Giving cooperation a chance: what can multinationals learn from worker-owned cooperatives in Europe?

“Communities, businesses, social networks and military units can maintain themselves based mainly on intimate acquaintance and rumour-mongering. There is no need for formal ranks, titles and law books to keep order.”

-- Yuval Noah Harari

No major feat in our brief history as a species has been accomplished without the power of community. But how can the concept of community co-exist with business imperatives?

In recent years, the emergence of worker-owned cooperatives has provided a compelling model for harmonizing community values with business goals. These cooperatives empower employees by giving them a stake in the decision-making process and a share in the profits, fostering a sense of ownership and responsibility that is proving to be more empowering than the traditional employer-employee model.

In Europe, worker cooperatives represent an important pillar of the social and solidarity economy, with Spain, Italy and France being among the countries with the highest number of worker cooperatives.

In this article, we take a closer look at how these countries have fostered successful cooperative models and what other sectors of the economy, including multinationals, can learn from them.

Economic features of worker cooperatives

Worker cooperatives exhibit distinct economic features that set them apart from traditional businesses. Primarily, they operate on the principle of democratic governance, where each member has an equal vote in decision-making processes, regardless of their investment.

Economically, cooperatives have a different financial structure than publicly traded, investor‐owned firms. They typically do not engage in the publicly traded market, are capitalized at lower levels and rely on equity primarily from their members and debt financing from lenders to support both start‐up and growth activities.

In addition, many co‐ops operate on an at‐cost basis to provide lower cost products and services to their members. Unlike publicly held investor‐owned entities, an individual may only join a cooperative after meeting the requirements for membership and/or after approval of the governing body, or in some cases, the membership. The member’s interest in the cooperative typically is not transferable.

In co‐ops, the interests of the members or users of the products and services are aligned with the owners of the co‐op. For example, a decision to raise the price on a product or service would be viewed from the perspective of the person paying for the product and would not be viewed favorably unless justified based on a number of factors. In an investor-owned company, the shareholder’s interest – not typically aligned with the consumer’s ‐‐ may be to increase the price of the product or service to gain more return on the investment.

Beyond their unique economic features, cooperatives can also provide a buffer during economic downturns. Research has shown that they tend to weather financial crises better than traditional firms, as the focus on community and mutual benefit encourages collective action to navigate challenges. This resilience not only preserves jobs but also enhances the stability of local economies by keeping wealth circulating within the community.

Although cooperatives have been implemented in many countries all over the world, the European cooperative movement stands out as a testament to the power of collective action and solidarity across diverging sectors, with continuous growth from centuries ago to today.

Spain

In Spain, the cooperative movement dates back to the 19th century, but it was not until the mid-20th century that it gained significant momentum. The passage of the Law for Cooperatives in 1987 provided a legal framework for cooperatives to operate and thrive. Today, Spain is home to over 17,000 worker cooperatives.

The Mondragon Corporation stands out as a model of successful cooperative practices, providing thousands of jobs and fostering community development. An industrial cooperative established in 1956 by an atypical and dynamic Catholic priest, José María Arizmendiarrieta, Mondragon has more than 80,000 employees across 27 countries in all continents and 281 affiliates operating in finance, industry, distribution and knowledge, in addition to 14 R&D centres, a university with nine campuses and six labs in Spain, China and Mexico. 

Today, Mondragón is the leading Basque entrepreneurial group and the seventh overall in Spain. Its philosophy is based in its corporate values: cooperation, participation, social responsibility and innovation. Under its motto Humanity at Work, with the use of democratic methods in its pursuit of job creation, human and professional development, and the commitment to enhancing its social environment, Mondragon has turned the utopia of a world of worker owned cooperatives into a vibrant reality. Its highest paid executives, the CEOs and top management, cannot earn more than six times what the employee at the lowest salary scale makes.

In terms of technical requirements, a member of a Spanish cooperative must go through an interview process and be approved by the cooperative’s governing body. They are also required to make a capital contribution to the cooperative, which is then refunded when they leave the cooperative. However, members do not have voting rights based on their share of capital contributed, as all members have equal voting power regardless of their individual contributions.

Italy

In Italy, worker cooperatives have a long history dating back to the 19th century with ties to the socialist movement. As of 2023, there were approximately 70,000 cooperatives in Italy, representing a wide range of sectors including agriculture, manufacturing, and services. These cooperatives not only provide economic benefits to their members but also contribute to the overall well-being of local communities.

The Italian cooperative structure must have at least three members and is governed by a board of directors elected by the general assembly, with equal representation from each member. Membership in Italian cooperatives is open to anyone, regardless of employment status or education level.

A well-known example of the Italian cooperative is the Legacoop network, which represents over 15,000 cooperatives in various sectors such as healthcare, tourism, and renewable energy. These cooperatives prioritize social and environmental responsibility in their business practices while also providing quality products and services to their members. In addition to promoting sustainable development and community empowerment, these worker-owned cooperatives also demonstrated particular resilience during the Covid-19 pandemic, proving the success of the Italian model.

France

The French worker co-op movement dates back to the early 19th century. Although technically forbidden, cooperatives began to form clandestinely during the French Revolution. Today, there are approximately 4,500 French worker co-ops generating annual revenues of approximately 9.5 billion euros.

In France, a worker-owned cooperative is known as a “SCOP”, standing for Societe cooperative et participative. To maintain the essence of a SCOP, workers must hold a minimum of 51% of the capital and 65% of voting rights. SCOPs in France typically comprise skilled professionals and trade laborers. In French SCOPs, profits are divided into three categories, with a minimum of 25% of profits reserved for employees.

In terms of technical requirements, SCOPs must have at least seven members and are required to keep a register of those employees who own capital. In addition, French worker cooperatives are subject to the same legal obligations as traditional businesses, such as paying taxes and abiding by labor laws.

Are cooperatives the solution to sustainable business?

Cooperatives present interesting operational and governance lessons that can be shared with multinational companies with shareholding structures that are more institutional.  Below are a few key points that can be shared with multinational companies outside of the cooperative ecosystem.

• Worker-driven ownership and motivation. One of the most important benefits of the worker-owned cooperative is the natural alignment between incentives between owners and workers. Today, due to a shareholding that is very delocalized, many multinational companies must commit to high levels of dividends as a prerequisite to welcoming certain institutions (private equity, pension funds) into their shareholder base. This can at times result in a conflict between the interests of shareholders, which are essentially driven by financial metrics, and employees, who have a stronger incentive to invest in well-being, human development and organizational culture. 

• Emphasis on social responsibility and community development. Cooperatives have a strong focus on promoting social responsibility and community development, as they prioritize improving the well-being of their members rather than solely maximizing profits for external shareholders. Multinationals often face criticism for their lack of social and environmental responsibility, but by studying the cooperative model, they can learn how to incorporate these values into their business practices. In doing so, it becomes clear that stakeholder engagement is something that must go beyond legal and compliance requirements and capture true shared value opportunities for all groups affected by the company's activities.

• Resilience during times of crisis. The Covid-19 pandemic has highlighted the resilience of worker cooperatives, with many continuing to operate and support their members despite economic downturns. This is due in part to their democratic decision-making processes. While multinationals may have different processes for reviewing and validating decisions, there is always room for more time and energy spent consulting employees and making their feedback part of the organization's operational reality. Here, multinationals are encouraged to go beyond labor law and sustainability regulations in order to develop processes that lead to more autonomy and flexibility for employees.

In conclusion, while cooperatives may not be the perfect solution to all business challenges, they certainly offer valuable insights and lessons for multinational companies to improve their operations, governance, and social responsibility. By studying and incorporating elements of the cooperative model into their own practices, multinationals can create a more sustainable and equitable business environment for their employees, shareholders, and communities.

The success of cooperatives in Spain, Italy and France demonstrates that this model has the potential to foster economic growth while prioritizing social responsibility and community development. As such, it is worth considering how elements of worker-owned cooperatives could be implemented in other business structures to promote a more inclusive and sustainable economy.

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