Keywords

1 Introduction

Member-owned cooperatives differ from other organizational forms by their unique purpose and the nature of member engagement (Mazzarol et al., 2011; Puusa et al., 2013; also see Novkovic & McMahon, Chapter 2 in this volume). The ultimate idea of the cooperative is that its members should be actively involved in the decision-making and play a key role in the direction of the company, making sure that the operations and the business areas serve the needs of the membership. In order for the democratic governance model to work and for the purpose of the cooperative's activities to be realized, members of governance bodies need to understand specific features of the co-op’s governance model and, above all, their tasks and roles within various governing bodies.

The cooperative principle of democracy and multi-level governance are not only strengths, but can also present challenges, specifically concerning the role of the cooperative’s governing body. Cooperative governance has been found to be more demanding and challenging than in the case of investor-owned firms (hereinafter IOFs) (Cornfort, 2004). For example, Spear (2004) noted that the supervisory task of cooperative governance isn’t always implemented in the best way possible. In addition, previous research shows that widespread ownership of large cooperatives can lead to members finding it unnecessary or not useful to participate in issues of governance (Basterretxea et al., 2020; Chaves et al., 2008; Puusa et al., 2013; Spear, 2004; Tuominen et al., 2009). Furthermore, governing bodies’ members may lack business skills due to their “layperson” background (Chaves et al., 2008; Cornforth, 2004; Spear, 2004; Tuominen et al., 2009). Finally, cooperative dual nature means that cooperatives are simultaneously business enterprises and social groups of members with variety of goals. As a result, a co-op might be difficult to understand and challenging to manage (Draheim, 1952; Puusa et al., 2013). However, balancing the two roles has been proposed as the central duty of co-op governance (Cook, 1994; Mazzarol et al., 2011) and prior studies indicate that co-operative’s business role may overshadow the member community role (Puusa & Saastamoinen, 2021).

Puusa et al. (2016) argue that modern cooperatives should address their management philosophy more carefully. In other words, each business form should be managed according to their special characteristics. The unique identity of co-ops is often associated with co-ops’ dual nature alongside the collective ownership structure. Both this duality and the members’ diverse expectations invite building cooperative management and governance approaches in accordance with the principles of participatory democracy (e.g., Aragonés & Sánchez-Pagés, 2009; Corbett, 2014). In this chapter, we discuss the features and challenges of participatory, people-centered, and democratic cooperative governance (Birchall, 2017; Cornforth, 2004; Novkovic & Miner, 2015) through examining both members councils’ and supervisory boards’ understandings of the roles, tasks, and responsibilities of various governing bodies. Our empirical case study of a large consumer cooperative provides information on the governance structure of the cooperative enterprise, governing bodies' roles, and their understanding by the elected members. We also wanted to explore what do the members of the members council and supervisory board feel they make decisions on. According to Birchall (2017), there are three elements in successful governance, and the key is to find an optimal balance between them: voice, representation, and expertise.Footnote 1 We will introduce each in more detail later and discuss our findings from those perspectives.

2 Context

Our case study was carried out in one regional consumer cooperative of the Finnish retailing organization S Group. S Group is the largest cooperative group in Finland, and it consists of 19 independent regional cooperative societies as well as a central organization called SOK. Their network extends throughout Finland, with a strong regional focus. The regional cooperatives own SOK while the regional cooperatives, in turn, are owned by their members. Altogether, S Group has almost 2.5 million members (consumer-owners). SOK serves as the central company for the regional cooperatives and provides them with procurement, expertise, and support services. SOK is also responsible for the strategic guidance of the S Group and the development of the various chains. Furthermore, SOK’s business operations supplement S Group’s offering in Finland and the neighboring regions (S-ryhmä, 2021).Footnote 2

2.1 The Structure of Governance in the Case Cooperative

In Finland, according to legislation, each cooperative must have a general assembly and a board of directors. The general assembly may be replaced by a members’ council, and the cooperative may also have a supervisory board and a CEO. In addition, the cooperative is required to have an auditor.

In our case cooperative, the governance structure consists of a members’ council, a supervisory board, and a board of directors (see Table 6.1). In accordance with the case cooperative’s rules, the CEO is also the chairman of the Board of Directors. Members exercise their democratic power by electing other members to join the Members Council, where they serve four years. A member can vote in the elections if he/she has turned 15 and has been accepted as a member before the election year. All members have the right to stand as a candidate for members council after reaching the age of 18. In this particular cooperative, the Members Council replaces the General Assembly. The members of the Supervisory Board are elected by the Members Council based on the proposal of the Nomination Committee elected from among the Members Council. The Nomination Committee also includes the chairman of the Supervisory Board and the CEO. The term on the Supervisory Board lasts three years. Members of the Council may be elected to the Supervisory Board, which may also co-opt external members, based on their professional expertise.

Table 6.1 The governing bodies and their tasks in the case cooperative
Full size table

The Supervisory Board of the case cooperative forms a nomination committee for the purpose of selection of the CEO and board directors. The committee consists of the two chairmen of the Supervisory Board, three members, and the secretary, who is the CEO. They prepare the selection of the CEO and the members of the Board of Directors for one year at a time and the Supervisory Board then makes the final decision. The Supervisory Board selects members of the Board of Directors mainly based on expertise.

According to Chelliah et al. (2016) and Reynolds (2020) such a structure removes the power of the members and reduces the democracy of the cooperative. Selection based solely on expertise has been found to reduce the representativeness of the membership, which is a key factor in a democratic governance model (Cornforth, 2020; Reynolds, 2020; Spear et al., 2009). However, for example, Birchall (2017) emphasized that a balance must be struck between representativeness and expertise so the cooperative can carry out its purpose, and proposed that the governance structure should be a “two top-level groupings” model, in which the board is selected on the basis of expertise and is accompanied by a Members Council based on representativeness. These bodies have separate but mutually reinforcing roles, and authority is distributed between them. Since our case cooperative is a large business and makes significant investments, the criterion for the election of a board of directors cannot be mere representativeness.Footnote 3

In our case cooperative, the CEO has a dual role when he/she also acts as the chairman of the Board of Directors. Most regional consumer co-ops in Finland use this policy. However, when looking at the majority of Finnish cooperatives, this is a relatively atypical practice. Within the S Group this practice dates back to the 1980s, when the profitability of the entire group was weak and business expertise was desperately needed in order to improve profitability and even survive (Skurnik, 2021). Davis (2001) has argued that whether the CEO is a member of the Board or not depends on the specific circumstances and is not a matter of principle. According to him, it is essential to strive to ensure that both the Board and the CEO are committed to the cooperative’s values and purpose; and, in order to promote this, it may be helpful if the CEO belongs to the Board. However, this model is not without problems from the point of view of concentration of power.

2.2 The Tasks of Governing Bodies at the Case Cooperative

At the case cooperative, the Members Council wields many decisions, including: the approval of the financial statements; the use of the surplus; the discharge of the CEO, the members of the Board of Directors, and the Supervisory Board; and the remuneration of the members of the governing bodies (Case co-op, 2019). The Members Council thus has an important role to play: its role is to ensure that the cooperative's services and benefits for the members are developed based on the wishes of the members. It is the co-operative’s highest decision-making body (S Group).Footnote 4 The Supervisory Board ensures that the Board of Directors and the CEO operate in accordance with both the Finnish Cooperatives Act and the cooperative's rules, and supervises the implementation of the management strategy and objectives. The Supervisory Board also decides on matters concerning the significant reduction or expansion of the cooperative's operations and confirms the cooperative's strategies and financial objectives. The chairman of the Supervisory Board is formally the supervisor of the CEO.

The Board of Directors promotes the interests of the cooperative’s trade. It is responsible for the governance of the cooperative and the proper organization of its activities. The Board of Directors also manages the cooperative’s affairs in accordance with the law, the rules, and the decisions of the Members Council (MC) and the Supervisory Board (SB), as well as the instructions issued by the Supervisory Board. The Board of Directors decides on the cooperative's strategy and financial objectives, taking out and granting loans and providing guarantees. The Board of Directors also decides on financing and investment policy, significant investments, and disposals. In addition, the Board of Directors maintains a list of members and ensures that the cooperative's accounting and internal audit are properly organized. The Board of Directors is also responsible for providing the necessary information to the Supervisory Board and preparing the annual report and the financial statements. On the basis of these, the Board of Directors will prepare a proposal for measures regarding the use of the surplus.

The governing bodies of our case cooperative and their duties are described in Table 6.1:

3 Consumer Cooperative Governance Challenges

The cooperatives’ purpose extends beyond just making profits (Berge et al., 2016; Draheim, 1952; Novkovic et al., 2022; Puusa et al., 2013, 2016; Shah, 1996). The main challenge facing cooperatives is how to balance meeting the goals of its members, in other words how to remain relevant to its members, while still making it in the increasingly competitive markets. Therefore it is vital that decision-makers understand the dual nature of cooperatives and how to maintain the balance between the two roles, especially in situations where large co-ops have been deemed to have lost some of their co-op identity as they have taken on more capitalist characteristics in response to intense competition (Cornforth et al., 1988; Davis, 2001; Novkovic, 2012; Puusa & Saastamoinen, 2021; Puusa et al., 2013; Spear, 2004).

Most studies of cooperatives use neoclassical economic models that focus on the assumed characteristics and behavior of capitalist firms and their owners. Such a lens ignores an important criterion that motivates establishing cooperatives: the democratic nature of a member-owned company. Ultimately the neoclassical economic models are at odds with the real goals of cooperatives (Huhtala & Tuominen, 2016; Novkovic & Miner, 2015; Paredes-Frigolett et al., 2017). Capitalist theories have questioned the governance structure of cooperatives, describing it as dysfunctional and problematic (Chaves et al., 2008; Cook, 1995; Cornforth, 2004; Nilsson, 2018; Spear, 2004). However, cooperatives appear to be under great pressure “to adopt hierarchical command and control systems” based on the mainstream economics paradigm and to follow “best practices” of corporate governance, which is contrary to the cooperative idea and unsuitable for a democratic organization (Novkovic & Miner, 2015, p. 11).

Although facing a number of challenges, it has also been found that large cooperatives can thrive using a traditional democratic system of governance (Birchall, 2017). Because the governance structures of different cooperatives may vary significantly, there is no simple blueprint (Birchall, 2015), and the structures have become more diverse in recent decades (Hakelius & Nilsson, 2020). Despite varied structures, elected member-representatives remain the most important component of representative democracy (Basterretxea et al., 2020; Chaves et al., 2008).

3.1 Management in the Member-Centered Approach

Cooperatives by nature are values-based businesses, whose governance and management principles and practices should reflect co-op values and ensure the realization of democratic governance (Novkovic & Miner, 2015). Cooperative governance involves a tension between control and cooperation (Cornforth, 2004). The lack of oversight at the governance level is one of the reasons for the concentration of power in cooperatives (Basterretxea et al., 2020; Chaves et al., 2008; Ghosh & Ansari, 2018; Spear, 2004), which leads to a democratic deficit, weakens membership loyalty, and thus betrays key features of the cooperative identity (Simmons et al., 2015). The main task of governance is to fulfill the cooperative's objectives, protect members' interests, and maintain member control. However, this might be particularly challenging in big cooperatives, because the larger the cooperative, the less connected and more alienated its members become, the less it must rely on member involvement and the more it must rely on professional management. As co-ops grow, even a cooperative that puts participatory mechanisms of governance in place may slowly devolve into a thin, representative model, especially with the rise of a class of professional managers that exercises operational control (Kaswan, 2014, p. 196).

Beyond this, there are barriers when it comes to hearing members’ voices when members are outsiders to the organization, as is the case in consumer cooperatives. For example, members may be hesitant to speak in large consumer cooperatives (Tuominen et al., 2009); this silence may lead to a distorted view of members’ needs, which could in turn lead to poor decisions based on incomplete information (Hakelius, 2018; Pozzobon et al., 2012). Puusa and Saastamoinen (2021) argued that the best governance happens when the governance and management listen to the voice of the membership and know the needs of the members. This can be achieved through bi-directional information, education, and consultation.

Finally, the issue of concentration of power has been discussed in prior research. For example, Itkonen (1996, as cited in Cornfort, 2004, p. 19) states “Power and decision-making in co-operatives are all too often concentrated at the top in too few hands. Co-operative performance has for a long time been characterized by a lack of participation and sense of involvement. Statutory governing bodies exist to review past performance and to endorse management decisions rather than to challenge policies and strategies”. Also, Chaves et al. (2008, p. 31, 35) argue that compared to managers in capitalist companies, cooperative managers enjoy positions of far greater power and much wider margins of discretion, unfettered by the membership, as the member participation is typically low, which strengthens the autonomous power of the managers. Michaud and Auderbrand (2022) argue that cooperatives’ governing bodies cannot play their control role properly because they cannot employ the internal or external control tools to measure performance. They assert that some values of cooperatives, such as solidarity, can cause board members to side with management, even at the expense of their oversight and oversight responsibilities. In summary, all of these factors lead to insufficient supervision, resulting in managers having more freedom to act than in comparable IOFs (Spear, 2004).

3.2 Member Voice in the Member-Centered Approach

One of the biggest challenges of cooperative governance is regular, close, and meaningful dialogue with members (Lacmanovic, 2019). Receptiveness to members’ voice leads to greater commitment, which strengthens representativeness and thereby improves the quality of decisions—where quality means that decisions reflect the wishes and needs of the membership at large (Bijman et al., 2013). Member voice can be strengthened through a governance structure that includes several boards or councils, as well as through different groups of members, where the needs of members are given priority. In addition, various forums can be set up to consult members, workers, and stakeholders on complex needs and to share information. Large consumer cooperatives should also leverage new technology toward effective governance (Birchall, 2017; Ernst & Young, 2012; Lacmanovic, 2019), which offers possibilities to reach and hear broader membership and other strategic stakeholders.

3.3 Representation in the Member-Centered Approach

In large consumer cooperatives, there are several challenges to representativeness: voting turnout and interest in standing as a candidate for the Members Council are both typically low (Hakelius & Nilsson, 2020; Spear, 2004). Low voting activity implies that democratically elected governance bodies may not represent the full membership. The governance structure in large consumer co-ops, which includes not only a Board of Directors, but also a Members Council and a Supervisory Board, is democratic, albeit indirectly. In such a structure, members may feel marginalized, as though the governance bodies don’t represent them. Furthermore, members may not be aware of their role as owners in large consumer cooperatives; instead they associate themselves as regular customers, which presents further challenges to representativeness (Jussila et al., 2012b; Talonen et al., 2018). Cooperatives can strengthen their democracy by offering more opportunities for member and stakeholder participation (Birchall & Simmons, 2004), or by creating larger (and/or more numerous) boards that represent the membership and their heterogeneity more broadly (Franken & Cook, 2019).

3.4 Expertise in the Member-Centered Approach

One of the reasons for the ineffectiveness of the governance structure of many cooperatives is that the elected representatives neither have enough business skills nor recognize the requirements of their own role in co-op governance (Basterretxea et al., 2020; Nilsson, 2018). From this perspective, members of the governing bodies should be selected on the basis of both expertise and representativeness (which is the case when selecting the members of Supervisory Boards, as explained earlier). On the other hand, according to the principle of democracy, members have the right to elect representatives from among the wider membership (Basterretxea et al., 2020; Chelliah et al., 2016; Conrforth, 2004; Hannan, 2014; Reynolds, 2020) which is realized in Members Council elections.

Effective governance ensures the success of cooperatives in a rapidly changing market environment, which is why their leadership needs competence in business operations, understanding of the purpose and identity of cooperatives (Davis, 2001; Puusa & Saastamoinen, 2021), and a clear understanding of their governance both individually and collectively (Simmons et al., 2015). The members of the governance bodies are “everyday people”, and they are “very often solid, earnest people with good judgment, but without the necessary background for strategic decisions in the business world” (Sivertsen, 1996). In other words, democratically elected members may not have the skills required for effective governance work (Spear, 2004; Staatz, 1987).

The principle of democracy and the representative model prevent purely expert-driven recruitment (Chelliah et al., 2016; Reynolds, 2020). If members of the governing bodies appoint the co-op governors themselves (instead of relying on membership elections), they would have the opportunity to recruit people with the necessary competence. However, according to Cornforth (2020) this would pose a threat that governance would become self-serving and lack external accountability, with no wider membership to hold them to account.

Cooperatives need structures that provide co-op governors with information about the needs and aspirations of a large, and often heterogeneous, membership. Representation, expertise, and member voice must co-exist in well-governed cooperatives (Birchall, 2017).

4 Research Methodology

The empirical data was collected via qualitative questionnaires from the case cooperative’s Members Council and the Supervisory Board. Altogether, 54 people participated, 37 members of the Members Council (out of 40) and all 17 members of the Supervisory Board.

We used a qualitative content analysis. First, we read and reread the surveys, looking for both source-based and theory-based patterns in the responses. The process of analysis is multi-staged, which means that interpretation takes place during the whole process of reading and rereading (e.g. Krippendorff, 1986; Mayring, 2014; Puusa & Julkunen, 2020; Renz et al., 2018). Once themes emerged from the responses, they were coded and similarities and differences were identified. This process gave rise to the categories from which the main themes emerged, which we will discuss next.

5 Empirical Findings

All 54 respondents were first asked whether they knew the overall governance structure of their co-op; they were then asked to describe the overall governance structure of their co-op in their own words. For the Members Council, some of the respondents were able to name the cooperative’s governing bodies, some forgot one body or listed ones that are not in use. It is interesting that co-op members were also listed in many answers as part of the official cooperative governance structure, even though the members are not part of it according to the legal framework (Cooperatives Act 5§37) nor the bylaws of the case co-op. In a way, however, this conception makes sense because the Council members are elected by the members and they represent them. For the Supervisory Board, everyone indicated that they knew the governing structure of the cooperative they represent. However, their answers showed that they didn’t fully understand the tasks of each governing body or the specific roles of those bodies. In general, respondents had difficulty in defining the tasks of governing bodies, with a few exceptions, including the Chair of the Supervisory Board.

Below, we will first discuss the participants’ understandings of the Members Council. The first section will detail how the Members Council understands their own roles, followed by the members of the Supervisory Board's understanding of the roles of the Members Council. We will discuss next how all the participants understood the roles of the Supervisory Board and the Board of Directors; and, finally, we will analyze the responders’ motives for taking part in governing activities.

5.1 The Roles of the Members Council Through the Eyes of Its Members

All members of the Members Council seemed to know, at least in theory, that the Members Council is the cooperative’s highest decision-making body. However, they didn’t know what they could make decisions on or the extent of their decision-making power. They believed that their power rested in communicating co-op members’ messages to other governing bodies. Ultimately, they thought that they could not influence the resolution proposals; instead, they saw their job as “rubber-stamping” proposals prepared by the CEO and the Board. Despite this, the members seemed to have a strong desire to influence matters, but they had no exact information on how they could do that. Overall, the Members Council often referred to the co-op members, demonstrating their understanding that the most central mission of their council is to amplify the voice of the co-op members. Although this is an important duty and the correct conclusion, this is not the only duty of the Members Council. Members described duties in a number of ways:

The role of the Members Council is to make sure that the feelings and thoughts of the members are brought to the attention of the governing bodies.

I am a representative of members. I'll get [and deliver] a message from them.

In practice, I don’t really make decisions about anything. When matters are presented to the Members Council, they have travelled a long way in the process, and are ready to be formally decided on.

Based on these responses, we may deduce that the Members Council feels that their decision-making power rests in small or insignificant matters. Many respondents had views on what kinds of duties, in the spirit of cooperation, should belong to the Members Council. Generally, it was also seen that the Members Council is a visible indication of the democratic principle of the cooperative, and, in that spirit, it should have a more significant role within overall co-op governance.

5.2 The Roles of the Members Council Through the Eyes of the Supervisory Board

The members of Supervisory Board recognized the duties and role of the Members Council by definition: “The Members Council has the highest decision-making power” was a common and correct answer. However, a deeper analysis revealed that only very few seemed to understand what this means in practice. Their answers fail to define, for example, what matters are decided by this highest level of power. They also felt that the most central duty of the Members Council was to make the voice of the co-op members heard.

The... cooperative’s highest decision-making body is the elected 40 members Members Council. The Members Council is the [decision-making body] in governance that is closest to the members.

The Members Council is a customer feedback meeting . . . They are also responsible for providing information and feedback to customer owners about the company's operations.

The rubber stamp, many have said.

The responses seem to show that the tasks of the Members Council (based on the bylaws) were not understood, and even those respondents who could name the duties feel that the decision-making power lies with the CEO and the Board of Directors. This is contradictory, since respondents generally highlighted that it is the Members Council that is formally the highest decision-making body of the cooperative; and at the same time, they see their role in practice as to rubber stamp decisions made elsewhere, with no real de facto decision-making power on the Members Council. Outside of this, the Council acts as a passive conduit of information between members and management, without engaging either party in any serious constructive dialogue. Such deliberative engagement is one of the key factors in the effective governance of a cooperative; but from the point of view of the realization of democracy, it is also critical that the governing bodies participate in decision-making in accordance with the powers given to them, so that member voice is taken into account.

5.3 The Roles of the Supervisory Board Through the Eyes of the Members Council

We also asked the members of the Council to define the duties and the role of the Supervisory Board in more detail. Their answers were heterogeneous, and the factual knowledge regarding their tasks (see again Table 6.1) seemed very limited excluding a few exceptions. Only some recognized the supervisory role as an important duty of the Supervisory Board, and even fewer could explain this role more precisely. Those who could explained the supervisory role as follows:

One of the most important duties of the Supervisory Board is to select the Board of Directors and to appoint and to remove the CEO. The Supervisory Board oversees the Board of Directors and provides a statement on the confirmation of the final accounts to the Members Council.

An important task is to supervise the activities of the cooperative.

While one could expect a dialogue between various governance bodies in a cooperative, we note hierarchical thinking among the respondents. The respondents felt that the Supervisory Board should function as a link between the Board of Directors and the Members Council, which in turn acts as a link to the members.

After the Members Council comes the Supervisory Board, which oversees the co-op governance and operations.

The Members Council Represents the Membership, the Supervisory Board is Above It, and the Managers Are Above Them.

5.4 The Roles of the Supervisory Board Through Their Members’ Eyes

We also asked the Supervisory Board members on what matters they make decisions. In general, the respondents had difficulty in defining their duties. According to our interpretation, the Supervisory Board felt they had influence over the selection of the key personnel, such as the members of the Board and the CEO. Some of the respondents listed strategic decision-making as part of their duties. Therefore, it can be inferred that the division of roles between the Board of Directors and the Supervisory Board is not clear to everyone. The Supervisory Board members also saw themselves as a “discussion club” where people exchange ideas, but didn’t believe that they actually made decisions. The supervisory role was not perceived to be actually realized. The respondents interpreted the role of the CEO as very strong (for example expressions such as “the head of the house”, “direction determiner”, “figurehead”, “centre of power”, “face of the cooperative”), and they expressed that meetings weren’t based on discussions or interactive; but, rather, those meetings were designed to distribute unilateral information.

Decision making is fast, which is a very good thing. This could be done in a more transparent way, so [that] we here in the Supervisory Board would be up to date [on the decisions taken].

After all, the Supervisory Board is not the decision-making body.

5.5 The Duties of the Board of Directors

The Members Council felt that the work of the Board of Directors was comprehensive and responsible, saying that they “have a lot on their shoulders”. Despite this, the Members Council could not accurately name all of the Board’s responsibilities. Most of the respondents couldn’t discern between the strategic and the operative roles, meaning the Board’s responsibilities and roles were confused. According to co-op bylaws and good governance guidance, operational management is not the responsibility of the Board. On the contrary it should refrain from intervening with such activities and focus on strategic matters.

The Board of Directors, together with the CEO, is responsible for operative management.

The Board of Directors... decides on strategy and practicalities. The Board of Directors manages operations.

The board of directors makes almost all of the company's operational decisions.

The Supervisory Board members also recognized the duties and the role of the Board of Directors in differing ways. The common response was a connection between great power and great responsibilities. However, the roles of the management team and the Board of Directors were commonly confused in their answers too.

The Board of Directors... has the more operative power in the business, and makes the most important decisions and carries the actual responsibility.

The Board's task is to support the management team and CEO in more day-to-day management.

The Board of Directors exercises the highest operational authority and is responsible for major investments and strategy development.

5.6 Motives for Participating in Governing Activities

As a sub-theme, representatives’ motives to become and act as a representative were explored. The responses of the Members Council fell into four main categories, where motives varied from self-serving to altruistic. Firstly, for some, working in governance is a way to satisfy their own thirst for knowledge or to increase their competence (e.g., “I want…to gain knowledge and information about the activities of the cooperative more broadly”). The second category was formed by responses in which people talked about the overall influence of the cooperative movement, and the respondent’s wish to be part of it (e.g., “[In this area, the case cooperative] has a strong role as a social actor. I am interested in the possibilities of the [case cooperative] as a provincial actor”). The third category contains responses in which the respondents emphasized that they represent the members and that they want to bring the voice of the members into the decision-making (e.g., “I want to influence and represent members and bring their wishes and ideas to the members council and to the other governing bodies”). As a fourth category, a small group of people seemed to find themselves in governance by accident. They described how they had “drifted” into the task, for example, because an acquaintance had asked them to consider taking on a governance role (e.g., “Coworkers asked to run as a candidate”). The motives were not always clear-cut. Some of the respondents combined not only curiosity and the wish to develop their own competences, but also the desire to be part of the co-op’s development—to offer their own efforts and skills to the co-op.

The responses of Supervisory Board members and Council members shared these four response categories. In addition, a fifth category emerged among Supervisory Board members who had previous experience in governance tasks. For them, participating in governance was a kind of growth path; for example, moving from the Members Council to the supervisory body.

At the end of the first term, I was asked by the Nomination[s] Committee [to become] a member of the Supervisory Board and decided to join, because I felt it supported my own learning; but [also] that I could give the [case cooperative] an aspect that may not be [present] enough there yet.

5.7 In Summary

The responses from the Members Council and the Supervisory Board clearly show that the overall structure and duties of the governing bodies are not clearly understood. The responses contained inaccuracies or omissions in both the recognition of the governing bodies as well as their tasks. The responses could also indicate that the different governance bodies operate in a hierarchical relationship with each other. Participants did not consistently mention collaboration and interaction between the governing bodies either. According to Pirson and Turnbull (2011), the division of collaboration and knowledge between governing bodies is a central factor that promotes the realization of democracy, and if those aspects aren’t apparent, it may weaken the cooperative identity (Skurnik, 2002). The weakening of democracy strengthens the consolidation of power within the Board of Directors and the operative management (Basterretxea et al., 2020), which is problematic for a democratic organization.

The overall responses lead us to believe that power is concentrated at the top of the co-op structures. A genuine dialog is missing between the Members Council and other governing bodies. Instead of having an active decision-making role, the supposed highest power of the Members Council is perceived as being passive: in practice it involves listening to the Supervisory Board, the Board of Directors, and especially the CEO, and also confirming the ready-made decisions of the Board led by a powerful CEO. This means that the decision-making power of the Members Council was mostly seen as rhetoric mantra, which does not support the view of the cooperative as a truly democratic organization. They interpreted their only active role as that of amplifying the voice of the co-op members. Although the Members Council believes that this is a critical undertaking, it is not something done often or consistently. Therefore, the members’ voice isn’t guaranteed to be heard by any governing body, and decisions are left to the Board of Directors and management. Despite this, the governance structure was perceived to be an expression of democracy, an important value of the cooperative. These aspects are not in line with the ideal implementation of the humanistic paradigm and network governance (Novkovic & Miner, 2015; Pirson & Turnbull, 2011), nor the participatory democratic ideal of co-op governance (Novkovic & Miner, 2015).

The supervisory body also doesn’t seem to understand their supervisory duty, which, in turn, also concentrates power in the Board of Directors and management. This concentration of power has been recognized as a challenge in earlier studies (Basterretxea et al., 2020; Puusa & Saastamoinen, 2021), and as a phenomenon it does not follow the humanistic, member-centered perspective or the principles of the cooperative movement (Pirson & Turnbull, 2011). The concentration of power weakens the possibility of the emergence of different perspectives in governance, which, according to Pirson and Turnbull (2011), are a prerequisite for the development of the organization.

Even those respondents who can be understood to be disappointed by the lack of any real opportunity to influence matters did not question the current model of governance or ways of doing things or demand that they be changed to match the principles of cooperation—that is, hearing the voice of members and representation on an equal footing with expertise (Birchall, 2017). This is contradictory, in the sense that respondents being content with a structure where one has little influence seems to conflict with the dispersion of power as the key component of democratic governance. According to Mazzarol et al. (2011) the co-op governance can become overly “management driven”, which seems to be the case here due to an excellent financial performance and confidence in the management.

Our respondents seemed to strongly value the principle of democracy. However, that democracy is taken for granted. That assumption is either a case of member passiveness (Chaves et al., 2008; Cornforth, 2004; Spear, 2004), a lack of understanding of the co-op idea (Davis, 2001; Mazzarol et al., 2011), or strong trust in the CEO and other members of the Board and management (Mazzarol et al., 2011). It might also be the satisfaction with the financial success of the cooperative (see Basterretxea et al., 2020), so governance is not challenged. In practice, the data present a view of the cooperative as a very hierarchical organization in which real power is exercised by very few.

The members’ motives for participation in governance varied from self-serving to altruistic, but the common theme among all the respondents was passivity. The data lead to the conclusion that most of those who previously stated that they became involved with the governance in order to increase their own competences were not actively participating in or promoting democratic governance in a very active way. Rather our interpretation points toward a more passive engagement, where any form of participation was seen as a value in itself. The governance work benefits the representatives themselves through the development of networks and of knowledge or even prestige. Although this is in line with previous research that one of the key incentives for participation in the governance of cooperatives is the opportunity for personal professional development (Jussila et al., 2012a; Sacchetti & Tortia, 2020), primarily self-interested motives for participation run counter to the member-centered perspective (see Birchall, 2017). In conclusion, it can be stated that people have very different reasons to engage in governance across various contexts and organizational cultures, and only some of them are connected with the business form, cooperatives or the co-op ideology, confirming similar findings in previous studies (Jussila et al., 2012a; Sacchetti & Tortia, 2020).

6 Concluding Remarks

The principles of democracy and multi-level governance are not only strengths, but also present a challenge to cooperatives. Based on our study, two key findings stand out.

The first finding is that engagement and democracy as values and principles are an integral part of the cooperative ideology. It is the heart and soul of cooperative governance. According to Novkovic et al. (Chapter 4 in this volume) co-op processes are democratic, but situation-dependent and not uniform. In the responses, we found that democracy was highlighted as the central value related to cooperative operations and/or governance. Analysis of the data leads to the question of what the co-op governors mean by democracy, and how they understand it. As our study shows, democracy is only realized in the case cooperative as the right of the co-op members to stand for election and become elected to the Members Council.

Munck (2014) says that “democracy is about more than elections”. In other words, we should move beyond the conventional electoral conception of representative democracy, and, rather, realize that democracy is more about a holistic governance decision-making system. Indeed, the focus should be on the quality of democracy (see Lijphart, 1999), and its various forms, examining how well democracy promotes itself and how the governance system actualizes its potential. In our case co-op, while the financial performance is excellent, the quality of democracy is limited, or perhaps even poor. “Quality of democracy can also be evaluated by the strength of linkages between citizens and politicians and, in this case, via the linkages between the membership and representatives of governance bodies and the management or, alternatively, the strength of popular control” (Roberts, 2009, as cited in Munck, 2014, p. 3). In our case study, democracy is interpreted through its electoral conception and the quality of democracy is ignored. Thus the governance system neither actualizes its potential nor meets the original ideas forming the co-op ideal.

In conclusion, excluding elections, excessive concentration of power can be described as an embodiment of pseudo-democracy. Distortion of power is prevented by democratic practices of cooperative governance based on member participation and identifying the needs of members (e.g., Birchall, 2017; Shah, 1996; Spear, 2018). In addition, the managers should have little or no power over the election of supervisory board and board of director members (Franken & Cook, 2019). The members’ active involvement is important for the cooperatives’ purpose and for “network governance with multiple centres of decision-making and opportunities for engagement of members and constituent groups” (Novkovic & Miner, 2015, p. 19).

Birchall (2017) suggests that the dilemma of expertise and representativeness in large cooperatives should be solved by

two top-level groupings. There will be a small board of directors who are mainly independent experts, but with some representativeness built in. Then there will be a members council that will be much larger and will be highly representative of the members. This means that, to some extent, board members are freed from the need to prove their representativeness as well as their expertise. It also means that the top executives can become board members rather than just advisers to the board, as their expertise as managers can be recognised. In such a system, authority is distributed and so the members council and the board of directors can each get on with doing what they do best. In order not to choke off the voice of ordinary members, both the council and the board will have to submit themselves for election by the members at an annual meeting. Because of the need to ensure a threshold of competency among council members and specific types of expertise among board members, there will be a powerful nominations committee that will vet the candidates for both board and council. (Birchall, 2017, p. 105)

Our case cooperative seems to have the right structures in place to ensure this balance. However, the second finding, which is also a major concern, relates to the lack of understanding of respective roles: who oversees the case co-op’s Board of Directors and the operative management if members of the Supervisory Board do not recognize their most important duty, their role as the supervisors of the cooperative operations and purpose? Even those who recognize that oversight itself is part of their duties do not feel they are realizing it in any practical way. Only a handful of people realized this as a concrete duty.

This may be due to practical reasons. For example, even though information about the cooperative’s affairs and decisions made by the Board is openly available only in meetings, processing it in a short time is difficult, if not downright impossible. In time, this may lead to a situation where governance becomes “driven by management”, and it starts to rely too much on the operational management, ultimately rubber-stamping proposals (Mazzarol et al., 2011), which seems to be the case here. What is surprising and alarming is that, despite this situation, the respondents were satisfied with the current structure and did not question the lack of oversight. This might be due to the fact that the cooperative is doing extremely well financially and the other governing bodies seem to have an unswerving faith in the Board and especially the charismatic CEO.

We are afraid that our case example is not unique in its findings and examination of roles and tasks of the cooperative governance. However, it highlights the urgent need for training and education about the cooperative idea and the specific characteristics of its governance system. This requirement is also inherent in the international principles of the cooperative movement, in particular Principle 5 on education, training, and information (ICA, 2015). Davis (2001) highlights that the executive role in co-ops falls on management, and it is therefore crucial that they, in particular, be suitably educated about the co-op identity.

Elected representatives, together with the operational management, are responsible for the decision-making and the realization of the co-op’s purpose. The unclear roles and duties of the governing bodies concentrate power and weaken democracy. Methods such as online voting (Zittel, 2007), dialogue between stakeholder groups and governance bodies, and the formation of an inclusive organizational culture (Sepulveda et al., 2020) can lead to democratic participation and representation. This we strongly recommend to all cooperatives, including our case co-op. Besides the existence of more diverse governance structures toward a system of boards, committees, and councils that engage more members and stakeholders in decision-making processes (Novkovic & Miner, 2015; Pirson & Turnbull, 2011), educating members about their roles and enabling them to execute them is critical for a functioning democratic governance.