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What Major Corporations Can Learn from Credit Unions About Conducting Better Business
When what we now think of as modern corporations began their rise to prominence in the 1500s, they were explicitly sanctioned by governments to fulfill societal needs. Early companies facilitated public works and allowed for long-distance trade, enabled manufacturing, and facilitated growth in financial services. While profit was a motive for the investors in early corporations, governments saw corporations as having a specific purpose related to addressing a need and reflecting this, initial business charters were time-limited, requiring renewal from the crown.
By the 1800s, corporations gained perpetual existence and were no longer required to register a purpose with the government. While businesses were moving away from clearly codified purposes, co-operative corporations were arising. Rochdale Co-operative — one of the earliest co-operatives — provided a codified values system articulating a purpose for the co-operative sector in service of society which continues, with some adjustments, today.
While modern co-operatives have kept a purpose in service of people as a central value, modern corporations influenced by thinkers from the Chicago School of Economics like Milton Friedman, typically are led by executives who believe the purpose of a company is to make money. Recently, scholars and thought leaders have tried to move beyond this narrow view. Former governor of the Bank of Canada and Bank of England, Mark Carney, for example, suggests in his book “Values”, that a company’s main purpose is working toward “the betterment of society” by providing solutions to problems faced by people and society. Unfortunately, this view, while gaining in prominence, is not widespread amongst business leaders and when exposed, can be seen as lip service rather than a concrete belief in this ideal.
Let’s be clear — corporations do need profits, but they should not be the sole purpose of a company. Co-operative corporations understand this and today, remain focused on serving society. This different focus is enabled by the structure of co-operatives. While the boards of members of for-profit stockholder corporations may believe (wrongly) that they must serve the shareholders that elect them above all else, co-operative corporations are elected by the membership as a whole. This membership is not determined by who puts in the largest investment. Instead, all members of the co-operative are entitled to an equal vote. Co-operatives fall into different categories such as worker co-operatives and consumer co-operatives. Worker co-operatives, as the name suggests, are made up of a membership base of employees. Consumer co-operatives members are the customers.
Credit unions provide a good example of how consumer co-operatives work. Every person who does their banking at a credit union is also a member of that credit union. Once a year, all the members are invited and entitled to vote on a one-member-one-vote basis to elect the board of directors, who is ultimately responsible for overseeing the credit union. The board does not have an incentive to seek excessive profits to serve a shareholder, as any profits are derived from the customers who are also members. Credit unions do need a profit to ensure the organization meets legal requirements related to having a buffer against bad years. However, the credit union’s pursuit of profit is in service to the organization and its membership, not a goal in itself.
The original Rochdale values have evolved into the seven co-operative principles: 1) Voluntary and open membership, 2) Democratic member control, 3) Member economic -participation, 4) Autonomy and independence, 5) Education, training and information, 6) Co-operation among co-operatives, and 7) Concern for community. Notice that profit is not one of these principles.
Since credit unions do not have profit as a purpose, they can shift their focus to serving their customers (who are also their members) and the wider community. A typical for-profit business may make a donation to a charity or participate in a green initiative as a marketing mechanism to increase sales; when credit unions participate in a community-based initiative, they do it because the organization believes doing so serves the co-operative’s purpose.
This may seem like a subtle difference but in practice, it is extremely meaningful. When your purpose of charitable work is marketing, marketing drives the decision-making process. When your purpose of charitable work is building a better world, community need drives the decision-making process.
Large corporations are trying to return to the idea of purpose and move beyond the profit focus. Unfortunately, shareholders, managers, and board members influenced by the Chicago School thinkers from the 1970s, continue to push a “greed is good” mentality. By supporting co-operatives and small businesses, we have the ability, simply through our shopping habits, to support a vision of a better world.
