The internal and external governance of cooperatives: effective membership and consistency of values

Cooperatives are characterized by mutual-benefit coordination mechanisms aimed at the fulfillment of members’ participation rights and welfare, consistently with the normative principles of democratic involvement, independence and care for the community. This ideal situation may find, in practice, obstacles within the internal characteristics of the cooperative as well as in the nature of relationship with other actors in the socio-economic environment. Building on evidence from the literature, the paper systematizes and highlights some of the potential problems in the governance of cooperative firms concerning the accomplishment of cooperative mutualistic aims by way of means that do not hamper other stakeholders in the socio-economic environment. In exploring the internal conditions that may affect cooperative performance, we focus in particular on the role of rules and incentives towards such aims. In synergy, when analyzing the external conditions that may affect cooperative performance, the paper addresses possible sources of external control, such as those related to the nature of the business relationships between the cooperative and its production network. In taking into account both internal and external conditions, we consider an extended notion of governance, whereby those who impact on strategic decision-making are not to be searched only within the internal governance bodies, typically the board of directors or managers, but also outside the cooperative, as in the extended network of production relationships in which the organization is embedded.