HeadSpace Presentation

Advancing Social Enterprise Education

The place of employee-owned and cooperative

enterprises in the social enterprise movement

Dr Rory Ridley-Duff, Sheffield Business School

(email r.ridley-duff@shu.ac.uk)
Course Leader - MSc Social Enterprise & Business Democracy
UnLtd/HEFCE Ambassador
for Social Enterprise

7th December 2010

An orientation for this talk…

“Anyone unable to learn from history

is living in the dark ages.”
 Theorising „social‟ in social enterprise
• Social purpose enterprises (most CICs, CLGs, Charities):
– Where social enterprise is seen as „business with a social purpose‟, only the task of the
enterprise is socialised.
– Relationships are developed to pursue a (social) mission, and are justified if they
contribute to the organisation‟s mission to improve human well-being.
– The underlying management philosophy remains unchanged, usually rooted in
„rationalist‟ and „managerialist‟ logic based on board control.

• Socialised enterprises (IPSs, some CLSs, CICs/CLGs):

– Where social enterprise is seen as the „socialising‟ of entrepreneurial and business
processes, both power and task are socialised.
– Relationships viewed as „ends‟ not „means‟: economic activity is selected on the basis
of its contribution to social well-being.
– Management philosophy is changed, based on concepts such as „mutuality‟,
„reciprocity‟, „representative and/or direct democracy‟.

Ridley-Duff, R. J. (2010b) “Social Rationality and its Implications for Social Entrepreneurial Thinking”, Plenary to
2010 Research Colloquium on Social Entrepreneurship, Oxford University, 22nd – 25th June 2010.
Theorising „social‟ in social enterprise
The word “private” is used in two senses:
(1) “private” in the sense of being non-governmental, and
(2) “private” in the sense of being based on private property.

Let us drop the first meaning and retain the second.

Similarly “public” is used in two senses:

(1) “public” in the sense of being governmental, and
(2) “public” in the sense of being based on personal rights.

Let us use the second meaning and take it as the definition of “social” (instead of “public”).

Thus we have the suggested redefinitions:

Social institution = based on personal rights.
Private organization = based on property rights.

By these redefinitions, a democratic firm is a social institution (while still being “private”
in the other sense of being not of the government), while a capitalist corporation is a private
firm (not because it is also non-governmental but because it is based on property rights).
[emphasis added].
Based on Ellerman, D. (1997, [1990]) The Democratic Corporation, Beijing: Xinhua Publishing House. p. 38,
http://www.ellerman.org/Davids-Stuff/Books/demofirm.doc
 Theorising „social‟ in social enterprise
• „Public‟ as a • „Public‟ as a „citizen‟
government-owned (worker, consumer,
or controlled service user) right to
enterprise capital and/or voice
in governance
• Retain as (State) Social
PUBLIC Enterprise • Reinterpret as
Public SOCIAL /
Enterprise (Social Economy) MUTUAL

• „Private‟ as an Social • „Private‟ as

enterprise Private Enterprise non-
governed through Enterprise (Voluntary and
governmental
private property Charity Sector) organisation
rights (purchased (no private
as financial property rights).
capital)
• Reinterpret as
• Retain as SOCIAL /
PRIVATE CHARITABLE
 What is mutuality?
“The essential characteristic of a mutual business is that those who contribute
to a common fund as part of a scheme for their mutual benefit must be the
same persons as those who are entitled to participate in any surplus that arises
from the operation of the scheme.”
HM Revenue and Customs: http://www.hmrc.gov.uk/manuals/gimanual/gim9010.htm

“Members contribute equitably to, and democratically control, the capital of their
co-operative. At least part of that capital is usually the common property of the
co-operative. Members usually receive limited compensation, if any, on capital
subscribed as a condition of membership. Members allocate surpluses for any
or all of the following purposes: developing their co-operative, possibly by
setting up reserves, part of which at least would be indivisible; benefiting
members in proportion to their transactions with the co-operative; and
supporting other activities approved by the membership.”

ICA, Third Cooperative Principle

Source: http://www.scottish.parliament.uk/s3/committees/eet/inquiries/banking/CooperationandMutualityScotland.pdf
 The history of mutuality in the UK
• Profit-sharing cooperatives started in 1769 (in Scotland) and from
the 1790s in the US.
• The first journal for cooperatives was established in 1824 (20 years
before the „first‟ set of cooperative principles).
• In 1834, the UK Government passed the Poor Laws Amendment
Act to cut welfare payments by 50%.
• The Poor Laws started to distinguish between the „deserving poor‟
and the „undeserving poor‟.
• Charities supported the „deserving poor‟ while the „undeserving
poor‟ formed a network of Friendly Societies.

Ridley-Duff and Bull (2011), Chapter 1

 The history of mutuality in the UK
• By 1905, the „vast majority‟ of working families (estimated at 80% in
Australia) obtained welfare and medical help through a network of
friendly and mutual societies (Weinbren, 2008).
• The government nationalised welfare provision in 1911 (National
Insurance Act).
• In the 1930s, Britain‟s network of cooperative retail societies
accounted for 54% of the national grocery market (by 2006, it was
only 15%).
Source: http://home.wlv.ac.uk/~in6086/2007conf.html

• To put this into perspective, cooperative societies in the past

achieved nearly double Tesco‟s market share (approximately 30%).
 Interpreting social enterprise history?
• Is the history of social enterprise (social economy, charity and
voluntary organisations) one of establishing new forms of
social organisation and enterprise to transform communities,
nations and international trade…
…only to have those innovations ‘acquired’ or ‘outlawed’ by
political and business elites?
• Consider Stockport Health Enterprises CIC (subsidiary of Stockport
Managed Care Commissioning, a GP Cooperative registered as an IPS).
– The GP cooperative advised Stockport PCT on health facilities, and established
its own CIC to build health clinics and community hospitals.
– It saved over £1.5m of public money (and built an asset-locked community
development fund of £600m under the control of GP practices).
– It was shut down (and money transferred back to the PCT) after „overwhelming‟
political pressure to protect public and private sector interests.
(Source: Ray Goodier, Stockport PCT, Presentation to NHS Facilities Management Network, Sheffield, May 2010),
http://www.fmkx.co.uk/download/files/NHS_0910_11/RayGoodier10.pdf
 The contribution of employee-
ownership to social enterprise
• Combined individual and collective ownership increases the
viability, durability and political efficacy of social entrepreneurship:
- Community businesses where staff / community organisations benefit from
holding share capital (some IPSs and adapted CLSs) grow at 3 - 5 times the rate
of asset-locked or non-share companies (CLGs), and staff typically report 3 – 5
times more „voice‟ in decision-making.
- Ridley-Duff, 2009, 2010
– The multi-stakeholder model that underpins the Mondragon Cooperative
Corporation sustains over 100,000 owner-members in a network of
approximately 250 cooperative and joint ventures. The United Nations reports it
is the most productive (and profitable) corporation in Spain.
Ridley-Duff, 2010
– Multi-stakeholder cooperatives combining one-person, one vote with share
capital are booming where rural communities are threatened by urbanisation in
China. Tens of thousands have been established since China‟s economic
reforms in the 1970s, and one province alone has more than 20,000.
Zhao and Develtere, 2010
 Video – The Take
• Documentary about the „recovered company movement‟ in South
America (unavailable in the UK).
• Edited version (30 minutes) – full documentary is 90 minutes.
• Documents the „expropriation‟ of factories, schools, clinics and other
enterprises by workers who secure the right to manage adandoned
factories using the cooperative legal form.
• Highly publicised but relatively small movement in Argentina (grew
to 15,000 people in Buenos Aires between 2001 - 2004)…
• But much larger movement in Venezuela where President Chaves
has supported legislation leading to the creation of tens of
thousands of cooperatives throughout Venezuela.
http://topdocumentaryfilms.com/the-take/
 Share Capital – Getting Creative
• A large number of (sympathetic) researchers attribute the slow spread (and
periodic decline) of social enterprises in the UK to the absence of a share
capital structure that enfranchises the enterprise‟s wider stakeholders.
• Legacy of Labour Movement commitment to „common ownership‟
• In the „private‟ economy, share capital is bought or acquired by institutional
investors and founding entrepreneurs/managers. This is not the only
possible arrangement.
• Why not issue labour shares to recognise and attract workforce support?
• Why not offer community shares to recognise and attract community
support?
• One-vote, one-shareholder shares can be combined with variable dividends
depending on the stakeholders‟ (labour and/or trading) contribution?
• Using „shares‟ creatively can assist new forms of mutuality and reciprocity,
and help to socialise power and wealth distribution in a community.
 Social Enterprise Model Rules
(4 cases)
Model Rules Brief Description
Stakeholder Model Ltd The rules were designed by Geof Cox Associates, a specialist in the
(Case 7.1) development and support of Social Firms, and were published by the
Common Cause Foundation in 2006. Underpinned by a Company Limited
by Shares, the model rules define the power of an active board, elected by
each shareholder group. Three share types are defined:
Stewardship Shares
Partnership / Customer Shares
Investment Shares

Cooperative CIC Model Designed and published by CooperativesUK in response to the introduction
(Case 7.2) of Community Interest Company legislation (2005). Underpinned by a
Company Limited by Guarantee, the model rules are framed to encourage
active service-user and workforce-based membership on the basis of
one-person, one-vote, with a commitment to consult:
Employees
Funders
Suppliers
Customers
Community representatives
 Social Enterprise Model Rules
(4 cases)
Model Rules Brief Description
NewCo Model Designed by Morgan Killick and Bill Barker in 2002, with support from the
(Case 7.3) Sheffield Community Economic Development Unit (SCEDU). Underpinned
by a Company Limited by Shares, a 2004 version developed rules giving
control and decision-making power to three classes of shareholder, and
investment rights to a fourth:
Class A Shares (for social entrepreneurs)
Class B Shares (for social economy organisations)
Class C Shares (for employees)
Class D Shares (for supporting organisations)
Surplus Sharing Model With a heritage stretching back to the work of Guy Major and Gavin Body
(Case 7.4) in the mid-1990s, the surplus sharing rules developed by Rory Ridley-Duff,
at Sheffield Business School, embrace cooperative principles across the
labour/capital divide. The rules provide for active membership control on
the basis of one-person, one vote, with special provisions for issuing:
Founder Shares
Labour Shares
Investor Shares
Social and Private Enterprise Compared
Source: Conn, 2006 Barcelona Arsenal

Shareholders 4 major shareholders own 87%

142,000 members (“socios”), one
of voting shares.
member, one vote.
Leadership President elected by members for No meaningful elections. Chair
four-year term (maximum two of the Board decided by major
terms). shareholders.
Cheapest adult season £69 £885
ticket
Most expensive adult £579 £1,825
season ticket

1. There is no barrier to social enterprises being as „successful‟ as „private‟

corporations (whether measured by social and/or economic metrics).

2. The legal forms adopted change the interests that are served (why are the
„cheapest season ticket‟ prices so different at Arsenal and Barcelona?).
Cooperative Values at Mondragon

Source: http://www.mondragon-corporation.com/mcc_dotnetnuke/Portals/0/documentos/eng/management-model/mgc.swf
Social and Private Enterprise Compared
Mondragon Cooperative Corporation
Shareholders Capital owners must be workers and/or
consumers. Supporting organisations may
have a voice in ‘secondary’ cooperatives.
Open membership system (not limited by
ability to pay as contribution is linked to
starting salary, and ‘people’s bank’ provides
loan finance).
Leadership President elected by members for four-year
term (maximum two terms). Governing
council comprised of 7, 9 or 12
workers/consumers. Social council(s)
elected from the workforce in each
department.
Ratio of highest Typically 5:1 (maximum 9:1) – stable
to lowest paid (highest to lowest paid worker).
Source: “Wage Regulation”,
http://en.wikipedia.org/wiki/Mondragon_Corporati
on, accessed 1st December 2010.
US Multinational Corporations
Capital owners typically managers and/or
institutional investors (limited only by ability
to pay). Special arrangements may exist in
employee-owned / controlled corporations.
Elections rare (if at all). CEO appointed by
directors. Directors appointed/elected by
shareholders. Rarely includes consumer, or
worker, representatives. No leadership role
for trade unions.
Increased from 85:1 to 419:1 throughout the
1990s (highest to average employee).
Source: Aslam (1999), US Labor Statistics.
 Teaching at SBS oriented towards…

• Understanding and developing a social economy:

– Trading organisations providing „market‟ and „non-market‟ goods/services
– „Business‟ and „non-business‟ sectors made up of:
• Cooperatives
• Mutual Societies
• Associations
• Foundations

“The business sub-sector [of the social economy] comprises co-operatives, mutual organisations and
social firms that satisfy democratic criteria set out in CEP-CMAR Charter of Principles of the Social
Economy. Unlike the US, dividends are payable to members but must reflect “activities or
transactions with the organisation” rather than capital contributions…In addition, there is a “non-
market-producer sub-sector”, that includes associations and foundations producing (or funding) non-
market goods and services for household consumption…”
Ridley-Duff and Bull (2011), Chapter 1
 Sheffield Business School
• MSc Social Enterprise and Business Democracy
– Four modules directly relevant to social enterprise
theory/practice (high SE content compared to other courses).
– First degree or equivalent professional qualifications help.
– Relevant experience will be taken into account.
– Recruiting now for January start.

• MSc Charity Resource Management

– Now includes Charity Trading and Social Enterprise module.
– Third Sector Human Resource Management module now
includes both charity and social enterprise issues/debates.
• Cooperative and Social Enterprise Summer School
– 20th-22nd July 2011 (Wednesday – Friday).
– No pre-requisites.
 References
Aslam, A. (1999) “U.S. Wage Gap Widens”, Global Policy Forum,
http://www.globalpolicy.org/component/content/article/218-injustice-and-inequality/46639.html, accessed 14
December 2009. The claim is based on data from the US Bureau of Labor Statistics.
Conn, D. (2006) “Barcelona‟s Model of Integrity Show Rights is Might”, The Guardian, 17th May,
http://www.guardian.co.uk/football/2006/may/17/championsleague.europeanfootball, accessed 20th January 2010.
Cornforth, C. J., Thomas, A., Spear, R. G. and Lewis, J. M. (1988) Developing Successful Worker Co-ops, London:
Sage Publications.
Coule, T. (2008) Sustainability in Voluntary Organisations: Exploring the Dynamics of Organisational Strategy,
unpublished PhD Thesis, Sheffield Hallam University.
Ellerman, D. (1997) The Democratic Corporation, Beijing: Xinhua Publishing House. First published as „The
Democratic Firm‟ in 1990.
Ridley-Duff, R. J. (2009) “Cooperative Social Enterprises: Company Rules, Access to the Finance and Management
Practice”, Social Enterprise Journal, 5(1): 50-69.
Ridley-Duff, R. J. (2010a) “Communitarian Corporate Governance: Case Evidence from the Mondragon Cooperative
Corporation and School Trends Ltd”, Social Enterprise Journal, 6(2): 125-145.
Ridley-Duff, R. J. (2010b) “Social Rationality and its Implications for Social Entrepreneurial Thinking”, Plenary to
2010 Research Colloquium on Social Entrepreneurship, Oxford University, 22nd – 25th June 2010.
Ridley-Duff, R. J. and Bull, M. (2011) Understanding Social Enterprise: Theory and Practice, London: Sage
Publications, (in press).
Weinbren, D. (2008) Families and Friendly Societies, Friendly Society Research Group.
Zhao, L. and Develtere, P. (2010) "New co-operatives in China: why they break away from orthodox co-operatives?",
Social Enterprise Journal, 6(1): pp.35 – 48.