The international financial crisis and specifically the economic recession has not just questioned the Market Economy model, but also, against all odds, the bankruptcy of the FAGOR Cooperative, an electrical appliances manufacturer, world exporter and leader in pressure cookers, questioning the high recognition obtained by Mondragon Corporation according to Christopher Byork ; a Model of Cooperative Network admired for its Soundness, Solvency and financial strength – bulletproof. With debts of 850 million Euros (US$ 2,160 millions) FAGOR is one of largest victims in a record year for bankruptcies in Spain. With this, 1,800 employees lost their jobs as well as the access to their savings deposited in the Cooperative. This is a transnational company that operated in more than 100 countries becoming the FIFTH LARGEST electrical appliances manufacturer company in Europe.
What happened to FAGOR is so significant that, according to George Cheney , it has jeopardized the Mondragon Network, affecting the relationship between the 109 surviving Cooperatives and eroding confidence in the weakest ones so much that many of their 80,000 employees now fear for their jobs in a country like Spain where the unemployment rate reaches 26%, despite that this NETWORK is the largest of its kind in the world, with the great achievement of being the seventh largest employer in Spain and which obtained 14 billion euros in revenue in 2013.
FRAGOS Crisis has been painful and produced serious implications across the Mondragon Cooperative Network despite that the Headquarters provided 70 million euros, and since help has its limitations, when the Corporation refused to continue providing financial support to FAGOR Electrodomésticos, critics have questioned this position and considered it a cooperative disloyalty. In fact, FAGOR’s CEO stated: “Time has taught us that the Cooperative model is not a guarantee to prevent crisis. Neither FAGOR, nor Mondragon Corporation, nor the cooperative movement have a moral superiority over Capitalism.” And that is something – as commented in the Salmon Network – which those from the ethical banking, fair trade, social currency or any invention should take into account because, in the future, they might learn the lesson on their own.”
Was a correct and comprehensive strategic planning designed and implemented for promoting the Growing and Internationalization of FAGOR?
To what extent, in FAGOR Cooperative and the Mondragon Cooperative Network, was the Administrative, Economic and Financial Management professionalized to make viable the development in the medium and long term?
Were the Corporation Mondragon Cooperatives regulated and supervised in order that they have an Optimal Effective Equity and thus cover the internal and/or external contingencies in each Company like FAGOR?
Was there a responsible investment in Technological Innovation as a means of increasing FAGOR and Mondragon Network productivity and competitiveness at the management, production and commercialization level to make the Company viable and profitable?
Was an adequate Integral Risk Management system regulated, implemented and controlled at the Strategic, Market, Credit, Liquidity, Operational and Reputational level to identify the potential events that may affect the Cooperative as a Company, as well as for managing them in accordance with the APPETITE and tolerance for the risk to provide reasonable safety in the goals achievement?
The answers to these questions shall be given, not only by the Mondragon Network Senior Leaders and Managers, but also by the Cooperative Organizations from America and the World. Moreover, DELOITTE, one of the most reputable Consulting firms made the first World Survey on Cooperative Financing and Capitalization since the World Financial Crisis in 2008. It concluded and recommended that; “in order that Cooperatives can improve the access to Capital, improve the Risk Management practices and increase the interested parties shares; they must, as a priority, include in its business structure and dynamics” the expansion of the financing instruments range to diversify the Capital sources with REAL PLANS FOR CAPITALIZATION, with an adequate consideration of the internal and external investors to satisfy the Capital and Risks Management needs.” Also, “strengthen the Government processes regarding the Cooperative risk Profile, strategy and operations” among other wise advices.
Furthermore, at the Financial Cooperation level and other typology, it should be taken into account that the Basel III Accords require that financing entities have an effective equity NOT LESS than 20% of the total Assets which must be a condition SINE QUAN NON to protect and safeguard the Savings and shares of the investors. As a Benchmark for business competitiveness and financial strength, bankruptcy proof; there is the COOPETROPERU Model. A Savings and Credit Cooperative which, based on its own tools with latest technology, applied the Liderplan System 15 years ago which constitutes a Comprehensive Planning model, and, the Petrosis Software, a financial system which has automated 100% of the Operations modernizing the financial regulation to an international standard in accordance with the Basel I and III Accords achieving very high levels of Liquidity, Solvency, Efficiency and Productivity superior to those from the financial Super competency showing an effective equity that significantly exceeds the 20% required by the Basel III Accords, apart from capitalizing the Annual Dividends 15 years ago after deducting for the Cooperative Reserve and others in compliance with Law. It can be verified on www.coopetro.com Coopetroperú Model.
But, let’s be clear and fair. FAGOR’s failure does not question the Cooperative Model, but it shall serve as experience for the future because Corporative and Financial Management professionalism, the value-added innovative execution ability, the efficient regulation and implementation of the Integral Risks Management, the timely supervision of decisions and actions, the real increase of the effective equity and Capitalization of the Remainders or profit constitute vital tools to strengthen the sustainable growing and development of a Company, of any typology and operating sector, considering that confidence is a key to bring forward the success of a company and a country. As Francis Fukuyama said “confidence is not a virtue, but a virtue consequence” and Shibusawa , the most important mastermind of the Japanese Industrialization, reaffirmed: “Fomenting productivity is a way to practice virtue.” But to avoid going into bankruptcy and business crisis, Business Leaders have to learn and achieve human solidarity with the economic and operative efficiency, and this requires mutual trust for having always the best Capital Stock. THE END CROWNS THE WORK.
1.- The Wall Street Yournal Américas 01.1.2014
2.- Professor of Kent Unit. Ohio
3.- 2012 Quebec Summit Meeting Memoirs
4.- THE END OF HISTORY Author. Wikipedia
5.- Shibusawa Elichi. Father of Japanese Capitalism