The stakeholder co-operatives formed around the town of Mondragon in the Basque region of Spain have been outstandingly successful on a number of measures in comparison with other forms of firms. The control architecture within and between Mondragon firms contains a number of innovations and lessons for developing the theory and practice of corporate governance.
Mondragon’s corporate values are Co-operation, Participation, Social Responsibility, and Innovation. It has aimed to achieve economies of scale through a continually expanding network, while retaining a participatory decision-making model and local independence of the various cooperatives. The network of mutual support between the parts of the complex has been crucial toward regional development.
Mondragon’s Ten Principles
1. Open Admission (non-discrimination—men or women, Basque or non-Basque, religious or non-religious, or from any political party or nonpartisan), 2. Democratic Organization (the principle of ‘one worker, one vote’ is the core), 3. Sovereignty of Labor (relation between capital and labor), 4. Capital as Instrument (capital as an instrument or tool to be used, deployed and governed by labor, rather than the other way around), 5. Self-Management (the importance of training worker-owners to better manage their work on the assembly line and to train those elected to the governing councils or selected for management teams to have the wider educational background to steer the cooperatives strategically), 6. Pay Solidarity (the worker-owners determine the spread between the lowest-paid new hires and the top managers) 7. Inter-Cooperation (encourages the various coops to cooperate with each other) 8. Social Transformation (the coops are to make use of cooperative values to help transform the wider society) 9. Universal Solidarity (the coops are to practice solidarity within themselves and with the entire labor movement) 10. Education (education as its core value and the key to the democratization of power in both the economy and the society)
Balance Issues in Mondragon
The co-owners and workers balance: They exercise the rights of co-owners in firm governance and distribution profit and of worker-owners to democratic governance bodies in the general assembly of their cooperative, the firm’s highest authority. Each side also has responsibilities to accept different roles in the enterprise, respect expertise and “play by the rules”.
The collective and the individual balance: The collective side focuses on re-investing their half of after-tax profits in the business. For the individual side, everyone earns competitive salaries and leave their annually allocated profit share in the company.
The small and the large balance: They stay small to work on a human scale. At the same time, to accumulate serious resources for growth, they have to stay big as well. To balance this dilemma, they have developed a network called Inter-cooperation. They centralize decision making and distribute leadership. The companies coordinate their activities, share a portion of profits, do joint strategic planning and are constantly looking for synergies. They come together to make the Corporation.
The autonomy and power delegation balance: Intimate knowledge of operations and local issues is in the individual cooperative companies. Key concerns that relate most to those operations and to the people most involved in them need to be addressed at the local level, the level of the individual company. Local autonomy on these issues is important to make co-ownership real, to fortify co-ownership’s implications for work on a human scale, understanding one’s business, genuine accountability, personal relationships and a sense of community.
The control and incentive architecture of Mondragon firms was custom designed according to the nature of both their activities and their principal stakeholders. The resulting unique control arrangements and outstanding performance supports the hypothesis that the structure of governance is a determinant of sustainable competitive advantages. The evolution of Mondragon firms also illustrates the need to consider corporate architecture as a variable at any one time or over time. The Mondragon experience illustrates how the social research approach of ‘action science’ can be used to create competitive enterprises.
http://participedia.net/en/cases/mondrag-n-co-operative-corporation November 25 2012.