Written evidence submitted by Co-operatives
UK
ABOUT CO-OPERATIVES
UK
1. Co-operatives UK works to promote, develop
and unite cooperative enterprises. It has a unique role
as a trade association for co-operative enterprises and its campaigns
for co-operation, such as Co-operatives Fortnight, bring together
all those with a passion and interest in co-operative action.
THE CO-OPERATIVE
ECONOMY
2. There are already over 4,990 co-operatives
in the UK, owned by more than 11 million people - and these numbers
keep on growing.
3. Co-operatives are business that exist to serve
their members, whether they are customers, employees or the local
community. They work in all parts of the economy including retail,
banking, food and farming, design, renewable energy and football.
Co-operatives also deliver a range of public services including
housing, social care, sport and leisure, recycling and healthcare.
4. Members are the owners, with an equal say
in what the co-operative does. So, as well as getting the products
and services they need, members help shape the decisions their
co-operative makes.
5. Further information about Co-operatives UK
and the co-operative sector can be found on our website www.uk.coop
GENERAL COMMENTS
6. Co-operatives UK welcomes the opportunity
to comment on the Culture, Media and Sport Committee inquiry into
the governance of professional football clubs. Co-operatives have,
at their heart, a commitment to promoting democratic involvement
as well as ensuring there is accountability, openness and transparency
at every level.
7. The Committee's inquiry to look at the scope
for enhancing supporter involvement in decision-making within
football clubs is based on a subject we, with others, have long
championed and a co-operative structure can go a long way to ensuring
clubs exist for the local community rather than solely to generate
profit for a handful of owners.
8. It is arguable that it is a hollow point to
complain of private investors rigging loans in their favour or
selling the rights or interests in community facilities when this
is what the investor model is designed to do. If investors own
a firm, they can appropriate the profits and benefit from increases
in share values.
9. However, when an organisation is co-operatively
owned, the interests and incentives of the corporate body and
its members can be aligned.
10. There is a new public appetite for greater
ownership by fans as a result, no doubt, of the pioneering work
of Supporters Direct in assisting the formation of over 170 supporters'
trusts, based on a co-operative ownership model, over the last
decade.
11. Clubs need to run in sync with their true
nature and need to be owned by those affected most by the decisions,
who respect the club's history and heritage and - crucially -
must trade on their own resources. When and where people make
key decisions, they need to be accountable for the decisions they
make.
12. As mentioned above, co-operatives have, at
their heart, a commitment to promoting democratic involvement
and a model based on a co-operative form of ownership ensures
these objectives can be met.
13. A survey conducted by Co-operatives UK in
2010 asked respondents if they thought their club would be in
better hands if it was owned co-operatively by the fans. The results
were clear: 83% of Manchester United fans and 72% of Liverpool
fans who expressed an opinion felt their club would be in better
hands if it was owned co-operatively. Across the country, 56%
of fans who gave an opinion felt the same way.
14. Our research also confirmed for the first
time that fans would be willing to put their money where their
mouth is and invest in the club to take it into co-operative ownership.
Manchester United supporters would be willing to invest an average
of just over £600 each to buy their club. If all the club's
supporters in Great Britain did this they would be able to raise
£2.34 billion - more than enough to buy the club.
15. This challenges the assumption that the only
way to get rid of one billionaire is to find another. For less
than the price of a Premier League season ticket, fans could share
in ownership of their clubs and ensure that they are run in the
long-term interests of sport.
16. If the supporters are the people who own
football clubs, or who should own them, this does raise question
of who actually does.
17. This sense of ownership, critical to all
spectator sports clubs, has been maintained by cricket and rugby
clubs in the United Kingdom, who chose co-operative forms of incorporation
to ensure that the members - the supporters - retained control
of the enterprise, and made the key decisions about the club's
strategy.
18. Unfortunately for British football fans,
privately owned companies were the corporate vehicle chosen, which
has ensured that private objectives reflect not the commonly agreed
plan of the core community of fans, but instead the individual
wishes of a particular club's owners.
19. Supporter ownership in football is not a
new concept - Germany's Bundesliga, for example, which has over
taken the Premier League as the world's most profitable league
in 2010, already has co-operative structures in place.
20. Given English clubs' net debt is more than
the rest of its European contemporaries combined, the fans are,
inevitably, the ones most likely to foot the bill for the suicidal
expenditure of English clubs.
21. In countries like Germany it is the co-operative
model of ownership by fans rather than the shareholder model that
is established and flourishing. Many German fans treasure their
system, believing it has been instrumental in keeping German football
close to its fans, even in the modern commercial environment.
22. No Budnesliga club has entered administration
in its 42 year history. Since 1986 there have been 68 cases of
clubs in English leagues becoming insolvent and this shows no
signs of receding in the near future.
23. Several Clubs in the UK, from Portsmouth
to Cardiff City, have faced a daily struggle to survive with the
reality of debts and the threat of administration hanging over
them. There is a real chance that a vital community asset could
be lost in many of these instances.
24. Where this has been a real threat, due primarily
to the failure of previous ownership models, such as at Exeter
City, the co-operative model of ownership by fans has been used
to great success. There are also instances of new clubs being
formed and owned by their supporters trusts due to unacceptable
events at their former clubs, such as the case with FC United
of Manchester.
25. The 170 plus supporters trusts set up in
the UK are registered as Community Benefit Societies with the
Financial Services Authority, the registrar of Industrial &
Provident Societies (IPSs). IPS legislation has a number of unique
attributes that make it an ideal form for community initiatives.
26. The legislation governing the IPS legal form
ensures democracy is enshrined and the protection of members'
rights - whilst it is possible to state a company should be one
member, one vote this can be overturned by the members. An IPS
has to be one member, one vote - regardless of the number
of shares owned. In an IPS members have the right to appoint and
dismiss directors and determine the affairs and rules of the society.
27. Additionally, the amount of interest payable
on shares held must be limited to what is "necessary to obtain
and retain enough capital to run the business". This is set
out in statute and ensures that IPSs must ensure they can remain
as viable going concerns.
28. IPSs set up as Community Benefit Societies
have the option of including a statutory asset lock, similar to
those asset locks available to Community Interest Companies (CICs)
and charities. This prevents the IPS being sold and the proceeds
distributed among members.
29. The IPS legal form also ensures a supporters
trust can exist for a social purpose but can achieve this purpose
through commercial trading, reinvesting any profits back into
the IPS and ensuring there is accountability, transparency and
ensuring that, if dissolved, the assets and interest in the assets
are passed on to a third party organisation with similar aims
and objectives, ensuring individuals cannot benefit materially.
30. This unique combination of attributes means
that IPSs can be treated differently when raising capital in the
form of withdrawable shares from their members (known in some
areas as 'community shares'). When an IPS undertakes to issue
withdrawable share capital, this is not a regulated activity subject
to the Financial Services and Markets Act 2000 (FSMA).
31. There have been a total of 40 new schemes
undertaking this form of share issue in 2010 alone. The registration
of new Industrial and Provident Societies more than doubled in
the last quarter of 2009 and recent initiatives have raised more
than £42,000,000 from over 30,000 community investors across
the United Kingdom.
32. The issue of withdrawable shares has a number
of benefits that are unique to IPSs. It provides societies with
a less expensive and less burdensome form of borrowing than bank
borrowing. However, it also reinforces the member commitment to
the society as the capital is risk capital: If the venture fails,
the members can lose their investment.
33. Many investors in "community shares"
will be motivated not only by the financial return on offer (which
must be limited in any event), but also by the potential social
impact of their investment, as well as the fact the investment
is also wholly contingent on community engagement. Nowhere is
this more evident than in the case of FC United of Manchester.
34. As a member owned club, FC United of Manchester
are undertaking a unique development in English Football: building
a football stadium and community facility at Ten Acres Lane in
Manchester, part funded by an issue of community shares in the
Club. The Rules of FC United also contain the statutory asset
lock, which cannot be removed by the members, so the interest
in the stadium cannot be cashed in.
35. The FC United Community Shares initiative
goes from strength to strength with investments received of £830,000
towards the £1.5 million figure, with pledges taking that
figure to well over a million pounds.
36. This has undoubtedly been helped in part
by the fact the initiative has been granted Enterprise Investment
Scheme (EIS) tax relief eligibility from HMRC, ensuring investors
can reduce their tax liability by 20% of the amount invested.
EIS and other such tax relief incentives are integral to engaging
investors in community owned enterprises and this should be acknowledged
if communities are to fill the void when having to provide their
own services and facilities.
37. UEFA and Supporters Direct have called for
Football clubs to be governed in ways that prioritise sporting
objectives above financial ones, allied with the involvement of
fans in the democratic running of clubs. As the Committee have
identified, there is evidence to suggest that a model based on
a co-operative form of ownership ensures these objectives can
be met.
38. A recent report published by Co-operatives
UK, Good business? Public perceptions of co-operation,
shows that organisations organised and operating as co-operatives
are viewed as local, honest, trusted and a good way to run a business.
A model of ownership based on a co-operative form of ownership
goes a long way to ensuring these ideals are not simply exercises
in public relations but are fundamental and integral to the way
an organisation is operated and owned.
January 2011
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