If there is one organizational attribute that differentiates cooperatives from other organizations, it is the way they are governed. By construction, cooperatives put the economic interests of a particular class of patron in front all other stakeholders, and look to patron owners for risk capital and leadership on elected governing boards. More commonly, the interests of investors, working partners, or sole proprietors are primary, and patron interests are protected through competition in the marketplace. Membership on governing boards, if they exist, is heavily influenced, if not chosen directly, by management.
These differences create challenges and opportunities for effective governance in cooperatives. On the one hand, patron board members have good information, and strong economic motive, to perform the monitoring role normally ascribed to governing boards. Electing board members from among patrons can also help maintain strong patron relationships. On the other hand, patrons may lack the business expertise that is needed to advise management regarding strategy. Similarly, patrons who contribute capital might show greater purchase loyalty to their cooperative, but relying on retained earnings as the sole source of risk capital can limit firm growth. Effective cooperative leaders manage these trade–offs to a net advantage.
More fundamentally, however, are the unique consequences for governance that arise from the root cause of cooperative enterprise, and from the special life-cycle issues that emerge as a result. These consequences become more important as cooperatives mature and grow, particularly in market settings where they are one option among many for patronage.