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/Factsheet_print/Cooperatives_and_associations/Running_a_cooperative/_Co-operative_corporate_governance.pdf
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Standard fact sheet.
/Factsheet_largeprint/Cooperatives_and_associations/Running_a_cooperative/_Co-operative_corporate_governance.pdf
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Large print fact sheet.

Co-operative corporate governance 

The success of a co-operative depends on effective management by a board of directors on behalf of the members.

What is corporate governance? 

Corporate governance is how the board of directors manage the co-operative in conjunction with staff, members, the co-operative’s rules and applicable legislation.

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Corporate governance in practice 

In practice co-operatives will have different approaches to governance depending on:

  • the nature of activities
  • the size of the organisation
  • financial position
  • if the work is being undertaken by volunteers or employees
  • limitations/restrictions imposed by the co-operative’s rules.

Generally speaking, small co-operatives may have informal arrangements and larger co-operatives will have more formal structures and practices in place to meet their objectives. As a co-operative grows it will become increasingly important to formalise its corporate governance practices so that directors, the secretary, members and staff are moving forward together.

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What is good governance? 

Good governance is essential for a co-operative to achieve its objectives.

There is not a single model or definition for good governance. In essence, good governance is a series of principles that a co-operative would have in place to ensure it achieves its objectives and remains a viable organisation. The governance principles will determine the policies, procedures and practices implemented within an organisation.

The governance principles should complement the international principles for co-operatives which are:

  • voluntary and open membership
  • democratic member control
  • member economic participation
  • autonomy and independence
  • education, training and information
  • co-operation among co-operatives
  • concern for the community.

These international co-operative principles act as guidelines ensuring the organisation remains in the control of the members and operates for their benefit.

Good governance requires the directors and the secretary to fulfil their roles and responsibilities and the board to provide leadership in setting the direction for the co-operative. Further information is available on the Co-operative directors page and the Role of a co-operative secretary page on NSW Fair Trading’s website.

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The principles of good governance 

The Australian Stock Exchange (ASX) Corporate Governance Council has developed Corporate Governance Principles and Recommendations which can be found at www.asx.com.au.

The ASX Corporate Governance Council recognises that some recommendations attached to the principles may not be appropriate for every organisation and it may not be practical for smaller organisations to follow all the principles or the particular recommendations attached to a principle.

The ASX Corporate Governance Council principles are set out below with a brief explanation as to how each principle may be relevant for co-operatives.

1. Lay solid foundations for management and oversight

Co-operatives should ensure that the responsibilities of the board of directors are distinguished from those of any employed managers. In some co-operatives the board of directors may be responsible for the day-to-day management. Managers/employees should have a clear understanding of their roles within the co-operative and the reporting requirements.

2. Structure the board to add value

Co-operatives should ensure that the board of directors is of a size and composition for directors to adequately fulfil their duties and responsibilities. The directors must make a commitment to the organisation and have the necessary skills to enable them to manage the co-operative on behalf of the members. Every co-operative must have a secretary who is responsible for ensuring that the co-operative complies with its statutory obligations.

3. Promote ethical and responsible decision-making

Co-operatives should actively promote ethical and responsible decision-making and establish a code of conduct which will help guide decision-making in the best interests of the organisation.

4. Safeguard integrity in financial reporting

Co-operatives should ensure they have mechanisms in place to independently verify and safeguard financial reporting and adhere to their statutory requirements.

5. Make timely and balanced disclosure

The co-operatives legislation requires co-operatives to provide a disclosure statement to members for certain key decisions. Co-operatives should ensure they have mechanisms in place that facilitate the disclosure of information to members as and when the legislation requires and when it is in the best interests of the members.

6. Respect the rights of shareholders

This principle could be read as respect the rights of members. Co-operatives are democratic organisations that require active participation by members. Co-operatives should establish effective communication strategies that encourage participation at general meetings and in the organisation’s activities.

7. Recognise and manage risk

Risk management includes the culture, policies and processes within the co-operative that enables it to recognise and act upon opportunities whilst identifying and managing the risks associated with any action. Business planning will help focus the board and management in identifying risks. Co-operatives need to consider legal obligations and the reasonable expectations of members in decision making. A co-operative’s rules may also specify particular matters that must be taken to the membership for consideration.

8. Remunerate fairly and responsibly

Co-operatives should ensure that the level of remuneration to executive staff, if applicable, is fair and reasonable and that its relationship to performance is clearly understood.

Standards Australia International has produced an Australian standard for Good Governance Principles with the objective of providing a blueprint for the development and implementation of a generic system of governance suitable for a wide range of entities. The standard details the structural, operational and maintenance elements of good governance. The principles are intended to provide a flexible system which can be adapted to an organisation’s own circumstances. The following broad principles contained in the Australian standard require an organisation to ensure when developing its policies, practices and procedures that it provides for:

  • the role, powers and responsibilities of the board
  • disclosure and transparency obligations
  • the rights and equitable treatment of shareholders (members)
  • the responsibilities of shareholders (members)
  • the role of stakeholders in corporate governance.

The standard may be purchased, for more information, visit www.standards.org.au.

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Policies, procedures and guidelines 

A co-operative should implement practices which meet the principles of good governance taking into account the requirements of the co-operative legislation and the rules under which they operate. A co-operative should consider developing documents that clearly define the various policies, procedures and guidelines that will apply to its operations and which complement the rules of the co-operative. These documents will include a:

  • Business plan
    A strategic business plan which outlines the co-operative’s purpose, vision, objectives and performance indicators will focus the activities of the board and staff to meet the co-operative’s goals. The business plan may include a financial plan, a human resources plan, a marketing plan and a communication strategy or these may be developed as separate documents.
  • Policy and procedure manual
    The manual should have sections addressing the role of the board of directors, secretary, individual staff members as well as volunteers and workers. It should also assist all involved in the co-operative in understanding the policies and administrative procedures for particular activities. The manual should be made available to directors, the secretary, staff and volunteer/member workers.
  • Code of conduct
    This document should specify what is, and what is not, acceptable behaviour on the part of board members, staff and volunteer/member workers.

The level of detail provided in these documents will vary according to the co-operative’s circumstances. These documents will provide the information required for new directors and staff to understand the co-operative’s direction and administrative practices to enable continuity and consistency in its operations.

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Practical tips for good corporate governance 

A co-operative will be well managed if you as an individual board member adhere to the following tips:

  • Ensure you are familiar with the co-operatives rules
  • Ensure board meetings and general meetings are held in accordance with the co-operative’s rules
  • Ensure you are familiar with the co-operative’s compliance obligations
  • Ensure the co-operative’s records are kept up to date
  • Ensure you are able to identify the co-operative’s members
  • Regularly review the co-operative’s financial performance and take corrective action if it is required
  • Ensure decisions are made in the best interests of the co-operative
  • Ensure there are clear communication channels within the co-operative and with any stakeholders
  • Ensure policies, procedures and guidelines are documented and accessible
  • Ensure people have the skills to do what is being asked of them.

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Where can I access governance training? 

Directors and managerial staff may benefit from training which will help them understand the principles of good governance. It will also help in developing the appropriate policies, procedures and guidelines for practicing good governance in their individual organisations.

Training may be in the form of face to face formal instruction, internet based learning, individual mentoring from within the organisation or by a willing external mentor. Formal training may be sourced from private training organisations, industry and professional associations, tertiary institutions, TAFE, adult and community education colleges. These types of organisations may be able to tailor training programmes to meet the needs of the individual organisation.

Co-operatives are encouraged to consider the existing skills base of board members and staff and the needs of the co-operative. This will assist in identifying gaps in the co-operative’s ability to meet requirements and desired outcomes. The co-operative may then be in a position to determine the most appropriate mechanism to close the gap between the desired and actual skills required to achieve good governance.

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