Wednesday, August 30, 2006

Divi up

I’ve already done some groundless pontificating today, so I’m going to extend the licence that I’ve granted myself. With a bit of luck, Chris Dillow will read this post and offer an evidence-based version of it?

Kerron’s quite happy with his ‘divi’ from the Co-Op. I’m not so sure that he should be.

The more I look at the way we try to make the world a better place, the more I’m inclined to the view (one that I understand that lots of economists and sociologists have taken as ‘given’ for a long time) that few organisations can really serve the public interest as their prime function.

Whether you’re an adherent of ‘public choice theory’ or its variation, the ‘bureau shaping model*’, it’s hard to escape the view that every employee has the following priorities:

1. Keep their own job
2. Make it easier, nicer and better-paid
3. Get promoted
4. Keep the organisation going in the current shape
5. Improve the size of the organisation
6. Improve the standing of the organisation
7. Serve the purpose that the organisation is actually supposed to
8. Serve the purpose that the organisation says that it serves

The difference between numbers seven and eight, I think, illustrates the whole ‘corporate social responsibility’ idea. Lots of organisations market themselves as the providers of ‘solutions’ when – if they were honest – they are the providers of dividends to their shareholders. Being seen to get to number eight is only one of many means of achieving number seven. In those cases, number eight is rarely very ambitious, and more observed in the breach than anything else.


The ‘budget-maximising’ notion is a misanthropic viewpoint, I know. And I know that there are lots of individuals that can claim to be motivated in a different way. And that some of them are right to make that claim. Every reader of this blog, for example.

But, when you think about it, politics should really be about finding ways of motivating everyone to pull together in the public interest - to really get to number eight (above) - and to do so in the most practicable way. We should be reforming all organisations so that they can get higher up the scale, while demanding more ambition in those stated aims. As long as the stated aims include a reasonable definition of freedom and prosperity for all, who could argue with this?

And where does the ‘divi’ fit in to this? Well, from what I’ve seen of the retail Co-ops, the employees appear to be under remarkably little pressure to get beyond number four in that list that I’ve drawn up (above). For such a large outfit, the Co-op retail arm seem to yield very little real value to anyone apart from their own senior managers as far as I can see. My enquiries lead me to believe that the pay and conditions of most shopworkers there are not noticeably better than those offered by other retailers.

Different organisations are, I would argue, more likely to be motivated to hit the jackpot. Personally, I think that worker co-ops – particularly ones that provide services to their customers – services that take the form of consumer co-ops – are the kind of organisations that are likely to hit number eight most consistently. But I have very little data to back that up.

Lots of government departments seem rarely to get beyond number five. A lot of charities appear to be drifting from number eight (the ideal) to number seven (the managerialist’s ideal) with a lot of their employees drifting into the civil servant mindset (with number five as the ceiling) as government seeks to move more of it’s responsibilities onto that sector.

But I return to my central point. The Divi is little more than a stunt. If you go into my local retail Co-op and ask any employee (including the manager) what a divi is, what a co-op is, how you join, or any of the relevant questions, you will be met with slightly puzzled looks.

Yep. Hand everything over to the workers I say. And then citizens can be the people who sit on the committees that demand a better deal from the workers.

Now, where did I hide those guns...?

*I can’t find an decent links to explain ‘bureau shaping’ but I suspect that this book would be very useful


MatGB said...

Also not able to give any evidence, but am fairly sure you're right.

As it happens, I studied a lot of Public Choice stuff, and have a lot of time for it as an analysis tool (I use a basic version at work a lot), but can't really cite any sources.

Co-ops that profit share with the public/customers seem, to me, to miss the point a little,t he motivational benefit for improved service (that's palpable in Waitrose/John Lewis) just isn't there.

I virtually always do my convenience shopping at the co-op on the way home from work, and the staff there are just jobsworths. IT's better than a lot of small shops, but there's no benefit to them to go beyond the requirements of their contract.

Ah well.

Kop exile said...

Slightly OT, but a manager (much despised and notoriously incompetent) in the research establishment where I work was "encouraged" to apply for a very senior position in the Co-Op. His application was successful, which prompted the comment from one of my colleagues: "we've been taking the Divi out of the Co-Op for years; we thought it was time to return the compliment !".

chris said...

In theory, you're exactly right - co-ops have less incentive to expand than do privately owned forms. This is because, in a privately owned firm the higher profits that come from expansion accrue to a few people, whereas in a co-op they are spread thinly.
The co-op's divi is in this sense a way of avoiding expansion. It could, in theory, return cash to customers by cutting prices. This, though, would require the business to expand. It's no coincidence that Tesco (say) has grown at the expense of the co-op.

Sam said...

Pauli/matgb - you seem to be measuring up the Co-op against an indeal worker co-op, and finding it disappoints.

That's not surprising, as it's a Consumer Co-op.

Worker Co-ops haven't had the best record in this country, despite being heavily promoted by the Christian Socialists in the 19th Century. Instead, it was the consumer co-ops that generated and bankrolled the Co-operative Movement. I think Beatrice Webb wrote quite a bit of stuff on why this might be the case.

And while I agree with you that Staff pay and training are not as good as they should be, why are you so keen to see the back of the whole consumer movement on the back of them?



Sam said...


Chris: why would low prices mean expansion, but that a stable rebate on prices, resulting in much the same thing, would not?

I actually agree with Pauli when he says that the divi is little more than a stunt. It could fairly easily - as you suggest - be incorporated into the price. But it serves a purpose as a symbol of who owns the Co-op (the customer-member), who is in charge (same again), and who is entitled to the profit (you guessed it).

It might not be co-incidence that Tesco has grown relative to the Co-op, but it is certainly not for the reason that you gave. The divi has not been given during the period of Tesco's growth, and the rate of divi was highest during the period that the Co-op was growing the fastest.

Paulie said...

A few comments on this.

Firstly, I may have not made the point very effectively, but I was trying to convey the view that retail co-op managers are under less pressure to provide a good service, a competitive price, or a 'dividend' to their stakeholders (whoever they are).

Tesco's executives have all of the pressure that shareholders tend to bring to bear on them. Co-op retail staff don't have such pressures as far as I can see, so there is little incentive for them to perform.

I understand that the argument is that they have lots of committees that claim to to make managers accountable, but from what I've seen, they are not in any way as demanding as their private sector counterparts.

Also, where does anyone get the idea that the Co-op are low priced from? They simply aren't as far as I can tell. There are plenty of retailers that can match the co-op on price AND find a dividend for their shareholders.

Surely the co-op are simply managing a decline and handing the dividend to their senior managers in the form of inflated salaries?

BTW, I don't want to see the back of consumer co-ops at all. I'd like to see them being managed - by worker co-ops or companies that have some degree of job ownership.

An idealistic notion, I accept. But this post is only intended as a crude exercise in exploring the possibilities of the public choice view.

Sam said...

"BTW, I don't want to see the back of consumer co-ops at all. I'd like to see them being managed - by worker co-ops or companies that have some degree of job ownership"

Erm.. is this not a contradiction in terms?

I don't think that the Co-ops do pay inflated salaries to senior management. I'd be interested in your evidence that they do.

I also don't think that there are any companies who can match the Co-op on price when sales volume and the nature of the estate is taken into account. The Co-op is more expensive than Tesco, yes. But it has small convienience stores, not huge hypermarkets, and it has a sales volume less than a sixth as large.

Paulie said...

Why isn't it possible for an organisation to offer goods and services on a co-operative basis while partly owning the business themselves? I've been working on a model that is very similar to this for a number of years and it has succeeded commercially, retained happy customers (they SAY they're happy anyway) and developed a reasonably valuable business that is wholy owned by it's staff.

One of my local shops is a co-op. I can take you around it, and then around other shops of a similar size (serving a similar market) if you like. They simply don't offer any noticeable advantage to customers in pricing. Not rigorous evidence, I'll admit, but it is hardly a commonplace peice of wisdom that the Co-op is cheaper than it's rivals.

And I have no evidence on the salaries front either - I'm not sure it's that easy to get hold of. I have had a chance to look around the co-op movement a fair bit though, and I've met people in quite senior positions who really wouldn't hold down a clerical post in the businesses that I've worked in. I did admit that this post was likely to have a degree of impressionism about it - though - again - it would be reasonable to speculate that a relative lack of accountability is likely to lead to managers on inflated salaries, surely?

There must be an explanation for the fact that other shops charge the same for goods and manage to return a profit, while the co-op doesn't. The dividend that private sector firms pay must be going somewhere. I would speculate that a combination of poor management and generous settlements to managers could provide at least some of the answer.

I re-emphasise the word 'speculate' - I'm happy to listen to evidence to the contrary.

Sam said...

Paulie, I might be misunderstanding you, but if by "Why isn't it possible for an organisation to offer goods and services on a co-operative basis while partly owning the business themselves?" you mean the employees of the company owning part of it, then of course it is possible - but this is a worker Co-op, not a consumer Co-op. You may prefer worker co-ops, but by asking for businesses currently owned by consumer co-ops to be managed by worker co-ops, then you are seeking to end the consumer movement.

I obviously have no knowledge of which "senior people" you are talking about. I would be interested in whether they were employees or lay directors.

Fair enough about the price comparison.. in my experience its not the case. But just as one last desperate comment on this matter, have you taken account of the ethical trading and other intangible benefits of Co-op shopping? (!)

You seem to be assuming that as no dividend goes to shareholders, it must therefore end up in the hands of senior managers. Neither of us seem to know the relative salaries at the top of the Co-op(!), but I don't think that your logic stacks up. Our businesses haven't done briliantly in the last few years to be honest. The Co-op gets rid of lots and lots of cash to Co-operatives UK, the woodland folk, community dividend, the Co-op Party, etc.

So - the Co-op "not run very well" I could accept, but Co-op "an engine to accumulate cash for senior managers" is not anything that I can reconcile with my view of the Society.

Laurent GUERBY said...

Cooperative retailers are big in Switzerland, see Migros and Coop (number one and two).

Paulie said...

"You may prefer worker co-ops, but by asking for businesses currently owned by consumer co-ops to be managed by worker co-ops, then you are seeking to end the consumer movement."

Why so? I'm claiming here that they don't work very well any more anyway. If a worker co-op could do it better, then maybe a business that is owned 50/50 by the workers and consumers could provide better value than one that is owned 100% by consumers with sub-standard management?

MatGB said...

Sam, it's not that I want to do away with consumer co-ops, it's that I prefer the idea of worker co-ops, and see the massive benefits to both worker and consumer that they can bring; you say they're unsuccesful, which I partially agree with, but as Chris points out in his post, there are fine examples of good worker co-ops, including John Lewis and a lot of legal partnerships.

I do like Paulie's 50/50 idea though, if the employees in each store had a commitment to the business, then they'd be motivated to improve their own and their colleagues performance.

Sam said...

Oh dear, I meant to leave this after my last rant. I'll have one more go and then I'll leave you be, I promise. Pauli - i think we should stop arguing about whether a consumer co-op can be run by its employees. Its just a matter of definition. Your 50-50 idea is called a hybrid co-op, and traditionally (its been tried quite a lot in the early days of the CWS) hasn't worked, though I concede that that was a long time ago now! I also note that you've moved a way since you said "hand everything over to the workers", but never mind. For what its worth, I have nothing against an employee director seat, and an incentive scheme, so perhaps we are arguing over semantics. It's also a point worth making that employees are entitled to (and commonly do) seek election to area committees etc. as much as any other member - subject to a maximum employee representation of 33% I think.

matgb says that worker co-ops over huge advantages for both employees and consumers. I'm not sure that the example of legal partners does much for that argument in respect of consumers. Interestingly, a consumer co-op is setting up a legal firm, so we will have to see which one offers the consumer more.

John Lewis is indeed a fine business, but it is not a co-op (it does not sign up to the Co-operative identity), and I believe that it was built up as a conventional business before being bequeathed to its employees in the form of a trust.

Worker Co-ops (unless they are very small, or all highly skilled workers) tend not to last in a pure form for very long, as they seem to either not allow new employees to become equal members as of right, tend to get partially or fully privatised, or go under because difficult decisions cannot be taken. I have a feeling that if the CWS was owned 50% or 100% by employees in 1997, then the hostile takeover by Regan may well have succeeded.

Just one last point. According to Co-operatives UK, there are 390 worker co-ops in the country, employing a grand total of 1287 FTE workers. Why should the consumer movement (68,112 employees in the Co-op Group alone) trust its future to a form with such a dubious track record?

Paulie said...


"Worker Co-ops (unless they are very small, or all highly skilled workers) tend not to last in a pure form for very long, as they seem to either not allow new employees to become equal members as of right, tend to get partially or fully privatised, or go under because difficult decisions cannot be taken."

I agree that the 'difficult decisions' question is a problem. But one that can be solved with a decent understanding of why representative democracies are better than direct ones. But why SHOULD the goal of a co-op be to preserve itself or 'remain pure'?

I'm not saying it's a doctrinaire ideal. I'm saying that it's an efficient way of organising a business - and one that is fairer to it's staff - one that lets them build up dividends in their own business rather than handing them to people who have old money, as conventional businesses do.

Keep them churning over I say.

I don't see the problem with John Lewis not identifying itself as a co-op of being 'bequeathed'. The two types of business that potentially make good Co-ops are start-ups and well established businesses.

Startups are risky - so the fact that they are rare is hardly an argument against them - the one I've been involved in has been a success.

The established-businesses-as-co-ops are indeed as rare as rocking horse shit. But JL is a fine example of it working - and an example of how it can be done. So is Greenwich Leisure, by the way.

I'd like to see lots of state-run businesses (particulary sections of the civil service) 'bequeathed' to it's workers in this way and then made to compete.