Roger Herman and Jorge Sousa CASC/ACE/ICA 2007 Annual Conference Saskatoon, SK

1. Factors influencing Demutualizing and MutualizingConversions of the Co-operative Organizational Form Roger Herman and Jorge Sousa CASC/ACE/ICA 2007 Annual Conference Saskatoon, SK May 28th – June 1st, 2007

2. Sponsored and Funded by Conversions of Organizational Form

3. Purpose of study Conversions of Organizational Form Understand the impact and circumstances associated with converting existing business structures Gain a better understanding of the contributing factors associated with the conversions A non-financial analysis Offer recommendations for groups considering either conversion option

4. Context for Research Conversions of Organizational Form • Increasing incidences of conversions • One of the current ICA issues • The Global 300 project • Research has focused on characteristics and conditions that prompted demutualizations • Aim to balance this discourse with formation of new co-operatives

5. Definitions Conversions of Organizational Form • Demutualization: • Changes in the ownership structure of user owned and controlled organizations from a mutual to a for-profit, proprietary organization. • Mutualization: • Transforming a private business or a public service into a co-operative or into a mutual company. • Involves transferring assets and developing a membership base rather than shareholders

6. Reported Factors for Conversions • New investors bring added capital • To raise capital faster • To gain liquidity • To make acquisitions or to be acquired • To attract and retain employees • Marginalized membership • Organizations may not have same social mission as when originally created • To access enterprise value • The desire for greater transferability of co-op stock • The boards did not protect the co-operative character • “Independent” experts employed by boards assumed and supported demutualization • Improved management practices aimed at meeting the needs of a diverse membership Conversions of Organizational Form

7. Methodology Conversions of Organizational Form Review reported factors Case study format Collect and examine a variety of examples Observe and analyze the alignment of existing research and this sample of cases

8. Selection of Sample and Cases Conversions of Organizational Form • Representation across geographical locations and types of organizations • Total of 12 cases • Variety of knowledgeable contributors • Academics (Agricultural Economics, History, Sociology, Education); Co-operative Developers; Government Officials; Consultants

9. Types of Organizations Conversions of Organizational Form

10. Sample of Cases Conversions of Organizational Form

11. Format of Cases Conversions of Organizational Form Factors that led to the change in business structure; Who was leading the push to privatize; Types of organizations where there is a greater likelihood of conversion to occur; Impact of current laws and regulations on conversion patterns; Impact of the level of member awareness on the final conversion pattern; and General impacts of the conversion pattern.

12. General Observations Conversions of Organizational Form • The cases confirm the presence of identified factors found in literature • Changing organizational form consistent with life-cycle?? • Infrastructure supporting demutualization exists • e.g. Law firms’ specializations • A convergence of circumstances

13. Observations: Demutualizations Conversions of Organizational Form • Changes in leadership • Meeting needs of global market • Disengaged membership • Lack of Membership renewal • Impact of mergers • Growth difficult to sustain

14. Observations: Mutualizations Conversions of Organizational Form • Community involvement • Mobilization of existing resources • Third party involvement • Often reactionary

15. Findings Conversions of Organizational Form • Factors that led to the change in business structure • Trust among the membership • Mature organization or mature membership • Sustaining and managing growth • Changing governance and membership structure • Who was leading the push to privatize • Community leader or local champion • Core group of interested individuals • External influences • Manager without co-operative experience

16. Findings Conversions of Organizational Form • Sectors with a greater likelihood of conversion occurring • Weak noticeable pattern • Organizations with clear financial pressures from global marketplace and membership • Impact of current laws and regulations on conversion patterns • Laws that encouraged greater competition diluted the distinctive co-op character • Absence of laws created significant obstacles

17. Findings Conversions of Organizational Form • Impact of the level of member awareness on the final conversion pattern • Lack of membership renewal and disengaged membership • Decision to convert was a dramatic way to improve and streamline the business practices • “fumbling away” and “lazy” approach to governance and management • General impacts of the conversion pattern • Accessing new sources of capital (e.g. LLC) • Costs for conversions • Building or destroying community

18. Recommendations Conversions of Organizational Form Investigate creative approaches to accessing sources of capital Collect data concerning the incidences of conversions within Canada Make it simpler to pursue or convert into alternative co-operative forms Support building capacity for co-operative organizations

19. Recommendations Conversions of Organizational Form Engage in education strategies during the conversion process that focus on member engagement Prioritize succession planning Involve co-op sector organizations to a significant degree during and after a conversion Develop transparent and accountable conversion processes.

20. Thank You Conversions of Organizational Form Sponsored and Funded by: Roger Herman Jorge Sousa University of Saskatchewan University of Alberta Centre for the Study of Co-operatives Educational Policy Studies roger.herman@usask.casousa@ualberta.ca