Mondragon Cooperative Corporation - Corporate Governance Seminar - Transcript (5th March 2003)

Mondragon Cooperative Corporation

Transcript of Seminar on Corporate Governance Date:

5th March 2003

Present:

Mikel Lezamiz, Peter Beeby, Rick Norris, Rory Ridley-Duff, John Cullen

Location:

Otalora (Management Training School at Mondragon)

This transcript has been prepared by Rory Ridley-Duff from a digital recording of the meeting.

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Mikel: The basic structure of the co-operative is the General Assembly. For example, at Fagor Electronic appliances, 4,500 members, make up the General Assembly. This is the supreme body. After this we have the Governing Council that are 12 members in the case of Fagor. Most [others] are 5, 7, 9 or 12 but it could be possible with only 3. In our culture we don‟t have Governing Council with only 3, but it could be by law only 3, but we have normally 5, 7, 9 or 12. Big companies have 12. They are to serve for 4 years and after two years we change half. After two years we vote for 6 persons, only half. The Governing Council is the governing body, okay. The Governing Council set up every month – every month or more maybe. After that the Governing Council chooses the Managing Director. After that, there is the functional departments: Financial Director, Human Resources Director, Purchasing Director and that one. Also in the General Assembly we choose the account auditors which is a watchdog body in order to control (pause) - only to account and audit the numbers. Also, we have the Social Council, but we don‟t choose in the General Assembly. We choose the Social Council every day – not every day – one day we choose. For example, next Monday we are going to choose the Social Council members. John: “We” being? Who chooses the Social Council?

Rory: The work teams, is that right? The work teams elect the Social Council? Mikel: Work Teams? The Social Council is chosen by work areas in proportion, for example, by the number of persons that are on the assembly line – 20%, in the purchasing department 5%. They choose by this idea. Rory: Is every area represented?

Mikel: Yes – all the areas. Rory: Even if it was just 2 people? Mikel; No. For example, at Fagor there are 60 members of the Social Council because each plant, the refrigerators, each have their own Social Council. 8 persons in the refrigerators, 8 persons in the washing machines. Another 8 or 7 persons in ovens. Another has 13 or 15, another has 5, it depends how many persons there are. So, they have 7 plants, with 8 members in each one, 7 x 8 is 56, plus another in the head quarters of Fagor which makes 60 - this one has 4. This Social Council has 4 functions. To informate. It has an information function, yes? They give information to everybody - they informate. Then there is the opinion that the people have. They informate to the president or advise the Managing Director and also to advise people if the president or the Managing Director ask or say “next Saturday we have to work because the sales are improving”. In that case the Social Council can accept directly or can tell to the people “excuse me , in our opinion, we advise everybody, don‟t pass it because…”. I don‟t know. Or, “we advise you to accept that we have to work on Saturday because it is important for the company or all the people can do with the money”, yes? The third one is Social Control. Next is social control. Two things. First of all, if there is in the General Assembly we accepted the strategy, maybe because the economy not very well or it does not matter what, the Social Council can ask the auditor what happened, and to [explain why] we are selling only 80% of the aims. In that case, the Social Council has the social control in this way. The other social control is simple. If one director or other, takes the decision to punish you or punish me, the Social Council can ask for the reason that you punish because sometimes it could be possible for some boss or some foreman takes the punishment, or puts the punishment very strong, or maybe because he is acting very authoritarian. In that case, speaking to the Social Council is just one….if they don‟t pass your (pause), your capacities – do you understand? – if the foreman takes, for example, you to punish, the Social Council can ask for the reason and maybe go against that punishment (inaudible). Peter: Disciplinary and grievance? Mikel: Yes.

Rick: But as mediators, I can see. Rory: Yes. It‟s (pause) policing the disciplinary and grievance rather than doing it? Mikel: Punishment in general. If, for example, one boss is very authoritarian, in that case, it could be possible that the Social Council say “you are going too far”. This is the function of the social council. The fourth one is the bargaining. Is this okay?

John: Bargain? Mikel: Bargain. Only speaking about the calendar, not speaking like a trade union. For they, for example,

are speaking for the increasing of pay. We don‟t bargain about this increase. We decide in the General Assembly about these kinds of important things. We are speaking about hours, hours of the calendar. For -2-

example, next Saturday we have to work 8 hours. People can say “it is too much – it is too many, 8 hours. Maybe we can work 4 hours next Saturday, and then next Saturday, again another 4 hours.” This kind of negotiation.

John: What happens if they don‟t – I mean – like advise in bargaining. What happens if they don‟t kind of agree? Is this the ultimate…. Mikel: We have in our culture we have not confrontation - we have cooperation. We have to discuss.

John: Dialogue? Mikel: We had problems with this dialogue in 1973. At that time we had a strike for internal problems

because it is possible for external problems it could be possible to do the strike, for example, for political reasons against the government. But speaking of internal problems – it is not permitted to go on strike because we have to respect the General Assembly when speaking of the increasement (sic). In 1973, this strike was only in Fagor, not in the other companies.

Rory: You are saying that in 1973, the communications stopped? Mikel: Yes. This communication. Because we have plan – a communication plan, communication system -

every month we go to the area meeting, we have the General Assembly report. We have also, in most of the cooperative, every four months, or every three months, we have the General Assembly but Information General Assembly of everybody. After that, we have the other possibility, the Social Council. The Social Council we set up every month, which gives the information to everybody. We have our internal system of communication. But in 73/74 – it was in Christmas, the last part of 73/74 – I said that we cut this communication, this dialogue, because we were on the straights. It was because we change the (pause) salary revolution system – you understand – the system to..?

Rory: The reward system. (Pause) The remuneration system. Mikel: Yes. The remuneration system – we changed it. Before, the history of this one is - we have spoken something about payment solidarity – from 1956 until 1973, we have 1:3 – 1.0 to 3.0. At that point, we changed to 4.5. 1 to 3 plus 50% different kind of compensation for General Managers. But not only this one we change. We also changed the system to measure every job, that is 1.1, 1.2, 1.3, 1.4, 2.0, 2.8. In order to measure this one – 2.0 – how can we measure? The system was we take several factors. For example, one of these, the knowledge (pause) – no - the training and knowledge that you need to work very well. The second one – the experience. So, this one – only 1.1, the experience is only 1 week, for example, and the training is zero. You need reading and writing. To be a technician you need, for example, to be an engineer, you need more than 1 year‟s experience. Another one is relations. How many relations you have. An engineer has more relations than that other one. Or the General Manager has more relations and more qualifications than the blue collar workers. Rory: You mean supervisory - supervising people?

Mikel: The supervisory also has more relations or higher relations than the blue collar workers. The technician - the commercial technician - has more relations than the foreman. Different kinds of relations – different kinds of products - are factors: training, experience, relations. The fourth one is „force‟ (pause) – if you have, no, for example this is very old. Force (pause). If I have to (simulates picking up heavy object) every minute. Rory: Strength?

Peter: Manual work. Mikel: Manual work. That was for a manual person. The need to do manual work – for manual person. Technician, in that case, they have only zero. How much force?

Rory: How strong you are? John: It‟s physical handling, isn‟t it? Mikel: No handling. Peter: Effort? Mikel: Effort. Effort. You have to effort to do some thing (sic), and in this case, to put this one here, always put in here, you have effort and another factor also relations. Blue collars workers have very small training, small experience, small relations – they have relations – but only few. More effort than the other workers.

They changed to this system – the HAY system for remuneration, H-A-Y “hay” – that was changed to this one. With this system, the blue collar worker gets only get 1.2, 1.3 and no more. But the technicians, the engineers, with 1 year and a lot of relations, they have 2.2 or 2.4, a bigger difference with blue collar

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workers. The blue collar workers started with the strike because the Governing Council and the General Manager did not accept to speak with them (inaudible). Okay. John: You‟ve moved to the HAY system, haven‟t you?

Mikel: That‟s right. Some of the cooperative moved to the HAY system, with factors. But now, for example in the head quarters, and in the new cooperatives, and most of the cooperatives – more than half actually do the system of competencies.

John: Competencies. Mikel: Of competencies. For example, a small company for example. Blue collar workers are 1.0 – 1.30.

They are working in groups. They are between 1.30 – 1.45. Then, secretaries are between 1.5 and 1.8, for example. Technicians – different type – operation technicians, managerial technicians, application technicians. Peter: We have just introduced something very similar, Mikel.

Mikel: Yes. For example, operation technicians have between 1.80 and 2.30. Application technicians have between 2.50 to 2.70. Managerial technicians (struggles to find words)… John/Peter: Technical managers?

Mikel: Technical manager. Yes. They have 2.70 to 3.0. After that, the boards of areas have 3.0 – 5.5. If you started as a technical manager - if you are good you probably have 2.80 or 2.90, if you are pretty good 3.0.

Peter: It is very encouraging because we developed this without really analysing other systems. We just

looked at it in terms of what we thought would work for us. We benchmarked pay levels for specific roles in our organisation and took that into account with regards to our (inaudible). But this is exactly what we have done. Mikel: This is our system. I don‟t know around the world, but here, for example, last month, we approved inside the Arizmendi School – we approved this system also. This was 4 schools – 4 educational school here in Mondragon and [elsewhere] – we met last month in only one cooperative - the Arizmendi cooperative. Before they were 4 cooperatives and 4 schools. And now last month in February, now we passed to set up only one cooperative – the name is Arizmendi - and we approve this system also. No, we don‟t approve – we inform to the 300 workers this system – and I hope this month in March we are going to approve this one. We hope.

Rick: Within the structure, Mikel, who agrees. Is this agreed by the Social Council or the Governing Council? Mikel: In the last moment the approval is by the Governing Council – the Governing Council has the power. Who makes the proposal? The proposal and the study is made by the executive body. The General Manager. Last week, in February, the General Manager of Arizmendi proposed this system for the new cooperative, this Arizmendi cooperative. 4 cooperative, 4 different culture – one of this was from 0 year old, kindergarten, 0 – 6 years. The other works from 6 – 16 years, and another cooperative from 6 years – 18 years. Different cultures – different ways of weighing things up. The General Manager proposed to the Governing Council.

Well – first of all, two weeks ago, we proposed to the Social Council about this new system – they knew that we were working about this new system. But we informed them - now they are discussing. Also, we inform to the Governing Council (sic). Now we are in different small committees studying this one – they also, the workers also - and next week, next month, I hope that in the Governing Council that we are going to approve. If somebody has any problem, it could be that that we will discuss in the General Assembly. But no, very difficult to discuss in the General Assembly with parents and with students. No we have to discuss and to approve in the Governing Council. Most of the things, for example speaking about the calendar - next Saturday we are going to work. We have to work next Monday and Sunday - it is very important. The Managing Director propose – in that case – propose to the Social Council – propose to the Governing Council also – but also to the Social Council. We discuss with them that maybe we are going to work only 4 hours and we agreed this. In that case, it is not going to the Governing Council. But if parents are going too, it goes to the Governing Council. John: How do you operationalise that? In the sense that you may… you just said that the Managing Director might say “Next weekend, we need to work 8 hours on Saturday and 8 hours on Sunday”. That goes to the Social Council? Mikel: Yes – speaking about the calendar. Yes, because they have the bargaining function. John: Right, yes. And then, but there are no agreements in the short term. That would then go to the Governing Council, but the weekend has gone. -4-

Mikel: Yes, because this Social Council is only a voice, a social participatory organ but the power has this way (points to diagram). There are cooperatives smaller than 100 (inaudible) – with smaller than 50 workers we did not have anyone. Smaller than 100, we don‟t have this one [a Social Council] so the problem is between this one and this one (points to diagram). John: But the governing council only formally meets every month, you say. Can you have dialogue with it in between that?

Mikel: I don‟t‟ know but in the meantime I have meetings with the General Manager every week - I am not

working there, because the school is (inaudible)….. Speaking of Fagor, the Governing Council works in Fagor - the General Manager – everybody - works in Fagor – the relationship between the General Manager and the President is maybe every day. But not in the school, because I am not working there – I am a father – I am not working there. But in my school – in Arizmendi - General Manager and the Social Council, they speak a lot because they are working every day there.

Rory: You are saying in the smaller cooperatives, you don‟t have a Social Council. Mikel: Yes, yes. In Arizmendi, yes, because they are 300. Also, in the polytechnique school, in the

humanities (struggles for words) and the entrepreneurial faculty, I think they don‟t have any Social Council because they are small – 45. In the school, yes, in the engineering faculty they have the Social Council. Also, in Arizmendi, we have the Social Council because they are 300. Yes. This Social Council is only for workers, not for parent.

Speaking about Fagor, an industrial cooperative, the Social Council is in contact with the General Manager, is in contact with the President, every - maybe not every – day. This has also one President they have a small committee (inaudible) - to speak about every thing. In Fagor, the relationship between the Manager and the President is every day. In short, every day. Every week they sit down at the table, but everyday maybe speaking 5 minutes “Well, what do you think about that?” It is very important for us. In our culture, the relation between the President and the General Manager - if the relations are confrontational problems – that company is not going very well. Peter: Is the President part-time?

Mikel: No. The President normally, is not part-time as the president. He‟s a technician, for example – he‟s a technician. He earns his salary as a technician, not a president. In the case of Fagor, yes. In the case of Fagor, the president is full-time president. Because Fagor is very (inaudible) – and also this president of Fagor is also the president of the group Fagor. At the same time, he is the president of the group Fagor, and Fagor-Domestic Appliance. He is full-time. John: Full-time to do that particular role.

Mikel: That happens in only that one. There is another one - an automotive component company. They

are 1,500 workers. In that company, the president is half-time president, the other half-time works as a technician. The president should be/could be one blue collar worker, a technician or a director, all is possible. Peter: Mikel, in reality. The Governing Council are voted in – elected?

Mikel: The Governing Council? Peter: Are elected, yes? Rick: Elected from the workforce? Mikel: Yes, from the General Assembly. Rick: The General Assembly is everyone in the company? Mikel: Everyone. 4,500 in the General Assembly chose the Governing Council for 4 years, and this Governing Council choose the Managing Director. Peter: Right, Two questions. In reality, do the Governing Council tend to be managers, department heads? And the second question, how much do they change every four years? How much change is typical?

Mikel: The President spends eight years, generally. So, two times. This is the average. Some of them are more than 12 years as a president. And another are only 4 years. The average is 8 years.

Peter: Who elects the president? Mikel: In most of the cases, the General Assembly choose the Governing Council members and inside the

Governing Council they choose the President. This is in most of the cases. But in a number of cooperatives, it could be possible that in the General Assembly, they choose the President, the VicePresident, the Secretary and the other members – normal members. This is not common. In most of the cases inside the Governing Council they choose the president. That is, for example, the case at Fagor or at Arizmendi in my case also. In the Governing Council they choose me, I don‟t know why (laughter). -5-

And the third one – the next question – the president spend more than two times, two times or more. The others, the members – most change every 4 years – the members…the members of the Governing Council. Speaking about if some directors are members – if I understand well – if members are directors. They could be members of the Governing Council - yes they could in most of the cases. In Fagor, two no - one of these, for example the Human Resources director, is a member of the Governing Council also. But, for example, in most of the cooperatives, some of the directors are also members of the Governing Council, but only one or maybe none. At Fagor - I can remember when I was there - one year we put, we choose in the General Assembly, 3 directors to be the member also to the Governing Council. At that moment, we realised that – well - this was not very common. Because they are professionals - members, but professionals - that are also in the Governing body. In the 1980s – the late 80s – we put one internal rule inside Fagor - only in Fagor there is not a rule in the others - but in Fagor we put “less than one fourth, a quarter, less than one quarter should be directors”. In the case of Fagor, 12 persons. So not more than 3 person could be possible to be at the same time a director and a member of the Governing Council. At the moment it is only one person. At Fagor, in the Governing Council at the moment, there is only one person that is a blue collar worker only one. He is very kind, very integrated, and people believe them – is a natural leader, yes, but only one. The other are technicians, on high qualificated (sic) technicians, because Fagor sells a lot in all the places in America and Europe. So, it is difficult to be on the Governing Council and understand all the things that are happening in Japan or that happen in the world. In the other cooperatives, the industrial – with, for example, 300 or 400 cooperative workers - in most of the cases, in the Governing Council there are not the half, but more or less blue collar workers. If there are 9 persons, maybe 3, 4, 5 sometimes are blue collar workers, and the other 4, 5 or 6 are technicians, some may be directors. This is our history. Sometimes there are problems between the blue collar workers and white collar workers that happen. For example, in Fagor - Industrial, last month in January, all the team was speaking about how we can improve the teamwork system. In that cooperative, they have 400 workers, 9 person in the governing council. Last year, in 2002, they had to change the Governing Council, the half. At this moment, there was a fight between the blue collars and … at this moment there are 5 blue collar workers, 4 white. This is because there are more blue collar workers – 60% are blue collar workers, and 40% of staff are white collar workers. There were a fight (sic). This is not good. In our philosophy this is not good but sometimes is happens. It was a fight and also a political problem. Some of them were left problem - were from left political party, and the others were middle, no centre Basque nationalists but less nationalist but close to the ETA. The same idea, but the ETA. The others were more or less nationalist, but more or less the middle or centre. There was a fight, a political something, they fight the blue collars workers.

Peter: Is that having a bad effect on the company‟s performance? Is that negatively affecting the company performance? Mikel: Yes, in our opinion. Also, they are …. I am helping them as a coach to the Governing Council. As a coach, because – as I told you before – that they have to develop their three skills; communication skills; how we can make decisions; and the third one is leadership. I am the coach of this Governing Council. We speak sometimes about these problems, about the political problems, and this confrontation between blue collar workers and…. they realise this not good. Well, they are happy now, because they have more blue collar workers. They are happy, but they realise this is not a good situation for them. Now we are dialoguing between them and between different things, coming together on this, but it is not a very interesting situation. I hope that in next two years, they are going to change, that this General Assembly will be a normal General Assembly, that they will choose the best, not my friend, not my ideological friend. Rick: Two questions, Mikel. Firstly, how do you decide how many people are on the Governing Council. In Fagor, 4,500 General Assembly 12 people, and in another company 400 and 9?

Mikel: There is no general rule. There isn‟t any rule. In an agricultural cooperative 20 person or 18 person,

5 persons. If they are less than 100, 5 or 7. We don‟t have any rules to say, well, 200 or 300, between 7 and 9 person. It is to – the objective is to get information from all the parts. It is not always possible from all the parts. More than 12 it is difficult. That is the reason that with only 1,000, 12 person. With 4,000, 12 person. Rick: How are they actually elected? Do people put their names forward and say they would like to be on the Governing Council. So they ask for volunteers?

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Mikel: First of all, if they ask for volunteers, nobody goes (extensive laughter). After that, the Governing Council choose or propose – if we need, for example, to change 4 person – the Governing Council propose 12. Each one – three times; three person for one post, yes? The Governing Council propose part of them and also the Governing Council propose part of them, the Governing Council and the Social Council, yes? Rory: Are you saying that the Governing Council members also nominate people to the Social Council? Mikel: Well, half the Social Council nominate, the other half the Governing Council nominate. And sometimes, there is the same person, sometimes. And also there are volunteers. After that, in the General Assembly we vote – when we start the General Assembly, we have to go with the paper with the names. If we are going to choose 4 person, there is a list of 12 person, and we have to make the cross, and when we start the General Assembly we vote and after that some person, doing the counting. When we go – at the end - when the speaker finishes the annual report, the strategies, how much we would like to increase many things, maybe things in the institutes. Then the re-election of the members, and in that time then the people who were counting say “John has 70 names and others have… “ so the new members are John, Peter, Mikel…. Rick: Can I just clarify? So the usual way of doing it is that the Governing Council nominate people. Did you say that the Social Council also can also nominate? John: That‟s for the Social Council.

Mikel: Also the Social Council nominate. John: For the Social Council. Rory: For itself or for the Governing Council? Can the Social Council nominate for the Governing Council? Mikel: No, no. (discussion). This Social Council in several cooperatives, it does not exist. This is not compulsory.

Rick: It is only the bigger cooperatives that have a Social Council. Peter: The Governing Council nominates 3 candidates for every position. Mikel: Per each. You need to change 4 person, 12 person also. Sometimes they don‟t have enough person. Sometimes they only nominate 8 person and also they nominate another 8 person (sic). Also, it is compulsory to go the General Assembly – when we set out the General Assembly - before the General Assembly we have all the papers, and all the mentions of people, John, Peter, Carl etc.. At least 3 times the people we need to change, so if there are 4 new members, there are 12 or more, normally only 12.

Rory: What happens if you nominate somebody that does not want to be a member of the Governing Council? Does that happen?

Mikel: I tell you what. It is compulsory to accept all the responsibilities: Social Council and Governing Council – it is compulsory.

Rory: So as a member you are accepting that you can be nominated and that you must serve. In theory! Mikel: For example, I did not want to be the president (mild laughter) – it‟s true – because my wife work as a teacher and we have problems – big problems (laughter). But the problem was that you have to be and that it is compulsory. So, if someone do not want to be nominate (sic) – when the Governing Council nominate, or wanted to nominate you, they normally speak with you, yes? Er, Reo? Rory: Rory. Mikel: Rory, Rory. That is difficult (laughter). Rory, we were thinking in our committee, and we are thinking that you are a person to be a member of the Governing Council. And you say, “oh no, no (mumbling)”. We say “Yes, yes you have to do that”. You say “No, no it is impossible, impossible because I am the president of (inaudible) …..” in that case, it may be that they say you can leave. But if the other say “no, no, sorry” - if you are to serve in the General Assembly, you have to accept. Some of them present, for example, a medical paper – I have heart problems – it could be that the next one, if we choose on the form, the fifth is chosen because you have presented a medical paper. But otherwise, for four years, you are elected. Peter: Mikel, can you stand again after 4 years? Mikel: Yes, Yes, everybody. After 4 years, everybody.

Peter: So the reason why the most people only serve for 4 years is because they decide after 4 year “I don‟t want to stand again”. Mikel: Yes.

Peter: Why is that? Mikel: Why? -7-

Peter: Why don‟t they want to stand again? Mikel: Because you have to face decisions – sometimes hard decisions, against people. Or big decisions

that you are under stress - under stress. It is not easy to be a member of the Governing Council – because you are not paid. You don‟t get any money for being this member. It is hard. Well, it is (hesitates), it is true and it is not true because sometimes people say, I don‟t want to be on the Governing Council. But, of course, you have a lot of information. You can decide something. You don‟t want, but in another way you want. Yes, because you have information and you have power. Sometimes, it could be that he wanted to be re-elected, but the General Assembly they choose another one.

Peter: Governing Council positions. For each vacancy, three people are nominated. Now - are those three people nominated for a specific position, or for example, if there were 4 vacancies, and 12 nominations, then is there just a list of 12 on the voting slip, or are there 4 lists of 3?

Mikel: Normally goes 12 nominates (sic). When the Governing Council nominates a person, the Governing

Council – and also the Social Council – but the Governing Council say “In the Governing Council, now we are business administration people, we are engineer, we are technician, we are (inaudible). Who is going to leave the Governing Council? Rory – that is business administration, and the other one. We need somebody that know very well about the numbers, business administration. Or sometimes we need an engineer, or sometimes we someone else. The Governing Council say “Rory, don‟t you want continue?” “No, no – I don‟t need more problems and bla, bla.” We need someone who has business administration degree, and that one. There are 5 persons as well. Who will be one person that is accepting? That one, and that one, okay. That one - do you want to be a member? So, the Governing Council choose or nominate person who are interesting for being a member of the Governing Council (sic). Also the Social Council, in Fagor – Industrial, it happened that the Social Council nominate to be a member of the Governing Council blue collar workers. Blue collars workers are those that are strong, with heart, blue collar workers but acting against normal. So we had at that moment, last year, they thought that the Governing Council will have to put members who are strong and will defend the position of the blue collar workers, not the position of the white collar workers. Peter: So, we‟ve got a vacancy. We need a business administration person. So we put another business administration person….

Mikel: If it is possible! Peter: If it is possible. But of course they might not get elected. And so the balance of the Governing Council is ….

Mikel: Is not a balance. Yes – it has happened. It might happen. Rick: Earlier you said that you had 4 or 5 blue collar workers out of 9 on a Governing Council and you were saying that didn‟t work very well.

Mikel: At the moment in Fagor – Industrial, this is not a balance. There are more blue collar workers and

the other 4 technicians. There is one engineer, another one is business administration, and the other ones I don‟t know. So there is no balance – for the next 4 years, sorry the next 2 years, because after 2 years the older members of the Governing Council should change, or be elected again. At that moment they are going to think to balance again. But for the next two years, or 4 years, they are going to have to work with this de-balanced system. Peter: Governing Council decide what? What is their area of decision-making? Mikel: (hesitates).

Rory: You know you said that the Social Council had 4 areas of responsibility. What are the same for the Governing Council? John: They run it.

Mikel: All the possibilities. The Governing Council has to control the Managing Director. They have to take

decision about … for example to open a new factory. We are going to open a new factory in UK. Who is going to do this proposal – the executive body.

Rory: Yes. Mikel: The Manager, the commercial and financial think it could be interesting to open in the UK. The Managing Director proposes to the Governing Council.

John: So the Governing Council is the decision-making body. Peter: Alright, so the Governing Council determine strategy (sounding irritated). Rory: Determine strategy? Or just…. -8-

Mikel: Yes, they determinate (sic), but the proposal comes from the professionals. These are the professionals and they propose the strategy and the Governing Council either accept it or not accept it. When we make the reflection – the strategy reflection – we don‟t speak about strategy planning. That was more or less 20 years ago. Now, in the last 5 years, we speak more about strategy reflections. Because the planification (sic) is numbers. Reflection is not numbers, reflection is more ideas. This is more strategical (sic). Speaking about strategy, we try from MCC headquarters, we push to all the cooperatives, to all the managing directors saying that in order to reflect, because we make every 3 or 4 years, we make the strategic reflections. Who makes the strategic reflections? We try to push to the managing director to think about the strategic reflection, should not only be the director, not only the directors. All of the Governing Council, some of the Social Council, not everybody. The department boss, and sometimes the foreman also. And if we have former president, former governing council members, try to put in the same committee for strategy reflection. Not only you. The EFQM, as you know, say, speaking on strategy: “If the managing director make – only he alone – makes the strategy, only 1 person, then from 80 point he has only 5 points. If the strategy makes not only the General Manager, but also the board of directors, and something more else, only 20%. If the strategy makes a lot of people – 4000 is not possible – but more and more people you have more points. How do you communicate the strategy planning? No – we don‟t communicate, then no points. But if we communicate, we put on the blackboard the strategy, 5 points but no more. We discuss - after that with everybody the strategy planning. We make two times, two meetings - you can get 80 points. This is the philosophy also of EFQM, and this is our philosophy from MCC. The style of management should be this way. Speaking about these things, in general about strategy, the General Manager propose after discussing with a lot of people - after discuss - and the Governing Council decide. Sorry, the General Assembly! The Governing Council accept it then when we set up the General Assembly in May or April, we have to approve or discuss the strategy planning.

Peter: Your strategic reflections are 5 years - a 5 year cycle. Yes? Mikel: No, 3 to 4. Before it was more thinking about 5 years, but now 3 or 4 year. Peter: At Fagor yesterday, he said 5 years. Mikel: Did he say 5 years, at Fagor? Yes, well, it could be. Peter: Now I understand why it is 5 years (laughing). Mikel: Well, in general it is 3 or 4, and after 2 years you make a revision. Peter: I certainly see the logic of it. The Governing Council is the House of Lords isn‟t it? Rick: It is almost like a civic duty. John: I was just writing down here, in the Health Service, where I was just working. Within a primary care trust, you‟ve got a executive group (sic), and there is an executive meeting. But the actual board, which includes in their sense non-executive directors…. (pause) it is the executive group who make the decision but propose. The board has to rubber stamp it. That would be the equivalent to the Governing Council, not totally equivalent, but similar. Mikel: The Governing Council does not know a lot about the strategy. In most of the cases, in 98% they accept the Managing Director‟s proposal, in most of the cases. Sometimes you can change something. In most of the cases, the Managing Director has more power because he has all the information. John: The executive group has got the power basically, but the governing council is there as a symbol of (inaudible). Peter: That is why I see it as the House of Lords. Mikel: If the Governing Council does not accept the Managing Director‟s or executive body‟s opinion on strategy, they have to change the Managing Director. Peter: They have to change the Managing Director? (laughing). Rory: If they don‟t accept.

Mikel: After 1 year, or 2 years, it could be possible that they change. It is not good but…. Peter: And you said that the Governing Council appoint the managing director and all of the other directors? Or does the Managing Director appoint the other directors?

Mikel: Point? Peter: Who decides who the department directors are? Who decides? -9-

Mikel: In this case, the Managing Director propose the Financial Director to be John – in theory, three person – John, Rory and Peter. In theory - because perhaps he is retired or because he went to another cooperative or because he is not a good Financial Director. The Managing Director propose to the Governing Council to be Rory the director. In theory, the Managing Director has to propose three person, Rory, Peter and John. But in fact, he proposes only Rory. Rory: So, the MD, the Managing Director, proposes who should managers at the level below, and they always have to be approved by the Governing Council? Mikel: But only at this level. At the other levels, the Governing Council does not know anything about it. Here, I support that the Financial Director is going to propose who is going to be the controller, and if the General Manager is happy, then it is okay. Only in his level do the Governing Council elect, or choose, decide the person, but proposals by the General Manager. Peter: The Managing Director, and the department directors, are the operating board.

Mikel: Yes, There is an executive board, yes. Peter: And they meet monthly. Mikel: Every month, or more. The General Assembly every year. In most of them two times a year. Plus information General Assemblies every 3 or 4 months. Informational about how is going the business. The other one only two or three times, in order to audit all the data. And after the other one, the executive council every month, the Governing Council also, and the Social Council also.

Rory: Are there any mechanism to convene an emergency General Assembly? Mikel: Two things. We have one General Assembly that should be set up every January. And after that, the Governing Council can call a General Assembly, and also the Social Council can get 10% of all the members to sign to call one extraordinary General Assembly. -- End --

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