Good governance is a key component of a healthy co-op. Co-ops are composed of members, directors, staff, and others, and when everyone knows and plays their role well, it’s more likely the business will run smoothly.   

We recently had the opportunity to speak to co-op leaders from across Canada. They’d gathered for our Good Governance Matters course at the Co-operatives and Mutuals Canada Congress, and we couldn’t help asking them: “What’s one governance challenge your co-op faces?”   

Here are the four most common challenges these leaders deal with:  

1. The Principal-Agent Problem

A classic governance problem is whether the board is able to hold management accountable. The board (known as the ‘principal’) is supposed to oversee the co-op’s management (called the ‘agent’). The problem is that the board tends to have less experience and industry knowledge than the managers, and isn’t present for the day-to-day activities of the co-op.   

This set-up makes it difficult for the board to know if there is wrongdoing or bad behaviour among the co-op’s staff, or to know if management’s recommendations and actions are the best course. The board may then “rubber stamp” management recommendations because they don’t know better or don’t know who to ask for confirmation.    

To guard against this problem, a board can seek out external experts to guide their decisions or seek out training to ensure they have the skills they need.   

2. Gaps on the Board  

Several co-op leaders raised concerns about recruiting directors with the skills needed to build the board’s expertise. In an ideal world, your co-op’s board would be comprised of experts in finance, accounting, IT, governance, and marketing. But while a team of experts sounds ideal, it might not yield the best results.   

Characteristics like effort and diversity are shown to produce better results on a board. Having highly professionalized boards does not mean directors will be invested in your co-op’s success. And if they’re all wealthier, older men (which is common on boards), they may not be able to relate to some of the issues facing co-ops today.   

Seeking out directors who are all-in for your co-op and use the business’s services, and building a board that looks like the community you serve, will better position your co-op for strong leadership. Plus, you can always train directors or hire the expertise you need to make informed decisions.  

 3. The Role of Members  

All the leaders in attendance cited member engagement and participation as an ongoing concern. Think about your own co-op: how many members identify as a business owner? How many members will come to the co-op’s rescue in tough times? Ensuring members understand the importance of their role and feel connected to your co-op is vital for its success.  

Members need to patronize the co-op, attend AGMs, seek board positions, and voice concerns when things go wrong. To help members fully participate, provide education on how your co-op works, what it means to be a co-op member, and how to participate. While co-ops are member-owned and controlled, member engagement needs to be led by the people with resources and expertise, your board and leadership team.  

4. Navigating Growth  

Co-op leaders expressed the most worry about how to successfully navigate growth while staying true to their co-operative identity. As studies show, co-operatives face pressures to mirror the behaviour of their corporate competitors, adopting practices that often focus on profits and limit member engagement. These tendencies lead co-ops to do things like call members “customers”, bolster executive compensation, allow mission creep, and heavily script member interactions like the annual general meeting. Co-operatives like MEC and the Saskatchewan Wheat Pool introduced changes like these, leading to their failure as co-ops.   

Many co-ops navigate growth effectively and offer lessons other co-ops can follow. Federated Co-operatives Limited is Canada’s largest non-financial co-operative and has celebrated over 80 years of doing business. They provide robust member education and training, return millions of dollars to communities, and embrace their co-operative identity in their marketing and engagement processes.    

Learn More  

Governance is tricky! But so important. That’s why at Co-operatives First we have created lots of tools and training, built up our governance expertise, and are always happy to help.  

You can find many resources for boards in The Co-op Creator. Our Co-op Professionals online course is the perfect fit for you and your team to learn more about how co-ops work and how you can prepare for future challenges. And if you start a co-op in Western Canada, our Board Basics workshop will get you started on the right foot.