CORPORATE GOVERNANCE IN CO-OPERATIVES

What is Governance?

GOOD CORPORATE GOVERNANCE

The manner in which power is exercised in the management of resources for sustainable development. It is vital in efficient production and deliver of goods and services, accountability in the use of power, protection of members rights and freedoms and maintenance of an organized corporate framework within which each member can contribute fully toward finding innovative solutions to common problems.

What is the aim of good corporate governance in the co-operative? 

Good corporate governance seeks to promote:-

1. Efficient, effective and sustainable co-operatives that contribute to the welfare of the members and society in general by creating wealth, employment and solutions to emerging challenges.
2. Responsive and accountable co-operative.
3. Co-operative that are managed with integrity and transparency.
4. Recognition and protection of members and stakeholders rights.
5. An approach based on corporate ideas, legitimate representation and participation.

In the co-operative sector, good governance should concern itself with the systems, practices, procedures and processes and the manner in which the rules and regulations are applied and followed. In short, governance addresses the leadership role in the institutional framework.

Governance can also be seen as the manner in which power in an organization is exercised in the stewardship of the organizations total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfaction. It is also concerned with creating a balance between economic and social goals between individual and communal goals.

Principles of good corporate governance

1. Authority and duties of members (shareholders)-members of the co-operative society must severally and jointly protect, preserve and actively exercise the supreme authority of the society in general meetings i.e. they must ensure among other things:-only competent and reliable persons, who can add value, are elected into the office, the management committee is constantly held accountable and responsible for the efficient and effective governance of the society so as to achieve its objectives and change the composition of the board that does not perform to their expectation and in accordance with their mandate.
2. Leadership-the board should exercise leadership, enterprise, integrity and judgement in directing the society and act in the best interest of the society in manner based on accountability, transparency and responsibility.
3. Strategy and values-the board should determine the purpose and values and the strategies to achieve them.
4. Structure and organization-the management structure, organization, systems and people must ensure that the structure functions in order to achieve the society objectives.
5. Viability and financial stability-at least on annual basis, the board must monitor and evaluate the implementation of strategies, policies and management performance.
6. Corporate compliance-the society must comply with all relevant laws, regulations, governance practices, accounting and auditing standards.
7. Communication-the board must communicate with all stakeholders effectively. Members should receive any information that would materially affect their membership or any resolutions of interest to them as members.
8. Internal controls and procedures-systems, processes and procedures must be reviewed regularly. This will ensure accuracy in decision making.
9. Development and strengthening of skills-the board and employees must be trained continuously in line with technological and management development, Equally, members must be enlightened regularly to ensure that they effectively exercise their rights.
10. Adoption of technology-in order to survive and thrive, the technology, skills and systems must be adequate to run the society and compete in the competitive market environment.
11. Recognition of risk-it is crucial to identify the key risk areas and the the key performance indicators and constantly monitor these factors.
12. Social and environment responsibility-the society should operate within the mandate entrusted to it by society and shoulder its social responsibility e.g. conserve resources, shouldn't exploit its labour, shouldn't neglecting the needs of the local community, shouldn't evade taxation or engaging in other antisocial practices.

Society Governance Problems

1. The principal-agent problem
2. The co-operative governance structure
3. Borrower domination problem
4. Lack of clear proper rules of decision making
5. Unqualified personnel
6. The co-operative democracy of one member one vote regardless of amount invested
7. Inadequate supervision

The role of members in corporate governance

Why should the shareholder be interested in good governance? The shareholders are concerned about corporate governance to ensure:-

1. A sustainable responsible enterprise
2. Growth of the society
3. Corporate leadership that ensures efficiency, responsiveness, accountability, transparency, profitability and increased shareholder value.

Duties of members/shareholders

1. Ensure that only competent and reliable persons are elected
2. Ensure that the board of directors is held accountable and responsible for the efficient and effective governance

Role and function of the board of directors

1. Exercise leadership, sound judgement and prudence in directing the society
2. Determine the purpose and values of the society
3. Put in place a proper management structure (organization, systems and people)
4. Monitor and evaluate implementation of strategies, policies and plans
5. Regularly review systems, processes and procedures to ensure effectiveness of its internal systems of control
6. Appointment of senior management including the CEO
7. Set out a code of ethics

Important aspects of the Code of Ethics

1. Personal conduct
2. Corporate behavior
3. Obligations of:-

• Directors and managers
• Employees and professionals
• Shareholders
• Financiers, suppliers
• The state

Special care should be made in the Code of Ethics to the duty of care and responsibility and liability of professionals who are called upon to perform any professional tasks for the society.