Putting co-operatives and mutuals back in the limelight

16 November 2021

Monash University

A ground-breaking new way of measuring and accrediting the value of member-owned businesses is putting co-operatives and mutuals back in the limelight

In 2018, Monash University business academic Dr Matthew Hall found himself riding passenger in a RACQ roadside patrol car in Queensland. No, his car hadn’t broken down, he was doing field research.

Dr Hall was immersing himself in the world of mutuals and co-operatives – the Australian businesses, some of them huge, that are member-owned and so aren’t run for profit but to benefit members.

Over the course of a year Dr Hall and his co-researcher Dr Paul Thambar criss-crossed Australia to stand in wheat fields, look over port facilities, visit call centres and bank branches, and eavesdrop in board rooms.

In the RACQ patrol car, Dr Hall was hearing what would become a familiar story. The roadside assistance mechanic driving him around viewed himself as providing much more than a quick fix.

“On every call out he’d make sure he gave the member’s vehicle a broader inspection beyond whatever the immediate problem was,” Dr Hall remembers. “He might notice that a brake light wasn’t working properly or something else may need replacing, and he’d recommend to the member that they go and get it fixed. He’d refer to this as the ‘bonus effect’ and talked about how his role was to help keep the public safe.”

It was this “bonus effect” or ‘mutual value’ of co-operatives and mutuals that Dr Hall and Dr Thambar were trying to capture and measure. It varied from business to business – it might be higher selling prices for crops that farmers are selling through a co-operative, it might be better service, it might be mortgage discounts, it might be faster payouts on claims – but it was there in all co-operatives and mutuals.

But capturing the value of this “bonus effect” in traditional profit and loss accounting is difficult. And for the co-operatives and mutuals sector this is a major problem given they are having to compete with for-profit businesses with superior financial muscle courtesy of attracting investors on the stock market or accessing lending markets backed by their profits.

But often even their customers don’t understand this “bonus effect.” While some co-operatives and mutuals in Australia have been around more than 100 years and 80 per cent of Australians are members of a mutual or co-operative, only one-in-three Australians actually know what a mutual or co-operative is.

“The challenge for co-operatives and mutuals is that they can’t be understood through their profitability because maximising profits isn’t their purpose, their purpose is to maximise benefits to their members,” says Dr Thambar.

“That may not have been a problem in the past but in the last few decades while the sector has just chugged along, competition from big corporations has grown. And now when there is growing interest in new “purpose-driven” organisations that invest profits in causes, the value of these original “purpose-driven” organisations isn’t being recognized.”

The sector itself is acutely aware of the problem and that was why the Business Council of Co-operatives and Mutuals (BCCM) engaged the Monash researchers to help them come up with a strategy.

The end result is a ground-breaking new framework called Mutual Value Measurement^© that co-operatives and mutuals can use to measure the whole value of what they do and communicate it to the broader community, including members, potential new members and financial markets.

The core of the framework are six key value drivers that the researchers found were common across an otherwise diverse sector of businesses.

“These six dimensions, as we call them, came out of what we saw and what people told us. They provide for the first time a common language for the sector and for understanding these businesses from the outside,” says Dr Hall.

In summary the six dimensions are: Commerciality – generating sustainable economic value for current and future members; Shaping Markets – creating and sustaining competitive markets; Member Relationships; Community Relationships; Ecosystem and Reciprocity – recognising that stakeholders are part of the same mutually beneficial community; and finally, the Mutual Mindset – committing to acting ethically and sustainably.

About 30 organisations are now in the process of adopting the framework and the BCCM is hoping that more co-ops and mutuals will eventually sign up.

Dr Thambar and Dr Hall are meanwhile running workshops on the frameworks, and with the BCCM they have developed and implemented an accreditation scheme. Much of this further development work has been supported by Monash Business School’s Impact Acceleration Grants Scheme.

Dr Thambar likens Mutual Value Measurement Accreditation™ to the global B-corps movement where businesses can gain accreditation that verifies high standards in areas like social and environment performance. And like B-corp, Mutual Value Measurement^© could go international – there is already interest from the UK sector in adopting the framework and accreditation scheme. Importantly, the Mutual Value Measurement Framework^© is developed for the sector.

“Accreditation is a way to promote the framework as best practice, build momentum, and to ensure organisations are using it properly,” says Dr Thambar.

One of the key benefits to these businesses of holistically measuring their value is that it helps management in setting priorities and strategies that are focused on their core purpose – benefiting members. “If you only measure profit then that will be what you focus on,” says Dr Thambar.

He tells the story of interviewing a senior manager at a credit-union who had previously been working at one of Australia’s top four banks. He told him that in every major decision it was always the CEO’s bonus – which was linked to the bank’s share price and profit performance – that was the key factor.

“He told us that at the bank, the CEO’s bonus was always there sitting on the table at every meeting, whereas at the credit union it would be the member’s interests that were on the table.

“Using the framework is a way for mutuals and co-operatives to ensure that what is on the table is always something that really matters to members.”

In follow up work, Dr Thambar and Dr Hall have found that the use of the framework has had benefits in three areas: helping to shape purpose and strategy, to engage and communicate value to members and to engage staff and gain their alignment with purpose.

The Geraldton Fisherman’s Co-operative (GFC) in Western Australia has been an early adopter of the framework, and chief executive Matt Rutter credits it with helping the organisation to stay focused during what has been a difficult time.

GFC is owned by rock-lobster fishers and markets their catch both domestically and for export, but the industry has been hit by COVID-19 and trade disputes disrupting its major Chinese market. In responding he says the framework was an important tool in shaping strategy in two key ways.

In the first, the framework’s emphasis on “shaping markets” helped them stay focused on maximising selling prices and selling at auction. While a traditional trading company seeks to make money at both ends of the chain – buying low from producers and selling high to customers – GFC’s mission is to simply sell high.

“Recognising how we shape markets was really important for us and spotlights the importance we place on price rather than margin because the best way we can help members is to maximise the price for their catch.”

The second was the framework’s focus on “commerciality” and “ecosystem/reciprocity”. It helped them to realise that they could help members struggling under existing commercial arrangements in which fishers lease lobster quotas off investors. These leases tend to put most of the risk on the fishers, guaranteeing the investor a return while the fisher’s return is at the mercy of the catch and the market. In the tough market environment GFC decided to use its market weight to help members re-negotiate leases so that they shared the commercial risk more equally.

“The lease renegotiations have been vital over the last 18 months given the challenges we have all been facing, and I’ve no doubt that it has saved some fisher’s businesses,” says Mr Rutter.

“The framework and the solid research that has gone in to it is great for the sector. It has created a common language for us to communicate, and the simple model it gives us really resonates – it is hugely powerful.”