Cooperatives can be a sustainable business model. But managing them effectively requires a special approach.

Cooperative businesses (co-ops) can be a great way to address economic development needs. In a cooperative, people pool their resources and share ownership and decision making. Co-ops prioritize community benefits, like job stability, over short-term gains. So, they are widely used to reduce poverty and promote gender equality, health, and environmental sustainability.

Take for example, Femmes Vaillantes, a women´s co-op in Togo, Africa. The co-op produces premium rice. Drawing on member resources, the co-op has invested in production equipment and processes for high-quality harvests. It re-invests its profits to buy land and increase production, offering members a wage and opportunities for growth.

Co-ops are active worldwide, including in North America and Europe—thriving in agriculture, banking, and retail. According to the International Labour Organization, 100 million people are employed by co-ops worldwide, and the livelihoods of nearly half of the world’s population depend on them.

Managing a co-op can be challenging

The promise of co-ops can be dimmed by the challenges of collective decision-making and ownership. Shared ownership brings opportunities for equality — but it also opens room for conflict between members. Experts warn that conflict in co-ops mostly comes from differing opinions about appropriate actions and from members’ failure to contribute equally.

As researchers, we wanted to understand whether and how conflict in co-ops could be reduced. We partnered with an NGO working in Ghana. This NGO, like many other development organizations, helps communities to set up co-ops in poor areas to generate income. They agreed to let us see whether different leadership or governance structures reduced conflict within co-ops.[1]

Here’s what we found.

Co-ops with flat governance structures have less conflict

You’re likely familiar with formal organizational hierarchies, where there’s a top management team with distinct control and responsibility. Development organizations often establish co-ops that rely on this kind of top management leadership, separate from the rest of the co-op members.

That might work in a traditional business. But we found that introducing these formal hierarchies into a cooperative can be problematic.

Why? Because it can create a mismatch between the “unequal” control that structure brings, and the “equal” ownership that co-ops rely on. These are two distinct forms of ownership and control. Combining them can cause a lot of confusion among co-op members, leading to questions around status, the division of tasks, and how to resolve differences.

When a few co-op members have executive power, the rest of the group will also feel less ownership. Other co-op members are less motivated to work on common goals and to engage in group activities. They start to think more in “individual” as opposed to “collective” terms.

Due to these effects, our results show that co-ops with established executive roles have higher levels of conflict, compared to those with flatter structures in which responsibilities were more evenly distributed across members.

We looked specifically at two governance models:

  • Hierarchical, with an Executive Team comprised of a chairperson, vice-chairperson, secretary, treasurer, and organizer. These were elected by the membership.

  • Flat, with a committee structure. Co-op members were assigned to functional committees (marketing, production, finance, etc.) on a rotating basis; a randomly assigned liaison from each committee coordinated with other committees.

Flat governance means less conflict and more engaged members. A member explained: “There’s no leader who’s taking care of [everyone]; no, we are [all] leaders so we will work together as members.”

Recognize the power of informal hierarchies

Organizations have a formal governance structure. But there’s also an informal social structure. In your organization, there might be someone who always knows what’s going on, or offers informal advice, even if they don’t have an official position.

This kind of informal power and control is often linked to characteristics like age, gender, ethnicity, and skill. In Ghana, age is an important indicator of power and status—as is illustrated in popular proverbs like “The mouth of an elder is stronger than a god”2.

So we looked at the role of older members within a co-op. We found that informal hierarchies (i.e., co-ops where there was a significant age distribution, with older and younger members), are very strong and can override formalized power and control.

In the co-ops with strong informal hierarchies, members deferred to the elderly for clarification and conflict resolution. One member commented: “We realize that the old people are always correct. . .They are teaching us how to become somebody in the future.”

This informal hierarchy reduced confusion around roles and responsibilities — in fact, the formal leadership became less important.

Low-conflict cooperatives have flat governance and informal leaders

Reaching the potential of cooperative businesses means reducing the possibility of conflict in cooperatives. Our research shows two clear ways to do that:

  1. Establish flatter structures that more evenly share roles and responsibilities. That way, governance matches the egalitarian principles behind cooperatives. In the co-ops we studied, one member described the result: “The entire group — all members — understand that they have to work to sustain the group.”

  2. Draw on the informal hierarchies that naturally guide social interactions. Consider, for example, establishing diverse groups that build on the natural social hierarchy.

Ultimately, it’s up to the members. In a cooperative, they need to organize themselves and decide their governance. But we hope these insights will help cooperatives build a more stable and prosperous future.

[1] When we began our research, the NGO was starting 40 new co-ops. These co-ops were small (about 20 people) and focused on tasks like soap making or basket weaving. Working with the NGO, we arranged for half the newly-formed co-ops to have a formal hierarchy, and half to have a flat structure. We measured conflict and sense of ownership through surveys with co-op members.

Read the full article

Slade Shantz, A., Kistruck, G., Pacheco, D., & Webb, J. 2020. How formal and informal hierarchies shape conflict within cooperatives: A field experiment in Ghana. Academy of Management Journal, 63(2): 503-529.

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  • Desirée Pacheco

    Desirée Pacheco is Associate Professor of Entrepreneurship at IESE Business School. Prior to her doctoral studies, Professor Pacheco worked as a management and technology consultant with Accenture. Dr. Pacheco’s research interests relate to the interface between institutions, entrepreneurship, and firm strategy.  She applies these areas of research to the study of sustainable business.

  • Angelique Slade Shantz

    Angelique Slade Shantz is an Assistant Professor of Strategy, Entrepreneurship and Management at the Alberta School of Business, University of Alberta. Her research interests broadly focus on the role of business in addressing grand challenges, predominantly occurring at the intersection of entrepreneurship and poverty alleviation.

  • Geoffrey M Kistruck

    Geoffrey M Kistruck is Professor; RBC Chair in Social Innovation & Impact at Schulich School of Business at York University. His primary research interests involve social entrepreneurship and innovation on the part of for-profit and nonprofit organizations, principally within the context of poverty alleviation efforts in least-developed markets.

  • Justin W. Webb

    Justin W. Webb is the Belk Distinguished Professor of Business Innovation in the Belk College of Business at The University of North Carolina at Charlotte. His research interests include understanding the contextual and individual influences on the entrepreneurship process, market-based solutions to poverty in base-of-the-pyramid markets, entrepreneurship within the informal economy, and family firm dynamics.

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