Co-operatives for the Mass

Investors, entrepreneurs and intermediaries seeking social impact in addition to financial returns can look to co-operatives for inspiration.

Internationally, co-operatives (co-ops) have moved from niche to mass with 1 billion members, 100 million employees and $275 billion in assets. The model can also be scaled down to serve the niche, with groups coming together and using co-operatives to gain access to financing, services, facilities, inputs or markets. Regardless of the size or type, co-ops retain a strong social mission. They are a business first and foremost, but one that exist to stimulate economic development.

Co-ops are different from other enterprises. What sets them apart is that they are owned and capitalized by their members. This means that decisions are made in the interests of maximizing social and economic benefit for members while generating modest but steady surpluses. Co-ops do raise outside capital, typically through special non-voting share issuances or debentures, but in most cases there is no secondary market for shares and returns are in the form of performance based dividends. This may make some investors pause, but it’s important to consider that this is a big part of what give co-ops stability and longevity. Studies in Canada have found that co-ops have a higher survival rate than non-co-ops 5 years after start up.

Investors who expect to bring a co-op to an IPO will be disappointed. Indeed, when the board of Fonterra – a co-op which is the fourth largest dairy company in the world and owned by family farms – proposed to transfer operations to a listed company, the members rejected this proposal in favour of the creation of an investor fund, separate from the co-operative but linked to profits. This succeeded in raising USD$435 million.

Ultimately co-ops are most likely to appeal to ‘capital S’ social investors who are looking for consistent returns over an extended period as part of a balanced portfolio. When the appropriate vehicles are in place, impact investment can help co-ops to grow their operations, strengthen their bottom lines and return value to members and investors.

Derek Cameron
Financial Sector Specialist
Canadian Co-operative Association