Mr. Darragh Walshe:

I thank the Chair and Members of the Oireachtas for the opportunity to provide detailed scrutiny of the Industrial and Provident Societies (Amendment) Bill 2018.

By way of introduction, ICOS serves and promotes co-operative businesses and enterprises across multiple sections of the economy, making it the leading organisation for registering new co-operatives in Ireland and for providing reliable, experienced advisers on co-operative rules and governance. Our core business is to provide leadership to the co-operative movement in Ireland. We use our collective voice to put the needs of the co-operative movement and our member co-ops to the forefront of what we do. We draw upon the pioneering and innovative spirit of our founding members to help strengthen the co-operatives operating in today's ever-changing and competitive world.

Starting from the agricultural co-operative path set in 1894 by our founding president, Sir Horace Plunkett, ICOS has evolved to serve the co-operative sector in seven core categories: multipurpose dairy co-operatives; livestock sector co-operatives; store, trade and wholesale co-operatives; service-related co-operatives; community-orientated, culture and leisure co-operatives; food, forestry, fishing and beverage co-operatives; and advisory and education-related co-operatives.

ICOS member co-operatives, their subsidiaries and associated entities collectively have more than 150,000 individual members owning shares in them, employ more than 14,000 people in Ireland and a further 24,000 abroad, and have a combined turnover of almost €15 billion. A significant proportion of this turnover is spent throughout Ireland on employee wages, payments to suppliers such as farmers and other small rural businesses and payments or dividends paid to the 150,000 co-operative members. In addition to the economic benefits, co-operatives place great emphasis on enhancing the skills of co-operative staff and management. They do this via the ICOS Skillnet training programmes, which allow co-operatives of all sizes to avail themselves of a wide variety of training resources in order to develop the skills of their personnel.

The Bill proposes a reduction in the minimum number of members from seven to three. ICOS has reservations about the proposed reduction of special members for a number of reasons. We are of the view that it does nothing to materially promote the seven principles of co-operation in the manner that the current figure does. For example, the existing requirement of member numbers encourages the principles of voluntary and open membership, democratic member control, member economic participation and concern for community by simply requiring more people to be involved from the start. Co-operative societies are sustained best where market failure drives collectivism and loyalty. To mitigate this market failure and drive collectivism, there needs to be some level of scale. In ICOS's experience, though not a guarantee of that necessary scale, the seven-member requirement is at least a strong indication of it. ICOS has a degree of concern that the reduction could lead to what we term "cosmetic co-operatives", where a business operates as a limited company while holding itself out as a co-operative in order to artificially gain good public relations and goodwill.

If there are to be benefits for co-operatives, whether in statute or Government policy, for the very reasons of promoting the original market failure and the logic of achieving together what cannot be achieved alone, to reduce the minimum membership opens up greater risk of abuse by individuals who would otherwise pursue another type of company vehicle. If, as a result of the review of the Industrial and Provident Societies Act, it transpires that the existing provision for seven is reduced to a lower number, we would strongly advocate that access to establishing co-operatives at that reduced number must come with strict criteria to mitigate the risks I have just outlined.

As an aside, in ICOS's experience of establishing co-operatives, the member limit is not a barrier to successful co-operative establishment. What is a bar to successful establishment is start-up co-operatives not qualifying for certain supports, such as innovation vouchers, which are currently widely available to companies. This in turn discriminates against the co-operative model and thus reduces the number of co-operatives being established.

Section 14 relates to the annual return exemption and the filing of statutory accounts to the registrar. ICOS continues to support the transparency of filing accounts and the annual return, through AR15, to the registrar. However, it also supports audit exemption for co-operative societies subject to specific criteria. Over the past number of years, ICOS has received an increasing number of requests for assistance from small to medium-sized affiliates in respect of their increasing compliance burden. In addition, we have lost potential new co-operatives due to the prohibitive cost of a statutory audit having to be carried out. This results in them being unable to pursue their preferred corporate model and thus losing out on the co-operative benefits. While recognising the key role that a robust regulatory framework plays in providing stability and fairness in the economy, ICOS is in favour of a statutory audit exemption provided that clearly defined criteria are set out in legislation as follows: the society’s turnover not to exceed a stated amount; the society's balance sheet total not to exceed a stated amount; the number of employees not to exceed a stated number; and the society's membership not to exceed a stated number. In addition, the society's rule book must provide for the exemption and require an appropriate periodic approval by an appropriate majority of the membership for the society to implement the exemption for the society's accounts. Regarding the latter, we strongly advocate that the fundamental points advocated are varied only by an amendment to primary legislation.

The strength of a co-operative is that its members own and oversee the organisation. Co-operatives are answerable to their members and to future generations of members. It is essential that this strategic involvement is facilitated and promoted by any changes to legislation.