New study identifies three governance models of financial co-operatives

A new report unveiled at the International Summit of Cooperatives looks at the diversity and complexity of the various governance models of financial co-operatives. Dr Éric Lamarque, director of the Master of Finance and Governance Research Group at Sorbonne’s Graduate Business School, presented the results of the research as part of a forum on Governance in Associated Life.

The study identifies three different models of governance in financial co-operatives and highlights different performance indicators for these structures. The three models are centralised governance, shared governance and decentralised governance.

Within the centralised governance model, the central governing body strongly influences decision-making and can impose its decisions on local entities in key areas, such as marketing, HR or finance. If a co-operative has a shared governance model, decision-making power is quite equally distributed between the national and regional levels.

“Practices under this model are harder to nail down because the division of decision-making between levels can vary over time,” reads the report.

Co-ops with a decentralised governance model local and regional levels enjoy significant authority in all key areas, while the central body is responsible for monitoring the performance of local entities, consolidating financial data and assisting in the implementation of development strategies and liquidity management.

By analysing the performance of these governance models, Dr Eric Lamarque and Dr Aude Deville, professor at IAE Business School of Nice University, identified three core profiles.

The balanced performance profile is characterised by a level of performance across all indicators that is equal or superior to that of the co-ops’ competitors. It also shows an ability to balance economic and financial performance, customer satisfaction and HR mobilisation while still ensuring a significant level of co-operative engagement.

The customer-focused performance profile is specific for organisations that tend to outperform their competitors in terms of customer satisfaction, but achieve only average or slightly below average results in terms of operational performance.

The final profile identified in the research is the one focused on financial performance. These organisations have the highest operational efficiency ratios, but rank far below average for customer satisfaction. “Co-operative engagement is nonetheless rated as good and HR mobilisation is average,” says the research paper.

However, the study notes that it is impossible to definitely associate any of the governance models identified in the study with any of these profiles.