Different Systems for Cooperative Governance

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Members of U.S. agricultural cooperatives are familiar with the basic governance structure. The membership elects members of the board of directors from within their ranks. The board of directors hires the CEO. The board sets policy, oversees the manager and sets the strategic direction. The CEO manages all other employees and makes operational decisions. Interesting enough, governance structures for cooperatives vary among cooperative sectors and across the world.

At one end of the spectrum is direct member control. This structure can work for a new smaller cooperative and is more related to the lifecycle stage of the cooperative than its geographic location. As the membership grows and the members become less homogenous, direct member control becomes less workable.

The next stage of the continuum towards centralized control is the board-controlled cooperative. In this structure, the board makes operational as well as strategic and policy decisions. It is popular in both Europe and South America. The board chair often functions more like a CEO, but subcommittees of the board may be charged with specific decision areas. The board-run structure is sometimes supplemented with a supervisory committee. This committee is elected from the membership and takes on the role of the audit committee and the oversight role of the risk management committee. The committee may also review regulatory compliance and the policies created by the board. In essence the supervisory committee watches the board to safeguard the members’ interests. The committee members do not take action or create policy. They evaluate the board’s actions and policies. Many credit unions in the Unite States have a supervisory committee as well as a board of directors.

The traditional (at least to us) structure of a board and CEO is also used in other countries. The addition of outside (non-member) board members is more prevalent internationally. The cooperative bylaws typically specify the number of appointed board members. In European countries, the outside members are typically outside experts, while in Australia and New Zealand, employee representatives to the board are more common. These expanded board structures are often combined with a supervisory committee. The addition of the supervisory committee becomes more logical with the blended member and non-member board. The role of member oversight becomes important to ensure that the board is protecting member interests.

It is always interesting to observe how the cooperative business model is used differently in different countries.