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MONDRAGON Corporation opens a period of reflection to plan its future

Txema Gisasola has resigned as President of the General Council, for personal reasons.

The basic characteristics of the future MONDRAGON model will be outlined during this period.

The new President of the General Council will be appointed once the establishment of the new framework project for MONDRAGON has come to an end.

Mondragón, 17 January 2014.- The co-operatives forming part of MONDRAGON Corporation have begun a period of analysis and reflection to design the general framework of action for the next few years. The first step has been to set up a team made up of managers from different co-operatives and areas of the Corporation which is in charge of carrying out an assessment of the current situation, identifying the key lines of action and drawing up the road map to be followed over the next few years.

This period has started after the resignation of the current President of the General Council, Txema Gisasola, for personal reasons. In his farewell, he vindicated the principles of “solidarity, effort, competitiveness, technological innovation and commitment to the community” as cornerstones of the essence of MONDRAGON’s co-operatives and mainstays for the future.

The new President of the General Council will be appointed once the establishment of the new framework project for MONDRAGON has come to an end.

Interim Management Committee

The resignation of the current President will be dealt with immediately by setting up an Interim Committee, at the heart of the General Council, to ensure the operation of the Corporation’s services and establish the bases on which all the members of all the Corporation’s co-operatives can decide what MONDRAGON will be like in the future. These framework lines of action will be presented to the 2014 Congress by the new President, who will lead the Group in the coming years.

In the current situation of economic crisis, MONDRAGON Corporation believes it is necessary to undertake this period of “collective analysis, reflection and debate” in order to tackle confidently the challenge presented by the global economic crisis.

The Corporation completely reasserts its trust in the Co-operative Model, as a driving force for generating wealth, and is firmly committed to the future of the community it is part of.

Statement issued by EROSKI on the MOU in relation to its AFS | EROSKI

Statement issued by EROSKI (a Mondragon coop) on the memorandum of understanding in relation to its AFS, presented by Kontsumobide (the Basque Consumer Affairs Institute)

• EROSKI wishes to report its positive assessment of the mediation process brokered by Kontsumobide  (the Basque Consumer Affairs Institute) involving EROSKI (issuer), financial institutions (retailers) and several Consumer Associations acting on behalf of those people who have invested in the subordinated debt referred to in Spanish as Aportaciones Financieras Subordinadas (AFS).
• In the memorandum of understanding signed by EROSKI and various financial institutions, the parties agree to make their utmost effort to ensure that EROSKI is able offer all the holders of its AFS a swap based on the following premises:

- Delivery of a subordinated bond issued by Eroski, whose face value would amount to fifty-five percent (55%) of the current face value of the AFS, with a maturity of twelve (12) years as of the date of the swap and an annual yield of 300 basis points over the Euribor (12 months).

- Cash compensation amounting to fifteen percent (15%) of the current face value of the AFS, to be paid out at the time of the swap.

• This agreement provides a universal solution for all those people who have invested in the AFS, regardless of the financial institution involved in the purchase, the amount in question or the investors’ place of residence. The acceptance of this option by investors in the AFS is wholly voluntary, which means that those people who wish to remain in possession of their AFS may do so as at present.
• This agreement does not require the reimbursement of any interest EROSKI has paid out to date for ’permanent’ AFS. Furthermore, EROSKI will pay the interest on the AFS corresponding to the 2013 financial year on 31 January 2014. Since the first issue, EROSKI has always paid the corresponding interest due, which has meant that investors in the AFS have already recouped a considerable part of their face value thanks to the interest accrued, amounting to as much as 63% in the case of the 2002 issues.
• During this process, EROSKI has responded to all the requests made by the Kontsumobide, and has at all times shown its willingness to collaborate in order to reach an agreement that will satisfy all the parties involved within the framework of our responsibilities as issuer.
• EROSKI also reports that it maintains a permanent channel of communication with its investors through its Investors’ Club, which can be contacted by phone on +34 946 211 248, or by email at aportacioneseroski@eroski.es

Lagun-Aro EPSV’S General Assembly agrees to improve early retirement benefits and the employment aid fund

Note: Lagun-Aro is the social security mutual of Mondragon, one of the three original Mondragon institutional pillars along with the university (Mondragon University) and the bank (Laboral Kutza). 

Lagun-Aro EPSV’s General Assembly today approved an increase in early retirement benefits and greater financing for the Employment Aid Fund, as a speedy response to extra commitments related to the Fagor Electrodomésticos bankruptcy proceedings. These decisions allow the Lagun-Aro EPSV member cooperatives to consolidate the principles of the cooperative movement (solidarity, cooperation and responsibility) through a firm commitment to helping the affected members.

Lagun-Aro EPSV’s Extraordinary General Assembly, held this morning at the Kursaal Palace in San Sebastian, gave majority backing to the proposals put forward by its Board of Directors regarding the provident society’s provision for Employment Aid.

The proposals are designed as a speedy response to the needs arising from Fagor Electrodomésticos’ bankruptcy proceedings, and consist of the following measures:

• Amendment of some aspects of the Lagun-Aro EPSV Employment Aid regulation, particularly early retirement benefits, which will be increased for cooperatives involved in a wind-up process. This decision will allow the affected worker-members to opt for early retirement at 55 with an 80% consumption advance benefit rather than the 60% determined to date. It will apply to around 300 members.
• Income reinforcement allowing the entity to meet the cost of the new commitments, with the corresponding increase in provisions paid by the cooperatives, which will be introduced from 1 January 2014.The impact of the increased provision for Employment Aid, which is partially set off by adjustments made to payments for other benefits, amounts to 1.5% of the annual wage.

These two aspects of the Employment Aid were debated in detail at the Extraordinary General Assembly, as this contribution is affected by the current situation at Fagor Electrodomésticos.

However, the situation has no impact on the entity’s pension system, financed by a specific capitalisation mechanism (fund accumulation) which is independent from the other contributions and therefore unaffected.

The step taken at this morning’s meeting complements other advances being made by the cooperatives themselves, who are firmly committed to relocating unemployed worker members, and consolidates the values of solidarity, cooperation and responsibility, all fundamental values of the cooperative movement.

See photo album at http://www.flickr.com/photos/tulankide/sets/72157639076286543

Read media coverage (in Spanish):

Greater early retirement benefits and a 1.5% increase in employment aid contributions approved at the Lagun-Aro EPSV Assembly | La Vanguardia

Lagun Aro helps Fagor with a 1.5% increase in cooperative contributions, Basque Country | Expansión.com

Supporters of workers cooperatives flesh out plans for Reading | Reading Eagle

By Don Spatz

Reading,PA –  Reading could get its first workers cooperative next year in its push to foster an alternative business model that competes with Wall Street.
The co-op would be an employee-owned firm composed mostly of apprentices being trained in building demolition, deconstruction (razing all or some of a building, but reusing its parts) and weatherization, said Lawrence P. Murin, special assistant to Mayor Vaughn D. Spencer.

The city would not create any cooperatives on its own, but would foster them as part of its economic development plan, Murin told an audience of 30 people last week at Alvernia University.

He said the city gives several million dollars a year to private firms and nonprofits.

“We believe we have the ability to direct some of that to co-ops,” he said.

The meeting was called to update the community on what co-op progress has been made; rescreen the video “Shift Change: Putting Democracy to Work,” shown at the panel’s February meeting; and tout the virtues of building local cooperatives.

“Why Reading? The answer is that we have a mayor and an administration that recognizes the old ways don’t work,” Murin said.
He said the city’s industrial and tax base has dwindled for 40 years because the city has used tens of millions of dollars to lure businesses here, but they’re gone as soon as the incentives are gone.

That’s because under the Wall Street model, capital is sovereign and labor is a commodity, totally opposite the co-op model where job creation comes first and profits second, said Michael A. Peck, the moderator and the North American delegate for the Mondragon Cooperative based in Spain.
“Nobody here is saying capitalism is wrong,” Peck said. “We’re saying that predatory capitalism is wrong, and virtuous capitalism is good.”

Read the full article via The Reading Eagle.

215 members of Fagor Electrodomésticos already relocated in other MONDRAGON cooperatives

215 members of Fagor Electrodomésticos already relocated in other MONDRAGON cooperatives.

500 more relocations to other group cooperatives forecast over the next six months.

The group of candidates for early retirement based on Lagun-Aro EPSV regulations rises to 300 people.

To date, 215 members of Fagor Electrodomésticos are already working in other cooperatives in the MONDRAGON Corporation. The Corporation has therefore maintained its firm commitment to employment, as just one month after it was announced that Fagor Electrodomésticos was in an arrangement with creditors, it has already succeeded in relocating over 200 members.

It is also establishing a plan that points to 500 new relocations over the next six months, due to the extraordinary response from cooperatives in the group, particularly in the Industry area, who have offered new posts to help solve the employee surplus caused by the financial crisis at Fagor Electrodomésticos. Furthermore, additional efforts by the Distribution area are awaiting confirmation, and its capacity for receiving members will also contribute to providing employment solutions.

In addition, and in accordance with current Lagun-Aro EPSV regulations, it is predicted that the group of candidates for early retirement among members of Fagor Electrodomésticos stands at approximately 300 people.

This way, the Corporation is trying to provide solidarity and a cooperative response to the employment problem through relocations and early retirements, thereby complying with its established aim of offering solutions to a group of between 1,000 and 1,200 people over the next few months.

Coordinated management

The MONDRAGON Corporation is working hard in a coordinated manner through Lagun-Aro EPSV, the Corporate Employment Office, Fagor Electrodomésticos and the other cooperatives.

Several temporary and permanent options which may help to find positions for the employee surplus created by the financial crisis at Fagor Electrodomésticos are currently being assessed.

The Corporation has a long history of generating employment and all divisions are currently following this policy. The diversity of sectors and markets in which the cooperatives operate guarantees that in the short- to medium-term new activity will continue to be generated, resulting in new employment opportunities. The fact that the businesses are competitive in their respective markets is always good news, and particularly now, because this will create options for solving the employee surplus from Fagor Electrodomésticos.

Arrasate, 22 November 2013

http://www.mondragon-corporation.com

The Basque cooperative movement: a model of solidarity | deia.com

by Joseba Azkarraga Rodero

Yet regarding the somewhat tsunami-like scenario involving the Fagor Group, I consider it necessary to emphasise the strength of the actual MCC Cooperative Group in particular and of the Social Economy in general.

The Social Economy in the Basque Country consists largely of enterprises that embrace, organises themselves and operate according to criteria of democratic governance and the supportive distribution of profits, or also, if the case arises, the joint shouldering of any losses there might be.

This conceptual definition applies, a priori, to a wide range of different enterprises, such as those in the Solidarity Economy, the Voluntary Sector, and the Non-Profit Sector, amongst others, but what seems to be unquestionable, nevertheless, is that the cooperatives lie at the very heart of the Social Economy. That is, at least, the case in the Basque Country.

Basque cooperativism is a value in itself. It is the standard-bearer of a culture and values that are socially advantageous, and I believe it represents a form of value creation that lends cohesion to Basque society.

It is no coincidence that the greater concentration of cooperativism in our country coincides with areas where income is more evenly distributed, where there is lower unemployment and where the average standard of living is higher.

Yet there is another factor that needs to be taken into account. Cooperativism brings plurality to the usual –most common- way of doing business. And this is more important in a society and in an age in which individualism is the norm.

I do not share the view of those who want to present this economy as an almost marginal experience. In the autonomous community of the Basque Country more than anywhere else, the bulk of the social economy corresponds to the type that can be referred to as “ordinary economies”. This is shown by, among other things, the fact the Mondragon Group is the leading business group in the Basque Country.

If the difficulties encountered by a cooperative such as Fagor are used by some to talk about a “failed model”, should we not instead, and by the same logic, be talking about the failure of the capitalist model?

I believe we can single out cooperativism as a clear factor of stability, as it may contribute, and is indeed providing at this very time, operational and organisational solutions to the needs arising in each specific case.

Above all, it is a basic building-block for creating a fairer society in which priority is given to people and their values, amongst which are the principles of work and community interest.

Even during my time as the regional minister for Labour in the Basque government, I have always understood that from the public administration’s perspective, investing in the social economy provides a greater return in social terms because it contributes not only to social cohesion, but also to a healthier democracy and a redistribution of wealth.

Nevertheless, I am not, of course, referring solely to the commitment of the public administrations, because the success of the social economy depends on all of us, and most especially on civil society. Hence the reason that now more ever there is a need to coordinate actions and galvanise public and private collaboration in pursuit of common goals.

Numerous sociological and economic studies have been, and continue to be, forthcoming that have sought to explain the emergence, development and success of Mondragón’s cooperative experience. We should not forget that we are talking about a group that consists of over 100 cooperatives, with a major presence abroad, and grouped into three key sectors: financial, industrial and retail. What’s more, it has its own cooperative university.

No one doubts today that a key factor has been the link between work, financing, training and welfare that has existed since the very origins of the Mondragón cooperative experience. This is clear proof of the need to collaborate as the only way of ensuring the long-term consolidation of the grassroots cooperatives.

The crisis that has affected Fagor has given some people the excuse to attack the cooperative model and even generate alarmism in society, questioning not only the model’s very viability, but also such sensitive aspects as Lagun Aro’s ability to continue providing social welfare coverage. Those who have mishandled this information have done so, moreover, seeking to link Basque nationalism with the failure of the cooperative model. Faced with this dangerous tactic, it needs to be clearly stated that Basque cooperativism is precisely that, cooperativism; and in any case, the fact it includes some people with greater or lesser ties with the world of politics is simply a reflection of our country’s socio-political make-up and, more specifically, of the area where the cooperatives are more densely located.

But I would like to add something else. If the difficulties affecting a cooperative such as Fagor, with all the importance it has within the group as a whole, can be used by some to talk about the “failure of the model”, we might well ask how we should describe the economic situation affecting myriad firms that are not cooperatives. According to that logic, should we not be referring to the failure of the capitalist model?

When we refer to Basque cooperativism, we are dealing with 12.5% simply in terms of jobs in industry, 12.4% of exports and 5.25% of the overall Basque GDP. These figures carry enough weight to make some wish to see an end to this model.

Yet there is still one further aspect I should like to mention; one that defines the model’s unique nature, and even more so at times like these. I am referring to internal solidarity. As has sometimes been the case in the past, this solidarity means that people who have lost their jobs due to the difficulties experienced by the cooperative they belong to may be relocated into other cooperatives in the group. This is one of the characteristic traits of cooperativism: solidarity.

I should like to end by quoting Don José María de Arizmendiarrieta, the true father of Basque cooperativism, who always insisted that he wanted “men (and women) with a capacity to develop, with a sense of community, with the ability to think, to create and to serve “. I don’t think anyone has ever provided a better definition of the essence of the cooperative movement.

Translated and reposted from deia.com

By Joseba Azkarraga Rodero, * Former regional minister of Labour in the Basque government

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.

The future of Mondragon following its third financial crisis

ALTHOUGH the financial crisis at Fagor Electrodomésticos (FE) is more spectacular due to the renown of the brand involved, it is neither the first nor the largest suffered by what is today the leading business group in the Basque Country. Therefore, to glimpse how it will react in the face of this adversity, it is worth recalling how it did so in earlier critical moments.

It experienced its first significant crisis in 1970 due to the stratospheric growth of cooperatives in the heat of an internal market protected from overseas competition.

In that year the financial needs of industrial companies exceeded the capacity of Caja Laboral, which had established itself in the small towns where cooperatives were based (Aretxabaleta, Elorrio, Placencia, etc.) and where, with an ideological message, it requested savings from inhabitants to support the development of local business.

When faced with the lack of trust from financial institutions in the new “business invention” and the inability of Caja Laboral (the sole financier) to resolve the liquidity problems, some cooperatives began to be unable to make their payments. This had a knock-on effect and in some towns a panic-driven withdrawal of funds which both aggravated and increased the problem.

Caja Laboral, with very few resources and with 100% investment of its third-party resources set aside for a small number of companies was a serious contender to join the list of failed credit cooperatives.

However, the hard work of many missionaries, whose spent countless hours explaining the project and achieving the backing of several social leaders, managed to contain the problem.

The subsequent decision to open branches in larger towns and cities, with an emphasis on service and customer relationships (unknown in banks and building societies at this time) confirmed the support of many sectors of Basque society for the original social business project. Savings deposited in Caja Laboral grew rapidly and in just a few years they outgrew the financial needs of the cooperatives.

The second crisis, in the latter half of the 1980s was more serious and complicated because it involved several negative factors at the same time:

• The results of the general crisis in the Basque economy with its general problems, and over 10 cooperatives that had to be closed after successive failed attempts to keep them open that consumed a great deal of resources.
• The Bank of Spain being granted responsibility for supervising credit cooperatives (previously the responsibility of the Ministry for Employment). It demanded external audits, that large loans borrowed by cooperatives be registered as losses and a drastic reduction in the bank’s investment in the group, which had previously represented 70% of its total investment.
• The retirement of the founders, whose status as the founders whose leadership had been helped by their great professional thoroughness and their outstanding commitment and austerity.

The response was proportional to the problem: it was unanimously decided to establish solidarity systems that meant sacrifices for all, to help the over 2,000 people affected and, in addition, the MCC Corporation was established. This replaced the Caja Laboral as the leader of the cooperative based on the creation of the Cooperative Congress, with representation proportional to the number of members; the General Assembly, as executive body, and the Corporate Centre, for managing joint services and funds.

This led to a new successful period with great business development, visionary internationalisation and a firm commitment to research and growth, also accepting ideological flexibility, with a growing use of ‘sociedades anónimas (private limited companies) to keep control of the new initiatives led by cooperatives.

In both crises, what stood out was the solidarity of the affected parties can be emphasised, based on special efforts and personal sacrifices, as well as the pragmatism of adapting to new regulatory or market requirements while the basic values which should be the cornerstone for any situation (participation, cooperation, innovation and social responsibility).

So, what should we expect as the response to this new crisis regarding the liquidation of the largest part of Fagor Electrodomésticos? As we have seen, the pioneers faced problems with a level of effort, self-sacrifice, self-demand and solidarity that we may have forgotten. They understood that it was the way to effectively “fight for a job” for themselves and their children. This capacity for sacrifice was accompanied by the pragmatism to “be reborn and adapt” without dogma or ideological prejudices but instead thinking, first and foremost, about solving people’s problems and doing so without betraying the founding values.

Within this framework, it will be necessary to address the following practical matters, at least:

• Promptly implement new and traditional mechanisms to provide solutions to the unemployed staff members of Fagor Electrodomésticos to relieve their understandable current anxiety.
• Attempt to save jobs in the profitable business of this company, even while it is undergoing arrangements with creditors, and to do so as quickly as possible, the key to efficiently negotiating its future in new companies.
• Optimise, where possible, the running of the profitable cooperatives so as to improve group results, generate greater solidarity funds and realistically start new businesses that can absorb, in the medium-term, the unemployed members and current temporary workers.
• Restore trust from suppliers and financial institutions, who will have been disappointed by the inability to keep to their promise that “we have always paid every last penny”.
• Review the brand policy in cooperatives with the Fagor name in their company name, due to the possible negative consequences.
• Find new ways of financing new projects, perhaps giving financial contributors a say in future decisions (remember that in the cooperative world Marx’s famous statement that “capital is accumulated work” is especially true).

However, although these challenges are significant and critical, in-depth reflection on other aspects is also necessary, such as:

Should the sovereignty of the cooperatives be shared in the event that solidarity funds necessary for their development have been contributed? Should the Corporation have the capacity to intervene in companies (as Caja Laboral did in the first phase based on its financing monopoly) in order to avoid extreme situations such as those we are currently experiencing? Is it necessary/appropriate to provide institutional representation to possible providers of capital to meet the financing needed for development?

Can (should) mechanisms involving the participation of professionals also now be put into practice in the group’s sociedades anónimas? In short, is it necessary to review the corporate governance model and find variations on the traditional industrial cooperative model?

The challenge is to do this while simultaneously retaining the differentiating values mentioned above, forging new routes to solidarity and being sufficiently pragmatic to discover business formulas that combine competitiveness and human development in such a way that, despite requiring sweat and perhaps even tears, the original, humanist Basque business project is capable of offering, in a few years, new results for the people and society of this country.

Juan Manuel Sinde Board member of Arizmendiarrietaren Lagunak Elkartea – Saturday, 16 November 2013