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The article analyses governance difficulties at Fagor Electrodomésticos, for decades the world’s largest industrial cooperative, and sheds light on how the cooperative model and governance might have contributed to the firm’s bankruptcy. The case study examines how the cooperative model influenced the speed and quality of decision making. The roles of the main cooperative governing bodies (the General Assembly, Governing Council and Social Council) are evaluated and their limitations to effectively supervise and work with management to make difficult strategic decisions. Several governance improvement measures are proposed in order to help other large cooperatives combine democratic control and economically sound governance.
Corporate governance as a key aspect in the failure of
worker cooperatives
Imanol Basterretxea*
Department of Financial Economics
Faculty of Economics and Business
University of the Basque Country UPV-EHU
Chris Cornforth
Department of Public Leadership and Social Enterprise.
Open University Business School.
Iñaki Heras-Saizarbitoria
Department of Management
Faculty of Economics and Business
University of the Basque Country UPV-EHU
This is the accepted version of the following article:
Basterretxea, I.; Cornforth, C.; Heras-Saizarbitoria, I. (2020): Corporate
governance as a key aspect in the failure of worker cooperatives. Economic and
Industrial Democracy. [DOI: 10.1177/0143831X19899474]
The copy-edited version is available at:
Abstract: The article analyses governance difficulties at Fagor Electrodomésticos, for decades the
world’s largest industrial cooperative, and sheds light on how the cooperative model and governance
might have contributed to the firm’s bankruptcy. The case study examines how the cooperative
model influenced the speed and quality of decision making. The roles of the main cooperative
governing bodies (the General Assembly, Governing Council and Social Council) are evaluated and
their limitations to effectively supervise and work with management to make difficult strategic
decisions. Several governance improvement measures are proposed in order to help other large
cooperatives combine democratic control and economically sound governance.
Keywords: Organisational failure; Cooperative degeneration; Cooperatives; Mondragon;
For the conventional capitalist firms, the academic theoretical and empirical literature on the study of
the governance bodies is prolific. For example, there are many well-known theoretical handbooks on
this topic (e.g. Clarke, 2004; Solomon, 2007), together with widely referenced empirical works (e.g.
Daily and Dalton, 1994; Heath and Norman, 2004).
Conversely, the governance of co-operatives, and in particular of worker cooperatives, is relatively
under researched in the scholarly field, with a scarcity of both theoretical and empirical works. There
are a set of works which have analyzed more or less tangentially this issue (e.g. Cornforth et al.,
1988; Pencavel, 2013; Storey et al., 2014), but with few exceptions (e.g. Cornforth, 1995; Bakaikoa
et al., 2004), these works either have not been focused on this topic as a key factor or have not
adopted an empirical approach. Nevertheless, in recent years there has been a growing academic
interest in the governance of cooperatives, and studies on the failure of large cooperatives, such as
Canadian agricultural cooperatives (Fulton and Hueth, 2009; Fulton and Larson, 2009a, 2009b) and
the near melt down of the UK Co-operative Group (Birchall, 2014a; Davis 2014; Myners 2014),
have highlighted corporate governance difficulties as a key source for failure.
In recent years, the bankruptcy of Mondragon’s flagship Fagor Electrodomésticos S. Coop.
has attracted scholarly attention (e.g. Alzola et. al. 2015; Errasti et al., 2017; Arando and Bengoa,
2018; Bretos et al., 2018; Basterretxea et al., 2019). Yet, these studies have focused predominantly
on external factors, largely ignoring how those responsible for governance of the cooperative
attempted to deal with these problems. While not denying the importance of external factors, this
paper tries to increase our understanding of the potential challenges of the worker cooperative model,
shedding light on how FED’s cooperative model and governance contributed to the firm’s
bankruptcy. Special emphasis is placed on analysing how the cooperative model influenced the speed
of decision making and the adoption of painful decisions. The paper also evaluates the role of the
main cooperative governing bodies (the General Assembly, Governing Council and Social Council)
and their limitations to make key strategic decisions and effectively supervise and work with
management. Several governance improvement measures are proposed.
The article is structured as follows. The next section sets out the context of the case study and
reviews the relevant literature. The third section discusses the research methods used. The fourth
section summarizes the main findings of the study. The final section presents a discussion of the
findings and the conclusions of the article.
Case study’s context and literature review
In 2013 the world’s biggest industrial worker owned cooperative, and Europe’s fifth-largest maker of
household appliances, FED, collapsed. The demise of FED gained international media attention not
only in those countries where its factories where located (Spain, France, Poland, Morocco and
China), but also in the world’s leading economic journals. This media attention was due to FED’s
size and to its symbolic role as a model and launching platform for many other co-operatives that
now make up the Mondragon Group. "This group comprises close to 264 firms, 98 of them co-
operatives and has 81,837 employees and a total revenue of 11,936 million euro (Mondragon, 2019).
The largest Mondragon cooperative is the retailer Eroski, with 30,903 employees in 2018, one third
of them worker members. A large network of industrial firms producing goods in different sectors
employed 38,772 people in 2018, 14,455 of them in non-cooperative subsidiaries. Mondragon’s
There are several Mondragon cooperatives that share the “Fagor” name and brand that are still trading
successfully, such as Fagor Arrasate, Fagor Automation, Fagor Ederlan, Fagor Electrónica and Fagor
Industrial. We use FED only to refer to Fagor Electrodomésticos S. Coop.
industrial and service firms gravitate around what Roche et al. (2018) define as “core elements”. This
core is comprised of an Education network (Mondragon University and several vocational training
and management training centres); 15 research centres; Lagun Aro, the Social Security entity, and
Laboral Kutxa, the bank of the corporation. Mondragon differs from other corporations since power,
authority and ownership is decentralized in a “federal” or “inverted pyramid” organisational
structure. A consequence of this is that “any co-op that does not find that the Mondragon corporate
offices are adding value to their operations may secede at any time” (Smith 2001, p. 28), as was the
case with Irizar and Ampo in 2008. This “inverted pyramid” structure of autonomous cooperatives
that cooperate voluntarily has also been argued by Mondragon managers to elude group
responsibilities in the trials that followed the bankruptcy of FED.
During previous recessions Mondragon cooperatives had better relative performance compared to
ordinary firms (Arando et al., 2015; Basterretxea and Albizu, 2010; Bradley and Gelb, 1987; Morris,
1992) and a low failure rate (Arando et al., 2015; Ellerman, 1984; Smith, 2001). Thus, the failure of
FED came as a shock. Five years later, many post-closure lessons seem to have been learnt in the
group, with evidence of its inner strength and resilience. It is worth mentioning, for example, the key
role of Mondragon’s mechanisms of inter-cooperation which have helped to strongly mitigate the
effects of the employment crisis generated by the collapse of FED (Arando et al., 2018).
Business failure literature and FED
Business failure literature presents two conflicting views on the cause of closure: the deterministic
and voluntaristic perspectives (Mellahi and Wilkinson, 2004; Amankwah-Amoah, 2016). The
deterministic perspective attributes business closure to environmental factors over which
management has limited control. The voluntaristic perspective attributes business closure to factors
arising from within the firm. Failure is caused by management decisions and lack of competency to
reverse the decline caused by external factors (McGovern, 2007).
To a great extent, the deterministic perspective has guided many of the analyses of academics trying
to explain FED’s demise (Alzola et al. 2015; Errasti et al. 2016; Arando and Bengoa, 2018). Those
researchers, together with many voices in business-related media, resorted to defend the cooperative
model based on a simple analogy: in the same way that many corporations went bankrupt with the
economic crisis and the capitalist business model was not called into question; the bankruptcy of a
cooperative, however emblematic, should not call into question the viability of the cooperative
model. FED did not go bankrupt either because of its cooperative model or because of poor
management, but because of an exceptional fall in its main markets. In other words, due to purely
external factors. Environmental factors most commonly mentioned are Spain’s property bust and
subsequent fall in the sale of appliances; new low-cost competition from China and Turkey and the
entrance of aggressive Korean competitors in the mid-range market.
This complacent view contrasts with a critical analysis conducted internally by the Mondragon
corporation (Ortega and Uriarte, 2015) more in line with the voluntaristic school. This internal
analysis points towards many cooperative model and cooperative governance failures,
mismanagement and internal communication problems. Similarly, the bankruptcy administrator,
considers not only environmental factors as the cause of failure, but also internal ones such as “not
following the same path as competitors by moving production to low cost countries, thus being
unable to adapt prices to market needs, something that generated a reduction of sales and generated
losses” or the “high debt leverage motivated mainly by the acquisition of the French firm Brandt and
by the negative results of the main subsidiaries that asked for new investments” (Insolvency
Administrator, 2014). Responsibility for these decisions lies with managers and governance bodies
responsible of overseeing management. For example, buying Brandt through massive borrowing was
proposed by managers, but then approved by 82% of members in the General Assembly. Not
following the same rate of delocalization of production was also a decision conditioned by the
governance bodies.
Literature on corporate governance in co-operatives
In this paper we define organisational governance as the ‘systems and processes concerned with
ensuring the overall direction, control and accountability of an organization’ (Cornforth, 2004,
2012). At the organisational level the body with the main responsibility for ensuring governance
functions are carried out is the organisation’s board or governing body. However, it is important to
remember that other actors may contribute to carrying out governance functions, such as
shareholders or members at annual general meetings, board sub-committees and any advisory
groups, and senior managers.
A variety of competing theories have been proposed to try to understand the role of boards in the
private sector (Hung, 1998). The two most dominant theories are agency theory (Jensen and
Meckling, 1976; Keasey et al, 1997), and stewardship theory (Muth and Donaldson, 1998). Agency
theory assumes that the owners of an enterprise (the principal) and those that manage it (the agent)
will have different interests. Hence the owners or shareholders of any enterprise face a problem that
managers are likely to act in their own interests rather than the shareholders. From this perspective
the main function of the board is to oversee management, to ensure they act in the shareholders best
interests. Consequently, board members should have the knowledge, skills and experience to monitor
and, if necessary, control the behaviour of management. In contrast stewardship theory starts from
opposite assumptions to agency theory. It assumes that managers want to do a good job and will act
as effective stewards of an organisation’s resources. Hence, the main function of the board is not to
ensure managerial compliance with shareholders/members interests, but to support and work with
management to improve organisational performance. From this perspective board members should
have background and expertise to support top management and add value to the organisation's
However, taken individually these different theoretical perspectives are rather one dimensional, only
illuminating a particular aspect of the board’s role. This has led to calls among corporate governance
researchers for approaches that can help integrate the insights of these different perspectives (Hung,
1998: 108-9; Tricker, 2000: 295; Cornforth, 2004). One such approach is offered by Sundaramurthy
and Lewis (2003) in a theoretical paper that draws on both agency and stewardship theories to
suggest the role of the board is paradoxical, that boards must both control and support management.
Their approach highlights important dysfunctions that can occur in the relationship between boards
and management. They argue that organisations may experience a cycle of decline if boards put too
much emphasis on either control or support roles. Too much stress on support can lead to groupthink
where management ideas and strategies are not adequately scrutinised and challenged. This can lead
to strategic persistence in good times and a cycle of organisational decline as performance
deteriorates. Conversely, too much emphasis on control can lead to a separation of responsibilities
between the board and management, and defensive attitudes where management feel unfairly
criticised. If this persists increasing levels of distrust may reinforce defensive attitudes hampering
communication and mutual learning, which can again lead to a cycle of organisational decline.
Tensions and challenges in co-operative governance
As well as the dysfunctions highlighted above co-operatives may face other tensions and challenges
resulting from their particular form of governance. A key principle of co-operatives is that they
should be governed democratically by their members based on the principle of one member one vote
(Cornforth, 2004; Novkovic, 2008). Importantly, any member can put himself or herself forward for
election as a board member. Expertise may be desirable but is not a central requirement, as is
suggested by other perspectives on governance discussed above. As a result, boards may lack the
skills and experience to effectively oversee management and contribute to decision-making.
There are other important differences between co-operatives and public companies which are likely
to make it more difficult for co-operative members to exert control over management (Spear, 2004),
or support senior management and add value to their proposals. In agency theory it is assumed that
the main interest of shareholders is to maximise profitability and that the market in corporate control,
such as pressure from major shareholders or the threat of takeover, as well as board monitoring, will
help to keep managers aligned to this goal. In co-operatives members, as owners, are the principles,
but in co-operatives’ shares are not traded in a market and members only have one vote irrespective
of the number of shares they hold. Hence there are not the same pressures on managers to perform,
such as pressure from major shareholders or the threat of takeover (O’Sullivan and Diacon, 2003).
In co-operatives the members collectively have overall control of the organisation. Small co-
operatives often practice direct democracy with the general meeting of members taking important
decisions, but as co-operatives grow this is usually not practical. A variety of studies suggest that
participation rates of members tend to decline as co-operatives age and grow (Chaves et al, 2008;
IFA, 2006; Spear, 2004; Lees and Volkers, 1996) and that general meetings are not an effective
arena for members to influence decision-making, with deliberations usually limited to approving the
annual accounts and reports (Mozas, 2004: Chaves et al, 2008).
This suggests that for larger co-operatives representative democracy in the form of an elected board
is the most important means that members have of trying to either control managerial behaviour or
improve management decisions, but at as noted above these boards may lack the expertise and skills
to exercise effective influence (Chaves et al. 2008; IFA, 2006, Lees and Volkers, 1996). This
problem is highlighted by Sivertsen (1996: 35) a senior manager in a Norwegian consumer co-
‘Co-ops tend to be management driven. Whereas board members in major private companies
are elected within the business environment, board members in co-ops are elected among
what we would call everyday people. Very often solid, earnest people with good judgement,
but without the necessary background to make strategic decisions in the business world.’
More recently several studies of credit, consumer and agricultural co-operatives that have
experienced crises or failure have pointed to weak governance by boards lacking the necessary skills
and experience to adequately scrutinise management proposals (Fulton and Larson, 2009a and b;
Birchall, 2014a; Myners, 2014).
In worker co-operatives differences in expertise may be less of a problem than other forms of co-
operative as the members work in the co-operative. However, as worker co-operatives grow and
employ professional managers it is likely that the gap in expertise between workers and management
will grow. Batataille-Chedotel and Huntzinger (2004) in a study of French worker co-operatives
suggest that once co-operatives grow to have more than 250 members boards do not have the
competency to make strategic decisions. Previous studies on FED indicate that governance problems
derived from co-operative members low business literacy and inability to understand financial
information have been present in previous decades. Greenwood and González et al. (1989) found that
FED co-operators felt that they were inundated with accounting data, business plans, technical and
production information; information that co-operators were not able to understand. At the same time,
many cooperative members also believed that key information was being kept from them.
(Greenwood and González et al. 1989, 145-149). Similarly, Whyte and Whyte (1988, p. 227)
wondered whether the members of FED were suffering from information overload and “given a
larger and more complex volume of information than most are able to absorb”. A decade later,
Kasmir (1996) also found that many cooperative members of FED were frustrated and complained
that they were unable to understand and make effective use of the information they received. All
members of the cooperative are given a great deal of information, which they simply cannot get
through. Social Council members who make the effort to synthesize the material, often find they need
help interpreting information” (Kasmir, 1996, 138).
The incorporation of independent members onto cooperatives’ governing bodies has the potential to
bring relevant expertise and different external perspectives to strengthen the organisations’ decision
making (Johanson and Østergren, 2010). A study of the governance of 60 large cooperatives in six
different industries conducted by Birchall (2014b) found that around half of the 60 boards had
appointed independent board members and he expected more cooperatives to follow. However, this
was not the case at FED.
In addition, the boards of co-operatives may experience other problems besides a lack of skills. Low
participation rates by members in elections may mean boards are not representative of the wider
membership (Spear, 2004; Chaves et al, 2008). This problem can be exacerbated in worker co-
operatives if they employee non-worker members. Further challenges can arise when board members
feel they are on the board to represent and defend the interests of particular groups of workers or
members rather than work with management to further the best interests of the co-operative as a
whole (Cornforth, 2004).
FED and its main governance bodies
Created in 1956 by five ex-students from a technical college in Mondragon to produce heating
devices, FED soon expanded its production to other home appliances. Besides being economically
successful, this worker cooperative helped in the creation of many new cooperatives in the 1960s and
1970s that nowadays are part of the Mondragon Group. After three decades of internal growth, in
1989 FED began a process of external acquisition with the takeover of Fabrelec-Edesa, a Spanish
competitor in crisis with 790 employees. While employees of this firm were offered the possibility of
becoming cooperative members, this option was not given to workers of foreign firms acquired
afterwards (Errasti et al. 2016).
In 1994 FED opened a factory in Morocco. In 1996 it created a joint venture, Geyser-Gastech, with
the German firm Vaillant. Then, in 1999 it bought 76% of the Polish white goods company
Wrozamet (then FED-Mastercook), with 1,760 employees. In 2001 it created a joint venture in China
(Shangai Minidomesticos Cookware Co Ltd) to produce pressure cookers. In 2005 it bought a
kitchen furniture manufacturer, Grumal, with 400 employees. Finally, in 2005, FED made its biggest
acquisition, Brandt Electroménager, the French leader in household appliances, with 4,700
This process of non-cooperative growth abroad converted FED into what Errasti et al. (2016) call a
“coopitalist multinational” with 18 production plants in six countries, a workforce of 10,543
employees at the peak of its growth in 2006 and a complex structure as can be seen in Figure 1.
(Insert Figure 1 about here)
A quick glance at the structure highlights the complexity of decisions that rank and file members in
the General Assembly and those serving in the Governing Council had to face. Besides its many
production units in Spain and abroad, FED had nineteen subsidiary commercial firms in different
countries; seven firms devoted to provide after sales and customer services; several firms to provide
internal services such as R&D and a portfolio of twelve different brands aimed at reaching different
countries and market niches.
FED financed its internal and external growth strategies through borrowing, and when the financial
crisis broke in 2008 and the market for home appliances in its main markets collapsed the company
entered a sharp decline that finished with bankruptcy proceedings in November 2013, (Molina, 2012;
Errasti et al, 2016).
The main governing bodies of the cooperative were the General Assembly of all members, and the
elected Governing Council and Social Council. The General Assembly is the supreme body in the
cooperative. Each cooperative member has one vote in the Assembly, regardless his/her position in
the firm and regardless his/her investment. Formally it votes on the annual business plan, allocates
profits, decides on mergers and acquisitions, votes on the admission of new members and the
expulsion of any members, elects the Governing Council and monitors its performance (Kasmir,
1996, 36). In the case of FED, given its particular corporate culture, the General Assembly also
decided on many other minor issues, as the results section shows.
The Governing Council in FED was made up of 12 members elected by the General Assembly for
four years. The Governing Council appoints and oversees senior managers, prepares annual plans,
determines job classifications, presents annual reports and accounts to the General Assembly and
proposes the distribution of profits for the approval of the General Assembly (Kasmir, 1996: 36).
The Social Council, whose members are elected by the General Assembly, brings grievances to
management on behalf of workers (such as concerning health and safety, job ratings, work pace, job
assignments, recruitment and promotion criteria; pay policy, work schedules, relocations or pay
policy). Besides, the Social Council communicates managerial decisions and conveys information
downward (Kasmir, 1996: 37). Social Council members are elected from the different factories,
departments or sections where they work. While other big Mondragon cooperatives have maintained
a low number of members in their Social Councils (between 12 and 16), internal bylaws of FED
established a minimum of 40 and a maximum of 60 members. Besides being large, as will be shown,
the power of the Social Council at FED went far beyond its formal remit.
Due to the complex and interwoven characteristics of this study topic we adopted an exploratory
qualitative methodology (e.g. Glesne, 2006). This aimed to contextualize and interpret the case
following an abductive reasoning perspective, with an interactive engagement between empirical
material and theory (Dew, 2007; Sinkovics and Alfoldi, 2012). The research drew on three main
sources of information. First, public information available on the collapse of FED, such as
journalistic reports, public corporate reports and information from the judicial process into the
collapse of the company. Secondly, there was access to relevant internal reports from the cooperative
and the corporation. Thirdly, a series of in-depth interviews were carried out with different
stakeholders involved in the collapse of FED.
We conducted 30 interviews between October 2015 and December 2018, with a cross section of
people involved with the cooperative in a variety of roles, that aimed to improve the reliability and
richness of the information gathered (Miles et al., 2014) and cover the diverse interests at play
(Glesne, 2006). A total of three interviewers, two of the co-authors of this article plus a research
assistant, contributed to the data collection using a semi-structured script, which was further
modified as the fieldwork progressed (Denzin and Lincoln, 2008). The script followed certain pre-
determined general themes related to the case but allowed space for free-flowing discussions.
Interviewees were identified using a combination of theoretical, purposive and snowball sampling
(Patton, 2002). All in all, 15 senior executives (3 of them also representatives of the Governing
Council and 2 of them also members of the Social Council for different periods of time); 6 rank and
file worker owners, including 3 leading representatives of the Social Council for the last 25 years of
the firm; a senior union official who defended non-owner employees during the bankruptcy process;
4 senior managers in the Mondragon central offices; and 4 senior Basque Government officials
responsible for industrial policy. Most of the managers and rank and file employees interviewed
worked for FED for at least 20 years. Similarly, the external stakeholders were also very closely
linked to FED and Mondragon for long periods of time. It was decided to stop soliciting new
interviews when few new contributions and insights were being obtained, giving rise to theoretical
saturation (Miles et al., 2014).
In order to mitigate organisational silence (Morrison and Milliken, 2000) and potential social
desirability bias (Nederhof, 1985), we asked interviewees for their personal insights, assuring them
of anonymity. The interviews were carried out in Spanish and Basque — the later was used in order
to attain closer proximity between the interviewer and interviewee, as suggested in Heras-
Saizarbitoria et al., (2013). The interviews varied in length from 90 to 170 minutes and were
recorded and transcribed verbatim. Before the fieldwork the interviewers discussed possible
methodological distortions and biases related to interviewing people about a traumatic personal
experience, for example using the interview to primarily ‘tell his/her story’ as a form of catharsis
(Heras-Saizarbitoria, 2014), A distortion mentioned by Greenwood and González. (1989) in their
study of FED. In general, with a few exceptions, the interviewers did not find that this was a
significant problem.
Public information available on the collapse of FED was also analysed, including journalistic
accounts, the different strategic plans of the company and discussion documents, and conclusions of
the insolvency administrator. In addition, very extensive internal corporate data related to FED over
extended periods of time were gathered. This included specific reports to address the crisis, internal
working documents presented to various governing bodies and strategic plans and annual
management plans for different periods.
The information from these three sources was triangulated and analyzed as suggested in the literature
(e.g. Creswell 2003; Miles et al, 2014). Data was analyzed through constant comparison and
interpretation (Silverman, 2006). As a result of the iterative process of interpretation, discussion and
explanation (Glesne, 2006; Silverman, 2006) carried out by the three researchers, the following two
main problems of governance at FED were evidenced: the delay and challenges in making difficult
decisions; the lack of expertise of the governing bodies. These two issues are analyzed in depth in the
following section of the article.
While this paper focuses on governance issues, other relevant factors affecting FED’s demise were
raised in our interviews. Environmental factors, such as the burst of Spanish property bubble and the
consequent drop in sales of household appliances, the increased bargaining power of big retailers, the
growing market share of new entrants from Korea, China and Turkey with cheaper products and
better quality-price ratios, or the increased competitive rivalry of big players such as Bosch and
Siemens. Those factors, in particular the burst of the property bubble, have been analysed in previous
papers on FED’s failure (Alzola et al. 2015; Errasti et al. 2016; Arando and Bengoa, 2018), but
despite the gravity of these external factors, most interviewees highlighted that the roots of FED’s
problems were already present at least a decade before the 2008 crisis.
Even before the bursting of the property bubble, in those years of extraordinary growth, interviewees
noted that FED was losing market share (from 24.7% of the Spanish market in 2000 to 18.4% in
2007), obtained very low profit margins, lost huge amounts of money in some of its business units
and uncompetitive domestic plants (e.g. the unit producing fridges had lost money for many years
and lost 14.5 million euro only in 2004). The firm also faced important quality problems before the
crisis, which it found difficult to fix (e.g. after launching its Innova fridge in 2003, 30% of its units
sold in the following three years were returned by its customers due to quality problems).
Interviewees also highlighted long lasting human resource problems that became chronic, such as
high absenteeism, nepotistic recruitment and selection practices and the low commitment of
members (see Basterretxea et al., 2019).
Above all, interviewees blamed poor decisions about relevant investments made between the mid-
1990s and 2007 as the main root of the firm’s death. In this period FED invested heavily in renewing
its Basque factories and buying the French competitor Brandt. As a consequence, in 2012 FED
concentrated only 32% of its production in low labour cost regions, compared to 50% at Bosch, 55%
at Whirpoool, 62% at Electrolux, 70% at LG and Samsung or 100% at Arcelik-Beko, Haier and
Vestel. In addition, FED’s investments in Spain, Poland and France were financed by borrowing,
creating huge financial problems when demand began to fall. Behind those decisions (and also
behind the decisions that were postponed or never made) interviewees highlighted the central role of
the governing bodies.
Delay in making decisions
The interviewees pointed out that the characteristic cooperative consultative process entailed slow
and often difficult decision-making, a slowness that became more pronounced as FED grew in size
and complexity
"Very slow, everything was very slow. The cooperative model is already slow, because it
requires democratic decision-making. To the extent that every type of decision has to go
through different groups, different meetings, today you present it, next week you adjust it
again, the following week you wait for an opinion from the Social Council, then another
opinion, then it ends in a General Assembly...”. (FED manager, GC and SC member)
What was seen as more problematic than the delay in decision-making was that some decisions were
never made. Although the management and the worker members of FED were aware that some
business units were running at a loss for more than a decade, the cooperative’s governing bodies did
not discuss the closure of unprofitable plants in Mondragon, since managers presumed the
cooperative members would not vote in favour of closing the plants where they were working.
"Everybody talked about closing refrigerators, but they never actually considered closing it,
because it provided almost 700 jobs that would be lost in Mondragon... They would have
stopped being members of FED. That vote never came about, and if it had, it would never
have succeeded." (FED Manager. Member of the SC)
"The refrigerator business lost 11 million a year on its own. We should have made decisions
such as closing it 10 years before; closing what was unprofitable, closing it definitively. But
here, at the time when we should have closed them (10 years ago), we had 600 cooperative
members just in the refrigerator plant. It's a bit difficult to make people understand that a
business is dying and that it is best to just kill it. (…) The management was sure we had to go
there, they knew what needed to be done, but things were very slow.” (FED Manager.
Member of GC and SC)
Not only the executives interviewed, but also the members of the Social Council recognized their
responsibility in not making difficult decisions.
"In the Social Council we knew that refrigerators was in a bad way for a very long time.
Refrigerators was bringing us down significantly and Fagor Mueble was a total disaster. The
Governing Council informed the Social Council that refrigerators was bringing us down. And
in the social part, from the left, (we were) great defenders of the jobs above everything else.
…We put pressure on the Governing Council and that is a despicable way to win, because we
said: we are going to defend the jobs in the General Assembly and we knew that we would
win that vote.... And there, in the social part we were all wrong. It's a huge part of our
guilt.”. (Social Council Member)
Other hard decisions were also taken too slowly, in the eyes of the interviewees. The employment
policy of FED and other Mondragon cooperatives in times of crisis is characterized by flexibility in
work schedules, salaries and job duties, as well as the relocation of members from cooperatives in
crisis to those in need of manpower. The Insolvency Administrator's report (2014) notes that these
measures to reduce costs to adapt to the market "were never placed at the forefront, but rather, they
always dragged behind the negative events."
These problems were exacerbated by traumatic changes in the company's top management. In 2006,
the CEO proposed the first measures for wage reductions and unpaid overtime, but these were not
accepted by the General Assembly, who also dismissed the CEO. This dismissal and the subsequent
mass resignation of the entire Governing Council generated a reverse dominance hierarchy in which
hard decisions were slowed down in order to preserve social peace (Basterretxea et al. 2019). Thus,
some interviewees believe 2006-2010 was a lost period:
"From 2005 to 2010 we lost precious time. I think it was a time when we should have done
things differently. And I don't know if we would have managed to save the company, but at
least we would have generated a different culture from the one we started from when we
began the relocations, (a culture of opposition to relocations and adjustments)". (FED
Governing bodies not qualified for the size and complexity of the business
General Assembly
The members of FED are eligible to take part in the co-operative’s General Assembly on the
principle of one member, one vote. Interviewees highlight that attendance at assemblies in the 1990s
and 2000s was generally low and only increased when salaries or austerity measures to address the
crisis were discussed. Low participation rates were considered by some interviewees as a worrying
indicator of members’ commitment, apathy, and lack of co-responsibility.
"People do not feel they are members, they do not assume that they are members, but they
talk about democracy. No. Participatory democracy is also a matter of co-responsibility, and
that co-responsibility is not felt. If it was not a salary issue, or a strong issue, people did not
go to the General Assembly. So, where is the democratic participation and where is this
question of co-responsibility? I don't accept it.” (Social Council Member)
FED’s Corporate Governance Reports prior to 2007 do not show the participation rates of members
in the General Assembly, but figures from 2007 and 2008 in table 1 offer numerical evidence of very
low attendance rates. Some rank and file interviewees said that many members signed at the entrance
to the General Assembly but immediately left without attending the debates and voting. Those
behaviours are in line with the findings of Arregi et al. (2018) in another Mondragon cooperative
(ULMA Archiuitectural Solutions), who found that workers had a moderately negative opinion of
adherence to cooperative ownership practices.
Table. 1. Evolution of participation of members in General Assemblies of FED
15/5/2007 13/5/2008 4/11/2008 13/5/2009 25/11/2009 11/5/2010 10/5/2011 15/5/2012 27/11/2012
voting in the
1,029 671 2,411 2,001 1,981
1,201 1,239 1,599
3,082 2,718 2,718 2,474 2,474 2,325 2,219 2,067 2,067
rate 33.4% 24.7% 88.7% 80.9% 80.1% 64.6% 54.1% 59.9% 77.4%
*Figures obtained from Corporate Governance Reports 2007-2012
**Figures obtained from Annual Reports 2007-2012
Participation increased significantly after the Extraordinary General Assembly of November 4
2008, when members had to vote on whether to renounce their Christmas bonus. Given the parlous
state of the company, participation rates in subsequent General Assemblies remained high as
members were asked to vote additional wage cuts and other austerity measures.
Many of the austerity measures proposed by managers were voted down in the General Assemblies
of FED’s final 10 years or approved with very small majorities. In the 2006 Assembly the proposal
to reduce the Christmas bonus by one quarter was rejected by members. Two years later, angry
exchanges between workers and managers over salary cuts again took place in the General
Assembly, and in 2008 the cut in the Christmas bonus was finally accepted by a small margin (1,262
votes in favour and 1,149 against).
The debates on these austerity measures, both in the General Assembly and in the previous
preparatory meetings were considered by interviewees to be conflictual and painful, with continuous
“boos, whistles and tantrums” when managers spoke, and applause when worker members criticized
“The 2006 Assembly was a complete disaster. Constant booing, a disaster. A lot of anger. ….
A huge brawl. The General Director resigned, he resigned in the next Governing Council. ….
Then we had another Assembly, after the closure [of FED], in February, in the Amaia
Theatre, in which an assistant got up to hit the president, and that was very hard.” (FED
Manager and Member of the GC)
Besides conflict, interviewees highlighted that most members in the General Assembly didn’t have
the knowledge and skills needed to vote on many strategic decisions of a big multinational like FED.
Although the cooperative did have representative bodies a culture had grown up where anything
major also went to the General Assembly. Size was often stressed, and many interviewees consider
that direct democracy in General Assemblies is not well suited to big multinational cooperatives,
suggesting the need for representative democracy:
"A cooperative of the size we have had, where we have had more than 3,000 members, is
ungovernable, it's a mistake. It is difficult for me to renounce the principle of one member one
vote, but I'm more and more convinced. I will have to learn to delegate my vote to those
qualified people who can be in a small assembly in which decisions can be made. And if after
4 years, those people have not convinced me, I will change them. …. That's my opinion after
this." (FED Manager and Member of GC and SC)
Some interviewees believe that the slow decision-making and a large part of the conflicts were due to
the fact that many decisions in FED were made by the General Assembly, and they proposed that in
larger cooperatives decisions should be concentrated in the Governing Council.
"In other big Mondragon cooperatives as Eroski the Governing Council is more likely to
make decisions compared to the Governing Council of the Fagor Group. For example, the
amount of our salaries or wages was decided at the assembly. Do you have to decide not to
receive [your salary] at an assembly? (...) Now the Governing Council (of other nearby
cooperatives) is given greater power for cases such as that of having to carry out harsh
measures." (FED Manager and member of the General Council).
It is significant that even those people who had been on the Social Council for long periods and who
in the past criticized the Governing Council when it made decisions without consulting the General
Assembly, now advocate giving more power to the Governing Council:
"Can a company operate by taking everything to the assembly? It's not possible. Especially
when you have to make economic decisions, present real management plans, people have to
know the facts. I believe that some decisions should be left in the hands of the Governing
Council." (Social Council member).
Governing Council
In theory, any cooperative member can put himself or herself forward for election as a board
member. In practice, as in most Mondragon cooperatives, half of the members were elected among
the candidates proposed by the Governing Council itself, and the other half among candidates
proposed by the Social Council. According to interviewees, the profile of candidates proposed by the
Governing Council were mainly technicians and middle managers. The Social Council proposed
both rank and file members and technicians and middle line managers with a ‘fighter profile’ against
management. According to many interviewees, board members sponsored by the Social Council
failed to understand their governance role and went to the board meetings wearing their Social
Council hat, with a behaviour closer to that of a union representative than to that of a board member.
The greatest deficiency mentioned by all interviewees is that the electoral system produced a
majority of board members that lacked relevant skills to carry out effective supervision of managers
and make decisions. This was not only a problem of rank-and file cooperators on the Governing
Council, but also of middle ranking technicians. Many of our interviewees served as members of the
Governing Council, and they acknowledge that despite their university degrees and experience, they
were ill prepared to fulfil their role. All interviewees, including some former members of FED’s
Governing Council, admit the inability of the majority of members to understand the complex
business issues presented to them and therefore to question the quality, robustness or completeness
of the information and the strategies that managers proposed.
"The training and knowledge of the members of the Governing Council were not sufficient to
monitor the management team and make decisions... No, no. (FED Manager and Member of
GC and SC)
"Did the members of the Governing Council have the skills to make the decisions they were
making, to control the managers? No. I don't think so. I don't think so.” (FED Manager)
"Until 2010, perhaps four or five of the 12 members of the Governing Council had the
knowledge to question the executive's approach and to make demands, but the rest was a type
of member who was not managing these issues on a day-to-day basis and who were distanced
from these issues. So they cannot make demands (on the management), or debate and say yes
(to management's proposals). I think there has to be a debate in the Governing Council."
(FED Manager)
Besides their monitoring role, and in line with the assumptions of the stewardship theory (Muth and
Donaldson, 1998), some managers thought that the Governing Council should help managers to
improve strategy and add value to top decisions. Those managers felt that FED should have selected
some independent board members based on their professional expertise, as most corporate
governance regulations and codes propose. Spanish and Basque laws allow the appointment of up to
three independent board members, but FED, as most Mondragon cooperatives, relied only in its
worker members.
"I missed a much more professionalised Governing Council. I missed having even one
(independent) member with voice but not vote, but who could guide management. (FED
A similar electoral system – often with poorly prepared candidates- was used to choose the members
of many other committees that made important decisions, such as the Appointments and
Remuneration Committee, Health and Safety Committee, and Job Evaluation Committee.
Many interviewees highlight that given the inability of board members to monitor managers and
address important strategic and economic issues, those issues were often squeezed off the board’s
agenda and unimportant issues were given priority. A similar difficulty to differentiate between the
domains of the shop floor and higher levels of management occurred in many General Assemblies,
where many important multi-million euro investment decisions were often made without much
discussion and debate, while economically trivial and irrelevant issues could provoke lengthy and
self-destructive debates. Both in the General Assembly and in the Governing Council, many
members exerted social control over managers on unimportant and trivial matters that should have
been discussed in other forums or not discussed at all.
"When a member of the Governing Council asked me about parking, or other minor issues,
trivial stuff, or about things that should be discussed in the Social Council …, that tells me
the level of the Governing Council." (FED Manager)
"The Governing Council is less qualified than a board of directors in a large PLC to enter
into a true control of management. And it exercises a type of social control and debates that
are unprofessional and that take up more time than in a conventional private company.
(...)And that same Governing Council may be ignoring more important decisions that are not
evaluated and controlled." (Senior Basque Government Official)
When members of the Governing Council didn’t understand the information and the robustness of
the strategies management proposed to them, they simply trusted and rubber-stamped management’s
proposals and plans without being really convinced, and without engaging in critical and sound
dialogue. Afterwards, if management proposals turned out to fail and provoked poor economic
results, the Governing Council would fire the manager.
"Do I have enough knowledge to discern if we should buy a company like Brandt? Whether it
is a good strategy or not? What ability do I have to make such a decision? I am more
involved in other operational issues of the company, so when I am elected to the Governing
Council and the CEO sells me the internationalisation strategy and the convenience (of
buying Brandt), I trust him, because this (system) is based on trust." (Member of the GC).
"The qualification of the Governing Council is a problem in cooperatives that are starting to
become large and starting to internationalise, like FED. There is always an approach by the
Governing Council of "I'll let you do it, I don't understand it, but hey, if you (management)
say so, let's go with it. However, if it doesn't go well, I'm going to ask for your head", and
that's the only relationship at the end that the Governing Council has with the management
team." (Senior Basque Government Official)
In order to overcome the low business literacy of many members serving on its Governing Councils,
Mondragon cooperatives have made important training efforts. In 2000 Otalora, Mondragon’s
Corporate Management and Cooperative Development Centre, began to offer a 100-hour course to
candidates who wanted to become members of cooperatives’ boards (Basterretxea and Albizu, 2010).
In 2019 Otalora offers three different courses to members of Governing Councils, totalling 88 hours
of training. In those courses, training on financial topics (such as analysis of financial statements and
Management Annual Plans) occupies a tiny part of the programme and is not enough to close the
skill gaps of many board members. Even if Otalora and FED provided additional training to
members of the Governing Council, most interviewees consider it naive to think the skills gaps of
many members could be closed by training programmes.
Some managers, mainly those with marketing responsibilities, stressed another corporate governance
problem that has not been analyzed in previous research. Most members of FED were industrial
workers and technicians in its Basque factories. Meanwhile, most people working in sales positions
in different regional and international sales teams were employees without any ownership rights.
Thus, the electoral system generated board members who were industrial workers and technicians
whose interests prevailed over the global interests of the firm and the interests of other key functional
departments and stakeholders.
"A product manager responsible for marketing has to define brands and ranges based on
what the market demands. That was not the case in FED. … you defined the range according
to the market needs and then they told you: "Yes, yes, it's fine, but the San Andrés plant needs
to be fed". From the commercial area we suggested to the Governing Council that if we
wanted to continue in the market or make money in some businesses,… the manufacturing
had to go to another country. They didn't even listen! No way!” (FED Manager)
Given the complexity of the firm in its last years, rank and file workers suggested that not only
members of the Governing Council, but also top managers lacked the skills to manage the company.
They stressed that between 2006 and 2013 FED had four different CEOs and four presidents of the
Governing Council. As Errasti et al. (2017) underline, this management turnover undermined
effective leadership needed to face strategic challenges. Our interviewees also highlighted that those
changes often involved changes of many management positions in functional areas, subsidiaries and
factories. Those replacements took place so often in the last years of the company, that many
interviewees felt newly appointed managers didn’t have enough time to properly conduct their tasks
before they were replaced.
When our interviews took place, most of the managers interviewed were relocated to other
Mondragon cooperatives, so they could compare the governance problems of FED with those of
other cooperatives. There was unanimity that board members of other Mondragon cooperatives also
lack relevant skills to supervise their managers effectively, but that the problems are less severe in
small cooperatives where board members have to face simpler decisions than in a big multinational
cooperative like FED.
When asked how FED managed to overcome two economic crises (in the 1970s and in the 1980s)
with the same governance structure, several answers were given. Bigger size and complexity of the
firm in its last years are almost unanimously cited by interviewees as a key answer. The older
interviewees also point to the existence in the 1970s and 1980s of other governance mechanisms
used to supervise managers. Back then FED was part of the ULARCO regional group of
cooperatives and the CEO of ULARCO could oversee managers of the cooperatives who were not
doing a good job and if necessary propose their replacement. Whyte and Whyte (1988, 159-162)
offer a detailed account of the measures taken in the crisis that FED faced in 1983. That year, the
president of ULARCO questioned the management of FED, called for changing three of the four
men in top positions and all the plant managers. He proposed a new CEO and many structural
changes to the governing council of FED. According to interviewees, Mondragon central offices and
Fagor group didn’t play a similar role in the final crisis of FED. In fact rhetorical questions asking
“where was Mondragon?” were frequent, criticizing Mondragon for not supervising FED’s managers
and their decisions properly. The fact that the CEO and the CFO of Mondragon in the last years of
FED had been promoted from FED, and so didn’t have enough independence to supervise the actions
and strategies of the firm was also stressed by many interviewees.
Older interviewees also highlight the supervisory role of the entrepreneurial division of Laboral
Kutxa (the bank of Mondragon) in the crises of the 1970s and 1980s when it replaced many
managers of cooperatives in crisis (see Cheney, 1999; Ellerman, 1984;: Morris, 1992; Whyte and
Whyte, 1988). This entrepreneurial division of the bank disappeared in 1991 and the supervisory role
of the corporate bank became secondary when Laboral Kutxa was forced by the Bank of Spain to
diversify risks and reduce its credit exposure to Mondragon cooperatives. As a positive effect, the
collapse of FED has not led to the fall of the corporate bank.
Social Council
While other Mondragon cooperatives opt for a clear differentiation between the functions of the
Governing Council and the Social Council; the cooperatives of the Fagor group developed a
distinctive culture that gave more weight to the Social Council. This led to greater confusion and
duality between the social and the executive channels.
At FED it was common for many management decisions to go to the Social Council for consultation
and approval. An example is the purchase of the Polish company Wrozamet in 1999:
"When the debate about the purchase of Wrozamet came up, the president said: "This
decision is going to be made together by the Governing Council and the Social Council. And
the president and other members of the Social Council are going to go to Poland and you will
meet with the members of the Solidarity union and they will come here and meet with you and
you will explain how this works and then we will have the technical and economic debate, to
see what numbers come out and then the social debate. The Social Council's report was
favourable on the purchase of Wrozamet, it was taken to the Assembly and 82% voted yes".
(FED Manager and Member of the SC).
According to the interviewees, decisions that should be made by the Governing Council were
actually taken by the Social Council that put pressure on the Governing Council even in decisions
such as the dismissal of the CEO, generating a culture where rights prevailed over responsibilities
"You have to go back to February 24, 2006 that is when they cut off the CEO's head. The
decision to dismiss the CEO is (theoretically) the Governing Council's... and in the General
Assembly the president of the Social Council, [name and last name removed], took the stand
…, saying that they, the Social Council, were the ones who removed the CEO... It was
unsustainable, who's steering this ship? ...... It didn't make sense... a place where the
decisions are not made among the experts...” (FED Manager)
Effectively giving decision-making power to the Social Council, reflected the management's priority
for maintaining social peace. Some interviewees pointed out that some members of the Social
Council had more influence than some CEOs:
"With the purchase of Wrozamet, I remember perfectly well that [name omitted] was the head
of the Social Council at that time. She was the real power. She was the one who ruled for
about 25 years, she was a woman with a strong political and union position and with a very
important team of that type around her. …The strength of the Social Council here in the
Fagor Group is not remotely similar to that of the rest of the Mondragon group cooperatives.
…. Here the Social Council had a lot of strength and the rights, social conquest, were much
more important. There was always talk of rights." (FED Manager and Member of GC and
"The Social Council was so strong that it could make the executive and the Governing
Council stop projects. The Social Council had a very big influence, very big. I don't know
how to explain why the Social Council had so much power. I was totally amazed at times.
Maybe it had so much power because of the people on the Social Council. Because of their
personal leadership.” (FED Manager)
As was the case with the control exercised by the General Assembly and the Governing Council, the
type of control that the Social Council exercised over top management was often aspects of day-to-
day operational management, issues that should have been solved in lower bodies of the company.
"In the end you get used to "I want to talk to the manager". The Social Council members went
to the manager's office every day for matters that they could have discussed with their direct
superiors. Why do you involve the manager? What does the manager know about whether to
extend this person’s contract or not? The manager does not understand because they are
dealing with other things, strategy issues." (FED Manager)
As in the case of Governing Council members, Social Council members often lacked the skills to
conduct some of their tasks. One of the functions of the Social Council in FED is to communicate
managerial decisions and convey information downward. Kasmir (1996) found that Social Council
members were often unable to interpret the information by themselves. According to our
interviewees, this problem persisted until the end of the firm.
In addition, workers’ representatives in FED’s Social Council and Governing Council stressed that
cooperatives should give them access to external independent advice, such as professional lawyers
and management accountants, to assist rank and file workers that serve as board members. This
demand is not new and Social Council members of FED interviewed by Kasmir (1996, 137)
criticized the “lack of access to outside professionals impeded workers’ ability to exercise their
democratic rights to manage their firms”.
Conclusion and Discussion
The research shows that it is too simplistic to blame the failure of FED simply on external factors.
While recognizing the importance of the external challenges that contributed to the demise of FED,
as previous research highlights (Alzola et al. 2015; Errasti et al. 2016; Arando and Bengoa, 2018),
our paper shows that internal factors linked to the cooperative’s governance system and culture
influenced key failed strategic decisions and reduced the capability of the firm to reverse the decline
caused by external factors.
The research shows that democratic governing bodies can slow down or indefinitely postpone
painful decisions concerning the closure of factories and units that lose money but employ worker
owners. Painful measures that could have saved part of the firm weren’t taken or even proposed by
management to the General Assembly, since managers knew in advance that the worker owners
would vote them down.
This research also contributes to the literature by allowing a better understanding of how
organisational factors, such as organisational size and internationalisation through the takeover of
foreign subsidiaries pose challenges for the cooperative model of democratic governance.
Participants in the study believed that the level of direct democracy at FED is ill-suited to large
multinational cooperatives. The application of the one- member -one vote principle in massive
General Assemblies, with thousands of cooperative members that have to vote on complex strategic
decisions they do not fully understand, is questioned by most of the interviewees. Given that many
other Mondragon cooperatives are economically successful and some of them are also growing with
over 4,000 working members, this growth may also be the seed of future governance problems like
those found in FED. In fact, some interviewees highlight that similar conflictual and unproductive
General Assemblies and subsequent mass resignations of Governing Councils are also taking place
in other large Mondragon cooperatives, and they suggest large cooperatives should limit the power
of General Assemblies and move to a stronger form of representative democracy.
In a largely conceptual paper Sundaramurthy and Lewis (2003) draw on both agency theory and
stewardship theory to highlight an important paradox that boards face, namely that they need to both
control and support management. They argue that if boards focus too strongly on either of these roles
at the expense of the other it can lead to organisational problems. They propose that if boards are too
critical and unsupportive of managers they may get trapped into defensive spirals of behaviour,
which lead to processes of organisational decline. The case of FED provides evidence to support this
proposal. In this destructive spiral, FED’s Governing Council, heavily influenced by the Social
Council, was very critical of management proposals and fired the CEO in 2006; afterwards other
managers resigned and one year later there was an “en masse” resignation of the entire Governing
Council. This destructive spiral generated fear among subsequent managers that then tried to
maintain social peace by keeping proposals that might be opposed by worker members off the
agenda that lead to a 'reverse dominance hierarchy' (Basterretxea et al., 2019) and contributed to
FED’s demise. Nevertheless, some interviewees felt that a 'reverse dominance hierarchy' is part of
the raison d’etre of the cooperative model itself. Thus, the challenge is how to make this dominance
and the voice of the members in the Governing Council and General Assembly work more
effectively to supervise and guide managers. Some interviewees highlighted the example of ULMA,
that has grown through spin-offs and creating new cooperatives, each of a size that can make
democratic governance easier. A recent paper (Bretos et al. 2019) also offers interesting examples
from Fagor Arrasate and Fagor Ederlan, that have achieved the involvement of members at all levels
in the discussion and elaboration of strategic plans through several mini councils.
Our study also contributes to the scholarly literature when cooperative membership is restricted to
certain groups. In the case of FED, membership was not offered to the foreign subsidiaries the co-
operative took over. In addition, the one-member one-vote principle generated a General Assembly
and Governing Council composed mainly of industrial workers and technicians from FED’s Basque
factories. As a result, the interests of other key functional departments, such as marketing, and
foreign subsidiaries were either under-represented or not represented at all. Interviewees believed
this led to the downsizing of uncompetitive domestic plants being postponed and to a progressive
loss of competitiveness.
Another key lesson from the experience of FED relates to the competency of worker board members
to understand and act on the information they are presented with in large complex cooperatives.
Giving all the information is not the solution, if cooperative members can not understand it. Indeed,
it can create apathy and the rubber stamping of management proposals, unless workers feel their
direct interests are threatened, when it may lead to greater involvement and conflict. According to
our informants, thinking that training for business literacy and efforts to improve communication in
simpler formats can equip worker board members to address complex economic and strategic
problems facing multinationals like FED is naive.
The failure of FED made many other Mondragon cooperatives think that this competency gap can
not be filled by training alone. Thus, a growing number of voices are asking for the
professionalization of Governing Councils. While the nomination of board members based on
meritocracy limits some of the governance problems of cooperatives, it also generates Governing
Councils that do not reflect the plurality of interests of the members from different backgrounds.
Professionalising totally the Governing Councils, as informants have told us that some Mondragon
cooperatives are doing, is likely to mean that expertise is acquired at the expense of representation of
certain groups of workers.
A potential solution to this governance problem as suggested by some of managers interviewed is to
include independent board members on the Governing Councils. The appointment of independent
directors has been possible since the approval of the Basque Cooperatives Act in 1993. However,
FED and most of the Mondragon cooperatives have not made use of this opportunity. One possible
reason is that bringing in expert independent directors on to the board is costly, and Mondragon
cooperatives’ practice of not paying the members of the Governing Council for their role makes it
difficult to attract professionals who could play this role. Nevertheless, as the failure of FED
highlights, having poor Governing Councils can be far more costly if the cooperative fails.
As a result of FED's failure, the Basque government is drafting a new cooperative law (Gobierno
Vasco, 2018) that, among other things, proposes to professionalise the governing councils and
encourage the use of independent members. The draft bill increases the maximum percentage of
independent members from one quarter to one third of the governing council. In order to make this
position attractive, the draft bill contemplates payment for independent board members, which is
proportionate to the cooperative's importance, its current economic situation, and, above all, the
skills and experience that the independent board members bring.
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Figure 1. Firms belonging to the Fagor Electrodomésticos Group in 2012 Ownership%
Source: Internal documentation
Fagor Electrodomésticos
Fagor France SA
Fagor S. Coop.
Ibai S. Coop
Geyser Gastech, SA
Meridional SAT, SL
Lidersat, SA
Naparsat, SL
Galisat, SL
Electromenager SA
Fagor Mastercook, SA
Fagor Ireland Ltd
FagorBrandt SAS
(Brandt Ind. SAS)
Ascorp, SA
America SA de CV
Fagor Confort UK
Fagor Lusitania
Electr. LDA
Fagor America
Inc ( USA)
Fagor Elektro
SRO( R. Ch.)
Fagor Slovensko
SRO ( 23-3
Fagor Hungaria
K. Kft
Fagor Benelux
bV ioHolland
Fagor Home App.
( Thailand) Co. Ltd
Fagor Hausgerate
Gmbh( Germany)
Fagor Home App.
(M) SDN BDH Malasia
Fagor Trade Shangai
Co Ltd (China)
Grumal, SL
Agora SAS
Suminist Electr
Penins, SA
Brandt Italia SPA
De Dietrich Kitchen
Appliances Ltd UK
Brandt Suisse SA
Brandt Asia PTE Ltd
Br. Nordic A/S
Br. Overseas Srl
Proiek Habitat
& Equipment, SA
Fagor Electroménager
Brandt Cust. Serv
Brandt Appliances
Brandt SNC
Brandt Middle
East FZE Dubai
Rotartica SA
Lidersat madrid
2008 SL
De Dietrich
Italia, S.p.A.
LLC Polar Industries
Br. Polska
HWRC Holdings
BBV Holland
Israel Ltd
Shangai Minidomesticos
After Sales
Brandts Property
Without Activity
In Liquidation
Edesa S. Coop
... (Gond et al., 2016, p. 458). Second, we advance the degeneration/regeneration debate by detailing the micro-political processes involved in performing a market-oriented strategy in a PC and the role of ordering multiple views, reinforcing the argument that keeping multiple evaluative principles in play can foster generative friction (Stark, 2009 (Ajates, 2020a;Basterretxea, Cornforth, & Heras-Saizarbitoria, 2022;Bourlier-Bargues et al., 2022). ...
... The degeneration thesis, assumed to originate from Michael's "iron law of oligarchy", postulates that cooperatives cannot maintain their democratic ownership and governance and must either fail economically (the non-survivability) or degenerate into more hierarchical and elitist organisational forms (Cornforth, 1995;Diefenbach, 2019), earning them a label of 'impossible organisation' (Boone & Özcan, 2016;Estrin & Jones, 1992). This is due to tensions between supposedly incongruent economic and cooperative principles which arise from attempts to adapt to competitive markets (Basterretxea et al., 2022;Errasti et al., 2017 , 1993). These tensions are exacerbated in PCs as members are individual businesses, typically motivated by individualism and survival rather than cooperation (Ajates, 2020b;Boone & Özcan, 2016). ...
... Others stress the need to align diverse interests and understandings of cooperative principles and goals that underpin how individuals perceive the core reason for their existence (Jaumier, 2016a;Tregear & Cooper, 2016). Such alignment is especially important when a competitive strategy is needed (Basterretxea et al., 2022). ...
Due to tensions between social, cooperative and competitive goals, producer cooperatives (PCs) often degenerate by abandoning their cooperative and social goals or fail economically. We show how these pressures to degenerate into business-as-usual can be resisted and even reversed through a longitudinal study of Zespri, a cooperative responsible for 30% of global kiwifruit exports. We employ a performativity lens to theorise the organising involved in regenerating cooperative principles while introducing new competitive strategies. We explicate three types of performativity: performative dualism, instrumental performativity and performative multiplicity, and offer nuanced insights into how different performative struggles unravel and temporarily resolve through different modes of ordering (distribution, coordination and mutual inclusion). Our insights further contribute to organisation studies about cooperatives’ tendencies to degenerate/regenerate by showing the importance of organising the multiple, and sometimes conflicted, views of actors in a generative and productive way. Those findings can be extended to other democratically managed and hybrid organisations.
... For example, Spear (2004) noted that the supervisory task of cooperative governance isn't always implemented in the best way possible. In addition, previous research shows that widespread ownership of large cooperatives can lead to members finding it unnecessary or not useful to participate in issues of governance (Basterretxea et al., 2020;Chaves et al., 2008;Puusa et al., 2013;Spear, 2004;Tuominen et al., 2009). Furthermore, governing bodies' members may lack business skills due to their "layperson" background (Chaves et al., 2008;Cornforth, 2004;Spear, 2004;Tuominen et al., 2009). ...
... Because the governance structures of different cooperatives may vary significantly, there is no simple blueprint (Birchall, 2015), and the structures have become more diverse in recent decades (Hakelius & Nilsson, 2020). Despite varied structures, elected member-representatives remain the most important component of representative democracy (Basterretxea et al., 2020;Chaves et al., 2008). ...
... Cooperative governance involves a tension between control and cooperation (Cornforth, 2004). The lack of oversight at the governance level is one of the reasons for the concentration of power in cooperatives (Basterretxea et al., 2020;Chaves et al., 2008;Ghosh & Ansari, 2018;Spear, 2004), which leads to a democratic deficit, weakens membership loyalty, and thus betrays key features of the cooperative identity (Simmons et al., 2015). The main task of governance is to fulfill the cooperative's objectives, protect members' interests, and maintain member control. ...
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The purpose of this article is to discuss the features and challenges of participatory, people-centered, and democratic cooperative governance through examining both members councils’ and supervisory boards’ understandings of the roles, tasks, and responsibilities of various governing bodies via a qualitative case study of a large Finnish consumer cooperative. The data show that the overall structure and duties of the governing bodies are not clearly understood. Also, the data present a view of the cooperative as a very hierarchical organization in which real power is exercised by very few. Members councils are perceived as being quite passive and their decision-making power is mainly seen as a rhetoric mantra, which does not support the view of the cooperative as a truly democratic organization. The supervisory board in turn doesn’t seem to understand their supervisory duty, which concentrates power in the board of directors and management and weakens the possibility of the emergence of different perspectives in governance. Democracy was collectively highlighted as the central value related to cooperatives. However, democracy was interpreted merely through its electoral conception whereas the quality of democracy is ignored. Thus, the governance system neither actualizes its full potential nor meets the original ideas forming the co-op ideal.
... In other words, a series of activities and rules aimed at making companies follow specific codes, as to the processes through which companies are directed and controlled; these rules include both the laws of the country in which the company operates and internal company processes [7]. Corporate governance literature encompasses contributions from many aspects of the field, including firm performance [8], voluntary disclosure [9], bankruptcy [10], earnings management [11], connection between corporate governance and stakeholder relations and corporate social responsibilities [12,13], and the relationship between corporate governance and top executive compensation [14]. ...
... 9 Park and Shin [98]/272/Journal of Corporate Finance To examine the impact of board composition on the management of Canadian revenue practices. 10 Gereffi and Lee [44]/247/Journal of Business Ethics ...
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Corporate failure suggests that weak corporate governance leads to frail institutions and exposes them to severe crises. Asian countries have faced financial crises in three different periods, most recently due to the COVID-19 pandemic. A crisis will trigger structural changes in corporate governance to enable firms to either respond to, or prevent, the reoccurrence of potentially similar events. The characteristic of corporate governance practice in Asian countries are also unique due to some institutional and informal factors. These will alter direction and future trend of research in corporate governance in Asian region. The objective of this study is to utilize a bibliometric analysis which focuses on research trends and themes, and citations (with additional inclusive visualization) and perform in-depth content analysis to trace the evolution and identify knowledge of corporate governance in Asian countries from 2001 to 2021. Following bibliometric analysis, a sample of 656 articles on corporate governance in Asian countries has been extracted and analyzed from the Scopus database. The results indicate that there is a growing of interest in corporate governance in Asian countries from 2001 to 2021. Eight major themes have been recognized: corporate governance, corporate social responsibility and financial performance, corporate strategy and performance, agency theory, corporate sustainability, audit and agency problems, firm size, and business ethics. Major findings, shortcomings, and directions for future research are also discussed in this study. In general, most cited articles related to corporate governance theme explain the importance of corporate governance in companies with the focus on preventing financial fraud, impact on earnings management, and cost of equity capital in the market and reporting methods.
... In the standard industrial worker cooperatives of the group, there is no need for these measures since only one stakeholder group is involved. Interestingly, some respondents suggest that it might be useful to extend this discussion on what different stakeholders' roles, perspectives, and contributions, etc., might add to other (singlestakeholder) cooperatives as a potential measure to help them address one of their main challenges, the expertise dimension of the so-called governance trilemma (Basterretxea et al., 2022;Birchall, 2014). ...
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Cooperative enterprises were first founded to organize business activity in a more humane and democratic fashion than was the case in conventional firms and to promote social goals in the broader community beyond profit maximization. This orientation has led to challenges for cooperative governance as these firms seek to balance the pursuit of their social objectives with survival in competitive markets. The cooperative universe is very diverse, however, and different types of cooperatives face somewhat different versions of these governance challenges. One relatively new and growing type is the multistakeholder cooperative (MSC) which consists of more than one formal membership group. Given its relative newness and its growing importance, the MSC should be examined in greater depth. The Mondragon Cooperative Experience (MCE) is one of the most highly developed in the world. Much recognition comes from its emphasis on worker cooperatives, but Mondragon has also created MSCs, among them some of its most emblematic firms. MSCs are also much more numerous in the MCE than is generally understood. Under these circumstances, this chapter seeks to examine the MSC phenomenon in the MCE. We analyze these cooperatives, connecting our analysis to extant research and suggest avenues for future investigation.
... This implicates recruitment, hiring, onboarding, education and development, and turnover and succession practices and processes (Cornforth, 1995). A firm basis in the cooperative identity is crucial, especially when considering co-op professionalization under the related pressures of competition and scale (Basterretxea et al., 2022). ...
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This chapter sets the stage for differentiation between governance systems in cooperatives, taking context into consideration through select key defining variables. Governance systems include structures, processes, and their dynamic interplay in response to internal and external forces (Eckart, Cooperative governance: A third way towards competitive advantage, Südwestdeutscher Verlag für Hochschulschriften, 2009). Governance structures in cooperatives will be impacted by the organization’s purpose and the nature of the members’ relationship with the cooperative; processes are democratic, but situation dependent and not uniform; and the dynamics of organizational change involve the co-op’s adaptation and evolution in response to external and internal forces influencing members’ evolving needs and goals (including impact on future generations).
Environment, social and governance (ESG) and sustainable corporate governance (SCG) are two popular terms that are floated around the corporate sphere. ESG and SCG are the major governance factors; however, they cannot be considered similar in addressing the environmental, social and governance aspects of a business. It is obvious that corporate governance alone cannot satisfy stakeholders satisfaction and inclusion of ESG and SCG is required. ESG represents a more stakeholder-centric approach to doing business, whereas SCG creates long-term stakeholder value by implementing a sustainable business strategy. This chapter identified literature in these areas and presented a detailed analysis of the global scenario. With the application of stakeholders theory, this chapter highlighted the importance of both governance factors and identified that SCG is the principal trait of corporate governance and ESG can be the part of SCG. This chapter identified the advantages, disadvantages and risks associated with the probable non-implementation of ESG and SCG. This study will be beneficial to regulators, corporate leaders and professional bodies in setting up the standards and amending their codes and policies. This study will enhance the existing body of knowledge and can be converted into a complete empirical study.KeywordsEnvironment social and governanceSustainable corporate governanceRiskAdvantages of ESG and SCGDisadvantages of ESG and SCG
The Covid pandemic has amplified the hardships people are experiencing from human-induced climate change and its impact on weather extremes. Those in the Majority World are most effected by such global crises, and the pandemic has exposed the vulnerabilities of these populations while highlighting the differences between them and those fortunate to live in the Minority World. This book presents an overview of the impact of the climate emergency punctuated by a pandemic, discussing the expanding inequalities and deteriorating spaces for democratic public engagement. Pandemic responses demonstrate how future technological, engineering, political, social, and behavioural strategies could be constructed in response to other crises. Using a critical analysis of these responses, this book proposes sociotechnical alternatives and just approaches to adapt to cascading crises in the Majority World. It will be valuable for social science students and researchers, policymakers, and anyone interested in inequality and vulnerability in developing countries.
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This essay presents two case examples of the context and practices of industrial democracy: Norwegian industrial democracy exemplified with the Aker case and the Mondragon Cooperative Experience (a term Mondragon often uses to describe its whole structure and history). The comparison illustrates the necessity of combining general systems theory, the distinction between political and socio-technical participation, and the role of ethos, worldview, and heedfulness in understanding how these enterprises operate and manage ongoing challenges. Our central motive is to promote the expansion of organizational democracy within the global industrial system as a superior and more humane alternative to global neoliberal capitalism. These are not simple comparisons because these systems have different histories, contexts, and dynamics. In making the comparison, we show that the constant process of balancing and rebalancing political and socio-technical participation is a key dynamic in keeping such democratic systems viable. We also show that enterprise ethos and worldview, far from being an add-on or a “soft” dimension, is the bedrock on which such systems rely. After making this general presentation, we put these systems in motion to show how they address the challenges of downsizing and strategic planning. Downsizing and strategic planning show both systems’ ability to face unexpected events and effectively cope with their potential consequences. We conclude that the differences between the cases show there is no one right way to create democratic organizations, but that paths exist and remain open for many different versions of these more humane and successful industrial organizations so necessary for creating sustainable societies.
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In recent years, companies have adapted their business models towards a digital format whereby their internal organization, development, production, and logistics processes have become part of a connected ecosystem. This adaptation process, known as digitalization, has largely driven organizational change in companies. Specifically in cooperatives, which are collective associations of professionals interested in common economic objectives, the new technology adoption has been configured as a solid strategy where digital transformation processes should be appropriately executed. In this context, the present study aims to identify the development of the characteristics of the digitalization process in the scientific literature and to link it to the cooperatives sector. To this end, a bibliometric study of the studies published in the period from 2000 to 2022 is developed. In this endeavor, processes such as bibliographic coupling, word co-occurrence, and co-citation analysis are computed and analyzed. The results reveal a map of relationships and key elements in the studied field of research, and where particularly prominent are areas directly linked to cooperatives, such as the circular economy, sustainability, or innovation. The results of this study contribute to the construction of a general overview of the publications developed to date in relation to digitalization and its state-of-the-art, as well as its future link to cooperatives. For the development process of digitalization in cooperatives, a total of five phases are identified, described, and discussed. Likewise, a total of 17 future research questions and 3 research propositions are discussed for subsequent research. Finally, the theoretical and practical implications of the study are presented.
The delivery sector has undergone profound changes in the way work is organised, particularly under the influence of platform capitalism and its algorithmic management. This phenomenon exacerbates processes of work precarisation that have been underway for decades. Alternatives have started to emerge, known as platform cooperativism, which aim to rethink the organization of work. Despite their long socio-economic history, cooperatives have not been extensively researched from a physical and mental health perspective. The results of our investigation into the psychodynamics of work among couriers in a French cargo bicycle delivery cooperative show that health-related aspects – inseparable from the subjective relationship to work – shed light on individuals’ choices to embark on an alternative ‘entrepreneurial adventure’. We suggest that this way of working could signal an alternative to the model proposed by neoliberal economics, with their deleterious effects on health, on the collective, and more globally on politics.
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This article provides an in‐depth, longitudinal analysis combining real‐time and retrospective data on a set of Mondragon's industrial cooperatives that are organized as international groups. We examine the life cycle of these international cooperative groups, which is expected to evolve differently to that of small‐ and medium‐sized cooperatives that operate exclusively on a local scale. The article is theoretically informed by the cooperative life cycle theory, as well as by recent insights from the degeneration and regeneration theses. Our analysis yields an intricate picture of the evolution of cooperatives faced with a ‘grow‐or‐die’ dichotomy. On the one hand, our findings reject the highly simplistic and deterministic view of the degeneration thesis by demonstrating that these cooperatives can mobilize resources to revitalize cooperative values and practices. On the other, we find that regeneration may not occur in a consistent, sequential fashion as the previous literature suggests, but rather degenerative and regenerative tendencies can occur simultaneously, even leading to long‐lasting, unresolvable situations. In light of this, the article asks future research to draw on power‐aware and politically informed approaches for further understanding of how cooperatives manage the tensions at each organizational stage of their life cycle, and of which organizational actors benefit, and how, from reversing some degenerative tendencies while maintaining others intact.
Technical Report
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This is the second edition of a report written for Co-operatives UK. It was commissioned because of the difficulties experienced by the Co-operative Group in 2014, which led to questions about whether large co-operatives can successfully be governed. The first edition analysed the governance of the world's 60 largest co-ops and found that - with one or two exceptions - their governance was sound. It also provided some new conceptual tools for analysing and redesigning their governance. However, it failed to provide a systematic typology of governance types; the sheer variety was too confusing. I carried out the same research again two years later, updating my findings and - by simplifying the language used by co-ops to describe their own governance - managed to provide a comprehensive typology.
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The article analyzes the interaction between employee ownership, HRM policies and practices, and HRM outcomes in what was the world's biggest industrial worker cooperative for decades, and now defunct, Fagor Electrodomésticos. Using longitudinal internal data and detailed interviews with key stakeholders, this paper sheds light on how employee ownership conditioned HRM policies. HRM outcomes—such as job satisfaction and absenteeism—are also analyzed over a long period of time. Chronic nepotism when recruiting new members, failures in the training policy, impoverished and Taylorist working systems, and reverse dominance hierarchies are analyzed as factors that increased free riding and caused low satisfaction and the disengagement of working members. This case study contributes to the literature on HRM and worker cooperatives as it provides some insights that are rarely found in that literature. It also provides guidance to worker cooperatives about increasing the fit between employee ownership and HRM policies and outcomes.
The closure of Fagor Electrodomésticos in October 2013, the most iconic cooperative in the Mondragon Group, not only cast doubt on the economic and social management of the cooperative itself but also called into question the very viability of the overall cooperative model. In addition to describing the evolution of this cooperative in its last years in business, this chapter offers a comprehensive review of the mechanisms of inter-cooperation in the Mondragon Group and the way in which they were applied in the crisis at Fagor Electrodomésticos. The methodology applied is a qualitative research methodology mainly based on semi-structured interviews. The main conclusion of the chapter is that the closure of the cooperative was largely caused by market conditions. The chapter also highlights the validity of the mechanisms of inter-cooperation applied in managing employment which contributed to a rapid resumption of the employment situation of surplus personnel from Fagor Electrodomésticos. The main contribution of this chapter comprises a detailed description of the methods used by the Mondragon Group to manage employment adjustment at the time of closure of its largest industrial cooperative during the recent general economic crisis (2008–2014), and thus avoid large-scale unemployment, its concommitant problems, and deeper deterioration of social capital in the Mondragon area. Further research is needed to compare this process with other international experiences based on cooperation.