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Cooperatives: What they do and how they work

Women hangs open sign on store shop window
June 11, 2020

By Claire Hegstrom

With over 3 million co-ops across the world, almost 12% of the population is a member-owner of a cooperative. From the farmers market that meets every Saturday down the street, to the big recreational equipment store that many of us have shopped at, you’ve probably interacted with a co-op already and not even known it. In fact, you’re engaging with a financial co-op right now by reading this blog. Let’s explore what cooperatives are, how they function, and why they are so important.

What is a cooperative?

In short, a co-op is a people-centered organization, owned, controlled and run by its member-owners. The co-op exists to fulfill the economic, social, or cultural needs of its members and employees, without having to answer to — or pay — stockholders. These organizations are overseen by a member-elected board of directors.

Co-ops have proven to be an incredibly profitable business model for quite a long time. The first documented cooperative was founded in 1884 by 28 weavers and tradesmen. They wanted to create a market that sold higher-quality goods than those offered by the new mass production corporations who were drastically deteriorating in product quality.

Alone, these individuals could not compete with the unfair labor laws and lower standards of the big corporations, but together they could combine forces and offer valuable products that would benefit the people they served.

How are co-ops run?

Empowerment, shared ownership, and democratic voting are the main pillars of every cooperative, no matter the product or service being offered. Member-ownership means the business focuses on making the members of the co-op happy and profitable, instead of making a traditional stockholder happy.

This method of business can be seen in credit union financial cooperatives. Each credit union is run by a board of directors – elected by its members – who vote on any new rules, policies, and products or services. Also, credit unions are not-for-profit so members will typically see low interest rates on loans and high interest on deposits.

Other examples of co-ops can likely be found in your fridge! If you use any Ocean-Spray cranberry products, you’re drinking juice produced by a cooperative of cranberry growers. If you live in the Midwest, you’re probably familiar with Land O’ Lakes dairy products, but you may not be aware of their cooperative business model. Producer co-ops are owned by agricultural groups who have band together to streamline their process or better market their goods to customers.

REI is a well-known consumer co-op. Store-goers can purchase an REI yearly membership, and in return, they are given exclusive access to sales and cheaper prices on their everyday purchases.

How do co-ops benefit their members?

1.They are committed to their communities. Usually, co-ops are founded on grassroots efforts and are owned by community members. Decisions made by the co-op board are meant to better the community as a whole.

2.They empower their people. The democratic nature of the co-op means they usually place a strong value on members’ education, so that they can vote in ways that positively impact the entire community.

3.Membership and leadership is diverse and inclusive. Various membership opportunities and member-elected boards mean cooperatives are often accurate reflections of the cultural and economic diversity of a community.

4.Their business model helps members, employees and communities grow. Cooperatives put their members’ needs first because they are owned by the members who benefit from their products or services. Co-ops count on their members to continue their business, and they will do right by them to ensure their work can continue.

How do cooperatives make the world better?

It’s simple: Cooperation means working together to help each other out. Although members own a portion of the co-op they belong to, there is very limited liability falling on them, should anything happen to the organization.

Credit union members can also have peace of mind knowing that many of their accounts are insured by the National Credit Union Administration (NCUA), just another perk of their membership! A member’s hard-earned money is secure and there are systems in place, should the credit union ever suffer financially.

The membership structure means that shares of the organization are transferrable, so the co-op will never be without member-owners. For instance, members of a credit union can invite their families to join.

Lastly, cooperatives tend to bring balance to an otherwise economically skewed world. Because each member has a vote that can’t be bought by money, stature, or seniority, the true voice of the people is heard. New policies and procedures accurately reflect what will be most helpful to the whole membership.

 

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Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.

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