Overview of Corporate Governance Issues for Co-operatives - IFC

This has been aptly described as a system of co-operatives without co-operators. Thereis an extensive literature on the ways in which co-operatives were provided with specialsupport and often afforded monopoly positions. They frequently became sole suppliersto State Marketing Boards for commodity crops and were subject to price controls. Inmany cases co-operatives also became vehicles for political patronage and nepotismand were subject to capture by local elites. Co-operative ministries had the power to,and frequently did, intervene in board matters by appointing directors and managers,controlling all business operations and making membership of a co-operativecompulsory. The detrimental effects of these interventionist policies have been welldocumented. However, as a seminal World Bank study on co-operatives pointed out,these policies were in part the result of donor support (Hussi et al 1993). Indeed evenwithin the co-operative movement, there was support for a directive and even coerciverole for governments vis-a-vis co-operatives in developing countries (ICA 1966).This situation began to change with the advent of Structural Adjustment Programmesand related liberalisation programmes. Their impact has been considerable if unevenand in many countries liberalisation for the co-operative is still in its early stages. InAfrica, single-channel marketing systems and regional parastatals were dismantled,many co-operatives stopped receiving product or credit subsidies. Trade liberalisationpolicies placed sudden and considerable burden on many co-operatives by exposingthem suddenly to high levels of competition whilst at the same time they lost marketaccess. Co-operatives frequently lost their pre-eminent position in the economy andfaced the problem of restructuring with fewer resources (ILO 2000).A new balance between the power and role of the State with the co-operative has yet tobe reached in many countries. To aid this process, a major revision was undertaken bythe ILO of its earlier Recommendation on the Promotion of Co-operatives. The aim wasto provide an appropriate framework which was universal in its application, recognisedco-operatives as private sector institutions controlled by their members and operatedwithin competitive markets whilst sustaining their identity (ILO 2000). In 2002, thepassage of Recommendation 193 provided an international framework based on theICA 1995 Statement of Identity and Principles. A key feature is the emphasis on the roleof governments in providing an enabling rather than a controlling framework, respectingthe autonomy of co-operatives and ensuring they receive equal treatment with otherforms of private sector enterprises.The impact of the Recommendation has yet to be comprehensively assessed. The ILOhas listed activities carried out since 2002 linked to the Recommendation, the majorityof which have been in developing countries. Legal and policy changes have occurred inmore than 30 countries (ILO 2006). Both China and India, for example, are currently inthe process of legislative and policy revisions in the light of Recommendation 193.The ILO also developed a revised set of Guidelines for Cooperative Legislation. Theypropose that cooperative legislation needs to be situated in private not public law toreflect the fact that the legislature should not seek public involvement in the activities ofPage 18