Weaving a Cloth of Many Threads

How does one introduce a new structure that merges many community co-operatives into one? Very, very carefully!

When 28 retail food co-ops in Atlantic Canada were faced with mounting losses in the face of predatory price competition, they made a decision to merge. Most of their board members had never heard of multi-store co-operatives, and the decision almost seemed like the end of real co-operative retails. Yet the economies of scale were significant, and rather than close their doors they voted to give up some local autonomy and to unite. They created Canada's second largest food co-op, with sales over $170 million, and its largest by the sheer size of the landmass it covers, with stores in Labrador, Newfoundland, Nova Scotia, Prince Edward Island and New Brunswick. (See an initial report in CG #91, Nov.-Dec. 2000.)

The membership and leaders of the merging co-operatives faced wrenching decisions. In addition to losing their local autonomy they had to accept that, for almost all of them, the share capital they and their neighbors had invested in their community co-ops was worthless. Predatory pricing had left almost all of them with negative member equity.

Consumer's Community Co-operative

In spite of discouraging circumstances, people in community after community voted to keep co-operation alive and to become part of the new co-operative. To date more than 43,000 have taken out membership in the new Consumer's Community Co-operative (CCC). However, while the membership may be growing, it is still shallow in terms of interest and commitment.

With financial institutions pushing vigorously, the merger had to take place in just over six months. The merger process could not flow, it had to be forced. The merging co-operatives were incorporated under four separate Provincial Acts, and the new co-op would come under the Federal Co-operatives Act. In addition to the sheer complexity of property transactions and meeting requirements of the new Federal Act, losses had to be reduced while bylaws were being written.

A Governance Committee appointed by Co-op Atlantic oversaw the research and consultation process until a board was elected in late November. Co-op Atlantic management focused on the operations side of the merger. The Governance Committee's job was to search the world very quickly to look for ideas that worked in the governance of multi-store co-operatives. The other key Committee mandate was to consult with co-op members across the region and find out what they wanted.

The committee polled people with expertise in running and analyzing multi-store co-ops. Their strongest advice: avoid parochialism and try new ideas to "make membership meaningful." Among the ideas suggested to achieve these ends were co-operative processes, structures, and practices never tried or even known in Atlantic Canada. The Governance Committee tried to strike a balance between conflicting views, but gave significant weight to the governance practices of successful multi-store co-operatives. The Committee made its top priority "making membership meaningful."

Simpler format but more stakeholders

There was one other priority for the Committee and many co-operators across the region. Just a few months prior to the pressure from financial institutions to merge, many of the retail co-operatives that formed the CCC had made a decision to adopt a new discount format, Co-op Basics. The new format, promoted by Co-op Atlantic for stores in difficulty, reduced the number of items carried in stores, adopted a box store presentation, and cut staffing costs to a minimum. It also used the more concentrated buying power of the more limited selection to negotiate better prices.

In the conversion of many of the co-ops to discount stores, the workers in the co-operative had had their salaries and working conditions reduced to be at or closer to those of workers in competitor stores. Atlantic Canadian co-operators were not comfortable with that shift, even while recognizing the enormous pressure for it. From an early point in the formation of the new co-operative there was a strong sense that as soon as the co-operative gathered financial strength it should make material compensation of the workers a priority. To a significant extent, cooperators reasoned, we are saving our stores through the sacrifices of our workers; therefore, they should be the first in line to benefit.

The feeling was just as strong that the workers should be stakeholders in their own right. Under the new Canadian Co-operative Act it is possible to have more than one class of members. It is possible to have a large number of consumer members who invest a relatively small amount, and at the same time have worker members in the same co-operative who invest a greater amount, reflecting the reality that if the co-operative fails they have much more to lose. The Act also allows other co-operatives, not involved directly in the merger but invested in the new co-operative, to be represented by up to 20% of the members of the board.

Each group of members can elect its own directors. Eventually the CCC will have directors representing the workers whose livelihood depends on the co-operative's prosperity, consumers who depend upon it as the retail they want and can trust, and Co-op Atlantic, which has an enormous investment in the business.

The report of the Governance Committee -- a set of recommendations for the new CCC Board and the Board of Co-op Atlantic -- suggested a number of innovative ideas:

• Creation of local membership associations in each community or trading area, meeting at least twice a year and providing opportunities for members to identify needs that the co-operative can meet.
• The members in each trading area would also elect Community Councils, serving as the organizing committee for the local membership and a communications link to the Board and management with respect to member needs and views. The new councils will not have the same responsibilities as the previous community boards but, rather, are to focus on member relations.
• The CCC Board of Directors would be elected by the membership by means of in-store balloting, with the CCC distributing election and candidate information.
• Two directors would be chosen by Co-op Atlantic to represent its large investment in the CCC; two 'directors-at-large' elected by members from across the region; and six directors representing members on a provincial basis.
• Delegates elected by the local member associations would attend the annual meeting of the CCC and represent it at the annual meeting of Co-op Atlantic.
• Members would also have the opportunity to attend 'district' meetings that would group members from a number of communities. These meetings, taken together, could pass non-amendable resolutions that would provide direction to the Board and management.
• The strong recommendation of the governance committee was to make the CCC a stakeholder co-operative in which the workers participated as worker members. This proposal received strong endorsement in the consultation meetings and was seen by consumer members as a progressive step.

Why did the co-operative not have workers as stakeholders from the start? As a merger of 28 separate businesses, the co-operative not only had workers who were unionized and those who were not, but also several different unions representing workers. The workers had no structure to represent them and speak for them in discussing their potential roles and responsibilities in the new co-operative. The delicate issues of worker participation, that could spell success or failure for this bold innovation, would not be best handled in the pressure cooker time frame established by the financial institutions.

Challenges face the new co-operative

The new co-operative still faces the threat of predatory pricing by competitors. In addition to two multi-national corporations in Atlantic Canadia now, retailers such as Walmart are expanding their Atlantic Canadian stores to include food. In spite of the tough competitive environment, the new co-operative has already been able to significantly reduce the combined losses of the merging co-operatives. So far the discount format that dominates the new co-operative can claim to be a strong part of the reason for its initial success. Nevertheless, competitors have garnered more than 80% market share. Whether a competitor will try to occupy the same price position as the co-operative remains to be seen.

The discount grocer positioning also leaves the new co-operative a very narrow margin from which to cover its governance costs. The board and management are engaged in carefully examining how the co-operative can achieve its member education, communication and participation goals from that narrow base.

Equally daunting is the magnitude of the task of making the merger happen in operational terms, while developing bylaws and policies for such a geographically diverse and separated membership.

Daunting as well are the 'conceptual' pitfalls facing board members and council members at the local level. It is often hard to talk about the new co-op without thinking about it as if it were a federation of local co-operatives, which it is not, or a second tier co-operative -- like Co-op Atlantic. The phrase "local boards" slides too easily off the tongue. It is too easy to forget that the new CCC is not another co-op to which your co-operative belongs. A significant number of people want the members to elect local councils, who will in turn choose delegates to an annual meeting who will in turn elect the Board of Directors. Others, including the Governance Committee, feel this is hardly likely to make membership meaningful.

There are also gulfs that separate those who have been directly involved in the debate over the new governance proposals from those who were on the periphery of the discussion. The heavily involved are ready to move on, having reflected, argued and decided what needed to be done. The risk is that they will miss new ideas of value. The less heavily involved look at the proposed structure and process and ask, "Now why on earth did they decide to do that?" If the decision-making process is not handled carefully, one side or the other will feel frustrated and ignored. The task calls for great patience and maturity on both sides. The reflection and discussion have to happen over and over again if those less heavily involved are not to feel left out. Change has to be a possibility if their participation is to be real.

The deepest challenge is "making membership meaningful." Some members see little scope for their work on a council they view as having little power. Others are taking a 'wait and see' attitude. Some are, however, delighted to be able to focus on member relations and community issues in the new councils and not be bogged down with the operational detail of a grocery business. They are happy to be relieved of the responsibility and 'pseudo-autonomy' for financial success in the face of region-wide predatory pricing and globalization pressures they cannot control at the local level.

The questions the board must answer from members and local leaders are, "Why should I belong?" and "Why should I be active?" What are or will be the benefits of membership? What problems facing consumers will Consumers Community Co-operative solve? Will the solution of those problems make membership worthwhile and meaningful?

Opportunities

A wag once said, "An opportunity is a problem seen in a positive mood." A key opportunity is reinventing and renewing what had clearly become tired co-operatives where members had ceased to value their own business. The CCC can thrive by redefining the purpose of the co-operative and involving the membership in renewing their own retail business.

The best starting point is with the word trust. In an age when distrust of corporations and governments is growing, the nurturing of trust is a powerful opportunity. What do consumers need to be able to trust the co-operative?

• To deliver value on co-operative brand products?
• To provide reliable information about the products in the store?
• To ensure co-operative brands offer quality, ethical and ecological options?
• To systematically make sure every transaction is fair?

These and other options can be explored in a new market positioning that diversifies a dependence on price. What other kinds of 'reliable information you can trust' do people need co-operatives to provide?

The CCC has already provided co-operators in Atlantic Canada with a model that will likely be very important in the face of globalization. Already there are discussions quietly taking place about the benefits of other mergers and other actions. Should the 114 co-operatives that make up Co-op Atlantic transform themselves into 6 or 10 or 20 larger co-operatives? What else needs to be done in the face of globalization? Does a global co-operative buying group make sense?

Challenges facing us make renewal not only desirable but also imperative! Co-operative renewal is off to a charged start. It has accomplished a partial turnaround. Can it continue the pace?