Training for Cooperative Experts

On Good Governance for Cooperatives

By
Getachew Gobena (Asst. Prof., Ambo University;
Megersa Tofik (PhD Cand., Haramaya, University

June 23, 2024

Adama, Oromia, Ethiopia
 Contents

1 Definition of co-operatives, Cooperative

2 Values and Principles of Cooperatives
3 Good Governance in Cooperatives
4 Cooperative Governance vs Cooperative Management

5 Pillars of Good Governance

6 Characteristics of Bad Governance

7 Cooperative Good Governance Structure

8 Importance of Good Governance

9 Good Governance Issues in Cooperatives

10 How to promote Good Governance in Coopeartives

 Objective of The Training

At the end of the session, Participants will:

Understand meanings, principles and values of Cooperatives

Difference between Cooperative Governance and Cooperative

Management

be able to describe and explain the governance structure of a

cooperative,

Be able to describe characteristics of good and bad governance,

governance structure and

functions of the management committee and the specific duties of

management committee members
Introduction

?Discuss on the Definition of

Cooperatives, Principles and Values
 Cooperative Definition
A cooperative is an autonomous association of persons united
voluntarily to meet their common economic, social and cultural
needs and aspirations through a jointly owned and democratically-
controlled enterprise (ICA, 1995).

It is a business structure that is owned and democratically

controlled by its member-owners who utilize its services.

The people of the cooperative are those who use its products,
supplies, and/or services.

 The term "cooperative" can also refer to working or acting

together willingly for a common purpose or benefit4
Characteristics in definition of cooperative
Autonomy Existing or capable of exiting independently
Common need All members share the same/similar needs
Voluntary All members joins the cooperatives willingly,
no one forces people to join cooperative
Jointly owned A cooperative is owned by all members and
therefore everyone has a say in decision making
Democratically Decision making is collectively made
controlled irrespective of the contribution of members
Enterprise The cooperative should carry out its activities
in a sustainable way when it provides goods
and services The outcome of a cooperative
business should be development economically,
socially or culturally. This should be an
indicator that the cooperative is growing and
doing business in sustainable manner
 Cooperative Principles

1.Voluntary and open membership:

The members are the most important part of a cooperative and join
freely and willingly.
Cooperatives accept members voluntarily, meaning they cannot
discriminate based on gender, sexuality, social status, race, political
affiliation, religion or any other personal details.
As long as individuals are willing to follow the core principles and
values of the co-op, they can become members.
This principle protects the fundamental human rights of interested
individuals and members.
 provides individuals with freedom of association
 2. Democratic Member control:
Cooperatives are founded on the ideals of democracy and members
have equal voting rights.

All of the members have equal voting rights, with one ballot per
individual, and elected officials hear every person’s voice.

If members know their votes count and are valuable to the good of
their organization, they will be more willing to participate in
democratic practices as well as daily operations.

Democracy also ensures those in elected positions are held

accountable for their actions.
 3. Members` Economic Participation
Members contribute to and benefit from the cooperative's capital
and surplus.
To maintain fairness in all areas of the cooperative, members need to
contribute equitably to its economy.

They should also maintain democratic control over the collected

capital.
A portion of the capital is considered the property of the group.
Creating an equitable and democratic economy is essential for
several reasons.
1. It establishes that capital supports business pursuits but doesn’t rule
how the cooperative operates

2. creating a democratic process for allocating capital ensures the co-

op spends it with its people in mind and prevents any major excess.
 4. Autonomy and independence
Cooperatives are self-governing and independent entities that make
their own decisions.

While each member has their own freedoms within the cooperative,
the organization itself is also an autonomous and independent entity.

Maintaining an autonomous and democratically run organization is

essential to cooperation.

Without these two factors, co-ops would have no self-identity and

would have no unique connections to share.

When cooperatives enter into agreement/business r/ship with other

organizations it ensures they keep their democratic and independent
structure regardless of who they enter into agreements with.
 5. Education, Training and Information
Cooperatives provide education and training for their members,
elected representatives, managers, and employees so they can
contribute to the development of their cooperatives. They inform the
general public about the nature and benefits of cooperatives.

Beyond the cooperative itself, education encourages the spread of

information.

It helps create relationships with universities and supports research

regarding the cooperative movement.
 6. Cooperation Among Cooperatives
Cooperatives serve their members most effectively and strengthen
the cooperative movement by working together through local,
national, regional, and international structures.

When cooperatives work together, there are several ways to create an

effective relationship.

All organizations should practice openness and transparency in all

business matters, and the general memberships should approve all
strategies.

All organizations should also practice representing each co-op’s

collective interests, flexibility and willingness to compromise in
working towards a mutual benefit.
 7. Concern for Community:

Cooperatives work for the sustainable development of their

communities through policies approved by their members.

While co-ops should support their members and local community,

they should also be concerned with the development of the
cooperative movement on a global scale.

They should promote peace and social justice in their operations and
advocate for cooperatives.

By maintaining a focus on spreading information and educating

others, co-ops can help create a better community
 Cooperative Values (Six Main Values)
1. Self-help: Co-ops are geared towards creating a community where
every member benefits equitably. To accomplish this ideal, members
need to help themselves while also helping each other.

2. Self-responsibility: Much of the cooperative ideology is based on

the idea that each individual member is individually responsible
within the group. They should be responsible and play their part on
their own, without the need for external motivation or incentive.
3. Democracy: Democratic structure is crucial to running a successful
cooperative. The organization exists so that all members have
control, and no one individual holds more power than the others.
Members choose representatives by way of voting, and each
individual has one vote per election.
 Coop Values….
4. Equality: Each member of a cooperative should benefit
from the same rights, based on their level of contribution.

5. Equity: Cooperative organizations should treat all

members fairly, without any form of discrimination. Equity
is essential to creating a harmonious relationship among all
members.

6. Solidarity: The members within a cooperative form a

unified organization where all the individuals support one
another. Each organization also supports other cooperatives
to form a united network.
COOPERATIVE IDENTITY:
ICA, 1995 definition, 7 Principles & 10
Values
Current
ICA
Logo
/Marque
The International Cooperative Alliance (ICA)
is a non-governmental cooperative
organization founded in 1895 to unite,
represent and serve cooperatives worldwide.
The ICA is the custodian of the internationally
recognized definition, values and principles of
a cooperative in the ICA Statement on the
Cooperative Identity.
The ICA logo depicts doves of peace

IC go
A
Lo
emerging from a rainbow - the symbol of the

&
Co-operative Movement

Fla
g
 Values (Ethical values)

They are traditional ethics established by the founders of the

cooperative organization.

All co-ops function under the ideals of:

1. Honesty,

2. Openness,

3. Social responsibility and

4. caring for others.

 Governance
• Governance or Corporate Governance, according to the Organization for
Economic Co-operation and Development (OECD, 2002) is:
“The system by which corporate businesses are managed and controlled
and where obligations are established between the different persons
involved in the organization: owners, board, administration, employees,
as well as the rules and procedures for decision-making in these
businesses.”
• This definition, oriented towards the world of business, is adaptable to
that of Cooperatives.
• The elements of this definition place special emphasis on:
The precise and clear existence of roles,
Rights and obligations of the internal mechanisms of the organization
that direct and control the governance system, which in the case of
Cooperatives are the Members’ Assembly, the Board of Directors, the
Supervisory Board and the Management.
All rules and procedures for decision making that clearly determine the
levels of management responsibility.
 Cooperative Governance
The process of making decisions in a cooperative and the process of
implementing the decisions.

The act of steering cooperatively owned enterprises toward

economic, social, and cultural success.

covers key aspects that include defining roles and responsibilities,

establishing processes for setting expectations and ensuring
accountability.

• The role of effective governance system is very important for

effectiveness and sustainability of a cooperative.

• This requires leadership that will be effective in articulating shared

vision and to nature a culture of shared passion and possibilities .
 Objectives of Governance in a
Cooperative
• The main objectives of Good Governance in Cooperatives:

1. To increase the confidence of the Cooperative’s different

stakeholders2 in its work, increasing its long-term value.

2. To ensure a proper balance in the functioning of the Members’

Assembly, Board of Directors, Supervisory Board and
Management, as the main governing bodies of the Cooperative

3. Ensure transparency among the various governing bodies of

the Cooperative, generating relevant, timely, reliable and
verifiable information, minimizing conflicts of interest therein.
Responsibility to other stakeholders
• Not only do organizations have obligations to
their owners, but their responsibility extends
to other stakeholders: employees, customers,
funders, government, community, etc.
• Stakeholders “in a broad sense, are any
individual, group or organization that may
affect or be affected by the activities of the
organization; in a stricter version, the
identifiable and relevant individuals, groups or
entities on which the organization depends for
its survival” Fernandez, Rodriguez, JM.2002.
GRC Tradeoffs
 Good Governance
Integrating a good governance strategy is a competitive necessity
for cooperatives.
Cooperative governance answers key business questions, defines
roles and responsibilities, establishes processes for setting
expectations and ensures accountability and steers community-owned
business enterprises towards socio-economic and cultural success.
Good cooperative governance enables sustainable business growth
and long-term competitive advantage, awards opportunities to
manage risks and adds value for effective monitoring of business
activities.
Good governance helps cooperatives establish who their members
Cooperative Governance vs Cooperative Management

Cooperative governance refers to the system of decision-making

and oversight within a cooperative, including the roles and
responsibilities of the board of directors, members, and other
stakeholders. It focuses on ensuring that the cooperative operates in
a transparent, accountable, and democratic manner.

Cooperative management refers to the day-to-day operations and

administration of the cooperative, including tasks such as strategic
planning, financial management, marketing, and human resources.
It involves implementing the decisions made by the governance
structure and ensuring that the cooperative runs efficiently and
effectively.
?Discuss what constitutes Good Governance and
what constitutes Bad Governance and the possible
effects of the two.
 Pillars of Good Governance
1. Transparency: Cooperatives should operate in a transparent manner, providing clear and
accessible information to members about the organization's operations, decision-making
processes, and financial performance.

2. Accountability: Members of the cooperative, including the board of directors and

management, should be held accountable for their actions and decisions. Clear mechanisms
for oversight and reporting should be in place to ensure accountability.

3. Participation: Good governance in cooperatives involves active member participation in

decision-making processes. Members should have opportunities to contribute to the
direction and management of the cooperative.

4. Democracy: Cooperatives are based on democratic principles, with decisions made on a

one-member, one-vote basis. Good governance ensures that democratic processes are
followed and that power is distributed fairly among members.
 Pillar Cont`d

5.Ethical behavior: Cooperatives should adhere to high ethical

standards in their operations, including: honesty, integrity, and respect
for the rights of members and stakeholders

6.Strategic leadership: Effective governance in cooperatives requires

strong leadership that sets a clear strategic direction for the
organization and ensures that resources are used efficiently and
effectively.
Overall, good governance in cooperatives is essential for their long-
term success and sustainability.
By promoting transparency, accountability, participation, and ethical
behavior, cooperatives can build trust among their members,
stakeholders, and the broader community, and achieve their social
and economic objectives.
Good Governance in a Cooperative has the
following advantages:
Bad Governance
Bad cooperative governance is characterized by the
following practices:

Individualism rather than collective decision making/lack of

consensus

Limited or no participation of members in the affairs of the

cooperative

Leaders do not follow the rule of law/ coop Laws

Governance is not equitable and inclusive

Leadership is unresponsive to the needs of members

Lack of accountability
 The Governance structure and responsibility of
office bearers
The governance of cooperative is democratic and is done by three
key groups i.e. members, management committee and the
supervisory committee.

The supreme organ of the governance of the cooperative enterprise

solely lies with the general whereby all decisions and policies are
made democratically by all members in the general meetings, special
general meetings and Annual General meetings.
General Assembly

Management Committee Control Committee

Individual Member
Key Elements in Cooperative Governance Structure

• Cooperative Good Governance refers to the effective management and decision-

making processes within a cooperative organization. It ensures that the
cooperative operates transparently, ethically, and in the best interests of its
members. Here are some key aspects of cooperative good governance:

• General Assembly: This is the highest (supreme) decision-making body in a

cooperative. Members participate actively in setting policies and making
decisions.

• Board of Directors: Responsible for strategic planning, oversight, and decision-

making. They represent the cooperative’s interests.

• Control Committee: Ensures internal control mechanisms, including internal

audits and external audits.

• Individual Members:
Governance structure of Cooperatives
GENERAL ASSEMBLY (GA)

CC
Members
BODs Pyramid
Accountability

SC1 SC2

Authority
General
Manager

TOP
Employees
Pyramid
MIDDLE

LOWER
Importance Of Good Governance In Cooperatives
Good governance is crucial in cooperatives as it helps to ensure the
effective and sustainable operation of the organization. Some of the
key reasons why good governance is important in cooperatives
include:

1. Transparency: Good governance practices promote transparency

in decision-making processes, financial management, and overall
operations of the cooperative. This helps to build trust among
members and stakeholders and ensures accountability.

2. Accountability: By establishing clear roles and responsibilities,

and holding individuals accountable for their actions, good
governance helps to prevent corruption, mismanagement, and
conflicts of interest within the cooperative.
Cont`d
3. Participation: Good governance encourages active participation of
members in the decision-making processes of the cooperative. This
ensures that diverse perspectives are considered and that decisions
are made in the best interest of the cooperative as a whole.

4. Efficiency: Effective governance structures and processes help to

streamline operations, reduce inefficiencies, and improve overall
performance of the cooperative. This leads to better use of
resources and enhanced sustainability.

5. Legal compliance: Good governance practices help cooperatives

to comply with relevant laws, regulations, and standards. This
reduces the risk of legal disputes and ensures that the cooperative
operates within the boundaries of the law.
 Importance cont`d
6. Sustainability: By promoting transparency, accountability, and
member participation, good governance contributes to the long-
term sustainability of the cooperative.
It helps to build a strong foundation for growth, resilience, and
success.

Overall, good governance is essential for the success and

sustainability of cooperatives.

It helps to build trust, promote effective decision-making, and

ensure that the cooperative operates in a transparent and accountable
manner.
By implementing good governance practices, cooperatives can
enhance their performance, reputation, and impact in the
community.
 Good Governance Issues in Cooperatives
Common Good Governance issues that cooperatives may face
include:
1. Lack of transparency: Transparency is essential for good
governance in cooperatives. Issues may arise when members are not
provided with adequate information about the cooperative's
operations, financial performance, and decision-making processes.
2. Conflict of interest: Conflicts of interest can occur when board
members or managers have personal or financial interests that may
influence their decision-making in a way that is not in the best
interest of the cooperative or its members.
3. Lack of member participation: Effective governance in
cooperatives requires active member participation in decision-
making processes. Issues may arise when members are not engaged
or informed about important issues affecting the cooperative.
Good Governance Issues Cont`d

4. Power imbalances: Power imbalances can occur when certain individuals or groups within
the cooperative have disproportionate influence over decision-making processes, leading to
a lack of accountability and transparency.

5. Inadequate governance structures: Cooperatives may face governance issues if they lack
clear governance structures, policies, and procedures to guide decision-making and ensure
accountability.

6. Financial mismanagement: Poor financial management practices, such as lack of financial

controls, inadequate reporting, or misuse of funds, can lead to governance issues and
undermine the sustainability of the cooperative.

Addressing governance issues in cooperatives requires a commitment to transparency,

accountability, and member participation. Establishing clear governance structures,
promoting ethical behavior, and providing ongoing training and education for board
members and managers can help prevent and address governance challenges in
cooperatives.
How to Ensure Good Governance in Cooperatives
Ensuring good governance in cooperatives involves implementing a set of practices
and mechanisms that promote transparency, accountability, participation, and
autonomy. Here are some key steps to ensure good governance in cooperatives:

1. Establish clear governance structures: Define the roles and responsibilities of

the board of directors, management team, and members. Ensure that decision-
making processes are transparent and democratic.

2. Promote member participation: Encourage active participation of members in

the decision-making process through regular meetings, consultations, and
feedback mechanisms.

3. Ensure accountability: Implement mechanisms for monitoring and evaluating the

performance of the cooperative, including financial audits, internal controls, and
reporting mechanisms.
Ensuring Good Governance…
4. Foster transparency: Provide members with access to information
about the cooperative's activities, finances, and decision-making
processes. Publish annual reports and hold regular meetings to keep
members informed.
5. Uphold ethical standards: Establish a code of conduct and ethics
policy to guide the behavior of board members, management, and
staff. Ensure that all stakeholders are treated fairly and with respect.
6. Promote autonomy: Ensure that the cooperative operates
independently and free from external influence. Respect the autonomy
of members and allow them to make decisions that affect the
cooperative.
7. Continuous education and training: Provide training and capacity-
building opportunities for board members, management, and staff to
enhance their skills and knowledge of cooperative governance.
By following these steps and principles, cooperatives can ensure good
governance practices that promote their sustainability, growth, and
Challenges of Good Governance in Cooperatives
• Lack of awareness, formal and cooperative education, and Training of board
of directors
• Violations of cooperative principles (Knowingly & unknowingly)
• Non compliance to Cooperative Laws, bylaws and other
regulations/directives
• Government interferences, especially at zonal, city and woreda levels
• Rent seeking, Nepotism and favoritism
• Manual practices, which is time & resource consuming leading to member
dissatisfaction, withdrawal
• Conflict of interest, Resistance to change/transformation by Cooperatives
• Lack of cordial relationships between BODs, Control Committees and
Managers/employees of Cooperatives
• Capacity limitations of regulatory body (promoters, auditors, attorneys,)
• Lack of second line of leadership development for replacement of leaders
• Lack of accountability, insufficient audit and inspection, & classification,
relicensing, & liquidation of weak, dormant and pseudo cooperatives
• Structural related problems in Cooperative Promotion offices
• Budgetary and resources limitations for cooperative regulatory bodies
 The way forward
• Elect educated cooperative members to board of directors & Control Comm.
• Use of existing knowledge as advisory board for informed decisions
• Work in collaboration and make sure that good cooperative governance
practices in our region in general and zone, city & woreda in particular
• Ensure all cooperative laws, allied laws [labour laws, Taxation Law, agency
Law, Contract Laws, etc], bylaws and internal bylaws were observed by all
cooperatives; standardize existing cooperatives
• Bring more women members, Board of directors, Control committee, up to
30% and women Managers, Deputy Managers of Cooperative Unions and
Federations
• Conduct periodic movement, classification of cooperatives, inspection and
annual audit continuously
• Provide continuous member education, training for committee members and
employees of cooperatives on crosscutting and current issues
• Strengthening the relationship of the cooperative sector with other stakeholders
such as NGOs, financial institutions, local government, etc.
• Develop second line of leadership/Succession Planning for future leaders
• Treatment of Conflicts of Interest involving different Cooperative actors
 References
• Ricardo Villavicencio and Mery Solares (2019), COOPERATIVE CORPORATE
GOVERNANCE MANUAL. Fair trade access fund Technical assistance facility

• The International Cooperative Alliance -ICA (1995), Manchester Congress on Principles of

Cooperation

• Cak Niederkohr; Karem Ikeda, Jhon. Governance in Savings and Loan Cooperatives. World
Council of Credit Unions, 2005

• Based on and adapted from Anita Campion, Frankiewicz. Guidelines for Effective Governance of
Microfinance Institutions, 1999

• Organization for Economic Co-operation and Development (OECD), (2002).Cooperative

Governance Manual

• Federal Negarit Gazetta (2016), Cooperative Societies Proclamation 985/2016, Addis Ababa,
Ethiopia

• EBWHGO (2014), Wixinee Qajeelffama Bulchiinsa Gaggeessitoota Waldaalee Hojii Gamtaa.