Member owners

What Are Member Owners?

Member owners are individuals or entities who simultaneously hold an ownership stake in an organization and utilize its products, services, or facilities. This concept is fundamental to the cooperative business structure, which stands apart from conventional corporations driven by external shareholders. In a cooperative, the primary purpose is to serve the needs of its members rather than to maximize profit for investors. This distinctive model aligns ownership and usage, fostering a participatory approach to enterprise. Member owners typically exercise democratic control, adhering to the principle of "one member, one vote," regardless of their financial capital contribution.

History and Origin

The concept of member ownership has roots in historical movements that sought to provide economic fairness and mutual support, primarily emerging during the Industrial Revolution. Early cooperative societies were formed by groups of individuals who pooled resources to address common needs, such as access to affordable goods or markets for their produce. The modern cooperative movement is widely traced to the Rochdale Equitable Pioneers Society, founded in 1844 in Rochdale, England. This group of 28 cotton mill workers established a cooperative store to provide themselves with unadulterated food and other provisions at fair prices. Their operating principles, known as the Rochdale Principles, became the foundation for cooperatives worldwide, emphasizing open membership, democratic control, and member economic participation¹⁴.

Further developments saw the growth of cooperative models in various sectors. In the United States, Benjamin Franklin founded the first known cooperative in 1752, a mutual fire insurance company. Agricultural cooperatives, such as the Grange, also emerged after the Civil War to connect producers and consumers more directly. The International Cooperative Alliance (ICA), founded in 1895, formalized and promoted these principles globally, advocating for an autonomous association of persons united voluntarily to meet common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise¹³.

Key Takeaways

• Member owners are individuals or entities who are both owners and users of a cooperative business.
• Unlike traditional corporations, cooperative organizations prioritize serving their member owners' needs over generating profits for external investors.
• A core tenet is "one member, one vote," ensuring democratic control regardless of capital investment.
• Financial benefits, such as patronage refunds, are often distributed based on a member's usage of the cooperative's services or products.
• Cooperatives are guided by a set of globally recognized principles emphasizing self-help, self-responsibility, democracy, equality, and solidarity.

Interpreting Member Ownership

Interpreting the role of member owners within a cooperative involves understanding their dual function as both stakeholders and patrons. This dual role means that decisions within the cooperative are typically made with the direct benefit of those who use its services in mind, rather than solely focusing on maximizing returns for external shareholders. For example, a consumer cooperative like a food co-op aims to provide high-quality goods at competitive prices to its members, often reinvesting surpluses back into operations or distributing them as patronage refunds, which represent a reduction in the effective cost of goods for members.

The engagement level of member owners can vary, from active participation in governance through elections for the board of directors and bylaw amendments, to simply utilizing the services offered. Effective cooperative operations depend on the active involvement and informed decision-making of its member owners, often facilitated by education and communication programs¹².

Hypothetical Example

Consider "Green Harvest Co-op," a hypothetical producer cooperative formed by local farmers to collectively market their organic produce. Each farmer who joins the cooperative becomes a member owner by purchasing a membership share and agreeing to its bylaws.

Sarah, a small organic vegetable farmer, decides to join Green Harvest Co-op. She pays a nominal membership fee and now has one vote in all cooperative decisions, regardless of the size of her farm or the volume of produce she supplies. If Green Harvest Co-op earns a surplus from selling the collective produce, a portion of that surplus may be returned to Sarah and other member owners as a patronage refund, proportional to the amount of produce they sold through the co-op that year. This directly benefits Sarah by reducing her marketing costs and ensuring she shares in the cooperative's overall success, aligning her interests as both an owner and a user of the cooperative's services.

Practical Applications

Member ownership is a foundational element across a diverse range of industries and organizational structures within the broader landscape of cooperative finance. This model is applied in:

• Financial Services: Credit unions are a prime example, where account holders are also member owners, providing them with a say in the institution's governance and often resulting in better interest rates or lower fees compared to traditional banks.
• Agriculture: Farmers form producer cooperatives to gain greater bargaining power, access shared processing facilities, or market their goods more efficiently, such as the well-known Sunkist Growers¹¹.
• Retail: Consumer cooperatives, from local food co-ops to larger retail chains, allow customers to collectively own the business, influencing product selection, pricing, and operational decisions¹⁰. REI Co-op, for instance, provides annual patronage dividends to its member owners⁹.
• Utilities: Rural electric cooperatives and telephone cooperatives provide essential services to often underserved communities, with the users of these services acting as member owners⁸.
• Worker Cooperatives: Businesses where the employees themselves are the member owners, participating in decision-making and sharing in the profits generated by their labor.

Globally, cooperatives provide jobs or work opportunities to approximately 10% of the employed population, demonstrating their significant economic footprint and practical application in providing services and fostering local development⁷.

Limitations and Criticisms

While offering distinct advantages, the member ownership model within cooperatives also presents certain limitations and faces specific criticisms. One notable challenge is the potential for slower decision-making due to the democratic nature of governance, where achieving consensus among a large group of member owners can be time-consuming⁶,⁵. This can sometimes hinder a cooperative's ability to react swiftly to market changes or seize new opportunities⁴.

Another limitation pertains to capital formation. Unlike traditional corporations that can raise significant capital by issuing shares to external investors on public stock exchanges, cooperatives primarily rely on member contributions and retained earnings for financing. This can restrict a cooperative's capacity for large-scale investment or rapid expansion³. Critics also point to potential issues with member engagement and education, as a lack of understanding of the cooperative's business or governance can lead to reduced participation and internal conflicts². Maintaining alignment across the organization and balancing the social mission with business profitability can be a complex undertaking for cooperatives¹.

Member Owners vs. Shareholders

The distinction between member owners and shareholders lies primarily in their relationship with the organization, their voting rights, and how they benefit financially.

While both groups possess an ownership stake, a member owner's primary connection to the organization is through their active use of its services, fostering a mutual aid model. Shareholders, conversely, invest primarily for financial gain, with their influence directly tied to the extent of their financial investment.

FAQs

Q1: What is the main difference between a cooperative and a regular business?

A cooperative is owned and controlled by the people who use its services (the member owners), while a regular business is typically owned by investors (shareholders) who may not use its products or services. The main goal of a cooperative is to serve its members' needs, whereas a traditional business aims to generate profits for its owners.

Q2: How do member owners get a say in the cooperative?

Member owners typically exercise their voice through a democratic voting process, often adhering to the "one member, one vote" principle, regardless of how much capital they have contributed. They elect a board of directors and may vote on major decisions or changes to the cooperative's articles of incorporation or bylaws.

Q3: Do member owners get money back from a cooperative?

Yes, member owners can receive financial benefits. Often, cooperatives distribute surpluses back to their member owners in the form of patronage refunds, which are allocated based on how much business each member did with the cooperative, rather than on their ownership stake. This effectively lowers the cost of goods or services for the member.