COOPERATIVE MANAGEMENT AND ADMINISTRATION

By Zvi Galor
www.coopgalor.com 1988

A. Introduction.

The cooperative enterprise is distinct in its management structure,

than other enterprises management structure. The cooperative
enterprise is composed of two elements. It stands on two legs:
- The ownership leg. The cooperative belongs to all its members
individually and equally, and they finance the assets of the
cooperative entirely and equally.
- The functioning leg. The members pays for the entire costs of
operation of the cooperative, but not equally. They pay for its
operation according to their patronage in the cooperative.
This paper will show the other aspect of the cooperative
management, its democratic structure.

B. The Cooperative Enterprise.

The Cooperative Enterprise general concepts, structure and

characteristics is described at the operation and management of the
cooperative, where its most important element is the members. In
any other form of enterprise, the factors of production are derived
from different sources. Capital comes from investors. Labor
comes from the employed workers. Administration is provided by
a managerial staff other than the owners. In a cooperative
enterprise, however, all factors are derived from one source....
the members. In the management of other organizations, the
elements of authority can be recognized. The authority comes
from different sources such as professional or class standing,
military rank, landlord status or the possession of capital. In a
cooperative enterprise, however, the authority derives from the
general meeting of the members.

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In the administration of other organizations, a hierarchy of
responsibi1ity is seen, with one person in charge at the top. From
the apex, authority is delegated to those beneath, in progressively
increasing numbers. In other words, a director delegates authority
to the deputy directors, they delegate to the various
executives, who, in turn, delegate to the various department
managers. An organizational pyramid has therefore been
generated with one in control at the apex and a broad base of
responsibi1ity.
In a cooperative enterprise, however, the top of the hierarchy is
the members. This broad top base delegates authority to the
council, which in turn delegates to the management. The
management delegates to the manager, the one...at the bottom. In
the case of a cooperative, the organizational pyramid is "upside-
down".

C. The Cooperative Enterprise particular aspects:

1. The General Meeting

There are several different types of general meeting.

a. The Inaugural General Meeting.

This meeting takes place in every cooperative but once. Its role
is to inaugural the functioning of the cooperative, to discuss and
authorize the 1ist of first members as wel1 as the bylaws and
other regulations of the cooperative. It must approve the
financial and operational plan for the first year's activities and
elects all the institutions of the cooperative.

b. The Annual General Meeting.

The role of this meeting is to assess all aspects of the past year's
activities and to approve financial, social and developmental
plans for the following year, as wel1 as to elect continuing

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officers to the various bodies of the cooperative organization.
The annual general meeting is never presided over by the
Manager of the cooperative, but rather by a special ad-hoc
committee, responsible for all the sessions.

c. The Extraordinary General Meeting.

This meeting is called only in the event when the following
subjects are to be discussed:
1) Amendment to the bylaws.
2) Acceptance of new members.
3) Expulsion of members.
4) Dissolution of the cooperative.
Decisions of the extraordinary general meeting require a special
majority of 75% of the members present, whereas at other general
meetings a simple majority is sufficient.

d. The Special General Meeting.

Whenever the need arises during the year, this general meeting
may be called. It is presided over by the Manager of the
cooperative; though it may be summoned upon request or demand
of the management, the control committee, the audit union,
the registrar of cooperatives or 10-30% of the members,
according to the bylaws of the cooperative.

2. Certain conditions obtained for all general, meetings,

regardless of type.

a. A general meeting may be convened only when a legal quorum

is present. Such a quorum consists usually of at least 50% of the
members, though the bylaws may specify any number. If no
quorum exists, the meeting is postponed to another time, from one
hour to a month later.

b. Members should be informed about the date, time and place of

the general meeting wel1 in advance, and by appropriate means.

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c. Careful minutes should take the discussions and decisions of
every meeting. They should include:
1) The full name of the society
2) The date of the meeting
3) The number of members present
4) The name of the chairperson presiding
5) The name of the recorder taking minutes
6) The agenda
7) The decisions
8) Any remarks of the chairperson

3. The general meeting is the highest authority in a cooperative, a

role which permits and demands certain specific functions.
a. It is a forum where the members can express their views freely.
b. It elects the various institutions of the cooperative.
c. It approves or expels members.
d. It makes decisions on basic issues.
e. It controls, regulates and balances the executive institutions of
the cooperative enterprise.

4. A mass general meeting has, however, certain inherent

limitations, which should point up areas requiring very careful
consideration.
a. while every issue can be presented for discussion at the general
meeting, very few are in fact discussed; since many people
are unwilling to reveal themselves before such a large,
anonymous group.
b. The powerful attraction of home based radio and television,
coupled with the natural desire to maintain and strengthen the
family unit cause people to be less interested in spending time
at general meetings.
c. Increasing heterogeneity of cooperative members whether in
professions, branches of production, fields of interest, economic

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situations or social rank has caused increasing difficulty in
getting people together for a particular purpose.
d. A general meeting may be more successful if a day is chosen
when there are no competing interests, when the agenda is not
monotonous and when the points at issue are interesting. In
this way members may be encouraged to keep away from other
activities during a scheduled general meeting.
e. Good management of the meeting by the chairperson of the
meeting is assumed, as is a courteous and encouraging attitude
towards participation of the members in discussions.

3. The other institutions of the cooperative management.

a. The Council

According to cooperative legislation there exists the possibility

of electing an alternative body to the General meeting in the
cooperative. This body, the Council, is summoned mainly when
the general meeting has suffered a considerable drop in
participation at all sessions. At the point when only ten or fifteen
percent of an membership is present at a general meeting,
decisions made by such a minority are hardly representative of the
entire society.
A council is therefore elected body, which becomes the second
highest authority in the cooperative. It sits every three to four
weeks to discuss and decide on current issues in the cooperative,
those which require a forum wider than that merely of
management. It decides as wel1 on matters of investments,
management budgets, production quotas and matters of social and
economic importance. The members of the Council are elected for
terms of two years, every year half the membership being
renewed. On one hand, management may pass to the council
issues of great importance which require a broader forum for
decisions. While, on the other hand, social problems, handled

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unsatisfactorily by a management committee may be
submitted to the council by the members themselves.
The Council is a relatively stable body where members feel
greater personal responsibi1ity than in the anonymity of the
general meeting. The Council reflects greater variety of opinion
than the management committee and has more public backing,
though there is not the same discrete, personal approach to
members' problems as in that body.

b. The Management Committee

The Management Committee is the highest elected executive

institution in a cooperative enterprise. Everything done in the
cooperative must be approved by the management committee.
General1y speaking, members of this committee are not paid for
their services, and the time they devote to meetings is limited.
Every member of the cooperative may present matters (personal
problems, coop problems or public affairs) for discussion, but
only a limited number of subjects can be considered in the
twice weekly meetings of the management committee.

Duties of this committee are;

a. Approval and assignment of contracts
b. Engagement and dismissal of workers
c. Consideration of social problems
d. Decisions on matters of cooperative policy
e. Investment in other cooperatives
f. Planning future activities of the enterprise
g. Coordinating committees work

Members of the management committee are "blind" in the sense

that they depend entirely on the Manager for the submission and
explanation of issues. A central problem is therefore the selection
of this officer, for if important issues are presented with

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incomplete or false information, resultant decisions may be
wrong or totally inappropriate.
Management has a global responsabi1ity for all acts of the
cooperative though there may not always be an immediately
discernable connection. It must decide on the executive acts of
the Manager and bears responsabi1ity for the successes and
failures of that officer.
It is incumbent on the management committee to ensure that
decisions taken can in tact be executed. The management
committee must guarantee a close correlation between theory and
practice, between decision and execution.
It is always good management policy to view every decision action
in the context of the total activities of the enterprise, present and
future. In this case, the management committee must seek to
discover the correlation between current actions and their
future consequences. In a way, it is like seeing not only the forest
as a whole, but also each tree as an integral part thereof.

c. The Manager

The Manager of the cooperative is also the chairperson of all

management committee, and frequently the only paid officer in
the enterprise. 24 hours a day devotion to the cooperative is
required of the person who plays this role, as wel1 as
responsibi1ity for all its operations.
It is the same manager who initiates and presides over the
meetings of the management committee, and prepares the agenda
for those meetings. It is this officer who is most directly involved
in the personal problems of members of the cooperative and of
its employees. The manager represents the cooperative in other
forums, institutions and government bodies; and it is this person
who is in charge of the operation of the different departments
of the organization as well as for the preparation and execution

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of the socioeconomic policy of the cooperative. It is the manager
who proposes, plans, executes and evaluates.

d. The Treasurer

The Treasurer of the cooperative is responsible for its financial

management. The person in this role has numerous specific
responsabi1ities.
1. Maintaining contacts with banks and other financial institutions
dealing with credit.
2. Collecting money and paying debts on behalf of the cooperative.
3. Representing the enterprise in different economic institutions.
4. Supervising matters of insurance.
5. Annual and monthly financial planning.

e. Control Committee

1. The control committee is elected by the general meeting of the

cooperative from among its members. It is an internal watchdog
committee responsible for examining and supervising the activities
of the cooperative in order to guarantee their being legal and in
compliance with its bylaws and constitution, as well as being
financially tenable. The control committee is completely
independent from the management committee, but in no way
replaces that committee. Nor, in tact, does it have the same
powers. A member of the control committee cannot at the same
time be a member in management, council or any other elected
bodies of the cooperative.

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2. Some of the specific duties of the control committee involve
supervision and checking of:
a. the general functioning of the enterprise.
b. the activities of management.
c. various decisions and their execution.
d. the financial situation and the annual balance sheet.
e. the behavior of the different committees.
f. complaints from members of the cooperative.

3. Here follow a few examples of issues dealt with by sample

control committees in Israel.

a. Questions concerning institutions of the cooperative.

1) Case: A committee appointed by management

Finding: A clear cut distinction must be made between elected
permanent committees and appointed & temporary ad-hoc
bodies. The latter may be appointed by management for a
limited period and for a specific purpose and are dissolved
when the assignment is accomplished.

In elected or appointed committees only cooperative members

may join. Outside experts may be invited to participate.

2) Case: Member complaint about committee inactivity.

Finding: During six months since the committee had been elected,
it has never been convened. The committee chairperson refused
to activate it. The management of the cooperative is however
responsible for all on—going activities and is therefore guilty of
neglect in this case. According to the bylaws, it must immediately
see to replacing the inactive committee.

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3) Case: The names of two members of the annual election
committee appear among the candidates for membership in
Council.

Finding: It is a contravention of the cooperative's by—laws. The

names of these two members must be removed from the list.

b. Questions concerning the relationship between the

cooperative and members thereof

1) Case: Member complaint that he was refused permission to

read the minutes of the cooperative’s meetings.

Finding: Such an action on the part of management is contrary

to cooperative law (in Israel) which directs "every member of the
cooperative has the right to read the book of minutes of the
cooperative within seven days from the day he requests it. A
member is not allowed to remove this book from the office of the
cooperative.” The coop may not decide anything in contravention
of its own bylaws.

2) Case: The privacy of members' files in the cooperative.

Finding: Management should make every effort to safeguard the

privacy of members’ files. Members should not be allowed access
to each other’s files. The accountancy department should observe
this rule strictly and never leave files open or available to the
scrutiny of others.

3) Case: Member complaint that she was unjustly fined.

Finding: An examination reveals that this member had utilized

a department of the cooperative outside regular service hours.

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The fine is therefore justified. In addition to which, the
member's accusation that there was preference shown to members
of the management committee under similar circumstances
is rejected.

c. Questions concerning the relationship between the

cooperative and employees thereof.

1) Case: Hiring procedure.

Finding: There is no obligatory hiring procedure in the

cooperative's by—laws, either for members or non-members,
permanent or 'g temporary workers. Management has full
authority to act on this issue and initiate policy, but, because of
the importance of the issue, management is called upon to act
for the introduction of clear regulations concerning criteria
for candidate selection as to possible preference to members
over nonmembers and the like.

2) Case: Management decision to give a loan to a nonmember

employee.

Finding: At the beginning of the year, the management

committee authorized a loan to an employee. Repayment of
the loan is by means of payroll reduction. The control
committee finds no fault in this arrangement. This kind of loan
has been granted in the past to other employees of the
cooperative and the purpose of the loan was reasonable.

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d. Questions concerning participation in operating expenses
according to patronage.

1) Case: Member complaint that operating expenses of the

cooperative are shared equally, rather than according to
participation.

Finding: The cooperative is not a profit making enterprise. If there

are surpluses at the end of a year, they are distributed to the
members according to their participation in the cooperative.
Accordingly, whatever expenses there are in the operation of
the enterprise, they must also be distributed among the
members according to their participation, and cannot be divided
equally.

2) Case: How to share general expenses in the cooperative

Finding: Since "general expenses" include all the costs of

operation that cannot be identified with a particular goal or
section of the cooperative, such as services for the entire
enterprise (office expenses, treasurer, accounting), it is decides that
they should be shared equally among the members.

3) Case: The relationship among the different departments

of the cooperative with the regard to division of expenses

Finding: The control committee has not yet received an

explanation from the treasurer and the chief accountant. It has been
noted that expenses are paid by the members, by department
according to participation. There is one section in the
cooperative, the credit and payment of interest department,
where problems can arise. When credit granted to the
cooperation is given according to specific purposes, the interest

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charged is debited to the appropriate department or section of
the enterprise. When there is no particular purpose for the credit,
but it is rather part of the general credit pool, the interest charges
are paid equally by all the members.

D. Summary

This paper shows a different approach to cooperative management.

This approach is based mainly on personal experience of the author
in cooperative life for many years. The approach in this paper is to
show that a cooperative is belonging entirely to its members
equally, and the cooperative management run entirely by them.

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