Co-operative governance ‘works at scale’, says Co-operatives UK

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Academic research into co-operative governance has been released, as the Co-operative Group makes public its plans for its democratic structure.

In anticipation of the governance review of the Group and following former chief executive Euan Sutherland’s remarks that the organisation is “ungovernable” when he resigned this week, sector body Co-operatives UK has published a global look at governance within co-operatives.

In the report, Professor Johnston Birchall from the University of Stirling said: “The findings of the research are clear; the participative model of co-operative governance does work at scale, and, governance in co-operatives worldwide is as good, if not better, as anything we find in the plc realms.

“The role of a board, such as setting strategy, directing but not managing activity, and undertaking risk management, is admittedly similar across all models of business. However, when you are owned co-operatively you are owned by people close to the business, rather than external, and therefore usually distant, shareholders. The boards of co-operatives therefore tend to have some distinctive characteristics.”

Looking at the Co-operative Group, the research points to the size of the organisation’s Board as one potential weakness, which, at 21, is higher than the commonly recommended level of 12 to 15. According to data from Co-operatives UK, the average number of board members across the country’s consumer co-operative societies is 12. However, Prof. Birchall warns that boards who wish to redesign their governance structure in a radical way, should do so with care, given that there will also be the risks of unintended consequences.

Prof. Birchall added: “The best models of co-operative governance, such as the Desjardins Group (leading financial services provider in Canada) and Fonterra in New Zealand (the world’s largest dairy exporter), are designed to put the right mix of people and skills onto the board, with a very clear line of accountability to the ultimate owners. You get it wrong if you don’t have the right skills, or, you have the right skills but are not accountable to the membership.

“Having a large assembly of representatives enables some co-ops, such as the S-Group (the consumer co-op that has 80 percent of Finnish households in membership) and the Nonghyup federation (that has 80 percent of Korean farmers in membership), to have a smaller, mixed board of directors and managers, and that seems to work well. It’s all about the effective distribution of different types of authority.”

Ed Mayo, secretary general of Co-operatives UK, said: “Governance is a strength not a weakness of co-operatives. It allows for a more inclusive model, reflective of the interests and expertise of employees and customers.

“However, governance is not something you get right and then forget about. It needs constant focus, continuous improvement and The Co-operative Group will be no different in this regard. Governance that does not adjust and adapt proves far more costly over time than being open and agile.”

View the report, The governance of large co-operative businesses, online (PDF).

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