Two weeks ago we launched a new set of guidance – a narrative reporting framework – to help co-ops of all sizes structure reporting to their members. Here we interview John Sandford on the role played by the Co‑operative Performance Committee, the Co‑operatives UK member group he chairs that developed the new framework.
Appearing to have large amounts of debt limits the ability of a business to access the finance it needs. Yet in recent years, due to some anomalies in accounting standards, some large co-ops almost found themselves appearing to hold a huge amount of debt on their balance sheet.
A very real battle took place behind the scenes. On one side, International Accounting Standards, arguing that member shares should be classed as debt. On the other, Co-operatives UK’s Co‑operative Performance Committee (CPC) and its European partners, arguing that member shares must be treated as equity.
"It definitely would have led to unfair treatment."
Although the war remains ongoing, the battle was won by the CPC. It was a significant win – and a fine example of the work which goes on behind the scenes to level the playing field for co-operatives in the world of accounting standards.
CPC Chairman John Sandford is a highly experienced chartered accountant specialising in co-operative, mutual and not-for-profit organisations and boasts two decades of experience as a director and audit partner with KPMG. He said: “It was vitally important for the co-op movement that co-op share capital was stated as equity. If share capital had been classed as debt it would have had all sorts of implications for gearing.
“It would have been much more difficult for co-operatives to compete for loans; much more difficult to gain finance by other means. It definitely would have led to unfair treatment.”
The CPC has operated for around two decades as a leadership forum on financial and wider performance across co-operative societies. From championing co-ops in relation to accounting standards and consistent accounting treatment to guidance on performance monitoring for small to medium sized co-operatives, the Committee has had significant impact.
While the CPC will continue to perform functions around the transposition of international accounting guidelines for domestic societies, its focus is changing. That focus will hone in on two important areas as the Committee turns its attention to helping societies effectively identify – and communicate – their co-operative difference.
"This suite of indicators would help societies articulate what the co-operative difference is."
The first area is narrative reporting – the non-financial information that provides members, employees, customers and other relevant parties with a meaningful picture of the co-operative’s business.
John says: “This is about helping co-ops develop better internal and external reporting. It’s not simply about statutory reporting, it’s also about how can we better inform members - and what co-op performance actually is.”
Improved reporting would allow societies to more effectively communicate their unique standpoint. After all, it is not the financial figures that differentiate co-operative businesses from the likes of limited companies.
The CPC Chair adds: “Maybe financial performance is not an overarching objective of a co-op. So what guidance can the CPC give, to co-ops of all shapes and sizes, and how can it support their performance reporting in terms of delivering something that’s meaningful to members?”
Effective narrative reporting resonates with the second focus of developing a suite of indicators, both financial and non-financial, that help bring to life a society’s co-operative difference. These indicators might, for instance, hone in on unique member benefits, or profits used to benefit other co-operative businesses.
“Co-operatives works as a counter-balance to joint stock companies."
John knows that a one size fits all approach could not work for an incredibly diverse co-operative sector. And while common indicators would allow more effective benchmarking within the sector, their use in terms of differentiating between co-ops and non-societies could be more problematic.
The CPC chair says: “We would not necessarily be looking at every business using every performance indicator, but there’d be common principles. The suite of indicators would have to work for co-ops of all shapes and sizes, and not all indicators would be suitable for every business.
“But the important point is that this suite of indicators would help societies articulate what the co-operative difference is and with it the benefits of being a member.”
The challenges of creating uniquely co-operative narrative reporting and performance indicators, that also serve a wider performance, are not insubstantial, but they are worth overcoming in order to benefit a crucial section of the UK economy.
John says: “Co-operatives works as a counter-balance to joint stock companies, where shareholders are primarily interested in individual return. When people get together to share resources, to work towards an outcome that works for everyone – for the group, the members – it is really important.”