1. 1
Introduction:
Since the capitalistmodel hasdominatedthe mode of doing business for hundreds years, there are
more and more pioneers exploring a new way which differs from it. Scott Bader Commonwealth
(SBC) is such an example. It was founded in 1951, when the founder of Scott Bader, Ernest Bader,
was tryingto fulfil the blueprintof ‘trusteeship’, a concept from Mahatma Gandhi. The SBC mode is
so different that 90 per cent of its shareholding was distributed to every employee and this thus
made it a closedcorporation ora so-called‘cannotbe takenover’company. Several academicshave
done research in SBC and its common ownership model. Quarter (2000) fully discussed SBC case
from its story to its democracy and also problems. Some researchers concentrate on more specific
perspectiveslikeGuidi (2010) discussed SBC from moral debt, conflicts of interest and agency costs
angles.
This report is structured in two sections. In the first section, there are general descriptions and
discussion of SBC in terms of dialectical tensions, conflicts of interest, information asymmetry
problem, board's structure and its community councils. In the second part, recommendations are
provided.

2. 2
DIALECTICAL TENSIONS VERSUS BUREAUCRATIC CONTRADICTIONS:
Provocative ironies, contradictions, and paradoxes pervade the literature on and experiences with
employee participation and workplace democracy.
From a communicationperspective,participationis constituted by the discretionary interactions of
individualsorgroupsresultingincircularitylinkagesthatpermeate traditional worker/management
boundaries (Stohl, 1995:154). In a common ownership corporations like Scott Bader Common
wealth, the “democratic” structure of cooperatives is ideal for creating individual empowerment;
however,effortstoaccomplishsuchalternative organizingare oftenplaguedbypragmaticpressures
to conform to mainstream practices. It is difficult for employees to maintain their “integrity” over
time when trying to manage issues of competition and inefficiency as well as pressures toward
expansion. Understanding the democracy and industrial democracy is still a behavioural issue of
minority employees in SBC.
Expandingpressure createsdialectical tension versus management or bureaucratic of organization.
Dialectical tension and contradiction could be in many ways, we consider autonomy against
solidarity as major concern of Scott Badar Commonwealth. Participatory networks represent
systems of exchange and integration rather than coercion and separation (Lipnack&Stamps, 1986).
Autonomyisconsideredasself-expressioninadecisionmakingandinclusiveness of organization. In
any democratic organization, there is always the risk for the individual giving up more agencies
through support of the whole collective than the person might have wanted or that a third party
wouldsee asappropriate.All participationinScottBadarCommonwealth,of course, involves some
surrender of autonomy. Barnard (1938/1968) articulated well what we might call the master
paradox of organizational involvement:togaincertainthingsintermsof powerand efficacy through
adherence toan organization,the individual member also must relinquish some degree of agency.
The autonomy paradox is well documented in Scott Badar Commonwealth, wherein individual
commitment becomes crucial to the organizations maintenance and success but at the same time
may be oppressive for the member. Individuals can, in a sense, lose their autonomy, even though

3. 3
the ideology or constitution of the organization officially protects individuals’ rights and “space of
action”. Whether through a clearly defined contract or by evolving practice, individuals in
democratic organizations may find themselves largely absorbed by the organization, thus
experiencingaviolationof the principleof “partial inclusion.”Thisprinciplesuggests that in all cases
exceptfortotal institutions,itisan individuals role rather than the circularity of power or inclusion
of employee as a whole that is contained within the social boundaries and exercised within the
Principle memberof the organization.Employeeswhoimpressorinfluencethe Principle member of
SBC are witnessed to emerge successful in the career and organization.
Industrial democracy is followed for decades in SBC; as well the problem of autonomy against
solidarity of principle members is widespread. Self expression is avoided and coercive means of
decision making and inefficient circularity of power is been witnessed in SBC. Opportunism and
coercive influence and underpinning of parental members are still invisible hands in Scott Badar
Commonwealth.
CONFLICTS OF INTERESTS:
Aftersettinguphisbusinessinaconventional capitalism way for over three decades, Ernest Bader,
the founderof Scott BaderCommonwealth(SBC),startedtoseekanew mode, common ownership,
whichwasnot ‘war-based’anddifferent from the existed capitalism and socialism (Quarter, 2000).
The conventional way, which was considered as ‘outsider’ corporate governance system in the UK
has a basic conflict of interest between strong managers and widely spread shareholders (Maher
and Andersson,1999). Furthermore, as a closed company, the main conflict of interests in SBC was
the conflictbetweenmanagersandworkers.Managers,who are nominated by its superior leaders,
are ‘born’to manage theirsubordinateswhich,tosome extent, would naturally have conflicts with
them.
However,thisproblemwasbasicallyaddressedinSBCbyitsspecial governance structure. The
Members’Assembly(MA) wassetto representthe interestof the Commonwealthmembersfromall
sitesaroundthe globe,whichhasthe responsibilitytomake sure thatthe SBC is ledbycorrect
people or,inotherwords,the rightto approve the nominationof keypositions.While the principle
that membershave the rightandresponsibilitiestogetinvolved,vote andstandforelectionhas
beenwrittenintothe constitutionof SBC,managersbecame the agentsof employees.Inaddition,
withall the Commonwealthmembersownthe shares of the company,everymember,including

4. 4
managers,became the shareholderof SBC.That isto say, inthe group of shareholders,employee
shareholdersvote toselecttheiragentsasmanagersandtheiragentsrepresenttheirinterests.The
solutionthatincludesemployeesandmanagersinasame groupleadstothe alignmentof interests
fromboth sides,reducingthe conflictsof intereststothe minimumlevel.
ASYMMETRY INFORMATION:
As for the asymmetric information aspect, considering the principal-agent problem, the SBC,
as Guidi (2010) defined, is ‘a moving away from principal-agent system’. According to
Elbadry et al. (2010), the degree of asymmetric information has a significant correlation with
that of ownership concentration. In SBC, since Ernest Bader and his family devoted 90 per
cent of their shares to employees, the ownership of SBC has been highly decentralized,
which led to the reduction of the degree of information asymmetry.
The main task of principal-agent theory is to find out the solution to the problem of how to design
optimal contractsto motivate agentsunderthe circumstance of conflictsof interestand asymmetric
information.The SBChasdevelopedsucha contract formed by incentive schemes, bonding, a good
monitoring and periodical election institution. For instance, incentive schemes are a measure to
encourage employeesinthe organization.Benefitsandremunerationare twodifferentincentives in
SBC. A equal share of an employee incentive is provided to Commonwealth Trust for charity. Thus,
an incentive scheme of an employee helps in empowering social maximization as well as
shareholders.All thesecontributetothe alignment of objectives from the bottom to the top of the
organization,whichmeansthe influence of principal-agent problem has been reduced. Beside, set
the Members’ Assembly (MA) as an example, a periodical election institution that the tenure of
members of the MA lasts for three years and can be re-elected for twice is established to limit or
motivate them.Inthiscase,the SBC,could be a clear example of closed corporation which has well
solved principal-agent problem.

5. 5
ROLE OF BOARD IN SBC:
The Scott Bader commonwealth was set up in 1951 by Ernest Bader and his family, which was
influenced by “trusteeship”, a concept from Mahatma Gandhi. They took a momentous step of
giving 90 percent of their personal shareholding to form this novel idea of common ownership
(Quarter, 2000). Bader set up a dual company structure and this arrangement indicated the
transformation for family’s stock to Commonwealth. The transfer of ownership from family to the
trust showed the structuring as a charitable trust (Quakers in the world, 2015). Thus, to safeguard
the Commonwealth’sstability,the constitutionspecifiedthe boardof trustees.The boardof trustees
was required to influence the operation of company as well as to approve any changes to the
constitution simultaneously (Quarter, 2000).
Individual members in Board
The Scott Bader Commonwealth is a holding corporation and a registered charity, which indicated
that the Commonwealth board is not involved in the day-to day running of the business. The main
responsibilityof the Commonwealthboardistoensure the companyfollowsupthe Commonwealth
Principles.Onlythe Commonwealthmemberscanbe the members of Commonwealth Board. There
are tenmembersinthe boardinclude:Five externallyappointedGuardianTrustees;Three internally
elected Members; The Chairman of Scott Bader Company Ltd and The Chairman of the Members’
Assembly.Everymemberof the boardare directorsalsoCharityTrustees,whohasthe responsibility
to ensure the charity is run in conformity to charity law.
Role of the Board
The Board has the responsibilityforconsultingontopics about company’s aims and future business
strategies, plans and acquisitions as well as the distribution of profits (Mallin, 2013). For SBC, the
Commonwealth board of directors are also monitors the development of industrial democracy
within the Scott Bader Company Ltd. However, the Commonwealth Board do not have power to
dispose of any shares in Scott Bader Company Ltd or directly exercise of the votes to such shares.
Role of the individuals in the Board
For each individual, different position decides the different role of administration. As the
Constitutiondisplayed,Guardiantrusteeshave the obligationto safeguard the constitution, of both
the Commonwealthandthe Corporate and ensure the Commonwealth steer the right course to its
foundingpurpose andguidingprinciple.Theyhave the powerandduty to put a veto on any changes
to the constitution,anymeasure taken by the Group Board in Scott Bader or Members Assembly or

6. 6
Charity Law. Their special voting right gives them the authority in relation to the Trustee Shares in
Scott Bader Company Ltd. The guardian trustees need to demonstrate that they are fully in
sympathy with the Commonwealth’s founding purpose, principles and value when they act
unanimously.Internallyelectedmembersof the CommonwealthBoardshall serve forthree years.At
the endof the duty,theyare eligible forre-election. As for choosing the chairman of the Board, the
Chairman of Scott Bader Company Ltd and the Chairman of the Members’ Assembly may not have
the chance, it normally appoints from Guardian Trustees.
ROLE OF LOCAL COMMITTEE COUNCILS:
Between1998 and 2004, there wasa significantimprovement of internal democracy that extended
worldwidely.Earlier,more than50 staffs,SBClimitedshouldensure alocal representative council in
itsmembercountryisestablished.There are mainly five local councils located in the world, that is,
UK, SouthAfrica,Dubai,Croatiaand France.In orderto strengthendemocraticengagement, a cross-
culture and multi-faith Members’ Assembly was set to represent all commonwealth members
worldwide.The structure of SBCremainedhierarchical butacloselyconnecteddemocraticsystemof
committee councilsisintroduced,withdifferentresponsibilitiesandcontrol on disciplinary matters.
In contrast to shareholder wealth maximization in discounted cash flows, stakeholder wealth
maximization increases firms’ value to society through better corporate governance and decision-
making(Guidi et al., 2008). Local committee councils are responsible for safeguard and direct local
workforce to create more social values. Local people are a major part of the workforce in SBC
(HadleyandGoldsmith,2012).Unlike typical employee-owned companies, individual employees in
SBC have no stock value but voting and income rights associated with ownership (Quarter, 2000).
Local communitycouncilsshouldprotectbothalienable andinalienable rights of all employees and
provide them with personal growth opportunities. Self-governing structure makes workers in SBC
are trustees-in-common of company assets to ensure long-term corporate success and managers
cannot fire them directly (Scott Bader Commonwealth, 2015). On the other hand, local committee
board follow the rules set by the board of Scott Bader, as they provide a fair reward system for its
local employees. Once local employees are involved in charitable project, they are rewarded
accordingly (Bader, 1986).

7. 7
For SBC, it seeks not only financial return, but also social returns. Another role of local committee
councilsisto achieve the firms’social valuemaximizationfromexternal environment. Although the
SBC produceschemical products, all the products are ethical (not for war) and eco-friendly. Local R
＆D department aims to create long-term sustainability for customers and the world. In addition,
SBC donates 80 percent of its income to support global charitable activities (Scott
Bader/Sustainability,2014). There are two mainsuccessful charitiesnamed HVSMF and Send a Cow,
both charities made a huge difference to local people and changed their life (Scott Bader
CommonwealthAnnual Report,2014).Asa return,fromdoing donation to charitable activities, SBC
buildsareputationamongpeople widelytoreduce exchange costandtake the advantage of market
timing (Guidi, 2012).
RECOMMENDATIONS:
Afteran insightstudyinthe governance of ScottBadar Commonwealth,we inferredthe following
issues.SBCstill faceswiththe problemof de factowithinthe three layersof governance suchas
Founders,DevelopersandCoalitionist.Inaddedwithit,outof 14 employeesonly5are allowed
withinthe decisionmaking.(Hardely&Goldsmith1995:16-164) SBC shouldalsoworkuponthe
transparencyof the governance toshareholders, stakeholderandmembers.The possible wayto
resolve these issue istoprioritizethe decisionmakingwithafeedbacks.Twowaysfeedbackcan
reduce andresolve dialectical tensionandemulatestofocusuponthe moral values.The constitution
of SBCstatedit followsthe principle of equal opportunity,involvementandparticipants.However,
afterreviewingthe structure of SBCboard structure,there isno female executiveandSBCisa male-
dominatedcompany.EaglyandJohnson(1990) concludedthatwomenleadersare more sensitive
and meticulous;theydobetterthanmenininterpersonal relationsandtaskaccomplishment.SBC
couldchange leadershipstylebyofferingmore executives’vacancyopportunitiesforfemale inorder
improve internal relationsandmanagerial performance.

8. 8
CONCLUSION:
The purpose of thisarticle was to analyze to what extent, in Scott Bader Commonwealth, members
are permittedandencouragedtoactivelyparticipate indecision making is either through their own
judgmentsormotivesratherthanaccordingto the rules and norms available for everyone. This led
us to compare the notions of dialectical tensions, conflict of interest and the circularity of power.
The circularity of power in the organization is defined through governance and control of board.
Studyhelpedinfindingthe existence of de facto among the three sects of workers such as founder,
developerandcoalitionist. These affect the solidarity of organization in participation of employee
and “industrial democracy”. The possible way to resolve these issue is to prioritize the decision
making with a feed backs. Two ways feedback can reduce and resolve dialectical tension and
emulatestofocusuponthe moral valuestomaintaincircularityof power.Aswell,thereisnofemale
executiveandSBCisseemsto be a male-dominatedboard.Genderbiascouldbe dethronedthrough
providingopportunitiestofemales.Limitations of study on SBC, the information are from the press
release of organization. Eventually, there is very limited information about the reality of the
governance and the level of satisfaction of the employees in SBC. This is a hurdle in better
understanding the system.

9. 9
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