positive contribution to the Movement’sperformance and to its image. It is worthbalancing our specific and generalcriticisms contained in the above analysiswith a record of areas of Co-operativeperformance which indicate that a moderncommercial approach – though it isimperative that it be sustained – canenable a strong showing to be made.

12CRTG performance 12.1 It is pleasing to be able to report that in respect of CRTG and its role as a national purchasing agency, there is good news.

12.2 CRTG has been one of the majorsuccess stories of the Co-operativeMovement over the last decade. It hasgrown by 174 per cent over that periodand now accounts for 90 per cent of the Movement's food trade. Moreover, it provides a rebate that is equivalent to almost 3 per cent of sales to memberSocieties. In assisting the development of the CRTG, retail Co-operative Societieshave demonstrated that, when they co-operate at a national level, they canachieve much greater commercial success.

“...CRTG, this has been one of the greatsuccesses in recent years... we must buildon the success of CRTG and continue itsdemocratic development." A co-operator,Loughborough regional hearing

12.3 It is clear that a Movement which co-operates to achieve national scale,but which retains its capacity for localdelivery, can achieve increasingcommercial benefits. The success ofCRTG has been driven by ten factors:



1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

932

859

801743

680

539

357

282 260 237 225 206145

112 102 87 79 64 54 52 48 46

Number of Co-operative Retail Societies 1958-2000

i The establishment by CWS of a singlebuying point and requiring memberSocieties to give up their own buying teams.

ii Forcing the suppliers to deal only with CRTG and therefore preventingthem bypassing CRTG with ‘special deals’.

iii Development of a professionalcategory management team.

iv The buying team's accountability for thebottom line performance of a largeproportion of the Movement's stores.

v Momentum created by CRTG's ownsuccess story.

vi The clear and direct managementstyle that allows the categorymanagement function the freedom to take all day-to-day decisions.

vii Discipline in delivering commitments to suppliers.

viii Commitment of founding partnersand newer members of CRTG.

ix Commonality of purpose.x Flexibility in its operations.

12.4 In 1999 CRTG generated a poolequivalent of rebates that is equivalent to almost 3 per cent of sales and is morethan the trading surplus of the entireMovement.

12.5 Over the longer term the Movementwould benefit greatly through sharedresources in other activities within thefood trade; in particular:● The development of a national

distribution system. ● Marketing services such as advertising.● Development of standard store

formats, layouts and fascia.● Purchasing of store fixtures and fittings.● Purchasing and provision of IT equipment

and services such as EPOS systems.

12.6 Such an approach could yieldsignificant benefits in terms of commonbranding and image, uniform offerings,and cost savings.

12.7 Notwithstanding the success of CRTGin terms of its overall performance, it isclear that regional Societies have concernsabout the current structure of CRTG. In particular, these centre around:● The concern about loss of control of

CRTG as a result of loss of Societies'majority control of CWS Board followingits merger with CRS in April 2000.

● A perceived need for transparency to demonstrate equal service levelsand rebates as those which CWS Retail receives.

● Concern over service levels and costsof CWS distribution system.

12.8 Both CWS and the regionalSocieties would like to see CRTG develop its services further, and for this to happen there is a requirement to formalise its structure withoutundermining the factors that have madeit a success. We believe these concernsare valid, but that they can be allayed by a number of specific structuralchanges in the relationship betweenCRTG, CWS, and the retail Societies, and in the contractual arrangements for service and delivery.


“The structure of CRTG is good as it is,but if we are to get more brands of goodsand cheaper commodities, we really needto upgrade CRTG and bring it into thewider business – a kind of CRTG Mark II.”A co-operator, Edinburgh regional hearing

13CWS Agriculture13.1 The Co-operative Movement throughCWS also remains the country’s biggestcommercial farmer and is thus unique in being involved in all stages of the foodchain from plough to plate. The historiccommitment of the Movement to theprovision of wholesome, unadulteratedproduce has recently struck a realcommercial chord as concerns oversalmonella, BSE and genetically modifiedfood have massively heightened consumerawareness and demand for food productsof guaranteed origin and quality.

13.2 However, the current crisis infarming has resulted in losses for the first time since the 1920s, raising seriousquestions about continued practice in this sector if the national situation does not improve.

14Associated Co-operative Creameries14.1 Associated Co-operativeCreameries (ACC) is the manufacturingand distribution arm of CWS. Its originsare as a federal dairy business, becominga wholly-owned subsidiary of CWS as a result of the North East merger. From its core business of milk processing and doorstep delivery it expanded intotemperature controlled distribution and subsequently took on CWS ambienttemperature distribution too. In addition,in 1997 the two remaining CWSmanufacturing businesses – Goliath


0

5

10

15

20

25

1957 1967 1977 1987 1997 1998* 1999* 2000*

Co-operative share of grocery trade (%)

Source: TNS Till Roll Trade Services*


The launch and roll-out of over 250 Welcome convenience stores in the last couple of years has been a major success for CWS and highlights its firm commitment to communityretailing.

Following a major strategic review of itsfood activities, CWS decided to focus ondoing more of what it did best, namelyretailing through market townsupermarkets and convenience stores.

New build and acquisition strategy was to focus on these formats and a majorrefurbishment programme was launched.

In early 1999, CWS trialled its new formatfor convenience stores under the Co-opWelcome fascia. The results wereexcellent and customer feedback wasvery positive.

The decision was taken to roll out thestriking blue and yellow Welcome format

on an unprecedented scale. All CWSconvenience stores will be converted to Welcome by 2003.

The bright bold colour scheme and fresh new look stores, with the emphasison convenience, have now become a familiar sight in CWS trading regions,are a hit with customers and areoutperforming the market.

Welcome storesA Co-operative case study

The Co-op Welcome store in Northolt

(safety footware) and Robert Howarth(shirts/corporate wear) were added to the ACC portfolio.

15Financial services15.1 The issues that must be tackled by the Co-operative Movement are notconfined to the retail consumer sector.Considerable challenges also need to be faced in the successful Co-operativebusiness areas of banking and insurancein order to ensure their future success.

15.2 The Movement is fortunate to have(through CWS) two very successfulbusinesses in the field of retail financialservices – the Co-operative InsuranceSociety (CIS) and The Co-operative Bank.However, in an increasingly competitivemarket that has been undergoingsignificant structural change andconsolidation for many years, theCommission was surprised by the lowlevel of collaboration and co-ordinationso far between CIS and the Bank. It isunderstood that, in spring 1999, CWScommenced a review of its financialservices subsidiaries within the context of the changes taking place within thefinancial services market and that thisreview is ongoing.

15.3 CIS and The Co-operative Bank have historically developed and operatedlargely independently of each other, with quite different approaches to themarketplace and to channels of distributionand service. Both now have significantcustomer bases, with more than three millionCIS customers and two million Co-operativeBank customers, but with only a relativelysmall overlap between the two.

15.4 The research undertaken by theCommission has made it clear that theextent of the changes taking place withinthe UK retail financial services market is unprecedented in modern times.Traditional distinctions between bankingproducts and insurance and investmentproducts are becoming blurred, consumersare becoming better educated aboutfinancial products, and the marketplaceis demanding much better value for money.The pace of consolidation and mergeractivity within the industry is accelerating,with scale economies and access to newand larger customer bases being keydrivers in a market where margins areslimmer, and becoming more so, than inthe past. Many insurance companieshave entered the banking market, manybanks now have extensive insurance andinvestment activities and we have seenthe emergence of ‘Bancassurance’ and‘Allfinanz’ as traditional banks, insurersand investment houses become integratedretail financial services businesses. Newtechnology is influencing these changesand is acting to increase the competitivepressures, and has also assisted newcompetitors to enter the market.

15.5 Against this background of rapidindustry change and increasingcompetitive pressures, it is interesting to compare the strengths and operatingmodels of the two Co-operative financialservices businesses.

15.6 The Co-operative Bank has clearlydemonstrated a successful and modernbusiness model that includes first-classservice and marketing based upon theBank’s distinctive brand positioning,product and technological innovation, andits multi-channel approach to customersales and service. The Co-operative Bankis well known for its speed of response

to market changes and for the quality ofits service through the most up-to-datefacilities including call centres and theInternet. It recently developed andlaunched smile, the UK’s first full Internetbank, to considerable accolades. TheBank currently makes relatively few salesof insurance and investment products toits customers. Its services and productsare delivered profitably, ensuring thatCWS enjoys an upper-quartile rate ofreturn on its investment for the benefit of CWS members. In 1999, the Bankreported its sixth consecutive year ofrecord profits with a return on CWScapital of 35 per cent. However, the Bankis faced by competitors of substantiallygreater size and resource levels, and maywell be disadvantaged in the future interms of its ability to invest and achieve therequired economies of scale and productbreadth to meet the changing market.

15.7 Although its customers participate insignificant numbers in the formulation ofthe Bank’s ethical policies and communityinvolvement ‘customers who care’programmes, customers currently haveno membership rights in either the Bankor its parent Society, CWS, related totheir product or account holdings.

15.8 CIS has also developed a successfuland growing business which includesconsiderable operational and financialstrength, a reputation for good value andservice, a rapidly modernising productportfolio, and the largest direct insurancesales force in the UK. Its business modelis very different to that of the Bank,however, in that it relies on the singledistribution channel of home service and does not manage its business for the benefit of CWS members or reportprofitability as such. CIS policyholdersare not members of CIS or indeed CWS


15

12

9

6

3

0

Note: The competitor data is from the Report of the Competition Commission 2000. ROCE is defined as operating profit as a percentage of shareholdes’ funds plus long-term debt.

The Co-op figures are not strictly comparable – they comprise total Retail Society trade, not just food. However they only include CWS retail businesses, and not The Co-operative Bank or CIS. The figures are taken from Co-operative Union Co-operative Statistics, and refer to trading surplus as a percentage of shareholders’ funds pus long-term liabilities. Year 2000 figures not available.

Benchmarks – Return on Capital Employed

18

21

24

96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99

Tesco Sainsbury Asda Safeway Morrison Co-op equivalent

and have no membership or ownershiprights, unlike the typical policyholders ofa mutual insurance company, but in manyways CIS operates its business as if itwere a mutual insurer. It is not known howmany CIS customers are members of itsparent Society, CWS, but it is believed tobe a very low percentage. The homeservice distribution method, on which CIScurrently relies exclusively has traditionallyserved it very well. However, today it isgenerally considered to be relatively highcost and is in long-term decline within theUK financial services industry.

15.9 The Bank has been at the centre of efforts to cross-market financialservices products to Co-operative retailcustomers throughout the Movement,which have included Co-op Instant AccessSavings Accounts, Co-op Cash Mini-ISAsand Shop-and-Save for Co-op shoppersas well as an extensive programme toinstall ATM cash dispenser machines inCo-op convenience stores. To date, no CIS insurance products have beencross-marketed to Co-operative retailcustomers although it is believed thatworthwhile opportunities could exist.

15.10 There has been some collaborationbetween CIS and The Co-operative Bank,but so far it has been quite limited. Underits banking licence, the Bank provides the deposit account facilities for the CIS savings account introduced by CISabout three years ago, and also the cashcomponent within CIS’s successful rangeof Individual Savings Accounts. CIS is providing the payment protection,buildings and contents insuranceproducts being offered by the Bankalongside its new mortgage product.

15.11 It seems clear that both CIS andthe Bank have considerable strengths,

and in many ways these strengths arecomplementary. Equally, there wouldappear to be significant opportunities to utilise the large individual customerbases of each institution by cross-sellingthe combined products of both. Similarly,it would be surprising if there were not also opportunities to gain someoperating efficiencies by combiningsome administrative and back-officeactivities. The imperatives of thechanging marketplace would appear to suggest that such synergies should be actively sought. Equally, the success of other major UK retailers in the field of personal financial services would suggestthat the Co-op could have a significantopportunity in the future with a combinationof CIS and Bank products carefullymarketed to Co-op shoppers.

15.12 The changes in the financialservices industry and the market,described in 15.4, make it likely thatprospering as independent entities in the future will be increasingly difficult for the Bank and CIS. Both are relativelysmall compared to the big battalions of the opposition, and both could bestrengthened by much closer collaborationtogether. We would not wish to imply thateither can not survive separately, butrather that success and prosperity arelikely to become progressively moredifficult, and significant resources arelikely to be needed to stay the course.

15.13 With these observations as acontext, it seems very important thatCWS takes a holistic view of its financialservices businesses and actively developsan integrated business strategy towardsthe retail financial services market. It would be regrettable if two of theMovement’s best and most successfulbusinesses were to start experiencing

a long-term decline in prominencebecause of an inadequate response to the new challenges of the market.


15.14 Finally, the Commission has someconcerns about the governance structureof both CIS and the Bank, where it isbelieved that modern standards ofcorporate governance could be bettermet. Financial services institutions todayare complex and quite specialisedbusinesses operating in rapidly changingmarkets. The non-Executive Directors ofboth the Bank and CIS are appointed byCWS from amongst the Board membersof CWS (apart from the Chief Executivesof the Bank and CIS, who serve on eachother’s Boards). It would seem unreasonableto expect even the most able andtalented Directors of CWS, be they layDirectors or Corporate Member ChiefOfficers, to have sufficient knowledge andexperience compared to the Executive ofthe Bank or CIS. Given the complexitiesand challenges of these businesses, theCommission believes that the Boardswould be considerably strengthened bythe appointment of some external, andappropriately experienced, independentnon-Executive Directors, and recommendsthat CWS actively considers this.



UnileverTesco

Sainsbury

InvensysRentokil BT BAT

Kingfisher

BP Amoco

Boots Co.

BassDiageo

Co-op**M&S

Marconi

GranadaP&O BA ICI

Great

Universa

l Glaxo

Comparison of Co-operative with the FTSE100 top 20 companies ranked by thousands of employees*Total number of employees 1998

0

50

100

150

200

250

300

Note: *Excludes financial institutions. **Black area indicates the inclusion of the figures for CIS and The Co-operative Bank

Source: L.E.K., Datastream

Commercial performance improvement

1The Commission recommends that theBoards of Co-operative Societies mustestablish challenging targets for thecommercial performance of their Society and monitor their performanceobjectively against those targets. The targets must take account of thebenchmark performance of majorcompetitors and the best performing Co-operative Societies.

2The commercial performance targetsshould include particularly Return on Capital Employed, which should achieve a minimum of 10 per cent as a first step,together with other performance measurese.g. net surplus (which should be sufficientto allow for reinvestment and the paymentof member and community dividends), andmarket share (which as a minimum shouldbe maintained and ideally should beincreased) and gearing.

3The Commission recommends that allSocieties should urgently review theperformance of each of their variousbusiness sectors to ensure that each canachieve and/or maintain financial viabilityover the medium/long term (3-5 years). If such assurance cannot be provided inrespect of any sector, the Society shouldconsider other Co-operative options toachieve the required performance and/orwithdraw from the sector.

Societies’ performance

4The Commission recommends that in order to implement and monitor thecommercial and social performance ofSocieties, the Co-operative Union shouldbe given responsibility for establishing a Commercial and Social PerformancePanel. The Panel should establish KeyCommercial Performance Indicators(KCPIs) in the various business sectorsand should report regularly, including atleast annually to Congress, on whetherSocieties are achieving the KCPIs.

Financial auditing

5The Commission recommends that Co-operative Societies should conformto accounting standards and adopt astandard system of financial reporting,both of which are established by the Co-operative Union AccountingStandards Committee, so that there is consistency across the Movement.

6Boards of Societies should ensure thatthe KCPIs are presented to members at the Society’s AGM to record theperformance of the Society comparedwith that of major competitors and peerCo-operative Societies. (The startingpoints for some targets would be thoserecommended by the Co-operativeUnion in its Report to the May 2000 Co-operative Congress). KeyCommercial Performance Indicatorsshould also distinguish between brandedand non-branded activities. Where a

Society is failing to meet the requiredindicators, an interim report of KCPIachievement should be presented to the Society’s Half Yearly Meeting.

Social performance improvement

7The Commission recommends that theCo-operative Union should establish,after appropriate consultation withleading experts in the field, challengingKey Social Performance Indicators(KSPIs) for performance in relation to Co-operative and social goals. Followingthis, the Union should monitor theperformance of individual Societiesobjectively against those targets. TheKSPIs should aim to reconnect thecommercial and social goals of the Co-operative Movement and ensure thatall members and employees understandhow fundamental this is to the futuresuccess of the Movement.

8Boards of Societies should ensure thatthe Society’s Key Social PerformanceIndicators are presented to the Society’smembers annually. Where a Society isfailing to meet the required indicators, aninterim report of KSPI achievements shouldbe presented to the Society’s members.

Social auditing

9The Co-operative Union should develop a standard system for social reporting, so that there is consistency across theMovement. One possibility would be todevelop a Co-operative Social Audit

Re-establishing the Co-operative Advantage – Recommendations

Recommendations

Chapter 1 – Re-establishing the Co-operative Advantage

CD-ROM (or software downloadablefrom the web), accredited with theAA1000 standard. This would allow a more standardised and straightforwardroute to enable Societies to complete a social audit than is currently available.

10The Commission recommends that the Co-operative Union should producean annual report on the work of theCommercial and Social PerformancePanel to be presented to Congress.

Reinvesting the profit

11The Commission recommends that inconsidering the distribution of profits,there are the following priorities:● Reinvestment in the business.● A dividend for members in relation to

their purchases.● A community dividend.

Reinvestment in the business must alwayshave the first claim on profits. Societiesmust invest where they are able to achievethe appropriate return – that is, one whichis above the cost of the funds they arecommitting on behalf of their members.

Where a Society is trading profitably andits funding position permits, the Commissionrecommends that the minimum commitmentto the members and the communitydividend should be 10 per cent of the profitand that the ratio distribution of individualto community dividend should be around70 per cent to 30 per cent.

The Commission recognises that someSocieties will be able to allocate more

than the minimum to both members andthe community dividend after reinvestmentin the business, and recommends that aspart of a stakeholder initiative the Societyshould be encouraged to consider someallocation to the employees.

Co-operative Retail Trading Group(CRTG)

12The Commission recommends that, to enhance the successful performanceof CRTG further:● External auditors should be employed

to help guarantee the transparency of the accounting procedure.

● The Strategy Group of CRTG should be made up of Chief Executives ofSocieties and the Controller, CWSRetail, for the time being, should be the CEO of CRTG and be a member of the Strategy Group. However, CRTGshould consider in the long-term the possibility of a dedicated CEO for CRTG.

● The governance of CRTG should bereformed so that the Chairman of theStrategy Group is elected from thenon-CWS members of the Group.

● Each member of the Strategy Groupshould have a vote proportional to thepurchase volumes of their Societythrough CRTG.

● Clear terms of reference for CRTGshould be established and set out.

● The CEO of CRTG should be requiredto produce strategic and annual plansfor approval by the Strategy Group and to report back on progress.

● Delivery of the service to members ofCRTG should be based on a revisedform of contract, expressly providingfor the benefits and obligations ofmembership.

13The Commission, given the reform ofCRTG, recommends that all Societiesshould now join CRTG.

Financial services

14The Commission recommends that CWStakes active steps to develop and implementan integrated business strategy for itstwo financial services’ subsidiaries, CISand The Co-operative Bank, in order toharness the latent synergies between the two businesses. Both are successful Co-operative businesses but havehistorically operated largely independentlyof each other. However, both now facethe challenges of a highly competitivemarket undergoing rapid and fundamentalchange: scale, operating efficiencies,distribution power and cross-marketingare becoming ever more important, customerpreferences are more demanding and thetraditional distinctions between banksand insurance/investment companies are fast disappearing.

15The Commission recommends that CWSreviews the governance structure of bothCIS and The Co-operative Bank with aview to appointing some external andappropriately experienced independentnon-Executive Directors to the Board ofeach institution.


setting theagenda for thenext decadeChapter 2 – Successful Co-operative Business in the Twenty-first Century

1General1.1 We took the view that our work wouldbe setting the agenda for the Co-operativeMovement for the next decade. Hence, the recommendations we havemade should enable the Co-operativeMovement to take its place as a key partof the social and economic developmentof the UK, in the context of the globalisingeconomy, during the next 10 years.

1.2 Co-operation offers to the consumerand to the citizen in this new century a unique socio-economic response to their demonstrable, but in some cases, unarticulated needs. These range from the desire for the activeinvolvement of the final consumer ininfluencing the nature of the products(goods and services) on offer to them; to an increasing feeling ofanonymity in the face of large nationaland global transnational companies; to the fear of the impact of newtechnologies; and to the desire for trust in commercial relationships.

1.3 A new focus is required on developingbusiness areas where the Co-operativeadvantage can be demonstrated, and insome cases moving out of old ones. Two important areas where Co-ops arelikely to be able to demonstrate their Co-operative advantage are long-termcare provision for the elderly and theexpansion of credit unions.

1.4 The Co-op must, therefore, be seen to be actively involved in expansion intonew sectors and also to be embracingand using new technology, including e-commerce. In all these various ways

the Co-op – commercially, technologically,economically, and socially – must reinvent itself for an expanding role in the twenty-first century.

1.5 Co-operative principles and practiceshould be seen as part of a modernmarket economy. In the USA, for example, 25 per cent of US citizensbelong to credit unions. Co-operation is an international practice and the UK Co-operative sector should and can lead the way again in the moderncontext, as it has before.

1.6 A key element of the ‘new' co-operationshould be a positive Co-operative branding,covering all areas of Co-operative activityand supported by all Co-operativeSocieties. This will enable a positive,reassuring, and self-reinforcing image of the Co-op across all sectors to bedeveloped and communicated tocustomers. It will also facilitate the wider educative role of the Movement in relation to the values and principles of co-operation.

1.7 The Co-operative Movement'sinvolvement with the broader LabourMovement needs to be strengthened inrelation to the development of economicand social policy linked to the widerapplication of Co-operative principlesand the emerging ‘social economy'. To achieve this strengthening there is a requirement for institutional change. (In Chapter 5 we make a number ofproposals in this area concerning the future of the Co-operative Union and the Co-operative Party, and theestablishment of a new body, the Co-operative Foundation.)

2The new co-operation– common branding“Businesses like Asda are known fromInverness down to Bournemouth with thesame common brand, why should we notbe the same...common branding of theCo-operative logo...would be an excellentidea." A co-operator, Edinburgh regionalhearing

2.1 The Co-operative brand was not builtsimply to succeed in the social conditionsin which it was launched – it was built to last. Today, it must succeed not by relying upon distant past successes, but by putting its house in order and by renewing and representing itself as a desirable and enduring brand. This remodelled message can beincreasingly attractive and relevantto new generations of consumers. Rebranded products and services sold efficiently and ethically in traditional sectors of the economy, and new products developed to meetnew social and economic needs, canprovide a vital and viable future for the Co-operative Movement in thetwenty-first century.

2.2 Notwithstanding this clear potentialfor development of Co-operativebusiness, there is considerable work tobe done and problems to be overcome.Some of the Co-operative Movement’sown research has drawn the followingconclusions on branding:“The Co-operative Movement, as ahomogenous entity, is not something that many people seem to recognisethese days. The businesses... do not


28 General28 The new co-operation – common branding30 Building the brand32 Modernising the Co-op logo32 e-commerce and new technologies34 New sectors36 Recommendations

seem to add up to a ‘brand’ at present... if anything they have in common anapparent lack of...– stature– competitiveness– modernity– aspirational value”.

2.3 Yet, the Co-operative brand and all it stands for is potentially an enormousasset for the Movement.

2.4 At its best it can provide a highlyattractive proposition for customers,producing strong business performanceplus a demonstration of Co-operativevalues and principles. Consistency iscritical; a customer's attitude to the Co-operative brand proposition can be formed by a single unsatisfactoryexperience, in a single local store or witha single product or service provided. It is clear that there is a huge potential to develop greater synergy between theMovement's different offerings.

2.5 However, questions need to be raisedas to why certain customer-facingactivities are deliberately marketed without reference to the Co-op brand. If the answer is that customers arebelieved to be resistant to buying theproducts from a Co-op-branded outlet,then this would point to obvious seriousflaws in the brand image. Accordingly,radical and remedial action will berequired in order to rectify this situation.

2.6 The Co-operative Movement must, as a priority, establish and invest in a high quality national brand strategy that brings coherence and consistency to what the Co-op is, what it looks like and what it offers across the country. This should be articulated through theadoption of common store formats or

fascia. It should also entail the cross-selling of Co-operative Movementproducts throughout the Movement at local, regional, and national levels.

2.7 In the context of promoting cross-selling, it is our understanding that currently there is relatively littlecross-fertilisation between different Co-operative businesses and Societies.The process is being hampered byincompatibilities of IT systems and data.The potential for commercial benefitsfrom cross-selling and from the ability torefer customers from one Co-operativebusiness to another is considerable. To realise that potential we must exploit the latent synergies that exist in the Movement.

2.8 The development by the Co-operativeMovement of a single Internet web sitewould considerably enhance the ability of the Co-op to communicate a positive,clear common branding via the Internet.

2.9 But the development of a new brandand brand image for the Movementrepresents far more than a revamping of stores or even the development ofcross-selling. It represents a renewedbelief in the values and the advantagesfor both consumers and citizens of co-operation as a response to moderneconomic and social life in the UK in the twenty-first century.

3Building the brand3.1 The Commission recognises thatthere are three levels to the Co-operativebrand. The first is the overall umbrellabrand of all Co-operative businesses;

the second is the brand identity for eachsectoral business e.g. food retail, travel or financial services and the third is thebrand of the individual Society at regionalor even local levels.

3.2 The regional/local character of Co-operative Societies is a distinctiveasset that needs to be built in to theoverall commercial equation. However,there is an overwhelming argument for auniversal subscription to a national brandand the brand image. As far as customersare concerned the Co-operative brandshould be a national brand they can trustand from which they can expect a highquality and socially responsible product.In this way we believe that branding assuch should be seen as a strategic,national strength, to which is added atsector, region, and even locally an extrapositive commercial element.

3.3 This strategic approach will entailagreement by Societies to: ● The systems and processes by which

it is delivered.● The standards adopted and applied

in practice.● The sharing of customer research

amongst Societies.

3.4 A Co-operative Brand Panelrepresenting all sections of the Movementshould be set up to establish, develop,and maintain the procedures for thenational brand.


3.5 We believe it essential that thecommitment of the whole Movement is secured for the renewal and theconsistent application of a national Co-operative brand throughout allbusiness sections of the Movement.

Successful Co-operative Business in the Twenty-first Century

Boots theChemist

Marks &Spencer

Tesco Co-op Asda The BodyShop

Safeway Sainsbury

1998 1999

Source: Henley Centre 1999

0

10

20

30

40

50

60

70

80

Market positioning – Shoppers who trust the big retailers (%)


West Midlands Co-operative Societymoved into the care homes sector in 1998, when it acquired a 19 bedresidential home in Codsall, in the belief that involvement in care homes fits ideally with Co-operative values and principles.

The Society implemented newprocedures, trained staff and gainedInvestors in People accreditation. The home which was only half-full at

acquisition now maintains a bed rate of 95 per cent and is to be redeveloped to increase bed capacity by 50 per cent.Relationships with Social Services areexcellent and a waiting list speaks well of the home operation.

In 2000, the Society took ownership oftwo additional care homes at CastleMeadows and Nethercrest in Dudley,bringing in 153 additional beds.

A Care Home Group Manager withspecific nursing experience has beenintroduced and the homes will beconsolidated and the training planexpanded and developed.

Care homesA Co-operative case study

Vera Dent and Floss Billingham at the Nethercrest care home

3.6 In view of the fact that a number of corebusinesses are marketed without referenceto the Co-op brand, it is recommendedthat KCPIs should differentiate betweenbusiness generated from Co-op-brandedactivities and non-Co-op-branded activities.The intention would be to reduce andeventually eliminate non-brandedactivities, in favour of the adoption andpromotion of the unique Co-operativebrand, supported by the various othermeasures we have proposed, such as a new national branding strategy, newlogo etc.

3.7 Where the Co-operative brand isbeing undermined by failure of any retailSociety, the Co-operative Brand Panelshould be required to report this view to theCWS Board who may withdraw permissionfor that Society's continued use of theCo-operative logo or access to CRTG.Further examination is required todetermine whether the ‘Co-operative’description could also be removed fromthose Societies who are undermining theCo-operative brand.


4Modernising the Co-op logo4.1 Some of the evidence from submissionsand independent evidence gathered bythe Commission suggests that – in thecontext of developing a new approach tobranding – the Co-op should consideradopting a new logo to replace the ‘cloverleaf’ which is perceived by some as notreflecting the modernising approach nowbeing adopted by the Co-op.

4.2 A new logo should reflect the modern partnership that exists amongst Co-operative businesses and the modernity of the new Co-opapproach, and would reinforce themodern, common branding we haverecommended. The Co-operative Brand Panel, as part of this work shouldaccordingly consider the long-termfuture of this logo.


5e-commerce and new technologies5.1 The Commission has also examinedthe role of new technology – includingthe rapid emergence of e-business in theUK – as it relates to the business modelsof Co-operative enterprises.

5.2 Technology can play a crucial role in the success of the Movement and its member enterprises. Experiencedemonstrates that the key to gainingcompetitive advantage from technologylies in its integration into a clearly articulatedand understood business strategy.

5.3 In its work, the Commission hasidentified a range of opportunities wherebytechnology can contribute to success:● Improved delivery of products and

services through e-commerce.● More efficient running of Co-operative

businesses.● More effective running of the

Movement itself.● Faster communication and sharing

of best practice.● Automation of back-office functions.

5.4 However, these opportunities beg arange of questions for the Movement iftechnology is to deliver its full potential:● What products and services should the

member enterprises deliver and in whatway do the selected customers of eachof the enterprises wish to be dealt with?

● What are the measurable efficiencytargets and where are the currentbottle-necks in the business processesof the Co-operative businesses?

● What are the appropriate commonbusiness processes of the Movement and to what extent should there be a central focal point for branddevelopment, business practicedevelopment and the monitoring ofcommon issues and opportunities?

● What are the appropriate businessmodels for the member enterprisesand to what extent can common back-office processes be combined?

● What are the opportunities of synergybetween enterprises that havefundamentally different businessmodels (e.g. banking/ insurance,retailing, travel, etc)?

5.5 The effective use of technology andparticularly the emerging technology of the Internet depends entirely on theextent to which technology is integratedinto the business objectives.

5.6 An excellent example of the Co-operative Movement's e-commercecapability, when led boldly andimaginatively and embracing newtechnology is the successful launch of smile – The Co-operative Bank'ssuccessful Internet banking operation. A combination of considerable marketand technological research, allied to anentrepreneurial spirit, and a perception of the need among potential customersfor trust, lies at the root of this example



Greenwich Leisure Limited (GLL) is London’smost successful social enterprise.

In 1993 Greenwich Council faced a 30 per cent reduction in the funding ofleisure centres, which would have led toclosures and redundancy.

Faced with this crisis, the local authority andits workers created a new type of businesswhich has since opened new centres andincreased employment. A not-for-profitindustrial and provident society with an

employee-controlled board has managedGreenwich’s leisure centres ever since.

GLL was the first of its kind. Twelve otherlocal authorities have since followed thismodel rather than handing over leisureservices to private enterprise.

The model used by GLL combines thebenefits of private management, thededication of stakeholders including both staff and customers, and publicaccountability and ownership.

The new structure has proved a greatsuccess. Three new facilities have beenbuilt and new services developed inexisting centres. These include swimclubs, fitness centres and gym clubs.

Since 1993, costs of running the servicehave been halved, income has more than doubled.

GLL also boasts London’s most effectivesocial inclusion access policy, with one in twoborough residents holding Greenwich cards.

Greenwich Leisure A Co-operative case study

Children at Greenwich Leisure’s Waterfront Leisure Centre

of Co-operative commercial innovation in the new product area.

5.7 e-commerce could be used by theCo-operative Movement with particularadvantage in the travel sector. Thepotential here is considerable both interms of innovation in direct customerservices and the automation of back-office support functions.

5.8 e-commerce is also becomingfashionable in relation to food and non-food retail activity, providing options forcustomer choice and delivery. However, itis not clear what proportion of the marketit will eventually take up.

5.9 Before any heavy investment in e-commerce in the Co-operative retailsector is undertaken it would seemprudent to pilot a few schemes aroundthe country and to monitor the responsefrom Co-operative customers and toanalyse the full economics of the provision.

5.10 Assuming that it can bedemonstrated that there is a valuable andimportant e-commerce market in whichthe Co-operative Movement can deployits unique comparative advantage then itwould seem preferable to organise thebusiness(es) at the level of the Movementas a whole.

5.11 With a unified approach and a highprofile presence, the size of the rewardsfor all participating Societies would besignificantly greater than if there arecompeting regions and localities, with an array of web site addresses servingonly to confuse the customer andcondemn the Co-operative brand to anuncertain e-commerce future.

5.12 Notwithstanding a degree of caution

in connection with the introduction of e-commerce, the case for automatingback-office functions such as payrollprocessing is already made. Businessprocess outsourcing is well established in the commercial world.

5.13 The importance of giving dueconsideration to the adoption of newtechnologies cannot be over-estimated.However, the relationship of technologyto business change is a complex one. On the one hand, technology can enablenew possibilities that can be used to gaincompetitive advantage. On the otherhand, the evolving marketplace andbusiness environment can demandpractical responses from technology.

“We should seek competitive advantagethrough delivering businesses and servicesthat humanise the business processes,such as banking, funerals, insurance,social housing, residential care homes,domiciliary care, information services and transport. We should consider newfields and not allow ongoing declinethrough the erosion of existing business."A co-operator, Manchester regional hearing

5.14 In this complex relationship,successful companies are able tobalance “the art of the possible" (thetechnologist’s contribution), with the “artof the practical" (the business manager’scontribution). Ultimately this balance isachieved because the culture of theorganisation supports it. Both thetechnology team and the business teamwithin Societies must establish a dialoguethat is driven by their overall businessstrategies. This is the fundamentalprerequisite for the successful use oftechnology in delivering a Co-operativeMovement that is relevant, successful,and true to its values in the future.

5.15 The Commission therefore believesthat a modern Co-operative Movementmust integrate the new opportunitiespresented by technology into the valuesand undertakings that have providedhistoric value.

5.16 To enable the Movement to exploiteffectively the potential that newtechnologies can offer, CWS shouldconsider providing a business technologyadvice centre/service to Societies. Sucha service would be able to monitor theuse of new technology by competitors, to advise Societies and other branches of the Movement on the implementationof technologies appropriate to their specificrequirements and to advise of technologybest practice within the Movement.


6New sectors6.1 No business can afford to stand stilland the Co-operative Movement shouldbe examining the current opportunitiesfor the development of new Co-operativebusinesses, as did the pioneers of theMovement in the nineteenth century. We believe that there is an opportunity to build upon the existing Co-operativevalues to sound commercial effect byexamining the opportunity to enterbusiness sectors in which the Co-op isnot currently represented but where itsvalues are likely to be highly relevant.

“The Movement must widen its tradingformat, we must have alternative forms of Co-operative trading, blind reliance on food retailing could prove fatal."A co-operator, Oxford regional hearing


6.2 Typically these might be sectors wherehigh levels of trust and social values arenecessary and desirable, but where currentproviders (for whatever reason) seemunable to operate effectively overall. The Co-operative advantage is capableof demonstrating its ability to meet the‘appetite for trust’ that is emerging fromcontemporary consumer-led society.

6.3 Two categories of business come tomind in this connection: long-term careof the elderly and the expansion of creditunions. In categories such as these, Co-operative values are likely not only to be socially relevant, but also to havesignificant commercial relevance. We believe these are areas of business to be explored in detail by the Movement.They are types of business opportunitywhere socially valid and commerciallysound Co-operative propositions can be developed.

6.4 An entry into (or exit from) a sector, of course, constitutes business strategyat the highest level – and a major financialcommitment for a particular Society, as well as creating implications for theMovement as a whole. It is proposedtherefore that a Working Group shouldbe established with the remit of:● Identifying new or fledgling sectors

where a gap may exist for a Co-operative solution.

● Expressing the nature of the Co-operative advantage in that sector.

● Drawing up high-level cost benefitscenarios for each.

6.5 Given the experience of the Co-operative Union in a wide range ofmarkets, it is proposed that this workstream should be led by the Co-operativeUnion, under a New Ventures WorkingGroup with inputs from CWS and other

Co-operative Societies, the UKCC, CIS,The Co-operative Bank and externalconsultants.

“...we need visions for new forms ofenterprise for the twenty-first century.The recent success of Poptel and the Phone Co-op indicates theseopportunities." A co-operator, Edinburghregional hearing

6.6 The New Ventures Working Groupshould consult with the appropriateagencies in order to determine which sectors would benefit from Co-operative involvement.


6.7 In moving into new areas, theCommission strongly recommends thatthe mistakes of fragmentation of the pastmust not be repeated. It is essential indelivering new products and enteringnew markets that there is a commonbrand, common performance standards,and shared services. These developmentswould, in this way, become the Co-operative Movement's equivalent tofranchising. This in no way would precludeownership through joint ventures of anumber of Societies. Moreover, proposalswould have to be submitted to theBoards of Societies for their approval.

“It would be nice to have care Co-ops etc,and obviously I’m supportive of the needfor more forms of Co-operatives, but wewon’t get those by doing a long list ofwhat might be." A co-operator, Oxfordregional hearing



Branding and image

16The Commission recommends that toback up the development of nationwidebranding within the food retailing sectorand also to achieve significant cost savings,Societies should explore (within theframework of CRTG) further opportunitiesfor co-ordinated activity including thebenefit of a national distribution system;the development of standard storeformats, layouts and fascia; and thecommon purchasing of store fixtures andfittings. Societies should also examine themerits of using a common support systemacross all businesses for administrativetasks such as payroll processing, etc, themerging of databases and cross-referralsystems, and upgrading to compatible ITsystems across the Movement.

17The Commission recommends that:● A Co-operative Brand Panel appointed

by the CWS Board with membershipdrawn from key Co-operative Societies,including The Co-operative Bank and CIS, led by the CWS ExecutiveManagement team and supported by professional advisors, should beestablished to develop a commonnational Co-operative branding approachfor the Movement. For the work of thePanel to carry authority it must be ableto demonstrate on creation that itsmembership is properly representativeand inclusive of the Retail Movement.

● All Societies should ensure that thebrand identity for each of their corebusinesses is compatible with andreinforces the national branding of the Co-operative Movement.

● Where, in the view of the Brand Panel,the Co-operative brand is beingundermined by failure of any RetailSociety to meet the brand requirements,the Co-operative Brand Panel should berequired to report its view to the CWSBoard which may withdraw permissionfor that Society's continued use of theCo-operative logo or access to CRTG.

● All Societies should, under the aegis of the above Panel, explore and resolvethe issues surrounding the introductionof appropriate common branding ofeach Co-operative business, under anumbrella national branding approachthat encourages the cross-selling ofproducts throughout the Co-operativeMovement.

● It may also be desirable to appointSectoral Brand Panels to examinethose branding issues that affectspecific businesses common to morethan one Society.

The Co-operative logo

18The Commission recommends that theCo-operative Brand Panel should, as partof its work, consider the long-term futureof the existing logo (‘clover leaf’ design),which some research indicates isperceived by the public as not reflectingthe modernising approach now beingadopted by the Co-op. A future logocould reflect the modern partnership that will be created among Co-operativebusinesses.

e-commerce and new technologies

19The Commission recommends that RetailSocieties should urgently consider howgreater use of the Internet can deliverbenefits for members and customers, and how through its engagement in e-commerce, efficiencies and cost savingscan be made.

The Commission further recommends thatCWS should consider the establishmentof a business technology advicecentre/service to provide a consultancyservice to Societies wishing to introducenew technologies and to encourage bestpractice technology disseminationthroughout the Movement.

New sectors

20The Commission recommends that a New Ventures Working Group led by the Co-operative Union – and withappropriate representation from CWS, other Co-operative Societies, the UKCC, CIS, The Co-operative Bankand external consultants – should beestablished. The remit of the WorkingGroup should cover: identifying new orfledgling sectors where a gap may existfor a Co-operative solution; expressingthe nature of the Co-operative advantagein that sector; and drawing up high-levelcost benefit scenarios for each. The NewVentures Working Group should consultwith appropriate agencies in order todetermine which sectors would providepotential for profitable Co-operativeinvolvement.

Successful Co-operative Business in the Twenty-first Century – Recommendations

Recommendations

Chapter 2 – Successful Co-operative Business in theTwenty-first Century

21The Commission recommends that inmoving into new areas, the mistakes offragmentation of the past must not berepeated. In delivering new products andentering new markets there should be acommon brand, common performancestandards, and shared services. A keyelement in any new venture is that of stafftraining (particularly for those in directcontact with customers). There needs to be an understanding of Co-operativevalues and principles and the ability tocommunicate these to customers.


a revitalisedmembershipinformed andfully involved in democracyChapter 3 – Membership, Participation and Securing theCo-operative Movement's Legacy

1General1.1 Successful Co-operative businessesrequire a large and widespread membershipthat is supportive of the broad principlesof co-operation and the participation of an active, informed, and representativeelected membership. The current estimateof membership of the UK Co-operativeMovement, of around 10 million, webelieve is a substantial overestimate andthe true membership figure may be lessthan two million. Membership recordsneed to be improved to reflect the correctfigure on which membership developmentpolicies can then be based.

1.2 The Commission considers that thefragmented structure of the Movementmeans that it has not obtained the valuethat exists in its membership. Specifically,the lack of a co-ordinated identity meansthat the scale and weight of the Co-op’smembership are not recognised by opinionformers, the media and the generalpublic. Also commercial opportunities,involving cross-marketing between themembers and/or customers of variousCo-operative businesses are wasted.

1.3 However, the Commission notes thatthe Retailer Financial Services Committee,comprising representatives of CWS, CIS,the Bank and other Societies, has madeproposals to establish a Movementmembership/customer database from therecords of constituent organisations, andthat co-ordinating the customer files ofCWS, CIS and the Bank will be the first step.

1.4 Currently membership is only availablevia membership of retail Societies. Thissituation excludes a considerable

potential membership. Ways of enablingmembership to become available to awider group of potential members, forexample in The Co-operative Bank andCIS, need to be considered.

1.5 This reference to CIS and The Co-operative Bank customers indicatesthe importanceof securing a customer basefrom which, if the Co-operative advantageis sufficiently strongly perceived in thecontext of the consumer offering, futuremembership will be drawn.


1.6 We took the generally accepted viewwithin the Movement that those membersparticipating in the democratic processwill always be a small minority. Our concernwas that the current minority was notnecessarily representative – for instancein age structure – either of the membershipas a whole or of the consumer populationat large.

1.7 Some Societies, notably Oxford,Swindon & Gloucester, have taken stepssuccessfully to increase participation inelections, via postal voting, and to increasemembership substantially. They have alsoinitiated a debate on the issue of multiplestakeholder participation in Co-ops.These developments and discussionsneed to be carried forward more generallyin the Movement.

1.8 Within a modernised membershipstructure it should be possible – as someSocieties have – to involve members indecision-making in a more active mannerthan is the case generally.

1.9 It is also important that there is a clearunderstanding within Societies of theroles of the elected members in approving

and monitoring the strategic direction ofthe Co-operative businesses and of thesenior executives working with the Boardto develop the strategy and managingthe businesses against clear andmonitored business performance targets.

“...it’s our values of democracy, equality,equity, solidarity, as well as self help and self responsibility, which are uniqueCo-operative values and the ones wherewe can put clear blue water betweenourselves and our competitors... wherewe refer to values we need to be absolutelyclear as to what they are." A co-operator,Loughborough regional hearing

1.10 Management of any business, andparticularly of Co-operative businesses,should be based on partnership with the employees of the organisation. Our research suggests that this is an area where improvement is imperative if the reforms of the direction andmanagement of Co-operative businessesare to succeed.

2A strong membership2.1 It is of fundamental importance to the Co-operative Movement torecognise that its future is linked to its ability to build a strong membershipacross the country.

2.2 Whilst recognising the positive work undertaken by some Societies to improve their membership registers,the current claimed membership of theCo-operative Movement in the UK issubstantially overstated, because of the failure of the Movement properly tomaintain up-to-date membership registers.


39 General39 A strong membership40 Types of membership40 The individual dividend42 New areas of membership42 Employee membership42 Democracy and increased member participation44 Equal opportunities on Societies’ Boards

44 Commitment to change44 Extending participation to stakeholders46 Securing the Co-operative Movement’s legacy47 Securing assets48 Recommendations

2.3 Accordingly, the existing membershipregisters of all Societies should bereviewed so that the Movement has clearand concise records for future membershipdevelopment work.


2.4 We consider that the new ‘clean’membership registers should be establishedas soon as possible so that an accuratepicture of Co-operative membership canbe ascertained. We also believe that it isimportant that Societies should maintainregular contact with their membersthrough the new membership register sothat the members become valued assetsof the Movement.

“Active membership is what makes Co-operatives not only distinctive andeffective, but also gives them a potentialbusiness advantage, and this voluntarycomponent of Co-operative businesswhich by building upon a sense ofownership can unlock levels of knowledge,sharing, commitment and involvementthat other businesses can not." A co-operator, Edinburgh regional hearing

2.5 Societies should agree and adopt a design for a national Co-operativemembership card to be issued to allmembers and to include details of themember’s host Society. In addition theRetailer Financial Services Committeeshould give further consideration toaccelerating the current proposals for theco-ordination into a single Movementdatabase of the customer/member recordsof constituent organisations. In addition itshould give consideration to promoting theadoption of common technical platformswithin the Movement to optimise bothefficiency and effectiveness in membershipadministration and to pursue the goal that

for a Co-operative Movement member theirmembership card is recognised wheneverthe member undertakes transactionswith any Co-operative business.


3Types of membership3.1 The Commission deliberated uponthe current £1 shareholding required for membership of a Society. There was strong support both in the publicsubmissions received and at regionalhearings for this to be increased as a meansof making membership meaningful andas a demonstration of Co-operativecommitment on behalf of the member.

3.2 However, the historical membership/shareholder contribution of £1 would needto be increased very substantially to maintainits value in current prices. In consideringmembership and shareholding – and takingaccount of a number of submissions on theissue and of the origins of the Movement– we have come to the view, that, in orderto achieve a maximum increase inmembership throughout the country, thecurrent £1 minimum shareholding shouldbe maintained. This would not precludeindividual Societies from setting, as somenow do, other minima for standing for office.

3.3 The Commission further recognisesthat some economically active membersmay not wish to spend a great deal of energy in the direct democracy of the Movement, but may, nonetheless, have a sense of pride in being associatedwith a visibly socially-conscious business.Members therefore must be fully valuedby the Movement and should receive

regular communication and informationboth about the commercial performance of a Society and its execution of its agreedsocial goals both via their local store andthrough direct mailings.

3.4 The Commission recognises however,that individual Societies may wish toconsider experimenting with increasingthe minimum shareholding for newmembers. The Commission wouldwelcome the results of such initiativesbeing shared with the Movement.


4The individual dividend4.1 Developing a mass membership willrequire Societies to re-establish the linkwith the members’ dividend. In contrastto a Loyalty Card, the dividend has twodistinct elements: it is payable only tomembers and it is an allocation of profit,when the amount of profit is known. But,the dividend will need to be substantial; it will need to be paid regularly. It will alsoneed to be perceived as an integral partof membership, and a key element ofparticipation. The dividend should beclearly associated with the success of the Co-operative Movement.

4.2 Achieving these objectives for thedividend is conditional on the commercialsuccess of the individual Co-operativebusinesses. It will also be important toensure that the Commercial PerformanceIndicators and the Social PerformanceIndicators and how they are being met by the businesses are communicated to members, as part of the process ofexplaining the dividend distribution.

Membership, Participation and Securing the Co-operative Movement's Legacy

Large Medium Small Total Large Medium Small Total

1998 1999

Excludes: CWS, NCC, Shoefayre and the productive sector

Source: Co-operative Union Key Performance Indicators

0

1

2

3

4

5

6

7

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

New members as % of total membership Members’ dividend as % of Society turnover

Key Co-op difference indicators for 1999 vs 1998 for Society & size groups of Societies


The Co-opportunity Programme is anincremental programme of activities that foster the development of food Co-operatives in the West of Scotland aspart of the Govan Healthy Eating Project.

It uses a step ladder approach in responseto difficulties experienced in starting a foodCo-op. The Fruit Barra in Glasgow is agood example of small voluntary-basedCo-ops working in partnership with localauthority projects.

Its mobility means that different partnergroups can share resources and increasetheir joint buying power, and no permanentspace is needed. It is a service-orientedCo-op, providing ready access toaffordable high quality fresh fruit andvegetables, all sold at fruit market prices.

The Barra is run on a contractual basis –which clearly lays out the expectationsand responsibilities of the partner

groups. Encouraging membership and keeping clear records is a keyvolunteer responsibility.

The aim of the Barra is to meet immediatelocal need and make a start towardsdeveloping community food Co-ops.

The Co-opportunity Programme A Co-operative case study

Children in Glasgow with fruit from the Fruit Barra

5New areas ofmembership5.1 Currently, membership of theconsumer Co-operative Movement can only be achieved via membership of a retail Society. This excludes a vastconstituency of potential Co-operativemembers. It is our view that membershipshould be open to customers of existing and new non-retail Co-operativeorganisations, such as customers of The Co-operative Bank and CIS.


“Two tier membership, so you were actuallya member of your local Co-op, but thatgave you the membership nationally toother Co-ops." A co-operator, Loughboroughregional hearing

5.2 This potential source of new membersmay be encouraged to join once the nationalbranding and the basis of cross-selling,linked to the use of the new nationalmembership card, are established. Webelieve this would radically alter theperceptions of the Co-op for a whole newgeneration as well as drawing back earliergenerations of those who experienced apositive, if different, form of co-operationin their youth.


6Employee membership6.1 In creating a modern Co-operativeculture in the retail sector, employees willplay a fundamental role. Where examplesexist of employees being properly valued, and understanding the values of co-operation, it is clear that they becomeimportant ambassadors and front-linerecruiters for the Movement.

6.2 Management of any business, andparticularly of Co-operative businesses,should be based on partnership with thestaff of the organisation. Our researchsuggests that this is an area whereimprovement is imperative if the reformsof the direction and management of Co-operative businesses are to succeed.Encouraging employees to become membersand making that membership meaningfulshould become an important focus ofmanagement and of Societies’ policy.

“...Co-operative workers actually have aweaker financial stake in the success oftheir business, we’re therefore proposinga new concept, the employee dividend,the principle that the surplus generatedby Co-operative businesses should beshared with staff as well as members." A co-operator, Manchester regional hearing

6.3 Our recommendation is thatemployee members – as stakeholderswithin the Movement – should beencouraged to become members of theSociety and have a reserved employeemember constituency from which theyshould be able to elect employeeDirector(s) (see Chapter 4). This changewill be a positive means of reinforcing thekey role of employees in achieving the

improved commercial performance ofSocieties. But it will also mean becomingfully involved in developing the overallcommercial strategy of the Co-operativebusinesses for which they are workingand in the drive to achieve the socialgoals of co-operation.


7Democracy andincreased memberparticipation

“...the Co-operative Movement cancomplement the vast range of publicsector activities which are essential tothe cultural, economic and social needsof working people." A co-operator,Manchester regional hearing

7.1 It has been demonstrated that thecurrent participation of members in thedemocratic activities of the Movement is at a level that is too low to ensure thatgenuinely representative decisions arebeing taken.

7.2 One of the social objectives must be a high level of real membershipparticipation within the democraticprocedures and activities of Co-operativeorganisations. This should includeconsultation on policy development;access to adequate information on theperformance of the business; and postalballoting to achieve greater participationin elections. Revised timetables ofmeetings should be introduced to makethem more accessible to members.



Oxford, Swindon and Gloucester Co-operative Society has helped lead the way with its impressive memberrecruitment programme.

Ending the ‘secret Society’ was their firstgoal. By making membership a highlyvisible in-store campaign, conducted tothe same professional standards as foodmarketing, it switched from losing 500members a year, to gaining over 20,000.

Central to this success is a number of

factors. There is complete integration of member recruitment with retailoperations and marketing, ensuring thatcampaigns reach all customers and notjust the traditional membership base.

Delivering a dividend to encouragecustomers to become members isimportant and this is linked to theSociety’s profit through in-store materialwith messages such as “What does £1buy you? – a share in the profits and a sayin the business.”

The Society also provides support withactivities aimed at new members andfrom these sessions, members often go on to attend regular member groupmeetings and become more active.

The work continues. The long-term aimsare to persuade most regular customersto become members, encourage morepeople into active membership and offermembers more opportunities to beconsulted on Society policies.

Membership recruitment A Co-operative case study

Mehnaz Begum and Andy Cox trialling Instant Membership at Oxford, Swindon and Gloucester Society

7.3 Societies should consider structuralchanges to encourage participation byyounger members of the Co-operativeMovement. It is important that the Co-operative Movement is regarded bythe young as being as relevant to theirsocial and environmental concerns asorganisations such as Greenpeace andFriends of the Earth.

7.4 Relations with local media should becultivated and newsworthy events, whenthey occur, should be well publicised. Inthis way the role and nature of Co-operativeactivity in the local economy andcommunities can be communicated to a wide audience. Local newspapers andthe local media generally tend to be widelyappreciated, and particularly where localevents and personalities are involved, canprovide important and regular channels forlocal and regional Co-operative Societies.

8Equal opportunities onSocieties' Boards8.1 It is important that all groups in societyshould be encouraged to play an activepart in Co-operative Movement activityand democratic control. There is nosuggestion that any positive discriminationwould be required or desirable. What isrequired is that – through more activecontact and consultation with all membersand implementation of the various othermeasures we have recommended toincrease democratic participation in theMovement’s activities – the groups thatare currently under-represented at Boardand executive level should increase thatrepresentation, i.e. women, young people,and ethnic minorities.

9Commitment tochange9.1 It must be recognised that for increasedmeaningful membership participation, thecurrent leadership of the organisationswithin the Co-operative Movement mustthemselves embrace change and promoteincreased participation through contestedelections. A key failure of the 1958Commission Report was that the leadershipof the day chose to dilute and assimilatethe changes required rather than being achampion of change.

9.2 The Commission believes that it isessential that the Boards of all Societiesshould commit themselves to opening upthe Movement as widely as possible, andto accept wholeheartedly the changeswe have proposed. If this is done then the Co-operative Movement can have a revitalised membership base and onethat is more fully involved in thedemocracy of the Movement.

10Extending participationto stakeholders10.1 Consumer Co-operatives are ownedby those customers who are members. Itfollows from this that providing the bestpossible service to its customers shouldbe the driving imperative of retail Co-ops.Their customers should experienceservice that is better than that providedby peer competitors, whose objectivesinclude a return to investors. Customers

should perceive that the Co-op is moreinterested in their issues and concerns,than the simple profit orientated plcretailer is prepared to be. These are thefirst benefits that customers of Co-opsshould expect.

“I feel that one of the features of theMovement in the last 40 years has beenthe ability for independent organisationsto thumb their noses at reality, raid thereserves which other generations havebuilt... I think we have to protect it fromthose Boards who refuse to merge orrefuse to transfer engagements." A co-operator, Edinburgh regional hearing

10.2 Most of those customers who chooseto become members of the Co-op willprobably do so to enjoy the traditionalbenefit of Co-op dividend, an allocationto members of a share of the Society’sprofits, in proportion to their patronage ofthe Society. A proportion (usually relativelymodest) of members will choose a moresubstantial relationship with the Societyand will seek to participate actively in theSociety’s democratic procedures, includingultimately seeking election as a Directorof the Society. Thus, all consumer Co-operatives have in common thesegroups of consumers, i.e. customers,shopping members and active members,that have interests in the Society. Thesuccess of Co-ops today depends cruciallyon the Society knowing, understanding andsatisfying the interests and requirementsof these groups of people, alongside thoseof other groups that also have interests inthe Society.

10.3 In recent times, groups of peoplewith an interest in an organisation have become known as stakeholders.There have been many definitions ofstakeholders. Two, which help to



UAOS plays a major role in supporting theagricultural sector in Northern Ireland.

It was established in 1922, as an umbrellaorganisation with responsibility for the promotion and development ofagricultural, fishery and other rural Co-operatives in the province.

Over the years the organisation hasevolved and currently has over 48affiliated members drawn from a varietyof agricultural and rural sectors. Members

range from large food processors such as ‘Fane Valley’ to primary producer Co-operatives such as Aberdeen AngusQuality Beef Ltd (AAQB).

Each member Co-operative contributesan affiliation fee based on turnover and in return UAOS provides a range ofsupport services.

UAOS is helping Aberdeen Angus Quality Beef (AAQB) put together abusiness plan to expand its operation.

The Co-operative has successfully managedto develop a partnership with processorsand retailers to supply Aberdeen Anguscattle for a niche market.

In a difficult agricultural environmentUAOS has an important role in helping to meet the needs of the agricultural Co-operative sector.

Ulster Agricultural Organisation SocietyA Co-operative case study

Ann Morrison of UAOS, and Aberdeen Angus cattle

explain the concept of stakeholders, are as follows:● “A stakeholder in an organisation is any

group or individual who can affect or is affected by the achievement of theorganisation’s objectives." R Freeman

● More compelling, from a commercial pointof view, is “Those groups without whosesupport the organisation would ceaseto exist." Stanford Research Institute.

10.4 Few could argue that customers,shopping but non-active members, andactive members are groups without whosesupport the organisation would cease toexist. We suggest that this also appliesclearly to the employees of Societies,those who fund Societies, other membersand organisations of the Co-operativeMovement and the communities in whichSocieties operate. There may be othergroups, but our purpose here is not toprovide an exhaustive list of stakeholders.Rather, we seek to highlight the main,different interests that Co-operatives mustserve. We think that it is vital for Societiesto seek to satisfy each of these stakeholdergroups, as they seek to achieve thecommercial and social performanceimprovements that we have recommended.

10.5 We consider that there is a series of levels of engagement by stakeholdergroups in the affairs of the Society. These are illustrated in the table opposite.All Societies should consider carefully themost appropriate levels of participation oftheir key stakeholders in the affairs of theSociety and should establish efficient and effective processes to facilitate andderive the maximum benefits from thechosen levels of participation for eachgroup of stakeholders.

10.6 There has been discussion in recentyears within the Co-operative Movement

on the issue of extending participation in governance to groups of stakeholders,beyond consumer members. Various‘multiple stakeholder’ models have beenconsidered, including the worker-consumerstructure adopted by Grupo Eroski, thedistribution division of the SpanishMondragon Corporacion Co-operative.Governance structures involving variousstakeholder groups have been consideredin some parts of the UK Co-operativeMovement. The Commission thinks that thisdiscussion should be continued at local,regional, national, and international levelsand that as a minimum, efforts should bemade to ensure that ‘structured’ consultationof various stakeholder groups should be encouraged. It will be for individualSocieties to decide how far they wish togo in this direction and how formalisedthey wish to make the discussion.

“...a reward scheme for loyal Co-op users,it should be a scheme whereby thosewho attempt to live with the Co-operativecommonwealth by using Co-operativeswherever possible are rewarded for theirloyalty and for attempting to live the Co-operative way." A co-operator, Oxfordregional hearing

10.7 One stakeholder group that we do wish to involve more actively in thegovernance of Co-operative businessesis that of the employees; hence, ourrecommendation for the creation of areserved employee constituency, fromwhich and by which some Directorswould be elected to the Board.

10.8 However, whatever changes aremade to the structures and governanceof consumer Co-operatives, it is imperativeboth for democratic and for legal reasonsthat control should continue to residewith consumer members. It is also

imperative that the democratic traditionsof the Movement are maintained, i.e. onemember, one vote and that Societies takesteps to ensure that the existing status ofCo-operatives is not jeopardised, i.e. thatthis extension to democratic participationdoes not contribute to the process ofdemutualisation that we oppose.

11Securing the Co-operativeMovement’s legacy

11.1 The introduction of up-to-datemembership registers, the systematicrecruitment of new members, and extendingparticipation to other stakeholders willenable the Movement better to protectits legacy assets from carpetbaggers.However, it is also important for theMovement to look at other mechanismsthat can offer protection.

“If one wants to make Co-operativesmore successful one needs to tie Co-operatives more closely to themembers and one of the problems wehave at the moment is that in nearly everycase the Society is very distant from themembers and the members thereforehave little interest or knowledge abouthow their Society works...I want to findmechanisms whereby management are accountable to the Board and theBoard are directly accountable to the members." A co-operator,Loughborough regional hearing

11.2 Given recent unwelcome commercialchallenges to the position of parts of theCo-operative Movement we believe that


it is imperative to protect the substantialasset base of the Movement. It isimportant to recognise that these assetshave been built up over many decades of ‘self-investment' and are a ‘legacy' tothe current generation of co-operators.There needs to be a clear recognitionthat current members are custodians ofthe assets. Hence, the assets should notbe sold for the financial benefit of thecurrent generation of members. For thisreason we have recommended thatimmediate steps are taken to safeguardthe total assets of the Movement in atrust or to establish an alternative legalform of protection.

12Securing assets12.1 The Industrial and ProvidentSocieties Act (1965) leaves to theSociety’s own Rules provisions about the distribution of surplus assets ondissolution. Therefore it is essential thatthe rules provide that upon dissolutionthe assets should be transferred, forexample, to some other body with similarobjectives. If no such body exists, therules should provide that the assets must then be used for similar charitableor philanthropic purposes.

12.2 The most obvious method of securingassets would be to place the assets ofSocieties in a ‘trust’. However, this is notnecessarily the simplest route. Nonethelessit probably offers the most secure methodof defence of the assets of co-operatorsthat have been built up over decades.

12.3 In essence there are two types of asset trust. There are those whosepurposes are charitable and those which

are incorporated in a company vehicle.The Co-op's assets cannot be permanentlysecured as a charitable foundation andhence a separate corporate vehicle wouldbe required to be set up. Though thiswould not be impossible, there are a numberof practical implications, including fiscalissues and cost. However, such a routecould be worthwhile exploring for CWSand for the top 10 large Societies. TheCommission sought the advice of DavidRichards QC on the protection of assets.He commented: “Any attempt to achievering-fencing through appropriate provisionsin the Rules of a Society will be inadequate,for the simple reason that the Rules canalways be altered. An effective structuremust, I think, involve a transfer of ownershipof assets, albeit in a way which will enableassets to continue to be used by the Co-operative Society.”

12.4 Using CWS as an example, acompany vehicle could be established as a holding company within which assets of CWS (including if appropriateshares in CIS and the Bank) could be held. The company might have twoclasses of shares: ‘A' shares and ‘B'shares. The A shares would belong toCWS members and the CWS Boardwould run the holding company. The B shares would be held by a group oftrustees – nominated by CWS, butseparate from CWS Board members –and would only be used in the event of an ‘attack' on CWS. Under the specifiedconditions, e.g. a hostile takeover bid or an attempt at demutualisation, thetrustees would use the B shares to block the unfriendly attack and defendthe assets.

“It’s quite clear that we can’t rely on theCo-operative Act to provide predatorprotection, Societies should look after

themselves in this regard and findpermanent solutions...such as truststatus." A co-operator, Loughboroughregional hearing

12.5 The procedures and the financial andlegal arrangements would be rather morecomplicated than this summary viewsuggests, but it represents an outline ofhow Co-op assets could be defended viaa trust structure. The Commission takesthe view that though an attack on CWS is not necessarily imminent, CWS shouldspeedily commission a report by legaland financial experts to prepare for the establishment of a trust to protect the members’ assets.



The four levels of stakeholder participation

Levels Characteristics

Listen The stakeholder in all groups is seen as being of enough significance to the interestsof the Society that comments made by members of it are taken into account.

Consult The stakeholder group’s importance is seen to be sufficient that the Society seeksits views through structured consultation processes, such as market research and meetings.

Involve The Society sets up permanent and structured ways for the stakeholder group tointeract with it and to influence its practices and strategic direction.

Govern The stakeholder group is of such importance that it has a formal role in thegovernance and policy making of the Society, including Board representation.

Source: Oxford, Swindon and Gloucester Co-operative Society’s submission to the Co-operative Commission

Membership

22The Board of every Society should aim to ensure that an increasing proportion of the Society’s customers becomemembers, and that an increasingproportion of the Society’s business is conducted with members.

23The Commission recommends that allSocieties should urgently up-date andrefine their membership records to deletethe names of obviously dormant members and establish a membership file thataccurately reflects current membership.The Commission further recommendsthat Societies should maintain regularcontact with their members so that themembership becomes a valued asset tothe Movement.

24The Commission recommends that:● Societies should agree and adopt

a design for a national Co-operativemembership card to be issued to all members and to include details of the member's host Society.

● The Movement should work to realisethe full value that its membership provides.It should give urgent consideration to: – Accelerating the current proposals

for the co-ordination of the customer/member records of constituentorganisations into a single Movementdatabase.

– Promoting the adoption of commontechnical platforms within theMovement, optimising efficiency and

effectiveness in membershipadministration; pursuing the goal that for a Co-op Movement membertheir membership card is recognisedwhenever the member undertakestransactions with any Co-operativebusiness.

● The Retailer Financial ServicesCommittee should be given a moreformal status with responsibility foroverseeing this work.

25The Commission recognises that the £1shareholding has only a nominal value. Akey goal of the Co-operative Movementin the twenty-first century is to encouragea mass membership. Therefore, werecommend that there should be noincrease in the minimum shareholding,but that this recommendation must belinked to a high profile recruitmentcampaign throughout the country.Further, the Commission recommends:● The minimum shareholding of £1 for

members should be maintained forentitlement to vote within Societies.Individual Societies should retain theright to determine whether an increasedshareholding or purchase qualificationis required before nomination toelected office.

● All Societies should adopt the bestpractice in the Movement for increasingparticipation and strengtheningdemocracy via a range of tried andtested balloting procedures, includingpostal/telephone balloting and theprovision of referenda (whereappropriate). The Rules of all Societiesshould include the requirement for anelection manifesto to include details of the qualifications and relevantexperience of the candidate.

● To encourage more informed, activeparticipation in the Movement’s activities,Societies’ membership policies,promoted by the Member RelationsOfficers, should provide access to adequate information on theperformance of the business, including the key commercial andsocial performance indicators, a newtimetable of meetings to make themmore accessible to members, andstructural changes to encourageparticipation by younger members of the Co-operative Movement. Theaim of all this is to encourage greatermember participation in the Society,including consultation with members in the course of policy development.

● That the Movement undertakes a high-profile recruitment campaign acrossthe country in order to develop a massmembership base.

The Commission recognises that someSocieties are considering experimentingwith increasing the minimum shareholdingfor new members and the Commissionlooks forward to the results of suchinitiatives being shared with the Movement.

26The Commission recommends that Co-operative membership should beencouraged among customers of TheCo-operative Bank, CIS, and otherbusiness areas in addition to thetraditional base of food retail customers.

27The Commission recommends that theCo-operative Union, in order to build a strong membership base across the

Membership, Participation and Securing the Co-operative Movement's Legacy – Recommendations

Recommendations

Chapter 3 – Membership, Participation and Securing the Co-operative Movement's Legacy

country, should establish and promulgatebest practice in the recruitment andparticipation of members. Boards ofSocieties should be encouraged and be prepared to exchange examples of best practice. The Co-operative Unionshould be used as a clearing house fornew ideas and innovations related toensuring stronger democratic structures.

28The Commission recommends thatSocieties should encourage employeesto become members of the Co-operativeMovement themselves and to participateactively in the Society's internaldemocracy via a ‘reserved employeemember constituency'. Societies shouldconsider carefully the most appropriatelevels of participation of its keystakeholders in the affairs of the Societyand should establish efficient andeffective processes to facilitate andderive the maximum benefits from thechosen levels of participation for eachgroup of stakeholders.

Securing Co-op assets

29This is a critical issue for the Co-operativeMovement. The Commission recommends:● That all Societies should, as a matter

of urgency, put in place rules to make it clear that current members arecustodians of the assets.

● Those few remaining Societies whichhave not yet adopted the seven modelamendments of the Co-operative Uniondesigned to set high turnout thresholdsas a defence against hostile takeoversor attempts at ‘demutualisation’, and/orto secure the transfer of assets to

another Co-op organisation, should do so at the earliest opportunity.

● The Government should introducelegislation to secure Co-operative assetsfor the future as is commonplace inmany other European countries.

● The Boards and Chief Executives ofRetail Societies should give carefulconsideration to Counsel's advicereceived by the Commission as part of our investigations into the protectionof Co-operative Movement assets.


people policiesand systemsthat are in linewith bestpracticeChapter 4 – Effective Management for Change and Development

1General1.1 Changes in the operation and structuresof Co-operative Societies to achieve theirsuccessful development are necessary. If such changes are to be introduced atan appropriate pace then there is a needfor effective pressure for change to beintroduced into Co-operative businesseswhere it is currently weak or absent.

1.2 This will entail creating high qualityleadership at Director level in thebusinesses and the development ofprofessional and qualified management.The Movement must be able to attractand to keep management and employeesof the highest quality, rewarded not only by attractive remuneration packages,but also by a feeling of belonging to a dynamic, expanding organisation to which they are committed.

1.3 Remuneration and incentivespackages for senior employees will need to be modified to ensure that theyare related to relevant profit/tradingsurpluses and not simply to turnover.

1.4 On the issue of Board representationfor employees the Commission took theview, after considering a number ofoptions, that the preferred method ofenabling the employees of Co-operativesto be represented at Board level was via a ‘reserved constituency'. Hence,employees would be encouraged tobecome members of the Society and thisemployee member constituency alonewould elect Board member(s).

1.5 The institution and monitoring oforganisational performance targets, by

managements and by Boards, are acritical aspect of the reforms required toachieve the necessary culture change inthe least well performing sectors of theretail sector of the Movement. As arguedearlier in the Report, the Co-operativeUnion has a key role to play in this regard,on behalf of Societies, in establishing, viaa Commercial and Social PerformancePanel, a common set of commercial andsocial performance indicators.

“Co-ops are also born out of thecommunities they serve... it’s vitallyimportant that Co-ops develop andoperate a community-based approach in everything they do." A co-operator,Oxford regional hearing

1.6 To support this culture change, Co-operative Societies should developpeople policies and systems that are in line with best practice, whilst stillreflecting Co-operative principles. They must be demonstrably fair andencourage the recruitment, developmentand retention of quality employees at all levels. Policy and practice must beclearly linked to the objectives of theorganisation. Societies must ensure that reward is related to achievement ofthese objectives, improving individuals’capabilities and their contribution to thebusiness. People-related performanceindicators must be defined, measuredand reported on regularly, along with thekey business measures.

“From where I’m sitting I actually see officersspending a lot of time on the road actuallytravelling to meetings, and see members’education and political education beingseparated and I’m just wonderingwhether we spread the availableresources too thinly." A co-operator,Oxford regional hearing

1.7 Employees should be encouraged toparticipate in their community as part oftheir own development, and to reinforcethe link between Co-operatives andsociety in general. One particular areawhere Co-operatives can set an exampleand make a difference is that of equalopportunities. They should develop ameaningful diversity agenda that shouldbe implemented in the workplace andcommunity and regularly measured and reported on. Co-operatives shouldbe models of best practice. Equalopportunities and diversity should beviewed not only in the context of socialresponsibility, but also as a businessimperative, thereby completing the‘virtuous circle’ which would be mutuallybeneficial to the business and society.

1.8 Co-operatives should encourageemployees to join the appropriate tradeunion and also encourage participation in the business based on ‘partnership’with employees and their representativeswhere appropriate. There should beparticipation between parties in themanagement of change, where it is in the long-term interests of the businessand its employees, with effectivecommunication a prerequisite to itssuccessful achievement.

2Board structure and size2.1 There was considerable discussion as to the desirability of a two-tier Boardstructure, but on balance – bearing inmind the nature of the Co-operativeMovement – the Commission took theview that all that could be achieved by


51 General51 Board structure and size52 Directors’ qualification and training54 Implications of the new Board structure

for Societies54 Employee Directors54 Summary of Counsel’s advice56 Equal opportunities

58 Remuneration and incentives60 Recommendations

a two-tier Board could also be achievedby a restructuring of the main Board toinclude the relevant stakeholders.

2.2 In relation to the size of Boards, theCommission took the view that the Boardsof Co-operative Societies should beconstructed so that they are significantlysmaller in number than at present whilestill respecting Industrial and Providentlegislation. The current best practice inthis area would suggest a Board size ofbetween 10–12 for medium and largeSocieties. We recognise that this is the status quo for a majority of retailSocieties with some of the largerSocieties adopting a bigger Board size.

2.3 There is a strong case for reducingthe current size of Society Boards to the lowest legal number required which ensures that the elected membersare in a majority – accordingly we wouldexpect Board membership to be amaximum of 15. The exception to thisgeneral rule will be the CWS main Boardthat has wide Movement responsibilities and where the maximum can be raised to 20.


2.4 Whilst recognising that the Boards of Co-operative Societies must by lawhave a majority of elected Directors, theCommission’s research demonstratesthat in a practical way a Society CEO playsa major role in the operation of the Board.This ad hoc arrangement may not placeupon CEOs the same fiduciary responsibilityas the elected Directors. There havebeen occasions where CEOs of Societieshave deliberately misled the Board andcould claim that legal responsibility restswith the elected Directors. We believethat this ad hoc arrangement is

unacceptable. Therefore, the Commissionis recommending that the CEO and theFinancial Controller should be seen toshare fiduciary responsibility. In additionthe practice adopted by some Societiesin setting out the responsibilities of themanagement executive in the Rules of the Society should become the norm for all Societies.

2.5 It is also important that the properdistinction is maintained in Societiesbetween the responsibilities of the BoardDirectors and the management executive.The elected Board should approve andmonitor the achievement of the commercialand social performance targets whilst alsoapproving the overall business strategy ofthe Society. The management executiveis required to work with the Board todevelop the approved strategy andmanage the business in line with thestrategy approved by the Board.


2.6 The Commission believes that withinCWS each major trading business shouldhave its own management executive as is currently the case in The Co-operativeBank and CIS. In addition to providingmore focused management this similarlevel of focus could develop at Boardlevel. This would allow the CWS Board tomake management more accountableacross the diverse businesses whichmake up CWS and should allow appropriatecomparison analysis of all CWS businesses.

The respective management executiveswould remain responsible to the CWSBoard through a Chief Executive Officer.


3Directors' qualificationand training3.1 The Commission believes that the Co-operative Union should, afterappropriate consultation, establish the quality and qualifications required of candidates prepared to serve on theBoards of Co-operative Societies asexternal independent non-ExecutiveDirectors. The Union should compile a pool of suitable candidates.

3.2 The Commission believes that the Co-operative Union should have theability to appoint up to two advisors to work with the Boards of consistentlyunder-performing Societies and the Rulesof the Co-operative Union should beamended to facilitate this, which wouldthen become a condition of membershipof the Union.


3.3 Recognising the complexities of arapidly changing business environment, theCo-operative Union and the Co-operativeCollege in consultation with leading businessschools should consider developing a newqualification that meets the minimumrequirements for elected Directors toexecute their duties and responsibilitiesadequately. This new qualification – or its academic, professional or experiencedequivalent – should be mandatory for anycandidate seeking election or re-electionas a Director from the beginning of 2003.


3.4 The issue of ongoing training for

Effective Management for Change and Development


NEMCO is a flourishing Co-operative, run by teachers, which grew out ofNewcastle City Council’s musicalinstrument teaching service.

In 1995, Newcastle Local EducationAuthority was facing budget cuts and was being forced to make all peripateticmusic teachers redundant. The LEAwanted to continue to offer the service to its schools, but could no longer afforddirectly to employ the teachers.

With support from the City Council and the Musicians Union, the teachersgrouped themselves together as a Co-operative, which contracts directlywith the schools.

The results have been spectacular.Newcastle City schools now enjoy moremusical instrument teaching than everbefore. Hours taught in schools hasincreased by over 67 per cent, whilst thenumber of teacher members of NEMCO

has increased from 16 to 32. The range of musical instruments available has also broadened.

NEMCO has managed this success byintroducing a wider range of instrumentteaching options, staggered paymentplans, and discount schemes with localmusical shops.

At the heart of the business lies the beliefin the value of music in education.

NEMCO Music Teachers A Co-operative case study

Pupils at NEMCO in Newcastle

all Directors should be a regular itemaddressed by Society Boards and a skills audit to help identify skills gaps on Boards should be introduced.

3.5 The Commission believes that acombination of better qualified and trainedelected Directors and the appointment of external non-Executive Directors is thebest way of meeting the obligations laidon the Directors of the businesses.

3.6 We also believe that it is essential forthe future success of the Co-operativeMovement to address the problem thatexists in some Societies and Boards thatare mainly composed of Directors in their70s and 80s.


4Implications of the new Board structurefor Societies

4.1 With the establishment of the newBoard structure the CEO and FinancialController will have joint fiduciaryresponsibilities with the rest of the mainBoard. It will be imperative that theresponsibilities of the Board andmanagement are clearly defined in theRules and Constitution of each Society. In particular, the Board should approvethe targets and strategy and monitor the performance – taking account ofappropriate benchmarks – bothcommercial and social – while themanagement would manage thebusiness in line with overall strategyapproved by the Board.

5Employee Directors5.1 Evidence from both regional hearingsand submissions indicates that there isno overall consensus on the question ofemployee representation on the Board.The argument outlined by those whoobject to employee representation is thatemployees should seek election to officeas members of the Society and shouldnot represent the employees directly, if successful in that election, but rathershould have the long-term interests of theSociety at heart. The counter argumentto this position is that if we are toencourage employees as stakeholders in the business then they need their ownelectoral arrangements in relation torepresentation on the Board. We believethat a satisfactory compromise is for theemployee members of a Society to havea ‘reserved constituency' that will elect Board Director(s).


“...the Movement has always believedthat the Co-op workforce remains one of its greatest assets..." A co-operator,Edinburgh regional hearing

5.2 In this way employees will beempowered to play a full part in theaffairs of Societies and the Movement,but within democratic Co-operativestructures. We take the view that this will provide both an acceptable and a challenging new mechanism foremployees to participate in thebusinesses for which they work, whilepreserving the unique Co-operativemode of consumer-owned organisations.

6Summary of Counsel’sadvice 6.1 The Commission received advicefrom Christopher Nugee QC regardingthe duties of Directors of Co-operativeSocieties. The following is a summary ofthe Commission’s conclusions, based onCounsel’s advice. A full transcript of thatadvice is printed in Annex 6.

6.2 Directors of Co-operative Societies(like Directors of companies) have a dutyto deploy such skills and experience asthey have to the benefit of the organisation.They are obliged to fulfil the role allocatedby a Society’s Rules carefully, prudentlyand responsibly. Though a Board may,and should, take external advice where aBoard lacks expertise, great care oughtto be exercised in routinely bringingexternal professionals into the Boardroomwhere as well as being an expensiveresource they may well have a destabilisingeffect on existing executive management.To assist Directors in discharging thisduty of skill and competence, theCommission believes that there is a rolefor non-Executive Directors, at least inthe larger retail Societies.

6.3 The fiduciary duties which apply to Directors of Co-operatives are thesame duties of loyalty, honesty and good faith, which apply to Directors ofcompanies. This fiduciary duty might becharacterised as a duty for the Directorto give their undivided loyalty to theSociety. A Director, though able to takeaccount of wider interests, must notsubordinate the interests of the Societyto those wider interests.



Tower Colliery is a remarkable successstory. The miners of the colliery atHirwaun, near Aberdare, fought for theright to buy the pit with their redundancypay from British Coal, which claimed itwas no longer economically viable. Fiveyears on, the last deep mine in Wales ison a sound financial footing.

The colliery has been in existence sincethe nineteenth century and was capableof producing 900,000 tons of coal peryear. It was closed by the Government in

April 1994 and offered for sale to thepublic as part of the privatisation of thewhole industry.

A buyout team of six miners, representingthe whole workforce, was formed and minerswere asked to invest £8,000 each on aone person one vote basis to buy the pit.

Since then, the colliery has gone fromstrength to strength, generating a regularturnover of £25 million and now employs300 people who are all shareholders.

They have bought out a coal distributioncompany, developed a new visitor centre,converted methane gas to electricity,promoted a credit union for the local areaand are the largest non-public sectoremployer in the area . They have also formedan alliance with a company to developanother mine, which will be up and runningin 2003, and will create 200 new mining jobs.

The success is down to the determinationand commitment of the miners to savetheir pit.

Tower CollieryA Co-operative case study

Tyrone O’Sullivan and miners at Tower Colliery

6.4 One facet of this fiduciary duty whichmay arise within the Co-operative sectorconcerns conflicts of interest. The duty ofundivided loyalty demands that not onlymust Directors act in the best interests ofthe Society whose Board they serve onbut they must not disclose for the benefitof those who may have nominated themany information received in that capacity,notwithstanding that this may conflictwith a separate duty they have to anominating society, region or another Co-operative body.

6.5 The Commission believes that theseissues are perhaps best highlighted byanalysing them in the context of CWSwhich now has a pre-eminent positionwithin the consumer Co-operativeMovement. The scale and diversity of the CWS Group is such that it is difficultto envisage a Board elected entirely bythe democratic process being equippedto deal with the complex and diverseproblems that will arise within the CWSBoardroom. Since the democraticprocess cannot be relied upon to fill any skills gaps at Board level, and sinceexternal advice, for the reasons alludedto will prove on its own an unsatisfactorysolution, the Commission’s view is thatthis is best addressed by the appointmentof a small number of external non-ExecutiveDirectors with requisite skill and experienceto assist elected Directors. Even if weassume the appointment of non-ExecutiveDirectors on the CWS Board, issues mayarise in the CWS Boardroom where adecision which would be in the best interestsof CWS would prejudice the interests of a corporate member, a particular regionor part of the wider Movement. Given the federal Co-operative nature of CWS,its Co-operative culture and history and the provision in its Rules to promote Co-operative principles, such a detrimental

impact should be taken into account.However, it would not be legitimate for a Director to vote in a way that materiallyprejudiced CWS’ ability to be a successfulCo-operative business. Directors mustweigh the arguments and come to adecision which is in the best interests ofCWS and not of any corporate memberor other body. It follows that Directors bethey representatives of corporate membersor of a geographical area cannot bemandated to vote in a particular way;they must weigh the arguments.

6.6 These are often difficult areas andperhaps easily overlooked. The issue ofDirectors’ duties and position in conflictsituations should be more expresslyaddressed in the Rules of Societies, withDirectors receiving appropriate training onthese often complex issues. It is importantthat Boards and individual Directors,particularly those on the Boards of federalSocieties, are alert to these issues andare appropriately advised.

7Equal opportunities 7.1 Equal opportunities for all is afundamental component of the Co-operative agenda, not just for socialand ethical reasons, but as soundbusiness practice. This is especially thecase given the Movement’s customerand employee base; for example 60 percent of Co-operative customers andemployees are women.

7.2 Equal opportunities policies andprocedures go to the heart of the Co-operative Movement’s structure andbusinesses, because internal policiessend out a clear message, externally

as well as internally, about its values and philosophies and how it wants to do business. Furthermore there is theobvious need to comply with legislation,as failure to do so carries a financial penaltyalong with damage to the Movement’sreputation and public image, and impactson employees, customers and clients.

7.3 Expectations of fair treatment at workhave quite rightly increased, as peoplehave become more aware of their rightsand of equal opportunities issues in general.This in turn influences their aspirations tojoin, or continue to work for, employerswith good employment practices.

7.4 Active equal opportunitiesmanagement can also open up newopportunities and improve market shareby broadening the customer base,particularly where they can identify withthe specific policies and practices e.g.gender, disability, race and age. Conversely,bad practice can lead to a loss ofreputation and customers, particularly asCo-operative businesses are perceivedas having, or are expected to have, highregard for equal opportunities.

“We need to be seriously concernedabout our age and race profile among our members... and if we look around thisroom today we can see perhaps a little bitmore about the age gap. This is a matterthat we should grasp if we are to be anongoing movement with relevance andresonance in the twenty-first century."A co-operator, Loughborough regionalhearing

7.5 In summary, the legal, social and the business cases are interwoven and compelling and contribute to policy and practice becoming part of everyday working.



Over the past four years, the number of food convenience stores operated by United Norwest Co-op throughout the North Midlands and North West hasdoubled to over 300, making it the clearmarket leader in its region.

Around three years ago, United Norwestundertook extensive customer researchinto the development of a new conceptconvenience store to take the Societythrough the first part of the new millennium.Every aspect of the design, range, feel

and operation of the stores was thoroughlyinvestigated, resulting in the developmentof a number of striking blue and aquaLate Shop pilot stores. To date over 100of United Norwest’s stores have beenconverted to the new colour scheme.

The new format has been very wellreceived by customers and members,with an average sales increase of 16 per cent and profit margins up 31 per cent due to improved product mix, particularly in the fresh food area.

The success of the ‘Going for Blue’programme led to United Norwest beingshortlisted in the IGD Multiple Retailer of the Year Awards 2000, alongside Asda,Tesco and Iceland – a rare achievementfor a regional retailer.

Late ShopsA Co-operative case study

Elaine Woodfiner with a customer at the Stockport Late Shop

7.6 One of the biggest challenges forbusiness today is to respond to constantand frequent change. To attract andretain employees and customers andenhance business competitiveness, it is vital to keep up with best practice. By doing so, ideas are stimulated andmore open and attractive policies andprocedures are encouraged.

7.7 Best practice in equal opportunitiescan be seen as a dynamic process,achieving a balance between the needsof the organisation and meeting those of the individual, whilst promoting thefundamental values of equality.

7.8 Good examples of best practice are:● Setting standards (Key Performance

Indicators) for equal opportunities andmeasuring and reporting on them, aspart of the regular business review withsenior management and the Board.

● Regular communication with employeesand customers, using surveys, focusgroups, briefings, newsletters andelectronic media as appropriate toupdate them regarding progress theorganisation is making on equalopportunities issues. Conversely, suchcommunications also provide importantfeedback as to, for example, whethernewly introduced policies areunderstood and are working in practice.

● In addition to a grievance policy, the provision of a confidential help line or nominated supporters foremployees who may believe they are being harassed or bullied. For a variety of reasons staff feel isolatedand unable to confide in friends,colleagues or managers but needsupport and guidance to resolve a particular situation. A confidentialsupport mechanism will allow this to happen.

● Positive recruitment programmes awayfrom the normal labour market e.g. inareas with a high population fromethnic minorities.

● Publication of the organisation’s policy andcommitments in all job advertisements.

● Training in equal opportunities to keepemployees up to date and aware oftheir responsibilities, so that it is seenas being integral to the business.

● Active participation in equal opportunityrelated groups and organisations e.g.Business in the Community, EqualOpportunities Commission.

“...if you want to establish a co-operationwhich is really going to mean anything, I think we have got to have a reinvestmentand a resurgence of housing co-operation."A co-operator, Oxford regional hearing

7.9 Practice in the Co-operativeMovement varies, driven by individualSociety priorities:● To support Co-operative initiatives and

illustrate the difference, it is essentialthat leadership and commitment toequal opportunities continue to bedemonstrated at the most senior levelsin Co-operative organisations and are effectively communicated bothinternally and externally.

● Benchmarking, sharing best practiceand setting performance indicatorsthat will monitor progress towards adiverse workforce is necessary,together with ensuring these resultsare fully and openly reported, “wartsand all". Statistics and reporting mustnot be seen as an end in themselves,however, but as a way of contributingto the business by using all availableresources to best effect.

● Co-operatives must continue to develop strong links with thecommunity, and employ a workforce

that is representative of the one inwhich they operate, thus ensuring thatmembers of the community identifyand do business with them.

● They must ensure that policies andprocedures not only comply withlegislation as a minimum, but also go further to set an example to otheremployers, therefore maintaining and emphasising the Co-operativeMovement’s values as a social andethical employer, with whomcustomers will seek to do business.

● Best practices can be shared throughoutthe Movement by communication withits more advanced exponents e.g. thosefeatured in the case studies and theCo-operative Union. Furthermore theSociety can gain assistance fromvarious specialist bodies, such as theEqual Opportunities Commission, The Commission for Racial Equalityand The Disability Rights Commission,particularly in respect of settingperformance standards and measuringand reporting progress against them.


8Remuneration andincentives8.1 Commensurate with the ambition ofbeing a successful Co-operative business,it is essential for retail Societies to attractand retain the highest quality of employeeparticularly at senior management levelin competition with the private sector.Competition for such people has neverbeen greater and Societies must havethe freedom and the will to attract theirfair share of such individuals.


8.2 It is perhaps not surprising to observethat in general the remuneration systemsfor management in the Co-operative sectorare not in line with the private sector. Inparticular, there is less focus on incentivesand therefore a diminished relationshipbetween performance and reward. Forexample, annual and long-term plans arethe exception in the Co-operative sector,but the norm among plcs of comparablesize to the top 20 Co-operative Societies.While not suggesting rewards in line withsome over-generous bonuses in the plcsector, the Commission believes that somestrong element of incentives, consistentwith the maintenance of Co-operativeprinciples, must be appropriate, given the urgent need to improve performance.The corollary, of course, is that persistentfailure to achieve targets should result in management changes.

8.3 Societies should review theirremuneration policies in order to rewardbetter both current and potential seniormanagers, based upon the profitability of the successful Co-operative businessand not on turnover.

8.4 We would expect the key elements of the remuneration packages for seniorexecutives might include:● A market-based salary. ● An annual financial incentive scheme

based on an appropriate financialindicator.

● A long-term (e.g. 3 years) incentive plan linked to the achievement of keymeasurable targets from the 3-yearbusiness plan.

8.5 Societies should review their policiesin relation to openness concerningrenumeration policies and examine thebest practice initiatives within the plcsector in this field.


8.6 More generally, for all employees a human resources strategy should beadopted by Co-operatives to include:● Competitive remuneration linked to

comparable market rates. ● Modern flexible working practices. ● Excellent training and development

policies. ● Clear accountability linked to quality

performance appraisal processes. ● Team bonuses based on individual unit

or branch performance. ● As employee shareholders, a share in

the distributed profits of Co-operativeSocieties.

8.7 The introduction of any changesshould be with due regard to consultationwith the relevant trade unions.


Boards, management, and staffing

30The Commission recommends that thebest practice in relation to the size of theBoards for Societies should be the lowestnumber that achieves:● The principle that elected members should

always have a majority on the Board...● Whilst achieving the representation

from the other constituencies asoutlined within the recommendations.

Accordingly, the Commission recommendsthat the maximum size of Board should be15, except in the case of CWS, where themaximum ideally should be 20 members.

31The Commission acknowledges thatmembers of the Board elected fromamongst the membership of the Societymust always be in a majority on theBoard. Nevertheless the Commissionrecommends that:● The Chief Executive and Financial

Controller as a minimum should serveon the Board.

● Employees should be recognised asimportant stakeholders who should befully involved in the decision makingprocess and should be encouraged to become members who participateactively in the Society’s internaldemocracy via a reserved employeemember constituency with at least two seats on the Board. Employeesmay continue to stand as consumerrepresentatives but the total number of employees on the Board should not exceed one-third.

● In order to close the skills gap thatexists on Societies’ Boards, and to

foster the performance culturerequired in a successful Co-operativebusiness, it is essential that Boardsshould introduce a skills audit. Boardsshould be empowered to fill any skillsgaps identified by the appointment oftwo external independent Directors,and the Commission recommends that Boards should do so.

32The Commission recommends thatwithin CWS each major trading businessshould have its own managementexecutive as is currently the case in TheCo-operative Bank and CIS. In addition to providing more focused managementthis similar level of focus could develop at Board level. This would allow the CWSBoard to make management moreaccountable across the diverse businesseswhich make up CWS and should allowappropriate comparison analysis of allCWS businesses.

The respective management executiveswould remain responsible to the CWSBoard through a Chief Executive Officer.

33The Commission recommends that the Co-operative Union should, afterappropriate consultation, establish the quality and qualifications required of candidates prepared to serve on theBoards of Co-operative Societies asexternal independent non-ExecutiveDirectors. The Union should compile a pool of suitable candidates.

34The Commission recommends that theCo-operative Union should have theability to appoint up to two advisors to work with the Boards of consistentlyunder-performing Societies and the Rulesof the Co-operative Union should beamended to facilitate this, which wouldthen become a condition of membershipof the Union.

35The Commission recommends that on-going training for all Directors should be a regular item addressed by all SocietyBoards. Recognising the complexities ofa rapidly changing business environment,the Co-operative Union and the Co-operative College, in consultationwith leading business schools, shoulddevelop a new qualification that meetsthe minimum requirements for electedDirectors to execute their duties andresponsibilities adequately. This newqualification – or its academic,professional or experienced equivalent –should be mandatory for any candidateseeking election or re-election as aDirector from the beginning of 2003.

36The Commission recommends that an age limit for Board members withinSocieties should be set at 68.

Effective Management for Change and Development – Recommendations

Recommendations

Chapter 4 – Effective Management for Change and Development

37Irrespective of the size of Society orelectoral processes adopted, it must beemphasised that Board members, onceelected, are not delegates representing any particular constituency; rather theyserve on the Board to oversee thecompetitive and commercial success ofthe Society as a whole and must alwaysact selflessly in its best interests.

38The Commission recommends that theBoards of all Societies should adopt bestpractice in relation to equal opportunitiespolicies and should incorporate reportson equal opportunities within the socialreport. The Co-operative Union shouldpromote best practice in equalopportunities and encourage itsapplication in all Societies.

39The Commission recommends thatSocieties should review theirremuneration policies in order to rewardappropriately senior managers in order to attract talented people from outsidethe Movement. The remunerationpackage should be based upon theprofitability and social achievements ofthe successful Co-operative businessand not on turnover alone. Societiesshould review their practices in relationto openness concerning remunerationpolicies and should implement therelevant recommendations of the Co-operative Union’s corporategovernance code of best practice.


the movementneeds a moreeffective, united and co-ordinatedvoiceChapter 5 – National, Regional and Local Structures

1General1.1 Within the UK there are national,regional, and local dimensions of the Co-operative Movement. At all theselevels change is needed.

1.2 Locally, at the level of thecommunities where Co-ops are locatedthere is a requirement for successful Co-operative organisations to becomevalued service and community supportorganisations in their local communities,following the lead of the best practiceacross the Movement.

“It’s a bit like the Gordian knot, we spendthat much time looking at why thingswere the way they were and if you try to unpick a Gordian knot you never will, you’ll pick at it and you pick at it and pick at it, and that’s what we do, we pick at it all the time trying to solve the problem, but it never works, the only solution to the Gordian knot is youtake a sword to them, you cut them down and you start from scratch, so whatwe need in our membership organisationis innovation, more participation andcontrol by membership and above all,vision from the Movement’s leaders."A co-operator, Edinburgh regional hearing

1.3 It is essential that the link betweenCo-operatives and their local communitiesis developed and extended. The potentialfor local action – enshrining Co-operativeideals – is considerable. Nothing will betterreinforce the rebirth of the Movementnationally than the evidence that its localroots in voluntarism are thriving and aredelivering services required and prized by local communities.

1.4 Regionally, there is not only a need to become actively involved in the new regionalism emerging and centredin England around the RegionalDevelopment Agencies (RDAs), but also the specific regional dimension ofthe Movement's activities involving anavoidance of self-defeating competitionand promoting greater co-operationbetween Co-ops. The common Co-operative branding we recommendelsewhere in our Report shouldconsiderably assist, both in promotinggreater co-operation and avoidingunnecessary competition betweenSocieties in the same catchment areas.

1.5 In Scotland, Wales and NorthernIreland analogous intensification of the relationships between the variousparts of the Movement, aimed also atmaximising the synergies and avoidingself-defeating competition, is required.

1.6 At UK level, the Movement needs amore effective, united, and co-ordinatedvoice to ensure commonality of purpose,diversity of local action, and the activepromotion of Co-operative principles at the highest levels of Government and in public debate. In particular this will entail promotion of Co-operativeprinciples and action in the context of the development of social enterprise and the social economy.

2Nationalrepresentationalstructures

2.1 At UK level, there is a lack of synergy

between the consumer retail Co-operativesand the wider Co-operative Movementinvolved in social enterprises. This hasbeen institutionalised by the creation ofthe UKCC that has largely representedthe non-retail movement.

“...if we want to promote co-operation to the public at large and, in particular, to opinion formers in the various tiers of Government, we need to ensure that the voice of co-operation is more co-ordinated in the future than it hasbeen in the past." A co-operator, Oxfordregional hearing

2.2 It is clear from public submissionsreceived and evidence taken during theregional hearings, the Movement believesthat the UKCC – under the previousChairmanship of Lord Carter and thecurrent Chairmanship of Lord Grahamand with the executive support of David Dickman – has undertaken some important and valuable work inpromoting and developing the concept ofCo-operative enterprises across the UK.

2.3 The existence of two national levelbodies suggests a lack of unity ofpurpose and outside organisations maybe confused as to the roles of the two bodiesand why there cannot be one organisationspeaking for the Co-operative Movementin its broadest sense.

2.4 We therefore welcome the proposedmerger of the administrations betweenthe UKCC and the Co-operative Union and the broad agreement that the twoorganisations will work more closelytogether in the future.

2.5 Indeed, the Commission understandsthat the two organisations will proceed toa full strategic alliance with a national


63 General63 National representational structures64 The Co-operative Women’s Guild64 The Woodcraft Folk64 Lifelong learning65 The Co-operative Foundation66 The Co-operative Party – the political voice67 The Co-operative Press

67 Regional structures67 Local structures and action68 UK Government action68 UK legislation70 Recommendations

remit that would include promoting thedevelopment of the social economy andsocial enterprise and in so doing recognisethe wider Co-operative Movement andthe social enterprise sector as fullpartners with the retail movement.

2.6 This new alliance acting as thenational voice for the promotion of socialenterprises should develop a properframework to provide business advice,support and training for potential andexisting Co-operative enterprises. Also,the Co-operative Union should develop the co-ordination of best practice asexperienced within the regions.

2.7 The Co-operative Union, acting as a clearing house to promote innovationand best practice within the Movementwill have as a key aspect of its workmodernising the Movement andpromoting Co-operative aims and values to the wider community.

3The Co-operativeWomen’s Guild3.1 Established in 1883, the Women’sGuild has set out to educate and raise the confidence of women co-operatorswithin their own autonomous organisations.Sponsoring women as candidates for places on the Boards of Societies,sectional Boards and eventually asDirectors of local Societies, the Guildpioneered many reforms within theMovement, in order to further the causeof women co-operators – in particular the campaign for ‘open membership’which allowed more than one memberper household.

3.2 Outside the Movement, the Guildundertook a wide range of campaignwork to secure changes in legislation toemancipate women. The Guild’s workensured that maternity benefits wereincluded in the 1911 Insurance Act; theycampaigned for improved health care for mothers and infants through schoolclinics and they were also influential in the suffragette movement.

3.3 The achievements of the Women’sGuild both within the Co-operativeMovement and wider society, cannot be overestimated. 80 per cent of Co-opmembers are women. The currentPresident of the Co-operative Congress,Pat Wheatley, for eight years was Secretaryof the National Guild which together withthe Women’s Guild has devoted much ofits finance and efforts to the promotionand education of women.

3.4 The Commission, whilst not makingany specific recommendations in relationto the Women’s Guild, wishes to place on record its gratitude for the support,encouragement and determination of its members to advance the cause of co-operation throughout the localcommunities in which they serve.

4The Woodcraft Folk4.1 For over seventy-five years, theWoodcraft Folk has been working withchildren and young people, aiming todevelop their self-confidence and abilityto play a positive role in society.

4.2 The Woodcraft Folk currently runs500 groups and has 13,000 adults, youngpeople and children as members. Since

its founding, it has seen itself as part of the broad Co-operative Movement. Its education programme and activitiesare organised on a Co-operative basisand centre upon equality, peace andsocial justice.

4.3 Financial support for the organisationis given at Society level, although it hasreceived some core funding fromnational bodies.

4.4 Whilst the Commission does not intendto make any specific recommendationsconcerning the Woodcraft Folk, we doplace on record our appreciation for thework they do in promoting Co-operativeideals to young people. In addition, theWoodcraft Folk have suggested theformation of a joint Woodcraft Folk/Co-operative initiative modelled upon thesuccessful TUC Youth Academy, whichwould be run in partnership with the Co-operative College. This would link with the Young Co-operators coursescurrently held at the College. TheCommission reviewed this proposal with interest and commends it to theMovement for further discussion.

5Lifelong learning5.1 The Commission is pleased toacknowledge the progressive work of theCo-operative College since its inceptionin 1919, and in particular its exciting aimsto build upon the historic strength of theCollege through the recently publishedstrategic plan.

5.2 The vision within the plan seeks tocreate a resource for the whole of theCo-operative and Mutual Enterprise

National, Regional and Local Structures

(CME) sector which will ensure thehighest quality standards in their work.

5.3 The College is the major provider of credit union training; has worked with Co-operative development workers on an NVQ-based managementprogramme; works closely with thePlunkett Foundation for Co-operativeStudies; and through the Adaptprogramme (funded through theEuropean Social Fund), has taken workdeveloped with CWS on Co-operativevalues and principles to small andmedium sized Co-operative enterprises.

5.4 The Commission believes that thetime is right for the College to lead onbehalf of the Movement the developmentof a modular Co-operative and mutualenterprise programme entitled ‘Learningand Citizenship and Community throughCo-operative and Mutual Enterprise’. Theprogramme should be capable of beingused at all stages of learning; availableboth within the Societies and outside the Movement; and should be fundablevia various DfEE programmes includingthe Learning and Skills Council.


6The Co-operativeFoundation6.1 The original Rochdale Pioneers werequite clear that the Co-op was not just a business. They understood that thenotion of ’self help’ was a communityphilosophy. The original Rochdale storewas there to give its members controlover the forces that shape their lives.

It was there to provide good food, toavoid rampant profiteering. But from the earliest time it was committed to a larger social role, to promote its valuesbeyond those of food retailing.

“We in the Co-operative Movement haveall of the building blocks, we have cradleto grave co-operation, we are able tooffer people control over every single bitof their lives if they want it." A co-operator,Manchester regional hearing

6.2 It is still the case today that thousandsof individuals and many communities are unable to take part in the decisionsthat shape their lives. The Co-operativeMovement still has a major role to play in providing access to education andtraining, supporting lifelong learning anddeveloping innovative ways of working inlocal neighbourhoods to help regeneratesome of the most deprived communitiesin the UK.

6.3 There are already excellent examples of successful communityinitiatives supported by local Co-operative Societies, many of whichare highlighted in this Report, where Co-ops are working with partners in local authorities and voluntary groups to improve opportunities for local people.One example is Lincoln Society’s Aims in the Community, where memberscollaborate in local projects. Some of the organisations in which theyvolunteer time are involved in economicregeneration such as Investors in Lincoln,Urban Challenge and GainsboroughRegeneration. Some have social orenvironmental goals such as the LincolnYMCA, Groundwork Lincolnshire andLincoln Employment AccommodationProject. The Lincoln Society also has a Healthcare Fund supporting health-

related schemes with equipment and an Education Fund, supporting schoolsbidding for technology/language/sportscollege status.

6.4 The challenge for the Movement is to build on this success, to spread the good ideas to all areas of the country and to encourage creativity and imagination in projects to maximisethe impact of Co-operative ideals. The development of new Co-ops inresidential care for older people and theuse of resources from the Government’sChildren’s Fund to develop Co-operativesolutions for child care are just twoventures which desperately need support if they are to develop fromconcepts into reality.

6.5 Despite the tremendous success of some local community initiatives, the overall impact of the Co-op in tackling issues such as social exclusion,regeneration and empowering localpeople is relatively small. This is partlydue to the failure of the businesses togenerate the profit necessary for a morerobust and significant programme ofcommunity action and partly due to the lack of co-ordination and consistencyof approach of the projects that are implemented.

6.6 It is difficult to support long-term and sustained community activity unlessthere is a reliable source of fundingavailable, but it is sustained action over a period of time that results in tangiblechange that leads to real improvementsin the lives of local people.

6.7 The Commission is recommendingthat in order to address these needs a Co-operative Foundation should beestablished to help complement and


wider Labour movements where sucheducation promotes an understandingof the value of strong communities andgives local people access to a widersocial arena.

6.11 The Foundation would become a catalyst for promoting the values andprinciples of the Co-operative and widerLabour movements. It would recogniseand embody the fact that Co-operativesrepresent the individual as entrepreneurand consumer; trade unions representthe individual in the workplace; and theLabour Party represents the individual as citizen. The Foundation shouldbecome a focal point for economic and social discussion within the wholeLabour Movement.

6.12 The Foundation would help to ensure that community activities could be funded over the long-term so that real benefits could be gained from the Co-op’s investment. It will help to ensure that community projectsare of a consistently high quality and that they meet the goals of the Co-operative Movement.

6.13 We recommend that Co-operativeSocieties should contribute toestablishing and funding the Foundationand that individual co-operators shouldbe able to make donations to theFoundation if they so wish.


6.14 The Board of the Foundation shouldbe fully representative of the Societiesthat contribute (possibly in a similar wayto CRTG) and should also includerepresentation from the other wings of the Labour Movement. It should givepriority to supporting projects which

relate directly to the principles andpractice of co-operation and which helpto translate the values of mutual support,solidarity and community into practicalaction. The Foundation should also directfunds towards projects that serve the areas from which the funds havebeen earned in order to secure a realcommunity dividend for people at local, regional and national level.

See recommendation 42 and 43

6.15 The Foundation can help to give the Co-operative Movement a much stronger voice in shaping thedevelopment of policies by providing a practical way of making realimprovements at local level. It can be a means to achieve many of the aims of the founders of the Co-operativeMovement to educate and empowerlocal people and to hºelp them to shape their own lives and to control their destiny.


7The Co-operative Party– the political voice7.1 The Co-operative Party fulfils an important function in seeking topromote Co-operative interests throughits participation in politics. Through itslong-standing links with the Labour Party,it engages Co-operative members in thework of the Labour Party. This involves a programme of political educationcarried out through a number of weekendschools and events, plus the nationalsummer school.


reinforce the impact of Societies’individual community initiatives.

6.8 There is a need to carry out researchand development work to explore newideas about how communities work. The Co-op should be a major player in developing such policies and should be able to exercise considerableinfluence in shaping future economic and social policies at local, regional and national levels. The excellent workbeing carried out by CommunicatingMutuality is leading the way in this areaand its innovative approach should be a central element in the research anddevelopment work of the Foundation.

“Why should people sacrifice their time andenergy to develop new Co-operatives... if they cannot be sure that the effortthey’re putting in is of lasting benefit totheir communities." A co-operator,Oxford regional hearing

6.9 The Foundation is designed to be the national recipient of the communitydividend particularly for those Societiesthat do not already have active localprogrammes which promote Co-operative activity.


6.10 The Foundation would translate thevalues of mutual support, solidarity andcommunity into practical action by:● Funding sustainable Co-operative

initiatives.● Funding research in new areas of

Co-operative activity.● Funding community initiatives that bring

fulfilment to local people and enrichthe environment in which they live.

● Funding political and citizenshipeducation within the Co-operative and

7.2 The Co-operative Party currently has a large number of elected advocatesincluding 27 Westminster MPs; 2 MEPs; 7 Members of the Scottish Parliament; 5 members of the Welsh Assembly and over 700 Labour and Co-operativecouncillors.

7.3 The last two years have seen the Co-operative Party become the leader in the development of new mutual policyinitiatives at the same time as overhaulingits core advocacy activities. In addition,the work of its elected advocates hasensured the successful promotion of Co-operative ideals at all levels of government.

7.4 The Commission recommends that links between the Co-operativeMovement and the Labour Party shouldbe strengthened nationally and locally to reflect the increasing importance of co-operation. The Co-operative Partyshould remain the political interface and is the appropriate body to affiliate to the Labour Party. The Labour Party and the Co-operative Party should work together on a new partnership toincrease participation in political activity.


8The Co-operativePress8.1 The Co-operative Press Ltd. is anindependent secondary (federal) Co-operative Society whose role is thedissemination of news and information to the Co-operative Movement. It fulfilsthis role by publishing the Co-operative

News, the world’s longest-establishedCo-operative newspaper, which wasfounded in 1871.

8.2 The Co-operative News sellsapproximately 11,000 copies a week – the majority of which are bought byconsumer Co-operative Societies forinternal distribution. As a business thePress is financially independent (though51 per cent owned by CWS), with its own Board.

8.3 Income for the Press comes from twosources: sales of publications and salesof advertising space, both of which aredeclining and place the future of the Co-operative News in serious jeopardy.


9Regional structures9.1 Regional Co-operative Councils areseen as being an important componentfor the promotion of Co-operativeenterprise in Scotland, Wales and theregions of England. They have thepotential to develop a distinct Co-operative agenda throughout the UK, bringing together retail Societies andthe Co-operative Development Agencies(CDAs), Social Enterprise Agencies and other sectors of the non-retail Co-operative Movement. Their valuablecontribution should be recognisedthrough the possible allocation of oneseat on the Central Executive of the Co-operative Union to be filled by anelected representative of the RCCs.


9.2 Regional Co-operative Councils shouldplay a key role in the evolving structure of the modern Co-operative Movement,linking with the development of regionaleconomies through the new regionalstructures emerging at that level.

9.3 Analogous structures and linkagesshould be established in Scotland, Wales,and Northern Ireland.

9.4 In the future appointment of members of the Regional DevelopmentAgencies, the Government should berequested to consider the nomination of a Co-operative Movement nomineewithin each region.


10Local structures and action10.1 The local dimension of Co-operativeactivity is not only important as part ofthe distinctive commercial offering of Co-operative Societies, but also becausethe reconstruction of communities is anintegral part of the modern politicalagenda. Co-operatives directly and bythe support of social enterprise in itsbroadest sense are capable of revivingcommunity life. The delivery of a varietyof new or disappearing communityservices, to provide support to varioussocietal groups, e.g. the elderly, peoplewith disabilities, single parents, the sociallydisadvantaged, is an important role that Co-ops should fulfil as part of theirsocial mission.

10.2 As some Societies have shown,


Co-operative Party MPs and Peers from the Co-operative Party’s Parliamentary Group

working with other groups equallycommitted to social and communityenterprise can provide a much-neededexpansion of services to the localcommunities. Co-operative DevelopmentAgencies, such as the Durham Co-operative Development Agency, one of the largest in the UK, or others in areas such as Northern Ireland, candevelop a variety of local businesses to benefit people, communities, and theenvironment, supported also by fundingfrom the European Union.

10.3 A localdimension relating Co-operativeactivities to the communities in whichthey are located is, therefore, an essentialcomponent of future Co-operativedevelopment. An example of this mightbe the broadening of the role of localretail stores to become ‘communityservice centres', offering, under the Co-operative banner, a range of otherservices including, for example, banking,other financial services, travel, post officefacilities, etc.

11UK Government action11.1 The Commission believes that theGovernment should develop strongerliaison and supportive linkages with theCo-operative Movement at various levels.

11.2 The UK Government should be encouraged to recognise the Co-operative advantage as a keycomponent of the ‘Third Way’. The Co-operative sector, embracing the rising tide of ‘new mutualism' can andshould play an active role in bridging the gap between commerce and community,between private and public sectors.

12UK legislation12.1 Many of the laws governing thesocial enterprise and mutual sectorsoriginate from the nineteenth centuryand their relevance to the twenty-firstcentury is highly questionable.

12.2 In effect, the current legislation islargely a consolidation of nineteenthcentury law. It has failed even to keeppace with the framework of company law, which itself is in need of radicaloverhaul as evidenced by the currentthoroughgoing Company Law Review.

12.3 The Commission believes that Co-operative Societies must demonstrateon a regular basis to the Registrar ofFriendly Societies that they continue to operate as Co-operatives, in order to retain their legal status.

12.4 Unlike in some other countries, there is no legal recognition in the UK of the Co-operative form of commonownership. There is also no statutoryrecognition of the principles of theInternational Co-operative Alliance.

12.5 We conclude that there is an urgent need for modern legislation thatenshrines the ICA principles (see Annex3) as well as providing the Co-operativeMovement with freedom of choice onhow best to protect its assets.


12.6 The Commission has alsoconsidered evidence relating to the legal framework governing the socialenterprise and mutual sectors. We take

the view that the framework is in need of a fundamental overhaul similar to thatproposed for companies.

12.7 We believe that a new modernisedlegal framework should provideconsistency, clarity and conciseness so that the law is accessible and easilyunderstood by all those who wish to engagein the sectors – from the start-up to thelarge mutual.

12.8 We are aware of the thorough work being carried out by the CompanyLaw Review. The Government iscommitted to modernising company law and regulation in a way that promotesthe competitiveness of UK business. The review aims to develop a simple,modern, efficient and cost-effectiveframework for companies carrying out business activity in the UK.

12.9 The Company Law Review waslaunched in March 1998 by the DTI. An independent steering group wasformed to oversee the management of the review bringing together those with expert knowledge of company lawmatters. The review has considered a wide range of issues including company registration procedures and corporate governance.

12.10 The social enterprise and mutualsectors are an integral part of Britishbusiness activity. They require laws which enhance rather than impedecompetitiveness. We believe that the Government’s commitment tomodernisation must extend to the mutual and social enterprise sector. We recommend therefore that a similarapproach should be established todevelop the future legal framework of the social enterprise and mutual sectors.



12.11 The Commission believes that the UK Government should consider, as an immediate step, extending theremit of an existing Government Ministerwithin the Cabinet Office, to haveresponsibility for the promotion of Co-operative ideals and to act as themain point of contact for the Movement,seeking to highlight its concerns andaspirations to the Government. TheCommission also recommends that the Scottish Parliament and the Welsh Assembly should also considersuch a measure.



Lifelong Learning

40The Commission recommends that the Co-operative College should lead, on behalf of the Movement, thedevelopment of a modular Co-operativeand mutual enterprise programmeentitled ‘Learning Citizenship andCommunity through Co-operative andMutual Enterprise’, capable of being usedat all stages of learning, available bothwithin the Societies and outside theMovement and fundable via various DfEE programmes including through the Learning and Skills Council.

Co-operative Foundation

41The Commission recommends that a Co-operative Foundation should beestablished. This would be an excitingnew opportunity to promote the valuesand principles of the Co-operative andwider Labour movements.

42The Commission recommends that theFoundation should work with the proposedSocial Economy and Community Task Forceto help implement the recommendationsof the Government’s report on EnterprisingCommunities, to raise communitydevelopment venture funds and toencourage public and private sectorinvestment in under-invested communities.

43The Commission recommends that theFoundation should be non-profit-makingand the Board should be representative ofthe Co-operative Societies which chooseto contribute (possibly in a similar way toCRTG) and should include representationfrom the wider Labour Movement.

44The Commission recommends that theFoundation should be financed from thecommunity dividend with an initial capitalinjection to enable it to commence itsactivities. The Commission furtherrecommends that individual co-operatorsshould be able to make donations to theFoundation if they so wish.

45In considering applications from individualsor organisations the Commissionrecommends that both Boards of Societiesand the Co-operative Foundation mustgive priority to funding projects which relatedirectly to the principles and practice ofco-operation and which help translate thevalues of mutual support, solidarity andcommunity into practical action.

Political structures and affiliations

46The Commission recommends that the Co-operative Party and the LabourParty should work together on a newpartnership to increase participation and political activity and that the Co-operative Party should be the onlyCo-operative body to affiliate to theLabour Party.

The Co-operative Press

47The Commission recommends that the Co-operative Union should initiatediscussions with the majority shareholderwith a view to requesting the Board of the Press to carry out a review of the Co-operative Press, in order to broadenthe editorial content of the Co-operativeNews, so that it does not rely uponcontributions solely from the Retailsector, but encompasses and supportsthe wider Co-operative Movement.

Regional issues

48In the context of devolution, the RegionalCo-operative Councils are seen as beingan important promoter of Co-operativeenterprise in Scotland, Wales and theregions of England since the creation of the Regional Development Agencies(RDAs). Therefore, the Commissionrecommends that they should worktogether with the Co-operative Union/UKCC and could possibly have a seat on the Union’s Central Executive.

National, Regional and Local Structures – Recommendations

Recommendations

Chapter 5 – National, Regional and Local Structures

National issues for UK Government

49The Commission requests that in thefuture appointment of members of the Regional Development Agencies,(RDAs), the Government should berequested to consider the nomination of at least one Co-operative Movementnominee to the Board of each RDA.

50We are aware of the thorough work beingcarried out by the Company Law Review.We recommend that a similar approachshould be established to develop thefuture legal framework of the socialenterprise and mutual sectors as a whole.The aim of such a review should be todevelop a simple, modern, efficient andcost-effective legal framework for carryingout business activity and meeting thesocial goals of these sectors. This newlegal framework should be establishedwithin the lifetime of the next Parliament.

51The Commission is convinced by theargument that a modernising bill shouldbe put before Parliament to recognise inlaw, for the first time, the Co-operativeform of common ownership and deal withthe securing of Co-operative assets alreadyreferred to in recommendation 29.

52The Commission requests that the UKGovernment should consider, as animmediate step, extending the remit of anexisting Government Minister within theCabinet Office, to have responsibility forthe promotion of Co-operative enterpriseand to act as the main point of contact.The Commission also recommends that the Scottish Parliament and theWelsh Assembly should also consider a similar measure.


businesses thattrade profitablyand for a socialpurposeChapter 6 – The Social Economy and Co-operation

1General1.1 The Commission took an earlydecision to expand its remit to cover thebroader issue of the development ofsocial enterprise and the social economygenerally. We were much encouraged,and confirmed in our decision, by theresponse of the submissions received.Not only did we receive submissions fromsocial enterprise organisations themselves,but also, a number of submissions fromCo-operative organisations and fromindividuals set co-operation itself in thecontext of the more general developmentof social enterprise. We have been furtherencouraged that the Government inestablishing the Social Investment TaskForce has already recognised the integralpart that the social economy has to playin overall economic development.

1.2 The social economy is growing in sizeand importance, there are around 670 creditunions, with a membership in excess of285,000 in the UK and assets of £179 million,and the potential for growth in this sectoris considerable. Worker Co-operatives, of which there are around 1200 in the UK,and housing Co-operatives, have alsoseen steady growth and, of course, if thevoluntary sector and housing associationsare included, the total economic andsocial impact of the social economy issignificant in terms of GDP.

1.3 The Co-operative Movement maythus be seen as part of the wider family ofbusinesses that trade profitably and for a social purpose; this being the broadlyaccepted definition of social enterprise.In terms of sheer size the Co-operativeMovement dominates the social

enterprise sector. However, it is clearly inthe interests of the Co-operative Movementthat it should support and sponsor thefurther and future development of socialenterprise and the ‘social economy' in itsbroadest sense at national, regional, andlocal levels in the UK, and also at Europeanand international level.

2Uniqueness of credit unions2.1 Credit unions are the acorns of thefinancial sector. They provide financialservices to millions of people across theworld. In Ireland, half of the population isin a credit union. In the United States andCanada, the figure is 25 per cent, there are strong credit union movements in the Caribbean and fast developingmovements in the Far East and in Easternand Central Europe.

2.2 In the UK by contrast, 22 years afterthe passing of the Credit Union Act, creditunions serve fewer than 300,000 people,just 0.4 per cent of the population. Thepenetration of credit unions has beendisappointing, particularly given the £10-15 million of public money that is spentannually on credit union development. Twofactors contribute to this: the UK’s creditunion legislation is among the mostrestrictive in the world whilst at the same time regulation of credit unions has been inadequate.

2.3 The credit union advantage lies in fourmain areas:● Credit unions do not have to pay

significant dividends to externalshareholders.

● Credit unions tend to haveexceptionally low defaults – partlybecause of the common bond.

● For the same reason, they tend to havelow advertising and promotional costs.

● As social businesses, even establishedcredit unions tend to enjoy supportfrom local firms, local government,religious or community groups.

2.4 Of particular importance – it isestimated that between 50-75 per cent of the money saved and loaned through a credit union is spent within the localeconomy. Credit unions share many ofthe characteristics of building societiesand other mutuals. The demand for creditunions today is, in part, a consequence of the privatisation of so many mutuals.Credit unions fill a gap in the market forlocally owned, democratically controlledfinancial institutions.

3Role of ICOF and ICOM –finance for socialenterprise

3.1 Industrial Common Ownership Finance Ltd (ICOF) provides loan finance to employee owned Co-operatives and tosocial enterprises. As such it is the sisterorganisation of the Industrial CommonOwnership Movement (ICOM) whichprovides legal and registration services forbusinesses wishing to use such structures.

3.2 ICOF’s raison d’être is to help peopletake more control of their own economiclives. They achieve this by lending at risk to those who are often excluded frommainstream financial provision, providing


73 General73 Uniqueness of credit unions73 Role of ICOF and ICOM –

finance for social enterprise74 The development of the

Co-operative housing sector76 Social enterprise in the twenty-first century76 Social Investment Task Force

78 Extending the boundaries of co-operation79 Meeting the social enterprise challenge79 Essential changes required in legal framework80 What are our social goals?81 Recommendations

loan finance and business advice thatenables people to own and control thebusinesses in which they work or which are intheir neighbourhood. In 1976 ICOF received£250,000 of central Government moneybut since then they have made a profitentirely from their own resources. ICOF’scompanies include Community Capitalwhich lends to community businesses andsocial enterprises and ICOF plc which lendsto employee-owned businesses.

3.3 Examples of the types of enterprisewhich ICOF supports include:● PS Refrigeration, a successful employee

buy-out based in Nottingham.● Slaidburn, in rural Lancashire, a

community Co-op buy-out of villagestore and post office.

● Bookprint 2000, a phoenix rescue bydisabled people against all odds in South Wales, which saved their formerRemploy factory.

● Poptel, one of the UK’s leading Internetservice providers.

● Phone Co-op, the highly rated Co-operativephone service.

● Ashiana project, which provideslanguage and business training in theSparkbrook area of Birmingham.

● Buzz Co-operative, a highly successfulbus company based in Harlow.

3.4 However, for ICOF, there is constantpressure to raise lending capital in moreshare issues but competition for ethicalinvestment has increased sharply and the promotion of funds which they have available to lend. Whilst ICOF issuccessful in getting its loan capital out as well as getting it back, it has to do all of its own promotions which can be expensive for a small organisation.

3.5 ICOM is a non-profit membershiporganisation that promotes and

represents common ownership and Co-operative enterprises throughout the UK. Although primarily concernedwith advancing the cause of democraticemployee ownership (especially in the form of worker Co-operatives) it is also involved in developing otherinnovative forms of co-operationincluding ‘Co-operative consortiums’made up of small businesses or self-employed individuals.

3.6 Since 1976, ICOM has registered over2,700 Co-operatives whether they areworker Co-ops or one of the many newforms being built.

4The development of the Co-operativehousing sector

4.1 The Co-operative housing movementhas, during the past twenty-five years,conclusively demonstrated that theapplication of the Co-operative principlesto the provision and management ofhousing delivers quality cost-effectivehousing services and creates sustainablecommunities. However, despite itsproven benefits, the Co-operativehousing sector remains small anddisadvantaged. Housing Co-operativesown or manage less than 0.1 per cent of the UK’s housing stock. This contrastssharply with other European countries in which housing Co-operatives make a major contribution to the provision of quality affordable housing. A leadingexample is Norway where housing Co-operatives provide 14 per cent of all housing in a highly developed system.

4.2 The empowerment of tenants throughCo-operatives is in many ways vitalfollowing the demise of social housingprovision by local authorities and the shiftof responsibility for the management andmaintenance of estates to tenants. Thepotential assets are substantial. A recentmerger of housing Co-operatives in theGrampian region in Scotland has seenthe establishment of a new fully mutualorganisation, wholly controlled by its tenantsand with assets of over £20 million.

4.3 There is currently no legal frameworkin UK housing law in which rights ofoccupancy of residential property canarise from membership of a democraticmutual provider. This lack of a properlegal and administrative framework for Co-operative housing creates numerouspractical administration difficulties – it also denies members legal protectionof their rights.

4.4 The development and expansion of the Co-operative housing sector is also of mutual importance to the wider Co-operative Movement. Housing Co-operatives are concerned to ensurethat members are educated and informedabout the principles and practice of co-operation; this practical understandingof the Co-operative principles is vital totheir success.

4.5 Potentially, members of housing Co-operatives could be an importantsource of new members for establishedretail Co-operatives, but because of the lack of a direct link between thedevelopment of housing Co-operativesand the retail Co-operative sector thiscross-fertilisation of membership andCo-operative ideals rarely happens.


The Social Economy and Co-operation


Social Enterprise London is the regionalagency tasked with the job of promotingsocial enterprise in London and increasingthe scale of the social economy.

It is a positive example of how differentparts of the Co-operative sector such asworker Co-ops and credit unions can joinwith other types of business that trade for

a social purpose, like community trustsand trading charities, to work together ata regional level to support the growth ofthe sector.

The strength of SEL’s partnership approachhas given it a policy voice with the keyplayers in London Government. SEL is usingits influence to develop a co-ordinated

approach to the way social enterprisesare being promoted and developed.

In some areas specialist support has beengiven to employee buyouts and new modelsof work organisation for disadvantagedgroups and people with disabilities, suchas Annabelle’s Restaurant. This work hasproduced very impressive results.

Social Enterprise LondonA Co-operative case study

Staff at Annabelle’s Restaurant in London – a successful social enterprise

5Social enterprise in thetwenty-first century5.1 The resume of the breadth anddevelopment of social enterprises and their relevance to the Co-operativeMovement as the largest player in thesocial economy suggests that the currentcentury could witness – notwithstanding themovement towards a global economy – a resurgence of the development of co-operation and social enterprise moregenerally. Indeed, a persuasive casecould be made for the necessity of the development of social enterprise,particularly of co-operation, as abalancing accompaniment to that very globalisation. In this way the scaleand anonymity of globalisation may be‘softened’ by consumers’ involvement in key areas of the economy, particularlythose dealing with consumer goods,consumer credit, and social goods, e.g.long-term care of the elderly. These areall areas where direct contact with theproduct, a strong element of service, and trust are required.

5.2 We do not consider that these aresimple issues, but their resolution mayhold some part of the key to easing theapparent alienation of consumers in the modern, rapidly changing, andtechnologically dominated world. A recent report by the InternationalAssociation of Investors in the SocialEconomy suggested that, for instance,banking regulation is too important to beleft solely to banking regulatory authoritiesand that banking in the absence of a socialcontext is poorly regulated. Co-operativebanking provides this social context,

allowing innovation and service to flourishas both the social means and the socialobjective of profitable operations.

5.3 These combined issues – necessaryglobalisation, consumer alienation,successful co-operation – point to theneed for the expansion of successful co-operation (the very reason for theCommission being established) and theneed for co-operation and collaborationat all levels between the variousorganisations which make up the socialeconomy. At local, regional, national,European, and international levels theneed is first to understand and then toexplain the importance of developing the social economy. Nor does this meansome soft option in economic terms. We are, throughout this report, stressingthe ‘profit imperative’. By this we meanthe need, if the Co-operative Movementis to deliver against its social objectives,to ensure by efficient trading thecontinuous development of surpluseswhich can then be devoted to securingthe social goals, among which shouldalso be included the popularising andexpansion of co-operation itself.

“Co-ops should not be seen as an answerto market failure, instead they should beseen as an alternative people-centred wayof doing business. Co-operative enterprisesare opportunities to harness the skills,energy, enthusiasm and commitment ofordinary and extraordinary for mutualbenefit." A co-operator, Loughboroughregional hearing

5.4 Whether the new century will, in fact, see a considerable expansion of co-operation and with it the socialeconomy will partly be determined byeconomic and social forces that cannotbe predicted with certainty. What is more

certain is that, without the new inspirationfor co-operation, the basis of which wehope to have set out in this report, and theeffective commitment of co-operators,the positive development of a strongsocial economy will not happen.

6Social Investment Task Force6.1 The Chancellor’s Report on EnterprisingCommunities, prepared by the SocialInvestment Task Force, recommends fivespecific areas for action:● A Community Investment Tax Credit to

encourage private investment in under-invested communities, via CommunityDevelopment Financial Institutions thatcan invest in both not-for-profit andprofit-seeking enterprises.

● A Community Development VentureFund as a matched funding partnershipbetween Government on the one handand the venture capital industry,entrepreneurs, institutional investors,and banks on the other.

● The monitoring of banks’ lending activitiesin under-invested areas, leading todisclosure of each bank’s performance.

● Greater latitude and encouragementfor charitable trusts and foundations to invest in community developmentinitiatives.

● Financial and other support for CommunityDevelopment Financial Institutions,including new mechanisms to collectfunds at wholesale level which can thenbe channelled into CommunityDevelopment Financial Institutions.

6.2 These five key recommendations setout how £1 billion of private finance can



Capital Credit Union is a democratic,member-owned and controlled financialservices Co-operative for public serviceemployees in Edinburgh and their families.

As an independent, non-profit, volunteer-based organisation, its aim is to providequality services to meet the needs ofmembers within the credit unionphilosophy.

Capital first opened in 1989 in Edinburgh,and has had a high street presence since1995, providing members with access toservices on a full-time basis.

Capital is now a leading credit union. Withassets of over £6.5 million it providedmembers with a dividend return of 4 percent for the financial year 1998/99. It has7,000 members and is committed toextending access to low cost financial

services. Products include savingsfacilities and low cost loans as well as free life insurance and an option to insureregular deduction against sickness,accident or redundancy.

Capital’s Board of Directors have anextensive range of skills and experience,providing effective management with amember focus.

Capital Credit UnionA Co-operative case study

Annette Howie, who bought her car with a loan from Capital Credit Union

be invested into the UK’s most deprivedareas. In this way the aim is to developthe enterprise and wealth vital to buildingsustainable communities that will providelong-term growth for the future.

6.3 Already active in communitydevelopment and itself forming asubstantial part of the social economy,the Co-operative Movement must seizethe opportunity presented by theGovernment’s positive stance on thedevelopment of the social economy toenlarge and deepen its activity as theleader of the social economy movement.The social economy should no longer be seen as a marginal, add-on area ofbusiness for the Co-operative Movement,but rather as an integral part of itsmission and its activities. If the ending ofsocial exclusion is to be made a realitythen the social economy is the means toestablish and to maintain the inclusivesociety which underlies the Co-operativeMovement’s own agenda.

6.4 The exclusion of many people indeprived areas from access to financecan be remedied by the development ofcredit unions. There is an urgent need toexpand their coverage very substantially.A number of Co-operative Societies, forexample Lincoln, have been active inproviding management time for thesetting up of credit unions in their areas.This activity should be regarded as a mainstream activity for Societies.Moreover, The Co-operative Bank should become more closely involved. A transition, over time, can be envisagedof a number of individuals ‘graduating’from credit unions to holding accountswith The Co-operative Bank. Seen in this way credit unions are clearly anintegral part of the financial economy, asindeed they are in the USA.

7Extending theboundaries of co-operation

7.1 The potential for expansion of Co-operative endeavour is enormous, but to develop and expand, co-operationneeds supportive government both atnational and regional level. A realigned third sector can play a significant role in the development and expansion of the UKeconomy. However, there also needs to bea realisation that the social enterprise sectoris an equal partner with the retail sector ofthe Co-operative Movement. Sustainingsmall enterprises of a Co-operative natureis as important to the whole Movement asprotecting the larger retail sector.

7.2 Co-operation provides a clear alternativeto the private sector in fulfilling commercialobjectives and encouraging the developmentof successful sustainable communities. Thisfact has to be recognised at the highestlevel. In developing organisations based on the attitude and ethos of co-operation,we have the chance to develop a fairer,balanced society in which each communitycan play its part.

7.3 The submissions received from socialenterprise partners all indicate that whilstthey are undertaking positive and productivework, they are in some cases hindered by alack of a proper legal framework and in somecases a feeling that they are operatingalone. The Commission is recommendingthat a ‘Social Enterprise Summit’ should beheld in 2001, hosted by The Co-operativeBank with the support of the Co-operativeUnion and the UKCC. The Summit should

bring together social enterprise partnersand representatives from the retail sectorfrom around the UK, the Labour Party andthe Trade Union Movement to discuss indepth how to pursue further co-operationbetween all sections of the Co-operativeMovement in the UK.

7.4 The Summit should seek agreement toestablish a permanent Social Economy andCommunity Task Force with the administrativesupport of the Co-operative Union. The TaskForce would be a tripartite body bringingtogether the three wings of the LabourMovement, the Co-operative Movement,the Labour Party and the Trade UnionMovement. Unlike a previous tripartitebody, the Council of Labour which waslargely unfocused and did not connect with local communities, this new Task Forceshould be firmly rooted within the localcommunity and undertake ongoing researchand development projects designed tocreate a holistic Co-operative approach to economic development. The Task Forcewould also act as an interface with centralgovernment, the Scottish Parliament, theWelsh Assembly, the Northern IrelandAssembly and the RDAs as well as otherpublic bodies. The Task Force should meet on a formal and regular basis andshould be encouraged to approach thenew Co-operative Foundation for financialsupport to strengthen and promote social enterprise initiatives across the UK.As an immediate step, the Commission isrequesting the Labour Party to include acommitment in its next general electionmanifesto for the Labour Government toexamine how it can utilise the developmentof the social enterprise sector to strengthenthe social economy, build local communitiesand tackle social exclusion.



8Meeting the socialenterprise challenge8.1 Clearly, as with our views on the future ofthe Co-operative Movement, we see a cleardevelopment path for the social economy onthe basis of a combination of new businessdynamism coupled with a new covenant oftrust with the owners and customers of socialenterprise. The task for the broader socialenterprise movement is to prove its intrinsicworth to the consumer, to the general public,and to government. We believe this isachievable and that the Co-operativeMovement has a key role to play in developingand promoting the social economy andits potential economic and social roles.

“We should promote social inclusion andensure that we work closely with other self-help Co-op and Co-operative groups todevelop initiatives to meet people’s needs.Social goals must be an integral part of ourbusiness and we must measure and monitorthese through social and Co-op audits."A co-operator, Loughborough regional hearing

8.2 In connection with the promotion of socialenterprise, the Commission is pleased toacknowledge – as a constructive move – theagreement that the Co-operative Union willprovide administrative services andprofessional back-up to the Industrial CommonOwnership Movement (ICOM). This willensure that ICOM is able to maximiseexisting resources and minimise outgoings.

8.3 The Commission is also pleased torecord the agreement reached betweenthe UKCC and the Co-operative Union tointegrate their administrative work.


8.4 In addition, the Commission feels thatthe Co-operative Union and the UKCC – in their new form – should have a nationalremit to represent and to promote activityand policy research in the area of the socialeconomy (the latter via the Co-operativeFoundation which we propose should beset up). These new national roles andactivities are discussed in more detail inChapter 5. Here we simply state that such a strong national level promotion is anessential element in the development ofthe social economy in the UK.


8.5 The present Industrial and Providentlegislation is out-dated. The Commissionwelcomes the Company Law Review andcalls on the Government to implement asimilar approach to the social enterpriseand mutual sectors.

9Essential changesrequired in legalframework

9.1 The Commission is aware of the rigorouswork being carried out by the CompanyLaw Review and believes that a similarapproach should be established to developthe future legal framework of the socialenterprise and mutual sectors as a whole.

9.2 The aim of such a review should be todevelop a simple, modern, efficient, andcost-effective legal framework for carryingout business activity and meeting the socialgoals of these sectors. This new legalframework should be established within thelifetime of the next Parliament.

9.3 It is also important that theimplementation of the recommendationsof the Government-commissioned SocialInvestment Task Force should takeaccount of the need to provide sufficientflexibility for Co-operative Societies toinvest in community developmentprojects.

“...need for Co-operative commercialstrategy that matches the highest ethicalstandards in the industry." A co-operator,Oxford regional hearing


This represents the collective view ofmembership officials of Co-operativeSocieties present at the MROConsultation Meeting at Stanford Hall on October 10, 2000.

OverviewSocial goals should:● Be central to Co-operative enterprises

to represent the interests of allstakeholders.

● Encourage active citizenship.● Enable and empower stakeholders.● Create a Co-operative enterprise

economy, think globally and act locally within the Co-operative Movement.

● Inform and educate to raise awarenessof Co-operative values and activities.

● Be SMART (specific, measurable, achievable, realistic and timed).

ProcessIn implementing social goals, Co-operatives should:● Undertake social audits. ● Take the opportunity to market the

Co-operative advantage.● Provide channels of communication

between community and resourceproviders to develop a culture ofconsultation with all stakeholders.

Creation andregenerationIn implementing social goals, Co-operatives should:● Proactively promote, create and

support a sustainable environment inwhich new and existing Co-operativescan form and grow through financialand practical support.

● Regenerate and reinvest incommunities.

Caring and ethicalbehaviourEvery level of business should:● Reflect social goals and promote

ethical behaviour. (Examples of ethical behaviour cited include activeengagement in fair trade, human rights,animal rights, racial/sexual equality, fairinvestment policies, fair employmentpolicies, and minimising negativeenvironmental impact).

● Where possible, proactively trade with other Co-ops.

● Challenge the status quo to achievesocial goals.

What are our social goals?

what are oursocial goals?

Social Economy and Community Task Force

53The Commission recognises that thesocial enterprise sector is an integral part of the Co-operative Movement andappreciates the difficulty that the thirdsector can face because of a lack of amodern legal framework and of availablefinancial support. The Commissionrecommends that a Social EconomySummit Meeting, hosted by The Co-operative Bank and supported by the Co-operative Union and the UKCCshould be held during 2001 under theChairmanship of John Monks.

The Summit Meeting, which would bringtogether leading players in the UK’ssocial economy, Government Ministersand international experts shouldparticularly address the fundingdifficulties encountered in the UK forsocial enterprises, the feasibility of creatinga social economy venture capital fundand the current legal limits in the UK onthe scale of Co-operative shareholdings.

The Commission recommends that the summit should also provide anopportunity to launch a new SocialEconomy and Community Task Forcewhich would be a tripartite body bringingtogether on a permanent basis the three wings of the Labour Movement to develop a holistic approach tostrengthening the social enterprisesector in the UK.

Furthermore the Commission recommendsthat the Labour Party should incorporateinto its manifesto for the next GeneralElection a commitment for the nextLabour Government to examine how it

can implement measures to expand theUK’s social economy.

Housing

54The Government should promote amongstlocal authorities that are consideringtransferring their housing stock to theprivate sector, the Co-operative model of social housing.

UKCC and Co-operative Union

55The Commission welcomes theagreement that the Co-operative Unionwill provide administrative support toICOM and to the UKCC. Also, theCommission welcomes the news that theUnion and the UKCC intend, at the sametime, to establish a full strategic allianceto progress further the overall policydevelopment of the Co-operative andsocial enterprise movements.

56 The Commission recommends that thisnew strategic alliance should become thenational voice for the promotion of socialenterprises in the UK and should developa framework to provide services, supportand training for potential and existing Co-operative and other social enterprisesand should assist the development andco-ordination of social enterprise/socialeconomy representation at national andregional levels.


Recommendations

Chapter 6 – The Social Economy and Co-operation

the new visionof co-operationfor the twenty-first centuryChapter 7 – Mission Statement and Next Steps

1General1.1 In the context of the Co-operativeMovement, the formulation of a missionstatement represents an ‘encapsulation'of the already established principles ofCo-operation. The aim of the statementwould be to encapsulate – for membersand employees – the vision of co-operation for the twenty-first century,linked to the common branding of all Co-operative Movement ventures and activities.

1.2 There is a clear acceptance by the Commission and by all associatedwith the Co-operative Movement that Co-operative Societies combine both a commercial and a social purpose.These purposes/objectives should not be seen as opposites; rather they shouldbe regarded – particularly in this modernage – as offering the opportunity toachieve breakthrough strategies for co-operation in new and, in some areas, mature markets.

1.3 Mission statements can sometimesbe dismissed as mere ‘window dressing'.The Commission however believes thatfor the Co-operative Movement in thetwenty-first century, the principle of adefined mission – a stretching goal – is an excellent way of expressing the socialpurpose of the Movement and integratingthis with the essential commercialmechanisms for achieving the social goals.

1.4 The mission statement will seek to:● Guide the overall direction of the

business.● Inspire and direct the efforts of

management and employees.

● Give coherence to the activities ofdifferent parts of the business.

● Act as a vision for the futuredevelopment of the business.

“Co-operative businesses must achievetheir business success through theconsistent practical application of Co-operative values and principles, our values and principles are integral to our activity, not some kind of add-onfeature. We must set out to be theconsumer’s champion, we must work tounite rather than to divide the interests ofproducers and consumers, to provide forour members’ needs in a sustainable way."A co-operator, Oxford regional hearing

2What should be theCo-op's missionstatement?

2.1 To formulate a mission statement forCo-operatives we consulted widely onthe nature and precise wording of thestatement. The process involved:● Reviewing existing Societies' mission

statements. ● Conducting a content analysis of those

Societies' ‘positioning' and an appraisalof common elements.

● Reviewing the recent inputs fromadvisers to the Commission.

● Reviews of some other company mission statements.

● Development of an appropriatetemplate for a single mission statement.

● Advancement of a number ofsuggestions for debate by theCommissioners.

2.2 In addition to the above, we soughtcontributions from Commissionmembers themselves; from academicwritings; from CWS; and from theMovement at large (via Co-op News and the Commission's own web site).

2.3 Various themes emerged. These maybe summarised as follows:● Considerable disparity within existing

Societies' missions as to whether their ‘aim' was to serve ‘customers' or ‘members'.

● Similar disparity as to whether ‘profit-seeking' formed a part of their aims.

● A broad range of current views as tothe ‘aims' of Societies, but with clusters of agreement in four main areas:– Generic service benefits.– Co-operative principles and values.– Community focus.– Success.

3Guidelines for thestatement3.1 Above all the mission statementshould be audacious and expressed inspecific terms; i.e. it should not simply bea statement of existing competencies orvague ambitions.

3.2 To an extent, therefore, it should be reasonable to inspire positiveadoption and commitment at all levels of the organisation, and indeed of theMovement as a whole.

3.3 Ideally, the mission statement shouldbe brief, intelligible, without qualification,and memorable. Taking account of thesubstantive inputs and meeting these


83 General83 What should be the Co-op’s mission statement?83 Guidelines for the statement84 The mission: challenging convention

‘the Co-operative advantage’84 Implementation of the mission85 Recommendations86 Next Steps

structural criteria was difficult. As mightbe expected, there was considerablediscussion within the Commission beforea consensus emerged.

3.4 However, we believe that the followingstatement meets the criteria and canserve the Co-operative Movement and itsconstituent parts for some considerabletime to come. We would like to think thatthe Rochdale Pioneers would have approved.

4The mission: challengingconvention – ‘the Co-operative advantage’

Our mission is:“To challenge conventional UK enterpriseby building a commercially successfulfamily of businesses that offers a clear Co-operative advantage.”

4.1 What do we mean by a ‘Co-operativeadvantage’?We mean:“Excellent products or services withdistinct competitive benefits derivedfrom our values and principles, ourrewards for members or our commitmentto the communities we serve.”

4.2 There are a number of importantelements to this statement:● The notion of ‘challenge’, effectively saying

there is another way of doing business.● The word ‘build’, which implies more

than maintenance and suggests bothinvestment and commitment.

● The idea of the ‘Co-operativeadvantage’, offering consumers a realchoice in a number of different sectors.

Supporting this:● The ambition of excellent products and

services because effectiveness is the‘sine qua non’ of our business.

● The notion of ‘distinct competitivebenefits’ based on the three pillars of ourCo-operative values, our unique memberownership and our community focus.


5Implementation of the mission5.1 The Commission is aware thatmission statements can – however welldevised – be the subject of cynicism.Nonetheless we believe that not to haveattempted to encapsulate the over-arching mission for the Movement as wesee it at the beginning of the twenty-firstcentury would have been an abdicationof responsibility on our part.


5.2 What is critical is how effectively the mission is ‘sold' to Co-operativeorganisations. Literature on this subjectsuggests that there are three distinctstages in this process:i Communicate and explain the mission.ii Create belief in the mission by

demonstrating its successful application.iii Solidify ‘emotional' commitment to

the mission.To which we would add a fourth:iv Thereafter, ensure all employee and

Director training starts from and buildsupon this foundation.

Mission Statement and Next Steps

Mission statement

57The Commission recommends that toexpress its fundamental purpose the Co-operative Movement should adopt as its mission the following form of words:“To challenge conventional UK enterpriseby building a commercially successfulfamily of businesses that offers a clearCo-operative advantage."

The Movement should seek to implementthe mission in a consistent, committed,and co-ordinated manner at all levels of the organisations that make up the Co-operative Movement and should ensureall employee and Director training startsfrom and builds upon this foundation.

The Movement should seek to live up toand strive towards the ‘stretching goal’that this mission represents over thecoming years.

Implementation

58Co-operative retail Societies should seeknew ways of deepening their Co-operationat a trading level, particularly in adjacentgeographical areas.

59The enlarged Co-operative Union shouldactively seek to ensure the commitmentof all sections of the Movement to theimplementation of the Commission'srecommendations. In order to reviewprogress on the implementation of theCommission’s Report, it is recommendedthat the enlarged Co-operative Unionreports formally on this matter toCongress no later than 2006.

60The Commission recommends that theCo-operative Movement should preparefor its renewal in the twenty-first centuryby reinterpreting and reinvigorating theprinciples that it has always stood for tomake them relevant to the present day.


Mission statement: “to challenge conventionalUK enterprise by building a commerciallysuccessful family of businesses that offers a clear Co-operative advantage"

Recommendations

Chapter 7 – Mission Statement and Next Steps

Mission Statement and Next Steps

next steps

Our work having been completed it is for the Co-operative Union and theother Co-operative Movement bodies to which the various recommendationsare addressed, to consider the individualrecommendations, taken as an interlinkedset of proposals.

John Monks

Hazel Blears MP

Lord Simon of Highbury CBE

Bob Burlton

We urge the Co-operative Union, the Co-operative Party; CWS, all Co-operative Societies; The Co-operativeBank and CIS; and all other parts of theMovement to work together from thismoment to sign up to and implement our recommendations and, in so doing,

Alan Donnelly

Mervyn Pedelty

David Pitt-Watson

Pauline Green

to secure a vibrant future for the Co-operative Movement in this new century.

Lord Fyfe of Fairfield

Bill Connor

Gerard Hill

Alan Middleton


annexes

1 John MonksBorn 5 August 1945

Current positionGeneral Secretary, Trades UnionCongress.Chairman, Co-operative Commission.

OfficesMember of the British Government andEU Competitiveness Councils since 1997.Member of the Chancellor of theExchequer’s Standing Committee on EMU.Member of the Learning and Skills Council.Member of ACAS from 1979 until 1995.Currently a Visiting Professor to theSchool of Management at UMIST,Manchester.

2 Alan DonnellyBorn 16 July 1957

Current positionSecretary, Co-operative Commission.CEO of Sovereign Strategy.Chairman, Northern InfomaticsApplications Agency.

OfficesMember of the European Parliament forTyne and Wear from June 1989 untilretirement from the Parliament inJanuary 2000.Former Leader of the EuropeanParliamentary Labour Party.Board Director of Unity Trust bank 1987until 1989.Former National Finance Officer of GMB Trade Union.Former member of National ExecutiveCommittee, the Labour Party.

3 Hazel Blears MPBorn 14 May 1956

Current positionLabour MP for Salford.Vice Chair, Labour Home AffairsDepartmental Committee.

OfficesFormer Salford City Councillor.Former Principal Solicitor for ManchesterCity Council.Member of the Labour Party’s NationalPolicy Forum.In October 1999, appointed Deputy to Ian McCartney MP.Currently the Labour Party’sDevelopment Co-ordinator.

4 Lord Simon of Highbury CBE (Life Peer)Born 24 July 1939

Current positionAdvisor to the Cabinet Office on themodernisation of Government.Appointed by President Prodi to adviseon Institutional Reform within theEuropean Union 1999.

OfficesFormer Group Chief Executive and thenChairman, BP.Former Minister of State in HM Treasuryand the DTI as Minister for Trade andCompetitiveness in Europe 1997-1999.Former Vice President of the EuropeanRound Table and a member of the CBIPresidents Committee.Previously a non-executive Director ofthe Bank of England.

5 Lord Fyfe of Fairfield (Life Peer)Born 10 April 1941

Current positionMember of the House of Lords.Chairman, Unity Trust Bank plc.

OfficesFormer Director, The Co-operative Bank.Former Director, CIS.Former Chairman, CWS.Former Chief Executive, Midlands Co-operative Society.

6 Gerard HillBorn 27 October 1966

Current positionMembership Development Officer, CWS Scottish Co-op.

OfficesVice President, Scottish Midland Co-operative Society.Former CWS Director.

Annex 1 – The Co-operative Commission

1

The Co-operative Commission

2

3

4

5

6

7 Mervyn PedeltyBorn 16 January 1949

Current positionChief Executive, The Co-operative Bank.

OfficesMember of the Executive Committee of CWS.Director, CIS.Deputy Chairman, Unity Trust Bank.Fellow of the Institute of CharteredAccountants.Fellow of the Chartered Institute of Bankers.

8 David Pitt-WatsonBorn 23 September 1956

Current positionCommercial Director, Hermes Lens Asset Management.

OfficesDeputy Chair, Labour Finance andIndustry Group.Former National Finance Director and Assistant General Secretary, theLabour Party.Former Executive Member, Deputy Chair,Labour Finance and Industry Group.Non-executive Director, Pensions andInvestment Research Consultancy 1990.Councillor, Opposition Leader on Financeand Personnel, Westminster City Council,1986 until 1990.

9 Bill ConnorBorn 21 May 1941

Current positionGeneral Secretary, Union of Shop,Distributive and Allied Workers.

OfficesFormer Labour Leader of SkelmersdaleCouncil.Member of the National ExecutiveCommittee of the Labour Party 1990 until 1997.Member of the General Council, sitting on the Executive Committee of the TUC.

10 Bob BurltonBorn 7 June 1948

Current positionChief Executive, Oxford, Swindon andGloucester Co-operative Society.

OfficesDirector, CWS from 1992.Director, The Co-operative Bank from 1993.Chairman, The Co-operative Union.Member of the Board, Co-operative College.President, Co-operative Congress 1999.Director, Heart of England Training andEnterprise Council.

11 Pauline GreenBorn 8 December 1948

Current positionChief Executive and General Secretary,Co-operative Union.

OfficesMember (LP and Co-op) London North,European Parliament 1989 until 1999.Leader of the Group of the Party ofEuropean Socialists 1994 until 1999.Leader, European PLP 1993 until 1994.Parliamentary Assistant, Co-operativeMovement 1986 until 1989.President, Co-operative Congress 1997.

12 Alan MiddletonBorn 18 August 1941

Current positionFreelance writer and lecturer.

OfficesDirector, Lincoln Co-operative Society.Associate, Co-operative College.Chairman, Co-operative Cleaners.Deputy Chairman, Shoefayre.Chairman, Co-operative ProductionBoard.Member of the Central Executive of theCo-operative Union.President, Co-operative Congress 1998.


7

8

9

10

11

12

1IntroductionWe believe that the principles firstenunciated by the Rochdale Pioneersand subsequently adopted andperiodically updated by the InternationalCo-operative Alliance (ICA) – (see opposite)are an important part of the beliefs of the three wings of the Labour Movement.We believe they have a significant andongoing contribution to make to thefuture of the Labour Movement as awhole and to the commercial, politicaland social life of the country.

We acknowledge that consumer Co-operatives are the most establishedand successful part of the Co-operativeMovement in the UK. There is now agrowing need and desire for that sectorto give active support and encouragementto the newer, innovative Co-operativedevelopments in the economy which are assuming a new importance for jobcreation and social inclusion.

We also recognise that the structure andstrategies of the Co-operative Movementmust continue to change with the times if it is to apply those principles to theconditions of the UK in the twenty-firstcentury and to make them meaningful for the Labour Movement in the nextcentury. In particular we believe that:● Co-operative enterprises must

demonstrate their ability to compete in the marketplace, by deliveringproducts and services as well as the public company sector.

● Co-operative enterprises shouldcontinue to make and, indeed, toincrease their contribution toconsumer rights, to the communities

in which they trade and to politicaleducation.

● Co-operative enterprises have adistinctive role to play in theircommunities and can do this whilstmaintaining high standards inemployment and in their relations with stakeholders.

We also recognise that partly as a result of modest performance by some Co-operatives in recent years, theMovement has been under threat from those who seek to destroy its Co-operative structures and to profitfrom the liquidation of assets built up by prior generations of co-operators. We believe it to be a matter of prioritythat the Co-operative Movement takes measures to ensure its successfulcontinuation to support and build on itscontribution to the Labour Movement.

2ScopeThe Commission will have as its aim the encouragement of conditions andchanges which will facilitate theachievement of the goals set out above.In particular, the Commission will:● Ensure that consumer co-operation

brings its support and experience to bear on the development of the widerCo-operative sector of the UKeconomy.

● Review and measure the success ofthe consumer Co-operative Movementin meeting its commercial and socialgoals.

● Determine the factors which haveinfluenced its successes and failuresincluding: – Business strategies.– Ownership and control.– Scope of its activities.– Relationships with members and

customers.– Engagement with communities.– Relevance of its contribution to

consumer issues and politicaleducation.

● Review and make recommendationson the structures for the ownership,control and management of theConsumer Co-operative Movement for the future.

● Review and make recommendationsfor a structure that will ensure asubstantial and continuing contributionby the Co-operative Movement to itswider goals.

● Propose a realistic course of action to improve the effectiveness,performance and contribution tosociety of the Co-operative Movement,with suggested avenues forcommercial strategy development.

● Involve and, as far as possible, seek the agreement of relevant Boards,management and employees to anyproposal.

● Involve and inform members of thethinking and conditions of theCommission.

Annex 2 – Terms of reference

The Co-operative Commission’s terms of referenceadopted at its first meeting on 29 February 2000

DefinitionA Co-operative is an autonomousassociation of persons united voluntarilyto meet their common economic, socialand cultural needs and aspirationsthrough a jointly owned anddemocratically controlled enterprise.

ValuesCo-operatives are based on the values ofself-help, self-responsibility, democracy,equality, equity and solidarity. In thetradition of their founders, Co-operativemembers believe in the ethical values ofhonesty, openness, social responsibilityand caring for others.

PrinciplesThe Co-operative principles areguidelines by which Co-operatives puttheir values into practice.

1st principleVoluntary and open membership Co-operatives are voluntaryorganisations, open to all persons able to use their services and willing to acceptthe responsibilities of membership,without gender, social, racial, political or religious discrimination.

2nd principleDemocratic member controlCo-operatives are democraticorganisations controlled by theirmembers, who actively participate insetting their policies and makingdecisions. Men and women serving aselected representatives are accountableto the membership. In primary Co-operatives members have equalvoting rights (one member, one vote), and Co-operatives at other levels are also organised in a democratic manner.

3rd principleMember economic participationMembers contribute equitably to, anddemocratically control, the capital of theirCo-operative. At least part of that capitalis usually the common property of theCo-operative. Members usually receive a limited compensation if any on capital subscribed as a condition ofmembership. Members allocatesurpluses for any or all of the followingpurposes: developing their Co-operative,possibly by setting up reserves, part ofwhich at least would be indivisible;benefiting members in proportion to theirtransactions with the Co-operative; andsupporting other activities approved bythe membership.

4th principleAutonomy and independenceCo-operatives are autonomous, self-help organisations controlled by theirmembers. If they enter into agreementswith other organisations, includinggovernments, or raise capital fromexternal sources, they do so on termsthat ensure democratic control by their members and maintain their Co-operative autonomy.

5th principleEducation, training and informationCo-operatives provide education andtraining for their members, electedrepresentatives, managers andemployees so they can contributeeffectively to the development of theirCo-operatives. They inform the generalpublic – particularly young people andopinion leaders – about the nature andbenefits of co-operation.

6th principleCo-operation among Co-operativesCo-operatives serve their members most effectively and strengthen the Co-operative Movement by workingtogether through local, national, regional,and international structures.

7th principleConcern for communityCo-operatives work for the sustainabledevelopment of their communitiesthrough policies approved by theirmembers.

Annex 3 – The ICA statement on the Co-operative identity The Report of the Co-operative Commission 90–91

The ICA statement on the Co-operative identity

Co-operative Society submissionsAnglia Regional Co-operative SocietyBrixham Co-operative Society Channel Islands Co-operative SocietyChelmsford Star Co-operative SocietyCISColchester & East Essex Co-operative

Society Co-operative Press LtdCo-operative UnionCWS BoardCWS Regions:

Greater Nottingham Co-opNorth East & Cumbrian Co-opNorthern Ireland Co-opScottish Co-opSouth Midlands Co-op

Heart of England Co-operative SocietyIlkeston Consumer Co-operative SocietyIpswich & Norwich Co-operative Society Leeds Co-operative Society Lincoln Co-operative Society Lothian Border & Angus Co-operative

Society Midlands Co-operative Society Oxford, Swindon & Gloucester

Co-operative Society Penrith Co-operative Society Plymouth & South West Co-operative

Society Radstock Co-operative SocietyRaunds Co-operative SocietyScotmid Co-operative SocietySheffield Co-operative SocietySouthern Co-operatives LtdTamworth Co-operative Society The Co-operative BankThe Woodcraft FolkUKCCUnited Norwest Co-operative LtdWest Midlands Co-operative Society Ltd

Other submissionsTUCUSDAWUNIFI Trade Union

MSF (Leeds General)The Co-operative PartyHounslow & Spelthorne Co-operative

PartyWaltham Forest Co-operative Party Reading & District Co-operative PartyWolverhampton Co-operative PartyYorks & Humberside Co-operative Party Wansbeck and Berwick Branch

Co-operative PartyHaringey Branch Co-operative PartyLeicester West Co-operative PartyCWS Cambridge Regional Co-op

Bristol CWS Branch Committee Co-operative Accounting Standards

CommitteeCo-operative Futures

CRU Open UniversityCWS Manchester Regional Board

(Provisional)CWS Members Relations, DoncasterCWS Members Relations, Huddersfield CWS Members Relations, HumbersideCWS Members Relations, MerseysideCWS Members Relations, BarnsleyHeriot-Watt University Social Enterprise

InstituteHome Counties Branch Committee

Southern DivisionUniversity of LeicesterIndustrial Common Ownership Finance Ltd/

Industrial Common Ownership MovementInstitute of Chartered AccountantsMCS Party Council Leics RegionReading Branch CommitteeCommunist Party of BritainSouth East Regional Co-operative CouncilSouthampton Area Co-operative

Development AgencyBuilding Societies AssociationCWS Humberside BranchCWS Barnsley BranchCWS Doncaster BranchCWS Liverpool Branch

CWS Birkenhead BranchLancashire CDAThe Labour PartyUpStart Workers Co-operativePoptel Social Enterprise LondonDurham CDATwo Piers Housing Co-opEast Midlands Co-op CouncilEastern Region Co-operative CouncilEqual Exchange Trading LtdJob OwnershipNational Association of Co-operative

OfficialsCo-operative Productive Board

Individual submissionsRoy & Patricia StuttardJim LambDuncan ChewKevin RobertsonJeffrey BossTony BodleyPeter CollierCarmel Keogh D Strode-WillisGeraint DayCatherine TarlingChris GodboldJohn CourtneidgeG BrownGlyn ThomasIan MasonGraham GuestM PowellEdgar EvansBrian TownsendG DarbyDaryl BarkerG BoberAlan JacksonKit SeydJohn WalkerBasil LoveridgeRN FranklinBurt Cross

Annex 4 – Submissions

Submissions

MD MathiesonA CoomberVA GanderMuriel GeeR Harrington-VailEdwin MartinShaun FisherNeil WarehamKenneth AllchinStephen YeoSteffan ap DafyddHoward PerrowSonya ConwellAlan W Judd W GathererDoreen TonkinBill EyresGerald SandisonAudrey PurrGeorge ConchieAlex GordonVN BinghamDerek SmythRichard BickleJohn E SmithJim CraigenHilda & David SmithEdgar ParnellLen BurchRosemary WattsKevin HogarthJoe PerryCJ RichellBarbara RodgersIvor ZottKate WhittleRA BunnAshley BaldwinGeoffrey WhiteleyE RatteryDavid SmithMuriel JeffsJohnston BirchellDM PateT JolleyCH Benda

Regional hearingsIn addition to contributions from a number of individual co-operators, the followingpersons gave formal evidence to the Commission at regional hearings:

OxfordVivian Woodell – President, Oxford, Swindon and Gloucester Co-operative SocietyFrank Jones – Chair, Bristol Branch CWSPeter Begley – Director, CWS

LoughboroughDavid Hudson – Vice Chair, South Midland Regional Board, CWSSimon Butler – CWS Board memberStuart Parker – Director, Lincoln Co-operative SocietyStephen Yeo – Chair, Co-operative College Management BoardDorothy Runnicles – Director, Raunds Co-operative Society

EdinburghGraeme Reynolds – CWS Scottish BoardJoe HillFrank Whitelaw – USDAW

ManchesterRobin Stewart – Vice Chair, CWS BoardKevan Nelson – Unison, North West RegionBill Eyres – CWS Manchester Regional BoardPeter Rogan – CWS Manchester Regional BoardBrenda Pearson – CWS Regional and MRCs (formerly CRS)

LondonErskine Holmes – Northern Ireland Co-operative SocietyBaroness Thornton – Social Enterprise LondonMalcolm Corbett – Social Enterprise LondonRussell Porteus – North East and Cumbrian Co-operative SocietyBob Harbour – Chair, South East Co-operative Society Sean Bish – Leeds Co-operative SocietyJean Whitehead – Eastern Region Co-operative Council

AcknowledgementsThe Co-operative Commission would like to thank the following people for theirinvaluable assistance during the Commission’s work throughout the year: Iain Malcolm, Neva Brahmbhatt, Roger Poole, Mike Smith, Phil Wilson, Leslie Butterfield and Michael Lloyd.


Since the merger of CWS and CRS thenew Society (which changed its name to Co-operative Group (CWS) Ltd, inJanuary 2001) now accounts for morethan half the turnover of the Co-operative

sector, while its share of the assets of theMovement is even more significant, givenits ownership of The Co-operative Bankand Co-operative Insurance Society (CIS).

Note: CWS figures include former CRS. *Travel turnover for CWS excludes the turnover of the managed service provided by CWSfor a number of independent Societies. Latest estimate includingmanaged services and other recent developments takes CWSshare to approximately 53%.

Source: Co-operative Union Co-operative Retail turnover Jan-Oct2000 (these figures should be used as a guide only)

Annex 5 – CWS within the Co-operative Movement

CWS within the Co-operative Movement

Food

All other Societies 45.1 CWS 54.9

Funerals


Dairy


Non food


Travel*


Motor trades


CWS share of total Movement turnover 2000 (%)

Note: Sales exclude Bank. Net assets include Bank at £264m andCIS at a nominal £0.1m share capital value. Warburg Dillon Reed,for the Commission, considered that, on an adjusted value basis,CWS/CRS (including the Bank and CIS at estimate market value)accounts for 92% of the total asset value of the Movement. CRS sales and surplus are for year to January 2000. Assets andreserves are at transfer, April 2000. Net assets are defined as fixed assets less long-term liabilities.

Sources: All other Societies: Co-operative Union Co-operativeStatistics 1999. CWS: Report and Accounts January 2000.


0

1,000

2,000

3,000

4,000

5,000

1999 sales – turnover less VAT (£m)

CWS CRS(continuingbusiness)

All otherSocieties

-40

-20

0

20

40

60

80

100

1999 trading surplus (£m)

Bank CWS CRS(continuing business)

All otherSocieties

0

250

500

750

1,000

1,250

1,500

1999 reserves (£m)

CWS(inc Bank)

CRS(at April 2000)

All otherSocieties

0

250

500

750

1,000

1,250

1,500

1999 net assets (£m)

CWS(inc Bank)

CRS(at April 2000)

All otherSocieties

Counsel had been instructed to advisegenerally on the position of Directors of Co-operative Societies. The conferencewas attended by Ian Snaith, Roger Jones,Cliff Mills and Kevin Jaquiss of Cobbetts.The following note summarises the advicegiven on the issues discussed.

Background1 There is no legislation setting out theduties of a Co-operative Director. Thestatute does refer to a Committee ofManagement but the only legislationdealing with the duties of its members is the legislation dealing with fraudulent or wrongful trading.

2 This mirrors the position in relation tocompany Directors and there is no logicaldistinction to be drawn between the dutiesof a company Director and the duties of aCo-operative Director. Both flow from thebasic principle that the property andbusiness of a corporate body belongs to thecompany or Society. The Directors who actfor the corporate body are agents acting fora principal and have the implied duties ofagents:a) A duty of skill and care or competence.

This is a duty to do the job reasonablycarefully and could be described as a‘negligence type’ duty.

b) Fiduciary duties flowing from the factthat they are agents who have control of someone else’s property. Any personin that position attracts a quasi-trusteeanalysis; they are not strictly trusteesbut are treated as such and owe all thefiduciary duties of loyalty, honesty andgood faith.

Duties of skill and competence3 There is a clear and detailed expositionin the City Equitable case which confirmsthat Directors cannot properly be treated astrustees because it is not possible to say ingeneral what their duties are. There are

different duties in different companies andit is relevant to look at the balance of dutiestaken on by Directors and officers, providedthat balance is reasonable. The case makesit clear that:a) A Director is not required to exercise

a greater degree of skill and judgementthan his own actual experience.

b) He need not give the company orSociety his continuous attention andneed not attend all meetings (though heshould try to do so).

c) Subject to the provisions of the Articles(in the case of a company), a Director isjustified in trusting the officials unlesshe has some reason not to do so.

4 If, therefore, you have a situation in which a business is run in effect bymanagers (as is the case in many retail Co-operatives), it is sensible from the pointof view of the Directors to ensure that they are not precluded from delegatingresponsibility to officers and/or a ChiefExecutive. Mr. Justice Romer in the CityEquitable case laid great stress on theArticles of the company determining theextent to which Directors were entitled to delegate responsibility. It is thereforeimportant to ensure that a Society'sconstitution matches the reality of the way in which it is run.

5 The case also makes it clear that aDirector who has special skills must deploythem. This means that the Directors of afederal Society who have relevant skill andexperience as executives of a corporatemember must deploy that skill andexperience on the federal Board. It is notopen to them to say that some lowerstandard appropriate to a ‘lay Board’ applies.

6 The further question is whether anyobjective test of skill and competenceapplies, particularly in the context of largerretail Co-operative Societies. In the

company context, the Courts havesuggested that the test under Section 214 of the Insolvency Act 1986 appliesgenerally. On this basis, a Director shouldreach the conclusions or take the stepswhich would be reached or taken “by areasonably diligent person having both:a) The general knowledge, skill and

experience that may reasonably beexpected of a person carrying out thesame functions as are carried out bythat Director in relation to the company;and

b) The general knowledge, skill andexperience that that Director has."

7 It is not possible to rule out a Courtfollowing this line against a lay Director of a retail Co-operative Society andimporting an objective element. However,account would have to be taken of the basison which Directors of Co-operatives areappointed and the culture of the organisation.This culture involves Directors beingelected for the purpose of exercisingdemocratic control over the organisation. In broad terms, a Director might say inrelation to his appointment “you knew I was a plumber" but could not say “you knew I wasn’t careful".

8 The remarks of Lord Justice Scott in the Barings case may be relevant. He indicated that, the more senior andhighly paid the executive, the greaterdegree of skill and responsibility to beexpected from him. It would appear tofollow from this that, in the Co-operativecontext, a high level of skill andcompetence is to be expected from highly paid executives and a much lowerlevel from non-paid non-executives.

9 The following principles emerge:a) A Director of a Co-operative Society

cannot be careless, imprudent orirresponsible.

Annex 6 – Counsel’s advice

Advice given by Christopher Nugee QC in conference on 7 July 2000

b) He or she must understand the role andshould be:

i) given a copy of the Rules and told toread them

ii) taken through some form of induction in which his or her attention is drawn tothe particular functions of the role.

c) It is not acceptable for a Director to turn up to meetings without reading the papers or thinking about them.

10 The reference to the ‘functions’ carriedout by a Director in Section 214(4) of theInsolvency Act is a reference to thefunctions of being an agent of a corporatebody. It is not possible to say that the‘functions’ of a Co-operative Director differfrom the ‘functions’ of a company Director.The Co-operative background is relevant tothe skill and competence which the Directormay bring to the exercise of those functions.

11 It is not possible to say, as a matter ofgeneral principle, that the level of skill andcompetence to be expected of a Directorvaries by reference to the size of theorganisation. It is appropriate to considerthis in the context of a proposed sale of land:a) The duty to take care to get a proper

price is the same duty however largethe price may be.

b) A Director who is not a valuer is notrequired to try to make his ownassessment of value – he can (andshould) take advice from the executiveand act on that advice unless it isobviously misconceived (for examplebecause it conflicts with advice given by a professional valuer).

12 This analysis brings one back to theimportance of the Rules. A lay Director of a large retail Co-operative Societycannot deal with the significant questions ofretail strategy which will arise. Indeed, he orshe might be in breach of duty if they tried

to do so. The lay members of the Boardtherefore have to rely on the executives(although, as has been said, executives of corporate members who sit on federalBoards might be expected to take their own view). This being the case, it isunsatisfactory to have a constitution whichdoes not reflect what is going on on theground. If any case concerning Directors’duties came to Court, the Judge would lookfirst at the constitution. If the constitutionmakes lay Directors responsible formanagement of the organisation, there is a risk that the Judge will say that they musttake the consequences of having taken on a role which they were not capable offulfilling. This risk should not, however, be over stressed; in practice the legalprinciples would be drawn from the facts of the case and the delegation ofresponsibility, provided there is a power of delegation in the Rules, would generallyexonerate the Directors.

13 It is a part of the duty of care of a Director to take advice if a point isreached where he or she is no longer ableto deal with the issues which arise in theBoardroom. There also comes a stagewhere, in a business which is notperforming, the Directors have to questionthe performance of the executives and willhave to take external advice. There is apotential lacuna in the normal Co-operativestructure in these circumstances arisingfrom the absence of skilled andindependent non-executive Directors. Thismight be addressed by some form of ‘healthcheck’ service to establish whether thesystem of delegation and monitoring in aparticular society was effective. Great careis required in bringing external professionalsinto the Boardroom. The cost involved may be difficult to justify in a Society infinancial difficulties and there is a seriousde-stabilising effect in having externalprofessionals looking over the shoulders

of executives. All of this suggests that there may be a role for independent non-executive Directors in larger retail Co-operative Societies.

Fiduciary duties14 All the fiduciary duties which apply tocompany Directors will apply to Directors of Co-operative Societies. The phrase usedby Lord Upjohn in the Boulting v ACTT case,‘undivided loyalty’ is a good way ofexpressing the position.

15 An illustration of the principles appearsin the case Charterbridge Corporation vLloyds Bank in which Mr. JusticePennycuick dealt with the duties of theDirectors of a subsidiary company who arenominated by the parent. This situation is a persuasive analogy to the situation ofDirectors of federal Co-operative Societiesnominated or appointed by corporatemembers. The principle which emergesfrom the case is that the Directors of thesubsidiary cannot sacrifice its interests tothe interests of the group. The question iswhether an intelligent and honest mancould have believed that the transaction inquestion was for the benefit of the subsidiary.Another way of putting the point is that theDirector cannot subordinate the interests ofthe subsidiary to those of the group.

16 This suggests that a Director appointedor nominated by a corporate member of a federal Co-operative Society is strictlylimited in the account he or she can take ofthe interests of the corporate member inthe federal Boardroom. However, it is clearfrom the decision in Harries v ChurchCommissioners (dealing with the duties of trustees) that there is a balance to bestruck. In that case, it was decided that thetrustees are under a duty to get a return oninvestments, but they can have an ethicalpolicy provided they do not subordinate theneed to get a return to that policy.


17 Translating these principles to the Co-operative Movement, the position is that a Director of a Co-operative Society is a Director of that Society and not of the Movement. However, provided he or she does not sacrifice, subordinate or ignore the interests of the Society inquestion, he or she can take account of a wider interest.

18 These issues are brought into focus in circumstances where a Co-operativeSociety proposes to take a transfer ofengagement of another Society which isin financial difficulties. It is not legitimate in that situation to say that, because anysurplus in either Society goes to the Co-operative Movement, there is no needto consider the effect of the transfer on the transferee’s business. Difficult questionsmight arise if it was a separate object of a Co-operative Society to rescue otherSocieties in financial difficulties, but in theabsence of any such provision the Directors of a transferee Society must look at thetransaction and decide what, if any, effect it has on the Society’s ability to continue to deliver Co-operative services.

19 This point can be illustrated byreference to the history of CWS. CWS hasbuilt a large and solid retail business out of a series of rescues and has to considerthe impact the failure of any Co-operative Society would have on itsimage. However, CWS is committed torunning a ‘successful Co-operativebusiness’. This phrase provides a helpfulbackground when considering the duties of Directors of CWS (or any other Co-operative Society). In consideringwhether to take a transfer of engagementsfrom a Society in difficulty, the Directorsmust take steps to establish (by referenceto figures) whether and to what extent thetransfer would impact on the Society’sability to run a ‘successful Co-operative

business’. The fact that the Act gives anIndustrial & Provident Society power toaccept a transfer of engagements showsthat a ‘rescue’ of this kind is a proper thingto consider but this does not detract fromthe need for the Directors to look at thelong term interests of the receiving Society.Assuming that the Society does not have anindependent object of rescuing Societies indifficulty (and the position there would befar from clear), it is questionable whetherthe Directors of a receiving Society couldproperly embark on a transaction whichwould ruin that Society, even if there werestrong reasons in line with Co-operativeprinciples or the interests of the Co-operative Movement for doing so.

Conflict of interest20 The case of SCWS v Mayerdemonstrates the potential dangers for the Directors of a subsidiary company whoare nominated by the parent. In that case,the Directors were found to have actedoppressively towards a minority becausethey acted in the interests of SCWS ratherthan in the interests of the company.However, it is clear from Lord Denning’sdecision in the Boulting case that it isacceptable in principle for a Director to be a nominee provided he or she does not actin accordance with instructions given by the nominating Society.

21 Specific issues arise from the fact thatthe corporate members of federal Co-operative Societies who nominatemembers of the federal Board are incompetition with each other (there being no agreed common commercial strategyfor all Societies).

22 One area where a nominee Directormight have difficulty in this context is that of confidential information. There can be no doubt that a Director nominated by a corporate member on the Board of a

federal Co-operative Society is under a duty (in accordance with the agencyprinciples previously discussed) to keepconfidential information which he or shereceives in the Boardroom and not to use or disclose that information. The duty of ‘undivided loyalty’ requires that theinformation be used only for the benefit of the federal Society.

23 Equally, however, the Director will, onthe face of it, be under a duty to disclose tothe corporate member information whichhe receives which is relevant to thecorporate member’s business. The case ofHalifax BS v Stepsley (which dealt with theconflict of interest affecting a solicitor whoacted for a Mortgagor and a Mortgagee andreceived information from the Mortgagorwhich was prejudicial to the Mortgagee)makes it clear that a person in this situation may have conflicting duties ofconfidentiality and is not absolved from hisduty to one party by his duty to the other.

24 This creates a real and significantproblem, to which there are three possiblesolutions:a) The federal Society could authorise

disclosure. In practice, within federalSocieties, this may be the solutionwhich is adopted. However, disclosureof commercial information to corporatemembers who are represented on the Board is unfair to those who are notrepresented. Theoretically, theunrepresented Societies could allegebreach of duty unless the position wasaddressed in the Rules.

b) The corporate member agrees not to be party to any confidential informationwhich its nominee receives as a Directoron the federal Board. It may be that anarrangement of this kind is implied withthe power in the Rules to nominate.There is, however, a practical difficultyabout this, in that it may be extremely

Annex 6 – Counsel’s advice

difficult for a Director who receivesinformation on the federal Board to putthat information out of his mind whendealing with an issue on behalf of thecorporate member.

c) Discussion of issues where there is aconflict of interest could be delegatedto a sub-committee excluding theDirector affected.

25 Issues may arise on the federal Board where a decision which is in thecommercial interests of the federal Societymight prejudice the interests of a corporatemember. A Director nominated by thatcorporate member might think it right tovote against the proposal and an issue thenarises as to whether, in so doing, he or shewould be in breach of fiduciary duty to thefederal Society. In approaching a situationsuch as this in the context of CWS, theprovision in CWS’s Rules that it is an objectof CWS to promote Co-operative principlesis relevant and can be taken into account.The culture and history of CWS are alsorelevant. There might, therefore, be reasonswhy it was inappropriate for CWS to take aparticular course of action which wascommercially beneficial but which would beseen outside the Society as high handed orabusive. In that situation, a Director of CWSnominated by a corporate member couldlegitimately make these points and mightalso vote against the resolution on the basisthat the proposal ran contrary to CWS’scommitment to be a successful Co-operative business. However, it wouldnot be legitimate to vote against a proposalif this would materially prejudice CWS’sability to meet the other two elements of its corporate aim. CWS’s power to trade has to be used within its original purposes,which include its history and culture, so that it would be inappropriate for CWS totrample on other Co-operative Societies. To that extent, there is a distinction from theposition of a company but the Directors

must be aware that they are still running a business and not a charity.

26 Issues arise from the fact that corporatemembers of federal Societies enter intocontracts with those federal Societies. This means that Co-operative Directors offederal Societies find themselves voting oncontracts with their Society. As a matter oflaw, their interest in those contracts oughtto be disclosed to the membership ratherthan to the Board; the common provisionsin company Articles permitting disclosure tothe Board are a relaxation of the basic rule.It follows that a federal Society which tradeswith its corporate members should have aprovision in its Rules dealing with disclosureof interest.

27 Similar but separate questions arise in relation to lay members of the Board of a Co-operative Society who arenominated or elected from a particulargeographical area. Such a Director might be placed in difficulties, for example, by aproposal to close stores in his or her area.The principles which apply are as follows:a) The Director cannot be mandated by

his or her region to vote in a particularway and must listen to debate in the Boardroom.

b) The Director cannot take into account in casting his or her vote the effect thevote would have on his or her ability to be re-elected.

c) It is, however, entirely appropriate for the Director to articulate and pass on concerns expressed in theregion; that is the proper function of a Director in this position and he or she should express his or her own experience and the views ofmembers in the region.

d) In making a decision, the Director cantake into account any commitment ofthe federal Society to the Co-operativeMovement, but should still carry out

the balancing exercise in relation to the three elements of a ‘successful Co-operative business’ set out above.

28 The same broad general principlesapply to an employee who serves on the Board of the Co-operative Society,whether or not the employee is in place asan ‘employee representative’. An employeerepresentative might be under a duty toarticulate the position of employees and itwould be entirely legitimate for him or her to make reference to good employmentpractices. There is, however, no specific Co-operative principle dealing with therights of employees and an employeerepresentative cannot, in any event,subordinate the interests of the Society to the interests of employees.

29 The high level of interaction betweenfederal Societies and their corporatemembers at executive level may onoccasion place an executive of the federalSociety in the difficult position of beingasked for commercially sensitiveinformation by a Director nominated by a corporate member. On the face of it, theDirector is entitled to the information as a Director, although the executive would be entitled to suggest that the requestought to be made in the Boardroom or to refer it to the Chair. However, even thisputs the executive in a difficult position and federal Societies should set up systemsand channels of communication in advanceto avoid it happening. The key is that thepeople involved should be sensitive to theissues and understand the systems andtheir purpose.


The present Report is not the first reportof a Co-operative Commission, as thathonour belonged to the Co-operativeIndependent Commission, whichreported in 1958. Set up by resolution at the Edinburgh Co-operative Congressof 1955, it was chaired by Hugh Gaitskell,and had Tony Crosland as secretary. The other members of the Commission,all selected as “suitable persons notengaged in Co-operative management or administration”, were Miss MargaretDigby, Professor D T Jack, Dr J B Jefferys,Lady Hall, Colonel S G L Hardie, Mr. J T Murray and Alderman F Pette.

The background to the Commission wasthe rapid changes which were takingplace in retailing following, amongst other things, the end of rationing and the start of self-service. The Co-op waslosing market share – but still had 30,000 shops and 250 factories. Therewere two separate Wholesale Societies,one for England & Wales and one forScotland – and there were 967 RetailSocieties, of which 166 operated onlyone shop, while 650 had fewer than ten.Those Societies were together payingdividends to customer members in excessof £40m per year – but this was often atthe expense of retained income, and therewere major concerns about the ability ofthe Co-op to fund its future development.

Following 35 meetings spread overalmost three years, a range of visits, andformal and informal consultations, theCommission produced its report which,unfortunately, also contained a MinorityReport from Colonel Hardie, dissentingfrom the main findings, by recommendingthe establishment of a single nationalSociety for England & Wales (plus one forScotland) combining retail, wholesalingand manufacturing interests.

The majority report comprised 51recommendations, many of which referto issues and debates long forgotten.Recommendation 13, for example,proposed the clearly radical idea that“the Movement should be more willingthan it has been in the past to recruit fromGrammar Schools and Universities".Similarly the idea that “the ideal numberof societies is in the region of 200 – 300"(Recommendation 18) has long beenovertaken by events.

However, there is much in the Report thatwas ahead of its time and is still in manyways relevant. The Commission was clearabout the respective roles of Boards, and of Management. “Boards shouldconcentrate on major policy and ultimatesupervision, leaving the detailedmanagement to the paid officials"(Recommendation 10), and “all societies... should, if necessary with the help of outside business consultants or the Co-operative Union, create a clearmanagement structure, with unambiguousjob specification and an explicit chain of command" (Recommendation 12).

This theme was further expanded on with regard to CWS, where the keyrecommendation (Recommendation 37)was that the then full-time elected Boardshould become part-time, and “confineitself to supervising and sanctioningmajor policy, and altogether eschewinterference in detailed management".

The Commission had much to say on the subject of dividend and price policy,arguing that the Movement should “sell at market prices and treat dividend as a residual" (Recommendation 1) that is, it should aim to match local competition,and not expect the dividend to compensatefor high prices. Concerning the dividend,

the Commission assumed, withoutspelling it out, that the dividend was a sine qua non of a Co-operative.However, recognising that Societies were increasingly paying out dividendwhich they should have retained, itrecommended that Societies shouldstabilise dividend at a level “high enoughto act as an effective inducement totrade, but not so high that it cannot bemaintained for a period of years ahead;and they should allocate the remainingsurplus, and any increases in the surplus,to reserve" (Recommendation 3).

In looking at the financial performance of the Movement, the Commission was again ahead of its time in terms of introducing return on capital as thecrucial measure, and recommending that “investment decisions should betaken on the basis of a comparison of relative rates of return on capital"(Recommendation 29). Even moresignificantly, it recommended that “the greater proportion of Co-operativecapital expenditure in the next few yearsshould take place, not in the production,but in the retail field" (Recommendation27). In part flowing from this, theCommission recommended that a “Co-operative Retail DevelopmentSociety should be set up, to plan andoperate national chains of specialistshops" (Recommendation 45), involving“the surrender of the notion that a localSociety can claim a permanent monopolyof Co-operative trade in its own area".

Finally, recognising that the Movementwas likely to be faced with on-goingchange, it recommended “that theMovement should formally examine both major constitutional issues, and also its basic trading policies, at leastonce a decade" (Recommendation 51).

Annex 7 – The Co-operative Independent Commission 1958

The Co-operative Independent Commission 1958

What happened next?Regrettably, not a lot. The idea of a Retail Development Society led to the establishment of Shoefayre, but littleelse happened immediately. In 1964,though, the Board of CWS grasped thenettle and set up a Joint ReorganisationCommittee under Sir Leonard Cooke,which reported in August 1965. Thisreport (the JRC Report) led rapidly to thereplacement of the then full-time CWSBoard with an elected part-time Board,and brought in professionalmanagement, in a structure which hasbroadly lasted until today.

This led in turn in the late 1960s, to aprogramme of tackling declining marketshare, the old fashioned image, andinadequate shops with the launch of the Co-op logo, the first national TVadvertising campaign, and OperationFacelift, a national refurbishmentprogramme.

At the same time, the Co-operative Unionpublished, in November 1967, a RegionalPlan, aimed at reducing the tally ofSocieties from 467 (there having been a large number of failures and forcedmergers in the meantime) to a morerealistic 50. Its report, almost ten yearsafter the Independent Commission, said: “If the serious warnings of theIndependent Commission had beenheeded, the Movement would be in farbetter shape to withstand the impact ofnew problems which have developed".

The activities of the late 60s and early 70s led to a halt in the decline – evenbriefly in the mid 70s a period when theMovement was showing growth again.But the Independent Commission’s call for a formal re-examination of theconstitution and trading policies at

least once a decade went unheededthereafter, and with some notableexceptions, the Commissionrecommendations were ignored, or brought about by force ofcircumstances, rather than freelyadopted.

The lessons are obvious!


The following are some of the key events that have significantly contributed towards shaping the Co-operative Movement we havein the UK today:

1769 Fenwick Weavers Co-operative Society established and in the subsequent years many other Co-operatives were formedwith varying degrees of success.

1844 Rochdale Pioneers Society established, starting a period of phenomenal Co-operative growth. Based on their eight‘Rochdale rules’, including distributing a share of profits according to purchases that came to be known as ‘the divi’.

1862 Industrial and Provident Societies Acts (I & P Act) for the first time gave Co-operatives corporate status providing a properlegal framework for Co-operatives. The first I & P Act had been enacted in 1843.

1863 Co-operative Wholesale Society (CWS) established originally called the North of England Co-operative WholesaleIndustrial and Provident Society Limited; the Scottish CWS followed in 1868.

1867 Co-operative Insurance Society (CIS) established.1870 Co-operative Union established (initially known as the Co-operative Central Board) as an outcome from the first national

Co-operative Congress, held in 1869.1871 Co-operative News first published.1872 The Co-operative Bank established, initially as the CWS Loan and Deposit Department, registered as separate wholly-

owned subsidiary of CWS in 1971.1873 CWS entered manufacturing and later became substantially involved in importing, ship owning and in many overseas

ventures, including joint CWS/SCWS tea estates. 1882 The Co-operative Productive Federation established bringing together producer owned (workers’) Co-operatives –

now a committee of the Co-operative Union.1883 Co-operative Women’s Guild established.1895 International Co-operative Alliance (ICA) established and held the first international congress in London.1900 A total 1,439 Co-operative Societies now registered.1906 ‘Abortive boycott’ on the supply of branded goods to Co-operatives imposed by the Proprietary Articles Trade Association,

to prevent Co-operatives paying ‘divi’ on such goods.Calls for a national Society to encompass all consumer Co-operatives by the President of Co-operative Congress, JC Gray.

1914 The number of consumer Co-operatives was 1,385, the process of amalgamation had started that has continued to this day;by the year 2000 the number of Societies had fallen to a total of 45.

1916 Profits Tax applied to Co-operatives for the first time, resulting in CWS paying £1 million in tax for the year. 1918 Co-operative Party established, as a Department of the Co-operative Union, leading to direct Parliamentary and local

government representation under an electoral agreement with the Labour Party.1919 Co-operative College established, first based in Manchester and in 1945 relocated to its current site at Stanford Hall, Loughborough.1934 CWS retail established, becoming Co-operative Retail Services (CRS) in 1957, with the purpose of opening shops in

‘Co-operative deserts’ and taking over failing retail Societies.1935 Ten-Year Plan for Co-operative development introduced, which was intended to encourage Co-operatives to expand into

areas not yet served by Co-operatives.1942 First Self-Service Shop opened by the London Co-operative Society. By 1950, 90 per cent of all the self-service stores in the

UK were operated by Co-operatives.1945 National Co-operative Chemists (NCC) established becoming the first national chain of Co-operatively-owned retail outlets. 1955 British Co-operatives operating 30,000 retail shops reaching their peak in terms of market penetration; having market

shares for food of 20 per cent and 12 per cent of non-food; and with 13 million people reported to be in membership. 1956 Independent Co-operative Commission set up, initially only to consider Co-operative production, but widened to include

retailing, which came to be known as the ‘Gaitskell Commission’; publishing its report in 1958.1959 Society Footwear (renamed ‘Shoefayre’ in 1964) established in a bid to form new national chains of non-food shops.1961 Co-operatives operate their first ‘off-licences’, hitherto having maintained the abstinence policies of the founding fathers. 1964 The abolition of resale price maintenance as a result of the introduction of the Restrictive Trades Practices Act, heralding

intensive price competition in UK retailing.

Annex 8 – Co-operative milestones

Co-operative milestones

Fenw

ick

Wea

vers

Roc

hdal

e Pi

onee

rs

I&P

Act

CW

S e

stab

lishe

d

CIS

est

ablis

hed

Co-

oper

ativ

e U

nion

est

ablis

hed

Co-

oper

ativ

e N

ews

publ

ishe

d

CW

S m

anuf

actu

ring

com

men

ced

Co-

oper

ativ

e Pr

oduc

tive

Fede

ratio

n

Co-

oper

ativ

e W

omen

's G

uild

Inte

rnat

iona

l Co-

oper

ativ

e A

llian

ce

1,43

9 C

o-op

erat

ive

Soc

ietie

s

PATA

boy

cott

1,38

5 C

o-op

erat

ive

Soc

ietie

s

Prof

its T

ax

Co-

oper

ativ

e Pa

rty e

stab

lishe

d

Co-

oper

ativ

e C

olle

ge e

stab

lishe

d

CW

S r

etai

l est

ablis

hed

Ten-

year

pla

n in

trodu

ced

Firs

t S

elf-

Ser

vice

Sho

p op

ened

Nat

iona

l Co-

oper

ativ

e C

hem

ists

30,0

00 C

o-op

erat

ive

reta

il sh

ops

Inde

pend

ent C

o-op

erat

ive

Com

mis

sion

Soc

iety

Foo

twea

r es

tabl

ishe

d

Co-

oper

ativ

e of

f-lic

ence

s

Res

trict

ive

Trad

e Pr

actic

es A

ct

Co-

oper

ativ

e S

tam

ps in

trodu

ced

Co-

oper

ativ

e pr

inci

ples

rev

ised

Co-

oper

ativ

e B

ank

esta

blis

hed

1769

1844

1862

1863

1867

1870

1871

1872

1873

1882

1883

1895

1900

1906

1914

1916

1918

1919

1934

1935

1942

1945

1955

1956

1959

1961

1964

1965

1966

1965 Dividend Stamps introduced as an alternative to the traditional methods of paying the ‘divi’, and as a response to the adoptionof trading stamps by other food retailers; individual Societies operated their own stamp schemes. CWS launched the nationalDividend Stamp scheme in 1969.Publication of the Joint Reorganisation Committee Report.CWS full-time elected Directors discontinued (a practice which dated from 1906).

1966 Co-operative principles revised by the International Co-operative Alliance (ICA), with a view to making them more relevantto a wider variety of fast-growing Co-operatives throughout the world.A Regional Plan, promoted by the Co-operative Union, called for the amalgamation of the then existing 680 Societies into 55 regional Societies.CWS appointed its first ‘outsider’ Chief Executive, Philip Thomas, who was killed in a plane crash less than two years later,before the completion of the programme of radical change he introduced.

1968 Operation ‘Facelift’ launched and the first national ‘Co-op logo’ was introduced.1969 The failure of the Millom Co-operative Society highlighted in the BBC TV ‘Nationwide’ programme, creating apprehension in

the minds of Co-operative members throughout the UK as to the safety of their investments in Societies.Dividend Stamps scheme introduced.

1971 The Industrial Common Ownership Movement (ICOM) established, becoming the central organisation for the ‘new wave’ ofworker Co-operatives.

1973 Scottish CWS merged with CWS, following difficulties with the SCWS Bank; CWS now became directly involved in retailing.1974 A second regional plan launched, which called for the amalgamation of the then existing 260 Societies into 26 regional Societies.1978 National Co-operative Development Agency (CDA) established by government, mainly promoting worker Co-operatives;

it was wound up in 1989.1979 Co-operative Congress President, J H Perrow, calls for the formation of ‘Co-op Great Britain’.1981 London Co-operative Society transferred to CRS.

Hunting with hounds prohibited on CWS farmland (not fishing or shooting).1982 Co-operative Congress resolves to reduce the number of Societies to 25.1985 Royal Arsenal Co-operative Society transfers to CWS.

Ban on South African goods (lifted 1992). 1987 Institute of Co-operative Directors (ICD) formed.1990 North Eastern Co-operative Society transferred operations to CWS, on the basis of new management arrangements.1991 United Kingdom Co-operative Council (UKCC) established, for the first time providing a single body representing all forms

of co-operation in the UK.1993 Report on Corporate Governance launched, leading to a ‘code of best practice’ for the conduct of the affairs of

Co-operatives, issued in 1995.Collapse of Aberdeen Northern Co-operative Society (NORCO).

1994 Sale of CWS food factories to Hobsons.Co-operative Retail Trading Group (CRTG), joint purchasing group, established by CWS.The 150th Co-operative Congress called for a single UK Society by the year 2000.

1995 New Co-operative Identity Statement adopted by the ICA Centenary Congress, held in Manchester.CWS Responsible Retailer Campaign launched. CWS commences Dividend Card pilot.

1997 The ‘Lanica’ affair. Efforts to take over CWS by city businessman repelled.1998 CWS rolls out Dividend Card nationally.1999 Co-operative Bank sets up smile, the Internet bank.2000 Co-operative Commission established. CWS/CRS merger finalised.

For a detailed listing of UK Co-operative historical events visit the following web site: http://www.co-op.ac.uk/cch/resources/history/timeline.htmWith thanks to Edgar Parnell.


CW

S/C

RS

mer

ger

Reg

iona

l am

alga

mat

ion

plan

Phili

p Th

omas

app

oint

ed C

E of

CW

S

Co-

op lo

go la

unch

ed

Mill

om C

o-op

erat

ive

Soc

iety

Div

iden

d S

tam

ps in

trodu

ced

ICO

M

Sco

ttish

CW

S m

erge

d w

ith C

WS

Sec

ond

regi

onal

am

alga

mat

ion

plan

CD

A e

stab

lishe

d

Co-

op G

reat

Brit

ain

prop

osed

LCS

to

CR

S

25 S

ocie

ties

reso

lutio

n

Hun

ting

proh

ibite

d on

CW

S far

mla

nd

RA

CS

to

CW

S

Ban

on

Sou

th A

frica

n go

ods

ICD

for

med

NEC

S to

CW

S

UK

CC

est

ablis

hed

Rep

ort on

Cor

pora

te G

over

nanc

e

CW

S m

anuf

actu

ring

sold

to

Hob

sons

CR

TG e

stab

lishe

d by

CW

S

Co-

oper

ativ

e Id

entit

y S

tate

men

t

CW

S D

ivid

end

Car

d pi

lot

Lani

ca a

ffair

CW

SD

ivid

end

Car

d ro

ll-ou

t

Co-

oper

ativ

e C

omm

issi

on e

stab

lishe

d

smile

set up

Col

laps

e of

Nor

co

1968

1969

1971

1973

1974

1978

1979

1981

1982

1985

1987

1990

1991

1993

1994

1995

1997

1998

1999

2000

CW

S R

espo

nsib

le R

etai

ler

Cam

paig

n

Glossary of terms

ATM Automated Teller Machine.Board The Board of Directors.BOGOF Buy one get one free.Central Executive The Board of the Co-operative Union.CEO Chief Executive Officer.CIS Co-operative Insurance Society.Communicating Mutuality A policy development and campaigning body set up by the Co-operative Party as a secondary

Co-operative.Community dividend That part of the surplus spent supporting local community activities.Co-operative Congress Annual gathering of UK co-operators (includes AGM of the Co-operative Union).Co-operative Party Political wing of the UK Co-operative Movement.Co-operative Press Publishers of Co-operative News, the official newspaper of the UK Co-operative Movement

(weekly paper).Co-operative Group (CWS) Ltd The new name for the merged CWS and CRS.Co-operative Union The representative body of the consumer Co-operative Movement in the UK.CRS Co-operative Retail Services, now merged with CWS to form Co-operative Group (CWS) Ltd.CRTG Co-operative Retail Trading Group. A food buying and marketing group operated by CWS on

behalf of itself and the majority of Co-operatives.CWS Co-operative Wholesale Society Ltd. Now Co-operative Group (CWS) Ltd.Director A member who has been elected to serve on the Board of a Co-operative Society.Financial Controller Head of Finance.ICOM Industrial Common Ownership Movement.IGD Institute of Grocery Distribution.Individual dividend That part of the surplus paid to members.ISA Individual Savings Account.KCPI Key Commercial Performance Indicator.KSPI Key Social Performance Indicator.Management Executive (or Executive Management team) The top management team (not normally Directors).Member A person who holds a share in a Co-operative Society.Member Relations Officers (MROs) Employees who interface most closely with members.Membership records List of members.RCC Regional Co-operative Council.RDA Regional Development Agency.ROCE Return on capital employed.Rules The rules approved by the members and registered with the Registrar of Friendly Societies.UKCC United Kingdom Co-operative Council.

Glossary of terms

©The Co-operative CommissionDesigned and produced by Fishburn HedgesPhotography by EmmerichwebbTypeset by New LeafPrinted by Royle Corporate Print on paper made from chlorine-free bleached pulp and awarded the Nordic Swan environmental label

the co-operativeadvantageCreating a successful family of Co-operative businesses

The Report of the Co-operative CommissionJanuary 2001

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eport of the Co-operative C

omm

issionJanuary 2001

January 2001 www.co-opcommission.org.uk

Documents

Co-operative Commission report