Based on an extract from various web articles about the unique organizational and business model of the Mondragon cooperative in Spain..

The typical modern business corporation today tends to be a tug of war (or at least ongoing tension) between various parties. Shareholders seek maximum income, labor seeks maximum wages and managers are always on the lookout for higher salaries and bonuses. The needs of the community or the society in which this business operates are generally ignored. Recent economic distress in many countries around the world points to a system with fatal flaws in the concept and structure of the business corporation…

Although there might be an owner or owners who contributed capital, a business entity is not just a “thing” like a building or some furniture that belongs to somebody. It is a group or a collective that has formed for a common purpose. Just as the modern business entity cannot function without a university system or public infrastructure funded by the state, society in general also has a rightful expectation that business organizations will contribute to the larger good. In some countries, like Malaysia, this is informally practiced via the Malaysia Inc concept. Government does favors for companies, giving them concessions for highways, telecommunications and so on then expects them to finance social development projects in rural or backward areas for example.

It is therefore necessary to go back to the original concept of corporations: entities that serve a larger purpose than just generation of wealth for shareholders. There is something terribly obscene about companies that make billions of dollars in profits in good times and then then lay off thousands of workers at the first hint of a recession.

Mondragon Model

An example of a great alternative to the mercenary tendencies of large commercial organizations is the Mondragon Cooperative Corporation. This corporation began in Basque Spain in 1956, with its purpose clearly stated from the beginning: to create jobs for the five young founders and to help their rural community survive.

Community survival and job creation are part of Mondragon’s explicit public purpose. Over the last sixty years this business corporation has grown exponentially from five workers to over 100,000. From its early years, this corporation adopted most of the methods of the most successful business corporations. Mondragon sought the best technology available and set up a series of its own research centers. They set up their own bank and thus avoided dependence on the blindness of the stock market. They did not retreat into the protection of their home country; rather, they expanded globally into 26 countries.

A corporation is considered by the law to exist as a legal person. This is a very useful way of looking at a business corporation, because it suggests correctly that the corporate person has a certain personality. It has duties and responsibilities given to it by the government or society that fostered it. The corporate person receives great benefits from society – and, in return, it must exercise great responsibilities. One of the most basic responsibilities is job creation, a fundamental need in any society.

The Mondragon Corporation is striking in that their annual strategic plan usually includes a job creation target. Most large global corporations, in contrast, develop strategies to increase earnings through job reduction. Conventional corporate managers argue that a “job creation” strategy necessarily leads to inefficiency and losses. But empirical testing suggests otherwise.

While many large companies have been experiencing a decline in revenue over the last several years, Mondragon, on the other hand, increased revenues from $15 billion to $17 billion, an increase of over 13%. In 2007, Mondragon returned over US$50 million to workers as a share in profits. During this period, Mondragon’s total workforce expanded from 83,000 to 103,000, an increase of 20,000. One reason for Mondragon’s freedom of operation compared to conventional corporations is that it does not rely on stock markets for capital. Instead, it relies on its associated bank and worker shares as well as commercial loans.

Mondragon contrasts radically with the majority of large global business corporations. The complex includes over 100 enterprises producing a wide variety of products from buses to refrigerators to food products. An associated bank, a university, and a string of business research centers are all linked together in a corporate network that follows general guidelines agreed upon at the general congress held every four years and voted upon by representatives of the all the enterprises.

In Spain, the vast majority of Mondragon workers are shareholders. Each business enterprise has its own board of directors chosen by the worker shareholders. Approximately 20 percent of the profit goes to the workers, with 70 percent of the remaining profit reinvested within the corporation. The remaining 10 percent goes to community projects which include the university. In addition to such profit sharing, Mondragon also includes “loss” sharing.

With regard to the security of employment, there is no legal obligation to retain workers, but jobs are effectively guaranteed. If there is a redundancy in one enterprise, the redundant workers have the right to available work in the other associated enterprises.

This is an interesting way of doing business and while not all of the elements of the model will apply in every organizations, the Mondragon experiment offers some valuable insights for all companies and not-for-profit organizations.