Transformative Leadership in Co-ops (Real Leadership)

Transformative Leadership in Co-ops
(Real Leadership) by Edgar Parnell

Paper delivered by Mr. Edgar Parnell, one of the resource speakers at the “Regional Conference on Transformative Leadership for Co-operatives in Asia: Transforming Leadership, Transforming Co-operatives, Transforming Society,” held November 26-28, 2003 in Thailand, organized by the Asian Women in Co-operative Development Forum (AWCF). AWCF is a regional resource center and advocacy body on gender and co-op development in Asia. AWCF website: coopwomen.org











Mr. Parnell has undertaken consultancy and people development assignments in the United Kingdom (his home country) and in over 30 other countries, including those concerned with the governance of co-ops, finance and taxation, the requirements for co-op legislation, feasibility studies for the setting up of co-ops, reviewing aid programs to co-ops, installing and evaluating training and leadership development programs for co-ops and mutuals, and developing strategies for the reorganization of co-op systems. As chief executive of the Oxford-based Plunkett Foundation from 1984-1998, he was responsible for supplying a wide range of support to co-ops and related organizations, including managing development and research projects.

Much of his work has involved developing people to take on leadership roles, especially in providing leadership development programs for UK and European agricultural co-ops. He has also designed and implemented programs for emerging leaders, following the collapse of communism, for co-operatives in Russia, Poland and other Eastern European states. Work has also been undertaken in designing and delivering essential leadership development for several developing countries.


Objective
The objective of this paper is to examine the functions of leadership and the significance of competent leaders in the overall success of co-operatives. The leaders concerned include both leading members’ representatives (referred to as “directors”) and senior professional managers (referred to as “managers”). Another objective of the paper is to identify the main traits and competencies required in such leaders and to establish what can be done to develop competent leaders able to play a dynamic role in developing co-ops in the future.


Methodology
The conclusions presented within this paper are substantially based upon the empirical evidence collected by the author over a period of 45 years of direct involvement in co-operative enterprises in more than 30 different countries. These conclusions have been supplemented by a limited amount of specific research, mainly through structured interviews and group consultations with United Kingdom (UK) co-op leaders, and a study of recent English language literature on the topic of leadership in general.


The Nature of Leadership
The leadership function
Leadership is the process in which an individual influences other group members toward the attainment of group or organizational goals.1 The quality of leadership determines the success of all forms of organization, and none more so than co-operatives. To quote Fiedler and Garcia2: “The quality of leadership is one of the most important factors in determining the success and survival of groups and organizations. And although technology plays an overriding part under some conditions, effective leadership has often compensated for lack of equipment and resources.”

Every co-operative or mutual enterprise needs skilled and dedicated leaders who will be primarily drawn from its “cardinal stakeholder group”3 (made up of the individuals for whom the co-operative exists to serve). This is not to say that leadership should be arbitrarily confined to those drawn from the ranks of members, nor should it be entrusted to a “one-person band”—the kind of charismatic, high-profile leader who often comes to mind when the topic of leadership is discussed. In fact, leadership in co-operatives needs to be exercised at all levels, both by directors and by managers. Given the fundamental characteristics of co-ops, in particular the importance of self-help and their democratic basis, it would seem essential to believe that: “Competent leaders are not a product of destiny but can instead be developed, trained and nurtured”—a position advocated in the current literature on business leadership.4

What makes a leader?
The ability to exercise leadership has its basis in the power and influence that individuals are able to exercise over others within a group or organization. The conventional view about the source of the leader’s power will vary but is likely to involve the leader’s capacity to provide benefits to group members in return for their support, referred to as “transactional leadership.” This means that leaders depend for their support on their ability to: reward, coerce, use their position (legitimate power) or exercise their special knowledge or skills (expert power).5 Appointed managers rely on the power that they are given or which is vested in their position whereas elected leaders depend much more upon their personal power derived from their individual traits and the special knowledge and skills that they make available to the group. Both appointed and elected leaders soon find that their ability to lead will be severely curtailed if they are unable to adopt the kind of behavior that engenders commitment from those that they aspire to lead.

The type of behavior that inspires people to support any particular leader varies according to the situation. For example, a group or organization, or even a nation, will look for a different pattern of behavior from their leaders at times of extreme crisis other than at times when all is perceived to be going well. Leaders who can offer a vision of the future to the group, which may be unconventional but is perceived as attainable, are much more likely to command support as compared to those who only seek to perpetuate the status quo. Leaders who are seen only to be self-serving will command support on the basis that they exercise a high degree of patronage. However, exceptional leaders appear to exhibit high levels of self-belief and enthusiasm, coupled with energy and a concern for others.6

The changing role of leaders
Throughout the world, as people experience greater freedom and empowerment, when groups are in a position to choose their own leaders or at least make it more difficult for imposed leaders to function, they are preferring to adopt leaders with more relevant approaches. Although it does seem that the charismatic leaders still have their appeal, “transformational leaders”7 are replacing transactional-based leaders. Transformational leaders recognize what their group members want and seek to help them achieve it; they relate any rewards to effort and respond to the interests of their followers. The approach could be equated with leaders “politicizing” their leadership role but would only be so if they take this approach selectively, with favored sub-groups. The truly transformational leader seeks to: treat people as individuals; provide them with intellectual stimulation (by providing conditions that facilitate creativity); inspire them by offering a challenging vision of the future; and act as a role model by demonstrating by their own actions the qualities and values advocated.

This new breed of leaders is also generally more approachable, ready to involve a wider range of people in decision-making processes and actively working toward empowering those who are being led. Organizations are tending to become flatter structures with few layers of management, where people take more responsibility for their own direction. Leadership has, to a certain extent, become redundant in situations where the operation is predictable. At the same time, where situations are complex and where great changes are needed, then high quality leadership is at a premium. The success of organizations depends increasingly on their capacity to respond to rapidly changing circumstances and to respond with creative solutions. It is, therefore, self-evident that leaders are needed who can provide the conditions under which people embrace change and are creative.


The Unique Position of Leaders in Co-operatives
The primary leadership role
It is necessary to distinguish between the primary leadership function—which, above all else, is needed to unite the membership and articulate its needs—and the secondary level of leadership required to lead those who organize the delivery of co-operatively provided services.8 The role of the primary leadership includes translating the members’ needs into the specific benefits implicit in the purpose of co-operatives. The need today, at least within co-ops operating in relatively mature economies, is for a leadership style based not solely on personality or charisma but also on a more collective approach in which leaders at a variety of levels all subscribe to a common vision of the co-operative’s desired direction.

In small co-ops, the primary leadership function is usually combined with a variety of other functions, or, alternatively, the directors may have a fair degree of involvement in the detailed running of the enterprise. As soon as co-operatives can afford to employ professional managers, the primary leadership task is usually separated from other functions. Unfortunately, directors sometimes misunderstand the nature of democratic control, and they thus retain functions that should be handed over to professional managers. This situation results in confused roles. Situations like this often arise when directors do not properly understand their role or how to fulfil their duties within a large-scale co-op enterprise.

The selection of leaders
In an investor-controlled enterprise the leaders are either self-appointed, when they are the dominant investors in the enterprise, or they are appointed by those with the controlling interest in the enterprise. Either way, the investors are in a position to buy in the leadership that they require and to relatively easily remove those leaders who do not produce the results required by investors.

In politically controlled organizations, for example government at all levels, the key leaders are elected. The elected leaders, in turn, within certain constraints, appoint civil servants who carry out some leadership tasks. Elected leaders only remain in their posts as long as they continue to be acceptable to their electoral constituency. In theory, a similar “political” arrangement exists in co-operatives, whereas, in practice, the leadership functions are normally carried out under some form of power-sharing arrangement between directors and managers. However, in some countries, there are differing arrangements, including: in Russian consumers’ co-ops—where the leading professional manager is directly elected by the members; and in UK building societies—where professionals are directly elected by the members who, in turn, appoint a professional to manage the enterprise. Nevertheless, the tenure of leaders in co-ops is dependent upon election in the case of directors while managers may be replaced if they do not produce the results expected of them.


What Leaders Need to Do
Traits and competencies
The starting point for any co-op leader is to know how to inspire confidence, to be able to demonstrate a basic knowledge of the co-op’s background and functions, to demonstrate an understanding of the members’ aspirations and possess a readiness to set about meeting them. All this involve both a learning process and spending time with as many members as is practicable. All leaders of co-operatives have the additional tasks of fostering co-op behavior throughout the organization and sharing a vision of the future because without either, the enterprise will never succeed as an effective co-op or mutual enterprise. The directors, especially the president/chairperson, will need a deeper understanding of their co-op’s affairs as well as a wider range of competencies.

Directors have to learn to think strategically, not only so that they can help their professional managers develop and implement strategies but also so that they can stand back and monitor the success of these strategies and progress toward achieving the co-op’s objectives. Directors need to learn how to function as a board, which is to say as a team collectively providing overall leadership to the co-operative. The board needs to be able to take the hard decisions that spell the difference between success and failure.

The president/chairperson has the special task of inspiring the board and professional management team as well as the high-profile role of representing the co-operative in the outside world. This latter role is, to some extent, shared by the president/chairperson with the chief executive officer (CEO). How they share the role depends on their relative skills in the areas of this activity, but they will probably need specific additional training, particularly if they regularly face the media on behalf of the co-operative. These key leaders also have the task of keeping everybody focused on organizational objectives; helping keep the organization working co-operatively and the team together (the full team comprises the board and professional managers along with the members and employees); and supporting and monitoring the individuals concerned. The latter task involves letting people know when they have performed well, recognizing when individuals need to be replaced and having the courage to see that this is done sooner rather than later.

The communications function
The task of communicating with the members is vital to the success of any co-operative. Communication must always be regarded as a two-way process that involves primary leaders listening and responding to members and vice versa. Such communication will almost certainly include informal contacts as well as more formal meetings; good communication will not be achieved if reliance is placed solely on formal contacts between leaders and members. In a large organization, good communication requires a systematic process that ensures continuous structured and unstructured opportunities for real dialogue, which cannot be left to chance but has to be developed by design. The members’ representatives in large co-ops can usefully combine the functions of representation with that of communication. But this cannot be said as the same for directors, whose role must be separated from that of representation. Members who become co-op directors also have a key role to play in communication, but it should not be their sole responsibility. The communication function needs to be a combined operation involving representatives, directors, management and staff.

Leaders need to stay in touch with members
Unless all the leaders of a co-operative, including the president/chairperson, directors, other members’ representatives and managers, remain in close touch with a wide cross-section of the members, they are likely to lose sight of the members’ aspirations. If co-ops fail to deliver what their members need and want, then their future is in jeopardy, although co-ops can often drift for many years before their eventual demise. The members’ wishes may be expressed verbally at meetings or more concretely through commissioned market research, focus groups and, ultimately, by the uptake of the services offered by the co-op. Directors should not allow management to act as a filter between them and the membership—direct contact is required.

The accountability of leaders
Other than in those co-operatives where the majority of the members are closely involved with the day-to-day working of the enterprise, the matter of holding leaders accountable for results can be complex. In seeking to measure the performance of leaders, both lay and professional, the members often have great difficulty. The reason is the absence of clearly defined performance measures, commonly as the result of a lack of clarity about the objectives of the organization. The members will often have trouble in making any measured judgement about the performance of their leaders unless they have a high level of knowledge about the specific activities of the co-op. It is only where the results are at the extreme end of the scale, either outstandingly successfully or patently poor, that members will respond to their leaders’ performance.

The absence of any sustained pressure upon leaders of co-ops to perform can lead to the acceptance of under-performance, which can mean that the enterprise fails to deliver fully the potential benefits to members, and/or that the assets of the enterprise are not used as productively as they could be. Uncontested elections or elections that are contested on “political” grounds result to directors who do not demand high enough levels of performance from their managers. The outcome is that creative and innovative management is not practiced in many co-ops. Managers in co-ops often exploit the situation, control the information flows within the organization, and usurp the powers of the members. Some managers may believe that they are directing the enterprise in the best interest of the wider membership. However, the long-term consequences of the squeezing out of effective member-control will in due time fatally damage the co-op.

In contrast with such poor performing co-ops, there are many examples of outstandingly successful co-operatives throughout the world. Some may claim that such successes are primarily a product of the unique economic and/or social conditions prevailing. However, upon investigation, almost without exception, the reasons for these co-ops’ success can be traced back to the high quality of the leadership exercised within the enterprise.

Creating and maintaining the pressure to perform
All leaders need to be placed under pressure if they are to perform to an adequate standard, and the continuing progress of co-operatives is dependent upon a continuing process of change. Leaders who do not produce results and do not lead the continuing change process have to know that they themselves will be subject to change. The board and managers at the Oxford, Swindon and Gloucester (Consumers’) Cooperative Society (UK) refer to the need for the existence of a “virtuous circle of leadership control” if the leadership is to remain accountable and the enterprise successful in delivering its purpose.




Sources of Leaders for Co-operatives
The past
In an investor company, the controlling investors or entrepreneurs usually either take on the primary leadership role themselves or “buy in” the leadership. In a co-op, it is generally expected that those filling the primary leadership functions will be drawn from the members, which belong to the cardinal stakeholder group. It has already been pointed out that, in many cases, managers take over the primary leadership role in some co-operatives. There are also cases where “outsiders” selected by the cardinal stakeholders perform the leadership function. Indeed, outsiders who did not directly belong had founded many of the most significant movements. The list of such “patrons” or “trustee” leaders is long and includes such co-operative icons as Owen, Raiffeisen, Desjardins and Plunkett.9 This situation whereby leaders were drawn from higher social classes is perhaps not surprising given the fact that working classes enjoyed neither education nor robust health.

The present
At the time when many co-operatives were first established, they were in a position to fill both managerial and member-director roles with persons of outstanding quality who, due to prevailing class structures, were debarred from the opportunities existing in other organizations. In today’s world, the competition for talented leaders is intense and co-ops have to compete for talent with the most powerful of businesses and other organizations that can offer very considerable rewards. While co-ops do need to offer competitive conditions and payments that are appropriate, the unique rewards in terms of the satisfaction only available when working for organizations that have functions beyond mere profit maximization need to be emphasized.

One major problem for those co-ops where managers are exercising the dominant leadership role is that they tend to direct the enterprise towards those activities that can make use of their own skills. Whereas, when conditions change and the needs of members change, the co-ops should perhaps be providing a quite different set of services.10 Managers will often have a vested interest in resisting essential fundamental change; this is why strong member-leaders must always be in ultimate control of co-operatives.

Replacing “time-servers,” especially among elected directors, is a task that should not be shirked by the current membership. But, again, this depends on the directors providing the leadership required to do this. Therefore, new leaders need to be continually emerging so as to reinvigorate and refresh organizations, exerting a pressure that forces out poorly performing leaders.

The future
The challenge for today’s leaders is to develop future leaders. People often ask what will attract the youth? Perhaps, surprisingly, they are attracted to an organization that is based on truth, honesty, and ideals. What is it that switches off youth? Organizations that are based on cynical manipulation, pretending that they are working for the interests of others when they are, in fact, driven by the self-interest of those in control. Appreciated are those able to offer genuine wisdom and experience; but rejected are those who bring only age and cynicism and expect to enjoy respect for their pains.

Succession planning is, at best, a very inexact science because both people and circumstances are continually changing. The aim must be to create a pool of potential leaders who are coming up behind the existing leaders. Opportunities need to be created where potential leaders can put their leadership toes in the water. Development programs need to be supported by co-operatives, but these do need to be specifically tailored to the needs of leaders who are to operate in such organizations.


Governance Systems—the Framework for Leadership
The limitations of current models
It is difficult to separate the influence on results by individual leaders from that of the framework of governance within which they operate. Many co-ops are still operating with a framework that was developed to meet the needs of small-scale, community-based organizations. This framework is not sufficiently geared to the needs of large-scale, geographically widespread organizations. This shortcoming limits the capacity of leaders to provide effective leadership, and sustains the tenure of poor leaders. The failure to evolve new, more appropriate forms of governance has taken its toll among many co-operatives and can be identified as a root cause of their decline in many countries. Much of the work done in recent times by co-ops to improve their governance has focused on developing codes of practice. The task of securing radical changes needed in the governance systems has, for the most part, not yet been attempted.

The politicization of leadership
The absence of appropriate models and systems of governance has, in many co-ops, resulted in the leadership becoming politicized. This does not only mean the alignment of individual leaders with political parties. More significantly, being politicized means that leaders exercise control and influence not in the best interest of the majority of members but instead do so on behalf a clique or faction. Co-op leaders frequently act in the same way as party politicians who abdicate from the main leadership function—as the architects of change—placing themselves ahead of the pack. Many modern-day politicians are no longer prepared to lead but rather to follow on the coattails of public opinion, worshiping at the altar of public opinion polls.

Single-issue leaders
Yet another product of the wrong type of governance arrangements is the emergence of leaders who seek to use the co-operative as a platform for their own special interests and concerns. These matters may well be important issues but to debate them in a co-operative is to debate them, perhaps, in the wrong place. If members allow this kind of abuse of the enterprise’s democratic forums, then they will soon see their organization debilitated and eventually destroyed due to the real objectives of the co-op becoming subservient to the agenda set by a single-issue protagonist.

Redesigning models of governance
It can be difficult for those holding power within co-ops to instigate the necessary changes to the governance arrangements because by doing so they will often undermine their own position. However, those leaders willing to place the long-term future of their organization above that of their own short-term interest need to cultivate a climate in which essential change can take place. In many cases, this will require a separation of the representation functions of member-elected officials from the task-based functions of the director’s role. Broad-brushed policy-making can involve a relatively large number of members while the function of overseeing the policy implementation and the results monitoring needs to be in the hands of a strictly limited number of highly competent persons.


Developing Leaders for Co-operatives
Searching out potential leaders
It is the board’s duty to trawl for talent, to find future leaders and to provide them with the necessary development and training opportunities. In a democratic system, it is neither possible nor wise to predict who will be elected to a particular post. Much of real leadership development needs to take place by means of orientation and induction programs following election. But this does not exclude preparatory training for aspirants to elected posts.

The fact that the performance of directors is so critical to the future of co-operatives leads to questioning the wisdom of leaving to chance the selection of directors. If a members’ council appoints directors, then a proper program of training and development can immediately commence in earnest. Directors already serving can be trained and potential directors prepared. In addition, directors who do not perform well can be asked by the members’ council to step down.

Development priorities
The aim of leadership development programs will include imparting specific relevant knowledge and competencies. Other stages of development can only take place when the director or manager is in post and they have some experience to build upon. Based on a study covering all forms of co-ops in the UK11, the specific knowledge and competencies to which training for leaders has to be directed may be summarized as follows:
1. An unequivocal understanding of the purpose and prime objectives of their co-operatives and how to develop strategies for achieving these.
2. Understanding of the basic features, structure, and key survival factors affecting the markets in which the co-operatives operate as well as knowledge of developments and trends within related business areas.
3. Awareness of the functions, responsibilities, and legal implications of directorship; responsibilities to members and third parties; and the risks and penalties for failure to meet these responsibilities.
4. The ability to function as a group, and understanding the process of arriving at, recording, implementing and monitoring decisions (i.e., the skills needed to function effectively in the boardroom).
5. Full comprehension of financial and control information, including the concepts of “liquidity” and “solvency”; the ability to use this information in the decision-making process; and, in particular, the capacity to identify the key results and result indicators for their specific enterprise.
6. An active role in the business and strategic planning process and in monitoring the progress of such plans.

This list includes competencies based on achieving a level of knowledge and understanding as well as on developing learnable skills. All of them are in addition to the basic leadership and communications skills required to carry out the duties of a leader.

The impact of training provided for leaders
Investor businesses have taken a considerable interest in developing leaders for well over 50 years; their experience is worthy of study. One of the weaknesses of many leadership training courses is that they tend to concentrate on developing skills that produce managers rather than on developing leaders.12 This may well be adequate for investor-controlled business but not sufficient for co-ops.

The impact of specific training provided particularly for co-ops varies considerably and once again is dominated by the provision made for managers. In more recent times, however, co-ops in more countries are beginning to make a special provision for the needs of members’ representatives. In all cases, it is rare to find programs that go beyond the provision of knowledge to include the development of appropriate leadership behavior. What is most uncommon is to provide joint development programs for managers and elected leaders, which seems to be a major deficiency given the fact that the success of co-ops rests heavily on the successful collaboration between these two groups of leaders.

Will more of the same be adequate?
New approaches are required to developing leaders in co-operatives, if these forms of enterprise are to take advantage of the opportunities that exist for them to contribute much more substantially to global economic and social development. Leadership development for co-ops needs to be viewed as a continuous process. The personal development of leaders should be addressed throughout the various stages of the leadership cycle: when leaders are emerging, when established, when in danger of derailment when cynicism is prone to set in. It also means finding individuals as candidates for leadership roles, who have the basic personality traits and a commitment to the essential human values—which experience clearly tells us are needed

To simply continue, in most cases, to offer what is currently on offer in terms of leadership development is to condemn co-operatives to a relatively bleak future. A more dynamic approach to leadership development is likely to include programs that are personally tailored to individual needs. The focus of programs will cover the key competencies referred to above, and induce transformational leadership approaches. Existing and potential leaders, among other things, need to be exposed to learning experiences that promote the need to address some difficult learning challenges, engender simplicity in communication, help release creative energy, and develop the capacity for focusing on the essentials and in mastering personal inner capacity.13


References

1. Shackleton, Viv, Business Leadership, Routledge, London, 1995. Page 2.
2. Fiedler, F. E. and Garcia, J. E., New Approaches to Effective Leadership. Wiley, New York, 1987. Page 1.
3. Parnell, Edgar, Reinventing Cooperation-the challenge of the 21st Century, Plunkett Foundation, Oxford, 1999. Pages: 20 - 21.
4. Adair, John, Effective Leadership Marsterclass, Pan Books (Macmillan) London, 1997. Page 15. Harvey-Jone, John, Making it Happen – Reflections on Leadership, William Collins, Glasgow, 1988. et al.
5. French, J.R.P. and Raven B., The Bases of Power in Studies in Social Power, Ann Arbor: University of Michigan, Michigan, 1959. Pages: 150 – 167.
6. Shackleton, Viv, Business Leadership, Routledge, London, 1995. Pages 101 – 109.
7. ibid. Pages: 117 – 124.
8. Parnell, Edgar, Reinventing Cooperation-the challenge of the 21st Century, Plunkett Foundation, Oxford, 1999. Pages: 107 – 120.
9. Yeo, Peter, Year Book, Plunkett Foundation, Oxford, 1987. Pages:XX
10. Mathews, Race, The Challenge for Credit Unionism - Reinventing Mutuality, address delivered at the Mutuality Australia conference, Melbourne, November 1999.
11. Parnell, Edgar, Developing Directors of Cooperatives and other Similar Enterprises, UK Government Department of Enterprise/Plunkett Foundation, Oxford, 1994.
12. Bennis, Warren, On becoming a Leader, Arrow Books, London, 1989. Page73.
13. White, Randall P. and others, The Future of Leadership, Pitman Publishing, London, 1996. Pages: 146 –204.