The Business Council of Co-operatives and Mutuals has released the first edition of its governance principles for co-ops and mutuals.
The apex body for the Australian co-op sector compiled the principles after an 18-month development and consultation process in partnership with the Co-operative and Mutual Enterprise (CME) 100 Chairs’ Forum – a body set up in November 2015 to promote the development of the “highest standards of corporate governance”.
There was also detailed consultation with BCCM members and governance experts.
BCCM chair Terry Agnew said: “It is hoped that CME boards find it to be a concise document that can stand alone or complement other governance frameworks, and which provides useful suggestions for effective member-focused governance.”
The nine principles are:
- Create, protect and return member value
- Lay solid foundations for management and oversight
- Structure the board to add member value
- Act ethically and responsibly
- Safeguard integrity in CME entity reporting
- Make timely and balanced disclosure
- Respect the rights of members and other stakeholders
- Recognise and manage risk
- Remunerate fairly and responsibly
In its introduction to the document, BCCM warns: “In Australia as well as internationally, we are at a cross roads in relation to corporate governance. Such is the crisis in the governance and culture of corporations that governments are taking unprecedented steps to compel businesses to address systemic failures in their governance processes.
“Explicit action such as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, sends a clear message – poor governance will not be tolerated and may be punishable. Similarly, shareholders and consumers punish poor corporate governance when they sell their shares or choose to do business elsewhere.”
It adds: “The growing recognition of the contribution of co-operatives and mutuals to Australian economic and community development, suggests it is not only imperative but also opportune, for the Australian CME sector to demonstrate, through its own efforts, a commitment to robust, member-focussed governance.”
The CME 100 Chairs Forum will periodically review the principles and BCCM is welcoming feedback from its members.
As a next step, BCCM has identified two property rights problems that are faced by the co-op and mutual sector, which might need attention.
It suggests looking at “the horizon problem”, where the life of an investment in a co-op or mutual is longer than the tenure of a typical member – for instance in organisations with an ageing membership.
“This can lead to underinvestment or to a temptation to ‘cash out’ the value locked in the CME through a demutualisation,” it says.
The second issue is “the freerider problem” which “arises when members get access to the same rights and benefits despite making different levels of investment”, it says. “A CME may encounter this problem where it has shares of nominal value and/or which cannot be traded or redeemed.”
