In early November, the United Nations concluded the International Year of Cooperatives. It is interesting in this turbulent economic time and given the current populist sentiment that the initiative to recognize the value of cooperatives did not receive greater attention.
Maybe it’s not surprising. When most people think about cooperatives, they think of the local neighborhood market that was started and is owned by its residents. Of course, we tend to throw labels on such enterprises as “crunchy” or “granola” to suggest that the people and the business don’t reflect the values and principles of the majority.
But that’s not true. While the neighborhood market fulfills a certain need, so do other much larger businesses that employ the cooperative business model. They may focus on agriculture, food, energy, insurance and financial services. Consider these businesses: REI, Sunkist, Land O’Lakes, ACE Hardware (many hardware stores in general) or credit unions.
Internationally, cooperatives play a significant role in improving the living conditions of entire countries. In addition, cooperatives are instrumental in eliminating poverty in countries such as Ethiopia. They are revolutionizing the financial services industry in Kenya. In post-communist countries like Russia and Poland, individuals value cooperatives for enabling them to engage in a democratic process to direct their own destiny. There are many international examples where cooperatives provide the foundation for the economic independence and empowerment of women.
Why are cooperatives so effective?
Cooperatives fundamentally bring economics back to the people they serve. They promote the ability to “do good while doing well.” For more than 70 years, cooperatives have continued to thrive in various industries because they have been an alternative to the in-the-moment mentality of some of the world’s largest corporations.
In the aftermath of the financial crisis, a lack of trust has created a curiosity whether alternative business models are preferable. The collapse of the relationship between a company’s profitability and the well-being of the customer is not just confined to banking. Ask most businesses what is important and the answer is likely “to be more profitable.” Profitability is certainly necessary.
However, in many instances profitability by today’s standard is a narrow, short-term focus on growth for growth’s sake. This shortsighted view ties the hands of a corporation, constraining it to respond to maximum results in a limited timeframe, focusing on quarterly earnings calls, and trying to deliver immediate returns to shareholders.
This logic forces companies to overlook the fact that their enormous resources influence the world, and that their strategies impact consumers and employees upon whom they depend. This pressures companies to focus heavily on short-term gain and less on long-term viability.
Cooperatives are the opposite. They fundamentally understand how their strategies impact the lives of their consumers and employees. It is why they have strict governance practices and decision-making processes that give priority to the long-term interests of members. America’s greatest companies, even those that are not cooperatives, do rightfully work for profitability, but they do so in the spirit of building enduring organizations.
The success of the cooperative model has much to do with focusing on the needs of members, having proximity to and knowledge of markets, and having a strong set of social values that benefit members. Cooperatives consider that a significant element of their future is to support the development of people and society.
And that’s why we’ll see more businesses using the cooperative business model in the years ahead. It is a building block for a stronger, more stable economy. Together, we can compete more broadly while staying focused on how we re-invest in our people and our communities.
Patrick S. Jury is chairman of Affiliate Management Co. and president/CEO of the Iowa Credit Union League.