By Jeroen Schilte, &samhoud consultancy
The sustainable features of co-operatives make these organizations very attractive in the current economical circumstances. Co-operatives are successful and more and more organizations revitalize their co-operative origin or rediscover themselves. But it is not easy. Being part of a co-operative requires personal effort, every day.
Things may change. The co-operative as organizational form was always seen as the slow countryside nephew of urban businesses, which became rich quickly and were popular among investors. Co-operatives existed for people who worked with their hands: in the countryside, in the barn, in the greenhouse and sometimes in the factory. They worked together because of an enlightened self-interest; they needed each other. A dying race, especially in the Netherlands, land of (financial) services. Until the financial crisis arose in 2008. Five years later, we still find ourselves in a global instability with no end in sight. Trust is low, the distance between organizations and customers is great and the ones who are responsible are being hunted. Internally, the search for ways to address the individual responsibility, ownership and entrepreneurship of employees in order to re-establish connection with customers has begun. Features that are present in co-operatives. And guess what? Co-operatives have never disappeared. A large part of the Dutch organizations are co-operatives. There are a lot of them, in all sorts and forms: traditional – like growers who jointly offer their harvest – and modern – like freelancers who offer their services together or healthcare co-operatives: citizens’ initiatives that thrive on solidarity and taking care of each other. Companies in the financial services, insurance companies and banks often also have co-operative roots. The Rabobank is the most successful example in the Netherlands. Co-operatives show that they are sustainable and stable in times of uncertainty and crisis. They radiate solidarity and responsibility. The co-operative as an organizational form is suddenly modern and is seen as an important response to the disappearing relationship between organization, customers and society. The United Nations have even proclaimed 2012 the year of co-operatives. Co-operatives are alive; a winning recipe at first sight. Is this true? Is the co-operative model indeed the ideal model to secure our economical future? What do co-operatives teach other companies and organizations? What is the core? We asked a number of co-operatives or organizations with a co-operative tendency: Frido Kraanen of pension provider PGGM, Kees Gielen of dairy-produce giant FrieslandCampina, Philip Smits of fruit and vegetable company The Greenery, Dirk Duijzer of Rabobank Nederland, Leendert Eijgenraam of flower auction Flora Holland.
Nobody is invisible in a co-operative
Transparency is the core of every co-operative. Common interest brought people together in a co-operative which has enough power to ensure the individual interest of each member. Members therefore want to be informed. They want to see what the co-operative is doing for them and they want to see what other members bring in. Thus, decisions and procedures are transparent. Nobody is invisible and that promotes unity.
‘The co-operative board is the shareholder at PGGM. The members’ council is the supreme body. She appoints people to be board members and management clarifies its strategic decisions. It is important that everybody continues to see the simplicity of what it was created for. For example, a members’ council simply has to see to it that an organization keeps doing what it was created for.’ (Frido Kraanen, Director Cooperative PGGM)
The ability to connect with members is very important for the success of a co-operative. Transparency brings with it that the co-operative is a very vibrant organizational form that demands a lot of all stakeholders, like entrepreneurship, ownership, responsibility and personal leadership. But also the ability to connect people with attention and direct contact.
‘You do have to manage your followers and that may cost a little more time than in a listed company. For example, we organize 80 meetings in which we explain and clarify the financial statements, each at another place and with other members. We divide those meetings among ourselves. I myself am responsible for 21 of them. Is it fun? And is it useful? Yes, it certainly is. Members are asking critical questions and they keep you alert. That is what makes my job challenging. What a difference with a listed company. There you only speak face to face with a stock analyst.’ (Kees Gielen, CFO FrieslandCampina)
Where companies serve the interest of a relatively small group of shareholders, within co-operatives the principle of enlightened self-interest applies. And that requires a lot of action. The unity of the collective must be continuously maintained. Individual members always balance between self-interest and the interest of the group. Although there is room for this in a co-operative, at the same time the self-cleaning mechanism applies: members who neglect their duty are addressed by other members. This causes enormous dynamics… and sharpness.
‘Growers are members on an individual basis but they are mutually clustered per product. Every fruit or vegetable grower can become a member of the co-operative. Funding is collectively provided by members. These are long-term contracts which in the eyes of the bank represent the continuity of the co-operative. Growers are becoming larger, in size and in quality. Nowadays most of them are graduates of Wageningen. The climate is commercialized, but loyalty still exists; the emotional bonding with Greenery is great. However, a good price should be realized.’ (Philip Smits, General Manager The Greenery BV)
Connection with members and with customers
‘Every product committee of members is supported by someone of our company. Within Flora Holland, 35 managers fulfill this role of sponsor and coach. These managers spend 10 percent of their time between the company and the members. The co-operative idea, connection with members, is shaped in a very concrete way by this.’ (Leendert Eijgenraam, Concern Manager Legal Affairs and Co-operative Flora Holland)
The connection between co-operatives and members is large. And if those members are also your customers, then there is a degree of connection that many private companies would envy.
‘Our information flow is quick and adequate. We use an online panel of 4,000 members on whom we can call quickly. In addition, we survey 300,000 people (out of 580,000 members) four times a year. We receive 10.000 to 20.000 responses each time. Another very valuable source of information is our call center. We still own the primary call center.’ (Frido Kraanen, PGGM)
‘In 2008, when the crisis arose, we experienced a brief period in which it came to the pinch. For two weeks, people wanted to withdraw their money from the bank. They came to the desk and asked if they could take their money in a bag, so to speak. We had to hit the brakes real hard in order to not deflate. We called on all banks to organize meetings with their members as soon as possible. Within a week, we had spoken 100.000 people across the country. That was the turning point. Following these conversations and discussions with members we quickly returned to a level of trust and money only entered our bank. That intervention saved us. At that moment, we saw with what speed you are able to mobilize your followers within a co-operative. We know everyone by name. We stayed in the field, together with our members and customers. But there was more going on. There are co-operative banks, for example in Spain, which did experience hard times. They could not keep their money in because they used profit distribution. We have a completely different dividend policy, we do not pay. The money that entered therefore remained inside our bank.’ (Dirk Duijzer, Director Co-operative, Governance and Sustainability Rabobank Nederland)
Transparency and connection only thrive in the right culture
Transparency and connection are made possible by the organizational structure in co-operatives. There are committees, advisory bodies, often very intensive and dense. This would mean that private companies may also use this structure. We asked each of our interviewees this and the answer was always: you could copy the governance structure and goals, but not the success. The success is namely within the people themselves – in their values – to make cooperation within a co-operative successful. The culture of an organization therefore mainly determines whether connection and transparency will lead to success.
‘Our model is difficult to copy. Of course, core values of most banks are interchangeable. However, our philosophy is extremely rooted, more than with other banks. Our mission is to let our customers be able to operate independently and we need people who understand this mission. My concern therefore is not that other banks will imitate us. I am much more concerned whether we will find the right people who are suitable to work for our bank.’ (Dirk Duijzer, Rabobank Nederland)
‘We are a fusion of blood groups, normal people with a great sense for our product. I myself am the son of a gardener. Our values are courage, clarity, sustainable entrepreneurship and service. Our mentality is a mix of service and relation management on the one hand and speed and dynamics of daily trade on the other. It is a dual mentality: prolonged debating with our members and daily actions. Flora Holland brings those dynamics together. We are the extension of our members. This is only possible in a co-operative. We do not have a profit target, it comes to equality. The clock, the auction, the game: it remains the place of the entrepreneur.’ (Leendert Eijgenraam, Flora Holland)
‘As an employee of a co-operative you should be receptive to the opinions of members: be aware who you are doing it for. Furthermore, modesty is important: you should be able to consider yourself to be a servant. Customers or member sometimes consider other values important. You cannot seclude yourself from that. A third feature is that the customer is not king. Customers or members are equivalent to the organization, you have a shared interest’. (Frido Kraanen, PGGM)
Co-operatives create stability
A co-operative enterprise beholds the ability to better coordinate various stimuli. This grows confidence and creates stability. As quick profit is not a primary goal, a co-operative is able to aim for the long term. There are no external funders who demand fast results. The funders are members. They are loyal and willing to think about the balance between tightness in the short term and results in the long term. Members will not take huge risks because they are funders themselves. They often have not brought in their money to make profit but to create preservation. Members are therefore much longer involved with the co-operative. The result is that co-operatives are less capricious than private enterprises. Although co-operatives will go less sky high during a boom, they have a dampening effect during a recession.
‘A listed company is much more volatile because of the stock-exchange quotation. This in turn has a great impact on the conduct of the management team. A co-operative has less to do with politics than a listed company. There is also a better balance between the long and the short term within a co-operative. There is great attention for adding value in the long term. A shareholder remains in a listed company for three months on average. Then he walks out again. With us, people are members for 45 years on average. You must realize that they are part of the business for much longer than you are. And they often know the company better. You should not be playing games with them. They force you to be transparent and that is sometimes very confronting. Members also have vast knowledge of people. They observe you, feel you. They see through you straight away.’ (Kees Gielen, FrieslandCampina)
‘The crisis of 2008 acted as a wake-up call: a co-operative is not without obligations. Just as Raiffeisen had intended. I think we as Rabobank should be strict. A membership is reciprocal: you help each other and are loyal to each other and work hard for each other. We did not let our customers fall, we stayed in the field, we sought out for our customers and talked with each other. Well, talked… in many cases they were just angry. Their anger was directed against the bank. That makes you vulnerable. But vulnerability gives strength. We have had many discussions and learned a lot from each other. The membership policy proved to be a vital link for the bank. That should always be the starting point in a co-operative: members are the vital link. In line with this view, you should also dare to differentiate: not everyone is worthy to become a member and if people leave the bank you should actually not want them back inside for the coming five years.’(Dirk Duijzer, Rabobank Nederland)
Co-operatives have a huge competitive force
If connection and stability exist, then there will be synergy and this has a strengthening effect. It is here that the principle that members are able to achieve goals together that they would never achieve individually comes into force. This also applies to co-operatives constituted from vulnerability, like insurance companies or pension funds. These co-operatives seek to protect their members as good as possible in case of illness, accidents and for their pension. The agricultural part of SMEs in the Netherlands – the only manufacturing industry left and the most important export product of the Netherlands – is for the most part co-operatively organized as well. Because the cost-price is extremely high in the Netherlands, the collectivity of the co-operative – by cutting costs and increasing effectiveness – makes that this sector can still be competitive. And innovative.
‘The Netherlands excel at perfecting co-operatives. Thirty to forty years ago, growers in the Netherlands already realized that production in other parts of the world would only increase. The question was: should we allow those flowers and plants at the auction in the Netherlands? The answer is simple: yes. Sooner or later they will enter the market anyway so if they do so, it better be through us. 10 percent of our members are foreigners now.’ (Leendert Eijgenraam, Flora Holland)
‘In the developed societies, there is need for a banking model that combines long-term strategy with a short-term shareholders strategy. There is a need for a model that does not pay dividends. That is exactly what we are doing.’ (Dirk Duijzer, Rabobank Nederland)
‘Product developing, packing techniques: a lot of innovation exists in this sector. The co-operative plays a stimulating role in this. We are in what Michaeal Porter describes as ‘the power of the cluster’. The whole supply chain is close together and very transparent. Thereby, innovations spread rapidly. The neighbour is watching, sees how things can be done differently and wants that as well. It is as simple as that. But it does work as a catalyst! The co-operative perpetuates, manages and stimulates that model. There is a natural symbiosis. For example, a new way to grow lettuce is discovered: growing in ponds, according to the Dry Hydroponic technique. Rainwater is collected and reused and the water tanks of the ponds are ergonomically adapted. With this method, eight times as much lettuce can be grown on the same amount of hectare without burdening the soil.’ (Philip Smits, The Greenery BV)
Social value: beneficial side effect but not an end in itself
The first modern co-operatives were largely founded in response to threatening social or economical abuses and had an emancipatory function. Vulnerable people united themselves to create an economically solid position. Social value has never been a goal of co-operatives. It is however a beneficial side effect that responds to a current need among consumers, namely creating social value.
‘The spirit of the age has adapted to the co-operative, not vice versa. But the co-operative too must continue to develop. Where originally the economical joining forces were central (the enlightened self-interest), it is increasingly about creating social value in modern co-operative entrepreneurship.’ (Frido Kraanen, PGGM)
“Our core values need an accurate translation in practice. The Anglo-Saxon model which most of us are trained and educated in does not hold for the Rabobank. Diversity is our starting point and with that I mean the autonom y of the 139 local Rabobanks in our country. They all have their own identity and adjust their policies to local circumstances. This more or less yields 139 different models. The banks themselves decide what they will do with their money. For example, 138 of the 139 banks voluntary contribute to our microcredit projects in the Third World. We do not push them to do so. And that one bank deliberately made the choice to choose and guide its own projects. Yes, from a central point of view something like ICT will therefore be more expensive. But uniformity is not a goal for us, we do not consider that to be profit.’(Dirk Duijzer, Rabobank Nederland)
In the end, the politics will not get us out of the crisis. The key to the solution of the crisis lies in the hands of entrepreneurs. Especially in the hands of entrepreneurship that besides creating sustainable value also takes responsibility for the development of the community for which they work. The co-operative takes many forms. Each co-operative designs that responsibility in its own way. And every company, however small or big, may learn from this. With the proclamation of 2012 as the international year of co-operatives the United Nations underline the importance of the co-operative as an organizational form for the world economy. Moreover, the co-operative fits the spirit of individualism on the one hand and the will to cooperate on the other. The structure of co-operatives helps to engage people so they can defend their own interests. At the same time, members of co-operatives should realize that the group interest also serves the self-interest. Solidarity is an important characteristic. You are always connected with others and you play an active role in this. As said before, co-operatives are very vibrant organizations in which nobody is invisible. This creates stability and growth and that creates connection with each other. It is about the creation of value for the individual, for the organization and for society. As to that, other organizations may learn a lot from co-operatives. Attention to the organization structure and especially the organization culture enlarges entrepreneurship, responsibility and focus of employees. This will lead to transparence and innovation. The current crisis shows that such a change of mentality will become increasingly necessary for organizations. Consumers are becoming more vocal and critical and will increasingly demand more of organizations to whom they trust their money and services. Information spreads faster than ever and excesses are punished more quickly. Without the ability to connect people to them, organizations will have more trouble to be successful in the future. Who opens the door for customers? Who is prepared to improve the organization that they work for every day? And are you – as a customer – prepared to get up and actively help your supplier?
‘We are not by ourselves but we are part of the economic system. So we also feel the pain of the crisis. A co-operative is never a safe haven. You have to work at it every day.’ (Dirk Duijzer, Rabobank Nederland)