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What makes co-ops different from other businesses? What sets them apart? Well, for starters, the co-op feature known as “one-member, one-vote”.
Other types of corporations often provide shareholders more votes if they own more shares in the company. Co-ops don’t allow for this type of concentrated voting. Whether you’ve bought a $1,000 investment share or a $10 membership share, you have the same amount of influence on the co-op’s decisions: one vote.
Why is this so important to the co-op structure? Because providing members with a good or service is generally the reason co-operatives exist. The one-member, one-vote system helps ensure a co-op acts in its members’ best interests.
A Shared Purpose
The starting point for any co-op is a group of people working together in a way that benefits each person. Self-interest drives the effort, but there is a common goal. This goal might be getting cheaper inputs for farmers, building a place to live, or creating a place to work. Co-ops are about people having a shared sense of purpose and aligned self-interests.
One-member, one-vote works great in this context because it distributes decision-making and is designed to reflect the interests of a majority of owners.
For example, suppose a co-op proposes to purchase one of its competitors and expand the business. To complete the deal, it would have to take on an $850,000 loan. If enough members believe the deal would benefit them and agree that it is the best way forward, their votes in favour make that decision. However, if the members think the move is too big a risk, more members may vote ‘no’. Regardless of the individual members’ interests, the co-op’s direction will be based on what the majority believes is the best way forward.
If the goals of the majority no longer benefit an individual member, that person or entity might choose to leave. That’s the nature of a co-op and the benefit of being an opt-in organization.
One share, one vote
In a for-profit corporation, individual shareholders also make decisions based on their interest in the organization, but this interest is reflected in the number of shares they own. The more shares, the more votes. While this system is legitimate, it reflects an individual’s interests, not those of the majority of shareholders. This is a key difference.
People or entities that invest the most money into a company — and therefore have the most influence in its decisions — will vote based on what they believe will benefit them, not necessarily what will benefit the company or other shareholders.
In a co-op, which prioritizes members’ interests, the distributed voting ensures decisions are made in the interest of all members, not just the wealthiest.
Not a Perfect System
One member, one vote does have some drawbacks. One is that is can be hard to keep members engaged enough to vote – especially in co-ops with a lot of members.
Consumer co-ops often struggle with this. Most members just want to shop at the store, get a patronage refund at the end of each year, and not think about the governance of the organization.
This can create a situation where a small group gains greater control of the co-op. An engaged group of people could approve an otherwise unpopular decision simply by showing up to vote when others do not. Having active member engagement strategies can help.
Another potential drawback is that co-ops become more risk-averse. Members may avoid riskier decisions that yield higher payoffs in favour of preserving the status quo. Having an entrepreneurial board and management team can help ensure members have the right information to make smart decisions.
Still the best model for co-ops
The focus on membership makes co-ops more stable businesses. Canada’s co-operatives also have considerable success accessing capital and have shown growth in the total number of assets, jobs, business volume, and memberships.
The one-member, one-vote system plays a big role in providing this stability and growth by making sure the people who use the co-op are the ones deciding how it should be run – now and in the future.
Want to know more about co-ops? Thinking about starting one? Check out our free, self-paced Introduction to Co-ops course!
Have questions about what makes co-ops different? Contact us!