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CO-OPERATIVE DEVELOPMENT AGENCY Consultation Paper

SECTION B - Proposals for a Co-operative Development Agency

7. The Role

Evidence on the economic benefits of the co-operative structure in comparison with any other business structure is limited. It is, however, possible to look at the existing support mechanisms against the needs and aspirations of the co-op sector.

7.1 Is there a gap in support for co-operatives?

It is clear that co-operatives are unlike other businesses in a number of significant ways - in their social purpose and values, in their governance and mechanisms for stakeholder involvement, in their ability to access finance, and so on. It would appear that there is a lack of general business support advice, although in some areas such as agriculture, rural, housing and employee ownership, some specific tailored advice/information is available to those groups. It would therefore seem sensible to provide specialist business support for the co-operative model via a CDA, although it is important to stress that co-operatives should also be able to draw on the business tools and support programmes provided by the Enterprise Networks as a whole.

It might be argued that because of their different form of ownership and original focus, the behaviour of co-operatives will be different to that of other forms of business, and that in particular they will take a different approach to the distribution of trading surplus. It is argued by some that they will take into account a wider range of social/community considerations.

Some argue that high productivity requires worker commitment and this cannot fully be achieved without some form of worker ownership, thus removing a difference of interest between worker and manager. There is some supporting evidence, but there are also some counter examples where management structure inhibited decision making.

The evaluation of SCDC did not find evidence to support the last two of the propositions, but did argue that there was a case for specialist advice and support.

7.2 How should the CDA interact with other organisations?

CMS - It is important that the CDA has a strong relationship with the representative bodies who have experience in this area.

EOS - The future role of EOS and its relationship with the CDA will need to be considered within the context of the remit of the CDA and its emerging activities on employee ownership businesses.

SAOS - Their input and experience will be a vital contributor to the CDA. A common interest has already been identified in promoting the co-operative business model in rural economic development. It is important that mechanisms are put in place to maintain a complementary relationship between the CDA and SAOS.

Housing associations and co-operatives already have their own established national organisation providing information, advice and access to sources of funding. It would therefore be sensible not to duplicate or confuse the market by trying to replicate this activity. It is important that the CDA establishes a foothold in the market where areas of market failure are evident and it would not be prudent to use the organisation to compete with well-established organisations, already meeting the needs of their customer base.
There are strong arguments therefore that housing co-operatives are not covered by the remit of the proposed CDA.

The Executive supports credit unions in Scotland in a variety of ways, including grants for those who meet the criteria. Some aspects of central support, e.g. for training, are currently under review. It would be helpful to have views on whether credit unions should be covered by the remit of the CDA, either initially or at a later date. Such support might either complement or take over the Executive's current role.

We would also welcome views on whether the CDA should have a role in relation to Supporters Trusts, LETS and Timebanks in Scotland.

8. The Remit

It is envisaged that the Agency will provide a first-stop mechanism to support services for this sector, linked to the services available from the Enterprise Networks and other relevant support mechanisms. As indicated previously, there are currently a number of "front doors" for co-ops (SAOS, EOS, Co-op support organisations, Enterprise Networks, etc.). However, the level of market impact is unclear and individual organisations are not naturally linked, so it can be confusing for the customer on who to approach for advice and support.

9. Aims and Objectives

9.1 Main focus/priorities

Careful consideration has to be given to what could be the main focus and priorities of the CDA. For example, should it focus on start-ups (possibly targeting certain sectors) or should it focus on stimulating the growth of existing co-ops, with a view to expansion, increasing profitability and the exploration of new markets.

It may be possible to place emphasis on those economic indicators identified as "hard" outputs such as job creation and safeguarding, and increase in turnover.

The four main areas of possible priorities are:

• Co-ordinate current co-operatives business support;
• Grow base through start-ups;
• Help and grow existing co-operatives;
• Conversion of other business structures to the co-operative model.

There is a danger that if the CDA does not initially limit its focus on one or two of the above, it will spread itself too thinly and have limited impact. Certainly, there is a matter of scale in what a new CDA can be expected to achieve, especially in the initial stage. Also, the utilisation of existing structures currently supporting the business community, e.g. Enterprise Networks, Scottish Development International and Business Gateway will be crucial not just to mainstream the CDA and its client base but to avoid unnecessary duplication of public sector resources.

9.2 Potential areas for co-operative enterprise development

It is clear that some particular opportunities exist that fit well with the Executive's priorities and could be explored with the support of a Co-operative Development Agency.
These include:

• Care provision
• Leisure services
• Renewable/sustainable energy (including potential for international collaboration with co-ops in Denmark and Spain)
• Broadband access
• Waste management and recycling.

10. Type of Body, Structure and Funding

10.1 Type of body

A number of potential governance models have been considered for the CDA. Any of the models could undertake a range of activities associated with the aims and priorities of the CDA.

Options

A. Retaining the function(s) within a Scottish Executive Department;

B. Setting up an Executive Agency;

Executive Agencies are part of the Scottish Administration. Some examples are Communities Scotland, Student Awards Agency for Scotland and Historic Scotland. This may be an appropriate option where a defined function is to be retained within government but Ministers do not need to take personal responsibility for day-to-day decisions. It has the advantage that an agency can normally be set up by administrative action alone (i.e. without the need for legislation). The Chief Executive is normally answerable on operational issues to a Minister in the sponsoring department. Staff are civil servants.

C. Allocating the function(s) to an existing public body;

A CDA could be incorporated for example within existing Enterprise Networks as a dedicated co-operative unit or a possible subsidiary as with Investors in People Scotland. The unit could be combined with the appointment from within the existing Enterprise Networks of a co-operatives champion.

Legal powers currently exist for the Enterprise Agencies to be active in this area.

D. Setting up a Public Body;

Public Bodies are defined as:

"bodies which have a role in the processes of national Government, but are not a Government department or part of one, and which accordingly operate to a greater or lesser extent at arm's length from Ministers".

In simple terms, this means a national or regional public body, carrying out its day-to-day functions independently of Ministers, but for which Ministers are ultimately accountable.

Executive non-Departmental Public Bodies:

• are normally established by statute such as an Act of Parliament or Royal Charter
• carry out administrative, commercial, executive or regulatory functions on behalf of Government
• provide specialist advice to Ministers and others
• have a national remit
• have a board whose members are appointed by Ministers or by the Queen on behalf of Ministers, and which meets at least quarterly
• employ their own staff, who are not civil servants
• manage their own budgets.

Following the Public Bodies: Proposals for Change (2001) report, any proposal to set up a new public body will have to satisfy the Executive's criteria and be tested against alternative delivery options. The public body will only be set up if there is an absolutely clear and widely recognised need for one.

E. Non-public sector options;

The private sector, voluntary sector or another non-public sector body could be utilised to deliver the intended range of activities for the CDA either through a tendering process or through partnership arrangements. The feasibility of market-based solutions would depend on a range of considerations, including the maturity of the market and the nature of the risks to be managed. Various models of private-public or voluntary/public partnerships are available.

It must be noted that the model adopted may affect the length of time it takes to establish the CDA and any necessary funding stream. If the option chosen requires legislation there could be a significant delay in the preparation of, and Scottish parliamentary approval for, legislation and the formation of a suitable funding mechanism.

10.2 Structure

There are probably two main approaches to establishing an effective structure for the organisation.

Virtual model

The first is the use of a "virtual" model where the centre consists of a small number of "core" staff and operates as a co-ordinator and facilitator of access to support services provided by existing (and new where required) providers. It could provide some (limited) services directly. On this basis a single centre would probably be sufficient for the system to function effectively.

The "virtual" model could operate a Referral Service, similar to Business Gateway, acting as an important first stop access to advice and information. This simple approach would ensure consistency and an integrated access to services. It could be supported by a single website and a single access telephone number. The site suitably located and integrated to existing mechanisms, would benefit from having its own identity and domain name. It would clearly act as a single-brand access-point for all services to co-operative business, acting as part delivery, part referral-mechanism, but essentially supported by a strong brand. As the brand became more established, it would be anticipated that the Referral Service would become the principal reference point for all customers - at least in terms of establishing the initial contact.

Direct service provider (single unit or dispersed model)

At the other end of the range the CDA could operate as a direct service provider offering a wide range of support services to a wide range of co-operative organisations. The type of support it could offer is set out below. This approach raises key issues about the location of the centre, and whether a single centre would suffice or whether more localised delivery units would be required - perhaps on a hub and spokes model.

Much will depend on the model adopted and the level of resources available to fund the new agency. It is envisaged that the agency will be responsible for determining the numbers of staff required and the most appropriate staff structure to deliver the body's remit economically, efficiently and effectively within the resources available to it. It would be hoped that a suitable model could be established early but much will depend on the market reaction to the consultation exercise.

10.3 UK examples

The Wales Co-operative Centre is one organisation within the UK currently focusing on the co-operative sector from an economic development perspective in a business growth way. It was established in 1982 as a way to tackle the fall-out from the decline in heavy industry, and initially was largely concerned with redundancies and co-operative start ups. It has a large focus on community credit unions. Their focus has changed recently to that of training and business support, and not all the work they do involves co-operatives.

There is no national Co-operative Development Agency in England but there are a number of Regional Co-operative Development Bodies, members of Co-operatives UK.

10.4 Possible activities

The Co-operative Development Agency could possibly cover a broad range of activities. These may include all or some of those listed below:

• promotion and awareness (both general and specific) of co-operatives through events, marketing and the media;
• assist new co-operatives through the start-up process;
• training of those involved in or wanting to start co-operatives, particularly in business skills;
• help existing co-operatives to become more commercial and therefore sustainable;
• education of key stakeholders and support providers (e.g. enterprise network business advisers, other intermediaries);
• development of support tools;
• signposting/referral arrangements to other support organisations;
• guidance on potential sources of funding (grants/loans) both in the public and private sector;
• support developing business plans;
• advice on legal aspects, structure and duties;
• "voice" to promote, advise and develop innovative approaches to expand the sector's contribution to the Scottish economy;
• development of linkages beyond Scotland;
• commission research on sectors in Scotland and highlight examples of best practice at a local level.

The key activities also need to be linked to the structural options outlined above in
section 10.2.

10.5 Funding

Estimated running costs have yet to be established. Final costings will depend on the model adopted. Following the end of the formal consultation period, a Pre-Expenditure Assessment will be completed, in order to demonstrate Best Value. With the potential of the Agency having cross cutting responsibility across several areas of Executive activity, funding may not be the responsibility of a single Executive Department. Funding is also subject to state aid rules clearance.

11. Key Questions

Here is a summary of the questions posed throughout this document:

12. Next Steps

A full list of those organisations to whom we have sent this consultation paper is attached. We have also sent it to all members of the Scottish Parliament. We would be happy for you to copy this paper more widely.

A number of discussion points have been highlighted. Please do not feel obliged to respond to all these points nor feel restricted to only responding to these questions. If you would like to comment on any other aspect of the proposals, we would welcome your views.

The consultation period will run from 20 March to 14 June 2004. Please send or email your responses to the following, co-operativedevelopmentagency@scotland.gsi.gov.uk by 14 June 2004. For purposes of analysis, it would be helpful if those who send a written response also email their response.

Co-operative Development Agency consultation
Scottish Executive
Business Growth Unit
Enterprise, Transport and Lifelong Learning Department
2nd Floor Meridian Court
5 Cadogan Street
Glasgow
G2 6AT
Telephone: 0141 242 5612
Fax: 0141 242 5406

Confidentiality

Copies of all responses received will be placed in the Scottish Executive's library and will be available to the general public. Responses will also be made available to the public at the Scottish Executive website. The views expressed by respondents may also be quoted or referred to in any future review of responses. If you do not wish your responses to be made public, please ensure that you indicate clearly that all or part of your response is to be treated as confidential. Confidentiality will be strictly respected. We will still count confidential responses in any statistical analysis and your views will, of course, be taken into account in the same way as for non-confidential responses.

Electronic publication and additional copies

This publication is available via the internet at: www.scotland.gov.uk/views/views.asp

Additional paper copies of this consultation paper are available from the address above.

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