Corporate governance needed in cooperatives
How far can corporate governance deliver a leading edge within a competitive agricultural sector?
Godfrey Baldacchino wrote in 1990 that “The Maltese cooperatives movement was ushered in specifically as a cost-saving, profit-enhancing mechanism to boost agriculture efficiency and productivity”.
However, it is prudent to question what inroads and approaches cooperatives need to undertake in order to sustain healthy governance. Is this approach sufficiently appreciated by the cooperatives committee members? What is unique and beneficial as regards to corporate governance?
The notion of corporate governance appears to still be in the pioneering stage within cooperatives engaged in the agricultural sector in Malta. This could be due to market constraints and inertia when it comes to embracing change.
Other contributory causes may be traced to the absence of management education in this regard, particularly in view of the lack of relevant policies and political will throughout the years.
One must therefore ask how far the notion of corporate governance is sufficiently understood – let alone appreciated.
Let us initiate the debate by carefully grasping the notion of corporate governance specifically in terms of the cooperatives’ management structures.
These structures contribute to the unique value creation process which needs to be designed in a way to ensure the attainment of targets in real time, economic efficiency and sustainable growth within a cooperative culture enjoying financial stability.
Following the OECD principles, this winning approach thrives on diverse aspects.
While capitalising on innovation, it further balances flexibility with a rules-based system. Furthermore, apart from respecting the rights of stakeholders, it embraces transparency and assesses business opportunities within the broader context aligned to the resources of the organisation.
In practical currency, how far can corporate governance serve as a catalyst for economic development and to sustain economic growth within the agricultural sector? Admittedly the Maltese agricultural sector is challenged by both natural and structural constraints. This restricts productivity and acts as a disincentive for capital investments in alternative farming technologies.
Herein lies the challenge of transforming weaknesses into strengths and to capitalise on both prevailing and fresh market opportunities. It is to be accepted that the agricultural sector is facing severe challenges throughout practically all EU states.
Consequently, Maltese agriculture cooperatives need to invest their resources in understanding the benefits of healthy corporate governance, adjusted to the realities of the Maltese situation.
The following are a set of insights which are applicable to cooperatives, particularly those engaged in the agricultural sector. Cooperatives tend to develop rigid rule-based systems typical of bureaucracy so as to ensure accountability.
This results in inertia in responding to market changes. In this regard, cooperatives need to occasionally clarify priority areas, and adopt proactive approaches in this regard. An effective technique in addressing this issue is practical time management addressing both strategic and administrative responsibilities.
This is even more so within our emerging info-based culture. Cooperatives can thrive via technical competitive advantages.
It is suggested that the committee of management sets up a separate board whose role is purely advisory related to strategic issues.
A further option is that the management board would include a mix of technical personnel with specialised expertise in their field.
This needs to be complemented by the learning organisation approach addressing both committee members and management.
The latter category needs to be trained and educated so as to present critical approaches and feedback to committee members, generating a fresh synergy of perspectives.
Small meaningful changes trigger the momentum for long-term strategic advantages.
While often, at face value, this perspective is verbally accepted, the necessary change of mentality it requires does not always follow.
This invariably implies that it cannot be effectively realised.
The Maltese as an island people have a tendency to focus on short termism. Those who are in the higher strata of the hierarchy tend to erect barriers to shield their privileged status rather than allowing the free flow of information in the interest of all stakeholders within and outside the cooperative.
The era of the ivory tower management has long been shattered within our competitive business cultures. Committee members cannot establish grassroots contacts with managers from their self-constructed ivory tower.
Apart from creating and sustaining a professional working relationship, they need to balance and adjust formal and informal approaches within cooperative cultures whenever appropriate.
Aligned to the above, a redefinition of the roles of the elected committee members and management needs to be qualified in the statute of the cooperative.
This will help to minimise interferences between committee members and management.
Cooperatives need to adopt innovative approaches for the future addressing current weaknesses and improving on their respective strengths.
It is not a matter of engaging with the competitors but rather smartly engaging with close competitors while winning and securing customer loyalty in the process.
Without a secure customer base, no organisation can thrive and plan ahead based on cooperative principles and values. Every c-operative needs to capitalise on its core strengths rather than replicating its competitor strengths.
A supervisory board should be set up after the AGM grants leeway to the committee of management. The objective is to investigate conflicts of interest and likewise decide issues in a constructive manner taking into account the welfare of the cooperative. A focus on priorities is a must.
Finally there are many faces of failure. However, if one does not learn from the shortcomings of the past, this will be the greatest failure.
Even the inertia in embracing healthy change is an indication of failure. Another dysfunction which is earnestly sensed to be experienced by cooperatives is their tendency to be reactive rather than proactive.
The latter has to be inspired by market driven initiatives. Injecting the occasional bitter pill of reality will help keep in touch with cooperative cultures and market realties as well as in taking no management issues for granted.
Brian Vella is the chairman of the board of directors of Malta Dairy Products Ltd (Benna), and a recent Henley MBA graduate.