‘Cooperativize’

At La Isla Bonita de Salinas beach resort in Rosario, Cavite, some 87 families now live in beach huts converted into makeshift dwellings. They have resettled from Tacloban, survived Yolanda, and are now surviving in a place strange to them but must now make their own. From a top level view, and as good fortune is relative, all is not bad. It was previously a beach resort where the breeze is cool and fresh, where the sand is a soft playground for children and some sea-related livelihood could variably put food on their table.

In the same vicinity, a hangout place of wooden construct, previously for beach night life, now functions as a multipurpose hall. This is where some 15 people, representing different families (with the help of a donor foundation), banded together to form a socialist type of structure called “cooperative”. A cooperative could have multiple purposes, but for this group, it is the necessary first step to help them help themselves.

Without a cooperative, they would just be a group of people in meetings with good ideas, bad arguments, like headless chickens with a sense of urgency. With a cooperative, there is some peace and order among them, they would follow the leader they’ve chosen and each member would be a part owner of the cooperative organization. In time, as they establish credibility and gain success in generating revenue, those 15 members should grow to include the rest of the families in the Bonita settlement.

This present-day example follows the tradition from the 1900s where persons with meager resources, farmers, or the working class would form cooperatives to pool resources, lend to each other, increase bargaining power in purchasing goods, and provide technical training to its members.

It was not long before employees in white collar jobs picked it up, such that the biggest and most successful cooperatives come from the ranks of top domestic corporations and conglomerates in the country. Their cooperatives did not start big. They started with a loan from the company, a table as an office, small membership and meager contributions. But now, some of them have their own buildings, quite liquid and their funds are in the multimillions.

One of its most successful forms is the credit cooperative, which lends credit to its members. For example, from the contribution of their members, they would lend to their own members, say at one- to 1.5-percent interest per month, and members could earn from seven- to eight-percent per annum on their contributions. A cousin of the credit cooperative is the savings and loan association. Also popular and used alternatively besides the credit cooperative, the savings and loan association has an advantage that is also its disadvantage. Let us say it demands higher level of accountability from its officers and, thus, protects the members more. But it is also highly regulated by the Bangko Sentral ng Pilipinas (BSP), which makes administrative matters costly and time consuming.

There is always a possibility that credit cooperatives would in the future be placed under BSP regulation as well. But if this is a possibility, it is one that should not progress. The Savings and Loan Association Act was passed precisely to regulate and supervise. On the other hand, the Cooperative Code was passed to provide assistance to cooperatives, as well as tax incentives. And the latter is constitutionally encouraged and nurtured. It has the right balance of informality and formality. Placing heavy regulatory impositions on a credit cooperative would not only kill the spirit of this organization, it would make people shy away from the organization that is key to their productive interdependency. Credit cooperatives, for instance, have lent to their members not only for tuition fees, but also for emergency loans. Some have given access to auto and housing loans as well. This is financing that the employee-member may not get from traditional channels.

Going back to setting up cooperatives in the work place – I believe one of the most important by-products is allowing one’s own employees to discover the spirit of leadership and entrepreneurship. A 500-strong employee complement is effectively a cooperative membership of 500 families. Combined with the needs of the company itself, there would be economy of scale and discount bargaining power for the purchase of common needs: from school supplies, to the iPhone or iPad. Say, the supplier would normally sell an item for P100, but the cooperative could get a volume discount for that and buy it at P90, it could sell it to its members at P95 (and its profit is distributed to members anyway). And the member could either use the product, or turn it around and sell it for P97.50, which is still lower than the market price. This could be achieved by forming a multi-purpose cooperative.

Organizing a cooperative is like organizing a corporation. You register with the Securities and Exchange Commission. And you register with the Cooperative Development Authority. While members trust each other, the treasurer must put up a bond, based on the amount of cash that would be put to his care, such as the initial capital and member contributions. The other thing is that the initial members must have completed a Pre-Membership Education Seminar given by the Cooperative Development Authority.

What is critical is for 15 people in the company (hopefully representing different departments) to meet and agree first on a single purpose. The cooperative may be converted to a multi-cooperative later. Membership growth should be natural and almost all employees are anticipated to want to be part of the action.

As the New Year approaches, it may be timely to consider giving ourselves the gift of economic leverage through highly effective collaboration. Maybe it is high time to “cooperativize”.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the tax committee of the Management Association of the Philippines (MAP). Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.