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Could Better Governance have Saved Co-operatives in the Past?

The co-operative movement has seen high profile casualties in recent years, most notably the crisis which brought down the UK’s Co-operative Bank.

In his study for Co-operatives UK, The Governance of Large Co-operative Businesses, Prof Johnston Birchall stresses that governance failures happen in all business models – and highlights a “malaise” in “the whole edifice of corporate governance in shareholder-owned companies”.

On the other hand, he says, “Co-operatives, owned by their members rather than by shareholders, have a relatively good track record in governance, but there have been some notable failures as well.”

When it comes to producer co-ops, Prof Birchall says there have not been many governance failures – but he gives the example of the Saskatchewan Wheat Pool, a successful Canadian wheat exporter, which ran into trouble in the 1990s.

“In the 1990s, it needed to modernise while facing a demand from retiring farmers to redeem their equity. In search of new capital, in 1996 it issued non-voting shares to outside investors. However, the board did not have the expertise to manage these changes and the result was a transfer of power to its managers.”

The new managers made losses through some poor business decisions – but the board was too trusting of the chief executive and there was a “growing gap between the information possessed by the management and by the board”.

Source: COOP NEWS

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