CORPORATE GOVERNANCE IN COOPERATIVES

G. N. SAXENADIRECTOR (COOP. DEVELOPMENT)

IFFCO, INDIA

CORPORATE ETHICS IS BASED ON THE PHILOSOPHY OF OPPORTUNITIES

IN MARKET AND ACCORDINGLY INTEGRATE THE VALUE CHAIN IN TO

THEIR OPERATIONS FOR MEETING DEMANDS IN MARKET AT A

PROFITABLE SCALE. THE FUNDAMENTAL RULE IS TO CONTINUOUSLY

LOOK FOR OPPORTUNITIES AND PLAN INTERVENTIONS IN AN

ENTREPRENEURIAL & PROFITABLE MANNER.

CO-OPERATIVES NEED TO FOLLOW THIS RULE AND BASE THEIR FUTURE

PLANS ON THE BASIS OF OPPORTUNITIES IN THE MARKET AND

ACCORDINGLY INTEGRATE VALUE ADDITIVE FEATURES IN THEIR

OPERATIONS TO UPSCALE THE VALUE CHAIN AND SERVE THE NEEDS AND

ASPIRATION OF MEMBERS IN MORE BENEFICIAL MANNER.

“CORPORATE GOVERNANCE IS ABOUT “THE

WHOLE SET” OF LEGAL, CULTURAL, AND

INSTITUTIONAL ARRANGEMENTS THAT

DETERMINE WHAT PUBLIC CORPORATIONS CAN

DO, WHO CONTROLS THEM, HOW THAT CONTROL

IS EXCERCISED, AND HOW THE RISKS AND RETURN

FROM THE ACTIVITIES THEY UNDERTAKE ARE

ALLOCATED.” (BY MARGARET BLAIR,PROFESSOR OF LAW, VANDERBILT UNIVERSITY LAW

SCHOOL)

GOVERNANCE IN COOPERATIVES IS DIFFERENT AS

COMPARED TO PRIVATE ENTERPRISES, BECAUSE

ENSURING RETENTION OF CONTROL BY MEMBERS

DEPENDS ON THE AWARENESS, UNDERSTANDING &

KNOWLEDGE OF THE ELECTED REPRESENTATIVES

ABOUT THE COOPERATIVE PHILOSOPHY, AND THEIR

OWN RESPONSIBILITY AND ROLE IN THE

MANAGEMENT.

THE GOVERNANCE FRAMEWORK

SHOULD ENSURE STRICT REGULATORY

REGIME, EFFECTIVE MONITORING

MECHANISM AND STANDARD OPERATING

PROCEDURES ENSURING BOARD’S

ACCOUNTABILITY TO THE MEMBERS.

GOVERNANCE REFLECTS THE QUALITY OF

MANAGEMENT IN AN ORGANIZATION.

THE PRINCIPAL STAKEHOLDERS IN

COOPERATIVES ARE THE MEMBERS, THE

BOARD OF DIRECTORS, EMPLOYEES,

CUSTOMERS, CREDITORS, SUPPLIERS, AND THE

COMMUNITY AT LARGE.

IN SIMPLE WORDS, IT CAN BE SAID THAT

“GOVERNANCE” IN A COOPERATIVE

ENTERPRISE IS ABOUT STRIKING A FINE

BALANCE BETWEEN THE PROCESS OF MAKING

THE DECISIONS AND THE PROCESS OF

IMPLEMENTING THE DECISIONS.

GOOD CORPORATE GOVERNANCE PRACTICES IN COOPERATIVES

HELP A COOPERATIVE TO ACHIEVE THE FOLLOWING:

– DEVELOPING APPROPRIATE STRATEGIES THAT RESULT

IN THE ACHIEVEMENT OF THE MEMBERS’ OBJECTIVES.

– ATTRACTING, MOTIVATING AND RETAINING MEMBERS.

– CREATING A SECURE AND PROSPEROUS OPERATING

ENVIRONMENT AND IMPROVING OPERATIONAL

PERFORMANCE.

– MANAGING AND MITIGATING RISK AND

– PROTECTING AND ENHANCING THE CO-OPERATIVE’S

REPUTATION.

GOVERNANCE COMPRISES OF:

– PARTICIPATION

– TRANSPARENCY

– ACCOUNTABILITY &

– ANTICIPATION

GOOD GOVERNANCE DEPENDS ON :

A. RESPONSIVE ELECTED LEADERSHIP

– FAITH IN COOPERATIVE PRINCIPLES AND VALUES.

– INDEPENDENT WITHOUT ANY OUTSIDE PRESSURE.

– DEMOCRATIC DECISION MAKING.

– MEMBER DRIVEN-ACCOUNTABLE TO MEMBERS.

– KNOWLEDGE ABOUT BUSINESS DIMENSION, VISION AND BUSINESS

ACUMEN.

– TRANSPARENT DECISION MAKING.

– ALIVE AND RESPONSIVE TO SOCIAL NEEDS.– ALIVE TO MARKET PRACTICES AND TECHNOLOGICAL INNOVATION.

– OPEN FOR IDEAS AND SENSITIVE TO MARKET CHANGES.– TAKING CARE OF MEMBER NEEDS, RIGHT OF INFORMATION TO

MEMBERS

B. PROFESSIONAL MANAGEMENT

– QUALIFIED TO TAKE RESPONSIBILITY OF

MANAGEMENT AND BUSINESS.

– ACCOUNTABLE TO ELECTED LEADERSHIP.

– UNDERSTAND COOPERATIVE PHILOSPHY,

COOPERATIVE WAY OF FUNCTIONING.

– RESPECT DEMOCRATICALLY EXPRESSED NEEDS

OF MEMBERS.

C. VALUE BASED MANAGEMENT

– UNIFIED BOARD OF DIRECTORS COMPRISING OF

UNITED TEAM OF PROFESSIONAL MANAGERS SUCH

AS FUNCTIONAL DIRECTORS AND ELECTED

DIRECTORS ON THE BOARD.

– PROFESSIONAL MANAGERS ON THE BOARD ALLOW

THEM TO COMPREHEND THE THINKING OF THE

ELECTED DIRECTORS IN SERVING THE MEMBERS.

– ALLOW POLICY FORMATION TO BE DRIVEN BY BOTH

MEMBER-LEAD PHILOSPHY AND BUSINESS RESULTS.

E. ROLE OF THE GOVERNMENT

– RECOGNIZE COOPERATIVES AS DISTINCT AND MAJOR

STAKEHOLDER IN ECONOMY BOTH NATIONALLY AND

INTERNATIONALLY.

– TO PROVIDE FRAMEWORK OF LEGISLATION CONDUCIVE TO

THE GROWTH OF COOPERATIVES.

– COOPERATIVE LEGISLATION SHOULD BE MORE MEMBER-

ORIENTED, MEMBER DRIVEN , MEMBER FRIENDLY AND

BUSINESS ORIENTED.

– AUTONOMY TO THE BOARD TO RUN THE AFFAIRS OF THEIR

COOPERATIVES DEMOCRATICALLY IN CONFORMITY WITH

THE COOPERATIVE PRINCIPLES WHILE ASSISTANCE FROM

THE GOVERNMENT COULD STILL CONTINUE.

RECOGNISES THAT IT IS SUBSERVIENT TO THE MEMBER SHAREHOLDERS.

PROTECT RIGHTS AND ENSURES EQUAL TREATMENT TO ALL SHAREHOLDERS.

RECOGNISES THE ROLE AND RESPECTS THE “PROFESSIONAL MANAGERS”.

ENSURES ACCOUNTABILITY.

ENSURES FAIRNESS AND TRANSPARENCY IN DECISION MAKING.

WEAK OVERSIGHT AND VISION.

LACK OF PROPER MONITORING AND SUPERVISION.

MANAGEMENT OVERRIDE.

INADEQUATE INDEPENDENCE OF THE BOARD.

LACK OF RESPECT FOR COOPERATIVE COMMUNITY.

ELECTED BOARD OF DIRECTORS NOT GETTING RIGHT

INFORMATION AND ENOUGH TIME FOR BOARD AFFAIRS.

BOARD COMMITTEES NOT HAVING HIGH

EFFECTIVENESS.

IFFCO HAS CONSISTENTLY FOLLOWED TRANSPARENT,

DEMOCRATIC AND PROFESSIONAL PRACTICES IN ITS

GOVERNANCE.

IFFCO HAS CARVED OUT A STRONG " COOPERATIVE

IDENTITY" AND IS MAKING SINCERE EFFORTS TO

UPHOLD THE "COOPERATIVE VALUES" BY CHERISHING

"COOPERATIVE PRINCIPLES".

IFFCO CONDUCTS ITS BUSINESS WITHIN THE FRAME

WORK OF MULTI STATE COOPERATIVE SOCIETIES ACT

AND ITS BYE-LAWS

IFFCO BOARD CONSISTS OF

– ELECTED MEMBERS

– NOMINATED MEMBERS

– FUNCTIONAL DIRECTORS

FORMATION OF VARIOUS COMMITTEES

– PROJECT SUB-COMMITTEE

– MARKETING SUB COMMITTEE

– EXECUTIVE COMMITTEE

– AUDIT COMMITTEE AND

– TASK-BASED SUB GROUP

IFFCO HAS A “REPRESENTATIVE GENERAL BODY” WHICH AS

PER LAW EXCERCISES THE RIGHTS OF THE GENERAL BODY.

MEMBER SOCIETIES(39,910)

MEMBERS OF THE REPRESENTATIVE GENERAL BODY

(RGB)(1,000)

ELEVEN DIRECTORS

ON THE BOARD

ELECTS

ELECTS

IN COOPERATIVES, GENERALLY THE ‘DESIGN’ OF THE

BOARD, PLAYS A SIGNIFICANT ROLE. THE COMPOSITION OF

THE BOARD, TO A VERY LARGE EXTENT, DECIDES

GOVERNANCE IN A COOPERATIVE.

IN IFFCO , THE BOARD COMPRISES OF :-

1. ELECTED DIRECTORS - 11 (ELEVEN)

2. DIRECTORS FROM STATE FEDERATION - 10 (TEN)

21 (TWENTY

ONE)

3. FUNCTIONAL DIRECTORS - 7 (SEVEN)

4. COOPTED DIRECTORS - 2 (TWO)

9 (NINE)

30 (THIRTY)

THOUGH THE “ELECTED LEADERSHIP” AND THE

“PROFESSIONAL MANAGERS” ARE THE INTEGRAL PART OF

THE GOOD GOVERNANCE ; BUT IFFCO TYPICALLY HAS STILL

MADE THE DIFFERENCE.

BYE LAW - 40 PROVIDES ‘MORE SAY’ BY “ELECTED

MEMBERS”.

BYE LAW - 40 PROVIDES THAT

– QUORUM OF THE BOARD MEETING IS ONE-HALF I.E. 15

DIRECTORS(OUT OF 30 DIRECTORS).

– EIGHT OF WHOM AT LEAST SHALL BE OTHER THAN

FUNCTIONAL DIRECTOR AND COOPTED DIRECTOR.

IFFCO HAS A WELL DEFINED "CODE OF CONDUCT" FOR ITS BOARD

OF DIRECTORS IN ALIGNMENT WITH SOCIETY'S VISION AND

VALUES TO ACHIEVE THE MISSION AND OBJECTIVES AND AIMS AT

ENHANCING ETHICAL AND TRANSPARENT PROCESS IN MANAGING

THE AFFAIRS OF THE SOCIETY.

KEEPING IN VIEW THE RESPONSIBILITY TO SAFEGUARD THE

INTEREST OF ITS MEMBERS, IFFCO HAS SET UP VIGILANCE

DEPARTMENT AT EACH MANUFACTURING UNIT AND ZONAL

OFFICE OF MARKETING DIVISION.

VIGILANCE DEPARTMENT REVIEW THE PROCUREMENT FILES,

SERVICE CONTRACTS AND VERIFY COMPLAINTS ETC. AND

FORWARD IT'S REPORTS TO MANAGING DIRECTOR WITH

RECOMMENDATIONS FOR NECESSARY ACTION.

IFFCO SUBJECTS ITSELF TO REGULAR AUDIT.

AUDITORS PERIODICALLY COME TO THE BOARD

MEETINGS(AT LEAST BI-ANNUALLY).

AUDITORS ARE INVITED TO ANNUAL GENERAL MEETINGS.

IFFCO HOLDS QUARTERLY REVIEW MEETINGS.

IFFCO HAS STANDARD OPERATING MANUALS-

1. PROCUREMENT & CONTRACTING PROCEDURE

2. INTERNAL AUDIT MANUAL

3. ACCOUNTS MANUAL

4. CIVIL MANUAL

5. HR MANUAL

FLOW OF IDEAS ON

ENHANCING BENEFIT TO MEMBERS

FROM EMPLOYEES/ OUTSIDERS

MANAGING

DIRECTOR

JOINT VENTURES

TECHNICAL

AGRICULTURAL SERVICES

HR

DIRECTOR (COOP.DEVELOPMENT)

FOR SCRUTINIZING

AND FEASIBILITY

STUDY PURPOSE

ACCOUNTSFOR CONSIDERATION

OF BUDGET PROVISION

FOR CONSIDERING WHETHER THE

PROPOSAL IS WITHIN THE BYE LAWS AND ITS USEFULNESS FOR THE

MEMBERS.P

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(QUARTERLY REVIEW

MEETING)

MANAGING

DIRECTOR

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CHAIRMAN/VICE-CHAIRMAN & BOARD OF DIRECTORS

EXECUTIVES

MANAGING DIRECTOR

FINANCEDIRECTOR

MARKETING DIRECTOR

DIRECTOR (TECH)

DIRECTOR(COOP. DEVELOPMENT)

DIRECTOR(HRD)

DIRECTOR(JOINT VENTURES)

FinanceAccountsAuditBudgetPayrollsBooksTaxation

Plant OperationsLogisticsReal EstateIT Projects

Marketing SalesDistribution/TransportationAgriculture ServicesPublicity WarehousingPort Operation Promotion of Hindi

Coop. RelationsCoop. DevelopmentShares BoardCorporate Social Responsibility

Human ResourceAdministrationPersonnelRecruitment Training & Development Legal Industrial RelationsVigilance/Security

Joint Venture Operations

COOPS. & MEMBERS

FIELD OFFICES

ZONAL OFFICE - 5

STATE OFFICE - 20

AREA OFFICE - 63

ZONAL ADVISORY COMMITTEE

STATE ADVISORY COMMITTEE

DISTRICT CONFERENCES

CHAIRMAN IS AUTHORISED FOR NOMINATION TO OTHER

ORGANISATION.

PLACEMENT ON VARIOUS SPECIALISED COMMITTEES.

PLACEMENT AS “DIRECTORS” ON SUBSIDIARY

INSTITUTIONS.

VISIT TO VARIOUS CONNECTED INSTITUTIONS.

ZONAL ADVISORY/STATE ADVISORY

FIELD PROGRAMMES

EXPOSURE TO VARIOUS CONFERENCES/SEMINARS/

INFORMATION SESSION WITHIN AND OUTSIDE THE

COUNTRY.

TRAININGS

DELEGATES (MEMBERS OF REPRESENTATIVE GENERAL

BODY ) ARE EXPOSED TO :

– PLANT VISIT PROGRAMME TO SEE THE MAGNITUDE

OF THE OPERATIONS.

– SEMINARS/CONFERENCES/INFORMATION SESSION.

– ZONAL ADVISORY/STATE ADVISORY/DISTRICT LEVEL

CONFERENCES.

– CROP SEMINARS/FIELD PROGRAMMS.

– TRAINING PROGRAMMS.

ALL DECISIONS IN THE BOARD ARE

TAKEN BY ‘CONSENSUS’.

THE BOARD HAS NOT BEEN SUBJECTED

TO “VOTING” THUS FAR ON ANY

DECISION (EXCEPT VOTING FOR THE

POSITIONS).

IFFCO FOLLOWS THE GLOBAL PRACTICES OF CORPORATE

SOCIAL RESPONSIBILITY (CSR) COVERING THE ENVIRONMENTAL

AND SOCIAL ASPECTS.

IFFCO HAS UNDERTAKEN ACTIVITIES IN THE AREAS OF

COMMUNITY DEVELOPMENT, ENVIRONMENT PROTECTION,

HEALTH CARE/MEDICAL FACILITIES AND LITERACY

ENHANCEMENT/EMPOWERMENT PROGRAMME.

VILLAGE ADOPTION - BRING OVERALL SOCIO-ECONOMIC DEVELOPMENT IN RURAL AREAS.

IFFCO KISAN SEWA TRUST(IKST)- FOR THE WELFARE AND CRITICAL MEDICAL ATTENTION OF NEEDY

FARMERS. IFFCO FOUNDATION – FOR TECHNOLOGY TRANSFER., PRESERVATION &

CONFEDERATION OF FOLK, ART & CULTURE.

CORDET- PROVIDE PRACTICAL TRAINING TO FARMERS. INDIAN FARM FORESTRY DEVELOPMENT COOP. LTD.(IIFDC)

- DEVELOPMENT OF WASTE LAND FOR TREE PLANTATION.

ESTABLISHMENT OF HRD AND IT FORUMS TO UNDERSTAND THE

SUGGESTIONS AND OUTLOOK OF EMPLOYEES

CONNECTIVITY OF ALL THE FIELD OFFICES TO MONITOR THE

OPERATIONS THEREBY PROMOTING TRANSPARENCY AND FAST

COMMUNICATION

E-PROCUREMENT

THE E-PROCUREMENT PROCESS AVAILABLE THROUGH IFFCO'S WEBSITE

FOR REGISTERED VENDORS, ENQUIRIES ARE ISSUED TO THEM

ELECTRONICALLY.

VENDORS CAN COMMUNICATE WITH IFFCO ON RELATED SUPPLY OF

MATERIAL THROUGH THE WEB-SITE.

PO STATUS, DELIVERY STATUS, PAYMENT STATUS CAN BE OBTAINED

ONLINE

THE SYSTEM INTRODUCES ONLINE SUBMISSION OF BIDS USING DIGITAL

SIGNATURES

IFFCO WAS AMONG THE FIRST ORGANIZATIONS IN INDIA TO IMPLEMENT

ITS ‘E-PROCUREMENT’ INITIATIVE.

INITIAL AT PRESENT

MEMBERSHIP 57(Year 1967-68)

39,910

SHARE CAPITAL 0.05 MILLION US$(Year 1967-68)

94.43 MILLION US$

PRODUCTION 0.18 MILLION TONNES (Year 1975-76)

8.2 MILLION TONNES

MARKETING 0.18 MILLION TONNES (Year 1975-76)

11.83 MILLION TONNES

TURNOVER 588 MILLION US$(Year 1989-90)

3545 MILLION US $

REGISTERED ON 3RD NOVEMBER 1967, AT THE INITIATIVE OF

COOPERATIVE LEAGUE OF USA (CLUSA) NOW KNOWN AS NCBA; AND

EFFORTS OF GOVERNMENT OF INDIA.

OWNED AND CONTROLLED BY MEMBER COOPERATIVES.

LARGEST MARKETER OF FERTILISERS IN THE WORLD.

GROWTH OF IFFCO

IFFCO HAS ENTERED INTO JV- PROJECTS AND DIVERSIFIED

INTO DIFFERENT AREAS:-

OMAN INDIA FERTILISER COMPANY (OMIFCO):

• ANNUAL CAPACITY OF 1.6 MILLION MT UREA AND 0.25

MILLION MT AMMONIA

• THE ACTUAL PROJECT COST USD 892 MILLION (SAVING OF

USD 77 MILLION ON ESTIMATES)

INDUSTRIES CHIMIQUES DU SENEGAL (ICS)

• IFFCO HOLDS ABOUT 20% OF THE PAID-UP SHARE CAPITAL.

• UNDER LONG TERM BUY BACK AGREEMENT , 0.5 MILLION

MT PHOSPHORIC ACID IS LIFTED BY IFFCO

IFFCO TOKIO - GENERAL INSURANCE COMPANY LTD ( ITGI)

• SPECIAL INSURANCE SERVICES FOR FARMERS .

PHOSPHORIC ACID PLANT AT ESHIDYA IN JORDAN

• THIS JV WILL MAKE AVAILABLE THE REQUIRED

QUANTITY OF ROCK PHOSPHATE FOR IFFCO.

IFFCO KISAN SEZ’ AT NELLORE (ANDHRA PRADESH)

• SETTING UP A MULTI-PRODUCT WITH PRIMARY FOCUS ON

FOOD PROCESSING AND AGRI BASED INDUSTRIES.

INDIAN POTASH LIMITED (IPL)

– IPL IS PRIMARILY ENGAGED IN TRADING OF IMPORTED

POTASSIC AND NON-POTASSIC FERTILISERS .

LEGEND INTERNATIONAL HOLDINGS INC, AUSTRALIA

(LEGEND)

– IMPORT OF ROCK PHOSPHATE FROM LEGEND’S MINING

PROJECT.

KISAN INTERNATIONAL TRADING FZE, DUBAI

• TRADING IN RAW MATERIALS AND FINISHED FERTILISERS

AMERICAS PETROGAS INC, CANADA

– OIL AND GAS FIELDS IN ARGENTINA AND POTASH RESERVES IN

PERU.

IFFCO CHHATTISGARH POWER LTD.

– IFFCO HAS ENTERED INTO POWER SECTOR BY

INCORPORATING A JOINT VENTURE COMPANY WITH

CHHATTISGARH STATE ELECTRICITY BOARD (CSEB) TO SET UP

A 1000 MW COAL BASED MEGA POWER PLANT; THE COMPANY

TO SUPPLY ELECTRICITY TO FARMERS AT A CHEAPER RATE.

PROMOTION OF COMMODITY TRADING IN INDIA

THROUGH

– NATIONAL COMMODITY AND DERIVATIVE EXCHANGE

LTD (NCDEX)

– NATIONAL COLLATERAL MANAGEMENT SERVICES LTD.

(NCMSL)

SPECIAL INSURANCE SERVICES FOR FARMERS

THROUGH IFFCO TOKIO GENERAL INSURANCE

COMPANY LTD. (ITGI)

– SANKAT HARAN BIMA YOJANA

– BARISH BIMA YOJANA

IFFCO KISAN SANCHAR LTD.

– TO STRENGTHEN RURAL TELEPHONY A JOINT VENTURE WITH AIRTEL

– SUPPORT FARMERS THROUGH VALUE ADDED INFORMATION THROUGH

MOBILE TELEPHONY

– ENHANCING THE CAPACITY OF ITS MEMBER COOPERATIVE SOCIETIES BY

PROVIDING THEM AN ADDITIONAL MEANS OF GENERATING INCOME.

INDIAN FARM FORESTRY DEVELOPMENT

COOPERATIVE LTD. (IFFDC)

– FOCUSES ON DEVELOPMENT OF WASTELAND.

– UNDERTAKES ACTIVITIES LIKE PROMOTING PRIMARY FARM FORESTRY

COOPERATIVES (PFFCS) TO ENHANCE THE SOCIO ECONOMIC STATUS OF

RURAL POOR

IFFCO KISAN SEVA TRUST

– A CHARITABLE TRUST WITH IFFCO’S CONTRIBUTION AND

CONTRIBUTION BY IFFCO EMPLOYEES TO PROVIDE RELIEF

AND REHABILITATION TO VICTIMS IN RURAL INDIA IN THE

EVENT OF NATURAL CALAMITIES.

COOPERATIVE RURAL DEVELOPMENT TRUST (CORDET)

─ TO PROVIDE TRAINING TO THE FARMERS TO IMPROVE THEIR

SKILLS IN AGRICULTURAL PRODUCTION, DAIRY, POULTRY,

FISHERIES AND PROFESSIONAL LEADERSHIP AT VILLAGE

LEVEL.

THANK YOU !