Governance Problem in Saccos

Good governance is now accepted as vital to achieving the Millennium Development Goals and as a pre-condition for sustainable economic growth. Ensuring better governance of corporations, financial institutions and markets is increasingly recognized for developing countries despite of the limited number of firms there with widely traded shares. For developing countries, significant benefits can be linked to higher corporate governance standards in the private sector. These include better access to external finance, lower costs of capital and better firm performance (Claessens 2003).

Defining corporate governance Research into corporate governance in developing countries, especially comparative studies, typically is based on a broad definition of corporate governance which includes the relationships a company has with its wider stakeholders as well as its shareholders. According to Claessens, corporate governance would include: The relationship between shareholders, creditors, and corporations; between financial markets, institutions and corporations; and between employees and corporations.

Corporate governance would also encompass the issue of corporate social responsibility, including such aspects as the dealings of the firm with respect to culture and the environment” (Claessens 2003:5). The recent revision of the Principles of Corporate Governance reflects this broader agenda with a greater emphasis on the institutional and policy framework for corporations. My research will utilize this broader definition of corporate governance as one that is more relevant to the distinctive governance features of co-operatives.

Co-operative identity Despite of the existence of a considerable literature on co-operatives, all too frequently they remain poorly understood institutions (Cuevas and Fischer 2006). Co-operatives have succeeded in being both familiar and yet little understood for the general public and the academic world alike. There are many reasons for this. Too frequently the co-operative sector has been viewed through the prism of a specific enterprise, institutional form or a single country.

Many studies have failed to capture the heterogeneous and diverse nature of co-operatives and downplayed their position as part of a sector with global reach and frequently operating as part of a global movement. It can be argued that it is the dual entrepreneurial and associative nature of co-operatives that has contributed to their current low profile within research and policy agendas. As member owned businesses, they are generally not subject to stock market listing and consequently less reported on and analyzed.

This duality has been variously characterized as both a fatal flaw and a creative tension. In contrast to the single financial bottom line that has characterized investor owned businesses until very recently, co-operatives have always combined different interests and aims within a single enterprise. It is captured within the following internationally accepted definition of a co-operative: An autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through jointly owned and democratically controlled enterprise (ICA 1995).

Deriving from their dual identity, co-operatives have always faced complex governance challenges and there is a well established institutional framework to deal with this. However the starting point has been not a common legal basis but rather shared principles which have provided guidelines as to how co-operatives should be owned and governed. These guidelines have evolved through time. The current statement on identity, values and principles was adopted in 1995 at the World Congress of the International Cooperative Alliance (ICA).

The Congress endorsed a revision of the seven core co-operative principles and agreed on a basic statement of co-operative identity for the first time. In addition two sets of related values (basic and ethical) to underpin the principles were also agreed upon. The revision was adopted in response to the rapid changes stemming from globalization especially trends of liberalization and deregulation, mercerization, and political changes. The restatement was also viewed as an opportunity to promote harmonization within the co-operative sector in providing a general framework whilst also recognizing diversity within the sector (MacPherson 1995).

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