Financial Crisis at Fagor Electrodomésticos Vs. “Building development capacities” Cooperative Model

One, if not the most important, concern of the Club of Rome is to pay attention to fractal issues that may anticipate a change in our social and economic future. From this perspective, we have closely followed the evolution of the Mondragon (MCC) cooperative experience as a benchmark for another way of doing business and we view the current financial crisis at Fagor Electrodomésticos (FE) as an opportunity for this experience to change.

As with the collapse of Lehman Brothers due to its respective financial crisis, which did not represent the end of the liberal-capitalist system, but rather the cleansing of a globalisation process that needs to be fairer, we believe that the crisis at FE has a similar significance for the cooperative model.

Given the unique nature of the subject matter, it is important to highlight the hallmarks of the MCC cooperative model, which is characterised by transparency in management, sharing financial results and capital, cooperation between companies and a coherent pay scale. It is based on the values of respect for people and work as a method for social integration, training, and staff working on shared projects, leadership as responsible duty and commitment, and an inclusive business project that aims to create employment, with a long-term vision that responds to the social and cultural environment.

With these principles, it has overcome various crises since the first cooperative was founded in 1955 to the current incarnation of 100 cooperatives involving 80,000 people. Over this 58-year period, an “inclusive system” has been designed and implemented that is capable of “building development capacities”, in which all the composing parts collaborate with one another.

This includes both the Industrial Area, which includes the machine tool, construction, automotive parts, and services cooperatives, etc. with production plants in 24 countries, sales of €5.812 Bn (65% overseas), of which FE represents 8.4%, and Eroski, the Distribution Area, with sales of €7.092 Bn, the Financial Area, composed of Laboral Kutxa with €18.636 Bn in deposits and Lagun Aro with €4.876 Bn in funds, and the Knowledge Area, comprising the Vocational Training Colleges, the University, Technology Centres, etc.

Each has a system that means each part preserves its corporate identity and its own balance sheet and generation-of-income account, with internal solidarity agreements, investment funds, relocation of staff, R&D platforms and joint exports, etc., under a governance model that is unique to the cooperative experience. MCC is the leading industrial group in the Basque Country and the 10th largest in Spain for a good reason.

However, some aspects of this model are under scrutiny following the current crisis. One of the most critical of these is the transparency of information and the complex management of the dissemination of information in large cooperatives in a changing market, with diverse options, where decisions must be made continuously, along with the permanence of key historic leaders that frame these decisions within the values, history and aims of the cooperative.

The dynamics of organisations move between two extremes: change (promoted by staff members with the greatest awareness and a long-term vision), and resistance to change (where short-term, individual interests dominate). In a representative organisation, where all employees are members, the majority of the group (70%) will either be for or against change depending on how those in positions of responsibility know how to transmit the importance and opportunity represented by these changes, and whether the information is handled with transparency and intelligence and not left entirely in the hands of bodies with no direct responsibility such as the Social Council in the cooperative or the Works Council in the Sociedad Anónimas (public limited companies).

The transparency of information, its breakdown into indicators that reflect the contribution of each person to shared projects and their effect on company strategy is key to any organisation, whether it is a cooperative or not. Along these lines, cooperatives offer an important experience, given that today competitiveness is based on the innovation generated by people in a shared business project. This is one of the key features in the knowledge society we currently live in. The second aspect is related to the competitiveness and internationalisation model, based on technological development (R&D) which is normally reserved for parent companies and applied to low cost production processes. This has led to production being relocated overseas, depending on labour costs and/or emerging markets with a heavy demand for these products. In short, it has followed the model of large multinational companies, against which it is competing, but without the flexibility and lack of roots of these companies in their aim for maximum short-term profit. At present this model is being questioned, firstly due to exhaustion: which countries are currently the cheapest and for how long? And secondly by the emerging countries themselves, who are determined to “build development capacities”, solutions that comprise training, the development of competitive businesses, R&D, financing, governance, etc., integrated into the local culture and which strengthen responsibility, creativity, solidarity and equality among people.

In these terms the Mondragon cooperative experience has the values and resources to reinvent itself and adapt to the demands of a fairer globalisation, where human beings continue to be the start and finish point.

José Luis Jiménez Brea. Basque Country Coordinator of the Spanish Chapter of the Club of Rome.

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