Case Analysis – Mondragon
November 27, 2012
Structure and Management
Mondragon Corporation is the world’s biggest group of cooperatives located in the north of Spain. The Corporation’s goals include “competing on international markets with the use of democratic methods in [the] business organization, the creation of jobs, the human and professional development of its workers and a pledge to development with [the] social environment” (Mondragon). Today, Mondragon’s cooperatives are grouped into four functional areas: finance, industry, distribution, and knowledge. Each functional group has its own strategy, which is coordinated by the Corporate Centre. All of the cooperatives join together to create Mondragon. The Congress is the “supreme body for joint expression and sovereignty, with its Steering Committee as the highest management and representative body, whose duties include the election of the CEO” (Mondragon).
The cooperatives operating within a functional group are called a Sectorial Group, which is additionally part of a Division. “Each Division is headed by a corporate Vice-president. The President of the General Council and the 14 Vice-Presidents, together with the Departmental Managers at the Corporate Centre make up Mondragon’s management bodies. The General Council is the body charged with drawing up, coordinating and applying corporate goals and strategies” (Mondragon).
Mondragon’s interesting corporate structure and management hierarchy are not unique. Indeed, many cooperatives like Rabobank and the Seikatsu Club, have similar corporate structures that are implemented to ensure that members’ interests are at the core of all management decisions. Because there are no shareholders, any gains made by the cooperatives are passed directly to its members. Additionally, any losses sustained by cooperatives are spread across the entire cooperation. Furthermore, if the Congress and Steering Committee decide that a business unit should be dropped, all members employed by that cooperative must be replaced into other businesses. In this sense, Mondragon and other cooperatives provide an insurance against job loss.
Social Implications and Questions
Mondragon currently employs about 84,000 people and includes 256 companies and bodies, of which about half are cooperatives (Mondragon). During this latest economic recession, the loyalty to the cooperative structure was tested. The losses of cooperatives hit hard were felt by all cooperatives within Mondragon. This upset certain business units who were outperforming their competitors, and some units ultimately decided to leave Mondragon. Furthermore, any members from units that the group decided to close had to be moved to other, more successful businesses.
Because no members can be left behind, cooperatives are more invested in making businesses successful than conventional businesses. Relocating members can be difficult because relocated members require training, must be relocated to a business within a certain distance to their current home, and these members can be cumbersome when businesses are trying to maintain certain levels of efficiency. “Workers’ co-ops are often seen as hotbeds of radical, anti-capitalist thought. Images of hippies, earnest vegetarians or executives in blue overalls could not, however, be further from reality.” As Mikel Zabala, Mondragon’s HR chief, explained: “We are private companies that work in the same market as everybody else. We are exposed to the same conditions as our competitors” (The Economist, 2009). It is critical for cooperatives to invest in their businesses and implement best practices so that they can compete in the world market with companies that don’t share similar guiding principles relating to retaining employees.
From the readings, we learned that cooperatives can and do act as a unit to increase their collective purchasing and negotiating power. In the example of Seikatsu Club, the Club was able to increase green practices through its mandate not to buy products that are harmful to the environment or to members (Maruyama, 1990). Additionally, the Club was directly involved in the financing and management of sustainable food production. Similar to unions, when cooperatives leverage the collective power of its members, they are able to promote more sustainable and locally driven practices that should give voice and benefit to all members.
Mondragon’s glaring question is whether its structure is actually sustainable. Because there are caps to managers’ pay, talented employees are being stolen away, leaving the future of certain companies in doubt. Additionally, Mondragon is located in Spain, where the future economic picture is fairly bleak, to put it mildly. How much longer are Mondragon’s successful business units going to want to shoulder the losses of the other less successful business units? And finally, for how long can these cooperatives employ all members when the companies must maintain a level of competitiveness and quality with non-cooperative businesses, for which no labor mandates exist? Answering these questions will be critical to Mondragon’s future success.
Maruyama, S. (1990). Seikatsu: Japanese Housewives Organize. In J. Plant, & C. Plant, Green Business: Hope or Hoax (p. 136). New Society Publishers.
Mondragon. (n.d.). Home. Retrieved Nov 25, 2012, from Mondragon Corporation – International Business Group: http://www.mondragon-corporation.com/ENG.aspx?language=en-US
The Economist. (2009, March 26). All in this together. The Economist .