MSU Extension Product Center

This brief analysis considers some topics of cooperative governance. The primary focus is on the Board of Directors but many of these topics also are important for the hired management of the cooperative. While these topics impact all cooperatives, it is important to realize that every cooperative is different. A fundamental difference between cooperatives and other types of businesses is that cooperatives are owned by the members who use its services or buy its goods. Employee-owned enterprises are a similar type of business structure where the firm is owned by the employees who share the profits generated by the firm.

Cooperatives can be found in many industries. They are especially common in banking in the form of credit unions. Mutual insurance companies are another example of cooperatives, although many insurance companies with “Mutual” in their names are now investor-owned companies. Retail cooperatives are also fairly common, and food cooperatives are becoming more common. Agricultural cooperatives are also very common; some cooperatives provide inputs to their members, some market their members outputs, and some do both. Housing cooperatives are also fairly common.

There is also a wide diversity in the size of cooperatives. Some cooperatives are very small, others are among the largest firms in the country. Given the diversity in the size and industries of the cooperatives, governance will vary from cooperative to cooperative. Small cooperatives may have difficulty finding people willing to serve on cooperative boards, and others may not have enough turnover on governing boards to notice changes in their operating environment. The lack of contested elections may be another problem facing small cooperatives.

Some of the topics covered in this analysis include the composition and qualifications of board members, board nominations and elections, training and onboarding of new board members, compensation of board members and how the board interacts with the Chief Executive Officer or the General Manager. Ensuring sufficient member participation will also be included.

Most cooperatives practice representative democracy (UWCC), the members elect a board of directors who make key decisions for the firm and hire key employees. Direct democracy, where all decisions are made by the members is more common in smaller cooperatives (UWCC) and may be necessary after the cooperative is formed but before it stars operating and attracting additional members.