In most business environments, the manner in which businesses are conducted is designed so that employees are subordinate to the shareholders and top management in the organization. Various companies are privately owned and implement a hierarchical management structure during the process of implementing corporate strategies (Blanco, Xavier & Salgado, 2004). They generally emphasize on sales of their products, increase of profitability and competitiveness, as well as provide shareholders with better returns on investments. This approach has mainly been observed in Europe and the USA. In most European countries, socialist production techniques are followed and ownership of companies and decision making is controlled by the government.
A decision of what needs to be produced to the public is made by the government and it strongly depends on profits since the latter provide ways in which business can be conducted in a country. However, there are other methods that have been successful in the areas where they have been applied. This is the system of cooperatives. Numerous agricultural cooperatives in rural areas and small towns have cooperatives of various kinds such as gas cooperatives, manufacturing cooperatives in a similar manner to leading cooperatives.
The focus of this study was Basque region in Spain with a leading production cooperative Mondragon Corporation Cooperative. This is a cooperative that was formed in 1950’s with the aim of finding solutions to economic problems experienced in Spain at that time. At that time, Spain was ruled by dictators and there were restrictions in terms of approval by the government before businesses could be opened (Bygrave & Minniti, 2000). Up to 1980s Spain suffered economic recession which was slowly combatted and turned into economic development. The cooperative was formed by Mondragon and a few of his associates with the aim of fulfilling the dream of Arizmendiarrieta who founded the corporation.
The company has achieved considerable success due to a number of reasons. Various theories have been used to explain why Mondragon Corporation has been successful. The main focus of this paper is to provide the structure, background and efficiency in this scope based on human understanding of the functions of cooperatives rather than business perspectives.
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Conditions in Working Industry which Led to Foundation of Mondragon Corporation
Numerous cases of inequality in working environments in Spain resulted to formation of Mondragon Corporation. For instance, it was observed that the stakeholders of most organizations focused on the needs of their companies while ignoring the needs of workers. For instance, employees were subjected to strenuous working conditions under marginal amount of payment. Hence, employees were not motivated to give their best in performing their duties (Lezamiz, 2003). There was little concern for the health of employees and companies had the sole authority to grant leave to the employees. Furthermore, it was observed that the complaints raised by employees were not considered and employees were considered as objects of service to organizations rather than people who needed to be treated like any human being despite being under the control of their employers. This resulted to lack of motivation, employees unwilling to work to their potential and the possibilities of strikes were high. There was also lack of good relations between employers and employees and most employees were not empowered to give their best. Despite the possibility that profits were retained by organizations, the amount of output that resulted from disengagement of employees in the management of organizations resulted into improper management of organizations (Tagliabue, 2003). Therefore, most employees in organizations opted to form cooperatives that could enable them talk in one voice and ensure their needs are accounted for. Employees also opted to form unions so that they could express their interests and show unity and common goal in organizations in which they worked.
Mondragon Corporation
Mondragon Corporation was formed to enable employees express their needs to management of companies they worked for. This involved asking employees who wanted to become members of the organization subscribe for membership by contributing membership fees. The purpose of Mondragon corporation was to fulfill the dream of Don Jose Maria who had the dream of providing the people of Mondragon the power to express their needs as well as the needs of the communities in which they lived. The process of teaching the people of Mondragon the skills started by providing the youth with the skills in apprentice schools in Union Cerrajera that was the main factory in Mondragon in the 1950s (Waring, 2001).This was followed by opening other schools in Mondragon where the main lessons taught were industrial skills for the youths.
Formation of the corporative resulted from the efforts of five students who aimed to put their savings in the corporation and trust each other. This was the first step in formation of the empire of Mondragon. On the contrary, as a result of limited funds used in embarking on the practice, they needed additional funds to support the union. This was accomplished through contribution of Jose Maria. He developed a strategy that could be used to raise money for cooperative that incorporated the whole community, which was his main philosophy.
A popular transition in Spain was implemented in involve the community in this vision. This involved selection of the Basque tradition of ‘ir de vinos chiquiteo’ which meant that every day after work they would gather in cafes and discuss with the villagers and spread their ideas of creating an organization that would result into job opportunities (Menendez-Alacon, 2000). They included bartenders, bosses as well as laborers who were planning to start this concept of cooperative in their living environments, and that there was the need for money in the form of loans that they could use in their new venture. The strategy was successful and the number of investors was involved in the project in 1959. The first factory named Ulgor produced paraffin stoves and heaters and employed 24 people. This was the beginning of realization of the dream of Father Jose Maria, though there still were a number of challenges to deal with.
By 1960’s a number of firms were created. The cooperatives mainly specialized in manufacturing of components that were used in assembling of stoves and heaters. These cooperatives acted as separate entities which implied that they used similar policies and functions for Ulgor. In addition, they sold the products to buyers, thus, creating job opportunities for people. This resulted into transformation of Ulgor into a section of Ularco which represents the major shareholder of Mondragon (C?mara, 2001). Success of the cooperatives was facilitated by financial assistance from La Caja Laboral. Without this financial support, it would be difficult for the cooperative to survive the difficulties. Through the La Caja Laboral, it was possible to channel people’s savings into the cooperatives, for the purposes of research and development. Since the institution was self-sufficient in terms of funding there was no dependence on the government banks for financial assistance of their ventures.
Currently, there are 218 entities in Mondragon, where 150 cooperatives are based in Basque and 68 are based in other areas of the country. There are also overseas plants and the structure of these cooperatives is similar and based on similar policies and functions.
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Comparison of Current Working Industry to Mondragon Corporation
A number of factors led to success of Mondragon Cooperatives in comparison to other organizations where workers did not form cooperatives. For instance, members were provided with the savings that could be used to improve their lifestyles. Those who had business ideas could be provided with loans that could be refunded at low interest rates and less restrictions for eligibility. This is contrary to other organizations in Spain that only provided their employees with wages that were not enough to cater for the basic needs of employees or enable them invest (Bradley & Gelb, 1987). Therefore, workers who subscribed for Mondragon membership improved their lifestyles. Furthermore, members who joined the cooperative could receive benefits such as support for the families, school fees loans as well as emergency loans that could be refunded at lower interest rates.
In addition, members of Mondragon Cooperatives were provided with the right to vote in the union and the liberty to elect the leaders they preferred. They also had an obligation to vote owners of the cooperatives. They had annual meetings during which they discussed issues that had affected them every year (Barrett, 1974). These enabled members approve any projects that had been proposed, make changes and strategic planning for the coming years. They also appointed and dismissed members who had not been elected by merit. This is contrary to other organizations where employees are not provided with the rights to elect leaders of the labor unions. In addition, most organizations where labor unions do not exist result into lack of a single voice and most employees do not raise their issues and cannot come up with projects because the organizations do not support the operations of those unions.
Another observation that has been on Mondragon is that there has been a growth in membership of the organization and it has been difficult to maintain active participation of all members in the General Assembly. This problem has been solved by voting to form a new department where each member of the each cooperative selected his representatives to form part of the Social Council. Participation of these members enables them get the information necessary for pertinent meetings (Bradley & Gelb, 1987).
Members can engage in discussion with colleagues to discuss the issues as well as make a decision to vote so that they can support or reject the matter. This results into reduction in the duration of time spent in the annual meetings as well as giving the assembly the capacity to discuss the issues, raise their suggestions as well as vote on issues they consider beneficial to their needs as opposed to most organizations in Spain where laws are made by the stakeholders of companies and the voices of employees are not considered.
There are also audit committees whose main functions are to ensure accounting requirements are done in a correct manner. Their roles start in a similar manner as in any other financial organization where all revenues and expenses are reviewed and a comparison is made with the financial information produced by the cooperatives (Menendez-Alacon, 2000). Furthermore, each department is verified that they are conducting their functions on the basis of specifications of the Governing Council and the General Assembly. The cooperative is also subject to auditing by other private corporations. It has been found that there is usually low level of discrepancies in financial reports from these entities and they can be viewed under request of the public.
In addition, there is the freedom of members of the General Assembly to nominate and dismiss members of the management team, such as the general manager, in addition to all the administrators of the cooperative, providing them with particular functions as is allowed by the General Assembly.
The Social Council also serves a number of functions such as the flow of information between members of the cooperative and the system involved in governance. The decisions made by the governing council are passed to members by the Social Council. Furthermore, issues that are likely to be discussed in the General Assembly are presented to other members so as to secure enough time for decision making. In addition, the social council ensures that all members as well as the elected officials get the right information on the objectives that had been proposed by the General Assembly (Lezamiz, 2003).
The other function of the cooperative is the Labor Negotiation function that acts as an internal union and promotes negotiation of issues pertaining to labor. As a result of these functions of Mondragon Cooperatives, it has been possible to address the needs of workers. Consequently, the workers were given an opportunity to enhance quality of their lifestyle. .
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Conclusion
Formation of cooperatives enables workers to address a number of vital issues. This involves providing them with the ability to express their views and preferences, ensuring their problems are addressed and they are provided proper working conditions. In this paper, the focus has been made on Mondragon cooperative, a Spanish cooperative that unites workers from various professional backgrounds. The principles of the cooperative have resulted into success and improvement of the living standards of its members. The unique structure of the Cooperative distinguishes it from other forms of cooperatives. The main components are the General Assembly, the Management Council, the Social Council and Labor Negotiation.
