Learning from the co-operative institutional model: How to enhance organizational robustness of third sector organizations with more pluralistic forms of governance

Taylor, Keith Article Learning from the co-operative institutional model: How to enhance organizational robustness of third sector organizations with more pluralistic forms of governance Administrative Sciences Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Taylor, Keith (2015) : Learning from the co-operative institutional model: How to enhance organizational robustness of third sector organizations with more pluralistic forms of governance, Administrative Sciences, ISSN 2076-3387, MDPI, Basel, Vol. 5, Iss. 3, pp. 148-164, https://doi.org/10.3390/admsci5030148 This Version is available at: https://hdl.handle.net/10419/239752 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Sci. 2015, 5, 148–164; doi:10.3390/admsci5030148 administrative sciences ISSN 2076-3387 www.mdpi.com/journal/admsci Article Learning from the Co-operative Institutional Model: How to Enhance Organizational Robustness of Third Sector Organizations with More Pluralistic Forms of Governance Keith Taylor The Vincent and Elinor Ostrom Workshop in Political Theory and Policy Analysis, Indiana University, 513 N. Park Avenue, Bloomington, IN 47408-3895, USA; E-Mail: [email protected]; Tel.: +1-217-259-1145 Academic Editor: Antonin Wagner Received: 8 April 2015 / Accepted: 11 August 2015 / Published: 14 August 2015 Abstract: Third sector organizations are oftentimes seen as contributing to a robust civil society. Yet the dominant modes of third sector organizational governance often adhere to a unitary orientation. The over-reliance on unitary modes of governance introduces two challenges: first, organizational stakeholders are kept from utilizing participatory mechanisms that would enable them to act as societal intermediaries, and; second, these organizations may underperform due to the artificial separation of stakeholders from participating in governance. This paper addresses calls to widen our knowledge by translating theory into practice through a discussion about the efficacy of pluralistic governance. The co-operative enterprise in introduced to focus analyses on pluralist modes of stakeholder governance. A specific co-operative’s governance structure and practice is introduced—Choctaw Electric Co-operative—through an archival analyses of secondary media accounts of a stakeholder-led reform initiative in rural Oklahoma. The Ostrom Design Principles—a diagnostic used to assess institutional robustness—are applied to demonstrate the shortsightedness of unitary governance, and highlight the potential benefits of pluralistic stakeholder engagement. Knowledge is widened in two ways: first, empirical analyses of co-operative enterprise may provide for significant insights and innovations in third sector governance, and; second proper systems of pluralistic governance exhibit enormous capacity to better orient the firm toward better serving the stakeholder base, improving performance and institutional robustness, while empowering stakeholders as societal intermediaries. OPEN ACCESS Adm. Sci. 2015, 5 149 Keywords: institutional robustness; civil society; third sector; co-operative enterprise; collective action; membership; stakeholder; democratic governance; unitarism 1. Introduction Governance research on third sector organizations predominantly fixates analysts on the elite leadership dynamics within the organization and relevant organizational fiduciary oversight responsibilities. Organizational governance is then oriented toward a siloed perspective, away from micro-level stakeholder engagement and macro-level societal participation. This dominant governance approach can be traced to a stream of thought whose origins go back to Taylorite management, Weberian bureaucratic administration, Wilsonian public administration, and the Hardin Tragedy of the Commons hypothesis [1]. Such systems-control approaches build on the logic of unitarism [2] (p. 77), undercutting notions of purposeful, values-based efficacy of associational democratic governance, handicapping third sector organizational contributions to a pluralistic democratic polity [3] (p. 312). These organizations then serve a mere de facto instrumental role of decentralized public administration as opposed to operating as purposeful agents in solidarity with their stakeholders, intent on shaping the larger pluralistic political order [4] (p. 314). Unitary traditions tend to diminish governance to reductive input-output functionalism, with organizational control mechanisms placed predominantly in the board-management relationship. Those managers and board directors occupying policy analyst roles are then prone to crafting “feasible” solutions to help their peers carry out their roles within their current constraints. This is diametrically opposed to the engagement of a broader stakeholder base that contributes by providing value in the form of critical information and policy solutions [5], having the impact of putting a stop to any manner of radical social reconfiguration by blocking pathways for broad-based public participation [6] (p. 346). The diffusion, acceptance, and adoption of these governance worldviews are concurrent with the rise of monocentric neoliberal order. Having penetrated third sector organizational governance, these worldviews impinge the potential mediating impact of the third sector on concentrated capital and entrenched political power. This is highly problematic if we are to believe that the third sector is to play a significant role in broader policy deliberations within a pluralistic democracy [3] (p. 317). Giving in to such worldviews increases the influence of expert administrators, detached from a discourse with the public they serve (these are practically memberless organizations in that the stakeholder lack legitimate voice and control), managing inept, petty fiefdoms to the detriment of their citizenry [4] (p. 316). Unitarism, once having established a foothold across the institutional ecosystem, is better able to dominate the third sector due to the sector’s underdeveloped modes of pluralistic governance, which lacks an empirical basis [7] (p. 44), [8]. Thus, when the proliferation of expert governed associations is coupled with their systemic isolation from the policy sphere, we may observe a public segregated from the mechanisms of broad-based inclusive public policymaking. Unitarism threatens to contribute to an emergent hegemony through the mass suppression of citizen preference and the citizenry’s capacity to act on those preferences [9] (p. 808). Vincent Ostrom states [10] (p. 4) the expert public administrator dilemma succinctly: Adm. Sci. 2015, 5 150 “democratic societies are necessarily placed at risk when people conceive of their relationships as being grounded on principles of command and control rather than on principles of self-responsibility in self-governing communities of relationships.” Perhaps Lindblom [6] was correct when in referencing Bell [11] he stated “the new great political struggle is between the professional and the populace.” As we proliferate organizations adhering to unitary governance models, we run the real risk of crowding out spaces for the expression of citizen voice. I contend that the governance dialogue concerning values-oriented, pluralistic third sector organizations [3] (p. 302) benefits from analyzing a specific institutional model, the co-operative enterprise. While I am not making the claim co-operative enterprise should be situated as a third sector organization, third sector policymakers and managers could utilize policies and procedures gleaned from empirical analyses of the global co-operative sector to ply to prospective innovations in pluralistic governance. The co-operative has many of the same features as third sector organizations, yet the membership as owners’ orientation is universal and more concrete, necessitating a pluralistic understanding of governance. A focus on the co-operative liberates analysts from the researcher’s dilemma found in categorizing the array of institutions comprising the third sector [3] (p. 313) by focusing on a specific set of member rights parameters linked to incentives and governance rules. The co-operative design orientation of the members as owner with requisite governance rights holds immense promise for: • Lubricating social friction by increasing trust and reducing transaction costs [12,13], thereby enhancing distribution of socio-economic resources; • Mitigating information asymmetries and leadership opportunism through stakeholder involvement and monitoring, which then elevates stakeholder voice into actionable strategy while promoting more equitable stakeholder treatment [14]; • Diversifying collective choice arrangements, modes of inclusivity, and sets of rules, thereby enhancing organizational robustness through an arena of experimentation. These features account for a number of the agency problems observed in the design of third sector organizations originating from the lack of legal ownership [9] (p. 799) while legitimizing expression of preference amongst the stakeholders [9] (p. 809). A deeper understanding of co-operative governance and management would provide better awareness of the plurality of venues by which the general citizenry may influence the broader public sphere vis-à-vis a more accessible, appropriate set of institutions, providing the public with legitimate choice and collective agency. In this article I partly address Wagner’s [3] (p. 318) broad call on the need to widen knowledge by translating “the abstract knowledge contained in the non-profit organization/third sector and associational democracy/civil society research programs into actionable knowledge in the form of managerial frames.” The paper seeks to address this by positing the locations of potential governance vulnerabilities through the application of Elinor Ostrom’s “Design Principles” (ODPs), a diagnostic for assessing institutional governance robustness (see Table 1). In applying the ODPs, I ask the broad question: What are the patterns and processes observed in governance behavior that may indicate a stakeholder-governed firm has deviated from pluralistic governance to unitary? Adm. Sci. 2015, 5 151 Table 1. Ostrom Design Principles (ODPs). Principle Description 1A User boundaries: Clear boundaries between legitimate users and nonusers must be clearly defined. 1B Resource boundaries: Clear boundaries are present that define a resource system and separate it from the larger biophysical environment. 2A Congruence with local conditions: Appropriation and provision rules are congruent with local social and environmental conditions. 2B Appropriation and provision: The benefits obtained by users from a common-pool resource (CPR), as determined by appropriation rules, are proportional to the amount of inputs required in the form of labor, material, or money, as determined by provision rules. 3 Collective-choice arrangements: Most individuals affected by the operational rules can participate in modifying the operational rules. 4A Monitoring users: Monitors who are accountable to the users monitor the appropriation and provision levels of the users. 4B Monitoring the resource: Monitors who are accountable to the users monitor the condition of the resource. 5 Graduated sanctions: Appropriators who violate operational rules are likely to be assessed graduated sanctions (depending on the seriousness and the context of the offense) by other appropriators, by officials accountable to the appropriators, or by both. 6 Conflict-resolution mechanisms: Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts among appropriators or between appropriators and officials. 7 Minimal recognition of rights to organize: The rights of appropriators to devise their own institutions are not challenged by external governmental authorities. 8 Nested enterprises: Appropriation, provision, monitoring, enforcement, conflict resolution, and governance activities are organized in multiple layers of nested enterprises. The paper will address this question by first elaborating upon the ODPs with a description of their scholarly foundations and their analytical capacities. Second, the paper then describes the broad institutional design parameters of the co-operative model. Third, the ODPs diagnostic will be applied to an analysis of an American electric co-operative facing public scrutiny from its membership. The purpose of the analysis will be to demonstrate the efficacy of the ODPs in locating the potential sources of governance rupture by identifying violations of the relevant principles, guiding the policy prescriptions to assist stakeholders and leadership in correcting for the vulnerabilities. The paper concludes with a brief discussion of the opportunities for the advancement of pluralistic praxis from empirical analyses of co-operative enterprise theory for the purposes of building the actionable third sector managerial and governance knowledge called for by Wagner. 2. Analyzing Institutional Design 2.1. Introducing the Ostrom Design Principles: From Unitary to More Pluralist Governance Arrangements Conventional collective action and property rights theories presume the need for institutional arrangements with elite-led characteristics (such as management by state or private actors) to control for individual opportunism, as well as inefficiencies stemming from governance costs and complexity. In this respect, Garret Hardin’s [15] “Tragedy of the Commons” hypothesis serves as the long-enduring Adm. Sci. 2015, 5 152 conventional bellwether, driving policy and public perception, thereby leading policymakers to design institutional governance structures around the convention. Hardin (and his adherents) in their typical unitary fashion have offered an incomplete analysis of the institutional framework that governs collective action in general and organizing people in particular. Proceeding in this way, they have overlooked a body of work embracing a pluralist, paradoxical approach to understanding the institutional framework of organizational governance. The specific body of work I am referring to originates partially from a convening of researchers in 1983 by the Natural Research Council (NRC) Panel on Common Property Resource Management [16]. The researchers in question had amassed a literature on collective action whose findings stood in stark contrast to the one-size-fits-all unitary tradition. The NRC network of researchers undertook a meta-analysis of the scholarship to synthesize results from hundreds of these studies. The initial findings revealed:  The abundance and diversity of common property regimes. While this may seem self-evident, documenting this fact was crucially important for demonstrating that actors do indeed self-govern in many instances, despite the “Tragedy” hypothesis.  Stakeholders are capable of “careful coordination and management of use” [16] (p. 43) of scarce, complex resources, and individuals are motivated not just by self-seeking outcomes but also concern for others and their communities.  Empirical evidence of successful self-governing capabilities challenges the application of top-down modes of governance for large-scale social dilemma. Indeed, evidence derived from analyses of institutions providing public goods have noted that excluding stakeholders may impede organizational performance [17,18], thereby calling into question the “unitary-as-the-mode-of-efficiency” hypothesis [19]. Taken as a whole, the emergent body of work has demonstrated “that many self-organized systems have frequently solved many Commons Dilemmas” [20] (p. 258), thereby challenging the unitary blueprint approach of one-size-fits-all governance arrangements. Elinor Ostrom, in her seminal work “Governing The Commons” [21], derived a major finding from the NRC’s efforts: a set of institutional design principles (ODPs) that characterize long-enduring, robust institutions (Table 1 provides a list of the ODPs adapted from Cox, Arnold, and Villamayor Tomas [22]). These features underpinned observed structural principles characterizing institutional robustness across hundreds of case studies [20] (p. 259). Ostrom and colleagues have observed a great deal of variation in the application of the combination of ODPs utilized in various field settings. This reflects the strategies and practices actors take in accounting for the variance in rules, cultural differences, or political contexts (to name a few variables) in which these institutions are embedded. In some settings in which we observe high levels of trust or homogeneity of interests, we may observe fewer resources allocated to monitoring (principles 4a and 4b), yet observe greater attention paid to user boundaries (1a). While the principles do not need to be utilized in every situation, robustness tends to be enhanced “when more of these principles are in place” [23] (p. 180). The utilization of the ODPs for assessing institutional robustness has not gone unchallenged [22]. Critics have noted the ODPs do not account for a broad array of variables exogenous to the unit of analysis (such as market embeddedness), nor do the ODPs speak to specific properties of the institutional resource environment. As Cox et al. note, while the criticisms exhibit degrees of validity, the efficacy Adm. Sci. 2015, 5 153 of the ODPs is that it serves as a foundational institutional diagnostic that can evolve toward the development of a more comprehensive institutional diagnostic toolset. The implication of this body of research and the ODPs is this: governance design matters. Unitarism may have its place, yet it should not be considered optimal in all settings, hence the importance of embracing complex paradoxes in governance approaches. Additionally, the structured attributes of unitary governance have many pitfalls. Policymakers should consider the fact that pluralistic modes of participation may lead to the development of institutions better aligned with stakeholder needs and local circumstances, thereby increasing institutional robustness [24]. Going back to Wagner’s call, we need better empirics, translated into actionable managerial and governance frames. 2.2. The Design of the Co-Operative Institutional Model Next we turn our attention to the co-operative institutional model to understand how it is structured to account for and benefit from pluralistic governance. The International Co-operative Alliance (ICA) defines [25] a co-operative as: “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” Co-operatives are themselves both network structured firms [26] (p. 249) and electoral associations, typically with a representative structure (the tensions in the delegation of the rights to control are addressed later in this section). These associations are embedded in the greater society, and represent a mini democracy [3] (p. 315). The actors represented by the co-operative associations are a specific stakeholder class, typically referred to as patrons (see Figure 1 for an illustration of the co-operative’s general structural design). (By definition, the ownership of enterprise by one class of stakeholders does bring about the risk of excluding or alienating other stakeholder classes [14], barring innovations in ownership (such as multi-stakeholder) governance practices and procedures (open book management practices, for example).) Unlike the investor-owned firm, governance rights are not determined by the amount of shares owned, but held in common by the patrons through a more equitable one-member, one-vote standard. The ICA describes co-operatives further: “Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.” The Co-operative Values are then translated into a set of guidelines for implementation, referred to as the Co-operative Principles (see Table 2, adapted from [27]). Adm. Sci. 2015, 5 154 Figure 1. General Structure of Co-operative Enterprise. Table 2. Co-Operative Principles and Values. Principles Values 1. Voluntary and Open Membership * Self-Help 2. Democratic Member Control Self-Responsibility 3. Member Economic Participation Democracy 4. Autonomy and Independence Equality 5. Education, Training, and Information Solidarity 6. Cooperation Amongst Co-operatives Honesty 7. Concern for Community Openness Social Responsibility Caring for Others * Membership is ownership in co-operatives, translating to greater voice in governance and rights to residuals. The organizing principle of a governance system partially determines how the public is served by a firm [9] (p. 319). Co-operative institutions are just as susceptible to social change forces [28] as other institutional models. Like any other institutional model, the structural design of the co-operative institution Adm. Sci. 2015, 5 155 does not exist in stasis. Institutional design is a dynamic process, influenced by overlapping socio-ecological circumstances, “better seen as part of the development processes through which institutions are established, maintained, and transformed” [29]. The design and structure of the co-operative firm has come about from experimentation [30] influenced by cultural norms and industrial context, as well as legal acts [7] (p. 44). The institutional logic perspective sees these emergent properties as: “the socially constructed, historical patterns of cultural symbols and material practices, including assumptions, values, and beliefs, by which individuals and organizations provide meaning to their daily activity, organize time and space, and reproduce their lives and experiences.” Historically, various forms of co-operative enterprise have been documented globally. The member-needs purpose of the contemporary co-operative has been developed on a “trial-and-error basis” by practitioners and policymakers over the course of two centuries [30]. Specifically, the modern day co-operative movement, whose general definition is held in trust by the ICA, is based on the advent of the Co-operative Principles, developed by the Rochdale Society of Equitable Pioneers in Rochdale, England. The Rochdale Pioneers expressed a deep desire to create a mutual aid based society in which property and the means of production were help in common under democratic control. These weavers honed the model over years of experimentation with their co-operative entrepreneurial ventures. While the broader vision never fully manifested, their enduring experimentation resulted in the first iteration of the modern day Co-operative Principles. The key innovation was the creation of the patronage dividend, incentivizing use by the patrons of the co-operative by conferring rights to surplus (profit) based on proportion of use by the patron. It is from this foundation that the global co-operative movement took shape, leaving a legacy of co-operative enterprise utilized in virtually every industrial sector one would find investor-owned firms. Globally, co-operative comprise significant proportions of national economies. Social co-operatives play a major role in public services throughout Italy, and the multibillion dollar Mondragon federation of worker co-operatives in the Basque region of Spain is oft-cited as the gold-standard for worker owned and governed enterprise. In the USA alone, the sector is comprised of over 29,000 co-operatives, representing 150 million Americans, generating over $600 billion in revenue [31]; the co-operative sector is no mere cottage industry, and it clearly exhibits scale that is capable of impactful societal intermediation. The application of the Co-Operative Principles has important implications for co-operative robustness. The member economic participation principle means that surplus wealth generated on the business-side is not accumulated as profit to be enjoyed by a select few, but invested back into the cooperative or distributed as patronage to the patrons. From a stakeholder perspective, any co-operative incentivizes use through the beneficial procurement and provision of goods, services, and jobs to the patron stakeholder class. The democratic member control principle confers one vote to each member, infusing greater representation and equitability than found in shareholder ownership (in which voice is weighted by proportion of investment). The education, training, and information principle enhances democratic member-control through the provision of information to the ownership, thereby enhancing the quality of decision-making. Ownership with governance rights, rights to residuals, and rights to information access incentivizes not just use of the organization, but also various collaborative governance functions such as monitoring, coproduction, and direct engagement in some aspects of operations and policymaking. Adm. Sci. 2015, 5 162 agency in shaping organizational directives and policies, to position themselves to serve broader market and political interests [41], and fall prey to institutional processes of isomorphism, thereby removing the distinctive features fundamental to their core mission. The older paradigm of governance leaves management ill-equipped to deal with stakeholders who wish—or demand—access to the mechanisms of governance. Global movements and major partisan political shifts point to a public demanding more accountability from representative institutions; in many cases, accountability is linked to stakeholder participation. Management of third sector organizations and co-operatives are under-prepared to engage their stakeholders within the older paradigm, and may be unaware of new innovations in pluralistic governance. 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