Re: Mondragon: Mondragon papers

[David Erdal <david@erdal.net>]

Humble obeisance to the great minds that have started off this 
discussion. Thanks to all.

Dear Shann
I disagree with your paragraph:

"In regards to your [i.e. Race's] paper I do not think it is 
appropriate in your opening paragraph to state that it "provides an 
object lesson in the use of employee ownership..." as Mondragon 
employees may control but not own."

I agree that concepts of ownership are slippery and confusing. But 
two aspects of the Mondragon system mean that all the members (not 
all the employees) do in fact own their co-operatives in my view.

The first is that they can exit the group and sell the business. This 
requires I understand a simple two thirds majority vote by the 
members of the co-op: the centre has no right to intervene with any 
authority, though it may try to persuade.

In practice when they established the MCC superstructure and changed 
the groupings from geographical to sector groupings, two co-ops did 
exit the system. I don't know if they sold their businesses - I 
suspect not - but they certainly could have done, and it has been 
done before at least once. On a recent visit I was told that the 
reason the two came out was because they feared that the creation of 
the MCC superstructure would aggregate too much power at the centre, 
a fear which was widespread among the co-ops at the time, but now 
seems to have been laid to rest.

The second way in which the Mondragon system surely classifies as 
ownership is that through their capital accounts the individual 
members share in the capital growth of their co-ops while they are 
employed in them. This growth is closer to book value growth than 
equity market growth, but it is still sharing in the capitalised 
profits of the business, which is one aspect of ownership.

If they have the right to share personally in the capital growth, and 
have the right collectively (like any shareholders) to sell the whole 
shebang, in addition to the right to all information regularly 
communicated and the right to influence and decide not only policies 
but specific major decisions, then that to me looks, smells and 
tastes very like ownership as she is known in Wall Street.

In what way is it not? What do we gain by making the distinction you 
want to make?

For me the great glory of the Mondragon system is that the power 
really does lie with the base level co-ops, where it lies with the 
members. MCC is not in any sense a holding company: the whole thing 
is built from the bottom up, and any part of the bottom can by a 
majority vote come out, owing nothing except normal bank debt if it 
has it.

The problem that they seem to me to be facing now is how to expand 
internationally. Rather than starting new co-ops abroad, they are 
finding it far more effective to acquire companies abroad (they now 
have 34) in the industrial sectors of their home co-ops. But if they 
convert those companies to co-ops, then the members will be able to 
walk out on them, and their capital investment would be liable to be 
lost. So they are introducing the Mondragon management model but 
retaining the ownership and control themselves.

This is where ESOP style employee ownership has a role to play, it 
seems to me, and I was not surprised to find that the legal beagles 
in the MCC are very interested indeed in how it is done.

David Erdal
>Race
>
>Your paper at http://cog.kent.edu/lib/MatthewsMondragonDraft.htm on 
>"Mondragon: Past Performance and Future Potential" extends the time 
>period covered by my paper in the COG library. 
>
>Refer to 'Innovations in Corporate Governance: The Mondragón 
>Experience', Corporate Governance: An International Review, 3:3, 
>167-180, July, 1995, Blackwell, Oxford. Full text at 
>http://cog.kent.edu/lib/Turnbull6.htm. 
>
>Your paper goes further back in history and fills in recent events 
>while my paper complements yours by providing more details and 
>identifying the six lessons that Mondragon provided to me at the 
>time of writing, namely:
>
>1. 'Entrepreneurship has not only been successfully 
>institutionalised and socialized in Mondragón; it has been 
>dramatically improved'
>
>2. 'the cooperatives are more efficient than many private enterprises'
>
>3. introduced a number of social inventions
>
>4. represents a system of social and political governance which is 
>different from either socialism or capitalism
>
>5. economic transactions are not governed just by markets and 
>hierarchies but also by 'personal relationships' and 'associations'
>
>6. economic growth was achieved without incurring the cost of 
>servicing external equity or debt
>
>Since writing my Mondragon paper in 1995 and as a result of my PhD 
>research I have discovered a number of additional profound insights 
>that are presented in my paper ‘Design criteria for a global brain’, 
>The First Global Brain Workshop (Gbrain O), Vrije Universiteit 
>Brussei, Brussels, Belguim, Thursday, July 5, 2001. 
><http://papers.ssrn.com/sol3/papers.cfm?abstract_id=283715>
>Video of presentation linked to http://www.comdig.de/Conf/GB0/pr010705327.html
>
>In short  Mondragon provides the most outstanding example of the 
>latest fad in management described as "network governance".  But the 
>form of networks it has developed follows the architecture used by 
>nature to build and manage complexity.  In other words Mondragon 
>illustrates an "ecological" form of organisational architecture.
>
>I have used Mondragon as a case study in a public policy booklet I 
>have just finished that is being published in London next month on 
>"A NEW WAY TO GOVERN: Organisations and society after Enron". 
>Electronic review copies of this booklet can be provided y myself on 
>request and an academic version will soon be available with my other 
>writings at 
>http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=26239
>
>I have also used Mondragon as a case study for applying the science 
>of corporate governance in another refereed paper that I have just 
>finalised and sent today on ‘The science of corporate governance’ to 
>be also published in Corporate Governance: An International Review, 
>10:4, September, 2002.
>
>In regards to your paper I do not think it is appropriate in your 
>opening paragraph to state that it "provides an object lesson in the 
>use of employee ownership..." as Mondragon employees may control but 
>not own. 
>
>Employees do not have property rights subject to their individual or 
>even collective discretion to liquidate, unless a firm elects to 
>exit the system as some have done.  I do not accept the reported 
>rhetoric of the MCC President, Javier Mongelos who you quote as 
>saying "The workers own these cooperatives...".  Maybe there is a 
>problem in translating the word he used to English as differences in 
>the concepts of ownership and control can be very slippery and are 
>also very important.
>
>Mondragon illustrates common ownership that may include stakeholders 
>who are NOT employees.  However, stakeholder involvement is not 
>inclusive and so Mondragon, as currently organised, does not provide 
>a model for Demoratising the Wealth of Nations.  The full text of my 
>book with this title is also in the COG library at 
>http://cog.kent.edu/lib/TurnbullBook/TurnbullBook.htm
>
>I would be interested to learn if the MCC has allowed any of its 
>enterprises to directly compete with each other and if so how this 
>is managed.  Do you have any info in this regard?
>
>Shann Turnbull  Ph.D.
>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>Ph: +612 9328 7466 office; +612 9327 8487 home; Fax: +612 9327 1497;
>Life long E-mail: sturnbull@mba1963.hbs.edu 
>Alternate:sturnbull@optusnet.com.au
>http://members.optusnet.com.au/~sturnbull/index.html
>Papers at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=26239
>with other papers & book at http://cog.kent.edu/library.html

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