Chapter 3
The barriers to growth, innovation and competition
3.1
There were a number of issues raised by submitters and witnesses
throughout the inquiry. The majority of the issues raised were by relatively
large
co-operatives, or national mutual organisations and the concerns generally
reflected the interests of organisations of that scale.
3.2
The issues raised by submitters relate to the perceived barriers the
sector believes are preventing co-operatives and mutuals from forming and
realising their full potential.
3.3
This chapter discusses the following barriers in turn: the lack of
recognition of co-operatives and mutuals and their contribution to the economy;
a lack of information and advice for new and existing co-operatives; concerns
around the requirements of establishing a co-operative; and finally, issues
unique to Indigenous co-operatives.
Recognition of the contribution and potential of co-operatives and mutuals
3.4
Despite the huge numbers of people that belong to a co-operative or a
mutual in Australia, submitters argued that there is still limited awareness
and recognition of the sector, and the benefits it can bring. According to
submitters, co-operatives and mutual enterprises (CMEs) should be given equal footing
amongst other business structures, a competitively neutral environment created,
and recognition of this scale and the potential benefits of the sector needs to
be enhanced.
3.5
The Co-op Book Shop cited a lack of recognition as one of the broad
restricting factors that was inhibiting the growth of the sector:
That is the main restriction that we have. As far as the broader issues go, to help cooperatives flourish and grow in the future, it is about having the recognition of what
you are bringing to our industry
and shining a light on our industry.
That is one of the reasons that we formed the
Business Council of Co-operatives and Mutuals
[BCCM]. Eighty per cent of Australians belong
to one; they just do not
know it, in the main.[1]
3.6
The International Co-operative Alliance emphasised that globally
co-operatives were increasingly being recognised as being a key element in a
pluralistic and diverse economy that can contribute in a broader economic
sense, as well as delivering for communities and their members:
I think what we are seeing is a global recognition developing
about the cooperative difference and the need to ensure that countries have
more pluralistic and diversified national economies. There is clear evidence
that those who did rode through the financial crisis and the recession much
better than anyone else.[2]
3.7
The idea that the co-operative model can assist enterprises to be
globally competitive was supported by the example of a grain growers
co-operative in Western Australia who found that their co-operative model
allows them to remain competitive in a global market place by sharing costs and
continually re-investing in their supply chain process:
In WA our supply chain
is 90 per cent focused
on export, and our grain
growers are facing
international competition in supplying grain into our close
Asian markets, so we go to great lengths to keep our growers' supply
chain costs to a minimum and reinvest in storage, handling and infrastructure, as well as generating rebates for
our growers. So we think our cooperative business model is good for the Australian
economy and deserving
of recognition and support.[3]
3.8
The Australian Scholarship Group were of the view that despite the
contribution that co-operatives and mutuals provided to the economy, they
received little support relative to other business sectors:
Cooperatives and mutuals are a key and essential part of the
Australian economy, yet they are not accorded the recognition and support that can allow them to play an even bigger
role in societal development... there is little or no support
of the sector in comparison to the corporate
or other business sectors.[4]
3.9
Some submitters argued that the lack of inclusion in high level policy
discussions is illustrated by the lack of consideration of co-operatives as one
of the bodies that could develop in the modern economy. It was suggested that
the government's current legislation around crowd-sourced funding and equity[5]
was a policy area where co-operatives, many of which are social enterprises, should
have been key to the discussions:
We are seeking
recognition of that when
the government looks at things like changes
to the rules around crowd sourced equity funding. There is a really
important discussion taking place in Australia about innovation and adapting to the new world economy that is rising
up. That is a brilliant
conversation, but I fear that what is potentially missing out of that is the second half of the story, which is social enterprise
and social innovation.[6]
3.10
The Capricorn Society, the fifth largest CME in Australia with a
turnover of $1.33 billion, contended that government recognition is crucial in
developing the sector, and utilising the contribution it can have to the
economy:
Co-operatives are the product of addressing the needs of
members that market forces currently do not provide for or offer.
Government recognition and support of this core pillar within
the Australian economy and landscape through promotion, provision of a
developmental framework and an environment of growth are key for CMEs continued
and increased contribution to the economy.[7]
Recent Government Reviews that
recognised CMEs
3.11
BCCM acknowledged that recognition of the sector is increasing. They
cited a number of recent government reviews and high policy processes that have
recognised the contribution the sector can make. These included the Competition
Policy Review where the Review Panel noted the potential of CMEs to 'increase
diversity in public sector markets, increase consumer choice and control and
stimulate public service innovation.'[8]
3.12
The competitiveness of growers' or producers' cooperatives was
recognised by the Commonwealth Government in the 2015 Agricultural
Competitiveness White Paper. The Paper commits the Commonwealth Government to
offering training courses on 'cooperatives and other business structures to
help farmers to better engage through the supply chain and attract investment.'[9]
In strongly endorsing the advantages of the Co-operative model for farmers, the
government also realises that information about the sector needs to be
improved:
The benefit of a cooperative structure is it offers family
farmers the ability to retain their property ownership but delivers them the
scale to better influence what happens beyond the farm gate, and diversify
their income. Farmer-owned cooperatives can also add competition in the market
place if they add to the number of participants, and allow farmers to engage in
additional parts of the value chain where profitable to do so. The recent
success of some cooperatives has increased interest in them. But information on
how to form a cooperative and the pros and cons of doing so is not readily
available. The Government will provide information to help support better
decision making on alternative business structures.[10]
3.13
As a consequence of the Agricultural Competitiveness White Paper, the
government committed $13.8 million over two years from 2015-16 for:
...a pilot program to improve access for farmers to training
and information about co-operatives, collective bargaining and innovative
business models. Rural Research and Development Corporations will be funded to
develop and deliver the training packages and related materials.[11]
3.14
In terms of social policy the capacity for the co-operative and mutual
sector to deliver better social outcomes was also recognised by the McClure
Review who recommended that government 'Work with the Business Council of
Co-operatives and Mutuals to ensure an enabling regulatory, economic and social
environment to support mutuals and co-operatives'.[12]
3.15
However, despite these reviews recognising the valuable role of CMEs,
the recent summit in September 2015 of business, community groups and unions
called by Prime Minister Turnbull excluded representatives from the CME sector,
which BCCM argue represents a backwards step:
Recently, there were national economic reform summits held,
and the businesses that represent eight in 10 Australians were not at that
table, which would seem to be counterintuitive.[13]
Support to realise the potential of
the sector
3.16
While initial recognition was purported to be a barrier for
co-operatives, BCCM explained that even after recognition of the co-operative
model is achieved, the next step should be to follow that up with actions that
actively assist the sector. Dr Crane argued that the sector deserved not only recognition, but impetus and
stimulation equivalent to other sectors in the economy:
A government quite often will embrace the small business
sector because it is seen as part of how you energise an economy. It is moving
from, 'Okay, we recognise you,' through to, 'Actually, you're something we want
to stimulate,' and us being chased with offers of support, 'because the
government says this is part of a strong, diverse economy and we want to
support it.' So it is moving from recognition into actual proactivity...it is
then a sector to be driven and supported.[14]
3.17
The Mercury Centre also submitted that central to the development of
co-operatives was the recognition that the model should be included in the
definition of social enterprise and represent an ideal governance model for the
creation of sustainable businesses. Mercury proposed a number of areas where
assistance from government would help realise the potential of co-operatives as
social enterprises:
[R]ecognition that the cooperative models for governance of
social enterprise may offer greater incentives to sustainable business
community trading; an identified need for government assistance for cooperative
business services; in measurement, identified need for research on social and
economic impact of cooperatives and mutuals; community and public ownership;
acknowledgement of cooperatives as a governance model for community
participation in government investment and community shares; distributing
cooperative model provides a platform to build community investment through
community shares or non-transferable withdrawable share capital.[15]
3.18
The introduction and rollout of the National Disability Insurance Scheme
(NDIS) was cited as a prime opportunity to showcase CMEs as the type of
enterprises that have both a commercial and social element to provide customer
focussed and responsive services at community level. However to move into this
space, as well as other markets, research and data collection to inform decision
makers and promote the sector, are crucial steps:
In the context of the NDIS, there is great opportunity...The
submissions attest to the flexibility and innovation of co-ops in a whole range
of different market settings. At a policy level, I think people have been blind
to this. That is why data, research and making visible what these organisations are doing is so
important—not only to themselves but also to policy makers in the first
instance, and to advisers and others
who can shepherd and help them through this formation phase.[16]
3.19
Like the NDIS, the recent Trans-Pacific Partnership (TPP) trade
agreement offers prospects for grower/producer co-operatives to take advantage
of the increased opportunities that may become available under the TPP.
However according to the Norco dairy co-operative, Australia is not yet taking
full advantage of the model due to a lack of education and awareness:
The Free Trade Agreement with China has been a welcome
announcement by the Federal Government and will potentially allow Australian
processors to compete equally with other dairy exporting countries. However, it
seems that many of Australia’s trading partners know the value of cooperatives better
than Australia...[T]he sector is not well understood in Australia, resulting in
little or no educational content at secondary or tertiary levels. It is essential
that we educate our young people regarding the benefits and opportunities that
the co-operative, mutual and member-owned business model can achieve in
Australia.[17]
Benefits of the co-operative model
to the agricultural sector
3.20
The committee received evidence from a number of agribusinesses that
promoted the value of the co-operative model to their sector. Professor Cotter
made the general point that the disparate and fragmented nature of the sector
lent itself to collaborative business models:
Australia’s farming and agribusiness systems are fragmented,
with few agribusinesses having sufficient capacity to supply high value, high
growth export market opportunities on a year-round basis. Collaborative
business models are needed to achieve sufficient scale, implement quality
assurance processes and co-ordinate activities including product development,
marketing and distribution.[18]
3.21
The 'supply and purchasing co-operative' as described by Professor
Altman, Dean of Newcastle Business School, is a model which is of particular
assistance to small farmers who can replicate the benefits afforded to larger
producers by combining their purchasing power:
This type of cooperative is quite important in agriculture
where farmers establish a cooperative to obtain goods and services required for
their business or for personal use at lower prices than would be possible if
they go it alone. Thus farmers can take advantage of economies of scale and
scope that are afforded to larger corporate farms.[19]
3.22
Professor Altman also explained the features of a 'marketing
co-operative', which is similarly utilised by smaller agribusinesses:
This type of cooperative aligns the interests of producers with
regards to marketing output to retailers or wholesalers. A marketing
cooperative can also store, process, and package output prior sale. This allows
farmers, for example, to take advantage of economies of scale and scope in
storage and production, increasing their net income over what it might
otherwise be. It also serves to increase the bargaining and marketing power of
farmers. In addition, a marketing cooperative can help stabilize farmers’
income through its inventory capacity, providing farmers with a relatively
stable income as marketing prices fluctuate. [20]
3.23
Co-operative Bulk Handling in Western Australia provided the committee
with an example of the co-operative model in action, citing its grain export
supply chain:
CBH’s integrated business model (storage, handling,
transportation, marketing and port operations) seeks to ensure grain growers
have greater influence and control throughout each element of the chain, as
well as providing the vital interface between growers and their customers.[21]
3.24
Kingfisher Law also emphasised the suitability of the supply and
purchasing cooperative model with agribusiness, particularly the irrigation and
dairy industries:
Importantly, in agriculture or other industries with assets
such as land, the active membership requirement promotes a community of
interest, centring on an activity or type of business, typically within a
region or locality, which is practised in similar form as between members.
Dairy and irrigation farming are two simple and accurate examples of farming
activity well-served by the co-operative model. A dairy farmer, for example
must own land within a defined region and must carry on dairy farming at the
location, in order to remain an active member. This reduces the risk associated
with speculation, takeovers and asset-stripping and the emergence of
oligopolies and monopolisation.[22]
Committee view
3.25
The committee notes the sector's potential contribution to the economy
while still delivering for the community and continuing to provide its
traditional sense of ownership for its membership. Nevertheless, the committee
heard a consistent message from contributors that a cultural change is required
in the financial trading and regulatory sectors in order to take full advantage
of the co-operative model.
3.26
Globally the co-operative model is being utilised to tackle many of the
issues facing the international community, from poverty to climate change. It
is a model which is highly flexible and adaptable to local conditions and
circumstances. The same is true in Australia. Sectors such as community health
care or regional agriculture, where the mainstream market may not be able to
service a community or provide the economy of scale required to compete
nationally and internationally, are well suited to the model whereby community
investment drives social enterprise to create sustainable business models.
3.27
The committee is also of the view that the sector should be included and
supported to take full advantage of significant economic changes like the NDIS
and the TPP. That said, the committee notes the aspirations of many
co-operatives to develop and grow and this is always an admirable endeavour.
However, the committee is cognisant that these developments offer an
opportunity for communities to be at the centre of developments which affect
them, which is the primary benefit of the co-operative model.
Recommendation 2
3.28
The committee recommends that co-operative and mutuals sector be
better represented in government policy discussions, and is actively promoted
as a possible option for service delivery particularly where community based
initiatives are being considered.
Recommendation 3
3.29
The committee recommends the Commonwealth Government work with
states and territories to develop a program of supports to encourage the
establishment of new co-operatives and mutual enterprises.
Recognition of mutuals
3.30
The recognition of mutuals is a different case than that for
co-operatives. Whereas many co-operatives are smaller organisations that may
require assistance from various levels of government in their establishment and
governance; mutuals in Australia tend to be larger established enterprises that
are looking for opportunities to expand and to ensure a level competitive
playing field between themselves and traditional commercial companies.
3.31
A number of organisations made the point mutuals are ideally placed to
complement government priorities as they both have interests and obligations
beyond the economy. Australian Unity, a large mutual organisation urged the
government to take advantage of what the sector has to offer both government
and the broader community:
[M]y sense is that organisations such as ours can enter very
useful dialogues with governments state and federal, because we have a more
coincident set of interests...Our interests are aligned with communities,
variously defined—communities of members. Often there is a coincidence of
interests between government policy interests and the interests of our
community. So I think there is an opportunity for natural alignment.[23]
3.32
Regis Mutual Management emphasised that the mutual model is well suited
to address areas of potential market failure. They suggest that in those
circumstances, when state assistance is requested or required, the mutual model
should be promoted by government to facilitate communities working together to
address those failings:
When markets fail, those affected often turn to State and
Federal Governments for help. Governments can play an effective role in
encouraging a sector or group of people to explore the mutual model as a means
of overcoming a market failure. In other words, Governments can provide advice
and support to affected groups so that they can help themselves...Government can
assist by adopting policies that provide greater recognition and support to the
roles of mutuals in society and the economy.[24]
Defining the mutual corporate form
3.33
A central issue that was raised by a number of contributors was the lack
of a legal definition of mutuals within the Corporations Act 2001.
Australian Unity commented that :
...there is a barrier in terms of our corporate form not being
sufficiently understood. I think that is one of the issues attaching to our
original submission about a recognition in the federal Corporations Act in
relation to this corporate form.[25]
3.34
MAFIP Ltd. argued that the lack of a legal definition for a mutual has
been a 'contributing factor to the low profile and their importance...'.[26]
3.35
Mutuals are regulated under the Corporations Act, however the mutual
form is not defined in law. According to BCCM the mutual form requires better
support in the Corporations Act to allow for more clarity for organisations
operating under this legal model, including more clarity about the duties of
directors.
3.36
Australian Unity placed the issue of defining mutuals within the
Corporations Act at the top of their list of recommendations to develop the
sector. According to their evidence the Corporations Act is currently tailored
to govern for-profit companies where service is not a principal consideration:
The mutual form included in the Corporations Act seems to be
almost there as an afterthought. The act is itself designed to govern companies
limited by shares and organised for profit maximisation, rather than service
maximisation. We argue that there is some inequity caused by this attempt to
fit a square peg in a round hole, including the question of how to handle
commercially valuable customer lists, which are different from shareholder
lists as customers are often members.[27]
3.37
Bankmecu concurred with the call for recognition within the Corporations
Act, suggesting that a definition is developed based on economic and governance
tests. According to their submission this would bring a welcome coherency to
the regulatory environment:
That the inquiry recommend that recognition of CMEs be given
under the Corporations Act – defining mutuality with economic and governance
tests. For example, not just regulatory guide (147) for transferring mutual
financial institutions. This will give CMEs certainty and enable disparate
state based regulations to be replaced with federal law. [28]
3.38
While accepting that the Corporations Act does not provide a legal
definition for mutual enterprises, ASIC did explain that there is some guidance
provided relating to de-mutualisation, and in that sense they have a fairly
developed regulatory idea of what constitutes a mutual:
No; there is no legislative definition of mutuals, or a
mutual. There is not one. For what are called 'transferring financial
institutions'—so credit unions and societies that came from the state
legislation or state supervision through to federal in the late nineties...there
are enhanced disclosure provisions that relate to matters that might be called
demutualisation; so just for those ones, not for mutuals generally. And we have
given guidance around concepts of mutuality in relation to that part of the
law, so we have a regulatory guide that sets out what we consider to be signs
of being a mutual.[29]
3.39
To remove the current competitive barriers facing CMEs, Dr Gary Lewis, a
co-operatives historian, recommended that specific federal legislation be
developed for co-operatives, mutual and member-owned organizations (CMMOO) to
take account of their 'democratic complexion':
I believe the formulation of simple, ‘user friendly’ federal
legislation for CMMOO, perhaps as a section of the Corporations Act enshrining
their democratic complexion, would be very helpful in removing barriers to
innovation, growth and free competition for the sector in Australia.[30]
3.40
Australian Unity provided the committee with a proposed definition of
mutuals that would 'help level the playing field when it comes to commercial
governance':
Australian Unity believes “mutual” should be specifically
defined in the Corporations Act as an entity:
- being a body corporate where
member liability is limited by the guarantee of its members (usually a nominal
amount), rather than by share capital;
- that operates an enterprise;
and
- in which membership (including
any voting rights) is obtained as result of a person receiving a product or
service or having another strong personal connection with the company such as
an employment relationship, rather than by way of a formal application for
membership (as distinct from think-tanks or charities) or an application for
shares (as distinct from a body corporate limited by shares).[31]
Mutuals - the role of directors
3.41
In the event of the government amending the Corporations Act, many
submitters recommended that the role of directors in mutual organisations be
clarified. According to Australian Unity directors have very different obligations
in a mutual structure and these need to be catered for in legislation:
[D]irectors of mutuals have different obligations to their
constituents than those of shareholding companies. We argue that the service
interests—providing the services and maximising those obligations for
members—are an equally important consideration for directors of mutual
organisations compared with economic interests for those who have ventured
capital in shareholding forms. We have proposed a new definition of directors'
duties to acknowledge this circumstance.[32]
3.42
Mr Matthew Koce, from hirmaa, shared the concerns of others in the
sector that 'there needs to be recognition that the director's role is
sometimes different in a mutual not-for-profit. That unique role needs to be
recognised.'[33]
3.43
In addition to their proposed amendments to the Corporations Act to
expressly define mutuals, Australian Unity provided the committee with proposed
amendments to allow for all of a director's obligations in a mutual to be taken
into account:
12.3.01
This Part modifies the application of subsections 180(2)(a),
180(2)(d), 181(1)(a), 181(b), 184(1)(c), 184(1)(d), 187(a) and 187(b) of the
Act in relation to the directors and officers of a company.
12.3.02
A director or other officer of a corporation, in exercising
their powers or discharging their duties, to act:
(a) in good faith in the best
interests of the corporation; and
(b) for a proper purpose, should
take into account the interests of members of the corporation as recipients of
services provided by the company.[34]
3.44
While acknowledging that the role of directors in a mutual structure is
broader in a mutual enterprise, ASIC considered that the current provisions in
the Corporations Act would not necessarily exclude consideration of these broader
duties when determining whether a director had acted in the best interest of
the corporation:
[T]he directors' duties provisions in the Corporations Act
are cast broadly. So directors need to act in good faith, in the best interests
of the particular corporation, and it only obviously applies to cooperatives
that are in corporate reform. So it is cast in a principled way, and it picks
up a lot of the case law about the way judges have interpreted how directors
need to act in particular circumstances. [A] judge in interpreting those
provisions could look to: what is the purpose of this corporation? So if a
corporation is in its constitution described as having particular goals, which
may include cooperative or mutual goals, I think that would be a relevant
consideration for a judge in applying that principle-based test...my observation
would be that the way that the provisions are currently cast does have a degree
of flexibility for judges in assessing whether or not someone is acting in the
best interests of the corporation.[35]
3.45
Ms Ann Apps from Newcastle Law School accepted that the legislation does
allow for a CME's co-operative principles to be considered in delivering a
judgement, except in cases where there is a conflict between these principles
and a director's financial obligations to the organisation:
The Act also provides that in interpreting any of its
provisions, an interpretation which would promote the co-operative principles
is preferred. However this does not address the problem that directors and
managers face if required to defend a business decision which preferences
social output (e.g. ethically sourced raw materials or better employment
conditions for workers) at the expense of financial output.[36]
Committee view
3.46
BCCM submitted a 'Mutuals Charter' which is a set of broad principles
that, if followed by government, would provide a competitively neutral
environment. The principles are:
-
Co-operatives, mutuals and member owned businesses should be able
to compete freely and on fair terms with all types of business
-
Government should champion these business forms alongside other
types of corporate ownership
-
Government policy should recognise the value of these businesses
and provide appropriate incentives for their creation and development
-
Fiscal measures should promote co-operatives, mutuals and member
owned businesses as much as share ownership of publically listed companies
-
Legislation and regulation for these firms should match the best
standards for any business
-
It should be as cost effective and straight forward to set up and
run a co-operative, mutual or member based businesses as any other type of
business[37]
3.47
The committee concurs with the principles that support competitive
neutrality. The committee heard repeatedly that the lack of a legal definition
of mutuals was hampering its recognition and development. The mutual model is
different but currently the Corporations Act, and its consequent regulatory
framework does not take account of the features that differentiate the sector
from other companies.
3.48
The committee is of the view that for the sector to be recognised and
actively developed, it requires a concomitant regulatory structure. Being
defined in law is a crucial step on the path to the sector being recognised
more broadly.
Recommendation 4
3.49
The committee recommends that a mutual enterprise is explicitly
defined in the Corporations Act 2001, and its associated regulations.
3.50
A change to the Corporations Act's definition of duties for directors of
mutuals would support a strengthening of governance in mutual organisations. By
defining the corporate form, and by properly aligning directors’ duties in that
corporate form with the interests of members, outcomes for stakeholders would
be improved.
Recommendation 5
3.51
The committee recommends that the role of directors in mutual
enterprises be defined in the Corporations Regulations to align with the
proposed definition of a mutual enterprise in the Corporations Act.
Establishing a co-operative
Cost and complexity of forming a
co-operative
3.52
The lack of recognition of CMEs as a viable model for people wanting to
set up co-operatives has far-reaching implications for the sector. The
committee received evidence that suggested this is an issue at local, state and
federal administrative levels.
3.53
The number of members required to form a co-operative in Australia under
the Co-operative National Law (CNL) is at least five at start-up. The basis of
this requirement is not justified or explained in the bill's explanatory notes.
A co-operative group (a co-operative of co-operatives) can be formed by two
members, and the Registrar may give permission to enable a co-operative to
start up with fewer than five members. The criteria for extending permission
for fewer members is not published. Co-operatives can be formed under UK
legislation with three members as a minimum.[38]
A company can be formed with only one member. The section regulating membership
is drafted in the NSW Act as follows:
(119)(3)The minimum number of members allowed is:
(a) in the case of a
co-operative group—2 co-operatives; or
(b) in
the case of any other co-operative:
(i) if a lesser
number than 5 is approved by the Registrar—that number of active members; or
(ii) otherwise—5
active members.[39]
3.54
The time required to register a co-operative was also raised by
submitters. Prior to formation proposers must get approval for its
rules/constitution by the Registrar. The Registrar may take up to 28 days to
approve or reject or require amendment.[40]
If the draft is rejected or amendment is required, then a further period of 28
days may be taken by the Registrar to approve. There are model rules provided
under the legislation, however, guidance on matters such as the drafting of
active member requirements is poor. The result is that it can take many months
to gain approval or great cost to obtain professional legal advice to draft
rules.
3.55
Evidence of the length of time it can take was provided by the Voluntary
Parents Association who recounted their experience at the committee's hearing
in Sydney, as well as in their submission:
Our co-operative took five months to register and cost over
$20,000 to establish, including $17,000 of legal fees and several thousand
dollars for various insurances. This is an enormous investment of time and
money for a small not-for-profit. [41]
3.56
In their view the cost and regulatory burden is disproportionate for
small non-profit and non-distributive co-operatives, and acts as a disincentive
for people to establish co-operatives:
We understand and expect that Federal and State governments
have a duty to protect consumers. However, we suggest a balance between
protections and setting the bar so high that volunteers are discouraged from
forming self-help organisations. From our perspective, half of the compliance
work we did provided no meaningful protection to members. The problem is that
government regulations are one size to fit all, from small worker co-operatives
to large financial institutions, when the reality is that the needs and
purposes of co-operatives within that spectrum vary widely.[42]
3.57
While there has been an improvement in the information and support
available in those states that have adopted the Co-operatives National Law
(CNL), there seems to be a persistent perception that there is lack of
assistance in setting up a co-operative or seed funding a co-operative business
available at a state or federal level.
3.58
The current advice on 'how to set up a small business' from governments
at both a state and federal level only gives four types of business structure
at most to choose from: sole trader, partnership, company and trust.
3.59
As mentioned above, there has been an improvement in information about
co-operatives following the enactment of the CNL, but this is only available on
the
co-operative section of the government's website, not in the small business
section. The system therefore assumes some form of pre-existing knowledge when
someone wants to set up a co-operative, or that a co-operative may be the most
appropriate option for their enterprise.
3.60
BCCM provided an example whereby government firstly does not consider
co-operatives in the development of policy, and then government officials do
not have knowledge of whether co-operatives are eligible for the subsequent
program:
It seems to pop up in lots of different places[...]we received
an inquiry about a current tax exemption program that was being offered to
R&D organisations. This was to encourage the flourishing of
entrepreneurship and start-ups. [T]his group had been turned down for the
program for the exemption based on the fact that they were not a corporate
entity that was recognised within the program. When we tested it, we went
through three layers of people—officers of the department—and were rejected.
When we finally pushed it—eventually we received a ruling that, in fact,
cooperatives were eligible. So this really is endemic throughout the system...[43]
3.61
However, as discussed above and in Chapter 2, the committee found that those
states and territories which have adopted the CNL have significantly improved
the information available on establishing co-operatives. The Australian Tax
Office also provided the committee with information showing the relatively
straightforward steps someone would have to take to apply for an ABN as a
co-operative.[44]
Improving education, knowledge and
expertise
3.62
Other submitters contend that a lack of education about CMEs in tertiary
institutions, compounds the problem for co-operatives in getting appropriate
advice since there is a lack of professional business advisors with requisite
knowledge of the business models. The Co-operative Bookshop also raised the
lack of understanding in the professions generally tasked with advising
organisations on aspects of governance:
Co-operatives and mutual enterprises (CMEs) are poorly
understood due to the paucity of education provision; leading to
under-recognition of the business model by key professions including accounting
and legal practitioners.[45]
3.63
Ernst and Young (EY) were of a similar view that the lack of expertise
in the relevant professions as well as government agencies was hindering the
development of the sector:
The CME sector does not have access to the same level of
government and professional support for the model because of lack of
specialised expertise. There is therefore a need to develop this expertise
across relevant government agencies and professional advisors in order to
facilitate the establishment and growth of CMEs.[46]
3.64
While agreeing there is a serious deficiency in the expertise available
to CMEs, Professor Greg Patmore did suggest that renewed focus as a result of
the UN International Year of Co-operatives has made a difference in bringing
forth improvements in the training of those professionals tasked with advising
the sector:
The co-operative sector is largely ignored in both secondary
and tertiary education which limits knowledge about the co-operative business
model. In the wake of the Cooperative, mutual and member-owned firms UN
International Year of Co- operatives there has been some interest in including
cooperatives in the tertiary curriculum of business students.[47]
3.65
The sector itself is attempting to address the lack of understanding and
expertise across the professions by establishing links with the tertiary
education sector to ensure that more is being done to improve the understanding
and awareness of the cooperative model. The Co-op Bookshop highlighted the
progress being made so far, with a number of universities introducing and
developing courses for law, accountancy and other relevant students on the
model:
A number of Universities have embarked on development and
actual introduction of courses including, Newcastle University, University of
Western Australia, Charles Sturt University and Sydney University. While these
steps are positive, more needs to be done to ensure an understanding of the CME
model by legal practitioners, accountants, and other service providers.
Inclusion of the CME business model in business-related courses at all levels
of education would significantly assist in raising awareness of the sector in
the Australian economy. [48]
3.66
The Mercury Centre said that they were often approached by prospective
cooperatives who say they are often counselled not to go down the cooperative
path by accountants and lawyers who do not have the requisite knowledge of the
model to properly advise them:
The Mercury Centre is responding to regular requests flowing
from workshops that the ability and expertise to set up Cooperatives in not
available. Consequently communities are regularly dissuaded from the cooperative
path by accountants and lawyers who do not have the knowledge to set up
cooperatives and recommend alternatives such as shelf Pty Ltd or Incorporated
Associations. [49]
3.67
This view was backed up by the Cohousing Cooperative who claimed that
they have 'ongoing difficulty working with both these professions [accountancy
and lawyers], as there is a lack of knowledge of co‐operatives as a legal structure.'[50]
3.68
Furthermore, the Centre argued that this lack of expertise among the
professions of law and accountancy added to both the burden of governing a
co-operative, and to the cost:
It is a commonly held view that establishing and maintaining
a Cooperative is a more expensive and onerous task than the compliance for a Propriety
Limited (Pty Ltd) or Incorporated Association. This position is exacerbated by
the lack of inclusion and professional training at tertiary level in Law and
Accountancy.[51]
3.69
Kingfisher Law were also of the view that the current provision in
tertiary courses and professional development for those who are expected to
provide advice and expertise to the sector is limiting its progress and
hindering the concomitant benefits to the broader economy:
Australian entrepreneurs and managers, financial advisers,
regulators, lawyers, accountants and elected representatives need increased
access to better, more accurate information on, and expertise for,
co-operatives and mutuals. Without this, Australia risks foregoing optimal
development, which would otherwise be achievable.[52]
3.70
In contrast, a response to a question on notice from the committee, the
Head of Education at Chartered Accountants Australia New Zealand said that in
his experience the exact opposite was the case:
I have spent most my career working for, or being a director
of co-operatives or mutuals (CAANZ is one). I can say that my general
background in accounting made it quite easy to take on those duties and I had
no difficulties in acting as a director and coping with the particular
structure of a co-operative. I think that would be true of accounting
professionals generally. The co-operative structure is not difficult to
understand and the conduct of the business of at least most co-operatives is
not very different from those of other businesses... I have seen no evidence of
an issue with advisors with the requisite knowledge, indeed my experience is
the reverse and that the market responds to needs for advice very efficiently.[53]
3.71
According to the BCCM, the ramifications of this lack of expertise do
not just impact the establishment or development of a CME, they can also result
in regulations or tax law being misapplied, and have serious consequences for
the CME:
Co-operative and mutual business forms are not well
understood by policy makers, lawyers and accountants or other business
advisors. As a result, business advice for those wishing to set up a
co-operative or mutual is inconsistent and ad-hoc at state level, and too
often, the different business purpose that mutuals have is ignored, leading to
inappropriate regulation and treatment from authorities.[54]
Committee view
3.72
The introduction of the Co-operatives National Law in most states and
territories has resulted in improvements to the advice, guidance and
information available to those wanting to set up and govern co-operatives. The
committee welcomes these improvements and with the rollout of the CNL, or
equivalent legislation across the whole country, expects similar improvements
in all jurisdictions.
3.73
The committee notes the role of regulatory bodies in ensuring that
co-operatives are not being ill-advised is central to the role of government at
all levels. The evidence received by the committee about co-operatives
incurring additional costs because of inappropriate advice is something those
responsible for registering and regulating co-operatives should be aware of,
and seek to mitigate where possible.
Recommendation 6
3.74
The committee recommends the Commonwealth Government work with
states and territories to ensure the continual improvement to advice, guidance
and information provided at all stages in the establishment, governance and
regulation of co-operatives.
3.75
The committee is particularly interested in strengthening the
educational curriculum to underpin the development of the sector. Without
access to expertise to guide co-operatives through establishment, governance,
regulation and compliance, the potential of the sector is always going to be
limited.
3.76
The committee is cognisant of the advances in this field, with several
universities offering units within their law and accountancy courses. Recent
examples, such as the commitment in the Agriculture White Paper to offer
training courses on 'cooperatives and other business structures to help farmers
to better engage through the supply chain and attract investment', are proof
that government can have a role in developing the sector at this level.
3.77
Nevertheless, there is still significant capacity in the secondary and
tertiary education field to increase awareness of the CME model. Moreover,
there is also capacity for increased professional recognition in courses from
relevant professional bodies such as accountancy bodies, the Institute of
Company Directors to teach students about diverse business ownership models.
3.78
While the committee understands that it is not the government's role to
set curriculum in tertiary institutions, or private industries bodies, it urges
the government to facilitate in whatever way it can to improve the situation.
The committee would also encourage greater liaison between the CME sector and
the tertiary institutions and peak bodies to promote the value of improving
recognition of the sector within tertiary institutions.
Recommendation 7
3.79
The committee recommends that the Commonwealth Government work
with all relevant stakeholders to undertake a program of education and training
to inform all stakeholders about the role of co-operatives and mutuals.
Recommendation 8
3.80
The committee recommends that the Commonwealth Government examine
ways in which it can improve the recognition and understanding of the
co-operative and mutual sector in the national secondary school curriculum, and
that tertiary institutions consider the inclusion of co-operatives and mutuals
in accounting, business, commerce, economics and law degrees.
Recommendation 9
3.81
The committee recommends that professional accreditation bodies,
such as the Law Society and Institute of Chartered Accountants, require a demonstrated
knowledge of the co-operative and mutual structure before they will licence its
members to practice accounting or law.
Issues affecting Indigenous co-operatives
3.82
The committee received evidence from Indigenous co-operatives which
share similar concerns to other CMEs, but which also have specific issues
relating to Indigenous organisations' eligibility to access government funding
as a co-operative.
3.83
Academic research submitted to the inquiry on the experience of
Indigenous communities in establishing co-operatives, shows a lack of
recognition of the contribution of co-operatives in Indigenous communities, and
that many of them did not receive any support while setting up the enterprise.[55]
3.84
The committee heard evidence citing Tranby College in Sydney as an
example of a long running co-operative that had received excellent results for
its members and broader community since its establishment in the late 1950s:
Tranby Aboriginal College in Sydney, the training and
educational arm of Cooperative for Aborigines Ltd, which has been operating
successfully since 1958, is an excellent model demonstrating what can be
achieved with a diverse group of students from all around Australia, including
remote regions, studying in a supportive and cooperative environment while
emphasizing indigenous ownership and control.[56]
3.85
Evidence suggests the co-operative model is ideal in delivering services
in remote areas, such as Indigenous communities, where issues can be complex
and service provision through the private sector is often not suitable or
available:
Awareness of multi-stakeholder CME structures may open up opportunities
for developing effective governance structures for managing complex problems
including those experienced by organisations delivering public services and
those operating in Indigenous communities.
The owner member characteristic especially when a
multi-stakeholder structure is utilised may be particularly effective
governance model when addressing complex problems and where CMEs facilitate
community empowerment. There may be opportunities to use multi-stakeholder
structures in Indigenous communities or as the basis for collective impact
initiatives which seek to harness diverse resources to achieve a common goal.[57]
3.86
Despite their apparent suitability to deliver services through community
ownership in communities, the committee heard that many co-operatives are being
pressured to convert to corporations in order to access government funding.
Councillor Kanak gave evidence to the committee in Melbourne and explained his
statement in his submission that:
A current barrier to innovation, growth, and free competition
in the Aboriginal Torres Strait Islander Community is the funnelling of Aboriginal
Torres Strait Communities away from co-operative models towards Aboriginal
corporations, albeit in an atmosphere of purported freedom of choice.[58]
3.87
Mr Wy Kanak from Tranby College informed the committee that, under the
Indigenous Advancement Strategy, Commonwealth Government grant funding above
$500 000 was only available to Indigenous organisations incorporated under the Corporations
(Aboriginal and Torres Strait Islander) Act 2006.[59]
According to Mr Kanak this is causing deep distress in co-operatives such as
Tranby College and may cause them to 'abandon their cooperative structure and
reincorporate under the Aboriginal Councils Act'.[60]
3.88
A similar issue was raised in the inquiry that wasn't specific to
Indigenous organisations. The Master Butchers Co-operative Ltd informed the
committee that the Next Generation Manufacturing Investment Programme
stipulates that eligible applicants must be 'an entity incorporated under the
Corporations Act 2001'.[61]
Committee view
3.89
The committee was concerned to hear that funding streams to previously
successful Indigenous co-operatives were placed in jeopardy by the obligation
for grant recipients above a certain level to be corporations. Not only does
this restriction cause angst in the organisations and communities they support,
it also sends the wrong signal to the co-operative sector more generally.
Amending the Indigenous Advancement Strategy to allow co-operatives registered
under the CNL would alleviate funding concerns, and demonstrate recognition of
the value the sector brings to Indigenous communities.
3.90
The application of these restrictions across government grants and
funding mechanisms further concerns the committee. This is a tangible example
of
co-operatives being disadvantaged against other types of business structures
and the committee is keen to understand why these restrictive practices are in
place. While the committee understands that governments must ensure appropriate
risk management strategies are in place when expending public funds, there
appears to the committee to be no compelling reason why co-operative and mutual
enterprises present any more risk than incorporated organisations. In the
absence of any justification the committee is of the view the restrictions
should be removed.
Recommendation 10
3.91
The committee recommends that the Commonwealth Government amend
the Indigenous Advancement Strategy to allow registered co-operatives the same
access to allow levels of grant funding as other entities.
Recommendation 11
3.92
The committee recommends that the Commonwealth Government review,
and where necessary amend the eligibility criteria for grants and funds across
all government grants and program guidelines to ensure that co-operatives and
mutual enterprises are not excluded on the basis of their business structure.
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