Newly appointed chairman Allen Leighton faces an existential battle at The Co-operative Group which may serve as a case study for the kind of creative capitalism proposed recently by Bill Gates
Bill Gates has recently called for more efforts directed towards creative capitalism. This raises the immediate question: what is it? At very least, there is need to examine institutions such as The Co-operative group which challenged capitalism yet attempted to create structures within the capitalist system rather than seeking its violent overthrow.
Since the industrial revolution, a system of capitalism has become established within which a dominant form of modern business firm has emerged. The institutional form, as taught at B School, is rational, grounded in the regulations imposed by legal authority. The dominant structure of organizations is the top-down pyramid of control, with the powerful leader at the top.Much debate continues about the ‘theory of the firm’ and institutional theory’. I side step these issues to concentrate on a call for an alternative form of suggested by Bill Gates as creative capitalism. I use the current story of The Co-op as a living case.
One different reaction to the dominant capitalist model developed, and has survived as workers cooperatives, syndicates, and assorted communitarian experiments. These are often misunderstood as versions of Marxism, or misrepresented as the doomed structures based on utopian socialistic ideas.
I want to suggest another perspective, and examine them with the idea of an alternative form of capitalism suggested by Bill Gates as creative capitalism. I use the current story of The Co-op as a living case.
A noble failure?
Less than a year ago I reported on the near demise of the Co-op, in a post entitled The Co-operative Group: a noble business failure.
Why a noble failure? Because its legacy was the development to a stable political system in the United Kingdom based on co-operation as an alternative to revolutionary conflict for achieving its political goals. The system led to the formation of The Labour Party, The Unionisation of workers, and a political philosophy driven by the intellectual contributions of the Fabian Socialists.
The successes of Conservatism in the Thatcher era in the 1980s, was followed by re-branding of Labour as New Labour in the 1990s and beyond, through reconstructing the old socialist rhetoric in achieving a wider political appeal.
During this period, The Co-operative movement and The Co-operative Group remained anchored to its founding beliefs and commitments. Internally, its democratic and egalitarian beliefs and structures system had produced unimpressive leaders. This was to culminate in the dismissal in 2014 of a Business-lite Methodist minister as CEO, whose private enthusiasm for various illegal activities led to his public humiliation and removal, as the organization lurched into near bankruptcy.
History of a social innovation
Its official history tells how the Rochdale Pioneers founded the society in 1844. Its practical goals and political vision were enshrined in its early rules of co-operative and democratic operations. It would be incorrect to refer to its business-model, more as a political co-operative movement as implied in its title.
The Co-op web site continues to assert its rationale as a society run by its 8 million ‘members’ who have signed up to its principles and who are considered the heart of the Enterprise, contributing ‘according to their means’ and sharing dividends ‘according to their needs’. The ‘ divi’ was one of the movement’s distributive innovations.
The Corporate Values presented on the website today captures the idealism of its founding fathers. [I have summarised the website material here].
At The Co-operative we encourage new ideas to tackle issues that are important to our members, from helping the community to changing the world. Membership is open to everyone as long as they share our values and principles. Our members show these values by working together for everyone’s benefit, and are encouraged to play a full part in the community.
Here are our underlying values and principles which influence The Co-operative Membership and the way we run all of our businesses: Our co-operative values are of ‘Self-help, Self-responsibility, Democracy, Equality, Equity and Solidarity. Our ethical values are of Openness, Honesty, Social responsibility, and Caring for others. We put our values into action through Voluntary and open membership, Democratic member control, Member economic participation, Autonomy and Education, training and information, Co-operation amongst co-operatives, and Concern for community.
These principles would have influenced the complex way in which individual cooperatives related to one another. Within two decades of its founding, 300 disparate units in the North of England formed themselves into the broader Co-operative movement. North of England Co-operative Wholesale Industrial and Provident Society Limited was launched in Manchester, a few miles down the road from Rochdale, as The North of England Co-operative Wholesale Industrial and Provident Society Limited.
The process continued throughout the 20th century, as membership grew across the United Kingdom.
Funerals, Finance, and Food
By the beginning of the 21st Century, the Cooperative group could claim 100,000 employees, and annual revenues approaching £10 billion. These came from its traditional co-operative strengths in retailing through its 5000 stores, its leading position nationally in funeral care, and the Co-operative bank. It also had important divisions in travel, finance and legal services.
There is a curious mix of the radical and profound conservatism of the concept. The explicit goal of helping the community to change the world is implicitly accepting of the realities of the prevailing power structures of capitalism. This is one of its key differentiating factors between the Mutual movement and the revolutionary radicalism of Marx and Lenin. It was to feed into the development of the British Labour Party and its intellectual influences through the Fabian Society.
The Cooperative Party and its dilemma
The cooperative ideal throws up several difficult dilemmas for the stability and survival of the movement. The cooperative commitment to equity results in practice to what economists refer to as moral hazard and free-loading, resulting in a lack of economic productivity and competitiveness.
To be continued
In which the arrival of Allen Leighton as CEO is discussed, together with a consideration of The co-op as a case study for creative capitalism.
In researching this post, I became aware of a curious political arrangement in the United Kingdom. In the spirit of co-operation with the labour party, The Co-operative party does not complete with labour party candidates. Instead, each of their candidates stands as a Labour and Co-operative Party candidate. There are at present thirty such candidates elected as MPs at Westminster, of whom the best-known is Ed Balls, the Shadow Chancellor of The Exchequer.
Allen Leighton: fat cat or servant leader?
The new leader of The Co-op is Allen Leighton is a successful businessman and entrepreneur. At first sight, he might be seen as typifying the stereotyped fat cats of the capitalist system. That would be a dangerous assumption to make. His early career at Mars and then Asda had seen him moving upwards from sales to executive management receiving particular credit for rescuing Asda.
I have tracked his movements since 2007, when he was attempting to re-structure The Royal Mail, another venerable institution. At the time he was seen as both dynamic and dangerous, willing to resist the political pressures that came with the territory. Since his arrival in 2002, the Royal Mail had cut 30,000 jobs, shut thousands of post offices, and moved away from record annual losses that had reached £1bn. The various changes were been through against considerable opposition internally and externally.
The changes failed to resolve the fundamental problems of the corporation including the gap in its pension funds would be tackled by ending the corporation’s final wage pension scheme, another move described as unilateral bullying by its Union leaders.
By the time Leighton arrived, his reputation as a tough leader for crisis conditions was established. He went on to strengthen the reputation before writing a revealing his approach in an autobiographical book ghosted for him.
How the Co-op lost its way
‘They never escaped from Toad Lane’ one lifelong ‘member’ told me this week [February 20th, 2015]. Toad Lane is where the movement started, and now hosts a museum to its history. ‘But it lost its way. I remember my economics lecturer describing how it happened. If the young ladies among you wanted a new frock, he asked us in the 1980s, would you go the Co-op to buy it? He was right, we wouldn’t .’
A source close to the company told me about Allen Leighton’s arrival and leadership at Royal Mail in 2002.
‘He was a breath of fresh air… a signal of change, with his informal dress and clear intent on a rupture from the past. He was not a management-by-walking around person. But I remember he did once, and started talking to a group of newish professionals. He asked each of them the same question “how long have you worked here?”. He wanted to show he approved of the company bringing in newcomers .. He was much more open and less guarded, even in media interviews.’