Imanol Basterretxea, Iñaki Heras-Saizarbitoria and Aitziber Lertxundi from the University of the Basque Country recently published an important paper about the failure of Fagor Electrodomésticos, the flagship cooperative in the Mondragon Corporation that went bankrupt in 2013, and last March, I reviewed a section of that paper that showed how difficult it can be to build real workplace democracy in a cooperative when much of the  membership is involved in fixed, repetitive labour.

Here I want to look at another section of this paper and discuss one of the authors’ main conclusions, that Fagor Electrodomésticos failed, in large part, as a result of a series of bad human resource management decisions made over the years.

If a worker cooperative is at all successful, at some point shortly after launch, the founders will need to start thinking about hiring new worker-owners to join the team. The authors of this paper show that Fagor Electrodomésticos went bankrupt after they made a couple of big mistakes when hiring new members, and one can easily see, under the right circumstances, that a new worker-owned business could make similar errors when they start hiring.

The first error that the authors identify is nepotism. It may seem scandalous, but nepotism was actually built into the hiring policy at Fagor Electrodomésticos. Applicants could earn up to 30 points on their hiring assessment (out of a total of 100) if they were related to a member, so many new workers were hired over more qualified applicants because they had a family connection. And many of these legacy hirees turned out to be terrible cooperative members. According to the authors, almost everyone they interviewed for their study agreed that nepotism was a disaster for the company, with one former member of the company’s social council commenting: “The entry of member’s children was a terrible social error.” (p. 16) These applicants often had little passion for the cooperative, seeing it merely as a place where they could find an easy, guaranteed job.

When we think of nepotism, we often think of rich parents installing their (feckless) children in management positions in the companies they own, but similarly, in cooperatives, where the workers have ultimate control over who gets hired, coop members may also want to guarantee jobs for their kids, and while new worker-owned companies probably wouldn’t institutionalize nepotism in the same, open way Fagor Electrodomésticos did, still, founders could be very tempted to hire friends and family over other applicants with better skills or with more passion for workplace democracy, applicants who might make better worker owners in the long run.

The second error the authors identify was growing too quickly. In the 90s and early 00s, Fagor Electrodomésticos expanded very rapidly, becoming, before it failed, the fifth largest household appliance manufacturer in Europe. This sounds like it should have been a good thing, but their rapid growth forced them to higher large numbers of employees in a very short period of time, sometimes up to 300 new workers in a single hiring round, and the cooperative struggled to properly integrate all of these new workers into the democratic culture of the company. Building and maintaining a shared cooperative ideology is critical to the success of a worker-owned business, but with waves of new workers coming on all the time, the cooperative culture at Fagor Electrodomésticos was overwhelmed, and the new members often had “little training and poor attitudes towards work and cooperative values” (p. 18) as a result.

And again, one can easily see how a new worker cooperative might face similar problems, just on a smaller scale. Say, if a new startup with five founders were to grow rapidly, and needed to hire ten new members, even though ten members isn’t the same as three hundred, they might still struggle to transmit their shared cooperative ideology to this new group, given how large the new group would be relative to the established membership. In this way, it may be particularly important for cooperatives of all sizes to carefully manage their growth, with an eye to maintaining and transmitting their unique cooperative culture to all new hires. It is counter-intuitive perhaps, but growing too fast might pose more of a threat to a new worker cooperative than not growing at all.

Basterretxea, Imanol, Iñaki Heras‐Saizarbitoria, and Aitziber Lertxundi. “Can employee ownership and human resource management policies clash in worker cooperatives? Lessons from a defunct cooperative.” Human Resource Management (2019).