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Corporate Governance and Management Control in Cooperatives

The paper comments that the core element in corporate governance is the mechanism by which owners, in the widest meaning, can effectively supervise the activities of a company and also obtain the largest possible benefits. Furthermore, it is suggested that cooperatives are subject to the same pressures for greater efficiency and change in corporate governance as other enterprises, and for this reason, it is important for cooperatives to consider corporate governance within the framework of their cooperative origins. An effective internal control system will be key for good governance.

The paper begins by noting that corporate governance has been a major economic and managerial question ever since ownership and management in a company were separated. Owner-based policies and emphasis on shareholder value originate in listed companies. However, whilst owner value is defined differently in a cooperative from a listed company, the paper argues that owner-based thinking is highly suitable when considering corporate governance in cooperatives – it notes that a member in a cooperative society normally has full rights and duties of ownership. Furthermore, the goal of a cooperative is to produce the goods and services required y its member-owners.

Nevertheless, cooperatives differ from traditional investor owned companies with respect to their ownership character, goal-setting, methods of financing and profit distribution, and decision making. These differences are said to not only bind members more effectively to the activities and running of the cooperative, but also blur the ownership role and bring to the owners many other interests in addition to the success of the enterprise.

Following a chapter on the background to the debate on corporate governance, chapter 2 discusses the main mechanisms of corporate governance in relation to the special character of cooperatives. The final two chapters then cover the governance of cooperative groups (looking at federal organisations as well as hybrid organisations) and cooperative incentive schemes (covering remuneration of managers and remuneration of non-executives), respectively.

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