(Illustration by Adam McCauley) 

Cooperatives are a common form of shared ownership among agricultural and industrial enterprises around the globe. NGOs especially favor cooperatives for implementation in the developing world, because their pooling of effort, benefit, and risk can be effective for income-generating activities under collective scarcity. But in practice, cooperatives often succumb to conflict among members, such as accusations of free riding and inability to agree on decisions.

Business school professors Angelique Slade Shantz of the University of Alberta, Geoffrey Kistruck of York University, Desiree Pacheco of Portland State University, and Justin Webb of the University of North Carolina at Charlotte were interested in exploring why co-ops so often founder on internecine conflict. They focused specifically on how organizational hierarchy—which serves to settle conflicts about decisions but runs counter to the spirit of cooperatives—affects the viability of co-ops. The researchers undertook a study in partnership with an NGO working in the northern region of Ghana, whose programming consisted of forming and supporting co-ops as a way to diversify the revenue streams of farming families.

The NGO, BetterLife (a pseudonym), had difficulty sustaining co-ops in the long term. The members’ initial enthusiasm waned, and increased fighting undermined the productivity and viability of the co-ops. The research team designed a field experiment to test the relative effectiveness of a hierarchical control structure. The researchers split 45 new co-ops into two sets. One set of 23 groups trained to have a formal hierarchical structure voted on by members. The second set of 22 co-ops were trained to have a flat structure, with no formal leaders. The researchers were also interested in the role of informal hierarchies: Ghanaian society is highly hierarchical, with elders at the top.

The co-op groups in the researchers’ sample, mostly women, made shea butter, soap, or baskets. They received shared raw materials and equipment from BetterLife, and earnings were shared across members. Since most locals depended on farming, the co-op earnings enabled them to increase and diversify income, especially during lean times.

“A number of our interviewees hinted at the hierarchical nature of the co-ops’ structure as potentially problematic,” says Slade Shantz about the initial qualitative interviews with existing co-op members and field staff. “We suggested to the organization that testing the relative effectiveness of a flat structure against the current hierarchical structure may help to attenuate some of the challenges. Beyond the formal and informal hierarchy considerations, an important part of our design was informing how development organizations can engender psychological ownership of the co-ops among their members.”

The researchers compared how the hierarchical and flat structures affected collective psychological ownership (CPO), an important aspect of a co-op’s success, and how the culture’s strong informal hierarchy moderated the influence of an imposed formal hierarchy. Ten individuals from each group ended up completing surveys conducted between 2014 and 2017. The surveys measured intragroup conflict, CPO, and, to a lesser extent, group effectiveness. Disagreements among group members frequently arose at meetings, while making or delivering products, and when deciding how the group’s shared resources should be used. How often members of either group became angry was another measure, as was the frequency with which members behaved as though they were truly owners.

The age heterogeneity of the group’s individuals was important to rating the strength of its informal hierarchy. Groups whose members were similar in age were viewed as having relatively equal internal status and power and a relatively flat hierarchy.

Analysis of the surveys showed that CPO was negatively associated with a formal hierarchical control structure as well as with intragroup conflict. The presence of informal hierarchy (e.g., significant differences in age), however, moderated the tendency toward increased conflict and lowered feelings of ownership under formal hierarchical control.

In post-experiment interviews, the quantitative findings were affirmed via anecdotal reports. Formal hierarchical structure tended to cause confusion about individuals’ appropriate roles, decreasing the CPO and then leading to conflict. One interviewee said that when people hear the word leader or chairperson, “it makes them feel like someone else will be responsible for getting things done,” and they are more likely to shirk their duties. Conversely, the appointed leader would feel her role to be strictly supervisory rather than also pitching in.

The most important practical takeaway from this study, says Dionne Pohler, associate professor at the University of Toronto’s Rotman School of Management, is that “great care must be taken by NGOs in a development context to avoid imposing governance structures on co-operative member-owners. Major problems can arise when a worker co-op’s development and governance structures are primarily driven by the objectives of outside parties, rather than by the worker-owners themselves.”

Angelique F. Slade Shantz, Geoffrey M. Kistruck, Desiree F. Pacheco, and Justin W. Webb, “How Formal and Informal Hierarchies Shape Conflict Within Cooperatives: A Field Experiment in Ghana,” Academy of Management Journal, vol. 63, no. 2, 2020, pp. 503–529.

Read more stories by Marilyn Harris.