Thursday, November 21, 2013

Cooperative Group Limited: An image tarnished



The Rochdale Society, one of the earliest experiments in cooperatives in the 1840s, fawned many cooperatives either directly or indirectly. In the last few decades, we have been watching the merger of many of these cooperatives in Britain. A reading of these mergers reminds one of the external acquisitions for growth necessary for the continuing survival of worldcom and other catastrophes. There is no reason why cooperatives cannot be badly managed, and it is evident that they can easily grow astray. Bigger players may wreck greater havoc.

Is big bad? The Cooperative Group Limited in Britain has sales and other income of over £ 12 billion to over 7 million members. Its businesses include food, travel, banking, funerals and many other businesses. It has a profit of £ 180 million pounds, just 1.5% margin on sales. This is about 27 pounds per member.

The businesses of the cooperatives includes banking. Cooperative banking laid the foundations of the microfinance movement. While customer satisfaction with cooperative banks seems to be high, the rating agencies have been downgrading the Cooperative Group's bank because of inadequate capital. This comes from having absorbed an over-leveraged cooperative bank a few years ago. A lack of due diligence means one bad apple can spoil the barrel.  Mergers and acquisitions often lead to poor returns, and they often hide the fact that one, perhaps both the firms, need to merge to hide past failures, including the failure to generate internal growth, a mantra which justifies high salaries.

The CEO of the Cooperative Group Limited may earn over a million pounds a year, while other top executives earn closer to £360,000 per year. Certainly, managing large cooperatives pays as well as managing large businesses of any kind. The competition to get these jobs and the kind of people they attract may also be similar to those running any other kind of company. Undoubtedly, these top executives are the political organs reflecting cooperative beliefs. If they are earning 28 times the minimum wage which is paid to many of the 100,000 employees, they must be believing more! The table below shows the calculations and assumption.


Hours per month
Minimum wage
Minimum wage per month
Minimum wage per year
A Salary of £360,000 compared to minium wage
A Salary of £1,000,000 compared to minium wage
Hours
£
£
£
Times
Times
170
6.31
1073
12872
28
78

The Cooperative Group Limited is also linked to the Cooperative Party, one of the largest supporters of the Labour Party. Business and politics are closely intertwined. Big players in business can have a lot of influence on how we shape our society. Their beliefs and image are therefore crucial to the belief in cooperation.

The recent scandal of a top executive of the Cooperative Group buying crack is similar to the Mayor of Toronto buying crack. Therefore, at the least we can say that top executives and politicians are as human as anyone else. Should they therefore earn thirty to seventy times the minimum wage? Or should there be a ceiling to reflect that they are imposing risks, which greater potential downsides than those of people earning less because the image of the co-operator is at stake.

2 comments:

  1. @Arvind: A suggestion in looking for precise answer(s) to your provocative query: Your host nation's very perceptive Upper Chamber Parliamentary member - Lord Acton, a couple hundred years ago - perhaps said it best, as well as most succinctly. "Power corrupts, and total power corrupts totally".
    As when what starts out to be a most basically "D/democratic" concept grows - in both size & wealth/prominence - it's leadership inversely tends to shrink in morality & principled activity.
    To see much more contemporary "reeking in dung-heap odors" examples, they need only take a good close look at the prevailing conditions that led to our fairly recent (& 2nd, in a less than hundred years span of time!) financial & entrepreneurial practices deterioration conditions that precipitated the USA & world economic crisis.
    Cooperatives; "Non-Profit" Corporations/Organizations; & even member/employee-owned operations are vulnerable/subject to these same invidious forces &/or temptations: IF they are dealing with large sums/engaging in areas which draw numerous participants, they can all suffer the same fates as those purely "for profit" operations. They simply "get lost" in their dense forests of material wealth & power; and wind up losing their baskets of "integrity" on their way to Grandmother's house.
    IF there are any doubts out there, regarding the extant omnipresence of such overpowering temptation forces, I'll be glad to provide a multi-page file listing; of only the more recent & prominent examples of this odious (& even disastrous - to their members, clients, as well as the public in general) display of perfidious performances. But, bottom line, it usually always winds up running up against the same "Berlin Wall" as mis-management failures in government & commerce: I.e., the failure of members, over-sight providers, voters & anyone else involved that should/could have some countervailing influence, to get/stay properly involved & carry out their proper roles/responsibilities!

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  2. Dear Seamus

    Well said. Small is beautiful and big can be bad. But more interesting is this final question of why governance fails and why we don't act. Why are we silent spectators? What incentives are required for the governance institutions to govern?

    I have been sitting on the sidelines and researching microfinance, with some hope that it may be useful research..... but this blog, internittent and impertinent as it may be, is a reminder to me that the bulk of the people are in the middle, as I am. And for some reason, we do not put in our two cents worth of comments and monitoring.

    If you do place your listing on the internet, please do place the link in these comments. It would be great for researchers to have a ready source of events which they can compare, classify and cite.

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