Reportaje Sobre Cooperativas en Financial Times

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CO-OPERATIVES&Employee-Owned BusinessesFINANCIAL TIMES SPECIAL REPORT | Tuesday July 3 2012

www.ft.com/reports/cooperatives-2012 | twitter.com/ftreports

Inside this issueHistorical overview TheCo-operative movement,founded bypioneersaiming toimprove thelot of poorworkers,needs torediscoverits roots Page 2

Share schemes The HMRCapplication process isproving to be a bigdisincentive to businessesPage 2

Healthcare Aim-listedcompany Circle squares upto the challenge of publicsector services Page 2

Different approachesThere are many variationson the co-owned, and onesize does not fit all Page 3

InfinityfoodsThe south-coastbased foodretailer hasbeen drivenby anethical

model for more than40 years Page 3

John Lewis PartnershipThe owner of Waitrose isoften cited as a perfect rolemodel but its executivechairman says staffownership does notguarantee success Page 4

Social enterprise The BigSociety gets to grips withfinance Page 4

ExpansionHow likelyis thecoalitiongovernmentto realiseits hopesof raisinglevels ofemployee ownership?Page 4

A

s the world looks formore stable ways tomake a living after the

financial crash, inter-est in co-operatives, employee-owned b usinesses, mutualorganisations and other diverseforms of ownership is growing not least in the UK, where theRochdale Pioneers created theworlds first successful retailco-op in 1844.

Co-operatives employ 224,000and their annual turnover hasgrown by 19.5 per cent in thepast three years to 35.6bn, at atime when the countrys eco-nomic output has shrunk by 1.7per cent in real terms, accordingto Co-operatives UK, the tradebody.

The coalition government ispromoting mutuals organisa-tions owned by their employeesor customers particularly as avehicle to deliver public serv-ices. Now Nick Clegg, deputyprime minister, wants the wholeof Britain to become more of aJohn Lewis economy, with theidea of employees owning their

company in its bloodstream.Norman Lamb, the Liberal

Democrat employee relationsminister, says: It accords withthe spirit of the age, that thereis this growing sense of anxiety

about irresponsible capitalism,and here we have businessesthat are successful but also tendto be run responsibly, withoutexcessive gaps between theearnings of the people at the topand those on the shop floor.

Taking diverse forms of own-ership into the mainstream willmean overcoming scepticism

and formidable practical barri-ers. Co-ops and employee-ownedbusinesses together account forless than 4 per cent of grossdomestic product. The questionis whether these can ever bemore than niches alongside theshareholder-owned PLC.

Mutually owned organisa-tions, which include co-ops,thrived a century ago, particu-larly in food r etailing andfinance, but have had a toughertime since the second worldwar, reaching their nadir when10 of the largest building socie-ties were demutualised in the1990s and ended up taken overor in state ownership.

But a resurgence is underway. The mutual sector whichincludes National Health Serv-ice foundation hospitals, hous-ing associations and mutualinsurers has seen its revenuesgrow from 84bn in 2008 to112bn last year, according toMutuo, the umbrella body.

The UK now has 5,900 co-oper-ative enterprises, comparedwith 4,800 three years ago. Theyare owned and r un b y theirmembers, who can be custom-ers, employees or groups of

businesses. They range from themighty Co-operative Group,with 15bn turnover in foodretailing, travel, pharmacy,banking and funeral care, tosmall co-ops of freelancers, taxidrivers, pubs and football clubs.

Growth areas include renewa-ble energy co-operatives and 242co-operative schools owned bycommunities, teachers, parentsand pupils.

Ed Mayo, secretary-general of

Co-operatives UK, comments:Ten or 15 years ago, particu-larly in the retail sector, youhad a dusty, fusty brand andpatchy service, dominated by amosaic of local co-operatives

that were fantastic for democ-racy but not so effective forbusiness.

Since then, there has been aprocess of mergers between tra-ditional co-ops that has reversedthe decline. Co-ops share offood retail trade, for example,had shrunk over several decadesfrom 30 per cent to 4 per cent,but has grown to 8 per cent inthe p ast 10 y ears, notablythrough the Co-op er ativ e

Groups takeover of Somerfield,the supermarket chain.

Their resilience since thefinancial crisis is partly due totheir strength in recession-resistant sectors such as food,

agriculture and pharmacy.There is also a less definabletrust dividend or ethicalhalo, Mr Mayo says, as 79 percent of shoppers expect co-opsto act fairly, compared with 18per cent for business at large.

Co-ops and employee-ownedmodels are less suited to compa-nies needing a lot of capital,such as infrastructure special-ists, since they have limitedaccess to external funds.

In the past co-ops have beenaccused of poor governance andsleepy management, though MrM ay o s ay s t he se a re n owmyths rather than reality.

They tend to be steady busi-

ness that grow organically andare resilient: 98 per cent of co-ops are still in operation afterthree years compared with 65per cent of all businesses.

Often they have differentobjectives from PLCs. The WineSociety, for example, founded in1874, exists not to maximiseprofits but to provide memberswith high-quality, low-cost wine.

Mr Mayo thinks the sector cankeep growing: For the co-opera-

tive sector to maintain itsgrowth trajectory over the nextthree years would make co-oper-ative businesses the fastest

In accordwith spiritof the ageThe business modeloffers an alternativeform of capitalism,writes Brian Groom

Mixed barrel: the Wine Society, founded in 1874, exists not to maximise profits but to provide members with high-quality, low-cost wine

Continued on Page 2

Staff at Anglian Commu-nity Enterprise (ACE), Clac-ton-on-Sea, Essex, are revel-ling in new-found freedom.

In 2011 they mad e theleap from the secure worldof the National Health Serv-ice to life as a not-for-profit,public sector mutual, sell-ing community healthcares er vi ce s b ac k t o t he irformer employer, the localprimary care trust.

The past 18 months havebeen a success, but it hasnot all been plain sailing.Managers have had to adaptto a flatter hierarchy inwhich all workers have avoice and staff have had todevelop their competitiveedge to win contracts.

Ministers are convincedthat, in an era of austerity,ACE and other mutuals

offer a way of raising qual-ity and efficiency in publicservices without the politi-cal perils of outsourcing tothe private sector.

But unions and othersworry that the approach islittle more than a Trojanhorse that will result in out-right privatisation, as themutuals lose contracts tocommercial rivals.

The employee-ownershipmodel for delivering publicservices has been growingsince the 1990s. When thecoalition government tookoffice in 2010 it sought tointroduce fresh impetuswith a commitment to givepublic sector workers aright to bid to take over theservices they delivered.

Julian Le Grand, govern-ment-appointed head of theMutuals Taskforce, and theRichard Titmuss professorof social policy at the Lon-

don School of Economics,has coined the designationsknights and knaves toconnote those who are moti-vated by altruistic profes-sionalism v er sus thosewhose primary driver isself-interest.

Prof Le Grand believes

mutuals offer a blend of thetwo approaches. He citeslower staff sickness rates inmutuals absences havehalv ed at ACE since itstarted generally higher

productivity and, on aver-age, higher wages.

In a report published inJune he noted that since2010 the number of publicservice mutuals had risenfrom nine to at least 58,with some 40 in the pipe-line. But he acknowledgedthe difficulties that stand inthe way of meeting the gov-ernments aspiration that1m staff 15 per cent of thepublic sector workforce will be employed in mutu-als by 2015.

These include inexperi-enced commissioners andrisk-averse senior manag-ers, who impede mutualisa-tion. Existing mutuals, hewarned, often operate on ap laying field that is farfrom level when they seekto compete for contracts,with bidding requirementss om et im es s ke we d i nfavour of large corporate

organisations.The issue came to the

fore when Central SurreyHealth, a mutual estab-lished in 2006, lost out on acontract to deliver commu-nity serv ices to AssuraMedical, since renamedVirgin Care. Interviewed by

the FT last year, FrancisMaude, Cabinet Office min-ister, said the governmenthad learnt a lot from thattender process.

When the public sector

commissioned services, thecontracts tended to be toob ig which militates infavour of big private sectororganisations, which have astrong balance sheet andwhich have working capi-tal, which make it muchmore difficult for socialenterprises who may have a

very thin balance sheet andwont have assets they canborrow against, he said.

In fact, although somefear it is the private sectorthat will benefit if mutualslose out on tenders, founda-

tion trust hospitals may beeven more formidable oppo-nents.

The department of healthhas boosted its Social Enter-prise Investment Fund,launched five years ago, by19m, with a view to help-i ng m ut ua ls be co me

investment-ready and thenscale up and grow, it said.

Mr Maude envisages arange of models developing,including joint ventures, inwhich a mutual brings in apartner either from the pri-

vate, or the social enter-prise or voluntary sector.He has cited as an exam-

ple MyCSP, the organisa-tion that delivers the publicsector p ension scheme,which ear lier this y earbecame the first mutual tospin out of central govern-ment. It is a three-way jointventure with ownershipsplit between staff, the gov-ernment and the privatesector.

But the PCS, the civ ilservice union, protests it isa mod el imp osed fromab ov e on an unwillingworkforce. Along with Uni-son, which r ep resentshealth workers, it believesthat mutualisation in thepublic services may be sim-ply a back door to privati-sation. Services may befragmented and accounta-bility lost, the unions fear.

Some observers are con-

cerned ministers are man-dating which models arebest, rather than letting themarket make that decision.

Dale Bassett, of Reform, apro-market think-tank,says: Yes, they can workand it is clearly desirable toincrease how much publicsector staff feel invested inwhat they are doing but thegovernment is in danger ofworking against the marketit is try ing to create b yputting so much emphasison mutuals r ather thanallowing different models tocompete with each other top rovid e b est v alue formoney.

At ACE, however, LynneWoodcock, managing direc-tor, believes its mutual sta-t us h as i nc on te st ab lye mp ow er ed s ta ff . S herecounts a recent visit to ateam working with specialneeds children. She says its

members had: historicallybeen rather negative, butthey collectively said theyfelt they had more power inthe organisation to unblock[obstacles]. I came awaythinking Blimey, this isreally starting to happennow.

Mutual minnows at risk oflosing out to big PLC fish

Public sector

Sarah Neville asksif the private sectorwill prevail in the

fight for contracts

Service message: unions fear backdoor privatisation Getty

Hospital trusts maybe even moreformidableopponents in thetender process


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2 FINANCIALTIMES TUESDAY JULY3 2012

Co-operatives & Employee-Owned Businesses

growing business model in theUK.

With regard to the public sec-tor, Peter Hunt, Mutuos chiefexecutive, has warned that thegovernment will fail in its aimfor 1m staff to be delivering pub-lic services through employee-owned mutuals by 2015, unlessthey are given greater support.

The government-appointedMutuals Taskforce says thenumber of public sector mutualshas increased from nine to atleast 58 since 2010, with some 40projects in the pipeline.

But Julian Le Grand, a profes-sor of social policy at the Lon-don School of Economics wholed the taskforce, has said thereis a long way to go, if the moreambitious aspirations of govern-ment for mutualisation acrosspublic services are to be met.

Mutuals often compete for

service contracts on a playingfield skewed in favour of largecorporations, he said. The reportcalled for the government topress for temporary exclusion ofnew mutuals from EuropeanUnion procurement rules, andurged the Treasury to exploreways to encourage investmentthrough the tax system.

In seeking to promote wideremployee ownership, Mr Clegghas leaned heavily on the exam-ple of the John Lewis Partner-ship, the countrys best-knownemployee-owned business. Buteven Charlie Mayfield, JLPsexecutive chairman, worriesthat sometimes too literal aninterpretation is placed on this.

Our model isnt... the solu-tion to all the different issuesthat some organisations are fac-ing, Mr Mayfield says.

There are more than 120 com-p an ie s w it h s ig ni fi ca ntemployee ownership, accordingto the Employee Ownership

Association (EOA). These in-clude Tullis Russell, a paper andboard manufacturer, and SchoolTrends, a school uniform pro-vider. Some are co-ops, wheremembers have an equal say andshare of the profits, while othershave more varied structures.

The Treasury is reviewing taxincentives, including ideas suchas capital gains tax breaks forentrepreneurs who transferbusinesses to their staff andchanges to the rules on trusts.

Graeme Nuttall, of FieldFisher Waterhouse, a law firm,has conducted a government-commissioned review of the bar-riers. The review is set to rec-ommend a new legal model foremployee-owned companies andflesh out Mr Cleggs controver-sial idea of a universal rightfor staff to request shares intheir company.

Some say it is risky for peopleto invest too much of their sav-ings in their employer, as staffat Enron, Lehman Brothers,Bear Stearns and NorthernRock found out. That can beovercome if the shares are intrust, as at John Lewis, but taxadvantages of employee benefittrusts were removed in 2003after abuses by executives atsome companies.

Iain Hasdell, chief executiveof the EOA, says that, givenpolitical will and support byentrepreneurs, the sector cangrow rapidly as in the US.

Others are more cautious, butWilliam Davies, academic direc-tor of Oxford universitys Cen-tre for Mutual and Employee-owned Business, says: Thelonger the current crisis goeso n, t he m or e o pe n p eo pl ebecome to alternatives.

In accordwith thespirit of

the ageContinued from Page 1

ContributorsBrian Groom

UK Business andEmployment Editor

Andrew BoundsNorthern Correspondentand Enterprise Editor

Sarah NevillePublic Policy Editor

Gill PlimmerReporter

Elaine MooreReporter

Paul GouldContributor

Adam JezardCommissioning Editor

Steven BirdDesigner

John WellingsPicture Editor

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Helping workers to buy a stakein the company they work forhas been credited with boostingstaff loyalty, but red tape andout-of-date rules have limitedtheir appeal to employers andemployees, tax experts say.

Though many UK companies,including BT, Tesco, NationalGrid and Aviva, offer some formof share plan, the number ofschemes being opened each yearis small and critics say thei nc en ti ve s f or e mp lo ye eschemes are inadequate.

When the Office of Tax Sim-plification investigated theapplication process companiesmust go through to set up anemployee share scheme, it foundthe approval process with HMRevenue & Customs (HMRC)caused multiple problems.

John Whiting, tax director for

the Office of Tax Simplification,says that although the schemeswere of real benefit to employ-ers, which saw greater commit-ment from employees, the cur-rent system was putting compa-nies off with heavy paperwork

and lengthy delays.We spent a lot of time look-ing at the benefits of schemes,asking if they are worth the taxbenefits on offer and the evi-dence we received was yes, theyare, he explains.

Its about more than motiva-tion, its identity. If employeeshave shares in their companythey may not be glued to theshare price, but they will iden-tify more closely with the com-pany and its fortunes, he adds.

The Office of Tax Simplifica-tion has suggested that ratherthan make companies wait forHMRC to approve schemes, theyshould all be self-certified,w hi ch w ou ld c ut t he t im erequired to set up a share plan.

It has also recommended thatthe Company Share Option Plan(CSOP), a type of employeeshare scheme falling out of

favour, should be phased outand merged with the newerEnterprise Management Incen-tives (EMIs), aimed at small,fast-growing companies andbroadly similar to the CSOP.Merging the two would reduce

confusion for employers.There are curr ently fourapproved share schemes inthe UK that offer tax advan-tages. As well as EMIs andCSOP, there are Share IncentivePlans (SIP) and Save as youEarn (SAYE) schemes.

SIPs and SAYE p lans aresuited to all employees, andhave a lower bar for the amountthat can be saved each year, apoint that IFS ProShare, theindustry body for the employeeshare ownership in the UK, hasargued against.

It wants the amounts to beraised in order to allow employ-ees to put more in the schemes.

But the government has optedto leave the maximum limits forthese schemes alone and hasinstead focused on boostingengagement in the newer EMIs.

Victoria Scott at RM2 Partner-

ship, which advises companieson EMIs, says that increasingindividual limits from 120,000to 250,000 has increased theirappeal, but many companieswere hoping the overall limitwould also be raised from its

current sum of 3m.Most interest in the schemesis coming from information

technology and recruitmentcompanies at present, says MsScott.

They are great for start-upcompanies, particularly in thecurrent climate, she says.

Companies for whom cashflow is an issue can subsidisewages with a percentage ofequity in the company, which is

a great way to attract and retainthe best employees.

Some advisers have warnedemployees of the potential riskof investing in the same organi-sation that pays their wages.The danger was all too apparent

w he n N or th er n R oc k w asnationalised, leaving staff in theshare ownership scheme withshares that had become almostworthless at the same time asfacing possible job losses.

But the rewards can be great.In June, more than 17,000 Asdaworkers who participated in thecompanys SAYE scheme weretold they would be dividingclose to 51m between them.

SAYE schemes allow workersto save between 5 and 250each month, which they canthen use to buy shares at a dis-counted price when the schemematures. If the companys sharep rice has fallen, they caninstead take back the moneythey have saved plus a tax-freebonus in lieu of interest.

In Asdas case, staff were ableto buy shares in parent com-pany Walmart after three years,

so benefiting from the rise inthe US companys share pricefrom 27.45 to 42.72 over thep er io d. O n a ve ra ge , e ac hemployee who took part willreceive more than 2,800 whent he s ch em e m at ur es , b ut

employees who saved the maxi-mum amount will r eceiv e14,000.

Many people dont realisethese employee share schemesare wid ely available to themajority of private-sector UKworkers, says IFS ProShare.

Those companies that do notoffer approved share schemesmay instead have unapprovedplans, which do not have taxadvantages but give senior exec-utives rewards in the form ofshares.

The Office of Tax Simplifica-tion plans to publish a reportinto the way these schemeswork. We want to look at themost common arrangements,says Mr Whiting. Share-basedrewards are prevalent for seniormanagement, but we want towork out exactly what is beingused and why.

Red tape deters companies from giving incentivesShare schemes

There is confusionabout plans on offer,says Elaine Moore

Employees may notbe glued to the shareprice but they willidentify more closelywith their companyand its fortunes

This year, a turning point wasreached in the National HealthService. Circle, an Aim-listedhealthcare company, took overthe running of an NHS hospital

at Hinchingbrooke in Cam-bridgeshire, the first time astate-funded general hospitalhas been outsourced to the pri-vate sector.

Transforming an underper-forming NHS hospital that wasfailing to attract patients is noeasy task, not least when thehospital has become a lightningrod for opposition to rising pri-vate sector involvement in thestate-owned health service.

But patients, staff and man-agement are almost unanimousthat, in just five months, sub-stantial changes have takenplace.

Circle says the Department ofHealths own performance datashow that Hinchingbrookesaccident and emergency depart-ment has gone from being oneof the worst in the country toone of the best.

Meanwhile, its overall per-formance is ranked at numbersix out of 46 hospitals in theMidlands and east England,quite an achievement for a hos-pital previously labelled a bas-ket case by Earl Howe, healthminister.

Ali Parsa, the former Gold-man Sachs banker who is thechief executive of Circle, ques-tions whether the improvementscould have been possible with-out the companys mutual struc-ture, which incentivises staffthrough a share-owning scheme.

Without this model of owner-ship we couldnt do what we aredoing, he says. We brought in

emp loyee engagement andentr ep reneur ial d rive. W eempowered people to feel theycould conquer the world andrun the hospital.

Dir ect nursing time withpatients has risen from 51 percent last year to 62 per centnow, while the hospital has metcancer targets for the fourthmonth running for the first timein four years, he says all as aresult of the companys strategyo f g iv in g c li ni ci an s m or econtrol.

Companies do needcapital, but you alson ee d e mp lo ye eengagement. Wheni t c om es t o t hemasses, we d onttend to share prof-it s. I t hi nk weshould.

W hi le m or e a ninvestment bankerthan a M ar xist, M rParsa nevertheless says

it is wrong that twos in gl e s qu ar emiles the

City and Whitehall controlmore than 90 per cent of thenations assets.

If y ou l oo k a t t he m os tvibrant parts of our economy accountancy, management con-sultancies and hedge funds, allthese people have opportunitiesto become partners, he says. Ithink the fruits of society needto be shared in a democraticway.

Staff are divided into four lay-ers, from associate partners,

which include kitchen staff andcleaners, to executive partners,such as the head of hospitalfood services and medics.

Staff are assessed in 36-degreeperformance reviews at the endof each year, with marks givenaccording to Circles doctrine,which includes criteria such ast he e xt en t t o w hi ch t heemployee puts patients first andthe ability to work with col-leagues. Shares are allocatedaccording to the score, as wellas rank.

Despite this, Circle has itscritics. Unlike the John Lewisdepartment store group, wherethe entire company is owned byemployees, at Circle staff own

just 49.9 per cent of the com-pany.

The remaining 50.1 per cent isowned by investors, includings om e o f t he C on se rv at iv epartys biggest donors, PaulRuddocks Lansdowne Partners,Crispin Odeys Odey Asset Man-agement, and Michael PlattsBlueCrest Capital Management.

Mr Parsa says this is neces-sary for a company that hasbuilt itself from scratch since2004 and has 4,000 employees.

The group already operates aday-surgery treatment centrefor the NHS in Nottingham, aswell as private hand and eyesurgery clinics in Stratford-upon-Avon and Windsor. It alsobuilt and opened the privatelyfunded Bath hospital last year,while another is due to open inReading this August.

T he c om pa ny h as o th erexpansion plans, which is onereason for the 47.5m recentlyraised in a stock market plac-ing. But the bigger questionmay be whether the companycan survive financially. Hinch-ingbrooke is saddled with 40mof debt, while Circle has rackedup operating losses of morethan 110m.

Turning the lossmakingHinchingbrooke round requiresboosting income by increasingthe number of patients, as wellas substantial cost savings.

Although the losses at Hinch-ingbrooke are capped at 7m,Circle can take the first 2m ofprofit, though this could besome way off.

Circle Holdings, the Aim-listed vehicle, is lending moneyto Circle Health, the operationalpart of the organisation, atinterest rates of 7 per cent. The

loan is expected to be paidoff before the shares

issue dividends.Nevertheless, Mr

Parsa is dismissive ofthe focus on debt.You call it debt, Icall it investment.

Have you checkedthe financial affairs

of Facebook?

Circle squares upto challenge ofpublic serviceHealthcare

Gill Plimmer looksbehind the scenes atan outsourced hospital

We empoweredpeople to feel thatthey could conquerthe world and runthe hospital

Standing on the flagstonefloor of 31 Toad Lane,R oc hd al e, l oo ki ng through its d imp led

glass bay windows, one is trans-ported back to December 21

1844.It was on that cold winter

night, at 8pm, that a q ueueformed around the cobbledstreets to witness the opening ofa revolution in retail the Roch-dale Society of Equitable Pio-neers.

Samuel Ashworth, a 19-year-old weaver, stood b ehind acounter that consisted of ap lank and two b ar rels, andserved customers with just fourstaples flour, butter, sugar andoatmeal by candlelight. Thegas company had refused to con-nect the premises for fear ofnon-payment.

These who stood in the queuewere not customers but mem-bers, subscribing tuppence aweek to save the 1 that wouldqualify them for dividends fromthe society.

The Pioneers wanted to freepeople from the money-grabbinghabits of rent-seeking mer-chants, who adulterated flour

with chalk and who cheatedtheir poor customers on theweighing scales. Some mer-chants also offered v ictim-clients p ay ment in weeklyarrears at usurious interestrates, which meant many fami-lies were always in debt.

It was not the first co-op, but

it became the model, says Gil-lian Lonergan, archivist at theCo-operative College.

Th ey h ad a b ig a im : t ochange the world.

The guiding principles thatthe 28 weavers, shoemakers and

joiners devised remain at theheart of the international co-operative movement today.These include reinvesting capi-tal, distributing profits to mem-bers and helping other co-opera-tives.

The building at 31 Toad Lane,on the main road from the towncentre, was a disused wool ware-

house. Dr Dunlop, the buildingsowner, rented it out because heknew and trusted one of the Pio-neers, and he had done so evenafter other landlords turnedthem away.

No wholesalers in the townwould trade with them, how-ever, hoping to force them outof business. The Pioneers, whoall had day jobs, had to pushwheelbarrows between the townand Manchester, 14km away. In1863, they combined with 300societies to form the Co-opera-tive Wholesale Society in Man-chester, which enabled them topool their buying power.

Within five years, they had1,000 member s, includingwomen, who were not allowedto own property or vote in elec-tions at that time. They werehelped in the promotion of theircause by a financial scandal of atype that is common today.

A philanthropist, who had setup the Rochdale Savings Group

to help poor people save money,died and was found to have kepttwo sets of books: the moneywas gone. Others saw the co-operative as a safer bet.

In 1867 the Society built theNew Pioneer, a large depart-ment store and head office, alsoon Toad Lane. Ms Lonergan, the

archivist, calls it a big moment.In those days, working classpeople did not own property,even their house. So it was ahuge achievement and a symbolto the whole town.

The original store, which hadan upstairs meeting room whereclasses were taught, is now amuseum, and it became a tour-ist attraction as early as 1862.People from across Europe vis-ited and took the ideas backhome with them. By 1871 therewere visitors from as far awayas Argentina and Japan.

The movement grew, expand-

ing to farms, factories and eventea plantations overseas.

In keeping with the self-helpphilosophy, an insurer was setup to look after Co-op property.

This service expanded and abank was added. Building socie-ties were later formed, whichpooled savings to lend to mem-bers.

By the 1950s you could buyCo-op football boots endorsed bySir Stanley Matthews and Fed-eration bicycles. Every townand many villages in the UKhad its co-op and the movement

commanded as much as 30 percent of retail spending.

B ut c om pl ac en cy s et i n.Larger supermarkets, such JSainsbury and Tesco, grew andthe department stores sufferedfrom a lack investment in com-parison.

In 1994 CWS sold its factories

to Andrew Regan, an entrepre-neur. In 1997 he made a 1.2bnbid for the group but membersresisted. That became a wake-upcall. As the building societies inthe 1980s were slowly takenover, the movement began toregroup.

A wave of mergers, culminat-ing in the 2007 combination ofthe Co-operative Group, thedescendent of the Pioneers, andthe United Co-ops of Yorkshire,brought 80 per cent of the sectortogether.

And there is still room fordevelopment. Ed Mayo, secre-

tary-general of Co-operativesUK, points out that 20 per centof the EU banking system is co-operative. However, the UK hasnot produced the likes of Mon-dragon, a Basque co-operativewith international interests inbanking, retail and manufactur-ing, that is one of Spains larg-est companies.

Mr Mayo says that continen-tal-style rules to allow workersto use redundancy payments tobuy failing businesses and a banon demutualisation would helpthe movement further. The sur-vival rate for co-operatives issignificantly better than forbusiness at large, he says.

However, start-up and growthrates could be improved. TheCo-operative Group and theJohn Lewis Partnership aloneaccount for almost two-thirds ofthe sectors turnover.

Jim Pettipher, deputy chiefexecutiv e of Co-oper ativeFutures, which advises co-ops,

says the movement needs toreturn to the pioneering spirit ofits forefathers.

He adds: The sector repre-sents 2 per cent of gross domes-tic product. As a return on capi-tal over 150 years that is prettypoor. We need more entrepre-neurial fire in the belly.

Pioneers aimed to improvethe world for poor workers

Historical overview

The co-operativemovement needs torediscover its roots,says Andrew Bounds

The survival rate forco-operatives issignificantly betterthan business at large

Ed Mayo, secretary-general,Co-operatives UK

Glory days: the building in Toad Lane, where the original founders of the Rochdale society opened up shop, is now a museum

Ali Parsa: workers

should be entitledto more of the

profits


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FINANCIALTIMES TUESDAY JULY3 2012 3


While John L ewis, theupmarket departmentstore, is the image of aco-operative that politi-

cians like to identify with, there aremany others.

Suma, for example, is a wholesalerfor wholefoods and health productsbased in Elland, West Yorkshire andthe countrys fourth-biggest worker-owned business. John Lewis has afull structure of executive manage-ment we do not, says Bob Cannell,human resources member. We donthave a chief executive. Big jobs aresplit into teams of people.

Decisions are made at the quarterlymeeting of all 127 members. At Suma,everyone from the warehouse staff tothe buying team earns 27,000 a year.

Mr Cannell adds: The guys in thewarehouse earn almost double thelocal wage while the finance teamsearn a lot less. People said that wewouldnt keep commodity buyers but

they like it here.There is a good pension, job secu-

rity and hours are flexible PeterTeleha, the general secretary, can getto every Blackburn Rovers game. Heworks in credit control two days aweek, drives a forklift on Thursdaysand catches up on paperwork onFridays. Everyone has stints in man-ual and office work.

Theres no textbook. You cant goto Waterstones and buy a book onhow to manage a co-operative, saysM r Cannell, a b oard member ofumbrella group Co-operatives UK.

To illustrate this point, finance part-ner Matt Pinnell wanders into thecaf where lunch (vegetarian only),fresh bread and other snacks areavailable free. He has a folder withthe latest accounts in one hand, a cupof tea in the other and is dressed in anorange Everton football shirt andshorts.

The books are open to all, he says.So far this year, weve made 300,000profit on 19m turnover. We are look-ing at 30m for the year. Our profit

margin is 1.6 per cent.He says co-ops are often criticised

for failing to maximise profit. But thatis because the workers rather thanshareholders reap dividends in thefor m of their p ay . Suma aims toincrease wages 5 per cent a year andbusiness plans flow from that.

Mr Cannell says it has had wagefreezes in the past to cope with roughpatches. As demand for organic fooddrops it has looked to export, whichaccounts for 10 per cent of sales.

Fairtrade sales continue to climband it is now sending Japanese-madesoy sauce to China. There are dis-putes and members have left, said MrCannell. For example, it boycottsNestl products but some membersthink this is not ethical enough.

But he believes the spirit of thehippie commune founded in the1970s will survive. Its been like thatfor 35 years and it seems to work.

Other employee-owned co-operativesinclude the Edinburgh Bicycle Co-op,popping up in the centres of mostlarge cities, and fast-growing Dulas, a

renewable energy installation busi-ness in Wales. People trust Co-ops,says Ed Mayo, secretary-general of Co-operatives UK. The concept remainspopular with farmers, with brandsincluding Colmans mustard, Ribenaand Birds Eye peas dependent on co-operative growers.

However, the traditional retailmember-owned co-operatives have

chosen different approaches. Themighty Manchester-based Co-opera-tive Group has consolidated 80 percent of those inspired by the RochdalePioneers, who began the movement in1844. But while all co-ops buy from itscentral purchasing facility, manyremain independent.

Areas such as East Anglia, the Mid-lands and Lincolnshire still haveflourishing societies with more than3.5m members.

In 2011, East of England Co-opera-tive recorded its highest pre-tax prof-its in five years at 11.7m. MidlandsCo-operative saw gross sales increaseto 7.2m and payments to its 933,000members increased by 12 per cent.The M idcounties Co-oper ativeincreased operating profit by 15 percent to 20.9m and increased sales 6.7per cent.

Ben Reid, chief executive of Mid-counties in Warwick, says it enteredmarkets such as childcare and energysupp ly that members told themneeded greater competition. It nowhas childcare centres nationwide,

which are booked up as soon as theyopen.

Co-op Energy, which provides elec-tricity and gas to homes and is aboutto enter the business market, has asimple single tariff without tie-ins orpenalty clauses. Any cuts in whole-sale prices are passed on immediately,as are rises. And eliminating cut-priceoffers and marketing allows it to save

costs compared with the big six sup-pliers, says Mr Reid. As it grows itwill cut prices as its clout deliverslower prices from wholesalers.

Mr Reid says Whichs Big Switchcampaign this year, which classed itas the cheapest supplier, had been abig boost. We had hoped to get 25,000customers in the first year and 25,000in the second. We got 26,000 in thespace of four weeks. We now have52,000.

It has also exceeded targets bysourcing all its electricity from renew-able supplies, thanks to deals withwind and solar farms, many co-opera-tively owned.

Ursula Lidbetter, chief executive ofthe Lincolnshire society, says it is atthe heart of the community. It gave1m to help found Lincoln Universityin 1992 and runs lossmaking postoffices because members want themto stay open. It made 21.6m tradingprofit on 285.6m revenue in its 150thanniversary year of 2011, giving 3min dividends to 205,000 members.

With a spread of businesses, includ-

Movement still thrives in the internet ageDifferent approaches

Andrew Bounds discoversthere are many variations

on the co-owned theme

Co-operative Group Tougher times ahead

The Co-operative Group, after fiveyears of improvement, when it morethan doubled its profit margin and

raised turnover 80 per cent, is startingto find the going a bit tougher.The Manchester-based business,

descended from the worlds firstsuccessful consumer co-operativefounded in Rochdale in 1844, is thestandard bearer of the movement.

It prides itself on its ethics, recentlyretaining its platinum award fromBusiness in the Community, thecharity, and earning the SustainableBank of the Year award from theFinancial Times. But a TVdocumentary exposed some poorpractices in its profitable Funeralcarebusiness, including a managerinstructing staff to sell only moreexpensive packages.

In response, the group said: Weare...shocked and disappointed by theinformation provided to us by thisprogramme, which goes againsteverything we stand for. We do notbelieve that the instances shown inthe programme are representative ofour many caring staff. We have,however, launched an immediateinvestigation.. .and will take any action

necessary to ensure our highstandards and our policy of enablingclients to make informed choices ismaintained.

The group is attempting to shake offa reputation for failing to keep up withcompetitors quality and service, andcan ill-afford one for profiteering.

Sales slipped in 2011 to 12.3bnfrom 12.4bn in 2010. Profit beforetax and member payments theequivalent of pre-tax profit for a listedcompany fell 6 per cent to 373m.

The profit decline was driven by a21 per cent drop in underlying profitsat the supermarket arm, which MrMarks blamed on pricing pressure andinvestment in the business.

It has refitted 3,000 food stores,opened 10 logistics depots, andinvested heavily in IT systems at itsfinance arm, without disruptions of thetype recently experienced by RBS.

All staff are being moved on to thesame pay and conditions structure,while Britannia and CFS its retailbanking arms have a new combinedsystem. These efficiency savings have

led to 300 job cuts at the Manchesterhead office, testing staff morale.

Mr Marks, who was appointed in2006, when United Co-operatives

merged with the Co-op to create thesupermutual, has said the groupmust expand to get the scale it needs

to compete. It can take the longer-term view because it is not prey todaily share price movements.

Mr Marks points out that the Co-operative was a pioneer in UKsupermarkets. In the 1970s, it had 25per cent market share.

However, it lacked scale, being splitinto hundreds of local societies, andwas outstripped by rising competitorssuch as Tesco and J Sainsbury. Hehas attempted to recreate that scalethrough mergers while adopting aharder-nosed business approach.

Some analysts believe it is too late,although the Clive Black, retail analystat Shore Capital, says it was the softunderbelly of retailing.

The group bought Somerfield, theretail chain, in 2008 for 1.6bn, andmerged with Britannia building society,the second largest, in 2009. Now, itsbid to more than double the size of itsbank by buying 630 branches fromLloyds a move that could be agreedthis week is testing its managementand financial structure to the limit.

Unable to raise equity and reluctant

to sell shares to members, who joinfor 1, it relies on borrowing andprofits to fund acquisitions.

Regulatory issues could mean thatthe Financial Services Authority mightinsist the Co-op holds far more morecash to meet capital adequacy ratios,but Mr Marks was sounding morepositive last week that a deal wouldgo ahead.

The Co-op says its governancestructure is robust. The main board,which holds executives to account andsets strategy, is composed entirely ofelected members, while it hassubsidiary boards, which hold monthlymeetings, for its three divisions thebank, supermarkets and specialistbusinesses. It also has the option ofappointing up to three outsidedirectors to the main board.

Mr Marks says the model works:We have gone through the worstfinancial crisis in living memory, wheremost big banks run by bankers camea cropper and we didnt.

The Co-op also aims to become thebiggest provider of consumer legal

services, which will include will-writingand conveyancing services.

Andrew Bounds

Wholesale ownership: employees at Suma in West Yorkshire share in all the tasks as well as the profits at the food company

Ethical model has drivenfood specialist for 41 years

Bean encounter: the Brighton caf P Gould

The Brighton enclave known as NorthLaine is an uplifting antidote to thechain-stores of Britains high streets.You will not find the likes of Asda,KFC or Primark here.

Instead, there is a patchwork ofquirky independent cafs and shopsselling antiques, vintage clothing, cultcomic books, handmade jewellery,vegetarian food and even footwear forvegans.

Here, on a corner near a guitar spe-cialist and a piercing studio calledPunktured, sits Infinity Foods. Withits bohemian location, its casuallyd ressed staff and its shelves oforganic veg, gluten-free bread andeco-friendly washing-up liquid refills,cynics might be tempted to dismissInfinity Foods as faddish and unvia-ble, catering to only to sandal-wearinghippies.

Although you can see some sandalson Infinitys staff photograph on itswebsite, the cynics would be wrong.The shop has occupied this site since1973, having expanded from a stallopened a couple of years earlier and,in 2011, it marked the 40th anniver-sary of its inception.

For most of those years since 1979 Infinity Foods has been a workersco-operative, owned and managed

entirely by its nearly 100 staff.Its empowering for our members

to know that were doing this for us,says Dexter Bailey, who handles pub-lic relations and organic certification.It motivates everyone theres a realsense of pride.

Apart from increments according to

length of service, everyone earns thesame basic wage.

However, this is incentivised by avariable bonus that makes up 40 percent of pay. Nor is there is any tradi-tional business hierarchy: staff suchas Mr Bailey also stack shelves andwork on the checkouts. We, who ownthe business, are face-to-face with ourcustomers and in touch with theirethical concerns, he says.

Those ethical concerns mean thatonly organic, fairtrade, vegetarian andlocally grown products make it on toInfinitys shelves. Better-knownbrands on display include Ecoverwashing-up liquid, Clipper tea, Prov-amel soya milk and Suma tinnedfoods.

There is also a bias against multina-tional suppliers. Mr Bailey says, forexample, that since Green & Blackswas taken over by US conglomerateKraft, Infinity will gradually stop

stocking G&Bs chocolate and insteadfavour local producer Montezumas.

Such decisions are debated by Infin-itys annually elected steering com-mittee (usually about 10-strong), butthen voted on by all members.

This is commendably democraticb ut, as one staff member says,

occasionally makes for slow decision-making that sometimes feels likedeath by committee.

The shop and nearby caf are Infin-ity Foods most visible faces, but thebulk of its business is its wholesaleoperation, launched in the mid-1980sand based at three adjoining ware-houses in Portslade, just outsideBrighton.

Although only half of Infinitys staffwork here, but it is a far bigger sitethan the shop and caf combined andaccounts for 80 per cent of turnover,supplying health food stores, restau-

r ants and cafs across southernEngland.

According to Charlie Booth, whoseduties include wholesale marketing,turnover grew from 14m in 2010 to16m in 2011.

Even this ethically driven workersco-operative, however, does have aplace in its vocabulary for terms suchas profit, expansion and invest-ment. It is Infinitys profit that isspread, equitably, among staff, payingthem a pr oper liv ing wage although Mr Booth and his colleaguesdeclined to say how much that was.

The expansion of the wholesaleoperation and Infinitys rising turn-over came thanks to an upsurge insales of organic food from the 1990sonwards, says Scott Muir, whose roleincludes wholesale sourcing and buy-ing. It was this upsurge in demand, hesays, that drove Infinitys investmentin packing machines that cost 150,000each.

In many way s, Infinity Foodswholesale site is, as Mr Booth puts it,a normal place of work. There are

fork-lift trucks, safety notices at everyturn and a busy office juggling ordersand invoices.

The one thing that distinguishes itfrom an ordinary warehouse, how-ever, is the selection of fairtrade andorganic herbal teas that are availableon the warehousemens tea trolley.

ing department stores, food stores,pharmacies, funeral homes and prop-erty, she says its closeness to localshoppers helps it fight off competitionfrom the internet and supermarkets.

We were formed by local people toprovide services in this area. It is avery simple and clear mission.

Mr Mayo says political changes willboost co-operatives. The government

has promised to consolidate 17 piecesof law governing them. It is a commit-ment for the UNs 2012 InternationalYear of Co-operative that should putthe country back at the forefront ofthe movement worldwide, he said.

Infinity Foods

Paul Gould pays a visit toan eco-driven businesswhere investment andprofit are not dirty words


4/4

4 FINANCIALTIMES TUESDAY JULY3 2012


Charlie Mayfield, executivechairman of the John LewisPartnership, has a delicatemessage to convey.

His pride in the employee-ownedretail groups commercial success,and in the interest politicians areshowing in it as a talisman for corpo-rate reform, is tempered with cautionabout how applicable its model can be

to others.Our model isnt a panacea, he

insists. While people have said somenice things about the partnership, andI am a great advocate for it, it con-cerns me that we can be painted intoa position where it appears that weare terribly smug and have got all theanswers.

John Spedan L ewis, son of theretailers founder, created a model fora business owned by its staff andmanaged on democratic principles

that has grown in appeal, as peoplesearch for less volatile ways of creat-ing growth after the financial crisis.

The fact that it also has a firm holdon the affection of middle-class Brit-ain, through the reputation for relia-ble quality of its John Lewis depart-ment stores and Waitrose supermar-ket chain, adds to its mystique.

It is understandable, then, that poli-ticians such as Nick Clegg, deputyprime minister, should use it as short-hand for the reforms they want toencourage.

Spedan Lewis, a visionary whobelieved staff worked better if theyhad a stake in their company, trans-ferred his shares in the business intoa trust in two phases, in 1929 and1950. All 81,000 staff, or partners,

own the business. Its constitutionstates that its purpose is to ensurethe happiness of all its members,through their worthwhile and satisfy-ing employment in a successful busi-ness.

It has an executive chairman and isgoverned under a set of principles,with policy influenced by an electedcouncil representing the partners.

Staff receive an annual share ofprofits according to a ratio, wherebythe highest paid member cannot earn

more than 75 times the average wageof a shop floor salesperson. Partnersget final-salary pensions and perks,ranging from holiday homes to sailingclubs. There is a weekly Gazettewhere staff can air concerns, anony-mously if they choose, and seniormanagers are expected to respond.

But, says Mr Mayfield: The owner-ship model on its own doesnt guaran-tee success, its how you use it. Ourbusiness has varied in its perform-ance. Last year, pre-tax profits fell3.8 per cent to 354m and the staffb onus was wor th 14 p er cent ofannual salaries, down from 18 percent.

It is doing better than many compa-nies in a tough retail climate, how-ever. In the past decade or so Wait-

rose has doubled in turnover and tre-bled its profits, while John Lewis hasboth grown and built a successfulonline business faster than manycompetitors.

Peter Cox, who wrote a history ofthe group after retiring from Waitrosein 2003, says the partnership wasinward-looking from about 1960 untilthe late 1990s. JLP has had verysharp management in the past 20years. Before then, it was liable tocoast.

Accusations thrown at it in the past that the management system can bebureaucratic and that employee own-ership holds back expansion and pro-ductivity are now a canard, MrCox adds. It has very sharp tradingteams. An example of critical deci-sion-making, which surprised manyinside and outside the business, wasits acquisition of Buy-com in 2002 asthe foundation of the John Lewisinternet trading business then lag-ging, now massive.

Mr Mayfield, a former McKinseyconsultant, believes the company ben-efits from having a close relationshipand dialogue with its shareholders,who work in the business and under-stand it. We have every incentive tobuild the capacity of our organisation

over the long ter m, which feedsdirectly into competitive advantageover time.

He also believes the lack of anoption to sell the business spurs bet-ter performance and he denies thesuggestion that decision making isslow.

Mr Cox says that a crucial reasonfor the partnerships success is thecombination of its ownership struc-ture with the trading principles estab-lished by Spedans father, the original

John Lewis, who opened his store inLondons Oxford Street in 1864. Theseprinciples are: value, assortment,service, and honesty. Spedan Lewiscodified them and added the sloganNever knowingly undersold.

Mr Mayfield says the two sets ofprinciples are complementary and cre-ate a multiplier effect. For example,their application to the Waitrose sup-ply chain acknowledges that suppliersshould have a viable business thatthey can develop as a result of therelationship.

Waitrose now accounts for about 75per cent of the UKs outdoor rearedpigs, Mr Mayfield says, built up over30 years of working with the same setof suppliers. As a result, we have abetter product at a similar price to

what other supermarkets are able tosource.

He adds that the partnership haslots of opportunity in what will be amore difficult market, because cus-tomers are looking for genuine value,or quality at the right price.

Not only is it strong in online sales,he says, but the commitment of itsemployee owners will contribute tothe personal shopping experiencecustomers will increasingly demandwhen they do go out to buy.

Ownership by staff no guarantee of successJLP

Brian Groom looks atthe group that inspiredNick Clegg to discuss aJohn Lewis economy

Reputation for quality: principles laid down early on in the companys history embodied by the slogan never knowingly undersold are part of the reasons given for its continuing success Charlie Bibby

It concerns me that wecan be painted into aposition where it appearsthat we are smug andhave got all the answers

Some big claims are beingmade for employee owner-ship. W hen Nick Cleggcalled in January for theUK to become more of aJohn Lewis economy, hecited the belief of John Stu-art Mill, the 19th centuryliberal philosopher, that itwould help to resolve thestanding feud b etweencapital and labour.

The deputy prime minis-ter wants to see the idea ofemployees owning theirown company in the blood-stream of the British econ-omy. Those running such

companies tend to be sup-portive but cautious aboutthe pace of expansion.

Philip Dilley, group chair-man of Arup, the designand engineering consul-tancy, says: I dont thinkthis is utopia, because itsnot going to be possible orcredible for lots of publiclyo wn ed c om pa ni es t obecome employee owned.

There are opportunities,for example, for some pub-lic service organisations tobecome employee-owned.But it will not suddenlydominate the corporatelandscape.

The UK has more than120 companies with signifi-cant employee ownership,turning over 26bn a year,according to the EmployeeOwnership Association.

They include not only theJohn Lewis Partnership butcompanies such as Scott

Bader, a polymer manufac-t ur er , P A C on su lt in g Group, Unipart, the logis-tics group, Childbase, achildrens nursery group,and Make, the architects.

S up po rt er s s ay s uc henterprises tend to havehigher productivity, greater

innovation, better employeeengagement and loyalty,

and more patient investorsthan public limited compa-nies. In the post-crisis huntfor more diverse forms ofownership, their virtueshave come to the fore, butthey still account for littlemor e than 2 p er cent ofgross domestic product.

Norman Lamb, employ-ment relations minister,says: There is strong eco-nomic evidence and a busi-ness case for facilitating aneconomy with diverse own-ership, not just relying onone particular model. Weare not claiming this is themodel that must replaceeverything else; we are justsay ing it must hav e thespace to grow.

The Treasury is conduct-ing a six-month review oftax treatment, which willconsider ideas such as capi-tal gains tax b reaks forentrepreneurs who give

businesses to staff, changesto the rules on trusts, andextending the EnterpriseInvestment Scheme fromexternal investors to staff.

The coalition also com-missioned Graeme Nuttallof law firm Field FisherWaterhouse to review the

barriers to wider employeeownership. He is set to rec-

ommend a legal model foremployee-owned companies,which would be adaptablefor different types.

In some cases, shares aredirectly owned by staff; inother s they are held intrust; and some are hybrids.

There is a fundamentallack of awareness of thisconcept throughout thebusiness community, Mr

Nuttall says. There is aresistance to consideringalternative business models

and I think this flows fromthe education process andeveryone being steeped inthe PLC monoculture.

He will also flesh out MrCleggs proposal of a uni-versal right for staff torequest shares in compa-nies, an idea that provoked

scepticism about how itwould apply to a range of

public and private busi-nesses. Mr Nuttall sees vir-tues in allowing staff to putproposals, for example,when a business is about tochange hands.

Roger Barker, head of cor-porate govenance at theInstitute of Directors, says:I dont think using the lan-guage of rights is necessar-ily appropriate here. I donts ee i t a s s om e k i nd o f inalienable human right todemand shareholding.

The IoD does, however,support efforts to encouragethe sector and would like tosee the tax system mademore neutral between dif-ferent ownership forms.

T he re i s e vi de nc eemployee ownership makesfor a steadier type of com-p any, more r esilient toshocks. Research by CassBusiness School found that,while employee-owned busi-

nesses grew sales mor eslowly than shareholderbusinesses in 2005-08, theyp er formed much b etterwhen recession hit. Theyalso created more jobs.

Mr Dilley at Arup says:We can take a long-termview of things, whereas a

shareholder company tendsto have a relatively short-term approach to results.

Employee-owned compa-nies are, though, only asgood as their managementsand accountability systems.They can fail like any otherenterprise, as seen in theUS when United Airlines,once the worlds biggestemployee-owned company,filed for bankruptcy in 2002.

One danger is people canbe doubly at risk if theirsavings are bound up intheir employer. About aquarter of the shares inLehman Brothers, the failedbank, were staff owned.That can be overcome ifshares are in trust, as atJohn Lewis and Arup, buttax advantages of employeebenefit trusts were removedin 2003 after abuses by exec-utives at some companies.

William Davies, academic

director of Oxford univer-sitys Centre for Mutual andEmployee-owned Business,says employee ownershipcan be especially attractiveto medium-sized companiesbuilt up by an entrepreneurwho wants to retire.

A lot of these p eopledont want to see their com-pany turned into a financialasset to be played with bynewcomers and outsiders,he says. It can be hard toachieve. Apart from taxobstacles, b anker s andaccountants often adviseagainst models they do notunderstand.

Iain Hasdell, chief execu-tive of the Employee Own-ership Association, thinksthe sector can grow, givenpolitical will and supportfrom entrepreneurs. Theexample is the US, whereemp loyee ownership isadvancing with the help of

federal and state incentives.In the US, mor e than

10m people work at compa-n ie s t ha t a re m aj or it yemployee owned, he says.Here, its less than 1m.The US is living proof thatN ic k C le gg s v is io n i sachievable.

Chief executives express cautionabout pace of growth in the sectorExpansionBrian Groom looksat the coalitionshopes of increasingstaff participation

Mutual choice: Arups projects have included the National Aquatics Centre and the NationalStadium in Beijing, both above. The company has put its workers shares into a trust

Social Enterprises Big Society comes to grips with finances

Peter Holbrook, chiefexecutive of SocialEnterprise UK (SEUK), therepresentative body, saysnew laws and funding, andthe impetus given byausterity, will help toproduce a 50bn sector.

What we are creating in2012 is a more fertileenvironment and 2013should be good year forsignificant change, he says.

He admits there has beena delay before governmentturned rhetoric into reality,while funding cuts from thestate have hit hard.

There are 62,000 socialenterprises in the UK,employing approximately800,000 people andcontributing more than24bn to the economy.

According to FightbackBritain, a 2011 report fromSEUK and the Co-operativeBank, these businessesmain sources of income aretrading with the generalpublic (37 per cent), thepublic sector (19 per cent)and the private sector (13per cent). It found that 58per cent grew in 2010

compared with 28 per centof private companies,although three times asmany (39 per cent) workedin deprived communities.

The new Localism andSocial Value acts will requirepublic authorities toconsider not just price buthow much money will beretained in a communityand local jobs created whenawarding contracts.

Big Society Capital,launched in April, will befully at work. Its mission isto create a new market that of social investment and so make it easier forcharities, social enterprisesand community groups toaccess affordable finance.

Big Society Capital willhave a 600m pot, 400mfrom unclaimed cash leftdormant in bank accountsfor more than 15 years and200m from the largest

high street banks, Barclays,Lloyds, HSBC and RBS.

Research last yearestimated that about 165mof social investments weremade in 2010. Big SocietyCapital has about 79m of

funds with more than 50minvested to date. Much ofthis is matched by others.

It has put 1m in theFranchisingWorks LicenceFund, which helpsunemployed people buyfranchises in GreaterManchester, and 750,000in the CommunityGeneration Fund, whichfinances social enterprises indeprived areas.

Sir Ronald Cohen, BigSociety Capital chairmanand the doyen of Britainsventure capital industry,says: What weve done forbusiness entrepreneurs, wemust now do for socialentrepreneurs. We must givethem the resources toinnovate in the way that weresolve social issues.

Many are the samepeople. Sarah Dunwell solda successful family cateringbusiness to found Create,

which helps homelesspeople into work. It turnsover more than 1.5m andhas added a caf inManchester to its busyLeeds restaurant, as well asoutside catering services.

We offer a future topeople who want a hand-up,not a handout, Create says.

Some 60m should nextyear be in the hands ofcommunity developmentfinance institutions, whichfund social enterprises.

However, Mr Holbrookcautions that there is ahuge degree of scepticismabout whether socialenterprises can play a rolein services, where contractsare so huge they usually goto bigger companies.

Several subcontractors in

the governments welfare-to-work programme have goneunder because cash flowseized up as contractorssqueezed margins. Whatwe are seeing is massiveinnovation and growth in

business-to-business andbusiness-to-consumerenterprise, he said.

Mr Holbrook defines asocial enterprise as one thathas as its primaryresponsibility a socialpurpose and it invests atleast half its profits in that.He says they employ morepeople, invest more in localcommunities and are moreresilient during recessions.

The rich are also lookingto back social enterprise,expecting some return theycan reinvest. Social impactbonds, where the state paysbusinesses that cut bills by,for example, rehabilitatingprisoners, are one way todo this. A scheme atPeterborough prison isshowing promising resultsafter a year.

Investors get paid by thegovernment if the numberof reconvictions falls by atleast 7.5 per cent. Thebigger the drop, the biggerthe return, up to amaximum of 13 per centannually over eight years.

The programme ismanaged by Social Finance,

which is responsible for theSocial Impact Partnershipwhich has raised 5m from17 charitable foundations.

Social enterprises havecalled for amendments tobe made to the FinancialServices bill in the Lords tomake competition betweenthem and public limitedcompanies fairer.

Mr Holbrook alsowelcomed a move by BigSociety Capital to raise a15m fund to pay theupfront costs of enterprisesthat would then be paid bythe state for results, suchas reducing unemployment.

He says: Universities arebuilding social enterpriseinto the curriculum andgraduates are opting toestablish social enterprises.

Greece and Spain, whereausterity has hit publicservices hard, have seen anexplosion in social

enterprise, Mr Holbrooksays. This is not just amovement in the UK. Thereis a real appetite to rethinkcapitalism.

Andrew Bounds

People dont wantto see theircompany turnedinto a financialasset to be playedwith by outsiders

What weve donefor businessentrepreneurs, wemust do for socialentrepreneurs

Reportaje Sobre Cooperativas en Financial Times

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