Cooperatives as an alternative approach PhD seminar on Companies and Markets EU and Nordic company and financial market law Senior Associate Tore Fjørtoft, Schjødt Lawfirm

My doctoral thesis Financial rights of members of cooperatives – analysed in the light of the cooperative identity and the corresponding rules for capital companies Why relevant in a CSR- context? Promotion of third party interests in cooperatives and capital companies

What is a Coopeartive? An enterprise whose main object is to promote the economic interests of its members by the members taking part in the society as purchasers, suppliers or in some other similar way, and where 1. the surplus, apart from a normal return on invested capital, is either left in the society or divided among the members on the basis of their share of the trade with the society, and 2. none of the members is personally liable for the society’s debts, either in whole or for parts which together comprise the total debts.

The cooperative identity The characteristic trait of the cooperative form The thesis analysed five aspects: Cooperative principles and values – ideological foundation Legal characteristics Ownership, control and use A member organization and an economic enterprise Member interests and other interests

The cooperative identity The characteristic trait of the cooperative form The thesis analysed five aspects: Cooperative principles and values – ideological foundation Legal characteristics Ownership, control and use A member organization and an economic enterprise Member interests and other interests

The ideological foundation Capital companies and cooperatives may be tied to two different versions of utilitarianism “The greatest happiness of the greatest number” – but what is happiness? Jeremy Bentham (1748-1832): Pleasure - an individualistic concept William Thompson (1775-1833): Well-being - much more of a social condition Thompson – a pioneer in the cooperative movement Bentham – the first British companies acts enacted during “The Period of Benthamism or Individualism”

The cooperative principles Voluntary and Open Membership Democratic Member Control Member Economic Participation Autonomy and Independence Education, Training and Information Co-operation among Co-operatives Concern for Community: Co-operatives work for the sustainable development of their communities through policies approved by their members

Concern for Community Has always been a part of the cooperative ideology Lambert (1963): Co-operatives have a dual purpose: To serve the members and to serve the society. A cooperative may promote member interests “only so far as it may legitimately do so and only in so far it is compatible with the general interest”. The ICA Commission of 1966: “to promote the progress and welfare of humanity”. The ICA principles (1995): Concern for community as a separate principle Also reflected in EU and UN documents

EU and The United Nations EU Commission COM(2002)347: Co-operatives, mutuals and associations as membership-led organisations have a long tradition in combining economic viability with social responsibility. They ensure this through stakeholder dialogue and participative management and thus can provide an important reference to other organisations. UN General Assembly: Recognising that cooperatives, in their various forms, promote the fullest possible participation in the economic and social development of all people, including women, youth, older persons and people with disabilities, and are becoming a major factor of economic and social development. Resolution No 56/114 adopted by the United Nations General Assembly at its 57th Session, 19 December 2001

Cooperatives Capital companies Promotion of societal interests Different views among scholars Main impression: What’s controversial in cooperatives is uncontroversial in capital companies and vice versa “Internalizing externalities” contra “it’s in their DNA”

Cooperatives Capital companies Legal consequences? Three examples: The right to membership The use of the net assets in case of dissolution Authority and responsibility of the board

Right to membership The Cooperatives Act § 14 (1): Consumers, businesses and others that may have their economic interests promoted by a cooperative society are entitled to become a member of the enterprise by enrolling in it. The enterprise may only refuse membership if there are reasonable grounds for doing so. Cooperatives as open and including societies – protecting the interests of future members Capital companies are basically closed companies – outsiders can not require shares

Dissolution – use of net assets The Cooperatives Act § 135 (4) and (5) Assets remaining (…) shall be spent on cooperative purposes or public benefit purposes. The statutes may stipulate that the remaining assets shall in whole or in part become the property of those who are members on the dissolution date, and possibly also previous members. Capital companies: The net assets are distributed to the shareholders

The board Shall or may the board in a cooperative promote third party interests / societal interests to a larger extent than what a corporate board may or shall? The law provisions: Identical wording but different content? Heavy emphasis on profit maximizing in capital companies Concern for community as a cooperative principle and social responsibility and caring for others as cooperative values. May lead to differences in the application of the rules

Cooperatives as an alternative approach PhD seminar on Companies and Markets EU and Nordic company and financial market law Senior Associate Tore Fjørtoft, Schjødt Lawfirm