A Simple Guide January 2016 Dr Rory Ridley-Duff, Reader in Co-operative and Social Enterprise Sheffield Business School, Sheffield Hallam University Contact: DirectorCo-Founder Chair Rory Ridley-Duff, 2016

The FairShares Model Intellectual property (IP) to support multi-stakeholder co-operation within member-owned social enterprises. It is made up of: –A website (with introductory information) –A wiki (with technical information) –Model rules for constituting new organisations –A discussion / decision-making forum for members and supporters –Articles, academic papers and books –Diagnostic tools for consultancy and research –Learning materials to support education and training The FairShares Association formed to promoted it in and

Rory Ridley-Duff, 2016 FairShares: Value and Principles The FairShares Model includes social auditing tools to support developing of the following values and principles. –Wealth and power sharing among primary stakeholders; –Ethical reviews of the choice of goods/services offered; –Ethical reviews of production and retailing processes; –The specification of social purpose(s) and auditing of social impact(s); –Social democratic models for ownership, governance and management of capital. We have had some feedback that the FairShares Model is ‘too complicated’. We’ll let you judge after seeing this guide.

Rory Ridley-Duff, 2016 FairShares: A Video Introduction Rob Jameson (below) and Eric Doriean registered AnyShare Society as a FairShares Company in the USA on 13 th January 2016.

Rory Ridley-Duff, 2016 Exploding the myth that “FairShares is too complicated”… Would you rather use something that is easier to explain but harder to operate, or something that is harder to explain but easier to operate? The FairShares Model may appear more complex because it is the product of practice – it deals with the complexity of reality to make running enterprises simpler. Dumbing down complexity can make things easier to explain, but it also results in more confusion, cost and (real life) complexity when you have to deal with the way the world is (rather than how you want it to be).

Rory Ridley-Duff, 2016 Exploding the myth that “FairShares is too complicated”… Members of the FairShares Association have studied the ownership, governance and management systems in some of the world’s most successful worker and solidarity co-operatives. Being prepared for ‘complexity’ makes facing it simpler. Let’s start by considering how the world is…

Rory Ridley-Duff, 2016 In the beginning… How do enterprises begin? Founders One or more people have an idea that they think will make money and/or improve societal or environmental well-being.

Rory Ridley-Duff, 2016 In the beginning… How do social enterprises begin? Founders Evidence from Sustainable Enterprise Solutions (SES) suggests that social enterprises are far more likely to be started by groups of people. In contrast, most private enterprises are started by one person who goes self-employed.

Rory Ridley-Duff, 2016 And then… How do enterprises develop? Founders Founders usually have two relationships to their (social) enterprise. They direct it (and become Directors) and they work for it (provide its Labour). Founders usually work in their (social) enterprise, at least initially. They provide Labour. Labour

Rory Ridley-Duff, 2016 And then… How do enterprises develop? Founders That might be the end state. Some Founders seek to employ only themselves. Founders usually work in their social enterprise, at least initially. They provide Labour. Labour So, founders start to recruit other people to help them produce goods and services. They recruit Labour. Many, however, choose to (or are forced by demand) to recruit more labour so they can expand their operations.

Rory Ridley-Duff, 2016 And then… How do enterprises develop? Founders Labour may be provided by volunteers, contractors and suppliers (both individuals and other enterprises) and by owner-members and employees. Whatever their legal status, they are the sources of labour for the enterprise. Labour After start-up, founders continue to improve skills in producing goods and services. They continue recruiting and developing Labour.

Rory Ridley-Duff, 2016 And after that… How do enterprises develop? Founders In a ‘production for use’ economy, workers consume their own produce and only sell surpluses in markets. Under ‘production for market’, labour is prevented from consuming its own produce (under threat of prison). Labour is required to produce for ‘others’ then use the market to obtain goods for themselves. People might labour for themselves (i.e use the goods and services they have laboured to produce). In food, energy, sports and arts co-ops, people may ‘produce to consume’ and only become sellers as a by- product of their primary interest / activity. Labour Users If the goods / services meet needs, there will be people who want to use them (which creates more demand for labour).

Rory Ridley-Duff, 2016 And after that… How do enterprises develop? Founders To become stable, an enterprise needs a sufficient number of users to ensure the demand for labour continues (regardless of whether the enterprise operates a ‘production for use’ or ‘production for market’ system). Labour Users There may be only a few (large scale) users and/or many thousands of small scale users.

Rory Ridley-Duff, 2016 And finally… How do enterprises expand? Founders Non-user investors may not be needed. However, more complex projects (that involve building things) will usually benefit if helped by non-users’ finance capital. But remember that founders, labour and users of an enterprise’s products / services are still continually investing time, effort and skills. They invest human, intellectual and social capital, and could provide finance capital as well. Labour Users Enterprises can expand more rapidly with the help of non- users who invest additional time, skills and money Investors

Rory Ridley-Duff, 2016 Now let’s ask pertinent questions… If this is how world is, why do we design organisations to not recognise all the interests necessary for survival? Founders Let’s take a closer look at the complexity of ‘simple’ enterprises to understand where that complexity comes from. If an enterprise does not recognise all stakeholders necessary for survival, it creates complexity because relationships are more likely to require legal remedies and expensive systems for legal compliance. Labour Users Why do we not automatically invite people in all of these groups to become legal members of the enterprise? Investors

Rory Ridley-Duff, 2016 Why do ‘simple’ enterprise designs lead to more ‘complexity’? ‘Complexity’ is a state in which no single interest group has a monopoly of knowledge and effective production cannot proceed without a negotiated consensus on how to own, govern and manage the enterprise. Thriving and sustainable enterprises find ways to navigate the convergent and divergent interests of (social) entrepreneurs, providers of labour, users of goods/services and their communities of practice. If ‘normal’ organisations are ‘complex’, why are so many organisations designed to exclude vital stakeholders? Let’s see who gets excluded in each design.

Rory Ridley-Duff, 2016 More questions (about private enterprise…) Firstly, how does a private enterprise (no investors) fail to deal with complexity? Founders Private enterprises (without investors) exclude labour, users and investors from membership. Instead they contract with them in ways that lead to exploitation… …and conflict. Labour Users These groups are not recognised as owners of the products and wealth their interactions create. Investors Founders must engage with the complexity, bureaucracy and expense of commercial contract law and employment law to address failures of the constitution. The ‘simple’ constitution fails to address the complexities of attracting labour and satisfying users. Founders acquire exclusive control over IP needed to generate wealth

Rory Ridley-Duff, 2016 More questions (about private enterprise…) How does a private enterprise (with investors) fail to deal with complexity? Founders Private enterprises (with investors) leads to competition between founders and investors to extract wealth from labour and users. Labour Users These groups remain excluded from a fair share of the wealth their interactions with each other create. Investors Founders can address the relationship with investors (through modifying Articles of Association), but it still fails to address the complexities of satisfying product/service users and providers of labour.

Rory Ridley-Duff, 2016 Questions about charitable enterprise… How does a charitable association fail to deal with complexity? Founders Charitable associations get money from donors, grant givers, members and sympathetic lenders. Users become beneficiaries, but are not allowed to determine how wealth is allocated to meet their needs. Labour Users None of these groups are supposed to profit from the wealth created by stakeholder interactions. (Donors / Members) In a charity / non-profit, founders are guided by trust law (in relation to donors and users who are beneficiaries), but constitutions still struggle with the complexities of labour relations and borrowing money from investors. Beneficiaries Social Investors

Rory Ridley-Duff, 2016 Questions about charitable enterprise… How does a charitable foundation fail to deal with complexity? Founders Charitable foundations attract social investors (rich individuals, corporate sponsors, ‘impact’ investors, and governments). Users may fund beneficiaries by purchasing the products of labour, but they still have little power to control how the wealth created is allocated. Labour Users It is still the case that none of these groups are supposed to profit from the wealth created by stakeholder interactions. Social Investors Beneficiaries

Rory Ridley-Duff, 2016 Questions about co-operative enterprises… How does a worker co-operative fail to deal with complexity? Founders Worker co-ops often try to usurp their founders’ power (who may retaliate by leaving or de- mutualising to prevent loss of power). Users may still be the beneficiary but have no collective power to allocate wealth. Labour Users Labour becomes the main beneficiary of the wealth created by stakeholder interactions. Social Investors Beneficiaries In a worker co-op, the complexities of labour relations are addressed, but contractual relations with investors and/or users are unaddressed. Founders may come to resent their own marginalisation by a growing labour force. Labour can make social investments through capital contributions

Rory Ridley-Duff, 2016 Questions about co-operative enterprises… How does a user (consumer) co-operative fail to deal with complexity? Founders User / consumer co-ops limit workers’ and founders’ power, and might regard them as having a conflict of interest. Workers can benefit as users (e.g. become a consumer member of a co-op store), but they still have no power as workers to allocate wealth. Labour Users Users / consumers become the main beneficiary of the wealth created by stakeholder interactions. Social Investors Beneficiaries In a consumer co-op, founders address the complexities of relations with users (customers), but still resort to complex, bureaucratic and expensive contracts (with investors and/or providers of labour). Users can make social investments through capital contributions

Rory Ridley-Duff, 2016 Advances in European Co-operation… The European Co-op Society addresses complexity by encouraging the co-ownership of ‘users’ (> 75%) and ‘non-users’ (< 25%) Founders A Non-user is not a founder, not a provider of labour and not a user or consumer of goods/services. Labour Users Across the co-op movement these groups are considered ‘users’. Investors

Rory Ridley-Duff, 2016 …led to Solidarity Enterprises This development shifted the debate in the direction of solidarity co-operatives (a multi-stakeholder approach to social enterprise). Founders FairShares co-operatives and companies can issue shares to recognise investors as members. Labour Users Every FairShares enterprise recognises founders, labour and/or users as classes of member. Investors FairShares values and principles can be operationalised through association, co-operative or company law.

Rory Ridley-Duff, 2016 FairShares Solidarity Enterprise Founders are necessarily the first to provide labour, and may be the first to use goods / services and make investments, particularly if the co-operative is ‘producing for use’. Labour necessarily takes place before any users know of, use, or can buy goods and services. Even if Users are involved in product / service development, their actual use (or purchase) occurs later. Investors – if they invest at all – won’t do so until they can see the products of labour, and satisfy themselves that people want to use them. The FairShares Model assumes that the normal development path is Founders, then Labour, then Users, then Investors.

Rory Ridley-Duff, 2016 FairShares Solidarity Enterprises A FairShares constitution is designed to reflect how the world is when all interests in an enterprise are treated as having equal legitimacy. While it does not release an association, co-operative or company from the complexities of law…it opens a pathway to reducing the costs of legal compliance by allowing you to build alternatives to it. Founders, workers, users and investors can invoke clauses in the constitution to: –1) share intellectual property; –2) engage in new modes of exchange (outside the market); –3) resolve disputes between members using mediation, and; –4) practice shared ownership, governance and management.

Rory Ridley-Duff, 2016 FairShares Worker co-operative (or Employee-Owned Enterprise) Founders Labour Users User members may not be needed if the enterprise sells only to other businesses (a B2B enterprise)... Investors

Rory Ridley-Duff, 2016 FairShares User co-operative (or User-Owned Enterprise) Founders Labour Users Labour members may not be needed if users and producers are substantially the same group of individuals. (e.g. a food or tenants co- operative). Investors

Rory Ridley-Duff, 2016 FairShares ‘First Generation’ All FairShares enterprises have an orientation that encourages co-operative management and governance. Founders A ‘first generation’ FairShares enterprise still has founder members. Labour Users A ‘first generation’ FairShares enterprise is more likely to have discreet member groups Investors First generation status ends when all founder shares have been cancelled (on death, dissolution, or voluntary surrender by founders).

Rory Ridley-Duff, 2016 FairShares ‘Second Generation’ All FairShares enterprises have an orientation that encourages co-operative management and governance. In its second generation, a FairShares enterprise has no founder members. Labour Users In companies and co-ops, power is acquired by User / Labour members through ‘member share issues’. In all FS enterprises, group rights to participate in governance are equalised over time. Investors By the second generation, labour and/or users acquire control by actioning the wealth / power transfer mechanisms built into the FairShares Model.

Rory Ridley-Duff, 2016 Conclusions FairShares is structured to reflect real-world complexities in order to make running a social enterprise simpler. Simplicity is achieved because legal compliance with rules that exist to manage conflict with non-members will fall into disuse when they are included as members. FairShares enterprises can accommodate both ‘production for use’ and ‘production for market’ because labour members can also be user members. FairShares is based on the research-informed assumption that inclusive co-operative management addresses complexity to simplify management.

Rory Ridley-Duff, 2016 Resources to support FairShares FairShares Website: FairShares Community: Technical Support: FairShares Novel: The Dragons’ ApprenticeThe Dragons’ Apprentice FairShares Book: The Case for FairSharesThe Case for FairShares Academic Conference Paper Academic Journal Article Learning and Teaching Materials