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It Might Not Be Sexy, But Ownership Matters

28/01/2015 12:25 GMT | Updated 29/03/2015 10:59 BST

Today London Business School is holding a conference in Westminster, with Business Secretary Vince Cable and a host of industry leaders and economists. But this is not your standard business event. It' will debate whether co-operative ownership is the answer to the problems posed by global businesses which are controlled by institutional investors and distant shareholders.

The fact that a prestigious business school is holding a conference like this says a lot; it is a strong indication that even though we may be moving out a period of dramatic financial uncertainty, there are still questions to be answered at the highest levels about whether different ownership models can help to address some fundamental economic issues.

Co-operative ownership might just be the best kept secret in the business world. A co-operative is a business, but a different kind of business: one which shares ownership among the people closest to it. The co-operative option won't be right for every commercial context, but it is an adaptable model. There are employee-owned, customer-owned and supplier-owned co-ops.

Worldwide, there are 1.4 million co-ops and we find them right across the economy - from new freelancer partnerships in the creative industries through to farmer controlled businesses, retail, energy and housing. Speciality products such as Serano ham and Parmesan cheese, right through to recognisable brands like Ocean Spray drinks. Lurpak butter and even Barca football club are co-operatively owned.

In fact, our research has found that there are around 1 billion owner-members - nearly three times as many as there are shareholders worldwide. And the model is growing fast in countries such as India, Brazil and China where a full fifteen per cent of their population are member-owners.

Why has co-operative ownership remained such a secret? Partly because co-operatives are member-owned and so are generally not subject to stock market listing. Unlike shareholder companies, teams of analysts are not employed to study their performance, and the financial press often omits to report their results.

Partly because government regulation is designed as if there was only one form of business: the investor-model. Time and again, we find stupid rules that stop co-ops and mutuals, because no-one in government understood the diversity of business ownership out here.

And partly because ownership is not a sexy subject. Yet, as today's conference recognises, it matters.

First of all, different ownership patterns inject diversity into the business landscape. Markets that include owners other than just investors provide more choice to consumers, help prevent monopoly and provide room for innovation. Together with SMEs and family owned businesses, co-operatives help keep investor-owned businesses on their toes.

Second, ownership brings benefits. If investors own a firm, they can appropriate the profits and benefit from increases in share values. Nobody else can do so. If, on the other hand, it is owned by the employees, or by customers, or by other firms that rely on it for their business, they take the profits.

Third, ownership gives control. Where investors own the business it is theirs to do with as they wish, regardless of the interests of others affected. They can choose to expand the business in ways they wish, or alternatively to shut down parts of it. Ownership by those who rely on the business not just for profit but to meet their wider needs enables the business to be 'people-centred' rather than money-centred.

Fourth, ownership changes incentives. There are strong incentives for businesses owned by investors to maximise financial returns to shareholders through dividends and increases in share price. In enterprises owned by other groups, there can be a decision not to pursue profit but to give priority to other aims; consumers may value the quality of the product, staff decent working conditions and producers the effective marketing of their products.

Whilst not as prominent as investor owned businesses, co-operatively owned businesses can and do play an important stabilising role in the economy.

In an interview last weekend the economist Will Hutton, identified his first priority for a stronger British economy. "We need," he said, "a companies act for the 21st century: ownership reform is fundamental." It is so very welcome to see this debate getting started.