mutual benefits the cooperative alternative to mergers and

Mutual Benefits – The cooperative alternative to mergers and

acquisitions

Melina Morrison, BCCM David Thompson AM, CEO, Jobs Australia

How co-operatives and mutuals provide an alternative in market-based human services

Jobs Australia Conference

Wednesday 19 October 2016

Melina Morrison, CEO Business Council of Co-operatives and Mutuals

[email protected] +61 410902656

“Governments are transitioning to market-based human services delivery, at the same time personalised budgets promise service consumers more autonomy, choice and control. The mantra for non-profits facing harsh realities of a devolved market-place that is more competitive and commercially focused, has been “merge or be acquired”.

But at what cost and are there alternatives? Mutual solutions offer a potential third way for organisations to collaborate to compete in a democratic ownership model.”

Topic for today

1. The BCCM and its role

2. The strategic opportunity

3. The co-operative business model

4. The benefits of co-operatives and mutuals

5. Case studies

6. How BCCM can assist

Today’s agenda

The BCCM is the peak cross-sector body for co-operatives, mutuals and member-owned businesses. Its purpose is to promote recognition of the important role of co-operative and mutual businesses in the Australian economy.

The BCCM and its role

A mighty membership

• 14.8 million members of Australian CMEs

• 29 million members (when member-owned super funds included)

• 8 in 10 Australians are members of one or more CMEs (79%)

• This compares to 6.48 million Australians who own investments listed on ASX (36%)

BUT

• Low awareness

• 16% Australians can name a co-op.

• 1 in 3 Australians know if they are a member of a co-op.

BCCM, 2015 National Mutual Economy Report

BCCM’s key message on a page

“In most contestable markets for human services, if the aim is for higher quality, greater user and worker well-being and more community involvement, then the best kind of organisations are mutuals of some kind”

Professor Julian Le Grande. Chair, UK Public Source Mutuals Task Force

A growing and evolving sector in Australia with strong brands and case studies supported by an influential international co-operative network

How co-operatives and mutuals add value

1. Provide diversity and choice in the market

2. They have a social enterprise mindset and behave accordingly

3. Rely on enterprise and mutual investment to address “wicked problems”

4. Their DNA is about meeting the needs of their members and achieving better outcomes for them. This is consistent with social investment funding models like the NDIS

5. The size of the CME sector provides a “safe pair of hands” and can be trusted to deliver outcomes in the public interest

6. They are innovative and more adaptable to change

7. They re-invest surpluses into public benefit

Four models of co-operatives

1. Worker

2. Consumer

3. Producer (enterprise)

4. Multi stakeholder (hybrid)

Everyone’s happy: NSW home care sell-off ‘demonstrates trust’ in public sector mutuals

Left to right: Derek McMillan, General Manager Aged Care Australian Unity, NSW Minister for Ageing, John Ajaka and Rohan Mead, CEO Australian Unity

“Is it a mutual, or is it a privatisation? The sale of the NSW government’s home care service to Australian Unity has revived talk of public sector mutuals. Even the union is happy.”

- The Mandarin, 4/09/15

There are recent examples where mutual businesses have established trust as a safe pair of hands for the transfer of public service business to the non-government sector. In 2015, Australian Unity won the tender to transfer ownership of the NSW Government’s Home Care Service for $114m.

Key strategic questions for NFP Boards

1. How do you remain relevant in a market-based environment?

2. Who are our customers?

3. How do we design services around achieving outcomes for our customers and service users?

4. What makes us different to other providers?

5. Are there other stakeholders who can help?

The strategic opportunity

How to get here?

Adapted from HBR: You need an Innovation Strategy (June 2015)

Opportunities

Threats

Now

Some won’t make it

“User choice, with a competitive backdrop means that, like in other markets, we will see different providers, not-for-profits, mutuals, government and to mention the evil word in some people’s ears, for profit companies, being motivated by the users of the services to meet the needs and requirements of those users.”

Professor Stephen King, PC

The strategic opportunity

How to get here?

Adapted from HBR: You need an Innovation Strategy (June 2015)

Opportunities

Threats

Now

Some won’t make it

• Released in August 2014

• Oversight by BCCM Public Service Mutuals Task Force

• Built on UK public service reforms

• UK Government has supported the development of > 100 mostly employee-owned public service mutuals since 2009, no failures

• Designed to promote debate in Australia

Why does organisation form matter in delivering human services?

“Whether the introduction of choice and contestability works in delivering high quality, equitable, efficient, accountable and responsive services, in a particular market will depend crucially on the type of supplier or delivery organisation. So, to take an obvious example, in a contestable market where users have poor information about quality (such as health and social care), both theory and evidence suggest that a for-profit corporation will behave very differently to a non-for-profit charity: being more efficient in reducing costs, but providing lower quality.”

Professor Julian Le Grande. Chair, UK Public Source Mutuals Task Force, London School of Economics.

BCCM White Paper

Wholly or in part delivers public services through a co-operative or mutual structure

Members of the organisation are able to be involved in decision making

Members benefit from its activities including benefits emanating from the reinvestment of surpluses.

Australian Public Service Mutuals may be one or a combination of:

• Consumer owned

• Employee owned

• Enterprise owned or

• Multi-stakeholder

What is a public service mutual?

Principles of Co-operatives

• Voluntary and open membership

• Autonomy and independence

• Democratic member control

• Member’s economic participation

• Education, training and information

• Co-operation among the co-operatives

• Concern for community

1. There are entrenched power dynamics among existing providers which limits their ability to adapt quickly enough to a market-based system. CMEs add diversity and choice

Four governing thoughts underpinned the BCCM’s submission to the Productivity Commission

2. The benefits of reform must achieve better outcomes for people with re-investment of surpluses in the public interest, not generating more profit for shareholders or disguised through inefficiency

3. The workforce challenges in human services are significant. The reform agenda should consider the compelling theory and evidence about the comparative advantages of organisation forms that incorporate employee ownership including all forms of co-operatives and mutuals.

4. To enable this diversity of organisation form to emerge, it is necessary to remove regulatory, attitudinal and other barriers that currently reduce the competitiveness of co-operatives and mutuals in the Australian economy.

Co-operatives and mutuals can be a preferred option when…

For Profit Best when: • Standardised service • Efficiency driver • Scalable • Profitable

Not-For-Profit Best when: • Too expensive for

government / industry • Usually serves special needs • Traditional/conservative • Usually Provider led • Reputation

Co-operatives and Mutuals Best when: • Alternative solutions required • Too complex for government (‘wicked’) • Lower margins • May be a specialised service • Requires stakeholder engagement

especially from consumers • User-led design • Efficient and re-invests for public benefit

Market Led • Efficiency • Productivity • Challenges mind-sets

Community Led • Charitable/Mission • Philanthropy • Voluntary

CME Market • Shared value • Member centric • Challenges mind-

sets & drives innovation

• State registered co-operative under the Australian Uniform Co-operative Laws Agreement (CNL) - endorsed by COAG for a national scheme of legislation for the incorporation of co-operatives. They can be distributing and non-distributing.

• Companies limited by guarantee or companies limited by shares (or both) under the federal Corporations Act (2001).

Key features:

• Members are owners – no external shareholders

• Democratically controlled by members

• Purpose is to pursue a Member need or want

• Members required to actively support co-operative including economic engagement

There are two ways to form a co-operative or mutual organisation

Four types of ownership models for co-operatives and mutuals in Australia

Worker Co-operatives

(spin-outs in UK)

Public sector employees choose to establish an organisation to deliver public services outside of government

Community or Consumer Owned

Community (users of services) collaborate to form an organisation to deliver/procure public services

Enterprise Owned

• Individuals and organisations (co-ops, NFPs, businesses, social enterprises)

• Collectively deliver public services

• Collectively share the benefits of collaborating for common resources

Multi-Stakeholder Hybrid

Community Empowerment

• Employees

• Consumers

• Community

• Funders

• Government

UK Definition Additional ownership models for Australia

The benefits of co-operatives and mutuals

• Introduces more diversity of organisations contributing to economy and providing consumer choice

• Builds economic and social capital

• Alternative to current ways of delivering public services (outsorucing and privatisation)

• Enables funding/policy separation from delivery

Diversity enables a resilient economy

• Member value – higher quality specialised services and value for money

• Business value - productivity, efficiency and long-term sustainability

• Fosters individual responsibility – through active membership and participation

• Community value – indirect - generates social capital and more say in how services are delivered

Profits re-invested to benefit members

• Consumer direct care - facilitates consumer choice and control through democratic structures

• Employee owned – competitive salary, training and decision making in providing quality care

• Multi- stakeholder governance – community ownership addresses complex problems and harnesses diverse resources

Member driven outcomes

• Incremental innovation – extend existing service offering

• Radical innovation – new services to meet member future needs

• Innovative “joined up” “place based” solutions to “wicked” problems

Innovation to meet unmet needs

Case studies help inform how CMEs provide choice and diversity in different markets

Community Service Enterprise Cooperatives

• Enterprise co-operatives enable smaller community-based co-ops to scale • NCEC is a great example of a worker-co-op where people with disabilities

previously reliant on welfare, have been gainfully employed for 10+ years • The workers receive above award wages and are economically engaged in co-

op’s management • Winning long-term government contracts e.g. Brisbane City Council parks,

has enabled NCEC to scale • New social enterprises are now forming e.g. café at the Nundah Railway

station • PaRA using similar model around family governance model in NDIS for

supported accommodation for their children with autism • DSS supporting the start-up funding of an incubator enterprise co-op that will

enable this model to scale nationally. • The enterprise co-op model has also been applied to Community Transport

where Transport for NSW supported start-up funding to do feasibility study • These enterprise co-op models provide choice and diversity in thin markets

especially with challenging populations and in regional/remote areas

Community Care and Transport Cooperative

PaRA


Social Housing

• Access to safe appropriate and affordable housing underpins effective outcomes for at risk children, families and young people

• CEHL in NSW and Victoria operate as enterprise co-operatives enabling and supporting member co-operatives to thrive.

• Tenant (consumer) engagement in running the co-op is central to the model • Rochdale Bouroughwide Housing (RBH) is great example of how Local

Government enabled the formation of co-operatives when it was struggling to maintain standards and choice in social housing

• The co-operative model in the UK has been important where government owned stock is transferred to the non-government sector.

• Enables shared equity models to emerge and greater focus on meaningful economic engagement of tenants

• The Welsh Government has adopted the co-operative mutual model in its transfer of social housing stock to non-government sector.

• Mutuo UK is working with Welsh community housing providers to form place-based housing co-operatives e.g. Methyr Valley Homes

• These models operate as multi-stakeholder co-operatives


Health

• New legal forms emerged in the UK that enabled mutual business models to emerge

• Community Interest Companies and NHS Foundation Trusts • The Foundation Trusts maintained Ministerial control and accountability

whilst enabling separation of commissioning from service provision • National Health Co-op provides diversity and choice in primary health care

and is scaling into allied health and thin rural markets of NSW

Integrated Health & Social Care

• “Right to Request” enabled UK public servants to “spin out” and form their own mutual businesses

• Challenges negotiating continuity of funding which was for 3 years after which funding became fully contestable

• High performing services like Your Health Care spun out first and operate as Community Benefit Societies – similar to co-ops but trade to benefit community as a whole.

• These mutuals are filling a major gap in the NGO market for integrated health • They enable Integrated Personal Commissioning of personal health budgets


Home care and community support

• Worker-owned co-operatives provide an alternative in the home care market • Strong evidence about the benefits of employee ownership • Stronger an closer relationships are formed between the workers and their

customers • Enables peer-to-peer selection of care workers in local place-based

neighbourhood hubs of workers • Enterprise co-operatives can enable worker-owned co-ops to expand and

scale into other markets • Attracting finance for these small start-up worker – owned co-ops is difficult • In the UK, the right to request and guaranteed start-up funding enabled

these models to emerge • CASA is a n example of an enterprise co-operative operating like an “ethical

franchise” that supports and enables the smaller locally based worker co-ops to operate

• These co-ops can be either distributing or non-distributing • When workers benefit financially, the co-op has to be distributing


Indigenous service delivery in remote areas

• The co-operative mutual business model is well-suited to indigenous communities, especially in rural and remote areas

• This is because the CME model is about community ownership and control, and re-investing surpluses back into community benefit

• Tranby is a CME in education and training; Rumbalara operates in integrated health and aged care in Shepparton, Victoria; and ALPA – operates community stores in 25 remote indigenous communities in northern Australia;

• A MAJOR impediment for each of these case studies is that to operate as an Indigenous Corporation, they are required to be registered as a company. E.g. ALPA is a company however has adopted the international co-operative principles in its constitution.

• Consultations with Queensland Govt (DP & C) has identified opportunity for the CME model in remote Far North Queensland with Torres Strait Islander communities

6 key steps for establishing co-ops

Industry, Government & Community Engagement

1 Strategic

opportunity

2 Engagement

3 Co-op

entrepreneurship

4 Registration &

review of business plan

5 Establishment

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6

6 Realise benefits

and growth

How the BCCM worked with community transport to form an enterprise co-operative as an alternative to a merger

Workshop 1: Introductions and Project scope – 7 February 2015

Working together and governance; project steps and scope;

Understanding what a co-op is and attributes; exploration and ideas

Workshop 2: Legal Issues Clinic – 2 May 2015

What is important to us? What are our objectives? Negotiables/non-negotiables; Strategic intent; consider legal issues paper; understanding and applying the model rules; considering other legal options and the benefits of a co-op; introducing the discovery exercise and how this informs the target operating model; who are our members? registration process.

Workshop 3: Reflecting and re-framing workshop - 30 May 2015

Readiness checklist; two presentations from BCCM members on how they operate; key issues emerging from the legal issues clinic to inform strategic intent; updates on discovery exercise, target operating model and business case

The Community Care and Transport co-op was co-designed in six workshops (cont.)

Workshop 4: The nut and bolts of our plan – 27 June 2015

Feedback on discovery exercise and discussion of areas for productivity improvement; populate business model canvas; learning from another BCCM member on strategy; presentation from another community shared services organisation; update on Constitution including objects, members and primary activities

Workshop 5: Making the hard decisions to realise our vision – 1 August 2015

Overview from the funder about policy changes; Consider draft target operating model (to inform and clarify primary activities); more drafting of Constitution; update on registration;

Presentation of draft strategic plan.

Workshop 6: Transitioning to the new co-operative – 14 August 2015

Revised target operating model; review the draft strategic plan; business case template and assumptions; update on registration; Disclosure Statement and Joint Enterprise Agreement considered; review draft transition plan

The Community Care and Transport co-op was co-designed in six workshops (cont.)

Workshop 7: Final steps to formation – 15 October 2015

This workshop conducted with Board and executive staff

Finalise strategic plan; discuss and agree draft business case; consider 100-day transition plan; lessons learned.

The co-op had its registration approved on 3 September 2015 and held its formation board meeting on 20 October 2015

How the BCCM can assist members of Jobs Australia

What we can do

1. Run information sessions for JA Members and other interested organisations

2. Facilitate strategy session with boards and interested members to explore the co-operative model

3. Co-design some co-operative development options for further consideration by the board

4. Support registration and execution if a co-op option is pursued

Benefits

Raise awareness

Helps get buy-in from current and prospective members

Ensures strategy informs selection of organisational form

Consolidates engagement and buy-in Builds capability around social enterprise

Guides effective strategy execution

Visit www.getmutual.coop for Pathfinder case studies

http://www.getmutual.coop/

Melina Morrison Chief Executive Officer Business Council of Co-operatives and Mutuals [email protected]

www.bccm.coop www.getmutual.coop

For more information contact:

mailto:[email protected]

mutual benefits the cooperative alternative to mergers and

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