14. Corporations v Co-Operatives

The economic structure of capitalism needs something far more profound than adjustments and corrections. The entire system needs a total rethink before a well-planned re-boot can take place. Why? Because I believe the global network of corporations which form the backbone of the capitalist system are “not fit for purpose.” Their very size and political and economic strength give them dangerous leverage on the democratic process. They are also the rare legal grouping on this planet which has no legally binding responsibilities beyond turning a profit for its shareholders.

For more than two decades I have been trying to convince all who will listen that for the sake of a civilized and human future on this planet we must call a halt to the spread and destructive power of ever larger corporations like Walmart — Destructive because it has forced the closure of tens of thousands of small shops and businesses around the world at the cost of innumerable jobs.1

The contrasts between a cooperative like the John Lewis Partnership in the UK and a global giant like Walmart could not be more extreme. I have had the opportunity to visit Walmart stores in five American states and John Lewis Partnership stores in four English cities.

Walmart is the largest retailer in the world with sales of $465 billion a year and is a model for low costs. About 48% of its shares (and profits) are owned by the Walton family. It is both reviled and admired for its competitive practices and its globally exploitative and anti-union stance.

The John Lewis Partnership is a co-op with some 90 major retail outlets in the UK. It  has 84,000 partners and a turnover of about $30 billion (£19 billion) a year. It is often cited as a global role model of a co-op owned by all its working “partners.”

Walmart’s operations are on a staggeringly large scale. The gigantic warehouses which pass as stores are stacked with an incredible variety of low-priced goods which have made the enterprise popular with large numbers of Americans even though many of these goods have been produced under slave labor conditions in the Far East.

My experience has been that customers in Walmart’s discount department stores are not made to feel particularly welcome: some of the employees scurrying about look tense and stressed, as if they were working against the clock. These workers or “associates,” as they are called, (and there are a staggering 1.4 million of them in just the US) appear overworked and under-staffed. They are not allowed to unionize and are under intense surveillance by a management that distrusts them. Few social amenities are provided by the owners, the WASP family of billionaires whose total combined wealth is over $115 billion. This exceeds the combined wealth of the bottom one-sixth of Americans on the economic ladder.

Entering one of the major stores of the John Lewis Partnership is like a breath of fresh air: one is struck by the up-market welcome not only from the modern appearance of its stores but also from the relaxed and friendly greeting given by one of its eager “partners.” These “partners” can belong to any trade union they might like. At the end of every year they get a sizeable bonus based on the co-op’s annual profits — which last year equaled  17% of their annual salaries. This sum is calculated on the annual profit of the company. The pay of the head of this large enterprise is kept by this firm’s written constitution at no higher than 75 times times the hourly wage of the lowest employee.

It is unusual for corporations to have long-term objectives, even rarer for corporations to prioritize concern for the health, education, or remuneration of its employees. Pollution of the environment by vast corporations like Koch Industries is irrelevant to management except when it counters the usually weak enforcement of local laws.

Cooperatives have different goals from those of corporations: They endorse transparency in their operations, fairness, limited differentials between the lowest and highest paid, job protection, training of its members, gender equality, environmental improvement, and co-operation with other co-ops. The co-ops, with their concern for the local environment, would by their very format, also lower the overall and continuing rise of expectations. This would help to lessen the ever increasing stress and anxiety in the work force at large.

A powerful global network of co-ops would not only increase the power and responsibilities of workers but would also put work/jobs before profits or the returns on capital. In an age of ever-greater reliance on robotics — this is the best way to maintain and create gainful employment for millions of workers.

Perhaps something like the collapse of the European Union or, less dramatically, the meltdown of a major economy such as that of Spain, could lead to a trial run of a different economic system. Spain already has a creditable co-op, Mondragon, which is about the size of the John Lewis Partnership, and is the largest economic experiment of the Iberian peninsula. Mondragon’s cooperative network includes banking, 94 productive factories, 83,000 employees, various service groups, a university with 9,000 students and multiple global branches in China, the US, the UK, France and numerous other states, with a total turnover of around $20 billion. It thus serves as a good example of how today’s large corporations could be transformed into a more socially responsible co-op format.2

I do not pretend that cooperatives are perfect or could resolve all our global problems, but cooperatives are modeled on the written commitment that the workers come first — not  the shareholders nor profits, efficiency, nor even the much demanded innovation.

The case is often made that corporations are the basis of innovation because of their demands for growth, new products, and higher profits. This involves serious risk taking which cooperatives are unlikely to underwrite. Cooperatives are not driven by the competitive spirit of corporations nor by the corporate interest in take-overs and expansion.

Law after law has been passed by The US Congress and the British Parliament to protect the interests of the corporation which now enjoys nearly all the rights and privileges of the most advantaged individuals of society yet none of the responsibilities. This absurd situation should never have arisen nor been tolerated. However, democratic politics seem incapable of abrogating the devious stratagems through which these laws were introduced by the legal profession working both in and out of politics..

Consequently, I have been calling for the ultimate legal transformation of all corporations into cooperatives. You can well imagine how the corporations would react to this: They would use billions of dollars to block any such transformation using the full army of lobbyists, PR consultants, lawyers and politicians on their payrolls. In proposing this global structural shift — I want to present a realistic alternative. I see such a transforming co-op  system as integral to a new and more rational economic model.

Co-ops are long-term operators, not short-term gamblers. Our human survival is more important than the blinkered self-interest of corporate CEO’s and all their partners in short-termism. The change in perspective I am proposing is long overdue! It is the kind of economic reform the world badly needs.

1Yorick Blumenfeld, Dollars or Democracy, (2004) p. 23
2Yorick Blumenfeld, Dollars or Democracy,(2004) pp. 200-205

Part II
For readers who want to know more details about the ground-breaking Constitution of John Lewis Partnership

The good governance of the John Lewis Partnership has been recognized by the three major political parties in the UK and has become the flagship role model. It has proven itself not only by its success and growth but also by the test of time.

The principles and governance were spelled out in impressive detail in the quite unique constitution of the Partnership and could serve as the model of Co-ops world wide.

For those readers who want to know more about this unique constitution, I am attaching some sections of this extraordinary document verbatim.

The Partnership exists today because of the extraordinary vision and ideals of its founder, John Spedan Lewis, who signed away his personal ownership rights in a growing retail company to allow future generations of employees to take forward his ‘experiment in industrial democracy’. Not unreasonably, he wanted to leave some clear guidelines for his successors, so that the values which had motivated him would not be eroded with the passage of time.

Lewis was committed in the 1930’s to establishing a ‘better form of business’, and the challenge for the Partners of today is to prove that a business which is not driven by the demands of outside shareholders and which sets high standards of behaviour can flourish in the competitive conditions of the third millennium. Indeed, they aim to demonstrate that adhering to these Principles and Rules enables them over the long term to outperform companies with conventional ownership structures.

The Constitution states that ‘the happiness of its members’ is the Partnership’s ultimate purpose, recognizing that such happiness depends on having a satisfying job in a successful business. It establishes a system of ‘rights and responsibilities’, which places on all Partners the obligation to work for the improvement of their business in the knowledge that they share the rewards of success.

When John Spedan Lewis, set up the Partnership he was careful to create a governance system, set out in the company’s Constitution, that would be both commercial and democratic – giving every Partner a voice in the business they co-own. This combination of commercial acumen and cooperative conscience, was ahead of its time, is still practiced today.

 A system of checks and balances

“The Chairman, the Partnership Board, the divisional Management boards and the Chairman’s Committee form the management of the company. The Partnership Council, which elects five Partnership board directors, the divisional and branch level democracy, make up the democratic bodies that give Partners a voice and hold management to account.

Lewis also created the positions of Registrars and a Partners’ Counsellor  who monitor and uphold the integrity of the business. The Registrars act as Ombudsmen and are responsible for ensuring that the Partnership remains true to its principles and is compassionate in its dealings with individual Partners.

The Partners’ Counsellor monitors and upholds the integrity of the business, its values and ethics as enshrined in its constitution. At the moment this woman is a member of the Partnership Board and performs the role of senior independent director in her interaction with Partners as co-owners of the business. She supports the elected directors in their contribution to the Board and thereby helps underpin their independence. The Partners’ Counsellor convenes meetings with the elected directors, without other executive directors being present, as appropriate and at least once each year.

1       The two Settlements in Trust made by John Spedan Lewis in 1929 and 1950 established a business known as the John Lewis Partnership, to be owned in trust for the benefit of its members, who are Partners from the day they join.

2       The trustee of the Settlements is John Lewis Partnership Trust Limited (‘the Trust Company’), and its Chairman is the Partnership’s Chairman. Its other directors are the Deputy Chairman and the three Partners elected by the Partnership Council as Trustees of the Constitution (Rule 18(ii))…

6       The Partnership aims to conduct all its business relationships with integrity and courtesy, and scrupulously to honour every business agreement.

7       The Partnership aims to obey the spirit as well as the letter of the law and to contribute to the wellbeing of the communities where it operates…

46       Because the Partnership is their own business, Partners must be aware of all its principles, do their best for it and help each other to fulfill their duties and responsibilities to it.

47       All Partners, especially managers, have a responsibility to be imaginative and energetic in promoting each other’s wellbeing and to recognise the importance of a healthy balance between the needs of the Partnership and the personal life of Partners.

48       Working conditions for Partners must be comfortable and businesslike but not luxurious.

49       Partners must be scrupulously honest in their dealings with the Partnership and with each other, and never seek to gain from the Partnership any more than they sincerely believe is fair.

50       Partners must respect and be courteous to each other and to anyone else with whom they have dealings on behalf of the Partnership. The Partnership will do all it can to encourage good personal relationships between Partners at all levels…

53       The Partnership seeks to recruit only those who share its values and will contribute to its success.

54       The Partnership takes no account of age, sex, marital status, sexual orientation, ethnic origin, social position or religious or political views.

55       The Partnership employs disabled people in suitable vacancies and offers them appropriate training and careers.

56       The Partnership encourages Partners to fulfil their potential and increase their career satisfaction in the Partnership, by:

(i) promoting Partners of suitable ability; (ii) encouraging changes of responsibility; (iii)providing knowledge and access to training to help them carry out their responsibilities better; (iv) encouraging their personal development and interests in fields not directly related to their work.

57       No Partnership contract of employment will have a notice period longer than 12 months, unless the Partnership Board agrees.

58       Every Partner is free to belong to a trade union, although if there is conflict between a trade union and the Partnership those concerned must consider carefully their responsibilities as Partners.

59       A Partner’s performance is reviewed with him by his manager at least once a year.

60       The personal records and details of Partners are made available only to those who are properly authorised to see them.

61       The Partnership sets pay ranges which are informed by the market and which are sufficient to attract and retain high calibre people. Each Partner is paid a competitive rate for good performance and as much above that as can be justified by better performance. Partnership Bonus is not taken into account when fixing pay rates.

62       Pay rates must be decided with such care that if they were made public each would pass the closest scrutiny. Managers are responsible for ensuring that Partners are paid fairly in comparison with others who make a similar contribution…

73       The Partnership provides amenities that it believes will be welcome to individual Partners and will promote happiness, a sense of community and the Partnership’s reputation.

74       In its expenditure on amenities the Partnership will not confine itself to things that may be provided inexpensively, but will be open-minded and ready to provide things that may offer exceptional opportunities for only a minority of Partners.

75       The Partnership offers pensions to Partners based on their rate of pay, length of service and working hours. Pensions are set at a level which the Partnership Council judges will, taking account of state pensions, enable those Partners who have spent most or all of their working lives in the Partnership to provide for their needs during retirement.



5 thoughts on “14. Corporations v Co-Operatives

    • Thank you. Do you have ideas on how cooperatives like the John Lewis Partnership can become more universal?
      would like to know if the tenets of their constitution appealed to you.

  1. Pingback: 63. Which Way is Europe Turning? | Yorick's Blog

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