TOPIC 7-STAGE 3-MICRO
Increasingly, co-operatives are being pushed by legislation and best practices to adopt governance measures originally intended for investor-owned firms (IOFs). These include requirements for independent directors, or for directors with requisite expertise (often financial acumen). Theory and anecdotal evidence suggest, however, that the adoption of such governance measures could adversely affect co-ops and credit unions. For instance, independent directors may diminish a co-operative’s performance because, being outsiders, they are disconnected from the organization and unfamiliar with its activities (Lorsch et al., 2009; Reiser, 2007). Also, several co-operatives in Canada and the United Kingdom have been criticized for tightening restrictions on who could run for the board, and subsequently rejecting several candidates who lacked financial acumen (Farrell, 2015; Pablo, 2012; Silcoff & Strauss, 2015).
The effects of IOF governance measures on co-ops and credit unions have not been empirically substantiated, however, and before any claims can be made, co-operative governance needs to be further examined. To do so, this paper provides an exploratory analysis of the Cooperative Business Study (one of the few data sets available on co-operative governance) to determine the characteristics of co-operative boards. Relationships between a board’s composition and how well it functions are investigated. Performance measures, such as the extent of a board’s participation in strategic planning, are regressed on the degree to which a co-op’s directors are independent, and on how involved a board is in director selection – as well as on firm size, co-op type, and size of membership. Descriptive statistics highlight current governance practices. Additional comparisons between co-operative and IOF governance are also made, and differences in organizational forms are discussed.
Overall, the paper provides an initial step in understanding the effects of IOF governance measures on co-operatives, as well as a snapshot of current co-operative governance itself.
Farrell, S. (2015, April 10). Former Co-op boss accuses group of blocking board candidates. Retrieved July 3, 2015, from theguardian.com
Lorsch, J. W., Bower, J., Rose, C., & Srinivasan, S. (2009). Perspectives from the Boardroom. Harvard Business School. Cambridge MA: Harvard Business School.
Pablo, C. (2012, May 11). Vancity board of directors elections criticized for being undemocratic. Retrieved March 15, 2016, from straight.com
Reiser, D. B. (2007). Director independence in the independent sector. Fordham Law Review, 76(2), 795–832.
Silcoff, S., & Strauss, M. (2015, October 16). MEC governance changes spark dissent among long-time loyalists. Retrieved October 27, 2015, from theglobeandmail.com
