Cooperative Legislation´s Role in Cooperative Survival: Balancing Integration, Flexibility and Differentiation

Cooperative Legislation´s Role in Cooperative Survival: Balancing Integration, Flexibility and Differentiation

Carlos Vargas-Vasserot, Associate Professor of Commercial Law, University of Almeria, Spain and Cynthia Giagnocavo, Ph.D. student, Faculty of Economics and Business Administration, University of Almeria, Spain and lawyer qualified in Ontario (Canada), New York State and England and Wales

Purpose: In confronting global market challenges, cooperatives have often focused on strategies of growth all the while preoccupied about the degree to which cooperatives principles can be maintained. Our paper illustrates cooperative legislation´s role in shaping a legal environment in which cooperatives can both utilize necessary competitive strategies and maintain cooperative principles. Given the recent global financial crisis and the resulting lack of confidence in the shareholder model as the overriding paradigm, this task is even more relevant.

We are critical of certain legislative provisions which do not achieve their stated goals and hide economic realities, encouraging cooperatives to “engineer” around such legislation or, alternatively, utilize cooperative legal mechanisms to find “refuge”.

Method: Analytical Analysis—of mainly Spanish legislation, given that Spain´s cooperative legislation explicitly encourages cooperation and integration. We set out distinct levels of economic inter-cooperation provided for therein: fusions, integration, second level cooperatives, groups and collaboration. EU Cooperative legislation is mentioned. Case Studies—recent transactions by cooperatives in Spain and in other selected countries.

Results: Notwithstanding the apparent “pro” cooperative legal environment in Spain, in particular, its emphasis on integration, we argue that the legislation is inadequate: Strategies of integration are often utilized not out of the necessity to pursue a justified economic growth strategy but simply to allow for the subsistence of small cooperatives. In addition, such integration strategies overlook the need for flexibility and differentiation (i.e. mechanisms within cooperative administrations to deal with particularities and distinct objectives). In the case of cooperatives with justified growth needs, the legislation creates limitations for development and expansion within the cooperative framework, thus encouraging resort to ingenious methods to dodge such limitations or change form to an investor owned firm.

We argue for a legislative regime that acknowledges the necessity of both growth and differentiation, allowing flexibility so that cooperatives of varying size can continue in a socially valuable framework. We refer to other legislative mechanisms from selected countries as examples of what can be done to complement and make coherent the stated intent of the Spanish legislation and the actual results.

Alfonso Sánchez, R., Integración cooperativa y sus técnicas de realización: la Cooperativa de Segundo Grado, Valencia, Tirant Lo Blanch, 2000. Giagnocavo, C., “Legislative Change in the Agricultural Cooperative Sector: Imitation, Evolution or Innovation?” in Innovation and Management: Answers to the great challenges of public, social economy and cooperative enterprises, CIRIEC, Seville, 2008. Vargas-Vasserot, C., La actividad cooperativizada y las relaciones de la cooperativa con sus socios y con terceros, RDS Monografía n. 27, Pamplona, Thomson-Aranzadi, 2006. Vargas-Vasserot, C., “Limitaciones del modelo cooperativo y necesidad de reforma de su régimen legal” Economía Social, n. 46, 2008, pp. 10-18.