Cooperative Social and Societal Responsibility (CoopSSR) signifies the establishment of functional links between the aspects of sustainable development and the structural features of cooperatives through law and the statutes of the cooperatives. The main feature in this context is democratic participation. Being that mechanism which regenerates social justice, democratic participation is central to sustainable development and it is a distinctive feature of cooperatives.
Introduction
Nobody denies the causal effect of using non-renewable resources and of overburdening nature with non-degradable waste on climate change. It is of great concern to many … but mainly to the more affluent parts of societies. Those whose human dignity is denied by the effects of the growing social disparities are more concerned about their economic security. That, in turn, is jeopardized by political turmoil fuelled by social unrest.
This is the scenario, which the universal consensus on the aspects of the sustainable development goal tries to address: Social injustice leads to political instability; political instability leads to economic insecurity; economic insecurity must leave those affected by it indifferent as concerns the state of the biosphere.
The objective of this paper is to suggest realigning cooperative law on the universally recognized cooperative principles as a contribution to sustainable development. After a brief outline of the reasons why cooperatives and, hence, this type of cooperative law disappeared from the political and academic agendas and why it is likely to reappear, we will illustrate with some examples which of the features of the legal structure of cooperatives might contribute to sustainable development.
The paper must not be construed as a unilinear exclusive explanation, nor must it be construed as suggesting a panacea. The issues it addresses are multi-facetted and complex; they require micro measures in a multi-cultural, global context. They cannot be but tiny pieces in a puzzle where all the pieces take the shape which the others assign to them.
The disappearance of cooperative law
As of the beginning of the 1970ies, few exceptions set aside, cooperatives and cooperative law disappear from the research and education agendas, mainly of economics and legal sciences; they disappear from political party and government programs, as well as from the agendas of regional and international governmental and non-governmental organizations. One of the main reasons for this disappearance is linked to the denial by mainstream economists at the time to recognize that the use of non-renewable, limited resources must lead to a collapse of the economies. The denial consisted in the exclusion of non-renewable resources from economic growth equations and in an increasing emphasis on capital as ersatz for these resources. The subsequent disconnection of finances from the real economy and that of the latter from the needs of people led to a generalized financialization of the economies and the establishment of financial performance as a measure for the competiveness of enterprises. Enterprise types, such as cooperatives, which are not centered on capital and whose primary objective is not to maximize the financial return on invested capital, had to gradually lose out.
As of then we may observe a turn in cooperative law. The turn consists in a change from distinguishing cooperatives from capital-centered companies, especially stock companies, towards an ever more pronounced alignment of their legal structure on that of stock companies (companization), especially as far as the nature and structure of their capital, management and control mechanisms are concerned. As concerns the nature and structure of capital, to mention, among others, the possibility to issue shares that are attractive to investors, at times assorted with (limited) voting rights and limited representation on the board of directors; to distribute the reserve fund upon liquidation or conversion; to distribute surplus according to the amount of capital held; to merge and acquire other enterprises; and the requirement to make share contributions in proportion to the business done with the cooperative. As concerns management, to mention, among others, the possibility to hire professional, non-member managers and increase their power and autonomy vis-à-vis the board of directors and the general assembly; to also manage in the interests of investors, if any, and not only in the interests of the member-users. As concerns control, to mention, among others, the possibility for the representation of non-members on the board of directors; to grant (non-user) investor members, and even non-member investors, similar rights as those of members; of having unlimited business with non-members; to grant members limited plural voting rights.
Furthermore, other legal acts besides the law on cooperatives - laws, such as labor law, competition law, taxation, (international) accounting/prudential standards, book-keeping rules, audit and bankruptcy rules, administrative acts, court decisions, jurisprudence, cooperative bylaws/statutes and any other source of law - which regulate, and be it only in an indirect way, the structure of cooperatives reinforce this companization, if they are tailored on stock companies and not adapted to the specificities of cooperatives.
This alignment of the legal characteristics of cooperatives on those of stock companies results in the transformation of the cooperative member-user relationship into an investor relationship, be the investor a member of the cooperative or not. As concerns the nature and structure of capital, investments lead to putting more emphasis on the economic objectives to the detriment of the social and cultural ones, which are also part of the objective of cooperatives. Investment shares create dependency on capital holders instead of on member-users. The clash between user and investor interests, which the cooperative principle of identity is to avoid, is imminent in these arrangements. Managers, often trained outside the cooperative system, tend to put competitiveness, growth and financial stability before the interests of the members. The principle of member-centrism is at stake. While the evolution of bigger sized cooperatives with increased turnover requires professional, paid managers, these might find it difficult to close the qualification and information gap between them and the members, and even between them and the board of directors. The members’ and the boards’ possibilities to effectively control are thus lessening. These are elements of the cooperative specific control risk. As concerns control mechanisms, mergers and acquisitions lead to a larger number of members whose direct participation in management/administration is difficult to organise. Meetings of delegates/ representatives do not fully compensate for the loss of direct democracy and of the means for good governance. Unrestricted non-member business leads to a loss of autonomy and threatens the principle of identity. While in heterogeneous memberships it is difficult to convince members to maintain the constituent principle of equal rights and obligations of all members, plural voting rights and share contributions in proportion to the business done put the principle of democracy at risk. Where rights and obligations are linked to the volume of capital contribution, the borderline between a (stock) company and a cooperative disappears.
This companization takes away the comparative advantages of cooperatives, especially as regards their potential contribution to sustainable development.
Before discussing some features of the legal structure of cooperatives that contribute to sustainable development, the effects of the change of form that the companization entails in terms of sustainable development need mentioning. Organizational enterprise law differentiates enterprise types by their different purposes or objectives. The legal form of an enterprise is a function of the objective it has. A change of its form will lead to a change of the objective. The alignment of the forms on that of another enterprise type leads, hence, to a reduction of the diversity of enterprise types, hence to a reduction of cultural diversity, the complementary aspect to biological diversity as a source of development, hence sustainable development. These effects of the companization are exacerbated by recent further changes through regulation, especially of the banking sector. They aim to impose the same governance structures on all types of (banking) enterprises to ensure greater economic security as part of sustainable development (convergence). As these changes further reduce the diversity of enterprise types, they contradict their own aim. This might help the reappearance of enterprise types, like cooperatives, and their respective laws.
The reappearance of cooperatives and of cooperative law
As of lately, cooperatives and cooperative law have been reappearing on the above-said agendas. On a more philosophical level, this might be due to the mentioned contradiction inherent in the companization and in the convergence. More concretely, it has to do with the necessity to review the pact, tacit or express, that for many decades regulated the question of who would bear the social costs of enterprising and regenerate social justice, namely the labor market partners and the (emerging) welfare state. The factors of globalization destabilize the mechanisms these actors have relied on, namely democratic participation in the decisions, if not on what and how to produce, at least on how to distribute the produced wealth and how to spend taxes paid on the income of enterprises. Digitalized production and distribution render labor market negotiations difficult and they make the unity of political and economic orders fall apart. Political participation becomes difficult. In addition, the factors of globalization (mainly digitalization and its leading to the weight of capital and labor decreasing in relation to the new means of production, which is knowledge produced out of data) weaken the capacity of the state to compensate social injustices because its capacity to levy taxes is diminished through three reasons: Firstly, global actors act outside the reach of national, regional and international law; secondly, the number of employment diminishes significantly, and thirdly, the informal sectors grow.
The gradual juridification of the Corporate Social Responsibility (CSR) and the extension of its scope to include societal aspects (CSSR), i.e. the character of that responsibility turning from a political or moral one to a legal obligation, and its scope including social justice issues, must be read in this context as a search for a new pact on the distribution of the social costs of enterprising. Cooperatives have to abide by the CSSR. This obligation concerns the behavior of enterprises. The internationally recognized cooperative principles go beyond that. They hint to structural differences between cooperatives and other types of enterprises, which set them apart and which are the raison d´être of cooperative law. Cooperative law and the statutes of cooperatives must translate these principles into legal rules. Internationally agreed instruments, like the 1995 International Cooperative Alliance Statement on the co-operative identity, the 2001 United Nations Guidelines aimed at creating a supportive environment for the development of cooperatives and the 2002 International Labour Organization Recommendation No. 193 concerning the promotion of cooperatives urge them to do so.
This additional responsibility may be called Cooperative Social and Societal Responsibility (CoopSSR) to which we now turn.
The legal structure of cooperatives and sustainable development
Cooperative Social and Societal Responsibility (CoopSSR) signifies the establishment of functional links between the aspects of sustainable development and the structural features of cooperatives through law and the statutes of the cooperatives. The main feature in this context is democratic participation. Being that mechanism which regenerates social justice, democratic participation is central to sustainable development and it is a distinctive feature of cooperatives.
As concerns economic security, cooperatives are relatively stable, not the least in times of crises. Their stability regenerates through a number of legal structural features, such as for example, a specific capital structure. This capital structure guarantees that the main constituent parts of it, namely member shares and reserve funds, are not mobile. Usually, member shares cannot be transferred and traded and reserve funds are indivisible/locked-in. The locked-in capital of cooperatives (indivisible reserves), while controlled by the members, cannot be accessed by them.
As concerns the ecological balance, cooperatives contribute to maintaining it through the following features, among others: an intergenerational solidarity by having indivisible reserve funds and by fuelling them with the totality of the profits and parts of the surplus, as well as by obligating the responsible persons to manage the assets also for future members. To be recalled that the notion of sustainable development lays emphasis on this intergenerational aspect.
As concerns social justice, one might note that more than one billion people around the world are members of a cooperative. They enjoy democratic voting rights, profits are not distributed, but surpluses are in proportion to the transactions with the cooperative, whereas only some 330 million people hold shares in stock companies, vote and receive dividends in proportion to their investment.
As concerns political stability, this aspect is added to the three generally mentioned aspects of sustainable development, as it is inextricably linked with social justice. As already alluded to, political instability is much less the result of poverty than the result of social injustice. Political stability, on the other hand, is a function of social justice and the possibility to participate democratically in decisions on wealth creation and distribution. Participation is an inbuilt structural element of cooperatives. Given that the spaces where democratic participation could be organized, labor markets and political orders, are becoming dysfunctional, enterprises of the cooperative type will increasingly have a political role to play – enterprises as citizens. However, it is not enough to include the one member/one vote rule in the cooperative law or in the statutes of the cooperatives. Participation is a wider concept. Participation must permeate all organizational and operational aspects. Its translation into legal rules is a challenge especially in new type, multi-stakeholder cooperatives with heterogeneous memberships where private law and public law mix and in cooperatives, which integrate into global value chains, not only operationally, but also organizationally. In these new arrangements the participants, the loci and the modes of participation need redefining.
Conclusion
A diverse world of enterprises is vital. Cooperatives should be part of it. As a contribution to sustainable development cooperative law is to translate the cooperative principles into legal rules; so are the statutes of cooperatives. However necessary any other action towards this end may be, without putting cooperative law back on the research and teaching agendas, we will fail.
Further reading:
Henrÿ, Hagen., Guidelines for Cooperative Legislation, 3rd revised edition, Geneva: International Labour Organization 2012
Henrÿ, Hagen, Sustainable Development and Cooperative Law: Corporate Social Responsibility or Cooperative Social Responsibility?, in: International and Comparative Corporate Law Journal Vol.10, Issue.3, 2013, 58-75
Henrÿ, Hagen Quo Vadis Cooperative Law?, in: CCIJ Report No. 72/2014, 50-61 (in Japanese; original manuscript in English with the author)