Re: Mondragon: Mondragon papers

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

Dear David

Thanks for your response and opportunity to make the point that workers in 
Mondragon do not have a form of ownership that is bankable.  This is 
because liquidation of their entitlements to their capital accounts is not 
subject to their sole discretion.

The capital accounts are more like a retirement allowance or pension plan 
that may under some conditions provide limited borrowing rights.

Many ESOPs provide no better discretionary rights to workers and so 
employees become second class owners/capitalists compared with investors in 
a publicly traded firm.  They may even have trustees who vote on some 
issues for them.  Many beneficiaries of ESOPs are not even a member of 
record of their employer and so can not count for a quorum or for 
requisitioning a special meeting of members.

You ask why the difference is important.  Please consider how the senior 
executives with discretionary rights to liquidate their shares in Enron did 
so to obtain millions of dollars while ordinary employees had their 
"ownership" locked up in ESOPs and/or pension plans and lost the lot.  That 
is why sole discretionary negotiability is for me a vital test of ownership.

You are welcome to have your view of ownership.  Louis Kelso described as 
"sterilised capitalism"!

We may just agree to disagree on what is meant by ownership.

This is why I suggested to the meeting at Kent State last year that we 
needed to have a discussion group on this issue.

Kind regards

Shann

At 08:06 PM 4/4/2002, you wrote:
>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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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