The Young Foundation, in partnership with Co-operatives UK, have created a joint set of key learnings that government and civil society can take from this model for the UK and beyond. We will be utilizing these proposals to influence the debate going forward on how to develop truly inclusive societies.
‘Humanity at Work’, new research by The Young Foundation analyses a unique co-operative enterprise – MONDRAGON Corporation, a family of worker-owned and run businesses that perform successfully in some of the world’s most competitive markets. It is composed of more than 260 different companies and subsidiaries, with over 75,000 workers in 35 countries, annual revenues of over €12 billion, and salary ratios that do not exceed 1:9 between the lowest and highest paid workers (compared to 1:129 for a FTSE 100 company).
Founded in 1956, MONDRAGON has developed its own ecosystem in the Basque region of Spain, with a network of businesses, educational establishments and banks allowing it to sustain itself successfully.
While MONDRAGON is a unique product of its own history and development, there are significant learnings for the UK, in particular around how government can promote self-sustaining businesses that combine high levels of commercial success with a significant and positive impact on its employees and society more widely.
Co-operatives UK and The Young Foundation have worked together to produce a set of key implications from the MONDRAGON research, and from these three policy proposals.
- Businesses can place social benefit as a core element of their proposition without compromising their success and competitiveness in the market. For businesses owned and run by the workers, social benefit is intrinsic to competiveness.
- Rather than just relying on the ‘solo entrepreneur’ people can be brought together to create sustainable positive change at scale, if strong and shared values about common good are embedded in socioeconomic and investment practice.
- Ownership by workers, as in the MONDRAGON co-operative model, acts as a strong motivator for their alignment with and loyalty to its business. Thus, worker ownership is a very powerful driver of social innovation.
- People and communities experiencing socioeconomic inequalities are likely to find their most effective transformative solutions by working together to co-create new ideas which focus on distributing wealth and ownership more fairly.
- Strong shared values can be powerful mobilizers of fair action especially when embedded in more equal socioeconomic and organizational practices.
- Wealth needs to be distributed by taxation, but more equal pay ratios also lead to wealth redistribution. MONDRAGON therefore presents an alternative approach to fighting the structural causes of inequality.
- Learn from worker-owned businesses on corporate governance and pay ratios
There is widespread concern about spiralling pay ratios, with leading economists questioning their impact and the UK government exploring the issue in its consultation on corporate governance. However, despite these concerns, few solutions about how to reduce pay ratios appear to be on offer. MONDRAGON is a business competing with multinationals in difficult markets with an annual revenues of over €12 billion. Yet it maintains a pay ratio of 1:9 between the highest and lowest paid employees. It has achieved this because its workforce has an emotional stake in MONDRAGON because they own and control it, and therefore are more productive and engaged workers.
Recommendation: learn from worker-owned businesses. As part of its Corporate Governance Reform government needs to learn from the success of MONDRAGON and document how worker-owned co-operatives in the UK and globally are providing an effective alternative to excessive executive remuneration, while giving workers more of a stake and say in commercially successful businesses.
- Create a more inclusive economy by supporting a co-operative entrepreneurs’ programme
Following the division and discontent highlighted during the EU referendum campaign last year, the government has sought to create a more inclusive economy, one that ‘works for everyone’. MONDRAGON’s workforce reports high level of job satisfaction and engagement because they own and control the business – something that we know from worker-owned businesses in the UK too. There is much the government could do to create a more inclusive economy, especially for those on low and middle incomes who have been ‘left behind’ by the global economy.
Recommendation: support a co-operative entrepreneurs’ programme. Government could reduce or abolish elite employee shareholder tax breaks and invest the money in local hands-on support for low and middle income earners to own and control their livelihoods through co-operatives.
- Encourage worker buyouts, a tool to ensure businesses retain social value as part of planned succession
There are a growing number of businesses in the UK where entrepreneurs have sought to align a social mission with commercial success. Some are worker-owned from the outset but others have less inclusive ownership models. Beyond this, there are a large number of family-owned businesses rooted in the social fabric of places. Significant changes in ownership of these firms can erode mission and severe local ties. MONDRAGON demonstrates the positive impacts worker ownership can have on the social ecosystem as businesses evolve. A transition to worker ownership as part of a planned succession can be an effective way to ensure social mission and local ties are retained long-term.
Recommendation: support a worker buyout investment fund. Government could reduce or abolish elite employee shareholder tax breaks and use the money saved to establish a worker buyout investment fund, which would make this a viable succession route for more businesses in the UK.