Despite MEC’s sale, cooperatives remain strong and resilient in Canada, says CMC

16 Dec 2020

In September, the board of Mountain Equipment Co-op (MEC) announced its decision to sell its assets to Kingswood Capital Management, a U.S. based private equity firm. The deal was approved unanimously by MEC’s board without the permission or any meaningful consultation of the membership. This prompted some members to launch a campaign to “Save MEC”, with a petition opposing the sale gaining over 200,000 signatures.

In October, British Columbia Supreme Court Justice Shelley Fitzpatrick rejected a legal action to delay the sale, a decision prompting the Save MEC campaign to file a Notice for Leave to Appeal with the Court. This is not an appeal to reverse the decision of the Court, but rather, to address specific elements of the judgement. Should the Notice for Leave be granted by the Court, Co-operatives and Mutuals Canada (CMC) will immediately apply for intervenor status.

Throughout this battle, CMC continued to engage with MEC members and the wider cooperative movement. Collaborations started at the regional level, by joining forces with the British Columbia Co-op Association and the Alberta Community Co-operative Association. CMC then invited, and was very pleased to receive the support of, provincial and territorial cooperative associations from across Canada. CMC’s Board Chair, John Kay, reached out to the Save MEC campaign early on in its activities, to double the strength of each campaign. 

The ICA’s Director General, Bruno Roelants, responded without hesitation to support CMC’s campaign when contacted by CMC and ICA Board Member, Alexandra Wilson. International support was also solicited by CMC Executive Director, André Beaudry, by reaching out to his colleagues who lead NCBA-CLUSA (USA), the BCCM (Australia), and Cooperative Business New Zealand. The response to the sale of MEC’s assets generated a national and international outcry, which echoes today.

As part of its campaign, CMC hosted a national virtual town hall on October 19. Over 150 cooperators from across Canada and internationally, including ICA representatives, discussed current realities and shared ideas on next steps. A majority of those in attendance raised their virtual hands when asked by CMC Board Chair, John Kay, if they would support CMC setting up two national tables to try and prevent future scenarios like the sale of MEC. Frank Lowery, Senior VP, General Counsel and Secretary at The Co-operators (Canada), who is a member of the ICA’s Cooperative Law Committee, was invited by CMC to attend and responded to questions from the town hall facilitators. 

The first national table will review Canada’s existing legal framework for cooperative enterprises, while the second will focus on cooperative governance education in Canada, and how members can be engaged to ensure that the democratic process in cooperatives is respected. These two areas, Canada’s legal framework and cooperative governance, were clearly identified by invited guest speakers at the town hall as elements that were key to enabling the sale of MEC and the failure of Canada’s largest retail cooperative. 

André Beaudry, Executive Director of CMC, says the sale of MEC’s assets have been identified by many experts as the result of two fundamental changes within MEC. “Between 2012 and 2019, many observed that MEC’s debt skyrocketed and its approach to governance had shifted to more of a corporate than a cooperative approach,” said Mr Beaudry, “and there had also been a shift in its management approach and its ranks. If we look at the track record of other large Canadian cooperatives, Desjardins has been successful for 120 years, United Farmers of Alberta (UFA) for 111 years, Sollio Cooperative Group (Sollio) for 98 years, Federated Cooperatives Limited (FCL) for 92 years, Agropur Dairy Co-operative (Agropur) for 82 years, The Co-operators for 75 years, and Gay Lea Foods Co-operative (Gay Lea) for 62 years. These cooperatives clearly have a recipe for success that works very well, one that traditional business operators might want to learn from. They don’t use their cooperative values and principals as a marketing tool, they put them into practice every day”.

While MEC may have lost its cooperative status, other cooperatives across Canada remain strong - they represent 3.4% of the country’s gross domestic product (GDP), provide almost 200,000 jobs in tough economic times, and by a combined measure of jobs and GDP, cooperatives in Canada are ranked higher than the auto manufacturing, mining, and telecommunications sectors.

Could MEC have avoided a sale by staying true to its cooperative values and principles? “I believe if MEC had been run like Canada's most successful and innovative cooperatives, it could have. If cooperatives like Desjardins, UFA, Sollio, FCL, Agropur, The Co-operators, and Gay Lea can thrive for a combined 640 years, why couldn’t MEC carry on,” said Mr Beaudry.

But he thinks the sale highlighted problems with the legal framework for cooperatives – and not just in Canada.

“I think we have to look even further at our legislative framework and at what point should members be overtly informed that a cooperative enterprise is taking on secured debt to the point where within a few years, it could put its operations at risk,” he said. “That's why our legal and governance national tables, led by our members and launched in 2021, will include CEOs of cooperatives, board chairs, in-house legal counsels, chief financial officers, and hopefully retired cooperative leaders, who can provide additional perspective.”

“Through legal opinion that CMC has received, the sale of MEC was in direct conflict with the British Columbia Cooperative Association Act (the Act) and even MEC’s own bylaws. The Act requires cooperatives in British Columbia to seek special resolutions from their members prior to engaging in the sale of substantially or all the Association’s assets, or consultative meetings of members to determine support, none of which took place prior to the announcement of the sale of MEC to Kingswood Capital Management. Furthermore, MEC’s own bylaws echo the Act, such that MEC Rule 8.11 prohibits the sale of the whole or substantially the whole of the business without the sale being authorised by special resolution, and all members have the opportunity to vote on the resolution. All members should have had the opportunity to decide on the future of MEC through a democratic vote, which clearly did not take place. There are a lot of aspects that need to be looked at from a legal framework and from a governance perspective, to ensure that this doesn't happen again,” added Mr. Beaudry.

His message to the global cooperative movement is to examine their own legal frameworks and analyse their governance education programs to ensure that governance in their cooperatives and mutuals cannot take the shift it did at MEC.

“I have heard from some of my international counterparts that they have concerns as well about their own frameworks,” he said. “And I would like to extend an offer that, as Canada establishes and moves forward with its national leadership legal framework table, we would be very pleased to share with our international colleagues the findings and the key directions that we will follow.  We would also welcome our international colleagues to share their findings with us - let's all share, cooperate and advance our global interest together to prevent these scenarios from happening in the future.”

Mr Beaudry added that support from the ICA and his counterparts in other countries, including the USA, Australia and New Zealand, proved the movement was united in defending cooperative values and principles.

On the other hand, what happened at MEC could help to build momentum amongst member owners to exercise their rights and responsibilities and hold their courts accountable.

“What has happened with MEC has encouraged many of us to put our national legal framework’s up to the mirror to see if they do serve the best interests of our sector,” he said. “After MEC, global cooperative leaders must ask themselves: Is my country’s legal framework truly effective in promoting the sustainability of the cooperative and mutual enterprise sector? And it's also encouraged many to take the same approach to look at governance education and perhaps even accreditation, to ensure that values and principles are fully integrated, and that democracy is entrenched in the operation of cooperative and mutual enterprises.”

In spite of MEC’s sale, Mr Beaudry thinks the future looks bright for cooperatives in Canada. The movement has so far coped well with the challenges posed by Covid-19. “We are a significant part of Canada's economy, and parts of the cooperative and mutual enterprise sector will be affected differently, but from the reports we're getting from our members, the cooperative model continues to serve members and Canadian consumers very well.” CMC is about to undertake, in cooperation with three post-secondary institutions, a 2.5-year study on the effects of COVID-19 on the cooperative and mutual enterprise sector in Canada. CMC’s study will also research the resilience of the sector in the face of COVID-19. A complete job and GPD assessment of Canada’s cooperative and mutual sector will be produced for 2019 and 2020. CMC will also take a historical perspective through its study and examine how Canadian cooperatives and mutuals have sustained previous major economic downturns.

“We believe the future for Canada’s 8,000 small, mid-sized and large cooperatives and mutuals is very bright. We think that for a business model that is 150 years old, we’re just getting started. We believe Canada’s cooperatives and mutuals will come out of this time in our collective history much stronger and CMC will be there to support its members well into the future,” he concluded.