Co-operative Corporate Governance

What is co-operative corporate governance?

GOOD CORPORATE GOVERNANCE

Corporate governance takes into account public policy, national values and ethics. It covers systems by which the individual corporations regulates itself for competitiveness and sustainability through practices and procedures for supervising, monitoring, regulating and controlling its affairs. Regulatory authorities, national trade and business associations, professional bodies and societies should all practice good corporate governance.

Co-operative corporate governance is about the use of power in co-operative organizations. It is concerned with the leaders who are the people who govern, that is, direct and control co-operatives.

Co-operative corporate governance also targets members of co-operatives. These are the main stakeholders. They are the people whose money is invested in the organization. They are the ultimate beneficiaries of well run co-operatives and the ultimate losers of badly run organizations and for this reason, they are the supreme authority. 

For co-operatives to be efficient and productive, they must apply good corporate governance practices that seek to ensure that the power of the organization is used in a manner that ensures:

• effectiveness-that the co-operative society abides by and achieves the objects for which it exists.
• efficiency-that the undertaking of the organization are honest and have integrity.
• fairness-that the organization treats all its shareholders and the community in which it operates in reasonably and justly.
• transparency-that the organization is open about its activities and that it meets that information needs of all its stakeholders.
• discipline-that the organization complies with all the laws of the country, its by-laws and that it exercises self-control in all its dealings.
• accountability-that the organization is answerable to and satisfactorily explains its actions to its members/stakeholders.
• responsibility-that the organization exercises good judgment. That is able to make informed and astute decisions, act accordingly and accept the consequences of its actions, taking remedial actions where necessary.
• independence-that the organization acts of its free will, in its best interests and with the consideration for all its stakeholders and not according to the dictates of external interests.
• social responsibility-that the organization is sensitive to and that it responds to the needs of the members/society, for example by improving its products or where necessary developing new ones.

Why Good Corporate Governance

Money can't buy happiness, however it can rent it :-)

Good corporate governance can greatly enhance effectiveness, competitiveness and sustainability of the organization. This is important in the highly competitive global market. Members must demand good governance of their co-operative to ensure:

• that the organization achieve the objective for which they exist.
• that the organization are effective and make good returns on members’ investments.
• that the organization are innovative by improving on their products and introducing new ones.
• that the organizations are credible so that they can attract more members and savings.
• that the organizations are sustainable and continue to exist and be effective for a long time.
• that the organizations use resources efficiently and with due regard to the needs of future generations.
• that the organizations are responsible and that they contribute to well-being of the community in which they exist.

Authority and Duties of the Members as Stakeholders

Shareholders in the co-operative society must play their role in ensuring that their organizations are well-governed. In order to do this, they must keep themselves informed about their co-operative societies  so as to be in a position to make independent and informed decisions on all issues on they are called upon to make decisions. Shareholders should ensure that they clearly understand the objects for which their co-operative are formed so that they can effectively hold directors they elect to account.

Shareholders have a duty to ensure that only competent and reliable persons, who can add value, are elected to the board of directors. They must also ensure that the board is constantly held accountable and responsible for the efficient and effective governance of the co-operative society so as to achieve corporate objectives, prosperity and sustainability.

The Board of Directors

BOARD OF DIRECTOS

Every co-operative should be led by an effective board which exercises leadership, enterprise, integrity and judgment in directing the co-operative society and which acts in the best interest of the co-operative in a transparent, accountable and responsible manner.

Accountability and Transparency

To enhance accountability and transparency in co-operative organizations, the leaders have to observe and adhere to the co-operative values of honesty, openness, social responsibility and caring for others. These values may be exercised while performing various activities of the co-operative organization as follows:

• meetings-convene and conduct co-operative meetings as specified in the Act and Rule and the co-operative by-laws.
• elections of leaders-have regular and timely elections and allow members to participate without interference such as rigging and other forms of influence.
• accounts and audit-maintain up to date an accurate records of the organization and ensure audited accounts are presented and read to members in time and members allowed to deliberate and resolve on them.
• budgeting procedures-budgeting for the organization should be participatory, with members originating ideas and giving final approval.
• recruiting of personnel-co-operative leaders should source personnel from open market and should avoid nepotism.
• code of conduct for leaders-co-operative societies should develop code of conduct and best practice for their leaders.
• delegation of duties-to enhance transparency and accountability, each co-operative should recruit experienced and professional persons to avoid board members acting as executives. Clear job description should be prepared for every position.
• training-training can do a lot to enhance transparency and accountability. It should be done in  a participatory and leaner centered manner and be geared towards change.
• tendering and procurement-tendering should be done according to the provisions of the Public Procurement and Disposal Act and Regulations. Always seek for quality goods and services.
  
  
  EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

MEETINGS IN A SACCO

Definition:   A meeting is the gathering or coming together of at least two persons for a lawful purpose.  A meeting then consists of two or more persons.

When members of a co-operative society come together to discuss matters concerning their cooperative, the meeting is lawful. the meeting of a co-operative society is said to be private because only members can attend and participate in passing resolutions.

Meetings are important for the success of any organization.  there are two main classes of meetings in co-operative societies.  these are:

•   General Meetings

•   Committee Meetings

General Meetings

General meetings are meetings where all members of a co-operative society attend. the supreme authority of a co-operative society is vested in the general meeting.  this is where members have the right to attend, participate and vote on all matters.  the two types of general meetings are:

•   Annual General Meetings

•   Special General Meetings

Annual General Meetings

The functions of the annual general meetings are: (section 27 of the Act)

• Consider and confirm the minutes of the last annual general meeting.  the annual general meeting of a co-operative society is convened each year by the committee. it should be held within four months after end of the financial year (Section 27 of the Act).  this is when members exercise their authority.
• Reading the notice convening the meeting
•  Consider the minutes of the last annual general meeting and any other intervening general meeting.
• Consider reports of the committee and any from the commissioner.
• Consider and adopt audited accounts.
• Determine the manner in which any available surplus is to be distributed or invested.
• Approve the estimates of income and expenditure of the ensuing year.
• Carry out elections to fill any vacant positions.
• Determine, where necessary, the maximum borrowing power of the society.
• Appoint auditor for the ensuing year.
• Transact any other general business of the society of which notice has been given to
•  Members in the manner prescribed in the by-laws.
• The quorum of AGM of any SACCo Society shall be as laid in by-laws

The annual general meeting is the mirror of the society.  if the co-operative is growing and making progress, this will be seen in the annual general meeting. this is the occasion when members exercise their ownership, authority and control of the co-operative.

Special General Meeting

A Special General Meeting of a co-operative society may be convened by:

• The committee for the purpose of discussing any matter which may arise in the society before the annual general meeting is due.
• The committee on receipt of a written notice for such meeting signed by such number of members of the co-operative  society as may be prescribed in society’s by-laws and stating the objects and reasons for calling the meeting. If the committee fails to convene a meeting within 15 days of receiving the notice from the members, the members demanding the meeting may themselves convene the meeting by giving notice to the other members of the co-operative society stating the objects and reasons for the meeting and the fact that the committee has failed to convene the meeting.
• The Commissioner for Co-operative development, who may direct the matters to be discussed and who may preside at the meeting will not need a quorum

There is no fixed number of special general meetings to be held in a year.  the number will depend on the frequency at which urgent issues arise. As much as possible, all important matters should be properly planned for and addressed during the annual general meeting.

Committee Meetings

In every registered co-operative society, members elect the committee to run the affairs of the society on their behalf.  the committee should consist of five, seven or nine members.

In order to carry out duties entrusted by the general meetings, the committee members hold regular meetings. the frequency of the committee meetings depends on the business of the society, but they should normally be held monthly and at least quarterly.  the discussions during the meetings include:

•   to consider and confirm the minutes of the previous meetings.

•   to discuss and check the accounts of the society (liquidity position).

•   to receive and discuss various reports of the society (includes activity and sub committee reports).

•   to discuss the financial obligations of the society (creditors and other commitments).

•   to discuss any other matters that affects the running of the business of the society.

•   to discuss membership growth, withdrawal, staff matters

•   to discuss product and services development

•   to discuss loan delinquency management among other things

Sub-committees - When the committee finds that some matters need more detailed work and reports, sub-committees are elected from among the elected members of the committee. Such committees have only delegated powers and have to report back to the main committee on their work.

The number of sub-committees and the frequency of sub-committee meetings is dictated by the volume and nature of business.

All meetings should have meeting schedules prepared and approved by the full board. this will assist in proper planning and budget allocation. Sub-committees should normally meet earlier and then present their reports to the full committee meeting for adoption and discussion.

Ad-hoc Committees - these may be formed to address specific tasks, and they will cease to exist when the work assigned to them is accomplished.

Joint Meetings

The management committee and the supervisory committee are expected to hold joint meetings quarterly. this is after the supervisory committee has compiled its quarterly report.

The Supervisory Committee should present its report to the meeting for discussion and response from the society committee on the various issues raised.  After presenting the report,  the management committee should be left to make decisions on how to address the issues raised and not yet addressed.

The manager of the society should attend all committee meetings to offer advice on technical and professional matters.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

ESSENTIAL ELEMENTS OF AN EFFECTIVE AND VALID MEETING IN SACCOs

The following requirements have to be observed in an effective and valid meeting:

•   there must be notice of the meeting.   in case of general meetings, there must be 15 clear days written notice (section 27 of the Act). the notice should clearly indicate

•   the nature of the meeting

•   the date of the meeting

•   the place of the meeting

•   the time of the meeting

•   the agenda of the meeting

•   the notice should be by a person authorized to do so.

•   the notice must be circulated to all members.

•   notice of the meeting must be read and adopted at the start of the meeting.

•   there must be a quorum; that is, the minimum number of members required before a meeting can continue with business.

•   the meeting must be chaired by the person authorized to do so by law. It is usually the chairman and in his absence the vice-chairman. If both are not present, then any member elected by the majority of members present shall preside.

•   the meeting must be conducted following the order of the agenda.

•   Minutes of the previous meeting must be read, confirmed and signed by the chairman before proceeding with the meeting.

•   voting must be carried out in a democratic manner and in accordance with the by-laws.

•   the chairman must control the meeting and act in the best interest of the society.

•   After each discussion, the chairman must announce the decisions arrived at (resolution) to enable the secretary enter a proper record.

•   Any report presented must be adopted before it is discussed.

•   Each resolution passed should be proposed and seconded. For resolutions passed that require action to be taken,  the meeting should:

»   identify who to act (action persons).

»   Give time limit by which action should be taken (action deadline).

»   identify and allocate required resources to enable implementation (resource allocation).

•    Minutes of the meeting must be clearly written.

Minutes and Minutes Writing

Minutes are a summary of the main points discussed/arrive at during a meeting. they are not a record of everything that was said.  Minutes should provide a clear and concise indication of what actually happened, that is agreements reached and resolutions passed.

Minutes are only valid after they have been read and signed by the chairman and the secretary on behalf of the members who attended.

Purpose of Minutes

•   reference - Minutes serve as a record for future reference of what was discussed and agreed upon in a meeting.

•   Evidence - Minutes are used as evidence in case of litigation in a court of law. this is to
promote or protect the interests of the society when appropriate.

•   disputes - Minutes are used to settle disputes in case of disagreements on what was agreed on in the past

•   Allowance - Minutes are used to support payment of the sitting allowance of committee members in societies in  accordance with approved budget

Layout of Good Minutes

The layout of minutes should consist of the following:

•   name and address of the organization

•   title, nature, date, place and time of the meeting e.g. Minutes of the management committee meeting held on 10th July 2007 in the co-operative society’s boardroom from 10.00 a.m. to 1.00 p.m. (in capital letters)

•   names and designations of those in the meeting.   these can be categorized as present,
present by invitation, in attendance. Also record those who are absent with apology and
those who are absent but have not sent any apology.

Actual Proceedings of the Meeting

Start by recording the actual proceedings of the meeting.  Always start by numbering each minute from the last minute during the same year.  For example when recording the 3rd meeting of the year where the last minute number of the previous (the second) meeting was 18, start with number 19 e.g.

Min. no. 19/3/2007:  READING AND CONFIRMATION OF THE PREVIOUS MINUTES

The minutes of the previous meeting held on 8th February 2006 were read and confirmed as a true record of the proceedings of that day.  This was proposed by ……………….…… and seconded by ………..………………..

If there are any amendments to be made before confirmation, they should be made and the minute written for example as follows:

The minutes of the previous meeting held on 8th February 2007 were read and confirmed
as true record of the proceedings of the meeting with the following amendments:  (if any)

EX-MINUTE: ………………………………………………...………….

Minutes are always written in logical order from the first to the last one. Each minute title should be written in capital letters and underlined, as in the example above.

Min. no. 20/3/2006:  MATTERS ARISING FROM THE PREVIOUS MINUTES

If any discussion is raised on any of the previous minutes, record it by reference to the minute e.g.

EX-MINUTE:  13/2/006 - The chairman explained that the society could not repair the machines as agreed due to delays in processing tender documents.

EX-MINUTE: 17/2/2006 - The meeting agreed to re-allocate 50% of the money meant for committee training members’ education after realizing that this was the main bottleneck in the progress of the co-operative society.

Note: Every letter calling a meeting should have the first agenda, Reading and confirmation of previous minutes and the second as Matters arising from previous minutes.  The last item of the agenda should be; Any other business.

Ending Paragraph

In a separate paragraph after any other business, conclude the meeting with:

There being no other business to discuss, the meeting ended with prayer at………….
or:

Due to inadequate time, the chairman decided that all agenda of the meeting could not be discussed and some matters were therefore referred to the next meeting.

The society should maintain a minute file where all valid minutes are kept.  Copies of minutes may be sent to relevant offices for information and any necessary advice.

The supervisory committee will follow the same procedure of convening and conducting meetings.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

WILL SACCOs DIE IN THE DEVOLVED GOVERNMENTS ERA?

We are still in a situation where the National Government has halted a crisis from occurring by stating that they will continue with the function of paying civil servants salaries. This is until such a time when County Governments have put up the necessary infrastructure and systems that will handle salary payments. The National Government has just saved Saccos!!!!

Backwards?

Saccos under the various Ministries otherwise referred to as countrywide Saccos, functioned effectively under the National Government. These Saccos received employees deductions from the main line ministries not from numerous fragmented sources...read County Governments, as it is going to be. These Ministries remitted the same to Saccos within seven days as required by the Co-operative Societies Act Cap 490 Section 35. This particular section give us clue when sums deducted should be remitted and the consequences of not doing so within the stipulated time. In the 90's, many Saccos under the Local Authorities i.e. the county councils and municipal councils, collapsed or were rendered almost incapable of providing services to their members. The various councils and municipalities, used to deduct from salaries of their employees and never remitted to their respective Saccos. Instead these municipalities and county councils used the monies (which are salaries) to carry out other activities of those municipalities and county councils!! Some of the membership of these Saccos have not been refunded their Sacco contributions to date!!

Tick Tock Tick Tock!!

Will it work with Saccos?

All Saccos that are under Ministries of Health, Co-operatives Development and Marketing, Agriculture, Environment etc or any devolved "Ministry" may be affected. The main line Ministries all made sure that Saccos received members contributions together with loan repayments and the interests due within stipulated period. Will County Governments deduct and remit the same within the period required? Will instances like one viewed in some Counties e.g. Kiambu (missing a deadline!!) affect and ultimately kill these Saccos? What would be the situation like where County Governments will be required to deduct from employees salaries and remit monies to hundreds of Saccos within stipulated time given some counties are far removed from some services e.g. certain banks? Should the membership of these Saccos start withdrawing membership and seek refunds before things go haywire?

Tick Tock Tick Tock!!

Let us paint a picture here. In a County Government, their would be members of various countrywide Saccos (Wakulima Sacco, Shirika Sacco, Afya Sacco, Jamii Sacco, etc.). These County Governments would have of course budgeted for recurrent expenditure though probably despite the politics and greed like we just witnessed. The salaries would be paid through the County Governments to civil servants who work in the devolved systems. Also deductions will have to be effected by the County Governments from these workers to be remitted to their respective Saccos within seven days. There would be hundreds of Saccos waiting for their members deductions. Cheques will be written and deposited to these Saccos accounts or send all the way from Mandera, Lodwar, West Pokot, etc. The magnitude of these activities are overwhelming to say the least. Some County Governments probably will view this activity (deducting and remitting) as not a "priority". It will be a disaster too if salaries will delay, if County priorities will be as we just witnessed, if certain activities in a county have been underfunded and employees deductions seem easy way out, if corruption will intensify,etc.

Tick Tock Tick Tock!!

More information is needed!!

Then again are these Saccos placed to collect their members deductions from the 47 Counties? Do these Saccos know where their members are and how many are to be affected? Do these Saccos have a way of monitoring remitted deductions and notifying its membership of any failure by County Governments to do so? Will the Ministry or department at County Government responsible for co-operative societies have the muscles to effectively enforce Section 35 or shoot itself? Under which County will be these countrywide Saccos be? Nairobi? Will Nairobi County (if it is) have the manpower and even the mandate to enforce Section 35 to a County or Counties that failed to remit sums deducted?

We all know most people that have been employed by the County Governments are political or were employed for political reasons or tribal, nepotism, etc reasons. What will prevent them from doing shoddy jobs? What will motivate them to ensure Saccos don’t die? What will prevent them from punishing members of a certain Ministry within the County by holding their deductions and even salaries?

Tick Tock Tick Tock!!

Transcend your reality.

I say that co-operatives should have never been devolved. Devolve health, agriculture etc. but not co-operatives. Co-operatives have political bearing as they have elections and sometimes these elections are highly contested and attract politicians who influence it their way. What motivation will a co-operative officer have to stop such interference? What motivation will a co-operative officer have to enforce Co-operative Societies Act despite it being unpopular and being against County Government officials?

Tick Tock Tick Tock!!

DUTIES OF GENERAL MEETINGS

General Meetings of co-operatives usually have the following duties:-

MEETINGS

a) Consider and confirm the minutes of the previous General Meeting.

b) Consider reports of committees, the Commissioner or his/her representative and the audited accounts on the society’s activities during the past financial year.

c) Consider and resolve on the manner in which any available surplus shall be distributed or invested, subject to the Act and rules.

d) Elect or remove members of the Committee and the Supervisory Committee, subject to the Act, Rules and these by-laws.

e) Fix the indemnity for the elected committee members and management staff.

f) Consider recommendations from the Committee, against suspension and expulsion of members.

g) Consider appeals against refusal of membership by the Committee.

h) Confirm or reject admission of new members by the committee.

i) Fix the maximum liability which the society may incur in loans and deposits from both members and non-members.

j) Approve the estimates of income and expenditure for the financial year following the General Meeting.

k) Fix the honoraria, if any, for officers or employees of the society.

l) Decide on the management structure, including the establishment of branches to facilitate efficient and cost effective delivery of services to members.

m) Appoint bankers, auditors and advocates of the society for the ensuing year.

n) Affiliate the society to National Co-operative Organization for SACCO societies and the Apex society, subject to approval of the General Meeting;

o) Transact any other business of the society for which notice has been given to members in the manner prescribed in these by-laws.

COMPLIANCE ISSUES AS PER THE ACT AND RULES-SACCOS

The latest revised Act and the new Rules of November 2004 have introduced amendments and provisions which should be complied with by all co-operative societies. The compliance issues that affect societies include:-

• 

  I LOVE BEING COMPLIANT

• every co-operative society shall hold its annual general meeting within four months after close of its financial year (by 30th April for Sacco Societies)
• every co-operative society shall present to members its audited accounts and balance sheet for each year within four months after close of financial year. The audited accounts shall be displayed in a conspicuous place for members to read at least two weeks before they are presented to members in a general meeting.
• the audited accounts and balance sheet shall be presented to the Commissioner for registration before they are presented to members in a general meeting
• borrowing powers shall be fixed by members in a general meeting subject to approval by the Commissioner.
• every co-operative society with employees shall have terms and conditions of service for staff. The terms and conditions shall be approved by the commissioner.
• the manager shall be a counter signatory to all documents and contract of the society.
• all society committee shall file an indemnity-Form V of the Co-operative Societies Act shall be signed by the management committee members agreeing to uphold the values of accountability, honesty and transparency in dealing with the affairs and resources of the society and accepting liabilities arising from lack of upholding such values. This is done within fourteen days after being elected, and if they do not, they will automatically lose their positions. The indemnity figure shall be fixed by members in a general meeting.
• all committee members shall fill wealth declaration forms within thirty days after elections, and if they do not, they automatically lose their positions.
• supervisory committee should write periodic reports (quarterly) and table their findings at management committee meetings. It shall also submit its reports to the commissioner present the report to the general meeting.
• committee members shall be elected for three years, subject to one third retiring annually but being eligible for re-election.
• every society shall have members funds separated into shares and deposits.
• every society shall maintain a reserve fund where one fifth of the net surplus in any years shall be credited. An account should be maintained for the fund.
• no co-operative society shall invest its funds in non-core business except with the approval of the Commissioner and the general meeting through a special resolution.
• estimates of income and expenditure shall be prepared and presented to members for approval in a general meeting at least three months before the end of the preceding year.
• every member of a co-operative society shall appoint a nominee or nominees, who shall inherit his/her shares or interest in the society upon his death.

EXCERPT FROM: Savings and Credit Co-operative Societies Act; Start-up Kit (Swiss contact Co-operatives Department)

OBEJECTIVES OF SACCO SOCIETIES

The objects for which the society is established are to organize and promote the welfare and economic interests of its members.

In particular, the society undertake:

a) To promote thrift among its members by affording them an opportunity for accumulating their savings and deposits and create thereby a source of funds from which loans can be given to them exclusively for provident and productive purposes, at fair and reasonable rates of interest; thereby enabling them to use and control their money for their mutual benefit.

b) To ensure personal growth through the introduction of new products and services that will promote the economic base of the members.

c) To ensure progress of members and society through continuous education programs on proper use of credit, reduction of poverty, human dignity and co-operation.

d) To apply the co-operative principle of co-operation among co-operatives in order to promote members’ interests. In furtherance to the objects the society shall affiliate to the relevant National Co-operative Union and the Apex society.

For the attainment of the above objects, the society may do acts and things that are permissible under the Act, rules and these By- laws including but not limited to acquire property and chattels and doing all such other things as are incidental or consequential to the economic enhancement of its members interests provided such act is approved by the members in a general meeting.

OBLIGATION OF CO-OPERATIVE MOVEMENT

1)    To observe and operate within provisions of the Co-operative Societies Act, Rules, Society By-law and the various policy documents.

2)    Operate within the budget, and avail the Trial Balances and Economic reports to the respective Government offices.

3)    To provide efficient, timely and quality services to their members.

4)    The members have obligation to elect leaders who are transparent and accountable.

5)    Committee have obligation of providing minutes of Management, Special and Annual General Meetings to the Sub-County Co-operative Officer at all times.

6)    The committees have an obligation to invite the Co-operative Officers to all their meetings.

7)    The society has an obligation to provide accurate, timely and up to date information to the Sub-County Co-operative Officer.

8)    The society has an obligation to pay audit and supervision fee to the Ministry of Industrialization and Enterprise Development Department of Co-operative Development and Marketing.