the organisation’s performance, through value adding to the organisation’s strategies and decisions (Cornforth, 2004). In addition, these conflicts can be worsened by other wider contextual factors, such as agricultural industrialisation (Cook, 1995) and government policies. Considering the complexity of governance, one would question the ability of lay board members to successfully supervise managers, ensure integrity and guard the interests of members and other stakeholders. Cooperative management faces the difficulty of matching the conflicting interests of members and market needs: and yet the expectation is that the board should perform according to the expected standards for cooperative organisations (Cook, 1994). The challenge within cooperatives, especially those developed with a traditional structure, which is still a common cooperative form in developing countries, is that they suffer from a number of disadvantages. The problems inherent in the traditional cooperatives includes free-riders, horizon, control and influence cost problems (Cook, 1995). These problems have given rise to doubt about the sustainability of these cooperatives. Valentinov (2007) described these as incentive problems and hence the institutional disadvantages of cooperatives. The free-rider problem, also referred to as the ‘ common property ’ problem by Royer (1999, p. 56) is “a type of common property problem that emerges when property rights are not trade-able or are not sufficiently well defined and enforced to ensure that individuals bear the full cost of their actions or receive the full benefits they create”. The horizon problem may lead to a cooperative concentrating on short-term benefits, at the expense of the long-term viability of the cooperative (Staatz, 1989). This would act as a deterrent for existing members to invest in
CHAPTER THREE Literature review 25 it. The decision-makers in a cooperative need to be aware of these problems and an analysis of the competitive role of the cooperative should be undertaken, in order to make some long-term strategic decisions. The nature of cooperatives, as business enterprises, also requires a democratic process of governance. This requires the active participation of the members in important decision making processes. Empirical studies have shown how governance can positively, or negatively, affect the cooperative’s success (Bhuyan, 2007; Borgen, 2001; Osterberg & Nilsson, 2009), by affecting member participation and their commitment. Member participation The activities that encompass member participation in a cooperative include attending meetings; serving on committees; involvement in recruiting others; and patronage (Osterberg & Nilsson, 2009). The participation of members in the governance of a cooperative is what differentiates cooperatives from other business organisations, such as investor owned firms (IOF). Participation would be an important indicator in developing farmer s’ understanding and appreciation of a cooperative ’s organisation (Gray, Kraenzle, & USDA, 1998).
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