Co-operatives should be about co-operation not hierarchy, says Bob Cannell, formerly of Suma workers co-operative. How can co-ops create alternatives to hierarchical management structures?

Many people treat hierarchical authority as something as natural as breathing and deride those who dream and practise ways of living and doing business ‘sans’ hierarchy. I am one of those dreamers and during a life spent avoiding and undermining hierarchies, I’ve had many ‘yeah, yeah, pigs might fly’ encounters. But minimal hierarchy in my working life has been my reality in Suma, the big worker co-operative. It is the perceived ‘normal’ that looks strange to me. Why would you dehumanise yourself to fit into a hierarchy?

So what is this hierarchy thing? It’s a type of social organising in which certain groups of people have acquired, by various means, the authority to control the behaviour of other groups and have the power to enforce obedience to their will.

Hierarchical authority can range from tyrannies backed up by the bullet and gulag, to the far subtler coercion of a modern business culture, trumpeting employee wellbeing and engagement. No matter how benevolent, the employer still has the ultimate job sanction: dismissal. As one worker in such a business was said to remark: “My boss used to demand my body and brain, now they want my soul as well”.

The most common workplace hierarchy is the modern executive-led corporation, where authority flows down from the CEO to the executive board and thence to subordinate managers, through supervisors to the shopfloor, who may themselves be tiered – permanent/short term/agency – workers. Business processes and the structure of this hierarchy ‘machine’ are considered to be primary and the people are fitted into it by management, hence the term, Human Resources Management.

Hierarchies in all walks of life can be brutal and explicit or subtle and hidden. To survive in social democratic society, hierarchies hide behind facades, which sometimes collapse – as happened in Chile in 1973 when the civilised, popular, elected government was swept aside in a single day by the viscerally violent Pinochet regime. Today we are watching the facade of social democracy cracking to reveal the global domination of multinational finance. To see the real face of power is frightening.

But what has all this to do with co-ops?

A co-operative, according to the International Co-operative Alliance, is ‘an association of people united voluntarily to meet their common needs and aspirations through a jointly owned and democratically controlled business’. For a business to be a co-operative, the members must be in charge and in control. They must be the controlling elite. In practice, in many co-operatives this is not the case. Indeed ‘member control’ has often been seen by the co-operative establishment as a bad thing, with the example of the collapse of the Royal Arsenal Co-operative Society in 1985, still trotted out whenever ‘member control’ is praised. The story is that it was the RACS’s democratic governance which made it too slow to adapt to the challenge of other supermarket chains and caused it to fail.

But was it democratic member control that led to the troubles of the Co-operative Bank and Co-operative Group in 2013? Or the collapse of the CRS in 2000 or the hundreds of other co-operative retail societies which eventually ended up inside the Group? Obviously not, because these societies were ruled by management hierarchies – and members, with their clumsy and slow representative democracy, had little say or control in the face of that power. Only a few retail societies have bucked that trend to remain fiercely independent and locally controlled – and, more importantly, in existence.

Members of co-operatives have been complaining about the power of their managers since the earliest days of the movement when managers were first employed to run their businesses while members got on with their normal lives. And since those days, professional managers have been saying they are better able to run the members’ business than the members themselves.

It seems that co-operatives are especially vulnerable to the agent/principal problem much discussed in management literature: the agents (managers) of the principals (the owners) end up in control and operating the business in their interests rather than those of the owners. Certainly the quest for gigantism, ever larger combined societies, was good for senior managers who enjoyed an astonishing escalation in remuneration. Top executive pay is a good indicator of the power of a hierarchy. In its nine years of existence, the Co-op Group chief executive salary differential (compared to shop floor staff ) increased from approximately 33:1 to an eye-watering 200:1 (but is now apparently going down to nearer 90:1). Are Co-op Group member owners genuinely in control of ‘their’ top executive pay packages?

In other co-operatives, differentials tend to be much less. The figure for the John Lewis Partnership is 35:1. The Mondragon Co-operative Corporation (MCC) of 101 co-operatives has a maximum differential of 8:1.The chief executive of the Eroski supermarkets co-operative (which is run as a worker-consumer hybrid co-operative within MCC across France and Spain), earns ‘only’ eight times the salary of their lowest paid employee. MCC and its member co-ops have a very robust democratic governance structure; the members are in control and their businesses survive and thrive.

How does hierarchy arise, ‘lock in’ and become oligarchy (rule by a stable self-sustaining minority)?

Information and communications are at the heart of this weakness. Full time managers with access to the details of business information and the authority of a management position ‘outweigh’ most well meaning amateur elected directors. Very few members as individuals will stand up to this united front, often personified in an assertive, even aggressive, CEO. Add in the collegiate loyalty of managers to each other and the authority they hold over subordinates, and you can see the imbalance. Whereas board level executives and their subordinates are collectively ‘on message’, elected members face this united front as individuals and (as I have personally experienced) attempts to communicate horizontally with peers can be met with accusations of caucusing.

Related … The Problem with Co-ops – No Boss

Decision-making is confined to one board: unitary governance. Though there may be an executive committee (the formal existence of which was denied in many retail societies for many years), there will not be the third leg of good governance, the scrutiny committee. MCC co-ops in contrast have a governing council (the board), a management committee (the executive) and a social council (scrutiny) whose job is to ensure the other two are operating in the best long term interests of the members. Multi-board management is normal on the continent but seen as a hindrance to the ‘managers’ right to manage’ in the UK.

Typically elected members are divided into weak groupings of uncoordinated individuals who find it difficult to organise and communicate horizontally. The bulk of communication is broadcast from the top with ineffective channels in the opposite direction. Presidents and chairs can be compromised into showing loyalty to the executive rather than their elected colleagues. In the ‘bad old days’ this included new suits of clothes and a chauffeured ride to Congress in a funeral limousine, five-star hotel stays and as much expensive food and drink as desired for president and partner. The limousine disappeared in later days.

This is not to say that all managers are ‘in it for themselves’, by any means, but the orthodoxy of business management culture makes it difficult for professional managers to ‘buck the trend’ of their plc compatriots. In a plc, size and total control of the corporate ‘machine’ is all. Rapid market share growth by leveraged acquisitions and exit at the top of the share price curve is the corporate creed. It is not a business strategy per se. It is for the personal enrichment of shareholders and executives.

Related … How to generate and nurture a strong co-operative culture

In the face of this neo-liberal orthodoxy, which Co-op Group executive would, for example, suggest a radical organisational reformation? Which would dare to propose breaking up the business into local community societies more able to generate member and staff loyalty, especially if that meant lower salaries at the top? This may be the way co-operatives in other countries resist the capitalist predators; giant consortia of hundreds of small autonomous co-ops, a strategy inaccessible for corporate PLCs. But how could Co-op Group members, given the governance processes pre-crisis, or indeed post-crisis, put such a proposal on the agenda? The hierarchy prevents it even being properly considered.

Is there an alternative to hierarchical management structures?

Okay, you say, if hierarchy is the enemy of co-operation, what is the alternative?

In the early 1970s the women’s liberation movement often rejected organisational structures as variants of patriarchal hierarchy. They assumed that sisters would get along together fine without hierarchies designed by men. In practice, less inhibited personalities dominated and undermined the groups by creating informal hierarchies. Leaders emerged, but the ‘wrong’ sort of leaders. Without the structures of organisation, these characters could not be challenged formally, leading to interminable infighting rather than the pursuit of their stated mission of emancipation. A wonderful 1970’s essay, The Tyranny of Structurelessness, is a warning from that past.

Anarchist ideas were popular in the 1970s and underpinned the organisational ethics of many of new workers’ co-operatives, which found ways to operate in a flat hierarchical manner without compromising the governance of their co-operatives nor the management of their businesses. Suma, founded 40 years ago, famously still has no chief executive or managing director or an executive board. However all three of the basic functions of good governance are carried out, in other ways through an elected management committee (legislature), coordinators’ meeting (executive) and union meeting (scrutiny). In its own, way Suma has mirrored the MCC structure.

Related … The world has changed: here is a new economics to match

Add in open books management (all business information open to everyone), a commitment to receiver-based communication (if I don’t understand it, it’s the sender’s fault not mine), easy access to network communications (all work email groups and social media) and open access to representative bodies (every management committee meeting starts with an open forum slot where any worker can bring any issue to their attention) and you can appreciate the difference. The slogans underlying this organisation at Suma have long been ‘Disempower the Executive. Management is a Function not a Status’. In 2006, a European wide CECOP study revealed the most common route for the privatisation of worker co-ops was a take over by technical experts, often the finance manager.

A different type of thinking

Many of these worker co-ops – and many emerging community co-ops – think about their organisations in a different way from the orthodox system’s theory-based models. They don’t see their co-operatives as machines controlled by powerful executives in which people (including members and customers) are subjugated to efficient business processes. Their organisations are instead a network of relationships and communications between the people involved who, collectively, operate the business processes. Management is the coordination of human relationships (human relations management).

This explains why worker co-ops, often seemingly so slow to change, can undergo instant revolutionary change when participating and empowered members individually and collectively agree that change has to happen. Suma continues to show extraordinary business performance and to overcome major obstacles, again and again and again. But the textbooks say it shouldn’t because there is ‘no-one in charge’. Who writes the textbooks?

Another advantage of this ‘collective plus individual’ culture of management (which has been described as individual initiative within collective responsibility) is that it is not dependent on the one individual body and brain of the CEO of a normal unitary governance set up. CEOs lose control of their gigantic organisations when they become the information bottleneck, which is why the top table mostly deals in financial shorthand. They don’t have the brain power to deal with the other details properly. In a more collective organisation, collective intelligence outpowers individual top executives. Suma doesn’t have a finance director (too expensive and too dangerous) but it does have a finance team performing the same function and with a collective intelligence many times that of a single person. All this co-operation is greatly aided, of course, by equal wage rates for all Suma workers. The differential is 1:1. There is no ‘boss’s job’ to compete for.

This ‘starfish’ structure (cut a leg off and it carries on relentlessly) is also more robust than the CEO dependant corporate structure, in which everything is dependant on finding a benevolent dictator. Psychologists report a far higher than normal number of sociopaths and psychopaths in the population of top executives than in the population at large. People with self-centred motives, low empathy and sophisticated abilities to manipulate. How many retail societies have been finished off by errors in CEO recruitment?

What next?

It is fair to say that in the UK there is only one Suma. Even if it is a £50m business, with 250 workers exporting to 50 countries, it is still a minnow compared to the national retail consumer societies. So why should they be bothered? Their problem is the internet monster coming over the hill. Amazon and Uber have made clear their intention to disrupt and replace traditional retail with their web-based, so called, ‘Death Star’, platforms. Amazon Fresh is ‘eating WalMart’s lunch’ in California to quote one business journalist. Without the limitless patient capital behind Amazon or Uber, a traditional corporate hierarchy is unable to effectively respond.

However, there is an enormous amount of effort going into the development of co-operative alternatives to these death star platforms. Platform co-operatives are seen as the only viable opposition. By harnessing the multiple intelligences of networked members in a participative network, much as Suma harnesses and coordinates its worker members’ but on a far larger scale, platform co-operatives are more intelligent, more agile, more resilient and can, it is believed, out manoeuvre the ‘death stars’.

One thing is for sure. These platform co-operatives are not, and will not be, corporate hierarchies.