Talk:Somerset Rules CSA

Hazelhurst CSA > Rules > The Somerset Rules Co-operative Community Supported Agriculture > Discussion

The Somerset Rules CSA contain approx. 5,300 words.

For background information see the Somerset Co-operative Services CIC 1 page PDF, Somerset Rules introduction and 2 page PDF, "What's new in the Somerset Rules?" and their news article about the launch of these rules. See also the proposal to use these rules posted to the Hazelhurst email list on 29th November 2009 by Chris and the notes of the discussion around this proposal.

See also the summary of some of the list discussions on the Hazelhurst CSA Committee List page and the Somerset Rules Questions page.

Below is a list of advantages of the Somerset Rules, some suggested amendments and a incomplete list of items in the Somerset rules which are equivalent to corresponding rules in the Co-operativesUK Community Finance Model Rules.

Advantages

A PDF version (17 pages) of the following list of advantages and amendments was posted to the list by Chris on 15th January 2010, a brief PDF version (2 pages) was sent the following day, the following text has been updated since then.

Following is an attempt to document some of the advantages and benefits that there would be for the Hazelhurst Community Supported Agriculture Co-operative, the community and the environment if 'The Somerset Rules Co-operative Community Supported Agriculture' were adopted, as opposed to the Co-operativesUK Community Finance Model Rules.

The Somerset Rules CSA are specifically designed for socially aware, transition motivated, community supported agriculture projects like Hazelhurst CSA and are clearer and have many additional benefits and safeguards built in when compared with the Co-operativesUK Community Finance Model Rules.

The additional benefits and safeguards relate to: the aims, vision, principles and purpose of the Co-op, democracy, accountability, the use of consensus based decision making, education, co-operation, the social contribution made by the organisation, sustainability, balancing the decision making between different stakeholders — the consumers and employees and dispute resolution.

In addition these rules allow for dividends to be paid to members on the basis of purchases, paid hours worked and or hours volunteered, in addition to directing that at least 50% of any profits should be "transferred to a general reserve for the continuation and development of the co­operative, and for making making payments for social or charitable purposes".

The Somerset Rules are mission orientated and structured around the 'Seven Cooperative Principles' and they embed these internationally agreed core principles and values in the organisation to set a clear mission and direction and they are written in "plain English rather than legal English wherever possible".

Following is a detailed look at some of the key advantages there would be if the Somerset Rules CSA were used, considered under the following headings:

• Dividends
• Multi-Stakeholder Structure
• Cooperative Principles
• Social Accounting
• Consensus Decision Making
• Standing Orders
• Key Decisions
• The Commonwealth Council
• The Co-operative Movement

Dividends

Both the Somerset Rules CSA and the Co-operativesUK Community Finance Model Rules allow for dividends, in the form of interest, to be paid to investors. Because the Somerset Rules CSA are for an Industrial and Provident Society Co-operative (IPS Co-op) they additionally enable dividends to be paid to members.

The difference between these forms of organisations is described in Community Shares Factsheet 6: Legal structures:

There are two main types of IPS: bona-fide co-operative societies and community benefit societies. The main difference between these two types of IPS is their relationship with members.

Co-operative societies are run for the mutual benefit of members whose membership is based on their transactional relationship with the society, either as customers, employees or suppliers. In addition to the interest members receive on their share capital, members might also receive a dividend on their transactions with the society. The purpose of the dividend payment is to encourage financial prudence whilst ensuring the principal stakeholders are fairly treated. Members can decide at the end of the financial year to return part of any surplus to members, based on the scale of the members’ transactions with the society.

Community benefit societies are run primarily for the benefit of the broader community, rather than just the members of the society. Membership is open to anyone who supports the objectives of the society. Community benefit societies can pay members interest on their share capital, but they cannot pay dividends to members on their transactions with the society.

...

The choice between registering as a co-operative society or as a community benefit society is relatively straightforward. Co-operative structures are most appropriate for organisations whose members have a transactional relationship with the organisation, as customers, suppliers or employees. Community benefit structures are more appropriate for organisations that aim to serve a broader community purpose and do not have a transactional relationship with their members.

The same ground is covered by Jim Brown in Community Investment — Using Industrial and Provident Society Legislation, which was commissioned by Co-operatives^UK:

There are two main types of IPS: bona-fide co-operatives and societies run for the benefit of the community.

Co-operatives are run for the mutual benefit of members who ‘use’ the services of their society. This is based upon common economic, social and cultural needs or interests amongst the members. Typically, this common need or interest will define their relationship with the co-operative as a service user, customer, employee or supplier. Co-operatives have open membership – there should be no artificial restrictions on membership, and it should be open to anyone who meets the criteria for membership. Recent guidance from the FSA says that co‐operatives can have investor-members who are not otherwise users of the society’s services. Co-operatives can pay interest on member share capital and a share of the surplus, or dividend, based on the level of transactions with the society.

Community benefit societies are run primarily for the benefit of the community at large, rather than just for the members of the society. This means they must have an overarching community purpose reaching beyond their membership. Applicant enterprises must also have a special reason for being a community benefit society rather than a company, such as wanting to have democratic decision-making built into their structure. Although community benefit societies have the power to pay interest on members’ share capital, they cannot distribute surpluses to members in the form of a dividend.

...

The choice between registering as a co-operative or as a community benefit society should be relatively straightforward... If your community investors will also be your customers, or will be the primary beneficiaries of your venture, then a co-operative structure is probably most appropriate. If your venture will be for the benefit of the broader community, then a community benefit society will be most appropriate.

The implications of Hazelhurst CSA being a IPS BenCom or a IPS Co-op was discussed on the email list; On 23rd November 2009 Chris asked Mark from Co‑operatives^UK, who has been advising the project on legal structures:

I'm personally still unsure why we should be a BenCom rather than a co-op... How would the society benefit (non-members) of the community? Allowing non-members to access the land? Because some non-members would end up eating the food? In some other ways?

On 24th November Mark replied:

The key distinction between Ben com and co-op is that the members of a Ben Com don't have to have a trading relationship with the society - ie you can have members who simply invest in the society to support it rather than getting involved in any other way.

However a IPS Co-op using the Somerset Rules CSA does provide for investor members which don't have a trading relationship with the Co-op. This is done via the multi-stakeholder structure which has 3 classes of membership:

1. Food producers supplying or intending to supply the co-operative
2. Persons buying produce or intending to buy produce from the co-operative
3. Investors

The Somerset Rules CSA furthermore allows for the interests of the different groups to be fairly balanced, see the multi-stakeholder structure advantages section for more details.

On 23rd November 2009 Chris asked Mark:

Why would it be better to have the aim of benefiting the community rather than the members? Isn't it the case that we hope that our community will sign up en-mass and therefore benefiting the members would be benefitting the community? What is the drawback of a co-op that aims to benefit it's members?

On 24th November Mark replied:

See above - the members of a co-operative have a trading relationship with it. In Hazelhurt's case, this would be buying veg from it. The advantage of a co-op over a Ben Com is that you can incentivise trade with the co-op by offering a dividend - a Ben Com being unable to distribute profit, although it can pay interest on shareholding. This can be summed up as:

• In a Ben Com, the more you invest the bigger your potential return (interest) - there is no other way to distribute profit.
• In a co-op the more you trade with the co-op the bigger your potential return (dividend). This is further complicated by the fact that a co-op can also pay interest on shares.

On 25th November 2009 Mark concluded:

The choice between co-op and Ben Com is up to you. We are not recommending one over the other - it's your choice...

The Somerset Rules specify that a maximum of 50% of profits can be used for dividends paid to members (which are different to interest paid on investment — something that both types of organisations can apply) under rule 3.3 (a):

no less than 50% of profits will be transferred to a general reserve for the continuation and development of the co-operative, and for making making payments for social or charitable purposes;

The constraints on, the first 50% of profits are essentially the same as in the Co-operativesUK Community Finance Model Rules, specifically rule 65. Application of Surplus, rule 65 (b) provides for funds to be provided for "the continuation and development of the Society" and rule 65 (c) provides for funds to be provided for "making payments for social and charitable purposes.".

There is a great deal of flexibility about how user-members dividends can be paid under The Somerset Rules, for example there could be:

1. Dividends for consumers - a dividend paid on the basis of the quantity of food purchased.
2. Dividends for producers - a dividend paid on the basis of the numbers of hours worked.
3. Dividends for volunteers - a dividend paid on the basis of the numbers of hours of voluntary work undertaken.

None of these options would be available to the Co-op if it was a ISP BenCom incorporated using the Co-operativesUK Community Finance Model Rules. In addition there appears to be no disavantage in not being a BenCom — the Co-op would still be an IPS and it would probably still be a considered a social enterprise, Business Link explains:

BenComs are not to be confused with another form of IPS - co-operatives. Co-operatives operate for the mutual benefit of their members and may or may not be a social enterprise, depending on their activities and how they distribute their profits. Co-operatives cannot be established as charities.

And Business Link explains what a social enterprise is:

A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

The fact that the Co-op could be not be a charity is not an issue since nobody has suggested that it would be advantageous to be one — in fact several reasons why it's better not to be one have been put forward. Business Link puts it like this:

Social enterprises also need to consider whether or not to set themselves up as a charity, which has a number of benefits, including significant tax reliefs, but comes with increased regulation and less flexibility.

If the Somerset Rules CSA were adopted by Hazelhurst CSA then the organisation would be a Industrial and Provident Society Co-operative with the ability to distribute up to 50% of any profit back to the members, dividends of this nature would not be able to be paid if the Co-operativesUK Community Finance Model Rules were used, it could also still qualify as a social enterprise.

Rules

There are no specific references to users dividends in the Somerset Rules CSA — questions and answers that arose from the lack of references have been documented on the Somerset Rules Questions page.

Multi-Stakeholder Structure

The Somerset Rules CSA make provision for the employees to have a 50% say in the governance of the Co-op as soon as there are 3 or more employees, this is to ensure that those doing the bulk of the work of growing and distributing the food have an equal say, in the running of the organisation — their vote is balanced with the consumers of the produce.

The reason for this structure has been explained by Somerset Co-operative Services CIC:

This solves a problem that has increasingly arisen in recent years: should, for example, a community supported agriculture scheme be a co-op of producers or consumers?

The intention is to ensure that:

Different stakeholder groups can have a balanced voice in the business.

If your enterprise serves more than one distinct group of beneficiaries (for example, producers and consumers) you can ensure that neither group can dominate – even when the number of members from each group is very different.

This formal provision for significant amount of autonomy for the growers to make decisions is an aspect of these rules for which there is no comparison in the Co-operativesUK Community Finance Model Rules. If the Co-operativesUK Community Finance Model Rules rules were adopted the CSA would simply be a consumer Co-op with employees (though of course the employees could also be members) rather than an organisation where the interests of the consumers and producers are balanced. Adding provisions for a multi-stakeholder structure to the Co-operativesUK Community Finance Model Rules via rule amendments might not be feasible.

Rules

The rules which make reference to the multiple stakeholder structure and the different classes of membership follow. Note that user membership classes, 1 and 2 are for producers and consumers and the non-user membership class, 3, is for investors (of course user members can also be investors).

Also note that concern was raised during the rules discussion regarding the lack for a say in the organisation for investors, this issues is addressed in a proposed amemdment.

Stakeholder groups

1.5 (a)

"The membership of the co-operative will be made up of persons drawn from one or more categories of stakeholder, corresponding to the different type of involvement those stakeholders have with the co-operative."

1.5 (b)

"User members, who are the main beneficiaries of the co-operatives services and have only limited access to profits, play the principal role in the direction of the co-operative. Non-user members are subject to limits on their powers."

1.5 (e)

"Each class has a unique number, and where a person would be eligible to join in more than one class, membership will be allocated to the lowest numbered class that they are eligible for, unless the committee specifically permits otherwise."

1.5. (f)

"The user membership classes are as follows: Food producers supplying or intending to supply the co-operative: 1. Persons buying produce or intending to buy produce from the co-operative: 2 "

1.5 (g)

"The non-user membership classes are as follows: Investors 3 "

General meetings

2.7 (c) (iii)

At general meetings resolutions to "convert the society (on which only user members may vote); require three quarters of the vote to pass"

2.7 (d)

This rule specifies that user-members, in class 1 and 2, have 50% of the votes each and "Non-user members shall have no voting rights in general meetings."

2.7 (e)

This rule allows two methods for membership classes to cast their votes at general meetings. 2.7 (e) (i) enables a class of members to convene a meeting prior to each general meeting of the co-operative to agree "how to cast their block vote on each resolution to be decided." 2.7 (e) (ii) specifies the default practice, individual voting with "with the strength of each vote reduced proportionately if there would otherwise be more votes cast by that class than the limits in 2.7 (d) permit"

4.2

"Non-user members may not vote on any proposal to convert the co-operative to a company."

The Committee

4.5 (a)

Specifies that user members should form at least 75% of the Committee.

2.6 (b) (iv)

General meetings will be convened by the committee "in the event of the number of elected committee members falling below three, or in the event that more than one quarter of the committee members are not user members"

Shares

1.5 (c)

"Each class of share will be available to particular stakeholders and may have distinct rights and powers. The co-operative will convene a consultative meeting of the members in a class if requested to do so by five or more of those members; such a meeting shall have no decision making powers."

1.6 (b)

"The minimum shareholding for membership in each class will be specified from time to time by the committee, and will not exceed 50 for user members."

1.5 (d)

"A person or organisation that has membership under more than one class will be requested to withdraw, cancel or transfer shares such that they have membership in one class only. If after three months this has not been done, the secretary may cancel the minimum number of shares necessary in order to ensure compliance."

1.7 (b)

Here the Investor class 3 has been inserted, "Shares held by non-user members in classes numbered 3 are transferable. Transfers will be registered on receipt of a completed deed of transfer, provided that the transferee is eligible for membership in that class. The committee may refuse to register the transfer of a share to a person of whom they do not approve."

1.7 (d)

"Shares may be converted between classes on request at the discretion of the committee, provided that the holder of shares is eligible for membership of the class to which they are transferring."

Cooperative Principles

Having the 'Seven Cooperative Principles' principles written into the rules should help ensure that they are at the core of functioning of the organisation — the Somerset Rules CSA are structured in seven sections to correspond to these internationally adopted core principles and values.

The Seven Cooperative Principles are:

1. Voluntary and Open Membership
2. Democratic Member Control
3. Members' Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Co-operation among Co-operatives
7. Concern for Community

Somerset Co-operative Services CIC have explained the reasons they had for structuring the rules in this manner:

The rules are unusually structured – in seven sections corresponding to the international co-operative principles. We believe this makes it clearer how the rules entrench the principles. It also goes some way to ensuring that all the principles are followed – in the past, lack of clear guidance from the rules has led to the principles of independence, co-operation between co-operatives, education and sustainable development being neglected.

These principles are not included or referenced by the Co-operativesUK Community Finance Model Rules and although they could possibly be added as an amendment it's hard to see how they could be embedded in the same way without a significant re-writing of the rules.

Rules

The seven principals are explicitly referred to in the seven 'general aims' sections of the rules:

1.4 Open and voluntary membership of the co-operative

"The co-operative has the aim of building membership within its stakeholder groups, and ensuring that its membership fully reflects the diversity of those groups and of the wider community."

2.1 Democracy

"The co-operative has a general aim of consulting with, empowering and serving its membership."

3.1 Application of Profits

"The co-operative has the general aims of creating common wealth, building an indivisible reserve and providing a return on investment no more than is necessary to attract and retain the capital it requires."

4.1 Autonomy and independence

"The co-operative has the general aims of maintaining its autonomy and independence and empowering members and other stakeholders at the most local level possible."

5.1 Education

"The co-operative has a general aim of educating its members and the public in the principles of co-operation."

6.1 The wider co-operative movement

"The co-operative has the general aim of supporting the development and growth of the co-operative movement."

7.1 Sustainable development

"The co-operative has the general aim of evaluating its impact on the community and the environment in which it operates, and developing policies that reduce harmful impacts and increase positive impacts."

Social Accounting

Using the Somerset Rules CSA would result in a requirement for the Hazelhurst CSA to produce an annual account of it's social and environmental impact, in addition to it's financial accounts, which would be shared with users, investors and the community as a whole. This is a important provision to help ensure that the project remains true to it's stated aims and purpose.

The New Economics Foundation has described social auditing, another term for social accounting, in the following way:

Social auditing is the process whereby an organisation can account for its social performance, report on and improve that performance. It assesses the social impact and ethical behaviour of an organisation in relation to its aims and those of its stakeholders.

The Wikipedia page on social accounting starts with:

Social accounting... is the process of communicating the social and environmental effects of organisations' economic actions to particular interest groups within society and to society at large.

A PDF on cooperatives-uk.coop contains some relevant information and illustrates that we should be able to get help with producing social accounts:

Co-operative and community businesses across Scotland are being introduced to 'social accounting' to measure their wider impact on society.

The process helps businesses evaluate their 'triple bottom line' of economic, social and environmental impact, while demonstrating good business practice.

...

Sarah Deas, CDS Chief Executive, said: "Co-operative and co-owned businesses are seeking new ways to demonstrate their wider impact on society. Social accounting is an effective means to assess and communicate such benefits to customers and other stakeholders."

The Social Audit Network (SAN) helps companies throughout the UK prepare social accounts and have them independently audited. Alan Kay, one of the registered and SAN approved Social Auditors who worked with the six Scottish companies, explained: "There is significant evidence to suggest that social accounting and audit has helped organisations win contracts and investment by demonstrating their wider benefits to communities and the environment."

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James Kelly MSP, Co-Convener of the Scottish Parliament's Cross Party Group on Co-operatives... said: "Clearly organisations that can demonstrate their wider social impact beyond financial performance will gain a competitive edge and, with co-operatives, social enterprises and voluntary organisations thriving in Scotland, that has to be good for our economy as a whole."

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The social accounting and audit (SAA) framework involves three steps for an enterprise.

The first step is about organisations clarifying their mission, objectives and related activities, and the values and principles that under-pin all their actions, as well as identifying their key stakeholders.

The second step involves identifying the quantitative and qualitative indicators that allow the enterprise to report effectively on its performance and impact against its stated mission, objectives and values and establishing appropriate systems to collect data and consult with its key stakeholders.

The third step is about bringing all the collected information together into social accounts that are then verified by an independent panel which, once satisfied, issues a social audit statement.

Most enterprises keep social accounts for a period which usually runs concurrent with their financial year.

For more information see The Social Audit Network website.

Somerset Co-operative Services CIC explain the benefits of having social auditing built into the rules in the following manner:

In part 7 (Sustainable development), the rules require the co-operative to prepare social accounts alongside their financial accounts. The social accounts measure progress against a mission statement, and the seven co-op principles. They can be simple and lightweight, and reviewed by a panel of members, if the co-op wishes to keep the burden minimal. Or, they can be more detailed, and reviewed by a qualified social auditor.

Social accounting is not everyone's cup of tea; some would argue that co-op's members are capable of judging whether their co-op's performance is satisfactory without further study. However, we think this is an important inclusion because:

• founder members may wish to ensure that future members stick to the original mission
• social impacts are not always obvious; without social accounting, you may assume that your community is benefiting when in fact it is not
• in larger co-ops, the membership may not be able to fully assess the performance of the board without this information
• it proves social benefits to funders, investors and partners
• it helps co-operatives to justify a claim to be a social enterprise

The Co-operativesUK Community Finance Model Rules make no provision for social auditing and although if the Co-op did use those rules it could still produce social accounts there wouldn't be the same requirement that they should be produced without making an amendment to the rules.

Rules

The Somerset Rules CSA provide for the production of annual social accounts in rule 7.2 and for a social accounting panel in rule 7.3:

7.2 Social accounts

1. The committee is responsible for preparing annual social accounts. These will consist of quantitative and qualitative data relating to the agreed indicators of achievement. They should cover, and clearly distinguish between, outputs (what the co-operative has done), outcomes (what the direct effects of this have been) and impacts (what indirect changes can be reasonably attributed to the co-operative's activities in this and previous years).
2. The indicators used should clearly correspond to the aims and objects in these rules, and should allow where possible for comparison with other accounting periods.

7.3 Social accounting panel

1. At least one month before being presented to the annual general meeting, the social accounts will be verified by a social accounting panel which will consider
1. to what extent the accounts are comprehensive
2. whether the information gathered is reliable and reasonably interpreted
3. whether the indicators used should be changed in order to better correspond to the aims and objects of the co-operative
4. whether the aims and objects of the co-operative remain relevant or require modification
2. The panel should be chaired by an independent, qualified social auditor, unless a general meeting allows for the current or following year's social audit panel to be
   1. chaired by a lay social auditor, or
   2. chaired by a member of the co-operative, in which case the chair of the panel may not be a committee member, unless more than half the members of the co-operative are committee members.
3. The panel will be made up of members of the co-operative nominated by the Commonwealth Council. If the membership of the co-operative is more than 20, there will be at least three members of the panel in addition to the chair.

Consensus Decision Making

From the very start of the project the Hazelhurst CSA has been making decisions based on consensus and the Somerset Rules CSA enshrine consensus decision making by allowing "for the taking of a vote to be deferred to allow for the development of consensus" at general meetings.

The provision in the Somerset Rules CSA for allows for general meetings to determine the exact form of consensus decision making that is to be used and for this to be specified in the standing orders and for these standing orders to be refined in subsequent meetings without the need to submit a rule change to the FSA.

The Somerset Rules CSA don't specify the form of decision making to be undertaken by the Committee or the Commonwealth Council, thereby allowing flexibility and for the adoption for a consensus model.

It has been proposed that the [Somerset Rules CSA]] could further be strengthened in regard to a commitment to consensus decision making via an amendment to the democracy general aim.

The Co-operativesUK Community Finance Model Rules make no provision for consensus decision making — they are designed around majority voting and specify stipulate things like: "Questions arising at Board meetings shall be decided by a majority of votes of those present."

The Co-operativesUK Community Finance Model Rules could probably be amended to make provision for consensus decision making, though this would probably require several amendments.

Rules

The Somerset Rules CSA make provision for consensus decision making via Clause 2.3 which says:

2.3

"The business of the general meeting and committee is governed by such standing orders as may be adopted by a general meeting; these will remain in force until they are amended or repealed by a general meeting. Such standing orders may not contradict these rules but may allow for the taking of a vote (other than a vote on procedure) to be deferred to allow for the development of consensus."

Standing Orders

The Somerset Rules CSA has references to specific standing orders, this is an advantage because it makes it clear where the detail of the agreed procedures are to be found and what things they may cover.

The provision for additional detailed governance guidelines to be adopted, in the form of standing orders, has been explained in this manner by Somerset Co-operative Services CIC:

Unlike other rules, we refer explicitly to the documents and procedures that fill in the details that rules don't and can't cover. Whether it is the method for nominating candidates, consensus decision making in meetings, the rules governing proxy votes or the requirements for membership, co-ops have always had 'secondary rules' or 'policies' that, while being consistent with the registered rules, provided additional guidance. These standing orders are a valuable record of conventions and good practice within the co-op, and it is helpful to be able to amend and update them without the bureaucracy of changing the registered rules. We recognise them and include them in the co-operative's governance.

The Co-operativesUK Community Finance Model Rules have provision for regulations and secondary-rules, these are essentially other names for standing orders. But the only time these regulations are referred to elsewhere in the Co-operativesUK Community Finance Model Rules is in is in regard to any Committee subcommittes which shall: "in the exercise of its powers conform with any regulations imposed upon it by the Board". However additional references to specific secondary-rules and regulations could be added to the Co-operativesUK Community Finance Model Rules via a number of amendments.

Rules

The standing orders the rules refer to are:

General Meeting Standing Orders

2.3 The business of the general meeting and consensus

The business of the general meeting and committee is governed by such standing orders as may be adopted by a general meeting; these will remain in force until they are amended or repealed by a general meeting. Such standing orders may not contradict these rules but may allow for the taking of a vote (other than a vote on procedure) to be deferred to allow for the development of consensus.

4.4 Proxy voting

Proxy voting at general meetings will be permitted on special resolutions and on other resolutions that have been given in full with the notice for the general meeting, provided that it is in accordance with standing orders for general meetings.

2.8.d Committee elections

Elections to the Committee, "All members have the right to stand as candidates, and to nominate candidates that are willing to stand. Resolutions to elect each candidate nominated in accordance with standing orders to the committee will be voted on in turn until there are no vacancies remaining. Candidates will be voted on in order of number of nominations received, or otherwise as specified in standing orders."

Committee Standing Orders

2.8.f Officers and subcommittees

"The committee may also appoint other officers in addition to the Secretary and Treasurer, and form subcommittees, as it sees fit, and in accordance with any standing orders."

Commonwealth Council standing orders

6.7.c Size and procedures

The size and procedures of the Commonwealth Council will be determined by its standing orders, which will be prepared by the committee but may then be amended by the general meetings.

6.7.e Membership applications

Applications for membership of the Commonwealth Council will be considered "according to the standing orders in force".

6.7.f Dispute resolution

In the case of a dispute the disputants may request arbitration from the Commonwealth Council and in this case it will "provide a ruling in accordance with its standing orders".

Key Decisions

The Somerset Rules CSA have an important democratic safeguard for important decisions via a list of special 'key decisions' which have associated provisions to ensure members have a can have a say in these crucial decisions.

If the Committee wants to make a key decision, for example cutting pay or making redundancies, without agreement from a general meeting then it must either refer the matter to the Commonwealth Council, if one has been convened, or if not the Committee must alert the membership about this key decision and allow enough time for a general meeting to be called by the members to consider it.

The reason for this safeguard has been explained:

As a co-op grows larger, its members can feel distanced from decision making, and want assurance that they are being consulted on decisions that affect the future of the co-operative. For this reason, certain decisions are identified as being 'key decisions' – they must be taken in consultation with the Commonwealth Council, if it has been convened, and the membership, who must have the opportunity to have their say at a general meeting if they so choose. These provisions give the Commonwealth Council the power to provide real oversight of the committee, and the membership (including investors) a guarantee that decisions with far reaching consequences won't be taken behind their backs.

There is no comparable list of key decisions in the Co-operativesUK Community Finance Model Rules, though a list of key decisions could possibly be added to them via an amendment.

Rules

The key decisions are specified in rule 4.7:

4.7. Key decisions

1. The committee, on behalf of the co-operative, may make any contract, and carry on any activity, that is within the law and in the opinion of the committee, may benefit the co-operative's objects, including the contracting of loans and debt securities and the investment of funds. However, the following issues are designated 'key decisions':
1. The sale, transfer or disposal of assets worth in excess of £250,000 in a single transaction.
2. The adoption of budgets and business plans covering a period of 12 months or more (except that the committee members may proceed to implement a budget or business plan if, in their opinion, prolonged consultation could be damaging to the business).
3. the purchase of more than 20% of the shares in another business
4. a mortgage or charge on its property with a value in excess of £100,000
5. issuing loanstock, debentures or other securities with a value of more than £50,000
6. setting up subsidiary companies, societies and other organisations
7. setting dividend and interest rates, borrowing in excess of £250,000, or at rates exceeding 2% above the lending rate of the co-operative's bankers.
8. setting the proportion of profits to retain in the co-operative
9. significantly altering the terms and conditions of employees, or making compulsory redundancies
10. A substantial alteration of policies on membership applications, co-operative dividends, pay, social investments, health and safety, equal opportunities and corporate social responsibility.

The Commonwealth Council

The Somerset Rules CSA make provision for a Commonwealth Council for oversight of the decisions of the Co-op to ensure justice and accountability.

The justification for this council has been explained in this manner:

It has been a concern for some time that co-operatives do not provide a way for other stakeholder groups – including local residents, former members, local authorities, suppliers, other local co-ops, ordinary members and employees – a way to have a voice in the big decisions. A Council that represented a wide range of interests in this way would not have democratic legitimacy, but it would be a pool of wisdom and experience, and a useful source of oversight that could ask the committee to reconsider controversial choices. Its role would be similar to that of the House of Lords in our Parliamentary system – having influence, but not actual power.

This Council is more necessary for better established co-operatives, and so it exists in the Somerset rules as a provision that is only activated once the committee, or a significant body of members, deem it necesssary.

The provisions for a oversight body of this nature are not present in the Co-operativesUK Community Finance Model Rules although one could probably be added to those rules via amendments.

Rules

The specific rules referring to the Commonwealth Council are:

2.2

"The sovereign body of the co-operative is the general meeting, which will appoint a committee to manage the co-operative, and may convene a Commonwealth Council to provide oversight."

6.7 (a)

"The Commonwealth Council may be convened by the committee, or by a resolution at a general meeting that secures one third of the vote. Until such time as it is convened in this way, its functions are carried out by the committee." It's worth noting here that it only requires a third of the vote, this is because, "sometimes the co-operative needs a prompt from a small group of concerned members".

6.7 (c)

"The size and procedures of the Commonwealth Council will be determined by its standing orders, which will be prepared by the committee but may then be amended by the general meetings."

6.7 (d)

There are 6 groups of people from which the members of the Commonwealth Council should be drawn.

6.7 (e) (ii)

None of the 6 groups from which membership of the Commonwealth Council should be drawn should have a majority of votes on the council.

6.7 (e)

The application membership of the Commonwealth Council will be considered by the Commonwealth Council if it's been convened subject to the standing orders in force, if it hasn't the Committee or general meeting agrees the initial membership.

6.7 (e) (i)

"The process of selection for membership of the Commonwealth Council should be fair, transparent, and non-discriminatory"

5.3 (b) (i)

Agendas and minutes of Commonwealth Council meetings will be recorded, retained and made available at no charge to members.

6.7 (b)

"The Commonwealth Council will be free to consider any matter affecting the co-operative, and may challenge or express a view to the committee members on any matter, and may summon any employee or officer of the co-operative to attend their meetings and answer questions relating to the business of the co-operative."

2.6 (b) (ii)

The Commonwealth Council may request the Committee convene a general meeting.

4.7 (b) (i)

Key decisions must be brought to Commonwealth Council's attention "no less than two weeks before they come into effect; and if a majority of the Commonwealth Council request further consultation, the proposal may not be enacted until the committee and the Commonwealth Council both have a majority in favour". If the Commonwealth Council hasn't been convened then the key decisions are referred to the general meeting as opposed to the Committee.

4.5 (c) (ii)

The Commonwealth Council can rule of matters of conflicts of interests that Committee members might have. This is a more flexible arrangement which should make better allowance for a fair hearing than provided for via rule 37 of the Co-operativesUK Community Finance Model Rules.

6.7 (f)

Dispute resolution, "In the event of any dispute between members of the co-operative, a sub-committee of the Commonwealth Council may be formed and may require the disputants to make reasonable efforts to attend. If the disputants request arbitration from the Commonwealth Council , it will provide a ruling in accordance with its standing orders."

7.3 (c)

The social accounting panel "will be made up of members of the co-operative nominated by the Commonwealth Council".

1.8 (b) (v)

An expelled member may appeal to the Commonwealth Council.

The Co-operative Movement

The Somerset Rules CSA contain co-operation requirements regarding allowing for the fair consideration of goods and services offered by other co-operatives when making business decisions and through the stipulation that one member of the Co-op should be responsible for "relations with the wider co-operative movement".

It has been explained that these rules are for the purpose of:

Safeguarding the co-op against certain forms of poor practice, such as abuse of market position, neglect of other co-ops in purchasing and investment decisions, and failing to educate members in co-operative principles and practice.

This is an important safeguard and according to the Sheffield Co-operative Development Group there are local co-op's working in relevant areas:

A great variety of products and services is provided by South Yorkshire co-operatives including:-

• Accountancy and Book-keeping
• Computing Services
• Conservation work and management
• Contract cleaning and property maintenance
• Nursery Day Care
• Occupational Health Care
• Printers and Typesetters
• Wholefood Suppliers
• Woodworkers

The Co-operativesUK Community Finance Model Rules have no co-operation between co-operatives safeguards, although such safeguards could probably be added in via rule amendments.

Rules

The specific rules related to co-operation with other organisations are:

6.1

"The co-operative has the general aim of supporting the development and growth of the co-operative movement. "

6.2

"In preparing contracts for the purchase of goods and services larger than £1,000, the committee should ensure that other co-operative enterprises are given a reasonable opportunity to bid alongside other potential suppliers."

6.3

"If the liquid assets and investments of the co-operative exceed £10,000, the committee will prepare a policy on social investment, which includes a process for identifying and considering investment in other co-operatives, and ethical criteria for all investments relevant to the objects of the co-operative."

6.5

"A designated person should have overall responsibility for relations with the wider co-operative movement, and should maintain contacts with national and regional co-operative organisations."

6.6

"No agreement will be entered into with any enterprise, co-operative or otherwise, that would have the effect of exploiting a monopoly or other dominant market position to the detriment of members, customers or suppliers."

Suggested Amendments for Hazelhurst CSA

Following are some draft amendments to the Somerset Rules CSA which were proposed to be discussed at the Committee meeting on 6th January 2010, a PDF version of these amendments was sent to the list by Chris on 4th January 2010.

1.1. The name of the co-operative

Rule 1.1 contains the name of the organisation.

The following name was originally suggested by Chris in an email and it was provisionally agreed on 3rd December 2009:

Insert:

Hazelhurst Community Supported Agriculture Co-operative Limited

1.7. Withdrawal and transfer of shares

Does rule 1.7.b require "3" inserting for the non-user member class of shares?

2.1. The co-operative has a general aim

Rule 2.1 is in the democracy section of the rules.

The concern with the democracy aim is that it doesn't mention Consensus Decision Making. The following amendment was suggested to Alex and he commented on it:

You could certainly adopt that modified aim. The result of doing so is that when annual social accounts were being prepared, the co-op would need to report to its members on how effective its consensus building was proving to be, in terms of decisiveness, strength of consensus, breadth of participation, etc. Adding those words to the aims would not oblige the committee or council to behave differently with respect to consensus - just report on whether they were doing so. If you wish to enforce consensus decision making, I would suggest holding a general meeting soon after registration at which appropriate standing orders can be adopted; these would then apply to all subsequent meetings

See also the notes on the consensus decision making discussion.

Add to the end of 2.1: "though the use of consensus based decision making."

So the revised rule would read:

2.1. The co-operative has a general aim of consulting with, empowering and serving its membership though the use of consensus based decision making.

6.7. The Commonweath Council

Rule 6.7 provides for a Commonweath Council.

The Commonweath Council is a body designed to have oversight of the co-op and to be the body to which issues which can't be solved and / or disputes are refered and the idea is that it draws from the wider movement and community. Since the co-op has come out of the Transition Towns movement it would be appropriate for this movement to play a role in this council.

Add a new point 6.7 d) vii.:

6.7 d) vii. Transition Sheffield initiatives;

1.3. The objects of the co-operative

Rule 1.3 covers the objects of the co-operative, the following proposal is based on one from Heather and it was proposed by Chris on 30th November 2009:

Delete the existing 1.3 and insert a new point 1.3:

1.3 The objects of the co-operative shall be community supported agriculture which aims to grow and distribute organic, healthy, affordable food for the benefit of the community using ecological and co-operative principles and renewable energy and through this contribute to a more resilient and inclusive food system for Sheffield and the surrounding area and achieve the aims described in 1.4, 2.1, 3.1, 4.1, 5.1, 6.1 and 7.1 below.

5.1. The co-operative has a general aim

Rule 5.1 covers the general educational aims of the co-op.

The concern here is that the motivations to start this project, the need for more local food not dependent on fossil fuels in response to the peak oil and climate crisis is not specifically referenced in the model rules.

Insert at the end of point 5.1: ", horticulture, permaculture, sustainable living and resilience in response to the unfolding crisis of resource depletion and climate disruption."

So the revised rule would read:

5.1. The co-operative has a general aim of educating its members and the public in the principles of co-operation, horticulture, permaculture, sustainable living and resilience in response to the unfolding crisis of resource depletion and climate disruption.

2.7. Resolutions at general meetings

Is this rule change necessary? Unicorn Grocery, a worker co-operative wholefood store in South Manchester, raised £350,000 and then another £200,000 via a loanstock share issue, they use the 'White Rules', a summury of which are available from cooperatives-uk.coop — these rules have no provision for the people buying loanstock shares to have a vote in the running of the workers co-op, this shows that it is possible to raise funds without the consumers/producers giving up some control of the co-op:

Unicorn has a flat hierarchy and is owned and run by the workers. So, whereas a community share issue puts the investors in charge, with a loan stock scheme the investors are just loaning the co-operative money, so the co-operative’s members retain control.

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Section 2.7. Resolutions at general meetings covers the allocation of votes for the different classes of membership, 50% for food producers, 50% for persons buying produce and none for investors.

The intention of this rule change is to give the investor class of members a say, 10%, in the affairs of the Co-op — some committee members were concerned that investors who are non-user members would be put off from investing if they didn't have a say in the decision making process of the organisation.

Amend 2.7.d by deleting:

Non-user members shall have no voting rights in general meetings.

And changing the table containing the distribution of the votes to read:

class number %	voting strength (totalling 100%)
1	45%
2	45%
3	10%

However as Alex has pointed out, that major decisions (such as those that might damage the value of non-user members' investments) require a 75% vote to pass - 10% voting rights would not be adequate to veto them, so for 10% to carry more weight and for the asset lock to be strengthened the 75% could be changed to 90%, something which has also been discussed with Alex (reference to 2.7.c.ii should have read 2.7.c.iii in these emails).

The key asset that the Co-op will own is the land, this should probably be included in 2.7.c.iiii by adding "sell land" after amend the rules.

Amend 2.7.c.iiii by deleting "three quarters" and replace it by "90%", so the amended rule reads:

2.7.c.iii. resolutions to change the conditions attached to shares; amend the rules; sell land; give the committee the power to allot transferable shares (which must specify a period of time after which it will lapse, and limits to the number of shares that may be allotted); or to wind up, dissolve or convert the society (on which only user members may vote); require 90% of the vote to pass.

Equivalents

The idea here is to document aspects of the Somerset Rules CSA and the Co-operativesUK Community Finance Model Rules which are broadly equivalent, however so far there isn't much here except some headings...

Membership Responsibilities

The Somerset Rules regarding membership application make provision for the option that prospective members can be assessed on their willingness "to take on the responsibilities of membership that have been agreed by the committee". Furthermore prospective members can, optionally be required to complete an "application procedure that may have been agreed by the committee, which may include a reasonable probationary period". The provision in the Co-operativesUK Community Finance Model Rules provides that applications for membership "shall be in such form as the Board may from time to time direct".

Register of Members

The Somerset Rules 1.10 and the Co-operatives^UK Community Finance Model Rules 7. are identically worded in parts, the three differences are:

1. Rule 7. of the Community Finance Model Rules stipulates that "Secretary shall enter the following particulars" into the register of members, The Somerset Rules do not stipulate who should maintain the register of members.
2. Rule 7 (a) of the Community Finance Model Rules includes the "email address if applicable" in addition to the name and address of members.
3. The Somerset Rules 1.10 provides a privacy clause, "The information in (b) and (c) above will not be available for general viewing by members or by non-members", (b) is "the number and class of shares held by each member" and (c) is "a statement of other property, whether in loans or otherwise, held by each member".

Committee

Board of Directors / Committee of Management

Standing Orders

Refered to as Co-operativesUK_Community_Finance_Model_Rules#68._Regulations