Making It Mutual: Lessons from the past – advice to the future

28^th March 2013

Len Wardle reflects on the The Co-operative Group's 150-year long history and looks to the future

As this collection of essays is published, The Co-operative Group is celebrating its 150th anniversary. Inevitably, it’s a moment to look back and reflect on where we have come from and what we have achieved. And that achievement should be seen as stretching well beyond the confines of the Co-operative Movement. We have staked out a space in the marketplace that is neither shareholder capitalism nor state ownership, building a business that now enables millions of our customers to have ownership in an enterprise in which they and their communities can share in the profits. However, maintaining the strength of that model has been far from straightforward though and I believe there is value in understanding the journey we have taken, not so much to get a perspective on the past, but to get a grip on the future.

The long arc of our history shows our story to be one of constant adaptation. Hardly surprising when you recall what has taken place in retailing, financial services and the wider cultural and political environment since our foundation in the middle of the 19th century.

Although we have been constantly changing, for most of our history we haven’t always been as fleet-footed as we should have been. In fact, our failure to react quickly enough to change in the past and stay attuned to the needs of our members and customers accounts for the steady decline we, along with the whole Consumer Co-operative Movement, suffered through-out the second half of the 20th century.

So from the vantage point of our 150th anniversary, what lessons should we learn from our past and what advice can we offer to the future?

Collective enterprise

In 1863, in modest premises on Cooper Street in Manchester, The Co-operative Wholesale Society (CWS) – our direct corporate ancestor – was established with the aim of serving the needs of the many hundreds of local Co-op Societies that sprang up from the mid-19th century, inspired by the achievements of the Rochdale Pioneers in 1844. The fabled story of how the Pioneers trekked with a wheelbarrow to Manchester and back to collect their first provisions for the store’s opening, was already a prophesy of our beginnings. Through most of our history we were owned not by individual customers but by the independent co-operative societies looking for collective ways to enhance their ability to compete commercially. This in itself was novel enough – co-operation between separate businesses through a shared political philosophy looking to improve the membership dividend of local co-operative members. It was all in stark contrast to the mainstream Victorian story of an aggressive and unfettered industrialising economy.

So, for much of our history we were a major manufacturing operation, providing a vast array of Co-op branded products to the independent societies that jointly owned the business. By the turn of the 20th century, we were also supplying goods from our factories to Co-operatives world-wide.

I suspect that an elected CWS Board Director in 1913 would today find the business almost unrecognisable, even if some of our oldest buildings on Corporation Street in Manchester might perhaps bring some familiarity. We no longer manufacture any of our own branded products. Instead, through decades of mergers, amalgamations and acquisitions and in response to global changes in manufacturing and supply chain economics, we have become a retailer and financial services provider that is now the largest mutual business in the UK and which dominates the consumer Co-operative Movement.

We are not just a big fish swimming in the small pool of the co-operative sector. Our food business is the 5th biggest in the UK, our funeral business is the largest single provider in Europe, our Pharmacy chain is the third biggest in the UK. Meanwhile, our Banking business, which dates back to 1872, has grown significantly in the last few years, with further expansion in prospect, and without having been tarred with the reckless behaviour of the bigger high street names.

Renaissance

There is little doubt that in recent years the Group has addressed some fundamental (and long-overdue) structural and organisational issues that had held co-operative business back for many decades. We have ended the crippling fragmentation of the Movement that made nimble decision-making so difficult and pitted Co-op against Co-op when our real rivals were the emerging supermarket giants. In the 1990s, we even had to fend off City carpet baggers who thought we were easy prey for de-mutualisation and asset stripping.

In the last five years we have seen a rapid change in our fortunes. As well as economies of scale achieved through Co-op amalgamations, we have addressed the need to grow scale in our core markets, not only through Co-op Society mergers, but through acquisitions, such as the Somerfield food chain and the Britannia Building Society. During this time we have also have also revitalised our brand and shed much of our old fashioned and dowdy look and feel. The Co-operative is now associated with trust and integrity which is allowing us to open up whole new markets such as the provision of legal services where such virtues are highly sought after by the public.

Staying rooted

For me, the key lesson to take forward (with all the advantages of hindsight) is how easy it is to lose sight of our original reason for existence – to serve the needs of our members through a well-run, ethically responsible business. We cannot forget that we are not like other businesses. We are founded on a different ownership model with a democratic structure that demands close engagement with our members based on a set of values that seeks to harmonise commerce and community without compromising either. But somewhere along the journey we allowed bureaucracy and complacency to get the better of us. Perhaps we started behaving like an ordinary business (although not a very successful one)? We allowed our management processes to stagnate and our strategic vision to become blurred. Only through a sometimes painful recognition of our failings have we been able to move forward. Finally, we have got the message, learnt the lesson and acted upon it.

None of this has gone unnoticed in the business world, especially as we announced a run of exceptionally healthy performance results between 2007 and 2010, doubling our profits and our membership along the way. The very same financial commentators that had almost written us off in the 1990s, were now describing a renaissance for co-operative values and recognising that the co-operative model of business should be considered as, once again, a serious alternative to state controlled nationalisation and free market capitalism. There was an argument to say that we had indeed come back from the dead – or at least the seriously unwell!

Integrity in the marketplace

The new found popularity for The Co-operative, and mutuals generally, found even more support in the immediate aftermath of 2008’s economic meltdown as the debate began about how to bring responsibility, trust and integrity back to the market place.

Co-operative models have been held up as examples of good practice where responsibility and accountability go hand in hand through an ownership structure that ensures that boardroom decision making does not lose touch with the needs or concerns of customers. It’s worth re-stating just what our much mentioned, but rarely fully articulated, co-operative values actually are and why this business model adds not only financial value but social value as well, including environmental sustainability.

The language we inherited from Rochdale speaks of: ‘Self-help, self-responsibility, democracy, equality, equity and solidarity’. To this the International Co-operative Alliance has more recently added to the lexicon: ‘honesty, openness, social responsibility and caring for others’. There’s no doubt that this amounts to a compelling proposition at any time.

Life in the age of austerity

But what about the future? What still needs to be done to ensure The Co-operative renaissance remains resilient and our co-operative values remain relevant? What action must we take now and what helpful advice can we offer, not only to our successors, but to commerce and enterprise in general?

In the short term the economy is going to play a big part in our thinking. It’s now clear that the nation’s road to recovery is going to be a very long haul. The government has officially extended the ‘Age of Austerity’ to 2018 at least. It feels as if the angry first reaction to the banking collapse, exemplified by the sudden rise of the Occupy protest movement, has given way to a bleaker resignation among consumers. The depth and length of this downturn has finally shown through in our performance figures. Hardly surprising when one Bank of England official described the scale of the impact on the economy as equal to a world war. For The Co-operative Group that means investing all we can in price promotions and strong offers to ensure that we are offering not just co-operative values but co-operative value as well. We have to acknowledge though, that for many of our customers, ethics will be of secondary concern to simply making ends meet. If we rely only on ethics to distinguish ourselves we risk making The Co-operative uniquely virtuous in its irrelevancy to our customers. In these circumstances, we have to work even harder to keep our commercial operation focused, up to date and responsive to the market place.

One aspect of this on-going modernisation is around workplace culture. How should we understand The Co-operative brand internally and how do we use it to unlock the full potential of our employees for the benefit of our customers and members?

Another issue we must address is our relationship to the wider community. The challenge we face is how to make stronger connections with our members and customers and turn those relationships into ones that gives us both a community and a commercial dividend. We often refer to this as creating a ‘virtuous co-operative circle’ whereby our commitment to building local communities creates a clear commercial benefit which in turn allows us to generate profits to put even more into the communities in which we trade.

Commerce and community

We currently put enormous effort and resource into our community programmes and social action campaigns. In 2011 we supported 10,000 community initiatives across the UK from funding brass band instruments and local choirs to food banks and anti-social behaviour projects. But this is not your traditional corporate social responsibility (CSR) agenda. It’s our members that make these decisions at a local level or who bring the causes that matter to them to a national debate that then informs our UK and international campaigning priorities.

Maintaining a sound business approach, keeping our management philosophy up to date, enhancing community links and finding new ways to express our ethical leadership – these are the challenges we face as we look ahead to the next part of our story. And all of this must be carried out within the framework of our co-operative structure and values. The non-co-operative business world faces this challenge too. Mainstream CSR has to be more than an adjunct of corporate marketing departments if it is to change the way business operates and is perceived by customers. All business has to redefine the bottom line to include what it puts back into communities and not just what it takes from them.

We have learnt many lessons from the past – some might say, just in the nick of time – and we now have solid foundations on which to build a successful future. If the very fact that we have reached our 150th anniversary tells us anything, it must be that constant adaptation is a necessity in business as well as in nature. What a co-operative solution to ethical enterprise looks like for one generation will almost certainly not look the same for the next generation. My advice to our successors would be that they must be willing and open to constantly revisit and challenge how to maintain co-operative values in ways that maintain the creative tension between being ethically driven and commercially focused. It is a challenge that is not ours alone though. While we must act within our co-operative framework, the marketplace as a whole must address the fundamental question for business in the 21st century – what should be the relationship between individuals, communities and commerce?

This article was originally published in ResPublica’s Making it Mutual: The ownership revolution that Britain needs, a collection of essays covering all areas of policy – energy, financial services, education, infrastructure, welfare, public services, competition – proposing entrepreneurial and innovative policy proposals for structural reform.