Caja Laboral Popular(CLP) http://www.newrules.org/sites/newrules.org/files/images/mondragon.pdf
A Brief Review of the Evolution of the Mondragón Cooperative Corporation
The Mondragón system has evolved from a loose collection of individual enterprises to a more coordinated collection of individual enterprise groups to a centrally coordinated, but decentralized corporate structure. Initially, the cooperatives were tied together through their Contract of Association with the Caja Laboral Popular(CLP). The Contract of Association spelled out members' duties and obligations. The cooperative members represented a majority on the Board of Directors of the CLP.
The mutual dependence of the Bank and the industrial cooperatives was direct and complete in the early days. The Contract of Association required cooperatives to bank with the CLP. And by Spanish law and Mondragón's own bylaws, CLP could provide loans only to the cooperatives. In the late 1960s, about 75 percent of CLP's investments were in the cooperatives.
The CLP harnessed the surpluses generated by the industrial enterprises, primarily ULGOR, the first industrial enterprise, which grew from a few dozen members in the mid 1950s to a few thousand members by 1970, and channeled these surpluses to finance new business creation. Seventy five percent of the CLP loans in 1970 went to cooperative expansion. But most of the financing for expansion in the first 15 years came from internally generated capital.
For both Mondragón and Spain, the period of 1956-1976 was one of rapid economic growth. The national market was protected by tariffs and import restrictions, and large subsidies were offered to industrial firms. Indeed, some of the original founders now say that relatively few management or marketing skills were needed to be successful in those days.136
"In a market of 28 million people, poorly provisioned during almost the first 20 years, management was easy, without great burdens, and profitability flowed with abundance", observes Ormaechea. Each worker-owner's annual share of profits was equal, on average, to a 20 percent increase in wages, and in some peak years, an 80 percent increase.
The second phase in Mondragón's evolution occurred in the late 1970s. The Spanish recession forced Mondragón's cooperatives to close ranks and to develop community wide mechanisms. For three years in a row, the industrial cooperatives, as a whole, lost money. The Bank became much more interventionist. Its business division, initially established to start businesses became involved in saving businesses. The Bank booted out managers, changed product lines, merged companies, and enabled the transfer of workers among cooperatives. The Bank's business development division thus began to acquire a much broader managerial perspective.
In 1982 the Bank completed an exhaustive analysis of the structure of the Basque economy and identified important trends in global economic development. Its report became a blueprint for restructuring the cooperatives. That blueprint wasn't fully adopted until the December 1991 meeting of the Community Congress.
136 Others disagree, pointing out that many privately held firms went bankrupt or were not nearly as successful as Mondragón's cooperatives, despite the favorable national economic climate.
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During the 1980s, CLP's deposits swelled far beyond the needs of the cooperative community. Whereas in the 1960s CLP was largely supported by the bigger industrial cooperatives, in the 1980s its much larger deposit base may have saved the cooperatives. The CLP wrote off $160 million in loans, a remarkable amount given the size of the industrial cooperatives overall asset base.
In the early 1980s, as a result of changes in the Basque cooperative law, the CLP for the first time was able to offer depositors services like mortgages and car loans. This led to a major expansion in its deposit base. It also led to a dramatic diversification in its investment portfolio. Today [1992] only 15 percent of the Bank's loans are to cooperatives. About 40 percent is to non-cooperative enterprises in the Basque Country. About 45 percent consists of personal consumer loans or home mortgages.
The recession in Spain forced the industrial enterprises to seek foreign markets. The export share of total industrial sales rose from 10 percent in the mid 1970s to more than 20 percent in the early 1980s. This led the cooperatives to confront their lack of marketing skills. As one member remembers, "We were good at making things" but knew little about marketing, especially outside the region.
The 1980s saw the blossoming of several inter-cooperative institutions. One was the comarcales, or territorial based industrial cooperative groups. The first group, ULARCO, had been formed in 1964, but the process of group formation was significantly boosted in the recession. About 70 percent of the industrial enterprises were part of a group by 1991. Groups engaged in common marketing, common purchasing and centralized accounting and administration. By the end of the 1980s, most groups also shared part or all of their companies' profits among their various members.
The early 1980s also saw the creation of community wide institutions and mechanisms. One was the unemployment insurance fund, operated by Lagun Aro. Financed by a payroll tax, this fund primarily financed inter-cooperative transfers of personnel. In 1984, the cooperatives formed their first community wide
governance structure. The Cooperative Congress met every other year and elected a Board of Directors.
December 1991 marked the third and by far the most significant meeting of the Congress. It also marked the birth of the Mondragón Cooperative Corporation. In 1992, Mondragón's cooperatives find themselves in a different environment. Three changes stand out as particularly important.
1. The demographics of the cooperatives are changing. The founding generation is aging. Some are retiring. Retirees are becoming more numerous. Recently they have raised the question of having representation in the Community Congress. If this were granted, they could rapidly become a significant voting force.
An older generation views history with a different, perhaps more jaundiced eye. José Agustin Arrupe, head of the engineering school observes, "When I came, people were 35 and idealistic and forward looking. Now faculty are older
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and ready for retirement and are looking backward and are frustrated and critical and this affects the culture."137
A new generation, with little or no institutional memory, and a very different psychological and social attitude, is entering the managerial ranks at a time of rising income but stagnating overall employment levels. More than a third of those who work in cooperatives today were not born in the 1950s. Javier Marcos, editor of Trabajo y Unión, the cooperatives' magazine, describes the present generation as "more materialistic and individualistic". "We are trying to figure out how to educate the younger generation about our history."
2. The advent of the fully integrated European market means that Mondragón will now compete directly against the largest corporations in the world, not only outside Spain, but in its backyard as well. In 1980, for example, domestic appliances were protected from imports by a 35 percent tariff. In 1991 it was 5 percent, and by the end of this year it will completely disappear. Multinationals are buying up key Spanish industries at a breathtaking rate, while the parent companies themselves are engaged in a frenzy of mergers and acquisitions in all of Europe. The manufacturing of domestic appliances, for example, constitutes the Mondragón cooperatives' largest single industrial sector. In recent years the number 2 and number three Spanish domestic appliance manufacturing firms have been purchased by foreign corporations(Sweden's Electrolux and Germany's Bosch-Siemens). Le Clerc, the French supermarket company, has opened hypermarket in Pamplona. In 1980 the import tariff on refrigerators, for example, was 35 percent.
3. The opening up of Europe to continental wide flows of capital and corporate concentration is occurring as a second economic slowdown hits Spain only a few years after the severe recession of 1979-1986. Basque unemployment levels in 1985 reached 25 percent. Spanish economic annual growth rates were above 4 percent in 1987, 1988 and 1989, but dropped to 2.5 percent in 1990 and to less than 2 percent in 1991. There has been no job expansion in the cooperative industrial enterprises since the mid 1980s. Markets are tight. Profits are suffering. Unemployment hovers around 16 percent.138
These three factors, and others, provided the background and context for the third convention of the Community Congress, the community wide legislative body, in December 1991.
Decisions taken at that session mark a dramatic departure from past cooperative practices. The change is best reflected in the adoption of a new name, the Mondragón Cooperative Corporation(MCC) to replace Mondragón Cooperative Group.139 The basic 12 page Contract of Association, which contains the community's basic rules and obligations used to be signed with the
137 Arrupe himself now reflects this more sober attitude. "The idea is to make the least bad system possible", he tells visitors. 138 On a tour of FAGOR's refrigerator manufacturing plant, the FAGOR representative was asked, "Is it a privilege to hold a job in FAGOR". She responded, "It is a privilege to have a job". 139 Originally, the leaders wanted to call the new organization, Corporación Cooperativa Mondragón but this would have resulted in the initials CCM, the same initials as another Spanish confederation. So they chose Mondragón Corporación Cooperativa, whose initials, MCC, are similar to the English.
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Caja Laboral Popular, the system's Bank. It will now be signed with the MCC.140
Changing the Rules
The Congress made several important changes in the Contract of Association. For the first time since the early 1970s, it allowed workers to withdraw a part of their profits in cash. Worker-owners can now withdraw 30 percent of their annual share of the company's profits in cash.141 This year, CLP's workers voted to distribute about 5 percent of the Bank's profits in cash. The revised Contract of Association all but eliminates salary ceilings. The limitation on top salaries had been major innovation of the Mondragón cooperative system.142 Neither Spanish nor Basque cooperative laws, at the time Mondragón's cooperatives were created, required any limitation.143 From 1956 to 1973, the salary range was a maximum of 1:3 from lowest paid to highest paid. From 1973 to 1987 it expanded to 1: 4.5. From 1987 to 1991 it was 1:6. In December 1991, the Congress recommended that cooperatives allow top salaries to be as high as 70 percent of prevailing comparable managerial wages.144
140 The business division of the CLP spun off and became an independent cooperative, LKS, and is housed in the same building as the MCC headquarters. LKS will perform the audits and the other responsibilities contained in the Contract of Association that heretofore it performed as part of the CLP. 141 Spanish cooperative law offers worker cooperatives a substantial tax break if they meet certain conditions. They can receive a reduction in their corporate income taxes from 35 percent to 20 percent but to do so they have to give 10 percent of their profits to charitable endeavors, and at least 20 percent of their profits must go in the enterprise reserve account. Today, most Mondragón cooperatives invest 35 percent in the enterprise reserve account. That leaves 45 percent of gross profits for individual accounts. Thirty percent of this is13.5 percent of gross profits. 142 Three other innovations on the existing Spanish and Basque law made by the Mondragón cooperatives are worth noting. 1)The creation of worker cooperatives out of consumer cooperatives. Spanish law had viewed banks, for example, as consumer cooperatives where the workers had no representation. 2)The creation of inter-cooperative cooperatives, like the second tier service cooperatives, CLP and the university and the research and development center. These have representatives of both workers and cooperative members on their Boards. 3)The Social Councils. These are not required by Spanish or Basque Country cooperative law. "With the creation of this organization, it has recognized that partners are at the same time workers, and as such, subject to the desire to participate in decisions affecting their work." says Juan Larrañaga, of Otalora.