The Mondragón Cooperative Gives Lessons in Democracy

Are democracy and corporate success compatible in a company? Francisco Javier Forcadell Martínez, professor of business economics at the King Juan Carlos University in Madrid, asks that question in his study, “Democracy, Cooperation and Success: Practical Implications of the Mondragón Case,” published by Universia-Business Review. He answers the question by saying that Spain’s Mondragón Cooperative Corporation (MCC), considered by many to be the world leading cooperative moment, represents, more than anything, success in applying methods of democratic management and participatory leadership.

 

MCC: An Example of the Cooperative Movement

 

Cooperatives are quite different from corporations, which belong to investors. In the case of cooperatives, there are neither salaried workers nor trade unions. The workers are the partners and managers, and decisions are made in the General Assembly because there is no board of directors. Generally speaking, what are the benefits of this model of democratic management? According to the study by Forcadell, the cooperative model enables the organization to achieve “greater effectiveness and provides the impetus for reaching higher levels of innovation and profitability. It enables the organization to create long-term value, while achieving the compatibility of its economic, social, environmental and individual goals.”

 

The success of MCC provides proof. MCC was established in 1956 in Mondragón (Guipúzcoa) in Spain, on the initiative of José María Arizmendiarrieta, a young priest. Currently, MCC comprises more than 100 independent cooperatives with combined assets of 18.6 billion euros. They employ more than 70,000 people in 65 countries around the world. It is the largest cooperative in the world and the seventh-largest business in Spain, and it has an important presence in several sectors, including finance, industry and distribution. Recently, MCC has moved ahead full speed with its international expansion.

 

In 2003, Fortune magazine named MCC one of the ten best places to work in Spain because of the absence of a hierarchical atmosphere within the organization, the flexibility of working hours, and its commitment to quality and globalization, among other factors. Another prestigious international magazine singled out Iriza, a cooperative in the bus construction sector that belongs to MCC, as one of the most efficient cooperatives in the world.

 

Quite clearly, Mondragón has enjoyed very good results from its model of democratic management. But can the model be applied to other organizations? What exactly does the model involve?

 

Key Aspects of MCC

 

According to Forcadell’s study, the MCC model revolves around three factors — corporate culture, organizational structure, and a democratic process for strategic planning. The first of the three factors essentially involves “one vote for each worker, no matter how much capital he owns.” In other words, the culture of MCC is based on the idea of overcoming the confrontation between capital and labor. It means “converting people into owners of the company, making them participants in decision-making and [allowing them to benefit from] the profits,” writes Forcadell.

 

On the other hand, the organizational structure follows a federal model. That means that the power of each cooperative resides in its social base, which enables each cooperative to enjoy both legal and functional autonomy. Workers delegate power to the governmental organs that represent them in a single cooperative, and in the corporation as a whole. That way, “The hierarchy exercises power through delegating it,” writes Forcadell.

 

In addition, according to the author, the structure is based on the principle of subordination, “so that at each level of the corporative hierarchy there is a prohibition against carrying out tasks that can be realized at a lower level.” In the current structure, he notes, “cooperatives cede certain functions to sector-based groups which cede them to the divisions in their sectors, which cede them in turn to the General Council.” Despite the fact that the MCC has achieved very good results by using this structure, Forcadell notes that the organization is planning to give greater power to the cooperatives because it has “recognized that the entire structure has no capacity for acting if ‘the people at the bottom don’t want something to happen.’”

 

Finally, the strategic plan is carried out democratically with the participation of every cooperative and over a specific period of time. For a plan to be finalized, it must be debated in different corporative levels. It can be approved by the Cooperative Council only after a year of work. The Council is composed of 650 delegates from the cooperatives, and its function is to establish strategic criteria.

 

The Challenge of Globalization

 

Forcadell believes that this model can be applied to other business organizations, enabling them to improve their internal democratic practices while promoting the development of democratic principles within small and midsize enterprises. However, establishing this management model is a major challenge. MCC itself has been obliged to duplicate its own democratic practices in a growing number of the organizations it owns around the world.

 

Mondragón has chosen to globalize in order to survive. Nevertheless, this decision provides an important dilemma for the cooperative, since it must choose between “conserving its identity and dealing with the consequences; or losing that identity and advancing more rapidly,” writes Forcadell.

 

Moreover, there is the additional challenge of applying the experience of MCC in countries that have different cultures, including some that do not even have a democratic political system or cooperative laws. It is no mean task to convert the cooperative model into something universal. At the moment, Mondragón has decided to establish a dual corporative system that involves the coexistence of cooperative societies and corporations. That way, according to the study, between 40% and 50% of MCC employees are not officially its members.

 

At the moment, MCC faces the challenge of “creating a democratic multinational company” in accordance with its principles and cooperative values. Forcadell notes that this cooperative approach is usually easier to implement in smaller organizations than in larger companies and those in distant places. José María Aldekoa, vice-president of MCC, believes that it is very hard to try to transform participatory companies into cooperatives, because the process for establishing those kinds of organizations happens from the bottom up. In other words, it is not the sort of model that you can impose on companies that have already been established. As a result, MCC has chosen “to introduce democratic practices into corporations in order to increase their degree of democracy,” notes the study.

 

Raising the Level of Democracy in Organizations

 

How can other organizations establish a democratic system of management? Forcadell proposes the following:

 

  • Create a democratic culture that includes a system of values with such elements as free and total communication between every level of the organization. Do this so that you can substitute trust for coercion, and base influence on technical competence.

 

  • Democratize ownership and power so that the members of the organization can participate to a greater or lesser degree in the ownership and management of the organization, as well as in the decision-making and governance of the company. Forcadell also recommends creating a democratic relationship with all stakeholders. For example, he notes that some MCC cooperatives permit their customers and suppliers to participate in the development of new products.

 

On the other hand, he adds, it is also necessary to promote shared leadership that involves the participation of every member of the organization. Nevertheless, he also believes that this leadership must be combined with vertical leadership “which incarnates and transmits values, and which helps to introduce democracy into the organization.”

 

  • Design an organic organizational structure based on association. To achieve that goal, you need to increase the level of democracy in the entire organization. In addition, every person must be involved in management in order to achieve the organizational goals. Although it is clearly easier to promote participation in smaller companies, that does not mean that larger institutions cannot achieve the same goal, notes Forcadell. In his view, MCC has demonstrated that you can achieve the goal of “developing large corporations based on the association of small units on the principle of free and democratic association, so that common institutions represent and serve every department or unit within them, and create a grand community.”

 

In addition, you have to establish self-managed working groups that function as mini-enterprises and collaborate with other teams, even outside of the organization.

 

  • Establish democratic processes for decision-making that are open, and make real operational decisions. “This is a way of including everyone in the growth of the organization,” writes Forcadell. MCC has shown that when you are jointly drawing up a strategic plan, “you can construct a common future that involves every level of an organization that involves 100 cooperatives and 150 businesses.” In the case of Irizar, he writes, “activities are organized on a base of processes developed by self-managed teams. This enables the members of the organizations to improve, and it changes their processes as a function of their needs and in agreement with other groups.”

 

  • Promote freedom of information and transparency. This involves sharing information and carrying out frequent surveys and opinion polls among the leaders, suppliers and customers.

 

  • Use education and training as a means for developing democracy. This involves not only professional capacity building that is useful for the organization, but also education for working together in a democratic organization, so that employees learn how to respect the opinions of others during the decision-making process.

 

  • In addition, when it comes time to choosing your personnel, you have to be especially careful about not engaging in any sort of discrimination. You also cannot forget that you must fully train workers about their rights and obligations when they participate in this sort of organization. For example, there are salary deductions for raising capital; obligations for participating in decision-making, and the requirement that they accept the will of the majority.

 

  • Forcadell also recommends self-criticism and flexibility in the process of democratization. In other words, you have to continually review the system in order to improve its democratic practices, so that people can adapt to changes in their environment, and so that you can satisfy those voices who demand change.

 

  • On the other hand, Forcadell also notes that democracy cannot be imposed. For example, the cooperatives that comprise MCC do not, in many cases, share common democratic practices. “The transition to a type of democratic system must be phased in gradually and with the greatest possible consensus among the members of the organization,” he writes.

 

In conclusion, Forcadell cautions that when you apply these measures, you have to take into account the special characteristics of the company as well as the degree of democracy you want to achieve. Building democratic organizations is no piece of cake. Among the largest obstacles, he writes, is “the excessive centralization, bureaucracy and autocracy that characterize many large corporations in which power is unequally distributed among the various stakeholders.”

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