Good coop governance

GOOD GOVERNANCEFOR COOPERATIVES

DISCUSSION POINTS

• Meanings of Governance• Tests of Good Governance• Governance Common Issues

and Problems• Good Governance Guiding

Principles• Levels of Governance

• Characteristics of Good Governance

• Key Cooperative Actors• Functions of the Board of

Directors• Board Good Practices• Board Relationships

GOVERNANCE

• SYSTEM• IDEALS• RELATIONSHIPS

What is Governance?

A system designed to control and distribute power within an organization

What is Governance?

Ideals to be done to realize organizational goals and desires

What is Governance?

Set of relationships among the board of directors, management, and owners of a business entity through which the objectives are decided and the means for achieving them and monitoring performance are determined.

Board of Directors

OwnersManagement

Tests for Good Governance

• Does the cooperative serve all stakeholders ADEQUATELY and FAIRLY in providing services and material information?

• Is management competent to run the cooperative?

• Does it do so with ACCOUNTABILITY for its actions?

Tests for Good Governance

• Does the business entity operate in accordance with the rule of law?

• Is management transparent in all of its transactions?

• Has management created SHAREHOLDER VALUE?

GOVERNANCECOMMON ISSUES AND PROBLEMS

Governance Issues and Problems

• Lack of formal strategic planning and management processes

• Lack of clear understanding of the actual duties, responsibilities, accountabilities, and liabilities of the board of directors as a body and as individual directors


• Diverse backgrounds of directors – knowledge, experience, and training not related to the organization

• Lack of sufficient knowledge in finance

• Incomplete or insufficient reports and data for making decisions


• Reports and other required data not given in advance of scheduled meetings

• Insufficient discussion of complex issues

• Lack of free exchange of ideas and opinions


• Lack clear definition of the roles and responsibilities of the board on one hand and management on the other

• Lack of knowledge of the business, statutory requirements, current and best business practices


• Lack of time devoted to board work

• Insufficient oversight in audit and risk management

GOOD GOVERNANCE GUIDING PRINCIPLES

1st Principle

It is the paramount duty of the board of directors to select and oversee the chief operating officer.

2nd Principle

It is the responsibility of management to operate the business in an effective, efficient, and ethical manner in order to produce value for stakeholders.

3rd Principle

It is the responsibility of management, under the oversight of the board and audit committee, to produce timely and factual financial statements.

4th Principle

It is the responsibility of the board and the audit committee to engage an independent accountant to audit the financial statements prepared by management.

5th Principle

It is the responsibility of the independent accountant to ensure that he is in fact independent and has no conflict of interest.

6th Principle

Employees shall be dealt with in a fair and equitable manner

LEVELS OF GOVERNANCE

External Governance

Internal Governance

Individual Governance

Levels of Governance

INDIVIDUAL GOVERNANCE

In order to perform their collective duties, the individual board members and managers must maintain ethical conduct and professionalism and to speak with a single voice once decisions have been made.


INTERNAL GOVERNANCE

Unlike profit-motivated entities, cooperative must address its democratic and member-driven nature.


EXTERNAL GOVERNANCE

All financial institutions are expected to comply with the standards of transparency, auditing, and financial reporting.

External Governance

• Transparency• Compliance• Public Accountability

ASPECTS OF EXTERNAL GOVERNANCE

External Governance

• Regular, honest communication of board activities with members, regulators and the general public in the spirit of full disclosure.

• Financial statements, compliant with generally accepted accounting principles and local regulatory standards, should be made available to members and the public.

Aspect of External Governance

TRANSPARENCY

External Governance

• Fully comply with regulations and national laws and cooperate with regulators

• Ensure that the cooperative meets or exceeds any relevant standards for financial institutions.

Aspect of External Governance COMPLIANCE

External Governance

• Undergo annual external audits within 90 days of the end of each fiscal year

• Re-examine audit relationship frequently and consider changing the auditor at least 3-5 years in a competitive bidding process


COMPLIANCE

External Governance

Must be constantly cognizant of responsibilities to government bodies


PUBLIC ACCOUNTABILITY

Internal Governance

• Structure • Continuity• Balance• Accountability

ASPECTS OF INTERNAL GOVERNANCE

Internal Governance

• Composition of BOD shall be in odd number, no less than 5 and no greater than 15

• Consideration should be given to the rotation of directors

• Dialogue with general members shall be encourage during annual general meeting

• The annual general meeting should be adequately promoted to ensure sufficient member participation

Aspect of Internal Governance

STRUCTURE

Internal Governance

• The board should create strategies to maintain competitiveness and sustainability of the cooperative

• The board should create succession plans for both directors and management

• The board should formulate risk management plan


CONTINUITY

Internal Governance

• The composition of the board should aim to reflect the demographic makeup of members and balance the financial service demands of members

• The board should seek to balance diversity and experience


BALANCE

Internal Governance

• The board is formally accountable to the general assembly.

• The roles and responsibilities of the board, committees and managers should be established clearly in the by-laws or other policies


ACCOUNTABILITY

Internal Governance

• It is the duty of the board to establish strategic direction, approve policies and monitor management’s implementation of policies and achievement of targets.

• It is the duty of management to prepare the plan and budget, undertake operations, implement polices approved by the board and achieve the targets set forth.


ACCOUNTABILITY


• Integrity • Competence• Commitment

ASPECTS OF INDIVIDUAL GOVERNANCE


• The cooperative should adopt a code of conduct clearly explaining proper behaviour

• Directors or managers must not have criminal or civil backgrounds.

• Immediate family members should not serve on the board or in management at the same time.

Aspectof Individual Governance

INTEGRITY


• Board members must excuse themselves from participating in discussions and voting on matters form which they or their family have a potential conflict of interest.

• The board must approve loans to directors or managers.

• Directors with loans that are delinquent for 3 months will be removed from their position.


INTEGRITY


• All members of the board should have basic competencies, especially financial literacy.

• Individual members should also have sufficient knowledge and skills that are needed to conduct their business and perform their rights and responsibilities to the cooperative


COMPETENCE

Leadership Competency Model

S K I L L

B E H A V I O R

K N O W L E D G E

NegotiationCommunication

Problem SolvingChange

Management

Coaching/Mentoring

Building TrustFocus and Drive

Systems Thinking

Conceptual Thinking

Emotional Intelligence

FinanceMarketing

Human Capital Strategic

Planning Running the

Business

Leadership Center7 September 1999


• Directors should be willing and able to commit necessary time to the cooperative. Failure to attend board meetings may result to dismissal.

• Directors must respect the decisions of the board, adhering to all policies that have been adopted, regardless of personal opinion.

Aspects of Individual Governance

COMMITMENT

CHARACTERISTICS OF GOOD GOVERNANCE

1. PARTICIPATORY

2. FOLLOWS THE RULE OF LAW

3. TRANSPARENT

4. RESPONSIVE

5. CONSENSUS ORIENTED

6. EQUITABLE AND INCLUSIVE

7. EFFECTIVE AND EFFICIENT

8. ACCOUNTABLE

Participatory

• Participation of members is a key cornerstone of good governance

• Participation could be either direct (AGA) or representative (intermediate) through officers or committee members

Follows the Rule of Law

• Good governance requires fair legal frameworks that are enforced impartially.

• Good governance also requires full protection of rights.

Transparent

• Making and enforcing decisions in a manner that follows rules and regulations

• Making information freely available and directly accessible

• Providing sufficient and easily understandable information

Responsive

Good governance requires that institutions and processes try to serve all stakeholders within a reasonable timeframe

Consensus Oriented

Mediation of the different interests to reach a broad consensus on what is the best interest of the whole organization and how this can be achieved

Equitable and Inclusive

• Ensuring that all members of the organization feel that they have a stake in it and do not feel excluded from the mainstream

• All groups, particularly the most vulnerable, have the opportunities to improve or maintain their well being

Effective and Efficient

• Processes and institutions produce result that meets the needs of society while making the best use of resources at their disposal

• Sustainable use of natural resources and the protection of the environment

Accountable

• Officers are responsible to the stakeholders and to the regulator and the public

• Cannot be enforced without TRANSPARENCY and RULE OF LAW

KEY COOPERATIVE ACTORS

• STOCKHOLDERS• BOARD OF DIRECTORS•MANAGEMENT

Stockholders

… have little voice in the day-to-day management of operations, but have the right to elect directors to look out for their interests and to receive the information they need to make investment and voting decisions.

Board of Directors

Oversees management performance on behalf of stockholders

Management

Runs the day-to-day operations of the cooperative and informs the board of the status of operations

FUNCTIONS OF THE BOARD

• Formulate policies• Oversee management• Manage risks and crisis• Promote the cooperative• Perform administrative

duties

Formulating Policies

Considering such key policy areas as:Purpose and philosophyOrganization and staffingOperations and infrastructureProducts and servicesFinancial management

Overseeing Management

• Planning for management succession

• Understanding, reviewing, & monitoring strategic plans

• Understanding and reviewing annual plans and budgets

• Focusing on the integrity and clarity of financial statements and reporting

Overseeing Management

• Engaging outside auditors and considering independence issues

• Advising management on significant issues

• Reviewing and approving significant corporate actions

• Overseeing corporate governance

Managing Risks and Crises

• Identifying possible risks and crisis

• Drawing up plans and policies to control, mitigate, or eliminate risks and crisis

• Reviewing periodically risks and crisis management plan and policies

Promoting the Organization

• Attending social events• Communicating with board

members between meetings• Complying with government

and federation regulations and requirements

Administrative Responsibilities

• Attending meetings• Accepting members• Hiring chief executive officer• Performing housekeeping

functions

BOARD OF DIRECTORSGOOD PRACTICES

BOD Good Practices

• Directors must participate in board meetings, review relevant materials, serve on board committees, and prepare for meetings and for discussion with management

• Directors must be given incentives to focus of long-term stakeholder value

BOD Good Practices

• Acceptance of a new directorship should be thoroughly considered in order not to compromise the ability to perform present responsibilities

• Board responsibilities may be delegated to committees to permit directors to address key areas more deeply

BOD Good Practices

• The board’s agenda must be carefully planned, yet flexible enough to accommodate emergencies and unexpected developments

• Management presentations should be scheduled for discussion

BOD Good Practices

• The board must have accurate, complete information to do its job

• New directors must be provided with materials and briefings to permit them to become familiar with the business, industry, and corporate governance practices

BOD Good Practices

From time to time, it may be appropriate for the board and committees to seek advice from outside advisors

The performance of the full board and the committees should be evaluated annually

BOD Good Practices

The board should have a process for evaluating whether the individuals sitting on the board bring the skills and expertise appropriate for the business and how they work as a group

Planning for the departure of directors and the welcoming of new board members are essential

BOARD RELATIONSHIPS

• STAKEHOLDERS• EMPLOYEES• COMMUNITIES• GOVERNMENT

With Stakeholders

Communicating candid, timely, clear, and consistent information to make them understand the business, risk profile, financial condition, operating performance, and trends

With Employees

• Treating employees fairly and equitably

• Providing employees with competitive compensation and benefits

• Establishing mechanisms for employees to alert the board and management to allegations of misconduct without fear of retribution

With Employees

• Communicating honestly with employees about operations and financial performance

• Providing employees with enough resources and technology, and conducive work environment

With Communities

• Making donations or contributions

• Encouraging directors, managers, and employees to form relationships with these communities

• Promoting awareness of health, safety, environmental,

and other concerns

With Government

• Developing, implementing, and maintaining effective legal compliance programs

• Contributing to the public policy dialogue

• Involving in discussions about the development, enactment, and revision of relevant laws and regulations

Governance Quotes

“I am because you are, you are because we are.” - Unknown

Governance Quotes

“You cannot legislate good behavior.” - Mervyn King

Governance Quotes

“You must be the change you wish to see in the world . . .” - Mahatma Gandhi

Governance Quotes

“Apply yourself. Get all the education you can, but then, by God, do something. Don’t just stand there, make it happen.“ - Lee Iacocca (Legendary President of the Chrysler Corporation)

Thank You

EDGARDO TABEQUERO GAMOLOChairman of the BoardCooperative Bank of Misamis OrientalMobile Phone: 0999 440 9544Telefax: 088 333 2179Email: [email protected]