Download - Co-operative Management
COCM 511- Management of Cooperatives and Legal Systems
Course Material
Dr.G.VeerakumaranHead of the Department
Department of CooperativesFaculty of Dryland Agriculture and Natural Resources
Mekelle University
P.O.# 231
Mekelle, Ethiopia
March 2006
1) Course Title: Management of Cooperatives and Legal Systems
2) Course Code: COCM 531
3) Credit Hour: 3
4) Year & Semester: Year I/Semester I
5) Instructor: Dr.G.Veerakumaran
6) Methodology: Lecture sessions, case studies, role-play, seminars, assignments.
7) Course Objectives:
To enable students understand the importance of management and its function to
promote the cooperative organization.
To improve students technical understanding of proclamation 147/1998, Rule No.
106 /2004 and FCC organizational regulations.
To acquaint students with cooperative laws in other countries
To familiarize the students with other laws related to cooperatives
8) Course Content
Part I Management
Unit I Cooperative Management: Definition, Objectives, Relevance, and Uniqueness
Unit II Cooperative Democracy: Structure of Cooperative Democracy, Measures to
Make Democratic Control Effective, Board – Executive Relationship, Functions
of the Board, Job Description of a Chief Executive, Member, Director, President,
General manger.
Unit III Decision Making in Cooperatives: Concept, Kinds, Process and Techniques
Unit IV Criteria for Judging the Operational Efficiency of Cooperatives: Concept
operational efficiency, Dimensions of operational efficiency, Criteria for
measuring operational efficiency, Measurement Parameters of operational
efficiency, Performance appraisal and Key Result Areas in Cooperatives
Unit V Training Methods
Part II Cooperative Law
Unit I Framework for Cooperative Law
Unit II: ILO Recommendation 193
Unit III Salient Features of- Decree 44/1961-Proclamation No 241/1966- Proclamation
No. 138/1978- Proclamation No. 85/1995- Proclamation No. 147/1998-
Proclamation no 402/2004. (Students’ Seminar topics- the source material would
be given to them and they need to summarize in relation to the current acts)
Unit IV Cooperative Societies Proclamation No. 147/98: Objectives -formation and
registration- rights and duties of members- management bodies- special
principles- assets and funds- audit and inspection- distribution of profit-
dissolution and liquidation- dispute settlement- miscellaneous; Elements of
Cooperative Societies Proclamation Amendment No. 402/2004; Elements of
Cooperative Societies Regulation No. 106/2004.
Unit V Federal Cooperative Commission Regulations - Other laws issued by the
federal and regional governments.
Unit VI Cooperative Laws in other Countries- A comparison (Students’ Seminar
topics- the source material would be given to them and they need to summarize in
relation to Ethiopia)
Unit VII Allied Laws: Important Provisions in the other laws related to cooperative
marketing (Students’ Seminar topics- the source material would be given to them
and they need to summarize in relation to the Cooperative proclamation)
Selected References
1. Cooperative Management and Administration, ILO/COOP, ISBN 92-2-106319,
1988.
2. V.Kulandaiswamy, Text Book of Cooperative Management, Arudra Academy,
Coimbatore, 2002.
3. Cooperative Management, http://www.rurdev.usda.gov/rbs/pub/cir4/cir4.htm
4. Appraising Mangers Performance, http://www.rurdev.usda.gov/rbs/pub/rr136.pdf
5. Hagen Henry, Framework for Cooperative Legislation, ILO, 1998
6. Promoting Cooperatives-A guide to ILO Recommendation 193, http://www.co-
op.ac.uk/downloads/Promoting%20Co-operatives.pdf
7. Basic Training methodology-Materials for Training of Cooperative Trainers,
Trainers Manual, ILO, www.coopnetaldia.org
8. G.K.Sharma, Cooperative Laws in Asia and the Pacific, COOP TIMES,
NewDelhi, 1997.
9. http://ilo.law.cornell.edu/public/english/employment/ent/coop/laws/
10. Ethiopian Commercial Code 1960.
Note: The student is expected to refer all the business relevant proclamations of
Ethiopia.
Method of Evaluation
Sl.No. Method Maximum
Marks
1 Mid term Examination 30
2 Final Examination 30
3 Assignment 2*10 20
4 Student's Seminar 10
5 Group Discussion 10
Total 100
Part I Management
Unit I
Cooperative Management: Definition, Objectives, Relevance, and
Uniqueness
Cooperative Management
The principles of management and the principles of cooperation as seen from the
foregoing analysis have a complementary role. As aptly remarked by K. K. Taimni, “In
fact they converge to make the cooperative society as an ideal instrument to promote the
values which a democratic polity cherishes and at the same time they provide effective
means to ameliorate the lot of the vulnerable and weaker sections of the community. If
cooperative principles given a social content to the economic activities of an enterprise
the principles of management make it possible to put the resources of the enterprise to the
best use.”
DEFINITION
Watzlawick:
“Cooperative management should be understood as a complex decision making process
within the three levels of management pyramid which aims at achieving a proper balance
of success of cooperative enterprise as a business unit as well as a social institution.”
E.V. Mendoza:
“Cooperative management may be defined as the efficient and effective utilization of the
resources of a cooperative as a business organization for the purpose of serving the needs
of its members within the context of the accepted cooperative principles.”
The above definitions bring to fore the following features of cooperative management.
Cooperative management is a complex decision making process, and decisions
are made at all the three levels of management pyramid.
The overriding objective of cooperative management is to serve the needs of
members.
The conduct of all the activities must be governed jointly by the two sets of
principles namely, a) principles of management and b) principles of cooperation.
The creation of proper balance between efforts aiming at commercial success and
those aimed at maintaining the institutional goals of the cooperative association.
Like any other management, it seeks to achieve its aim by means of effective and
efficient use of resources.
Objectives of Cooperative Management:
Cooperative management has the following objectives:
Firstly, the improvement of the operational efficiency is the fore-most concern of
cooperative management, so that the organization is able to compete effectively. It must
acquire capacity to thrive as a business institution in its own right. Cooperative
management aims at evolving methods and techniques on the basis of the principle of
management, which will help the managers to avoid mistake and improve their practice.
Secondly, cooperative management aims at improving the viability of the cooperative
society. The soundness of its strength, growth potentials and the quality of the service
depend on the viability. The organizational effectiveness is the direct result of the
viability.
Thirdly, cooperative management should constantly strive to achieve member
satisfaction. By providing efficient service to the patron-members on economical terms,
cooperative organization can achieve equilibrium, and development member-loyalty and
greater patronage. The efficiency and viability of a cooperative organization has no
meaning unless it is able to coordinate the objectives of its members and translate the
individual objectives into meaningful reality and make visible impact on the people who
from the organization.
Fourthly, cooperative organization must also strive for community acceptance by
carrying out the social responsibilities expected of it.
Fifthly, cooperative management must also aim at ethical and moral development of the
members. The object of cooperative organization is much more than improving the
material standards of its members. Ultimately it strives to lift them to higher social and
moral standards and enable them to realize higher spiritual potential.
Sixthly, to fulfill the above objective it must develop organizational and management
competence by professional sing management, and by taking up management
development programme. The task of cooperative management is therefore, to
understand the basic concepts, principles and techniques of management and
systematically appraise their relevance in the context of their special goals and re
conceptualize them so that training and development can be organized effectively.
The system concept of management is more relevant to cooperative management. A
cooperative society should be understood as a sub-system of the larger socio-economic
system. It draws resources and inputs from the environment, transforms them into
service and sends the gods and services into the systems. There is constant interaction
between the cooperative society and the larger system to which it is a part. The system
approach to cooperative management has four basic ingredients.
They are:
A clear enunciation of the goals, which can be translated in terms of
performance measures.
A full recognition of the socio-economic and political environment external to
the cooperative system but having a bearing on the performance of the
cooperatives.
Identification of the different components of cooperative structure and their
various attributes and
An inventory of the human and material resources available to the cooperative
system.
Relevance of Cooperative Management
Both cooperative movement and the modern management movement emerged as by
products of Industrial Revolution that took place in the middle of nineteenth century.
They gained momentum in the beginning of the 20th century. Early cooperators and
social reformers like Robert Owen and Charles Fourier had made significant
contributions to the management thought. Outstanding management thinkers like P.F.
Drucker, regarded them as great organizers and mangers. Both the management
movement and the cooperative movement have spread rapidly and have universal
relevance and coverage. The cooperative movement has spread to all fields of economic
activities such as Banking, Marketing, Industrial Production and Distribution. Likewise,
the modern management techniques are relevant to all type of organizations, irrespective
of size and ownership. As has been stated by P.R. Dubhashi, “There is a kindred kinship
between management and cooperation. If there is anything nearest to cooperation, it is
Management because, is not the ultimate purpose of management promotion of
cooperative effort?”
In spite of this mutual compatibility there was very little meeting ground between these
two movements. Each excluded the other in its development process and there was no
interaction between them. The following were the significant factors, which created a
chasm between the two.
Firstly, cooperation originated as a labour movement, as a shield of the week and
vulnerable; while the modern management had its origin in capitalism.
Secondly, the cooperators, for a very long time believed in small society concept and
stressed the honorary management. It was believed that the ideological supremacy will
result in spontaneous and natural growth without any special effort for promoting
efficiency.
Thirdly, the management thinkers completely neglected the cooperative enterprise in the
scheme of analysis of the management concepts, except some random references made
by the authors like Chester Bernard and H.A. Simon and that too in a general sense rather
than in a technical sense.
The contemporary cooperative movement particularly in developing countries is at cross
roads. They have to develop their organizational competence and operational efficiency,
by adopting the modern management techniques, which are universal. The modern
concept of cooperation does not accept the efficacy of the ‘small society’ concept. Giant
size organizations are not uncommon in cooperatives. When the organization grows in
size, the need for scientific management gets greater significance. Besides, the
cooperative sector is facing stiff competition from other sectors of the economy. The
survival and growth of cooperative sector largely depends on the quality of their
management. The cooperative movement has been given increasingly greater role in the
economic planning particularly in the developing countries. Greater efficiency is called
for on the part of the cooperatives to achieve such national goals. As a result of all these
developments there has been a growing awareness among cooperators regarding the need
for the application of scientific management in cooperatives. Only by bridging the
management gap the cooperative sector can fulfill the tasks assigned to it.
Cooperative Business Compared with Investor Owned Business
In order to have a better understanding of cooperative management, it is necessary to
understand the distinct features of cooperative business.
The cooperative business can be distinguished form investor owned business in the
following respects:
1. A private investor owned business is essentially a union of capital; a cooperative
is essentially a union of people.
2. The former is an organization of investors; the latter is an organization of users.
3. The former is organized by entrepreneurs to attract and serve customers; the latter
by people to serve themselves.
4. The former is controlled by majority of shares; and the latter by a majority of
persons who are members.
5. In the former control by proxy in common palace, whereas in the latter proxy
voting is rare and found only in those organization where it is required by general
legislation.
6. In the former surplus earnings or profits are distributed as decided by the board of
directors; in the latter they belong to user members and are distributed by the
membership in annual meeting, usually as recommended by the board.
7. In the former invested capital is employed in three ways: to earn interest, gain
profit and exercise control. While in the latter capital is permitted only for the
first function.
8. In the former parliamentary action and constant vigilance are needed to prevent
foreign domination. The latter system guarantees native control of enterprise.
9. In the former equity shares are generally traded freely and are priced at whatever
the market will bring; in the latter they can be redeemed only by the permission of
the board and at par value.
10. The former is a closed system; and the latter has a long record of openness and
freedom of access.
Uniqueness of Cooperative Management
While applying the principles of management of one should not ignore the fact that the
cooperative as a form of business organization possesses very distinct characteristics. It
differs fundamentally in various facets of its make up as compared to the investor owned
business, in the objectives (in-put), transformation process and services rendered
(output).
The principles of scientific management and the efficiency criteria commonly adopted in
judging the business enterprises such as the effective use of human and other resources,
the quality and value of the products and services supplied, viability, surplus generated,
the value added to the assets, per se have only a partial relevance to the cooperative
enterprise. As Mr. Dubhashi has aptly remarked, “the principle of efficiency is vital in
the cooperative sector also. But in so far as the market mechanism and private enterprise,
turns the principle of maximum efficiency into maximum profit, it becomes incompatible
with the cooperative movement and needs modification”.
Pro. George Lasserre had made this distinction in very clear terms. Cooperative cannot
slavishly imitate captialsit enterprises even the best of them. The concept of efficiency as
applied to the whole management, cannot be the same, because the aim is not the same.
A capitalist or family enterprise aims at producing maximum profit for the owners; its
efficiency is reckoned by the ratio:
Profit
Capital
A cooperative is formed with the aim of providing services for its member economic as
well as well as non-economic; its efficiency therefore is measured by the ratio:
Satisfaction of all kind
Total Cost
The corporate objectives, organizational goals, decision process. Value structure and the
method of appraisal of cooperative management are in many respects unique. Each of
the unique elements is explained below:
Normative Character:
As a social science, cooperation is more normative, than positive. The principles of
cooperation constitute the vital ingredients and imperative coordinates of the cooperative
organization and management. These are a set of standards and settled rules of action,
which have universal application. There is an element of ‘ought ness’ or compulsion,
particularly when the principles are translated into legal norm. as stated by P.E.
Weerman: “The proper application of cooperative principle is essential for the success of
the movement, for the cooperative principles are those which are essential, that is
absolutely indispensable to the achievement of cooperative movement’s role”. The
cooperative management should strive to achieve maximum efficiency only within the
framework of the cooperative principle, and any rational action pursued should be
compatible with the principles, Such a normative character of cooperative institutions
imposes severe constraints and rigidity on the cooperative management, which impede
their competitive efficiency. In order to overcome such constraints, the principles of
cooperation have to be integrated with the principles of management, and a set of
successful cooperative business practices have to be evolved.
Complex Aims System:
In the cooperative organizational set up there are distinct interest groups such as
individual members, cooperative group, the organization and the employees each having
a distinct aims system. The aims system is still more complex in respect of the
‘integrated type of cooperatives.’ In such integrated cooperatives the individual member-
economies, which are quite distinct from the cooperative enterprise, are organically
linked with the latter. The aims system of such a complex cooperative combine includes
the following diverse influence:
a) Personal individual aim system of every member
b) The corresponding individual operational objectives for the single member
economy
c) The system of aims and the operational objectives of the cooperative group
d) The operational objectives of the cooperative enterprise as such
e) Personal individual aims of the management
f) The aims of employees and workers
g) The influence of macro-policy on cooperative development
h) The influence of managers from secondary and tertiary bodies
i) Decision making process adopted within the cooperative enterprise
The cooperative management has the onerous task of harmonizing the diverse influence
and coordination the complex aims system. The aims of these distinct interest groups
have to be welded together by formulating over all aims system and evolving operable
criteria for business decision making. The several aims system linked together with one
another makes the operational objective and decision making process highly complex.
Superior Value Structure:
Apart from being an economic enterprise, a cooperative society is an ethical, social and
moral entity as well. The cooperative ideology draws its moral and social content from
the reformist doctrine of Robert Owen, the father of cooperation, who advocated a ‘new
moral world’ free from profit, competition and exploitation. The Christian Socialists too
gave an ethical orientation to cooperation so as to make it an instrument of social ethics,
i.e. creation of more civilized society and the salvation of social sins. “Besides
promoting material prosperity the cooperative movement aims at educational betterment,
thrift and morals, honesty, independence and self-respect, democracy, brotherhood and
religion.” Thus a cooperative society is both an enterprise and an association. To use
Roymond firth’s language, “it is an economic organization set in a social framework.”
This dual nature of cooperative system being at the same time an enterprise and an
association calls for entirely a different approach to the management process. It follows
that the successful cooperative management must involve both these aspects. It is the
responsibility of cooperative management to aim at success in both fields and to perform
the management functions of planning, organizing, directing and control in such a way
that a fair balance between these two is achieved.
Distinct Economic Process:
The economic process of transforming organizational objectives into product and service
specifications significantly differs in cooperatives as compared with other forms of
business. In cooperatives there is close linkage between the ownership, control and use.
“It is a business organization in which the components of ownership, control and use are
integrated by being all vested in one body of people, the members.” This sort of owner-
ship-use-control vested with one group of persons who collectively are the members
renders the managerial task of fulfilling the aspirations of such a group stupendous. For,
the services rendered by cooperative organization is on the anvil of constant review and
any lapse is prone to harsh and sensitive criticism. Furthermore the production process
also distinctly differs in cooperative enterprise from other forms of business. Of the two
basic pattern of organization of producer’s cooperative viz. cooperative production
society and cooperative service society, the second type has certain uniqueness. “In one
members are workers and shareholders simultaneously. In the other case, the members
possess individual enterprises and delegate one or more functions to the cooperative
establishment which thus becomes auxiliary in character.” In such societies the
cooperative management’s tasks becomes complex. The management decisions have to
be made not only for member economies also. Integration of member economies with
the cooperative enterprise objectives, planning and pursuing a common operative policy
and appraisal of the achievement by an appropriate feedback system thus becomes the
crux of the cooperative management.
Democratic Control:
The democracy is the corner stone of cooperative management. Though it is an ideally
suited form of management for ensuring member participation and motivation, it is beset
with practical limitation. The cooperative mangers need to involve more group of people
in the decision process. As a result the decision making process tends to become
wasteful and vexatious. Therefore cooperative manager has to develop methods and
techniques to involve large number of people without decreasing efficiency. Another
handicap in the cooperative management is that the Board of Directors of the Cooperative
quite often lacks proper perception of their precise role. As a result the Board either
interferes with the executive management, or performs only the watchdog function of
voicing the member’s grievances or fritters away the time and energy in trivialities.
Aside this, wherever the Board is pliable it becomes a handmaid of the chief executive
leading to quagmire of control. In such situations the role of the Board becomes
nebulous and counter-productive.
The cooperative managers have the onerous responsibility of educating the leaders in the
management decision making process and evolving methods to combine democratic
control with managerial efficiency. The success of cooperative management thus lies in
making the democratic control coincide with efficiency by synthesizing the principles of
management of corporate business and the goals of economic democracy and social
ownership; and making the decision process dynamic by a clear demarcation of the
powers and functions of the Chief-Executive.
Harmony with Macro-Policy of State:
Cooperation is an instrument of state policy and planning in most of the developing
countries, where the state forges a symbiotic relationship with cooperatives by extending
financial and administrative assistance and at the same time utilizing cooperative
infrastructure for achieving development targets. Perforce, this mutual process requires
the harmonization of the macro-policy of the cooperative groups. Such integration
imposes certain severe constraints on the management of cooperatives. Conflict between
the objectives of member groups and the macro-objectives and the sacrifice of the former
for the sake of latter is not uncommon in cooperatives.
The foregoing analysis highlights the need for developing a management system
appropriate to cooperatives by adjusting the management system to the cooperative
organizational situation rather than adjusting the cooperatives to sophisticated modern
management.
Unit II
Cooperative Democracy: Structure of Cooperative Democracy, Measures to
Make Democratic Control Effective, Board – Executive Relationship,
Functions of the Board, Job Description of a Chief Executive, Member,
Director, President, General manger
Cooperative Democracy
Cooperation is a people centered organization. As such the concept of democracy is
central to cooperative philosophy. Democracy is a product of modern civilization. It first
emerged in the political field in the form of Chartist movement in England around 836,
which sowed the seed of political reforms. The demand for the people’s charter came
from the working class people who believed that the working class condition could be
improved only by a parliament elected by universal adult franchise. Almost at the same
time the French Revolution brought about far-reaching social reforms and extended the
democratic concept to social fields by propounding the principles of Liberty, Equality
and Fraternity.
The Rochdale Pioneers took up the principle of universal suffrage from Chartist
Movement and applied to our economic situation. Thus the cooperative democracy is
essentially an economic democracy. The principles of freedom of association, equality
within the organization and participation in the organization process are the foundation of
cooperative democracy. According to Paul Lambert: In the broadest sense economic
democracy is partaking of persons concerned in the deliberations and decisions in the
economic spheres. Economic democracy when it is pure, completely excludes capital as
a source of authority; decisions are taken by persons concerned or the representatives that
they have designated, all having the same right. Cooperative Democracy has two aspects
i) Structural and ii) Operational.
Structure of Cooperative Democracy
Democratic control in cooperatives is exercised at three levels namely: the General
Body, Board of Directors and Chief Executive. The general body of members is the
ultimate and supreme authority and supreme authority in the matters concerning the
society. It is convened at least once in a year. The general body meeting concentrates on
three main items of business: 1) to receive an approve a report of the year’s work,
accompanied by financial statements; 2) to decide on how any surplus of the year’s work
can be used; and 3) to elect a committee to direct the affairs of the society. Besides the
above routine matters, other major changes like amendment of by-laws, division and
amalgamation etc., must be approved by the general body. The reports and statements
presented in the general body should be broad and simple, so that even the ordinary
members understand them. They should not contain technical details and full facts.
There must be greater scope for discussion and criticism.
For administrative convenience and effective control the general body elects a Board of
Directors. The Board of Directors derives substantial powers for direction, supervision
and control of cooperatives. The two-stages control machinery is created to exercise
effective control, while at the same time keeping the organization at all times in the hands
of member-patrons. The Board of Directors at the same time need not take detailed
operating decisions. They can leave the day-to-day administration to the Chief Executive
and his assistants and refrain from interfering in their work. In order to ensure sound
functioning the Board can review the progress periodically. The Board of Directors
derives powers and authority from general body on the one hand and delegates powers to
a large extent to the chief-executive. The chief-executive, being the executive head is
responsible for guiding the operations and leading the organization to success. The
structure of cooperative management may be pictured like a hour glass as shown in the
diagram.
Management Structure of Cooperatives
Authority Accountability
Members Board of Directors
Middle-Level Employees
Chief Executive
Structure of the Organization
Board of directors
General body
Membership elects
Appoints
General manager
Manager of department
Manger of department
Staff staff
Functions
Sets the society’s objectives: decides bylaws: exercises ownership control over the society’s growth.
Interprets objectives in specific details: formulates specific policies to achieve objectives: studies management reports and evaluates progress: provides leadership to management and membership: approves salary ranges for jobs at all levels.
As chairperson of the board and ex officio member of all committees, provides the link between board and management.
Manages the business in line with board policies; establishes operating procedures; sets out jobs to be done; engages, supervises and trains staff; fixes salaries within ranges established by the board.
Manages the department; provides specialized technical know-how for the department; supervises and trains staff; enforces operating procedures for the department.
Provides services to the cooperative in the line with established policies and operating practices.
Responsibilities
Uses the services of the cooperative; elects capable directors; provides capital for operation and expansion; studies board’s and auditor’s reports.
Elects president and appoints manager; is responsible to membership for results of operation; operates within the by-laws of the society and abides by its own policies.
Has the responsibility of enforcing board policies and providing guidance to the general manger between board meetings; is responsible to the board for all actions.
Responsible to the president between board meetings; reports to the board at meetings; provides factual information so that the board can make policy decisions.
Responsible to the general manager for departmental operations.
Responsible to the manger of the department; has to acquire understanding of the society and technical know-how in the department.
Measures to Make Democratic Control Effective
The democratic control will be effective only when there is active participation of
members. The active participation of member – patrons in the control and management
is very essential for efficient functioning of cooperatives. Members actual participation
in the control of cooperatives include attending and participating in membership
meetings, taking part in voting, contesting in election, serving in one or more committees,
careful study of the reports presented, extending continuous support and showing genuine
interest in the affairs of cooperatives. Several studies conducted in India and abroad
reveal that the members’ participation has declined to a great extent particularly in large
cooperatives. The factors responsible for poor participation of members include:
illiteracy and ignorance, lack of loyalty, ineffective leadership, inappropriate system of
communication, members apathy and domination of vested interests. In order to improve
the member participation and involvement and to strength then the democracy following
measures have been suggested by Herman Lam.
1. Local Sub-Regional Members Meetings:
When the organization is too large the membership meetings tend to become unwieldy.
In order to make the democratic control workable it becomes necessary to organize
separate membership meetings in the sub-regions of the society. These meetings should
in principle discuss all the important subjects meant for the final general assembly. The
sub-regional meeting should not pass or reject reports and proposals but only convey to
the General meeting the opinion of the local members. In the sub-regional meetings the
members should elect representatives to the general assembly and also the local advisory
committee who interlink the members and the central Board.
2. Local Advisory Committee in the Sub-Region:
When the cooperative society has several branches, formation of local committees will
help to make democratic control more effective. The Committee should meet regularly
and summarise the results of the society from the local membership point of view. It is
also the responsibility of the local committee to canvass for more membership, organize
member education programmes and represent the problems of members to the Board.
3. Election of Board Members:
Elections to the Board must be conducted regularly. Representation must be given to all
sections and regions in the Board. The by-laws must be formulated so as to avoid
unnecessary political interference and vested interests. Those who have served in the
local committees and those who have taken part in educational and training programmes
should be given greater opportunity in the elections.
4. Sub-Committee:
When the Board is large, it is convenient to divide the Board into different sub-
committees for effective control. This gives a sort of specialization as each committee
deals with one subject. They make the task of the Board easy. Though the sub-
committee should not take decision on its own, they have the right to control such aspects
of the working of the society over which they have authority.
5. Control Committees:
In each society it is necessary to form a control committee from among the members of
the Board. The control committee will have to control the accounts and safeguard the
assets of the society and to see that the Board is working efficiently in the interests of
members. They have the right to question the actions of the Board and they should also
collaborate with the external or government auditors in their audit work.
6. Member Education:
Democratic control can work well only when members are enlightened. Member
education programmes must be implemented effectively.
Monthly Reports
The monthly report presented by the manager to the Board meeting held periodically is
the principal tool of democratic control. Such reports are crucial in exercising effective
administrative control. The significance of the figures presented in the reports must be
discussed and various measure to be taken for improving the business may be suggested
on the basis of such reports. The Board can exercise control through the following
statements and reports.
1. Receipts and Disbursement Statement:
The Receipts and Disbursement statement prepared monthly gives a broad outline of the
operations of the organization during a particular month. It is an accurate and reliable
statement, which serves as the basis for preparing the balance sheet, estimating gross
margin, operating expenses etc. It gives a total picture and it enables the manger and the
Board of Directors to keep the business well under control.
2. Operations for the month:
A monthly statement of sale, production or other key operations of the cooperatives is
necessary control device. These ought to be compared with the previous month’s
performance and with the corresponding month of the previous year. If the performance
is lower than the previous month the Board should take steps to remedy the situation.
3. Accounts Receivable:
The manager must be required to prepare the whole list of accounts receivable once in a
month and present it to the Board. The manager should also be required to classify the
accounts receivable into three or more groups on the basis of their durations: for instance
a) accounts receivable of less than three month old; b) above three month and less than 6
month old; and c) accounts more than 6 month old. The manager must also report each
month how much account receivable has been reduced or increased during the month and
what efforts have been made to collect the accounts due for long.
4. Accounts Payable:
By keeping an eye on this item, from month to month, board members will get an idea of
how the management is taking care of current obligations. If the current payable show a
tendency to increase, it may be for the following reasons: 1) the accounts receivable may
be increasing 2) the business may be operated at loss or 3) the business may be
expanded. The Board should identify the reasons for increase in the account receivable
and take steps to curb this tendency.
5. Control Committees:
A statement of bad debts and overdue accounts will give a general idea about how much
of the account receivable have become bad debts and how much of the doubtful debts
have been colleted and what steps have been taken to collect. Similarly overdue loans
must be carefully watched. Statement of overdue accounts should indicate the number of
accounts overdue, amount of overdue and the period for which they are overdue.
Board – Executive Relationship
The relationship between Board of Directors and Chief-Executive of cooperatives is a
vital issue in the cooperative management. Fostering a healthy and constructive
relationship is essential for the success of cooperative democracy. There is constant
interaction between Board of Directors and Chief-Executive, the former as policy-
marking body and the later as executive head. Clear demarcation of their functions and
responsibilities is a pre-requisite for smooth functioning of cooperative democracy.
Following are the respective powers and functions of the Board of Directors and Chief-
Executives.
Board of Directors – Their Functions
They are a group of persons, democratically elected, representing the general
membership. They derive powers from members and are accountable to them. They are
responsible for safeguarding the interests of members, maintaining the assets and
exercising overall authority in the organization. The Board of Directors in Cooperatives
are representatives of member-users rather than big financial investors. Therefore, they
are seldom trained in business matters. The Board is empowered to delegate the
managerial responsibility to competent, professionally qualified managers. Though they
delegate the powers, the ultimate responsibility rests with them. They constitute a bridge
between members and the mangers. “It is often characterized as exercising broad
supervision rather than executing details; setting objectives rather than planning how they
should be achieved; establishing policy rather than administering; appraising rather than
controlling.”
1. Setting up of organizational Goals:
The Board is responsible for setting up organizational goals meant for achieving specific
objectives, and interpreting the objectives. It is also responsible for making required
change in the long term objectives.
2. Establishing Policies and Programmes:
The Board in its meeting should consider important policies and long-term programmes
involving vital matters and approve them. It should also provide a frame-work within
which these policies and programmes could be carried out by managers and decide on the
mainlines of activities.
3. Delegation of Authority and Responsibility:
The Board should be careful in choosing managers with required knowledge and
expertise since the Board members are lacking in knowledge about business and
corporate affairs. The Board should realize the necessity of delegating responsibilities as
well as authority to the managers. One cannot be held responsible without being armed
with adequate powers to make one’s own decision.
4. Systematic Appraisal of Operations:
Systematic appraisal of the operations of the organization is another responsibility of the
Board. It should call for periodical reports and statements which would reveal them the
results of the operations and the extent to which the organizational goals have been
achieved. With such appraisals the Board will be able to exercise overall control over the
management.
5. Maintain Public/Member Relation:
It is the responsibility of Board of build a bridge between general membership and paid
staff. The Board always represents members’ interest as well as the organization to the
public, by means of good public relation.
Chief Executive – His Functions
The Chief Executive is a key figure in the management structure of cooperatives. He is
employed by the Board and is accountable to it. He is variously called as : Secretary, G.
M., M. D., in different institutions. He therefore should consider Board as his employer
and recognize this fact in making all dealings with it. The manager guides the affairs of
the organization in its day-to-day works. He coordinates the diverse influences exerted
by members, employees, customers, public and Government. He is utmost important for
cooperatives. The success of the cooperative institution very much depends on the
initiative; drive and effectiveness of the manager. Following are the functions of Chief
Executive.
1. Executing Policies:
Manager is responsible for executing policies and accomplishing goals and objectives set
up by the Board. He is responsible for planning, organizing, direction, coordination and
control. In general he has to take all steps necessary for carrying out the programmes of
the organization.
2. Employing Personnel and Delegating Powers:
Selection of suitable personnel for different cadres is the responsibility of the manger.
He defines their functions and responsibilities and delegates powers that are necessary for
the execution of the responsibilities assigned to his subordinates.
3. Furnishing Information to the Board:
The manager should report periodically and should furnish information needed by the
Board for controlling and appraising the operations of the organization and reviewing of
progress. He is expected to give only broad factors about over-all results, and not all
sundry and insignificant details.
4. Assisting the Board:
The Manager helps the Board in setting up realistic goals for the organization. He also
provides information and assistance in formulation of policies and programmes. He is in
a position to guide and advice the Board since he has first hand knowledge about the
affairs of the organization.
From the foregoing, analysis certain conclusions can be drawn and on the basis of which
guide-line can be given to the Board of Directors and Executives. These guidelines or the
codes of conduct, if adhered to k will go a long way in establishing healthy management
traditions and meaningful relationship between Board and the Executives. Following are
the measures suggested.
1. There should be a perfect understanding between board and executives. They
should also understand their respective roles and refrain from interfering in the
spheres of activities which fall outside one’s scope of authority. That means the
board should confine itself to broad policy making function leaving the
implementation to the managers, who should be given sufficient freedom to
complete the task.
2. The Board members should realize that they acquire power only when they are
assembled is a formal meeting. Individual member can have no power unless
such powers are delegated to him. Sound Board Executive relationship will be
destroyed if the board members individually dictate terms to manager or other
personnel.
3. Board meeting conducted at periodic intervals, is also a factor which promoted
healthy relationship between Board and Executives. The presence of Chief-
Executive is essential in all such meetings and discussions relating to business.
4. The board members should realize their responsibility and they should not use the
cooperative society for their personnel progress or for any political gains.
5. For smooth functioning of the cooperatives, the Board members should work as a
team and they should not allow the groupism to develop among themselves.
6. The manager and other personnel should keep themselves away from the group
rivalries among Board and they should not take part in elections.
Job Description of a Member
Title Member
Core function To participate in the ownership, control and patronage of the
cooperative to the end that it effectively fulfils its purposes (i.e.
meets the needs of the members)
Responsibilities Different members will have a variety of interests in their
cooperative. However, for the cooperative to function effectively
as a cooperative, each member should carry out the majority of the
following responsibilities:
Patronize the cooperative.
Participate in electing and appraising the performance of the directors.
Approve overall objectives and policies of the cooperative.
Assess the performance of the organization – examine audits.
Communicate complaints, suggestions, comments and needs to the cooperative.
Assist in amending the by-laws.
Help finance the cooperative.
Participate in the activities of the cooperative.
Explain or discuss the cooperative with other members and potential members.
Appoint auditors.
Job Description of a Director
Title Director
Accountable to Members of the cooperative
Core function To participate with the other directors in directing the affairs of
the cooperative, guided by the Cooperative Societies Act, by-laws
and board policies, so that it effectively moves to wards achieving
the objectives of the organization.
Relationships to
Members – leadership role, providing an example and interpreting views and needs of
members.
Directors – acts as a team with the other directors; has authority as a director only in
board meetings and as delegated by the board, for example on committees.
General manager – at board meetings the general manager is a key resource and part
of the overall management team; between board meetings the relationship is the same
as for other members.
Staff – no special status beyond that of an informed member.
To participate jointly (and not to act individually) with the other members of the board of
directors in carrying out the following responsibilities of the board:
Responsibilities
Establish the overall goals and policies, for the direction of the cooperative.
Establish the organization of the board, including the appointment of committees, and
clearly define the responsibilities and the authority assigned.
Determine the job description, establish the salary range and appoint the general
manager; set the salary and appraise the performance of the general manager.
Approve the organization structure and salary schedules for all levels of the structure;
and personnel policies and programmes for the organization.
Approve major plans and programmes and capital and operating budgets.
Analyze and appraise progress in achieving objectives and goals.
Authorize changes in the assets of the organization.
Recommend any by-law amendments.
Deal with applications for membership.
Recommend schedule of patronage refunds in accordance with the by-law.
Authorize repayment of member equities.
Establish and administer controls and regulations for the protection of members and
creditors.
Provide for effective communications, and membership and public relations for the
organization.
Provide policies and programmes for the maintenance of a well-informed, effective
board of directors.
Provide for effective relations and coordination with other cooperatives serving the
area.
Support the cooperative.
Job Description of the President
Title President
Accountable to The board of directors
Core function To serve as the senior office-bearer of the cooperative,
coordinating the activities of and giving leadership to the
board of directors, liaising with the general manager and
board of directors, and engaging in communication with the
members, other cooperatives, local organizations and
government.
Responsibilities
Act as chairperson of meetings of the board and of the executive committee.
Be ex officio member of all board committee – receive reports and minutes, but not
necessarily attend.
Assist in the preparation of the agenda for board and executive committee meetings
and ensure that adequate information is available for study by the board; also, give
leadership in planning the year’s agenda of special items.
Perform the task of signing officer for the cooperative along with other appointed by
the board.
Interpret and clarify policies and decisions of the board.
Maintain effective liaison with the general manager and the board of directors.
Report to the members on behalf of the board of directors.
Represent the cooperative and explain plans, policies and programmes, when this has
not been otherwise delegated by the board.
Play a leadership role with other cooperatives and in the community on behalf of the
cooperative.
Give leadership to the board including encouragement for board training.
Orient new board members for effective participation.
Job Description of the General Manager
Title General manager
Accountable to The board of directors
Core function To manage the operations of the cooperative in accordance with
the guidelines established by the board
Responsibilities
Advise and assist the board in establishing objectives, policies and goals for the
cooperative.
continuously study trends and provide the board with information required for
planning.
Develop short- and long-term plans and programmes with supporting budget
estimates and other goals for submission to the board for decision.
Interpret and administer policies established by the board and issue procedures to
ensure uniform interpretation.
Appoint and supervise immediate subordinates; seek approval of the board of
directors for top management appointments.
Maintain an effective organization structure, with adequate staffing and provision for
staff development.
Ensure that the finances, facilities and other property of the society are properly
safeguarded, insured and administered.
Take direct action to achieve goals in all aspects of the operation.
Keep. The board informed of progress and of results in comparison with goals in all
areas.
Maintain effective relations with members and general public.
Participate in, and cooperate and coordinate effectively with, other cooperatives in the
community.
Plan for personnel development as required to manage the society.
Maintain liaison with the president.
Provide leadership and direction to all staff members.
Unit III
Decision Making in Cooperatives: Concept, Kinds, Process and
Techniques
Decision-making is the essence of management so much so the management itself is
understood as a decision-making science. Management is identified with perpetual choice
making, where one is continuously engaged in choosing between alternatives. Decision-
making is a universal function of all the managers in every part of the organization. The
decision-making is an integral part of the management process such as planning,
organization, direction, control etc. According to George Terry: "Decision making is
selection of one behaviour alternative from two or more possible alternatives". In the
words of P.F. Drucker: "A decision is a judgment. It is a choice between alternatives."
In the management of cooperative organization decision-making is the bounden duty of
directors and managers both in the developmental sphere and in the functional sphere.
Decision-making is a vital task to give the activities of the members and employees a
goal and direction and to determine how best to use the material resources of the
cooperative. The decision-making in a cooperative set up is a complicated task. The
decision making should not only conform to rational choice and objective requirements
under various decision situations; but it must also ensure that uniform action is achieved,
there is proper participation and collaboration between members and employees in
carrying out the decision.
The managerial decisions may vary greatly according to the nature, significance and the
levels of decision. E. Dulfer has classified the decision making in cooperative on the
basis of the levels.
Kind of Managerial Decision Level Authorized to Make Decision
Goal Decision
(What is to be reached?)
Means decisions
(By what means?)
Action decision
(How?)
Upper management level
Middle management level
Lower management level
Managerial decisions may also be sub-divided into strategic decision and tactical
decisions. Strategic decisions have long - term importance and a complex character. They
are goal decisions and bring about fundamental changes. They are directed and
coordinated at the higher levels of the enterprise. Tactical decisions are routine decision,
which are directed at the regulation of limited fields of activity or shorter periods. They
are based on strategic decisions and aim at their implementation. The tactical decisions
are the task of middle and lower level management.
Upper Management Level
Middle Management Level
Lower Management Level
Extent of Decisions
Strategic Decision Tactical Decision
On the basis of the method, the decision making, may be classified as programmed and
unprogrammed decisions. Programmed decisions are routine repetitive decisions. It
involves less risk and may be delegated easily. The quantitative nature of these decisions
facilitates computer programming of these decision. Unprogrammed decisions are non-
repetitive. They cannot be assessed in quantitative terms and involve greater risk.
Based on the person making the decision, the decision-making may be classified as
individual decision and group decision. Individual decision-making is used in small
organizations at times of emergency and in circumstances where the group has little
knowledge. The prestige, power and the expertise enjoyed by the individuals who make
decision are the factors, which contribute to individual decision-making. Group decision-
making is participative decision making. It makes use of collective wisdom of several
individuals. The members of the group get a chance to voice their opinion. The technical
service of experts may also be made available. The group decision may take either of the
two forms: Group advisory or Group deterministic.
Process of Decision Making
The decision-making involves logical and sequential steps, which have to be followed in
any scientific decision-making process. According to P.F. Drucker, "the decision making
have five distinct stages: defining the problem; analysing the problem, developing
alternative solutions; deciding upon the best solutions; converting the decision into
effective action."
1. Developing the Problem
A manager must continuously scan the environment to identify and perceive the problems
of development. In a cooperative organization a manager can get new problems from the
orders of superiors, direction issued by Board of Directors, suggestions from members
and employees or by analyzing the system of operation and accounting. The common
problem areas in management, which involve crucial decisions, are: tomorrow
Extension of the new sphere of activity or new line of business
Increasing the volume of business
Taking measures for quick and positive development of the enterprise
Identifying the limiting factors which slow down development and measures to
overcome them.
After the perception of the problem the aim or objective of decision must be formulated.
Every decision must contribute to specific goal, for example/increasing the turn over.
Such goals make the decision purposeful. The objectives of decision-making must be
specified as exactly as possible. It must be practicable or applicable to the problem
situation.
2. Analyzing the Problem
Effective decision-making depends largely on the availability and usability of facts.
While decision making we have to consider all critical factors, tangible as well as
intangible, internal as well as environmental managerial or technical. Such facts and
information are particularly needed
for fixing the objectives
to be able to work to attain the objectives
to measure the results of the enterprise activity
The information and data obtained must be analysed logically. They should not be too
simplified. All the variety of factors and situations must be taken into account and their
complex ramification must be understood. The relevant and influential factors must be
distinguished from other factors, because considering too many factors leads only to
confusion. "He who considers too much will perform too little", is the saying. Such
disentanglement of pertinent factors is necessary to keep the time and cost factors within
the limits. For instance if the management decision-making pertains to increase in
turnover, all related factors such as demand, price, purchasing power, distribution system
and promotion strategy etc. have to be analysed.
3. Developing alternative Solutions
For reaching the decision goals, there must always be more than one choice. The reality
of the goal largely depends on the available means. Development of the alternative ways
is based on the factors such as material, money, manpower, technology, etc., which is
available to a cooperative organization. The choice of a course of action depends on that
factors which is considered critical. The efficiency of the managerial decision-making
lies in developing as many alternative solutions as possible. If there is only one course of
action for a particular goal, that course is probably wrong.
4. Deciding upon the Best Solution
The alternative courses of action must be classified, compared and analysed. Every
course of action must be judged on the basis of the cost and risk involved. The futurity of
the decision and its relation to various aspects of business must be assessed properly. The
managerial analysis and cost benefit analysis must be made to determine the quantitative
outcome of the decision. The quantitative aspects of the decision must also be assessed.
For facilitating the objective decision-making in a cooperative organization, E. Dulfar has
suggested the following decision, criteria.
inevitable national economic necessities;
the necessary speed in solving the problem;
economic criteria, for example, with regard to expenditure and result;
quantitative characters which are to be attained;
social criteria; for example, the necessity of maintenance of work places;
economic, political objectives of superordinate bodies
Based on the above criteria the decision must be arrived at by competent bodies
particularly in respect of cooperative organizations, where inner democracy has to be
preserved. Every decision must have the democratic sanction.
5. Converting the Decision into Effective Action
This is a crucial stage, which transforms the mental action into physical action. Decisions
are made effective only by their implementation. The managers must ensure that the
decisions are carried out. In the process of implementation the possible errors must be
gauged, and remedial actions and corrective measures must be taken as quickly as
possible. The mangers must recognize the chain reaction in the decision-making, as one
decision is likely to lead to a series of decisions. Furthermore each decision is inter-
related to other aspects and extends beyond the boundaries of one department or section.
The time factor must also be taken into account in the implementation. Each decision, to
be effective, must be implemented within the specified time.
Techniques of Decision Making
The scientific decision making process must be based on the systematic process and
scientific methods. Decision-making in today's complex business world cannot depend on
intuitions, hunches or even the past experiences. Precise estimation of a given decision
can be made only by applying sophisticated decision techniques. Some of the newer
techniques like Operation Research, Risk Analysis, Linear Programming and Decision
Tree will improve the quality of decision-making.
Operation Research
Operation Research is a mathematical technique used in decision-making. It is a scientific
method of solving problems by using mathematical models and probability theory, which
include Games Theory, Inventory Control, Economic Order Quantity, Network Analysis,
Production Planning and Control etc. Problems best suited for Operation Research are
those involving recurring decisions. Generally problems concerning time, cost or
amounts of profit can be optimised by using Operational Research. Operations Research
is helpful in many areas of management decision-making. For example if the problem is
in inventory, Operations Research can determine the lowest amount of materials to
satisfy the production requirements, when and what to order and how to dispose the
inventory most profitably. It is a scientific method based on the quantitative data and
determines the optimum means to reach the goal.
Linear Programming
It is a mathematical technique, which consists of expressing the operations of a group of
complex interdependent variables by developing mathematical formulae. It can be used
when all the relationships are linear, that is when the cost of producing one or more units
is directly proportional to the present cost of production. It is useful in the selection of
one alternative course among many, which gives the highest profit. Linear programming
is applied to problems of production planning, scheduling, resource allocation and
distribution and cost analysis. Linear programming can be used only with the aid of
computers.
Risk Analysis
Every major decision that a manager makes is based on forecast. Every forecast is likely
to be inaccurate when it incorporates the interaction of a number of critical variables. In
choosing each course of action, certain amount of risk and uncertainty is involved. It is
therefore wise to evaluate how seriously the decision is at risk from such errors, before
committing the company to a long-term capital expenditure. The probability of the range
of errors is used to calculate the risk profile of the project. Based on this the probability
of achieving a given return on capital is estimated. For example, sales manager may be
asked to estimate the probability of returns by adopting a sale price; or the production
manager may be asked to estimate the probability of the rate of returns that the company
may hope to earn by means of a new investment.
Decision Tree
One of the best ways to analyze a decision is to visualize all possible directions that
actions may be taken from a decision point. This technique is known as 'decision tree'.
The technique consists of drawing a branching network diagram showing various
decisions and their probable outcomes and calculating the net present value. That branch
which provides highest net returns with lowest cost is chosen as the course of action to
adopt. To give a simple example, in order to increase production it is possible to decide
between adding new machinery or having additional shifts of production by engaging
additional labour.
Cost Benefit Analysis
It is the systematic comparison between cost of carrying out a service or activity and the
value of the service or activity by quantifying as far as possible all costs and benefits. In
capital project evaluation one assesses all the expected cash outflows and inflows for a
project, and on that basis the rate of return the project can generate is arrived at. But the
one major limitation in this type of analysis is that not always the benefits flow from a
project can be measured. There are several intangible benefits such as higher morale, less
pollution etc. Such intangible factors tend to be ignored in the cost benefit analysis.
Unit IV
Criteria for Judging the Operational Efficiency Of Cooperatives,
Performance appraisal and Key Result Areas in Cooperatives
Concept:
Efficiency is the watchword of modern management. It is of special importance to
cooperatives because of their twin elements in their objectives and operation, namely,
Association and Enterprise; and the need to achieve a blend of success in both. The
‘Operational Efficiency’ is an elusive concept, which has several connotations. This
apart, operation efficiency is organization specific. An umbrella concept, which ignores
the nature, size and operation of the specific cooperative organization, may prove to be
nebulous. It is therefore necessary to understand certain broad criteria for measuring the
operational efficiency of cooperative organizations.
The Encyclopedia of Social Sciences has outlined, “Efficiency” as “the ratio between
input and output, efforts and results, expenditure and income, cost and the resulting
pleasure.” The Dictionary of Social Sciences has defined Operational efficiency as “the
ability to achieve the desired goal with economy of time and effort in relation to the
amount of work accomplished.” According to this definition operational efficiency
means the achievement of the target specified by minimum time and effort. In other
words, it is the ratio between input and output. The criterion of efficiency dictates the
choice of that alternative which produces the largest result for the given application of
resources.
Dr.Jesdanwhlla has defined Operational Efficiency as, “the effectiveness or competence
with which a structure performs its desired functions.” According to the above definition,
the concept of efficiency includes the effectiveness. While organizational efficiency in a
narrow sense, is concerned with how well an organization performs a given technology,
while in a broader sense it includes organizational effectiveness, which is a measure of
the quality of relationship an organization has with its environment. Thus the efficiency
in the broader sense includes not only the efficiency in the transformation process but
also the efficiency as realized in the environment. It is in this sense the concept of
efficiency must be understood in social organizations like cooperatives.
Dimensions of Operational Efficiency
When we closely examine the concept of operational efficiency in the context of a
cooperative organization, we may arrive at four distinct aspects of the concept.
A. Technical Efficiency:
Technical efficiency pertains to technical competence of an organization. In other words
technical efficiency relates to such matters, which are concerned with the specialized
technical know how in the respective field of activity. It may relate to the improving
productivity of industrial work process such as mechanization, rationalization etc.
Similarly in each area of specialization, improving Technical Efficiency can increase
productivity. For this purpose norms have to be evolved in each technical aspect for
improving Technical Efficiency.
B. Economic Efficiency:
The Economic Efficiency on the other hand implies the realization of maximum output
from given resources. Alternatively it also implies minimization of inputs required for
realizing a given output of goods or services. It involves the elimination of waste and
reduction in high cost. In short economic efficiency lies in judicious use of financial and
other resources and devising cost effective methods of operation.
C. Functional Efficiency:
It is the resultant efficiency realized from the first two aspects of operational efficiency.
The performance or results are again determined by functional performance such as
financial performance, production performance, marketing performance etc. It reflects
the managerial and organizational efficiency more clearly in terms of results and
performance.
D. Social Efficiency:
Every organization is a part of larger environmental system. Often the goals of an
organization extend beyond itself having environmental implication. In other words the
ability of an organization to bring about desired changes in the environment is one more
dimension of the concept.
In the cooperative organization the concept of efficiency should be understood more from
the non-profit point of view. In the opinion of H.A. Simon, the criteria of efficiency are
more complicated in its application to non-commercial than to commercial organizations.
Therefore, operational efficiency in cooperatives should not be viewed in the restricted
sense of economic and technical aspects. In cooperatives the operational efficiency is
better judged externally. From this angle two more aspects of efficiency should be
included as far as cooperatives are concerned.
Efficiency with Reference to Members: It is an attempt to measure efficiency
from one basic criterion: to what extent the members have been benefited from
the cooperative and to what extent members’ aspirations and needs have been
met? A cooperative cannot claim to have attained efficiency unless it fulfils the
above criterion.
Efficiency with Reference to Society: Efficiency in the broader sense is the
measure of quality of relationship an organization has with environment. In
general the extent to which larger social purpose is achieved through the
organization such as price control, fair distribution etc., will indicate the social
responsibility of an organization. Its impact in the environment such as waste
recycle and pollution control will reflect its environmental friendly character.
Criteria for Measuring Operational Efficiency of Cooperatives
From the above analysis specific criteria may be identified for measuring the Operational
Efficiency of cooperative enterprises.
1. Ability to achieve technical efficiency and economic performance
2. Ability of the cooperative to maintain the cooperative character by observing
cooperative values such as democracy, autonomy etc.
3. Ability of the cooperative to satisfy the members’ aspirations by meaningfully
relating the enterprise objectives with individual goals
4. Ability of the cooperative to enlist the participation of members in such aspects
as equity, business profit sharing and democratic control
5. Ability of the cooperative to achieve larger social goals like promoting
employment, generating income and improving the standard of living in the
larger community
6. Ability of the cooperative to improve the managerial efficiency by setting
realistic goals, evolving strategies, formulating programmes and exercising
effective control
Measurement Parameters of Operational Efficiency
The criteria of Operational Efficiency discussed so far can be converted into a set
of measurement parameters and ratios, which have been developed for precise
measurement and evaluation. They are:
1. Efficiency in Output: a) Achievement of Target
b) Input-output ratio
c) Capacity utilization
d) Value addition
2. Efficiency in Cost: a) Operational cost (as % to sale)
b) Unit cost
c) Standard cost
3. Profitability : a) Return on sale
b) Return on investment
c) Percentage of gross profit to sales
d) Percentage of net profit to sales
4. Liquidity Testes (Ratios): a) Current assets: Current Liabilities
b) Liquid Assets: Current Liabilities
c) Percentage of receivables to assets
d) Percentage of receivables
5. Solvency Tests : a) Debt-equity ratio
b) Own equity to total Capitalization
c) Coverage ratio
i.e., Operating Profit
Interest on L.T. Liabilities
6. Service to Members:
a) Member Turnover
No. of members joining + No. of Members Leaving X 100
No. of Members at the beginning + at the end/2
b) Drop out
No. of People leaving X 100
No. of Members at the beginning + at the end/2
c) Service Surplus
Average price differentials X Total Volume of Business done with members
d) Patronage Refund
TPR X MVB
MPR =
TVB
MPR = Annual Patronage Refund due to a Member
TPR = Total amount Allocated to Patronage Refund
TVB = Total Volume of Business
MVB =Volume of Business Contributed by a Member
Performance appraisal and Key Result Areas in Cooperatives
The goals of every organization are realized by means of performance and results. Every
organization on one hand mobilizes inputs and resources like money, material and
manpower and employees them in the production of certain services and outputs. On the
other hand every organization performs the organizational functions such as operation,
finance, marketing etc., performance establishes the link between the two. The
management, which is responsible for performance in different functional areas, is the
key for success or failure of any organization. There are different kinds of appraisal
which are discussed below:
1. Result Appraisal
Usually the result achieved is the basis of appraisal. It is assessing the net outcome of the
business. This kind of appraisal is known as result oriented appraisal. Again the result-
oriented appraisal has three aspects:
a) Profit Appraisal: The highest form of result in any business is the attainment of
profit objectives. Profit becomes the yardstick of the operational efficiency of
finance, production and marketing. Only by means of profit an organization can
serve shareholders interest, enterprise interest and national interest. Therefore,
the acid test of executive performance is the profit.
b) Cost Appraisal: Looking backwards the next level of appraisal is the
measurement of cost at various cost centers of business. Cost centers are
comparable to profit and loss centers. In most organizations production and
marketing are the important cost centers; whereas in some other organizations,
branches or the regional offices are the cost centers. The cost centered appraisal
is more universally applied than the profit-centered appraisal. Being non-profit
organization where in profit cannot be the right basis of appraisal; cost appraisal
has special significance to cooperatives. The cost centered appraisal is closely
related to cost standard and performance standard evolved in different operations
like finance, production and marketing.
c) Objective Centered Appraisal: The next level of results is that which measures
the achievement of objectives. Whether the new products have been launched in
time? Was training programme successfully completed by personnel department?
These are the examples of objective centered appraisal. The objective centered
appraisal is based on the prior establishment of various achievement goals. For
making the objective centered appraisal a success, it is necessary to set
meaningful and clear objectives in advance, which is the responsibility of
superiors. While setting objectives it must be ensured whether the objectives are
practical and attainable? Are they compatible with the overall objectives and
plans of the company? Are they measurable?
2. Method Appraisal
It is the most commonly used form of appraisal. It focuses on the methods employed in
management. Methods are the means for achieving the goals of an organization. The
results are often long term while the methods applied are short term. Methods are the
direct means of achieving of results. Method appraisal is necessary for judging the
performance from the management process adopted and techniques used. The method
appraisal will have to examine the following:
Does the manager use company policy as a basis of decision-making?
Whether there has been proper delegation of authority?
Whether there has been consultation and teamwork?
Whether right procedures have been established?
Whether the decision making process is sound?
As far as cooperatives are concerned the method appraisal has greater significance and it
has to be examined whether the democratic and participative process have been followed.
While evaluating the methods, it is difficult to separate methods from skill and work
habits. They all go hand in hand.
3. Personality Appraisal
Sometimes it is called behavior appraisal. This is the most difficult aspect of appraisal.
Personality is the sum of individual traits and behavior and is more comprehensive in
character therefore, in judging one’s personality one has to consider many important
desirable qualities like enthusiasm, motivation, morale, initiative and self-confidence.
For meaningful appraisal of personality the following factors are to be taken into
consideration.
First of all desirable qualities of one’s personality relevant to the job has to be listed.
Secondly appraisal has to be done by examining whether individual manger possesses
these qualities. While making personality appraisal, it is necessary to take into account
only exceptional qualities, which are real strength or weakness of one’s personality and
rate them. In other words, if all the qualities, relevant or irrelevant are taken into
consideration for rating, the average rating may conceal many significant qualities.
Therefore, a pattern of desired managerial qualities has to be determined first.
Personality appraisal has to be done by means of appraisal interviews and objective
analysis of success and failures. The appraisal must be positive in the sense it must
reveal the strength and inherent potential rather than pointing out weakness. It should
aim at capitalizing the strength and ignore weakness.
4. Management by Exception
The performance appraisal must necessarily adopt the principle of exception. The
success of appraisal lies in identification and selection of critical spots and focusing
attention on them. It avoids mangers being overwhelmed with problems and trivial
matters. It aims at isolating those areas, which need special attention. It rather simplifies
the management process. It permits a manger to find solutions to problems that need his
action and avoid dealing with those matters that are handled by subordinates.
Key result areas have to be identified, the performance of which is essential for achieving
the goals of the organization. Critical areas where often the failure is caused or problem
areas, which adversely affect the results of the organization, have to be spotted out. Vital
value areas in which certain vital value decisions like quality, time, performance etc., are
involved have also to be noted.
Appraisal of Cooperatives
A cooperative organization is an integrated system. The performance of cooperatives
should be evaluated based on the internal planning and control mechanisms like budget,
cost standard etc. External situations, opportunities and challenges and the ability of the
organization to cope up with the environmental changes should be taken into
consideration in the appraisal of cooperatives. Further the ability of cooperatives to
develop the members is another vital aspect of evolution. Evaluation of any cooperative,
according to Gupta and Gaikwad, should examine the following issues:
The first and most crucial question is whether the net income of the members
increased over the period of operation? If so what is the magnitude of increase
and what is the contribution of cooperatives by means of their activities and
programmes to the increase?
The second question is to what extent the member resources has been mobilized
in terms of human material and financial resources?
The third question is whether the activities of the cooperatives were really
integrated with the need structure of members? To what extent the cooperatives
moved away from pure mercantile approach to the advanced integrated approach?
The fourth question is how effectively the board of directors plays its role in
policy formulation, planning and control? And to what extent a sense of
responsibility and accountability have been cultivated in them?
The fifth question is to what extent the policy of government on cooperatives
have changed? And to what extent various welfare programmes and sectoral
development programmes have been helpful to the cooperatives and their
members?
The sixth question is what is the new technology of production such as
machinery, equipment, production methods etc., available to the cooperatives?
And what is the extent of product diversification and by-product development in
the cooperatives?
The seventh question is what are the likely new markets for the products of
cooperatives? And what changes have been introduced in the marketing strategies
of cooperatives?
The eighth question is how effectively and efficiently the management played its
role in planning and executing the cooperatives activities? And what is the
performance of cooperative with reference to the targets and budgets?
The ninth question is whether the organization structure of the cooperatives such
as division of work, line of authority, span of control etc., are sound and are
appropriate for efficiency and effective operation?
The tenth question is whether the financial arrangement and facilities are
adequate? And whether member share capital contribution and deposits are
satisfactory? And whether capitalization and investments are safe and secure?
Unit V
Training Methods
Cooperative Training-Some Concepts
Co-operative Education
For the purpose of Cooperation, however, education needs to be defined in a very broad sense which includes academic education of more than one kind but much besides. It includes both what people learn and how they learn it. Every phase of experience, which adds to people’s knowledge, develops their faculties and skill, widens their outlook, trains them to work harmoniously and effectively with their fellows and inspires them to fulfill their responsibilities as men or women and citizens can have educational significance for Cooperation. Less and less in the contemporary world can education be limited to what is learnt in schools and colleges at special periods of people’s lives. Cooperative concept is of education as a life long process.
The concept of cooperative education becomes clearer when it is stated as one of the basic Principle of Cooperation and has worldwide acceptance. The principle as accepted by the ICA and the cooperative movements in countries of Africa, it is stated as under:
“All cooperative societies should make provision for the education of their members, officers, and employees and of the general public, in the principles and techniques of cooperation, both economic and democratic.”
Cooperative Training
Cooperative Training is here defined as those training activities that are organized to improve job performance of the cooperative staff and of government employees engaged in support and supervision of cooperatives. It aims to provide the trainees learners with such attitudes, knowledge and skills that are necessary for him/her to carry out work efficiently.
Education v/s Training
Educationist differentiates education from training. Training refers to the communication of specific skills. It is structured and stratified and can be communicated objectively by one person to another. Education on the other hand, refers to imparting of
knowledge and attitudes which contextual and serve as necessary ‘floor’ for understanding and practicing skills.
Development
Development is a process which not only inculcates skills-vocational and general but also encourages and improves the ability to teach and train one and others. It aims at the development of individuals’ whole personality. It is essentially a process to create the capacity to grow and allow others as well to grow. Thus development is aimed at through the process of training.
Management Development (MD)
MD encompasses the whole – a complete process by which mangers as individuals learn, grow and improve their abilities to perform management task in a progressional way.
MDT aims at maximizing managerial effectiveness and personal adjustment, growth and development of learners. It at the same time, aims at optimizing human resource development in an organization. MDT includes to the process of educating and developing employees so that they have knowledge, skills, attitudes and understanding needed to mange in future.
Motivating Potential
Motivating potential has been defined as a degree to which a job has a potential to motivate an individual to work in terms of skill and variety, task significance, autonomy and feed back.
Training process is likely to be less effective and useful for an individual and organization if the individual is not interested nor motivated enough to learn.
Achievement Values
Operationally defined, the achievement value of an individual was the importance that she/he attaches to a particular job activity or personal activity (including hobbies, personal/social interaction etc.) or any other pursuit.
Training Experience
It is the perception of the training process as a whole and its different specific aspects – growth adjustment and development to gain knowledge and skills.
Target Groups
In any cooperative organization, the following main target groups can be identified for communication, education and training on a regular basis:
i. Members and the active membersii. Board members and other leaders
iii. Managers and other employeesiv. Special groups such as women, youth, children, rural poor (as prospective
members)v. General Public
vi. Technicians, Consultants and ResearchersCooperative education of members, board members, and the employees of
primary coops is the most important element in enabling the coops to perform their tasks and ultimately to become self-reliant in management and funds. It may also be noted that cooperative education by its nature tends to be interpersonal ideological and metrological. Its approach methods and techniques are social and business oriented. Methods are mostly participative, democratic and group oriented. They promote group morale organizational efficiency and leadership qualities. Cooperative training may involve skill development improvement of insight and performance of employees’ personnel.
The Training ProcessIntroduction
Training gives new or present employees the skills they need to perform their jobs. Training might thus mean showing a machinist how to operate his new machine, a new salesperson how to sell her firm’s product, or a new supervisor how to interview and appraise employees.
The expansion of training’s role reflects the fact that “the game of economic competition has new rules.” In particular, it’s no longer enough to just be efficient. Thriving today requires that the firm be fast and responsive. And it requires responding to customers’ needs for quality, variety, customization, convenience, and timeliness. Meeting these new standards requires a work force that is more than just technically trained. It requires people who are capable of analyzing and solving job-related problems, working productively in teams, and “switching gears” and shifting from job to job as well. Training is moving to center stage as a means of improving employers’ competitiveness.
The Five- Step Training and Development Process
We can conveniently think of a typical training or development program as consisting of five steps, as summarized in the Figure 1. The purpose of the needs analysis step is to identify the specific job performance skills needed to analyze the skills and needs of the prospective trainees, and to develop specific, measurable knowledge and performance objectives. In the second, instructional design step, the actual content of the training program is compiled and produced including workbooks, exercises, and activities. Next there may be a third validation step in which the bugs are worked out of the training program by presenting it to a small representative audience. Fourth, the training program is implemented, using techniques like those discussed in the following
chapter. Fifth, there should be an evaluation and follow-up step in which the program’s successes or failures are assessed.
Training and Learning
Training is essentially a learning process. To train employees, therefore, it is useful to know something about how people learn. Some suggestions based on learning theory follow.
First, it is easier for trainees to understand and remember material that is meaningful:
1. At the start of training, provide the trainees with a bird’s-eye view of the material to be presented. Knowing the overall picture facilitates learning.
2. Use a variety of familiar examples when presenting material.3. Organize the material so that it is presented in a logical manner and in meaningful
units.4. Try to use terms and concepts that are already familiar to trainees.5. Use as many visual aids as possible.
Second, make sure it is easy to transfer new skills and behaviors from the training site to the job site:
1. Maximize the similarity between the training situation and the work situation.2. Provide adequate training practice.3. Label or identify each feature of the machine and /or step in the process.
Third, motivate the trainee:
1. People learn best by doing. Try to provide as much realistic practice as possible.2. Trainees learn best when correct responses are immediately reinforced, perhaps
with a quick “well done.”3. Trainees learn best at their own pace. If possible, let trainees pace themselves.
Figure 1 Five- Steps in the Training and Development Process
Training Techniques
After you have determined the employees’ training needs, set training objectives,
1. Needs Analysis Identify specific job performance skills needed to improve performance and
productivity. Analyze the audience to ensure that the program will be suited to their
specific levels of education, experience, and skills, as well as their attitudes and personal motivations.
Use research to develop specific measurable knowledge and performance objectives.
2. Instructional Design Gather instructional objectives, methods, media, description of and sequence of
content, examples, exercises, and activities. Organize them into a curriculum that supports adult learning theory and provides a blueprint for program development.
Make sure all materials, such as video scripts, leaders’ guides, and participants’ workbooks, complement each other, are written clearly, and blend into unified training geared directly to the stated learning objectives.
Carefully and professionally handle all program elements-whether reproduced on paper, film, or tape-to guarantee quality and effectiveness.
3. Validation Introduce and validate the training before a representative audience. Base final
revisions on pilot results to ensure program effectiveness.4. Implementation
When applicable, boost success with a train-the-trainer workshop that focuses on presentation knowledge and skills in addition to training content.
5. Evaluation and Follow-up Assess program success according to:Reaction- Document the learners’ immediate reactions to the training.Learning- Use feedback devices or pre-and posttests to measure what learners have actually learned.Behavior- Note supervisors’ reactions to learners’ performance following completion of the training. This is one way to measure the degree to which learners apply new skills and knowledge to their jobs.Results- Determine the level of improvement in job performance and assess needed
Training Techniques
After you have determined the employees’ training needs, set training objectives, and designed the program, the training program can be implemented. A description of the most popular training techniques follows.
On-the-Job Training (OJT) means having a person learn a job by actually performing it. Virtually every employee, from mailroom clerk to company president, gets some on-the-job training when he or she joins a firm. In many cooperatives OJT is the only type of training available. It usually involves assigning new employees to experienced workers or supervisors who then do the actual training.
There are several types of on-the-job training. The most familiar is the coaching or understudy method. Here the employee is trained on the job by an experienced worker or the trainee’s supervisor. At lower levels trainees may acquire skills for, say, running a machine by observing the supervisor. But this technique is also widely used at top-management levels. The position of assistant is often used to train and develop the future top managers. Job rotation, in which an employee (usually a management trainee) moves from job to job at planned intervals, is another OJT technique. Special assignments similarly give lower-level executives firsthand experience in working on actual problems.
Apprenticeship training is a structured process by which individuals become skilled workers through a combination of classroom instruction and on-the-job training. It is widely used to train individuals for many occupations including electrician and plumber, and it is essentially the type of training new medical interns get during the several years they spend working in hospitals after graduation.
OJT has several advantages. It is relatively inexpensive; trainees learn while producing, and there is no need for expensive off-job facilities like classrooms or programmed learning devices. The method also facilitates learning since trainees learn by actually doing the job and get quick feedback about the correctness of their performance.
However, there are several trainer-related factors to keep in mind when designing OJT programs. The trainers themselves should be carefully trained and given the necessary training materials. (Often, instead, and experienced worker is simply told to “go train John.”) Experienced workers who are chosen as trainers should be thoroughly
trained in the proper methods of instruction-in particular the principles of learning and perhaps the job instruction technique. A useful step-by-step job instruction approach for giving a new employee on-the-job training is as follows:
Step 1: Preparation of the Learner 1. Put the learner at ease-relieve the tension.2. Explain why he or she is being taught.3. Create interest, encourage questions, find out what the learner already knows
about his or her job or other jobs.4. Explain the why of the whole job and relate it to some job the worker already
knows.5. Place the learner as close to the normal working position as possible.6. Familiarize the worker with the equipment, materials, tools, and trade terms.
Step 2: Presentation of the Operation1. Explain quantity requirements.2. Go through the job at the normal work pace.3. Go through the job at a slow pace several times, explaining each step. Between
operations, explains the difficult parts, or those in which errors are likely to be made.
4. Again go through the job at a slow pace several times; explain the key point.5. Have the learner explain the steps as you go through the job at a slow pace.
Step 3: Performance Tryout1. Have the learner go through the job several times, slowly, explaining each step to
you. Correct mistakes and, if necessary, do some of the complicated steps the first few times.
2. You, the trainer, run the job at the normal pace.3. Have the learner do the job gradually building up skill and speed.4. As soon as the learner demonstrates ability to do the job, let the work begin, but
don’t abandon him or her.
Step 4: Follow-Up1. Designate to whom the learner should go for help if he or she needs it.2. Gradually decrease supervision, checking work from time to time against quality
and quantity standards.3. Correct faulty work patterns that begin to creep into the work, and do it before
they become a habit. Show why the learned method is superior.4. Compliment good work; encourage the worker until he or she is able to meet the
quality/quantity standards.
Job Instruction TrainingMany jobs consist of a logical sequence of steps and are best taught step by step.
This step-by-step process is called job instruction training (JIT). To begin, list all necessary steps in the job, each in its proper sequence. Alongside each step also list a corresponding “key point” (if any). The steps show what is to be done, while the key
points show how it’s to be done-and why. Here is an example of a job instruction training sheet for teaching a trainee how to operate a large motorized paper cutter in a Cooperative Printing Press.
Steps key Points1. Start motor None 2. Set cutting distance Carefully read scale-to prevent wrong-sized cut3. Place paper on cutting table Make sure paper is even-to prevent uneven cut4. Push paper up to cutter Make sure paper is tight-to prevent uneven
cut5. Grasp safety release with Do not release left hand-to prevent hand
from beingleft hand caught in cutter
6. Grasp cutter release with Do not release right hand-to prevent hand from right hand being caught in cutter
7. Simultaneously pull cutter Keep both hands on corresponding releases-to avoidand safety releases hands being on cutting table
8. Wait for cutter to retract Keep both hands on releases-to avoid having hands on cutting table
9. Retract paper Make sure cutter is retracted; keep both hands away from releases
10. Shut off motor None
Lectures
Lecturing has several advantages. It is a quick and simple way of providing knowledge to large groups of trainees, as when the sales force must be taught the special features of a new product. While written material like books and manuals could be used instead, they may involve considerable printing expense, and they don’t permit the give and take of questioning that lectures do.
Some useful guidelines for presenting your lecture follow:
Give your listeners signals to help them follow your ideas. For instance, if you have a list of items, start by saying something like ″There are four reasons why the sales reports are necessary. ... The first . . . the second . . ."
Don’t start out on the wrong foot. For instance, don’t open with an irrelevant joke or story or by saying something like, “I really don’t know why I was asked to speak here today.”
Keep your conclusions short. Just summarize your main point or points in one or two succinct sentences.
Be alert to your audience. Watch body language for negative signals like fidgeting and crossed arms.
Maintain eye contact with the trainees in the program. At a minimum you should look at each section of the audience during your presentation.
Make sure everyone in the room can hear. Use a mike or talk loudly enough so that you can be heard by people in the last row and if necessary repeat questions that you get from trainees from the front of the room before you answer.
Control your hands. Get in the habit of leaving them hanging naturally at your sides rather than letting them drift to your face, then your pockets, then your back, and so on. Putting your hands near your face can block your voice projection and also give the impression that you lack confidence in what you are saying.
Talk from notes rather than from a script. Write out clear, legible notes on large index cards and then use these as an outline rather than memorizing your whole presentation.
Eliminate bad habits. Beware of distracting your listeners by jiggling coins in your pocket or pulling on an earlobe.
Practice. If you have the time, make sure to rehearse under conditions similar to those under which you will actually give your presentation.
Audiovisual Techniques
Audiovisual techniques like films, closed-circuit television, audiotapes, and videotapes can be very effective and are widely used. At AMUL Cooperatives, for instance, films like Mandhan have been used as a basis for discussing the organizational problems of cooperatives in their Training Institutes.
Audiovisuals are more expensive than conventional lectures but offer some
advantages. Consider using them in the following situations:
1. When there is a need to illustrate how a certain sequence should be followed over time, such as when teaching procurement of milk by the tester.
2. When there is a need to expose trainees to events not easily demonstrable in live lectures, such as a visual tour of a factory or open-heart surgery.
3. When the training is going to be used organization wide and it is too costly to move the trainers from place to place.
There are three options when it comes to video: You can buy an existing videotape or film; you can make your own; or you can have a production company produce the video for you. Dozens of businesses issue catalogs listing audiovisual programs on topics ranging form applicant interviewing to zoo management.
Videoconferencing is an increasingly popular way to train employees. It has been defined as “. . . a means of joining two or more distant groups using a combination of audio and visual equipment.” Videoconferencing allows people in one location to communicate live with people in another city or country or with groups in several other cities. The communication links are established either by sending specially “compressed” audio and video signals over telephone lines or via satellite.
Given that videoconferencing is by nature visual, interactive, and remote, there are several things to keep in mind before getting up in front of the camera. Because the training is remote, it’s particularly important to prepare a training guide ahead of time, specifically a manual the learners can use to keep track of the points that the trainer s making. A sampling of other hints would include:
Avoid bright, flashy jewelry or heavily patterned clothing.
Arrive at least 20 minutes early.Test all equipment you will be using.Adjust lights (if necessary and if possible); put lighting in front of participants to avoid shadows.Have all participants introduce themselves.Avoid focusing just on one group at one remote site (if there are several) and avoid presenting just to the video camera and not to the in-house participants.Project your voice and speak clearly; particularly if people at the remote site have a different native language, keep yours free of jargon and needlessly complex words. Remember that excessive physical movement will cause distortion of the video image where compressed telephone transmissions are being used.
Programmed Learning
Whether the programmed instruction device is a textbook or a computer, programmed learning consists of three functions:
1. Presenting questions, facts, or problems to the learner.2. Allowing the person to respond.3. Providing feedback on the accuracy of his or her answers.
The main advantage of programmed learning is that it reduces training time by about one-third. In terms of the principles of learning listed earlier, programmed instruction can also facilitate learning since it lets trainees learn at their own pace, provides immediate feedback, and (from the learner’s point of view) reduces the risk of error. On the other hand, trainees do not learn much more from programmed learning than they would from a traditional textbook. Therefore, the cost of developing the manuals and/or software for programmed instruction has to be weighed against the accelerated but not improved learning that should occur.
Vestibule or Simulated Training
Vestibule or simulated training is a technique in which trainees learn on the actual or simulated equipment they will use on the job but are actually trained off the job. Therefore, it aims to obtain the advantages of on-the-job training without actually putting the trainee on the job. Vestibule training is virtually a necessity when it is too costly or dangerous to train employees on the job. Putting new assembly-line workers right to work could slow production, for instance, and when safety is a concern-as with pilots-vestibule training may be the only practical alternative.
Vestibule training may just place in a separate room the equipment the trainees will actually be using on the job. However, it often involves the use of equipment simulators. In pilot training, for instance, the main advantages of flight simulators are as follows:
Safety. Crews can practice hazardous flight maneuvers in a safe, controlled environment.Learning efficiency. The absence of the conflicting air traffic and radio chatter that exists in real flight situations allows for total concentration on the business of learning how to fly the craft.
Money. The cost of flying a flight simulator is only a fraction of the cost of flying an aircraft. This includes savings on maintenance costs, pilot cost, fuel cost, and the cost of not having the aircraft in regular service.
Computer-Based Training
In computer-based training the trainee uses a computer-based system to interactively increase his or her knowledge or skills. While vestibule or simulated training doesn’t necessarily have to rely on computerization, computer-based training almost always involves presenting trainees with computerized simulations and the use of multimedia including videotapes to help the trainee lean how to do the job.
Management Development
Management development is any attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills. It thus includes in-house programs like courses, coaching, and rotational assignments professional programs like Ethiopian Management Institute Programs, and university programs like executive MBA programs.
The ultimate aim of such development programs is, of course, to enhance the future performance of the organization itself. For this reason, the general management development process consists of:
1) Assessing the company’s needs (for instance, to fill future executive openings, or to make the firm more responsive),
2) Appraising the mangers’ performance, and then3) Developing the mangers themselves
Developing Managerial and Supervisory Abilities
There are many techniques and approaches in use today for furthering managerial and supervisory abilities and for meeting the developmental needs of employees. We will turn now to some specific training and development techniques in wide spread use today which could be adopted to top Managers/leaders of cooperatives. For convenience, these techniques can be divided into two categories, on-the-job and off-the-job training methods.
On-the-Job Training Methods
Although on-the-job training (OJT) methods are considered more useful for skills training, OJT also forms an important part of managerial and supervisory development. Even if an organization has a well-developed off-the-job training program, OJT is still often necessary, particularly to proved and element of practicality to the training. The major OJT methods are coaching, rotations and transfers, understudy assignments, and mentoring.
Coaching
Coaching involves frequent helping activities on the part of a superior toward a subordinate. The following is an excellent statement of what the superior should do in the role as coach:Coaches are mangers who help employees grow and improve their job competence on a day-to-day basis. Coaches set challenging goals, inform employees what is expected of them, and evaluate progress toward those goals. Coaches also appraise performance in a regular and objective manner. Improved performance change is supported by using positive feedback and reinforcement. In addition, coaches train employees to fill in during absences and prepare them for promotion.
Rotations and Transfers
Rotations and transfers are designed to prepare mangers to take on additional responsibilities by providing them with experience in different areas of the firm. Rotations and transfers are often based on an analysis of career paths.
Many rotations and transfers are considered lateral promotions; that is, the manager is placed in a position that carries similar authority and responsibility but in a different part of the firm. The new position can be outside the manger’s “specialty.” For example, mangers hired to work in the human resources department may be required to serve stints as production supervisors or salespeople. Such assignments are not intended to prepare the manager for a career in production or sales. Rather, the varied assignments can help the personnel specialist better understand the unique problems and needs of mangers in other operating departments. These experiences should lead to better human resources decisions and recommendations, such as in hiring, training, and discipline.
Understudy Assignments
Understudy assignments involves assigning an inexperienced manger to work for a more experienced manger, often on an “assistant to” basis. The understudy manger normally progresses from performing rather mundane, detailed tasks to more advanced work. Eventually, the understudy should be able to perform at about the same level as the experienced manger. The effectiveness of understudy assignments depends on the willingness and ability of the higher-level manger to share experience and to transfer knowledge to the understudy manger.
A variation of the understudy approach involves placing novice mangers on certain committees. The best committees for such assignments include a mixture of experienced and inexperienced mangers, whose interaction results in a coaching type of situation. Sequencing these assignments so that the inexperienced manger is faced with progressively larger responsibilities can result in effective training. However, creating artificial committees or limiting assignments to low-level committees can be counterproductive, particularly when the manager perceives the activity as a waste of time and effort.
Mentoring
According to the American Heritage Dictionary, a mentor is “a wise and trusted counselor teacher.’’ In contrast to the coaching function performed by an employee’s immediate superior. Mentoring can be on a person –to person basis, or a mentor can meet with a small group of four to six protégés, or both individually and as a group. The group
approach has the potential of the group becoming a learning team whose members can also coach each other.
Although informal mentoring occurs daily in all types of organizations, more and more firms are establishing formal mentoring programs. In such programs, managers who wish to be mentors indicate their interest in this additional activity and are given a specific assignment. Mentors can play several valuable roles:
1. Sponsor: to widen opportunities for special assignments2. Teacher: to help solve real problems, to create learning situations with
hypothetical problems, and to transmit organizational culture3. Devil’s advocate: to provide challenges and to give the trainee practice in
asserting ideas and being influential4. Coach: to support trainees in finding out what is important to them, what skills
they possess, and what interests and long –term aspiration they have
Several guidelines can help ensure a successful mentoring program:1. Make sure that mentor participation is voluntary and that potential mentors have a
realistic picture of the time involved and problems that might emerge.2. Provide mentors with information about the mentoring role, but encourage them
to develop their own style and approach.3. Encourage mentors and trainees to negotiate realistic expectations, and urge
mentors to make clear what they can and cannot do.4. Give mentors recognition and visibility5. Keep the trainee’s supervisor informed6. Avoid pairing up people who seem to be clones of each other. There will be more
growth for both parties if they can look at different ways of doing things.
These guidelines can help organizations avoid potential problems and can increase the possibility that the mentoring program will be rewarding for the trainee, the mentor, and the organization.
Off-the-Job Training Methods
The general nature of managerial and supervisory development requires that much or the training be performed off the job. All the off-the –job training methods discussed in this section can be conducted in –house (but off the job) or by outside firms that specialize in training. In –house training is most often conducted by larger firms that need a large and on going supply of managers and supervisor. Smaller firms typically can not justify the cost of doing much of this kind of training themselves.
Seminars and Lectures
Most management and supervisory training programs include seminars and /or lectures, particularly at the beginning. Both seminars and lectures involve assembling a group of trainees and a group leader, although seminar groups tend to be smaller than lecture audiences. In seminars, the group leader generally focuses on coordinating and motivating discussion among the group members. The content, for example, may be based on assigned readings. In lectures, the leader presents material in a classroom lecture manner, and the group members tend to focus on the acquisition of knowledge. As indicated, however, most training and development programs use a variety of methods,
and a two-hour ‘’lecture’’ session might include a lecture followed by discussion, a videotape followed by small group discussion, and group reports.
Laboratory Training
Laboratory training: Can be described as experience-based learning workshop that utilize one or more approaches, such as case discussions, role plays, computer simulations, management games or problem-solving exercises, and /or relatively unstructured group discussions .In some forms of training, the main objective is to provide an opportunity to derive insights from the dynamics of the sessions and from the feed back of other participants. In other forms of laboratory training, the major objective is to apply specific managerial and supervisory techniques to making decisions and taking action in simulated work situations. Trainees typically receive feedback about their decisions or actions. The knowledge and insight from such training are often supplemented by lectures.
Four approaches can provide the trainees with practice in making managerial
decisions. First, computer simulation models can be developed to simulate or
approximate various business situations. The simulation program generally provides the
trainee with information about a specific type of decision, such as forecasting the price of
key raw materials. The trainee then analyzes the situation and makes a decision. After
receiving the trainee’s decision, the simulation program can calculate the outcome and
provide feedback to the trainee. Although no computer model can completely simulate an
actual business situation, models can provide participants with sufficient realism to allow
practice applications without undue risk that the organization’s operations will be
disrupted or that the firm will lose money.
Second, gaming simulations (or management games) can be used. These are
management development exercises in which participants are given background
information, instructions about rules and conditions, and perhaps roles to play. One
example would be a complex computerized game in which competing groups make a
series of management decisions such as product price, sale of stock, wage rates, and
inventory size, and are given scores as they progress through a series of changes in the
economic environment. Another example-not computerized –is a consensus exercise in
which members of groups make individual decisions and then attempt to improve their
individual scores through effective group interaction. Such an exercise is used to
highlight the advantages of and problems with consensus decision making and to provide
a laboratory in which participants can examine group dynamics.
Third, case studies involve providing the trainees with written or videotaped
descriptions of decision-making situations. The case is subsequently discussed, with
emphasis normally on the trainees’ analyses, decisions, implications of those decisions,
and probable decision outcomes. Executive MBA programs, for example, are often based
on this method.
Fourth, role playing tends to be more appropriate for problems and decisions
having to do with human relations. Participants are typically provided with a specific
situation that they must analyze, and then each assumes and acts out the role of a specific
person. Since each role player brings his or her own personality to a given role, all
participants experience the realistic variability that managers actually encounter in real
job situations.
T-Groups
T-groups (derived from the term training groups), a form of laboratory training,
usually involve small groups, of approximately ten to twelve participants, meeting under
the guidance of trainer. (This type of training is also called sensitivity training, but this
term is frequently misapplied to training other then T-groups.) The groups are largely
unstructured in the sense that there is a very flexible agenda and a minimum of formal
leadership. The discussions are essentially unguided by the trainer, except that there is a
strong emphasis on learning about effective group development and processes,
developing more effective interpersonal skills, learning how to communicate feelings and
perceptions clearly and in constructive ways, and learning from the perception and
reactions of others.
Because of the self- disclosure and potential stress involved, it is very important
that T-groups be conducted by highly qualified professionals, and that participation be
voluntary. Further, it is recommended that these groups consist of ‘’strangers’’ that is,
people who are neither working in the same unit of an organization nor have a reporting
relationship.
Behavioral Modeling
Behavioral modeling (sometimes called interaction modeling) consists of
presenting or showing participants a particular behavior or way of doing something, such
as handling employee complaints, and then having the participants practice the behavior
through role playing. This approach may consist of six to twelve modules for small
groups in a series of two-or three-hour sessions spread over a few weeks or months.
Behavioral modeling emphasizes positive reinforcement for participants
demonstrating appropriate behaviors during the role playing. Whereas other training
approaches often address both effective and ineffective management techniques,
behavioral modeling usually addresses only useful and effective practices.
In-Basket Training consists of giving trainees a set of memos, letters, and other items that a manger might find in the in-basket upon arriving at work. The trainee is required to respond by
1. Delaying a decision about the issue,2. Referring the issue to someone else in the organization, or3. Making a decision about the issue. The trainer and the group then analyze the
responses to see whether any improvements can be made.The objective of in-basket training is to help trainees determine which decisions
can be made quickly, which must or should be delayed, and which should be management. In-basket training is also useful for teaching good time management, which is important enough in most managerial jobs to justify the cist of the training.
Outdoor-Based and Wilderness Programs In recent years, a significant number of companies have involved executives and other employees in outdoor-based and wilderness programs that have such objectives as fostering individual growth and development, increasing self-confidence and risk taking, and building leadership and teamwork skills. In outdoor-based programs, a permanent conference center is used for both indoor and outdoor learning. For example, participants may undertake some challenging physical, team-oriented task outdoors and then return indoors to debrief the experience. In most wilderness programs, the learning takes place in a wilderness area involving such activities as river rafting, mountain climbing, or scaling obstacles, with debriefing occurring at the campsite. Group discussions and sort lectures are usually included in both types of programs.
Although outdoor and wilderness programs enjoy considerable popularity, their contribution needs to be studied carefully. In particular, the extent to which participants can translate these outdoor experiences to their relationships and performance back on the job is a crucial matter. As in perhaps all experiential and laboratory learning, much depends on the skill of the trainers, the voluntary nature of the program, and the efforts made to modify the culture of organizations to accommodate the learning.
Part II Cooperative Law
Unit I
Framework of cooperative legislation
Cooperative principles
The ILO and the ICA, the only two universal organizations that promote the development
of cooperative societies, have elaborated the following cooperative principles.
o Voluntary open membership within the limits of the social objective defined in
the byelaws of the cooperative society in question and the right to freely
withdraw.
The interpretation of the open door principle, i.e. negative and positive non
discrimination as regards gender, social origin, race, political affiliation or
religion must take into account the associative character of cooperative societies.
The free will of the members to work together constitutes one of the keys of their
motivation. This is incompatible with any attempt to impose members.
o Self-determination (i.e. self-help, self-administration, self-responsibility) and
democratic control (“one member = one vote”).
o Economic contribution as a condition for membership and equitable participation
in the economic results independently of the amount of capital invested.
o Limited interests on capital (de-emphasized role of capital).
o Education, training and information.
o Identity principle (the members co-finance, co-own, co-administer, co-use and co
control their cooperative society).
o Service to the members and concern for the community.
The ICA added this last principle of "concern for the community" during its
Congress, held in Manchester in 1995. This does not mean that the debate on the
question if cooperatives should exclusively serve their members or if they should
also serve their communities is re-opened because nothing prevented the members
of a cooperative in the past from working in a voluntary manner in favor of their
community
According to the cooperative ideal, the well being of the community stems from
that of the members of cooperatives. Nevertheless, questions linked to the quality
of life, such as the dissipation of natural resources, the non-mastering of certain
technologies and the growing anonymization of decision making procedures etc.
require that the interests of the members of cooperatives be constantly redefined.
Whether emanating from the ICA or the ILO, these cooperative principles do not legally
bind the legislator. The ICA is a non-governmental organization whose decisions cannot
be imposed upon states, and the ILO recommendations do not have the mandatory
character of its conventions. This explains why these principles, elaborated on three
decades ago were not always respected. However, with the absence of the ideological
divide of the world attitudes have changed, and many countries now consider themselves
more at risk by not adhering to universally agreed principles. The cooperative movements
benefit from this evolution even though, at the same time, forces aim at limiting the
margin of their autonomy through cooperative legislation.
Undoubtedly international and regional, governmental and non-governmental cooperation
in cooperative reforms is working in favor of a universal consensus on these cooperative
principles. An international customary cooperative law is emerging. Thus, a country
which does not respect the principles established by the ICA and the ILO, not only risks
losing the support of these organizations and, consequently, that of others, but it also
risks losing the possibility of remaining or becoming a member of these organizations.
Socio-economic, political and administrative factors
In order to thrive, cooperative societies need a favorable political framework. The current
development model is based on economic and political freedom. Being democratic, the
state must ensure the respect for human and civil rights, the rule of law, the free choice of
one’s economic activity, free access to national and international markets, private
property as well as a clear distinction between the public and the private sector according
to the principle of subsidiary.
Apart from exercising the functions of registration, deregistration and general normative
control, the state in a market economy must not interfere in the economic affairs of
private agents and must maintain favorable conditions for their development.
This statement needs three clarifications:
1. This type of relationship between the state and cooperatives in a market economy
is not cooperative specific. It determines the legal nature of the cooperative law
and restrains the possibility to grant cooperatives preferential treatment.
2. After decades of interference in the affairs of cooperatives and in times where the
living conditions of disadvantaged people in a number of developing countries are
further deteriorating, the state must not withdraw completely and instantly.For
new and genuine cooperatives to develop without hindrance, cooperative policy
needs to be complemented by a policy of disengagement of the state and of
promotion of cooperative societies. The first should be conceived and applied
alongside the cooperative policy as such, because of its temporary and subsidiary
character.The birth of an authentic cooperative movement can only become
effective once the old system has been discharged. The redefinition of the role of
cooperatives must be accompanied by a fair redistribution of the assets and the
debts of the dissolved or restructured societies, taking into account, in particular,
the responsibility of the state in the past errors while preserving the interests of
the creditors.The gradual transfer of tasks to the cooperative movement means
that government personnel will have to be retrenched. The state will have to take
into account the problems related to this.It goes without saying that the
application of these necessary measures should be dealt with case by case,
associating the persons concerned with the decisions.
3. It would be an illusion to think that modern market economy needs only a simple
political and legal structure. Quite on the contrary, it can only function thanks to a
highly complex political and legal structure. A complex law can only maintain the
balance between non-intervention and a policy of laissez-faire, which would be
destructive in the long term to the system as a whole. The law must induce
maximum participation of private agents who should have the essential decision
making power in economic matters. With regard to cooperatives, this implies the
impossibility for decision makers to convert cooperatives into transmission belts
for national policies and, in particular, for policies accompanying structural
adjustment.The private character of cooperative law should thus prevent
cooperatives from being used as instruments for political; develop mentalist,
social or other goals. Any such use of cooperatives endangers their economic
efficiency.
This necessary redistribution of roles between the state, the cooperative movement and
other private actors might be facilitated by setting up a national council for cooperatives
which could reconcile state sovereignty with the independence of the cooperative
movement. Conceived as a forum, this council would in no case take on a mission of
tutelage.
The application of a policy of non-intervention in the economic activities of the private
sector depends essentially on the organization of the politico-administrative system and
the willingness of its office holders.
Thus, to the extent the constitutional system permits it, decentralization and
deconcentration should be favored, so that decisions can be taken and applied at the local
level where cooperatives mainly operate.
The administration of cooperatives by the state must be as restrained as that of the private
sector in general. Thus, for example, one single register for companies and cooperatives
could be envisaged.
Cooperative administration by the state is required to ensure the good functioning, at all
levels, of the tax administration, of the judiciary, of the banking system, the insurance
system and the promotion of chambers of commerce, industry and agriculture. These
institutions are all necessary for the good functioning of cooperatives as of other
enterprises.
In theory, the administration is only an instrument in the hands of the government.
Frequently, however, administrators acquire certain independence, going as far as to
oppose changes in orientation. The situation of the employees of the old state and
parastatal structures in charge of the control of cooperatives is particularly delicate since
the passage to market economy brings about a real revolution in their domain. The
transition from a more or less direct intervention in the management of dependent
cooperatives to the necessity to recognize cooperatives as independent structures by
applying more subtle rules requires flexibility and qualifications which administrators
have not always been prepared to exercise.
The systemic nature of the cooperative law
The cooperative law is part of cooperative legislation. The latter is constituted by all
normative, administrative and judicial acts having an influence on the formation, the
organization and the operation of cooperatives. Thus, the rule on the non discretional and
non discriminatory exercise of administrative power and on the justifiability of all public
acts, constitutional and administrative norms, rules on local and regional administration,
real estate and private law in general, irrigation, water, investment, commercial law,
company, tax, competition, labour, bankruptcy, and credit laws, regulations on imports,
exports and pricing, on contracts, inheritance, accountancy, banking, consumer protection
and social security, transports and marketing, etc. all form part of cooperative legislation.
The effectiveness and efficiency of the cooperative law therefore depends on the whole
legal system. When drafting the law the legislator must therefore make sure that other
legal provisions do not run counter to his project. It will be particularly important to be
vigilant regarding the provisions contained in social and labour laws, marked by the wish
to guarantee minimum social protection and to re-establish a balance between unequal
partners, something which is at times incompatible with the freedom of private agents.
Failing which, the self-determination of cooperatives might be in danger.
This approach requires resorting to a legal expert who looks after the compatibility of the
different texts. In general, the ministry of justice supervises the harmonization of the
laws.
Why a cooperative law?
In certain countries, such as Denmark and Norway, cooperative movements prosper
without being ruled by their own law. But there are no cooperative movements
prospering without cooperative legislation. Two main reasons may be given:
1. The existence of a cooperative law is a necessary but not a sufficient condition for
getting a cooperative policy to work. The rule of law is a fundamental element in
the new approach to development, which emphasizes the respect for human
rights. This presupposes that the legal relationship between citizens and the state
is founded on acts of parliament. International cooperation uses law, in an ever-
increasing manner, as a means of information and communication. Law is a
reference point and a guide mark.
2. In complex societies where social control can no longer be based on close
relationships, law has proven to be the most adequate means of regulating the
activities of economic agents who are not personally linked to each other.
For example, law establishes the criteria for the definition of legal persons, which
gives physical persons the possibility of avoiding personal, financial liability.
The duality of law is apparent here. It represents the just balance between the autonomy
of the Cooperators and the cooperatives on the one hand, and the scope of normative
control by the state on the other. At the same time, law is the instrument, which
establishes this balance.
The nature of cooperative law
The answer to the question of whether we are in the realm of public or in the realm of
private law and whether mainly externally provoked accelerated development requires a
specific law, defines the kind and scope of issues to be dealt with in a cooperative law.
Public law or private law?
The legal nature of the cooperative law depends on the definition of its object. If
cooperative legislation is to regulate the activity of the cooperative sector, it will be part
of public economic law and should include besides rules on the formation, structure,
operations and dissolution of cooperatives, rules on a tutelage authority and its powers. If,
on the other hand, it is only a question of proposing to potential Cooperators a mode of
organization, one finds oneself in the domain of private law.
The insertion of the cooperative law in one or the other of these fields reflects a political
choice. In the context of structural adjustment, private law is the logical choice since the
legislator is not seeking to interfere in the activities of cooperatives. In accordance with
ILO Recommendation No.127 (paragr.10 (a)), the law thus offers Cooperators a legal
framework, which will permit them to develop their activities in an autonomous manner.
Development law?
The history of cooperatives has been frequently marked by their being used as
instruments to serve the development goals of the state, be it socialist or capitalist.
Guided by the theories of “development of law” and of “law of development”, the
management of the cooperative sector by the state, originally meant to be provisional,
often became institutionalized. Public funding has brought about tighter control, thus
closing the vicious circle of government involvement and a growing dependence of the
cooperative system on the state.
No longer masters of their destiny, cooperatives have seen state officials survey their
formation and operations, define their activities or organize their vertical integration.
More concretely, the formation of cooperatives has often been characterized by:
o The obligation to limit their activities to a specified territory, coinciding more
often than not with the boundaries of administrative districts.
This obligation, allegedly for the sake of cooperatives' economic efficiency and
control by the government, not only contravened the freedom of the cooperative
movement, but it also contributed to its politicisation. By the same token, the
positive effects of competition on economic efficiency were excluded.
o Compulsory membership
Not only did individuals lose the possibility to constitute themselves freely
as cooperatives, but also they were, furthermore, obliged to join structures
established at the place of their residence.
Once these interventions were accepted, the interference would not stop there. State
administration intervened in the management of cooperatives more or less directly. For
example, it
o Organized general assemblies (GA) to establish cooperatives; sometimes it simply
created cooperatives ex nihilo;
o Held ordinary or extraordinary GAs, meetings of the board of directors and of
other organs, by delegating state representatives to sit in these sessions, which
sometimes had been convened directly by them;
o Took decisions normally made by the organs of the cooperative.
The personnel, elected or employed, found themselves under close supervision, regarding
their selection, their remuneration and their eventual "replacement" at times by state
commissioners.
Practically without a say in defining their field of activity and their internal functioning,
cooperatives were often
o Excluded from certain sectors, saw themselves assigned pre-determined
objectives, and even the services to be provided to their members and users were
the object of external decisions;
o Deprived of the choice of their activities, they were not free to dispose of their
resources. Loan, investment, and even decisions on the distribution of a surplus
had to be submitted for approval. Supposedly freezing the cooperative’s bank
account could sanction inefficient management.
To this a priori control, the administration would add an a posteriori control by auditing
the cooperatives directly or having them audited.
Not only did the administration interfere in the day-to-day management of primary
cooperatives, it also arbitrated the relationships between the different levels by
o Creating and running secondary and tertiary cooperative organizations; fusing and
dividing such structures; and
o Settling disputes without there being any possibility of an appeal to ordinary
tribunals.
On the other hand, cooperatives were allowed privileges in matters of taxation, access to
credit or state controlled support.
Such constraints and privileges can no longer be part of cooperative law. They are
incompatible with it belonging to the private law. Moreover, the law should regulate
existing social activities and not try to give birth to them.
Past experience with the above mentioned theories of “development of law” and
“development law” have not proven satisfactory. The legislator will, however, have to
respect the implications of the human right to development, foremost by allowing for
cultural diversity within the limits of cooperative principles.
Which instrument?
The autonomy of cooperatives will only be achieved by respecting the principle of
subsidiary. Originally conceived to promote vertical delegation of central state power,
this principle calls for each cooperative to be the master of its own decisions unless these
are of public concern or involve third party interests.
In this context the byelaws of cooperatives and their internal regulations have a
primordial role. Their elaboration contributes to strengthening the motivation of
Cooperators and thereby reinforcing the capacity of self-management. Only matters,
which surpass the competence of an individual cooperative, may be regulated through
norms, ranging from the constitution and laws, to decrees and other administrative acts.
According to the rule of law, law must regulate questions relating to cooperative
principles, whereas decrees or other administrative acts will operationalise the law.
Provisions of a temporary nature or those, which are subject to frequent changes, such as
rules on fixed interest rates, should not be inscribed in the law.
Once inscribed in the law, a rule cannot be cancelled unless there is a revision of the law.
Similarly, a text of any nature cannot nullify clauses contained in other texts of the same
order, which existed prior to the new legislation. This explains why the systemic
character of cooperative law should always be kept in mind.
One cooperative law or several laws?
Considering the diversity of self-help organizations in terms of activity, number of
members, level of development, needs, their degree of inter-relatedness with competitors
and other business organizations and the existence of several types of cooperatives
(producers’, service, consumer cooperatives) in all economic sectors, be they single- or
multi-purpose cooperatives, the legislator will have to decide whether to pass one single
law catering for their different aspects, possibly containing specific chapters for particular
cases, or whether to pass several laws. It is even possible that the civil code, the company
law and/or other fields of law make a specific cooperative legislation superfluous.
As already mentioned however, in no event may the legislator allow for essential matters
to be regulated trough administrative acts, by stipulating in excessively general terms.
Taking into account the advantages and inconveniences of the different alternatives,
resorting to a single law including, if necessary, specific chapters dealing with particular
types or activities of cooperatives, seems to be the best solution. It .....
o Guarantees the autonomy of cooperatives because of its inevitably general
character;
o Reduces bureaucracy;
o Favors the unity of the cooperative movement; and finally
o Guarantees legal security for those dealing with cooperatives
Language of the cooperative law
It is not unusual that the primary addressees of the cooperative law neither master the
official language in which the text is written, nor understand the legal terminology.
The promulgation of the law in vernacular languages, the use of an accessible style or the
adoption of a law that one can understand without having, in as far as possible, to resort
to other texts, are some of the means to improve access to the cooperative law. However,
the cooperative law must not be an exception. Its language must be consistent with that
of the other legal texts so as to ensure the uniformity of the legal system.
Unless one wants to instigate a revolution at the level of the language of the law, an
understanding of the law, a prerequisite for its acceptance, must be reached by through
popularization, which is not a simple question of translation.
Format of the Cooperative law
The format of the cooperative law might seem of secondary importance. Nevertheless, it
must be noted that form and content are one.
A brief law, defining an organizational framework for cooperatives only, necessarily
refers to other provisions, making it less intelligible and therefore relatively difficult to
apply. From practical point of view, a detailed law thus seems preferable. However, such
a text risks impeding the autonomy of cooperatives by limiting notably the role of their
bye-laws. On the other hand, it prevents the excessive resort to administrative decisions.
The dimension of time has to be taken into consideration as well. Very often cooperative
laws have been marked by too detailed texts, which become inapplicable because of
frequent political changes.
An ABC of a Cooperative Law
Starting with their formation and ending with their dissolution cooperatives are subject to
legislation. Their internal functioning as well as their dealings with third parties have to
be regulated.
As a rule, the byelaws recapitulate and specify the main points of the law and relevant
administrative acts.
The following main topics of a cooperative law be presented here:
Contents of a Cooperative law
Preamble; General, registration and publication; Obligations and rights of members; Organs and management of the cooperative society; Capital formation, accounts and distribution of results; Audit; Forms of dissolution; Simplified structures; Vertical integration; Dispute settlement; Miscellaneous, transitory and final provisions.
Unit II
Promotion of Cooperatives Recommendation (2002)
International Labour Conference (20 June 2002)
Recommendation 193
CONTENTS
Preamble
I. Scope, Definition and Objectives
II. Policy Framework and Role of Government
III. Implementation of Public Policies for the Promotion of Cooperatives
IV. Role of Employers' and Workers' Organizations and Cooperative
Organizations, and Relationships between them
V. International Cooperation
VI. Final Provision
Annex: Statement of Cooperative Identity
Further Information
Preamble
The General Conference of the International Labour Organisation (ILO),
Having been convened at Geneva by the Governing Body of the International Labour
Office, and having met in its 90th Session on 3 June 2002, and
Recognising the importance of cooperatives in job creation, mobilising resources,
generating investment and their contribution to the economy, and
Recognising that cooperatives in their various forms promote the fullest participation in
the economic and social development of all people, and
Recognising that globalisation has created new and different pressures, problems,
challenges and opportunities for cooperatives, and that stronger forms of human
solidarity at national and international levels are required to facilitate a more equitable
distribution of the benefits of globalisation, and
Noting the ILO Declaration on Fundamental Principles and Rights at Work, adopted by
the International Labour Conference at its 86th Session (1998), and
Noting the rights and principles embodied in international labour Conventions and
Recommendations, in particular the Forced Labour Convention, 1930; the Freedom
Association and Protection of the Right to Organise Convention, 1948; the Right to
Organise and Collective Bargaining Convention, 1949; the Equal Remuneration
Convention, 1951; the Social Security (Minimum Standards) Convention, 1952; the
Abolition of Forced Labour Convention, 1957; the Discrimination (Employment and
Occupation) Convention, 1958; the Employment Policy Convention, 1964; the Minimum
Age Convention, 1973; the Rural Workers' Organisations Convention and
Recommendation, 1975; the Human Resources Development Convention and
Recommendation, 1975; the Employment Policy (Supplementary Provisions)
Recommendation, 1984; the Job Creation in Small and Medium-Sized Enterprises
Recommendation, 1998; and the Worst Forms of Child Labour Convention, 1999, and
Recalling the principle embodied in the Declaration of Philadelphia that "labour is not a
commodity", and
Recalling that the realisation of decent work for workers everywhere is a primary
objective of the International Labour Organisation (ILO), and
Having decided upon the adoption of certain proposals with regard to the promotion of
cooperatives, which is the fourth item on the agenda of the session, and
Having determined that these proposals shall take the form of a Recommendation;
Adopts this twentieth day of June of the year two thousand and two the following
Recommendation, which may be cited as the Promotion of Cooperatives
Recommendation, 2002.
I. Scope, Definition and Objectives
1. It is recognized that cooperatives operate in all sectors of the economy. This
Recommendation applies to all types and forms of cooperatives.
2. For the purposes of this Recommendation, the term "cooperative" means an
autonomous association of persons united voluntarily to meet their common economic,
social and cultural needs and aspirations through jointly owned and democratically
controlled enterprise.
3. The promotion and strengthening of the identity of cooperatives should be encouraged
on the basis of:
a) cooperative values of self-help, self-responsibility, democracy, equality, equity and
solidarity; as well as ethical values of honesty, openness, social responsibility and caring
for others; and
b) cooperative principles as developed by the international cooperative movement and
referred to in the Annex hereto. These principles are: voluntary and open membership;
democratic member control; member economic participation; autonomy and
independence; education, training and information; cooperation among cooperatives; and
concern for community.
4. Measures should be adopted to promote the potential of cooperatives in all countries,
irrespective of their level of development, in order to assist them and their membership
to:
a) create and develop income-generating activities and sustainable decent employment;
b) develop human resource capacities and knowledge of the values, advantages and
benefits of the cooperative movement through education and training;
c) develop their business potential, including entrepreneurial and managerial capacities;
d) strengthen their competitiveness as well as gain access to markets and to institutional
finance;
e) increase savings and investment;
f) improve social and economic well-being, taking into account the need to eliminate all
forms of discrimination;
g) contribute to sustainable human development; and
h) establish and expand a viable and dynamic distinctive sector of the economy, which
includes cooperatives, that respond to the social and economic needs of the community.
5. The adoption of special measures should be encouraged to enable cooperatives, as
enterprises and organisations inspired by solidarity, to respond to their members' needs
and the needs of society, including those of disadvantaged groups in order to achieve
their social inclusion.
II. Policy Framework and Role of Government
6. A balanced society necessitates the existence of strong public and private sectors, as
well as a strong cooperative, mutual and the other social and non-governmental sector. It
is in this context that Governments should provide a supportive policy and legal
framework consistent with the nature and function of cooperatives and guided by the
cooperative values and principles set out in Paragraph 3, which would:
a) establish an institutional framework with the purpose of allowing for the registration of
cooperatives in as rapid, simple, affordable and efficient a manner as possible;
b) promote policies aimed at allowing the creation of appropriate reserves, part of which
at least could be indivisible, and solidarity funds within cooperatives;
c) provide for the adoption of measures for the oversight of cooperatives, on terms
appropriate to their nature and functions, which respect their autonomy, and are in
accordance with national law and practice, and which are no less favourable than those
applicable to other forms of enterprise and social organisation;
d) facilitate the membership of cooperatives in cooperative structures responding to the
needs of cooperative members; and
e) encourage the development of cooperatives as autonomous and self-managed
enterprises, particularly in areas where cooperatives have an important role to play or
provide services that are not otherwise provided.
7.1 The promotion of cooperatives guided by the values and principles set out in
Paragraph 3 should be considered as one of the pillars of national and international
economic and social development.
7.2 Cooperatives should be treated in accordance with natural law and practice and on
terms no less favourable than those accorded to other forms of enterprise and social
organisation. Governments should introduce support measures, where appropriate, for the
activities of cooperatives that meet specific social and public policy outcomes, such as
employment promotion or the development of activities benefiting disadvantaged groups
or regions. Such measures could include, among others and in so far as possible, tax
benefits, loans, grants, access to public works programmes, and special procurement
provisions.
7.1 Special consideration should be given to increasing women's participation in the
cooperative movement at all levels, particularly at management and leadership levels.
8.1 National policies should notably:
a) promote the ILO Fundamental Labour Standards and the ILO Declaration on
Fundamental Principles and Rights at Work, for all workers in cooperatives without
distinction whatsoever;
b) ensure that cooperatives are not set up for, or used for, non-compliance with labour
law or used to establish disguised employment relationships, and combat pseudo
cooperatives violating workers' rights, by ensuring that labour legislation is applied in all
enterprises;
c) promote gender equality in cooperatives and in their work;
d) promote measures to ensure that best labour practices are followed in cooperatives,
including access to relevant information;
e) develop the technical and vocational skills, entrepreneurial and managerial abilities,
knowledge of business potential, and general economic and social policy skills, of
members, workers and managers, and improve their access to information and
communication technologies;
f) promote education and training in cooperative principles and practices, at all
appropriate levels of the national education and training systems, and in the wider
society;
g) promote the adoption of measures that provide for safety and health in the workplace;
h) provide training and other forms of assistance to improve the level of productivity and
competitiveness of cooperatives and the quality of goods and services they produce;
i) facilitate access of cooperatives to credit;
j) facilitate access of cooperatives to markets;
k) promote the dissemination of information on cooperatives; and
l) seek to improve national statistics on cooperatives with a view to the formulation and
implementation of development policies.
10.1 Such policies should:
a) decentralise to the regional and local levels, where appropriate, the formulation and
implementation of policies and regulations regarding cooperatives;
b) define legal obligations of cooperatives in areas such as registration, financial and
social audits, and the obtaining of licences; and
c) promote best practice on corporate governance in cooperatives.
9. Governments should promote the important role of cooperatives in transforming what
are often called marginal survival activities (sometimes referred to as the "informal
economy") into legally protected work, fully integrated into mainstream economic life.
III. Implementation of Public Policies for the Promotion of Cooperatives
10.1 Member States should adopt specific legislation and regulations on cooperatives,
which are guided by cooperative values and principles, set out in Paragraph 3, and revise
such legislation and regulations when appropriate.
10.2 Governments should consult cooperative organizations, as well as the employers'
and workers' organizations concerned, in the formulation and revision of legislation,
policies and regulations applicable to cooperatives.
11.1 Governments should facilitate access of cooperatives to support services in order to
strengthen them, their business viability and their capacity to create employment and
income.
11.2 These services should include, wherever possible:
a) human resource development programmes;
b) research and management consultancy services;
c) access to finance and investment;
d) accountancy and audit services;
e) management information service;
f) information and public relations services;
g) consultancy services on technology and innovations;
h) legal and taxation services;
i) support services for marketing; and
j) other support services where appropriate.
11.4 Governments should facilitate the establishment of these support services.
Cooperatives and their organizations should be encouraged to participate in the
organization and management of these services and, wherever feasible and appropriate, to
finance them.
11.5 Governments should recognize the role of cooperatives and their organizations by
developing appropriate instruments aimed at creating and strengthening cooperatives at
national and local levels.
12. Governments should, where appropriate, adopt measures to facilitate the access of
cooperatives to investment finance and credit. Such measures should notably:
a) allow loans and other financial facilities to be offered;
b) simplify administrative procedures, remedy any inadequate level of cooperative assets,
and reduce the cost of loan transactions;
c) facilitate an autonomous system of finance for cooperatives, including savings and
credit, banking and insurance cooperatives; and
d) include special provisions for disadvantaged groups.
13. For the promotion of the cooperative movement, governments should encourage
conditions favoring the development of technical, commercial and financial linkages
among all forms of cooperatives so as to facilitate an exchange of experience and the
sharing of risks and benefits.
IV. Role of Employers' and Workers' Organizations and Cooperative Organizations,
and Relationships between them
14. Employers' and workers' organizations, recognizing the significance of cooperatives
for the attainment of sustainable development goals, should seek, together with
cooperative organizations, ways and means of cooperative promotion.
15. Employers' organizations should consider, where appropriate, the extension of
membership to cooperatives wishing to join them and provide appropriate support
services on the same terms and conditions applying to other members.
16. Workers' organizations should be encouraged:
a) advise and assist workers in cooperatives to join workers' organizations;
b) assist their members to establish cooperatives, including with the aim of facilitating
access to basic goods and services;
c) participate in committees and working groups at the local, national and international
levels that consider economic and social issues having an impact on cooperatives;
d) assist and participate in the setting up of new cooperatives with a view to the creation
or maintenance of employment, including in cases of proposed closures of enterprises;
e) assist and participate in programmes for cooperatives aimed at improving their
productivity;
f) promote equality of opportunity in cooperatives;
g) promote the exercise of the rights of worker-members of cooperatives; and
h) undertake any other activities for the promotion of cooperatives, including education
and training.
17 Cooperatives and organizations representing them should be encouraged to:
a) establish an active relationship with employers' and workers' organizations and
concerned governmental and non-governmental agencies with a view to creating a
favorable climate for the development of cooperatives;
a) manage their own support services and contribute to their financing;
b) provide commercial and financial services to affiliated cooperatives;
c) invest in, and further, human resource development of their members, workers and
managers;
d) further the development of and affiliation with national and international cooperative
organizations;
e) represent the national cooperative movement at the international level; and
f) undertake any other activities for the promotion of cooperatives.
V. International Cooperation
18 International cooperation should be facilitated through:
a) exchanging information on policies and programmes that have proved to be effective
in employment creation and income generation for members of cooperatives;
b) encouraging and promoting relationships between national and international bodies
and institutions involved in the development of cooperatives in order to permit:
(i) the exchange of personnel and ideas, of educational and training materials,
methodologies and reference materials;
(ii) the compilation and utilization of research material and other data on cooperatives
and their development;
(iii) the establishment of alliances and international partnerships between cooperatives;
(iv) the promotion and protection of cooperative values and principles; and
(v) the establishment of commercial relations between cooperatives;
c) access of cooperatives to national and international data, such as market information,
legislation, training methods and techniques, technology and product standards; and
d) developing, where it is warranted and possible, and in consultation with cooperatives,
employers' and workers' organizations concerned, common regional and international
guidelines and legislation to support cooperatives.
VI. Final Provision
19 The present Recommendation revises and replaces the Co-operatives (Developing
Countries) Recommendation, 1966.
Further Information
For further information contact:
Cooperative Branch,
Job Creation and Enterprise Development Department,
International Labour Organization,
4 route des Morillons,
CH-1211 Geneva 22,
Switzerland.
E-mail: [email protected]
Unit IV
Cooperative societies Proclamation No. 147/98 with Amendment
No. 402/2004 and 106/2004
PROCLAMATION NO 147/1998
A PROCLAMATION TO PROVIDE FOR THE ESTABLISHMENT OF
COOPERATIVE SOCIETIES
WHEREAS, it has become necessary to establish cooperative societies which are formed
by individuals on voluntary basis and who have similar needs for creating savings and
mutual assistance among themselves by pooling their resources, knowledge and property;
WHEREAS, it has become necessary to enable cooperative societies to actively
participate in the free market economic system;
WHEREAS, it has become imperative to issue a comprehensive legislation by which
cooperative societies are organized and managed in order to achieve the above-mentioned
objectives;
NOW, THEREFORE, in accordance with Article 55 (1) of the Constitution of the Federal
Democratic Republic of Ethiopia, it is hereby proclaimed as follows:
PART ONE
GENERAL
1. Short Title
This Proclamation may be cited as the "Cooperative Societies Proclamation No.
147/1998."
2. Definitions
In this Proclamation unless the context otherwise requires:
1/ "Society" means a cooperative society established and registered in accordance with
this Proclamation and it shall in particular include the following:
(a) Agricultural Cooperative Societies;
(b) Housing Cooperative Societies;
(c) Industrial and Artisans Producers’ Cooperative Societies;
(d) Consumers Cooperative Societies;
(e) Savings and credit Cooperative Societies;
(f) Fishery Cooperative Societies;
(g) Mining Cooperative Societies.
2/ "Cooperative Society" means a society established by individuals on voluntary basis to
collectively solve their economic and social problems and to democratically manage
same;
3/ "Member" means any physical person, or society established under this proclamation,
which is registered after fulfilling his membership obligations.
4/ "General Assembly" means a meeting of members of the Primary Cooperative society
or representatives of societies above primary level:
5/ "Special resolution" means a resolution passed by a two third majority of the members
to be binding on all members;
6/ "Management Committee" means a body elected and empowered by the
General Assembly with the responsibility to manage the activities of the society;
7/ "Appropriate Authority" means an organ established at federal level, or a bureau or an
organ established for the same purpose at Regional or city Administration level, to
organize and register cooperative societies and to give training, conduct research and
provide other technical assistances to cooperative societies.
8/ "Person" means a natural or juridical person.
3. Where the provisions of the Proclamation are set out in the masculine gender they
apply equally to the feminine gender.
4. Objectives of the Society
The society to be established under this proclamation shall have one or more of the
following objectives:
1/ to solve problems collectively which members cannot individually achieve;
2/ to achieve a better result by coordinating their knowledge, wealth and labour;
3/ to promote self-reliance among members;
4/ to collectively protect, withstand and solve economic problems;
5/ to improve the living standards of members by reducing production and service
costs by providing input or service at a minimum cost or by finding a better price
to their products or services;
6/ to expand the mechanism by which technical knowledge could be put in to
practice;
7/ to develop and promote savings and credit services;
8/ to minimize and reduce the individual impact of risks and uncertainties;
9/ to develop the social and economic culture of the members through education
and training.
5. Guiding Principles of Co-operative Societies
1/ Co-operative societies are voluntary organizations open to all persons able to
use their services and willing to accept the responsibilities of membership without
gender, social, racial, political or religious discrimination.
2/ Co-operative societies are democratic organizations controlled by their
members who actively participate in setting their policies and making decisions.
Every member has equal voting rights and accordingly one member shall have
one vote.
3/ Members shall receive dividends from profit according to their shares and
contribution after deducting and setting aside an amount necessary for reserve and
social services.
4/ Co-operative societies are autonomous self-help organizations controlled by
their members. If they enter into agreement with other organizations, including
governments or raise capital from external sources, shall do so on terms that
ensure democratic control by their members and maintain their autonomy.
5/ Co-operative societies provide education and training for their members,
elected representatives, managers and employees so as to enable them to
contribute effectively to the development of their societies. They inform the
general public, particularly youth about the nature and benefit of societies.
6/ Co-operative societies serve their members most effectively and strengthen the
societies movement by working together through local, national, regional and
international structures.
7/ Co-operative societies work for the sustainable development of their
communities through policies approved by their members.
PART TWO
FORMATION AND REGISTRATION OF CO-OPERATIVE SOCIETIES
6. Formation of Co-operative Societies
1/ Co-operative societies may, according to their nature, be established at
different levels from primary up to the federal level.
2/ A primary society shall be established by persons who live or work within a
given area.
3/ The number of members in a primary society to be established shall not be less
than ten.
4/ Notwithstanding Sub-Article (2) of this Article, the appropriate authority may
specify in the directive, the minimum number of members that could make a
society economically feasible.
5/ A society may sell some of its shares to persons outside its area when the
society faces shortage of capital.
7. Types of Societies
1/ A society may engage in either production or service rendering activities or in
both.
2/ The field of activities to be engaged in by any society shall be determined by
the by-laws of the society.
8. Name of a society
1/ Any society shall have its own name.
2/ The words "Cooperative Society and Limited Liability" shall appear in the
name of every society.
3/ A name or distinguishing mark registered by one society shall not be used by
any other society;
4/ The name of every society shall be written boldly and be put at every place
where the society’s activities are performed. It should also be written or sealed on
every notices letters, other specifications and documents which are signed on
behalf of the society.
9. Registration of a Co-operative society
1/ Any society shall be registered by the appropriate authority;
2/ Any society, when established, shall submit an application for registration
together with the following particulars to the appropriate authority:
(a) minutes of the founders meeting;
(b) the by-laws of the society in three copies;
(c) names, address and signature of the members;
(d) name, address and signature of the members of the management
committee of the society;
(e) a detailed description which proves that the registered members of the
society have met the requirements for membership in accordance with the
provisions of this Proclamation and the by-laws of the society;
(f) name, address and signature of members of the societies above primary
level;
(g) plan of the society;
(h) documents showing that the amount of capital of the society and the
capital has been collected and deposited in a bank account, if there is no
bank in the area, that it has been deposited in a place where the
appropriate authority has designated;
(i) the description of the land on which the society operates;
(j) other particulars that may be specified in the regulations or directives
issued for the implementation of this Proclamation.
3/ The appropriate authority shall register a society and issue a certificate of
registration within 15 days when it is satisfied that the application for registration
submitted to it has fulfilled the requirements for registration.
4/ When the appropriate authority rejects the application for the registration of a
society, it shall give a written explanation to the representatives of the society
within 15 days. The representatives may appeal to the high court which has
jurisdiction on the decision of the appropriate authority.
5/ The certificate of registration issued to a society pursuant to Sub-Article (3) of
this Article is an evidence to prove that a society is registered in accordance with
this Proclamation.
10. Juridical Personality and Responsibility
1/ Any society registered in pursuance of Article 9 of this Proclamation shall have
juridical personality as of the date of its registration.
2/ Any society shall not be liable beyond its total asset. It has limited liability.
11. By-laws of Society
1/ Every society shall have its own by-laws:
2/ The contents of the by-laws shall include the following particulars:-
(a) name and address of the society;
(b) objectives and activities of the society;
(c) working place (area) of the society;
(d) requirements necessary for membership of the society;
(e) the rights and duties of the members of the society;
(f) the powers, responsibilities, and duties of management bodies;
(g) conditions for withdrawal and dismissal from membership;
(h) conditions for re-election, appointment, term of office and suspension
or dismissal of the members of the management committee or other
management bodies;
(i) conditions for calling of meeting and voting of the society;
(j) allocation and distribution of profit;
(k) auditing;
(l) employment of workers;
(m) other particulars not contrary to this Proclamation.
3/ By-laws of a society may be amended by the special resolution of the general
assembly. However, the amendment of the by-laws of the society shall be
effective on the date of its submission to and registration by the appropriate
authority.
4/ Where the Society decides on the amendment of its by-laws three copies of the
amendment and the special resolution of the society made in accordance with this
Proclamation shall be submitted to the appropriate authority within 30 days from
the date of the decision.
5/ The appropriate authority shall register the amendment and give evidence or its
registration to the society where it is satisfied that the amendment of the by-laws
was made in accordance with this Proclamation and regulations issued for the
implementation of this Proclamation.
12. Amalgamation and Division of Societies
1/ Without prejudice to Article 6(3) and (4) of this Proclamation, the general
assembly of a society through a special resolution may form a new society:
(a) by dividing itself into two or more societies; or
(b) by amalgamating itself with one or more societies.
2/ The special resolution on the amalgamation or division of the society shall be
effective on the date of its registration by the appropriate authority upon verifying
that:
(a) the members and creditors of the society fully agree to the
amalgamation or division; or
(b) the members and creditors that do not agree have been paid off or
their payment is guaranteed.
3/ The previous registration of societies shall be canceled from the register as
soon as the newly formed society by amalgamation or by division are registered.
4/ The rights and duties of societies which have lost their identities by
amalgamation shall be transferred to the newly formed society.
5/ The rights and duties of a society which has lost its identity by division shall be
transferred to the newly formed societies as specified in Sub-Article (2) of this
Article.
PART THREE
THE RIGHTS AND DUTIES OF MEMBERS OF A SOCIETY
13. Requirements Necessary for Membership of a society
Any individual may become a member of a society where:
1/ he has attained the age of 14 if it is a primary society;
2/ he is able to pay the share capital and registration fee required by the
society;
3/ he is willing to implement his obligation and observe the objectives and by-
laws of the society;
4/ he fulfills other requirements which may be specified in the regulations and
directives issued for the implementation of this Proclamation;
5/ it is registered with the appropriate authority if it is a society above the
primary society.
14. Rights and Duties of Members
1/ Any member of a society shall have the following rights:
(a) to obtain services and benefits according to his participation in the
society;
(b) to participate in the meetings of the society and to vote;
(c) to elect and be elected;
(d) to withdraw from the society on his request with payment of benefits.
2/ Any member of a society shall have the following duties:
(a) to respect the by-laws, directives and decisions of the society;
(b) to perform those activities which ought to be performed in accordance
with the by-laws and directives of the society ;
(c) to pay for share of capital and registration fee;
(d) to protect the common property of the society.
15. Dismissal from Membership
1/ Any member of a society may leave the society on his own initiative;
2/ Any member of a society may leave the society when it is decided by the
general assembly to dismiss him from the society because of committing repeated
faults;
3/ The rights of any dismissed member shall be respected in accordance with the
by-laws of the society;
4/ Without prejudice to the provisions of Article 13 hereof, any dismissed person
may reapply for membership. However a member dismissed in accordance with
Sub-Article (2) of this Article may become a member of the society only if he
obtains the approval of the general assembly.
16. Payment of Shares
1/ The capital which enables the society to expand its work activities shall be
obtained from paid up shares of each member in accordance of the decision of the
General Assembly;
2/ The society may sell additional shares if it is found necessary to promote the
financial capacity of the society subject to the decision of the general assembly;
3/ No member shall hold more than 10% of the total paid up share capital of such
society.
17. Register of Members
Every society shall keep a register wherein shall be entered:
1/ the name, address, occupation, age and sex of each member;
2/ the date on which he became a member or ceased to be a member;
3/ the amount of shares held and the registration fee paid, by each member;
4/ the name and address of the heir of the member;
5/ any other particulars that may be specified in the by-laws.
18. Voting
1/ Every member shall, regardless of the number of shares he has, have only
one vote at the meeting of the society;
2/ Every member in a primary society shall personally be present at the meeting
of the society to cast a vote;
3/ Members of a society above primary level shall cast a vote through their
representatives.
19. Transfer of Share or Benefit
1/ No transfer by a member of his share or benefit in a society shall be valid
unless:-
(a) the member has held such share or benefit for at least one year before
he transfers;
(b) the transfer is approved by the management committee.
2/ On the death of a member of a primary society, his share or benefit shall be
transferred to one of his heirs designated as such in the register of society or
failing such designation to his legal heir at law, and where such heir is a member
or is willing to be a member.
3/ Where such heir is not a member and does not wish to become or is not
admitted as a member, he shall be paid the value of the share or benefit of the
deceased member.
4/ If the shares or benefit to be transferred to a member under Sub-Article (2) of
this Article are found to be beyond the limitation prescribed in Sub-Article (3) of
Article 16 hereof, the member shall be paid the difference in cash.
5/ The transfer or payment concluded in pursuance of Sub-Article (2) of this
Article shall not be reversed due to the claims paused by third parties on the
society.
PART FOUR
Management Bodies
20. Supreme Organ of a Society
The supreme organ of any society shall be the General Assembly.
21. Powers and Duties of the General Assembly
The General assembly of a society shall:
1/ pass decisions after evaluating the general activities of the societies;
2/ approve and amend the by-laws and internal regulations of the society;
3/ elect and dismiss the members of the management committee, control
committee and when necessary the members of other sub -committees;
4/ determine the amount of shares of the society;
5/ decide on how the annual net profit of the society is distributed;
6/ give decision on the audit report;
7/ hear work reports and give proper decision;
8/ decide that a society either be amalgamated with another society or be
divided in pursuance of this proclamation;
9/ approve the annual work plan and budget;
10/ decide any issue submitted by the management committee and other
committees.
22. Calling of General Assembly
1/ The general assembly shall meet at least once in a year;
2/ If the management committee or one-third of the members of the general
assembly require a meeting to be called, an emergency meeting may be held by
giving 15 days prior notice.
3/ Where the management committee fails to call an emergency general assembly
in accordance with Sub-Article (2) of this Article such meeting shall be called by
the appropriate authority and shall in such case be deemed to have been called by
the management committee.
23. Management Committee
1/ Every society shall have a management committee which is accountable to the
general assembly and whose members and manner of election to be determined in
the by-laws of the society.
2/ The term of office of the management committee shall be three years.
3/ Members of the management committee shall not be elected for more than two
consecutive terms. They may be dismissed at any time by the general assembly.
4/ When members of the management committee leave their office for whatever
reasons, they have the obligation to submit for inspection the activities they
performed during their term of office.
24. Powers and Duties of the Management Committee
The powers and duties of the management committee shall be determined in pursuance of
the by-laws and in particular shall include the following:
1/ maintain the minutes of a meeting in writing;
2/ maintain the documents and books of accounts of the society;
3/ prepare the annual work programme and budget of the society; implements
same upon approval;
4/ call the general assembly in accordance with the by-laws of the society;
5/ execute such other decisions given by the general assembly;
6/ submit reports to the general assembly on the activities of the society.
25. Control Committee
1. Every society shall have a control committee which is accountable to the
General Assembly and the number of which shall be specified by the by-laws of
the society;
2. The term of office of members of the committee shall be three years. No
members of the control committee shall be elected for more than two consecutive
terms. They may, while in term of office, be dismissed by the General Assembly.
26. Powers and Duties of the Control Committee
The Control Committee:
1/ follows up that the management committee is carrying out its responsibilities
properly;
2/ follows up that the funds and property of the society is properly utilized;
3/ controls that the various activities of the society are carried out pursuant to the
by-laws and internal regulations of the society;
4/ performs other duties given by the general assembly.
27. Other Sub-Committees
Other sub-committees may be established pursuant to the by-laws of the society.
PART FIVE
Special Privileges of Society
28. Priority of Claims by Society
Notwithstanding any provision to the contrary in any law, debts owed to the society by a
member shall take precedence over all other debts, except the debt owed to the
Government.
29. Set-off in respect of Share or Benefit of Members
The shares or benefits of any member may be set-off for debts due to the society from
such a member.
30. Share or Benefit not Liable to Attachment or Sale
Except as provided in Article 29 hereof, the share or benefit of a member in the a society
shall not be liable to attachment or sale.
31. Government Assistance
1/ Without prejudice to incentives permitted under Investment laws and other
laws, Societies which are organized and registered under this Proclamation shall
be entitled to the following:
(a) to be exempted from income tax; provided however, members shall
pay income tax on their dividends;
(b) to acquire land as determined by a Region or a City accountable to the Federal Government;
(c) to receive other assistance from the Federal Government or Regional
Government or City administration accountable to the Federal
Government.
2/ An institute responsible for promoting cooperative movement, rendering man-power
training and conducting studies and research shall be established.
PART SIX
Asset and Funds Societies
32. Indivisibility of Asset and Fund of Society not Divisible
Except as otherwise prescribed under Article 33(2) and 44 of this Proclamation, the asset
and fund of a society shall not be divided for the members or any other party.
33. Allocation of Net Profit
1/ The society shall deduct 30% of the net profit obtained and allocate for the following
purposes in accordance with the terms and conditions set forth in the by-laws and plan
issued from time to time by the society:-
(a) for reserve;
(b) for the expansion of work;
(c) for social services.
2/ After the amount prescribed in Sub-Article (1) is deducted the remaining net profit
shall be divided among the members; the division shall be made on the basis of the shares
the members have in the society and on the amount of goods offered for the sale to the
society or goods purchased from the society by members of the society.
34. Restrictions on Borrowings
1/ A society shall receive loans from its members or other organizations to such extent
and on such conditions as may be specified in the by-laws of the society.
2/ Interest on loans received from its members shall not exceed the current
interest rate of a bank.
35. Restrictions on Loans
A society shall not extend loans other than to its members or a society established under
this Proclamation.
PART SEVEN
Audit and Inspection
36. Audit
1/ The appropriate authority shall audit or causes to be audited by a person assigned by it,
the accounts of any society at least once in a year.
2/ The audit conducted pursuant to sub-Article (1) of this Article shall include the
examination and verification of overdue debts, if any, and cash balance, securities and
assets, and liabilities.
3/ The audit report shall be submitted to the General Assembly.
37. Inspection
1/ The appropriate authority may, make or cause to be made by such person to be
assigned by it an inspection to the organization, work execution, documents and financial
condition of a society.
2/ Without prejudice to Sub-Article (1) of this Article, inspection may be made when:
(a) a majority of the members of the executive committee request;
(b) not less than one-third of the total number of members of the society request.
38. Keeping Audit and Inspection Results
Audit and Inspection results conducted pursuant to Article 36 and 37 of this Proclamation
shall be kept in the office of the authority and the society, open and easily accessible to
everyone.
39. Actions to be Taken for Losses of Property or Fund of the Society
1/ The auditor or inspector shall make a report to the management committee or the
general assembly or the appropriate authority, as the case may be, where the person who
is or was entrusted with the management of the society or who is or has been an officer or
an employee of the society, and who, in the course of an audit or inspection has been
found to have committed the following acts:
(a) had made any payment contrary to this Proclamation, the regulations or the
by-laws;
(b) had caused any damages to the assets of the society by breach of trust or
willfully or negligently;
(c) has misappropriated the properties of the society.
2/ The appropriate authority who received the report pursuant to Sub-Article (1) of this
Article shall give the person concerned an opportunity to present his defense within
fifteen days.
3/ After fulfilment of the above mentioned conditions, the appropriate authority shall ask
the person who has been found responsible for misappropriation of the fund or property
of the society to return or pay same with interest including compensation and damages.
Where the person concerned is not willing to do so, the authority shall take the
appropriate legal measure.
PART EIGHT
Dissolution and winding up of Societies
40. Dissolution of a Society
A Society shall be dissolved on the following grounds:
1/ Where a special resolution for its dissolution is given by the members; or
2/ Without prejudice to Article 6 (4) hereof, where the number of members of a primary
society falls below ten.
3/ Without prejudice to sub-Articles (1) and (2) of this Article, a society the dissolution of
which is decided shall notify same to the appropriate Authority within seven days from
the decision for its dissolution.
41. Liquidator
1/ Where the dissolution of a society has been decided upon pursuant to Article 40 of this
Proclamation, the appropriate authority may, assign a liquidator. It may, if necessary,
determine that his remuneration be paid out of the accounts of the society.
2/ The liquidator shall receive records, documents and properties of the society as soon as
he is assigned. He shall also take the necessary measures to protect the properties and
rights, records and documents of the society from damages.
42. Powers and Duties of the Liquidator
1/ The liquidator shall have all the necessary powers to complete the winding up
proceedings. He shall in particular perform the following in order to carry out his duties
properly.
(a) investigate all claims against the society and decide on priority of payment
among them;
(b) collect the assets of the society;
(c) distribute the assets in accordance with the plan of liquidation approved by the
general meeting of the society;
(d) carry on the work activities of the society in so far as may be necessary for the
proper liquidation of the affairs of the society;
(e) represent the society in legal proceedings;
(f) call meetings of the members as may be necessary for the proper conduct of
the liquidation.
2/ The liquidator shall issue notice in a newspaper, before the distribution of the property
of the society takes place in accordance with Sub-Article (1) (c) of this Article, that the
society is to be dissolved. It shall proceed with the distribution where no claim is
presented within two months from the date of such notice. No claimant shall have a right
after the expiration of such limitation.
3/ Upon completion of the winding up proceedings the liquidator shall prepare and
submit a report to the appropriate authority, he shall deposit the records and documents of
the society in such places as the appropriate authority may direct.
43. Calling on Creditors
1/ Creditors shall be paid on the basis of a balance sheet prepared by the liquidator upon
the commencement of his assignment.
2/ Creditors shall be informed of the dissolution of the society and required to file their
claims with supporting documents.
3/ Creditors appearing in the society’s records or who are otherwise known shall be
notified directly by registered letter. Notice to other creditors shall be given by notice,
published in two successive monthly issues of a newspaper, and also in the form laid
down in the by-laws of the society.
44. Protection of Creditors
1/ Until the creditors of the society have been paid or amounts required for payment be
deposited, the liquidators may not distribute any part of assets among the members.
2/ Where known creditors have failed to present their supporting documents, the amounts
owing to them shall be deposited according to the decision of the court.
3/ Sums shall be set aside to meet the claims in respect of undertakings of the society
which are not completed or which are under liquidation unless the creditors are
guaranteed or distribution of assets is postponed until such undertakings are completed.
4/ After the payment of claims have been completed or verified that sufficient deposit for
payment has been made, the liquidators may distribute the assets of the society among the
members based on the amount due to them.
45. Cancellation of a Society from the Register
When the winding up proceedings are completed the certificate of registration shall be
returned to the appropriate authority who shall cancel the registration of the society, and
the society shall, upon the date of such cancellation, cease to exist.
PART NINE
Settlement of Disputes
46. Conciliation
The disputes provided under Article 48 of this proclamation shall be heard by a third
party appointed by the disputing parties before they are referred to the arbitrators.
47. Arbitration
1/ When the disputes provided under Article 49 regarding cooperative societies are not
settled by conciliation they shall be referred to arbitration.
2/ The arbitration shall consist of three persons of high reputation and
impartiality.
3/ The arbitrators shall conduct their hearing and fulfill any of their duties in
accordance with the Civil Procedure Code.
48. Appointment of the Arbitrators
1/ Each party to the dispute shall appoint one arbitrator. The third arbitrator, who shall be
the chairperson, shall be appointed by both parties.
2/ The appropriate authority shall appoint the chairperson arbitrator when the
parties fail to reach an agreement.
49. Disputes to be referred to Arbitration
The arbitrators shall have the power to hear disputes not settled by conciliation
regarding the organization, management, or operations of a society which arises between:
1/ members or former members and members or representatives of former
members or persons claiming in the name of deceased members; or
2/ members, former members or members or representatives of former members or heirs
of deceased members and any officer, representative of the management committee or
employee of the society; or
3/ the society or the management committee and any former management committee, any
officer, agent or employee, or any former officer, agent or employee or the nominee heirs
or representatives or representatives of deceased former members or employees; or
4/ the society and any other society.
50. Civil Court Powers of Arbitrators
The Arbitrators shall have the same power, with regard to the cases provided under
Article 49 of this Proclamation, as a civil court for the summoning of witnesses,
production of evidence, the issuing of orders or the taking of any legal measures.
51. Execution
Any decision, order or award made under this Proclamations shall be taken as though
made by a civil court, and, where appropriate, the courts shall have jurisdiction to order
the enforcement of any such decision, order or award.
52. Power of Courts
Appeals on the decisions given by the Arbitrators under Article 47 of this Proclamation
may, as the case may be, be instituted in Federal High Court, or the Regional State High
court or the Federal High Court of a city accountable to the Federal Government where
the society is situated.
PART TEN
Miscellaneous Provisions
53. Address of a Society
Any society shall have an address registered pursuant to Article 9 of this Proclamation.
All services of process, notices and other communications shall be sent in such address.
The society shall inform the appropriate authority of any change in such address within
thirty days.
54. Supplying Information
Every society shall have the obligation to transmit information to the appropriate
authority about the activities it performs.
55. Establishment of a Federal Organ
A Federal Organ responsible for organizing and registering Apex organizations and for
rendering training, conducting research and other technical support to societies may be
established by law.
56. Depositing of this Proclamation, Regulations and the By-laws
Every society shall deposit at its address copies of this Proclamation, the
Regulations and the by-laws, to be accessible free of charge.
57. Repealed and Inapplicable Laws
1/ The Cooperative Societies Proclamation No. 138/1978 and the Agricultural
Cooperatives Societies Proclamation No. 85/1995 are hereby repealed.
2/ No law, regulation or directive in so far as it is inconsistent with this Proclamation
have force or effect in respect of matters provided for by this Proclamation.
58. Transitory Provisions
1/ The cooperative societies which have been established and operating in accordance
with Proclamation No. 138/1978 shall be reorganized under this Proclamation.
2/ The cooperative societies which have been established and operating in accordance
with Proclamation No. 85/1995 shall be deemed to have been established under this
Proclamation and shall continue to carry out their functions in accordance with this
Proclamation.
3/ The societies indicated in Sub-article (1) of this Article shall continue their operations
holding their previous juridical personalities until they are reorganized and registered by
the appropriate authority.
4/ The appropriate authority shall facilitate the conditions necessary for the
reorganization of the societies in accordance with sub-Article (1) of this Article.
59. Issuance of Implementing Legislation
The Council of Ministers of the Federal Government or the appropriate organ of a Region
or city accountable to the Federal Government may issue legislation for the proper
implementation of this Proclamation.
60. Effective Date
This Proclamation shall come into force on the 29th day of December 1998.
Done at Addis Ababa, this 29th day of December, 1998
NEGASO GIDADA (DR)
PRESIDENT OF THE FEDERAL
DEMOCRATIC REPUBLIC OF ETHIOPIA
Proclamation No. 402. /2004
Cooperative Societies (Amendment) Proclamation
Whereas, it is necessary to amend cooperative societies proclamation No. 147/1998;
Now, Therefore, in accordance with Article 55(1) of the Constitution of the Federal
Democratic Republic of Ethiopia, it is hereby proclaimed as follows:
1. Short Title
This Proclamation may be cited as “Cooperative Societies (Amendment) Proclamation
No. 402/2004.”
2. Amendments
Cooperative Societies Proclamation No. 147/1998 shall be amended as follows.
1. The following new Sub Articles (6), (7), (8) and (9) are added after Sub Articles 5 of
Articles 9:
“6. Any cooperative society which has been legally registered pursuant to Sub Articles 3
of this Article shall engage in any business as of the date of registration without the
necessity of securing additional trade license.
7. Where the appropriate authority ensures that requirements indicated under Sub Article
2(a)-(g) are met, it shall grant temporary certificate which may serve not more than a year
and shall cause the rest requirements to be observed within a specified period of time.
8. Where any society is found operating out of the objectives for which it is established, it
may be suspended by the appropriate authority from carrying out activities permitted by
this law.
9. Where the general assembly of a society suspended pursuant to Sub Articles 8 of this
Article submits its request to reverse the decision for suspension and where the
appropriate authority found the request appropriate, it may reverse the decision for
suspension. Where the appropriate authority did not reverse the suspension it shall give a
written explanation to the General Assembly. The General Assembly may appeal to the
higher court which has jurisdiction on the decision made by the appropriate Authority.”
2. Articles 16(1)-(3) is hereby deleted and replaced by the following new
“Article 16: Payment of shares
1/ Any cooperative society shall, after securing the decision of the general assembly, sell
shares that shall have equal number and par value with the view to enable the society to
obtain capital necessary
2/ Any cooperative society shall collect, upon its formation from the members at least 1/5
of the amount of the share that the general assembly has decided to be sold. And it shall
sell the rest of the shares within four years as of the time of its establishment.
3/ Where the need for additional capital is arose, upon completion of the sell of shares in
accordance with the decision of the general assembly, the general assembly may decide
once again for the sell of additional shares in accordance with Sub article 1 of this
Article.
4/ The share that the society sells may be sold either in cash or in kind. Shares paid in
kind shall be determined by the by-law of the society.
5/ Any member may not hold more than 10% of shares out of those that the general
assembly decides to be sold.
6/ A society, which faces shortage of capital, may sell certain shares to a person who is
not a member of the society without contradicting the principle of the society.
7/ Particulars as regards to manner of sale of shares to a person who is not member to the
society shall be determined by the by-law of the society.”
3. The following new Sub Articles (3) (4) are added after Sub Articles (2) of Article 31.
“3) The council f ministers may make any society free from any court fees that is
payable in connection with dispute entertained by courts.
4) Any right emanated from a contract concluded by the society involving its
properties shall be barred by statute of limitation after 20 years.”
4. Article 33(1) and (2) are deleted and replaced by the following new Article 33
1/ any cooperative society shall deduct 30% of the net profit and allocate for the reserve
fund. The amount allocated for the reserve fund shall not exceed 30% of the capital of
the society and it shall be deposited in the saving account of the society
2/ The distribution of the remaining net profit shall be determined by the general
assembly.
3/ Any member who has received net profit as per Sub Article 2 this Article can buy an
additional share.”
5. Sub 2 of Article 34 is deleted.
6. The following new Sub-Article (3) and (4) are added after Sub Articles (2) of Article
40.
“(3) Where the court decides for its dissolution.
(4) Where the auditing reveals that it is bankrupt and when the appropriate authority
ensures that causes the dissolution and the general assembly decides.
7. Article 40(3) shall become Article 40(5).
8. Article 46 is deleted and replaced by the following new Article.
“46. Settling disputes through conciliation
1/ Disputes indicated under Article 49 may be settled through reconciliation of parties
elected by disputants before they are submitted to arbitration.
2/ Each party shall elect reconciliation; the chairperson of the reconciliation shall be
elected in accordance with the agreement of the two parties.
3/ Where the two parties failed to reach agreement to elect the chairperson of the
reconciliation, the chairperson shall be elected by the appropriate authority.”
9. Articles 58(2) is deleted and replaced by the following new Article 58(2)
“(2) Agricultural cooperative societies, which were established pursuant to Proclamation
No.85/1995 and which are still operating shall be registered once again in accordance
with this Proclamation.”
10. The following new Articles added as Articles 59
“59. Obligation to cooperate
Any concerned organ shall have the obligation to cooperate on matters provided in this
Proclamation.”
11. Article 59 shall become Article 60
12 “61 Effective Date
The Proclamation shall come into force on 11th date of May., 2004.”
Done at Addis Ababa, 11th day of May, 2004.
GIRMA WOLDEGIORGISPRESIDENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
Council of Misters Regulation No.106/2004
Council of Ministers Regulation to Provide for the Implementation of Cooperative
Societies Proclamation
This Regulation is issued by the council of Ministers pursuant to article 5 of the
definition of powers and Duties of the Executive organs of the Federal democratic
Republic of Ethiopia Proclamation No.4/1995 and article 59 of Cooperative Societies
Proclamation No.147/1998.
Section One
General
1. Short Title
This Regulation may be cited as “Councils of Ministers Regulation No. 106/20904 to
Provide for the implementation of Cooperative Societies Proclamation No.147/1998.
2. Definition
In this Regulation, unless the context requires otherwise.
1. “Proclamation” means cooperative societies Proclamation No. 147/1998.
2. “Regular meeting” means a general assembly convened pursuant to sub article 1
of article 22 of proclamation No 147/1998
3. “Cooperative society” Means an entity that has got a definition referred to
(indicated) under article 2(2) of the proclamation mission established pursuant to
article 2(1) or proclamation 274/2002 and includes cooperative promotion
Bureaus and offices established in each region.
4. “Union” means a union composed of more than one primary cooperative societies
that have similar objectives.
5. “Federation” means a group consists of unions and cooperative societies with
similar objectives.
6. “League” mans cooperative society league of Ethiopia establish by cooperative
societies at the national level.
Section Two
Establishment of Cooperative Societies
3. Establishment of Primary Cooperative Societies
1. Primary cooperative society shall be established by voluntary individuals who live
or work in the same area or engaged in the same profession. Number of members
establishing the society shall not be less than ten. The appropriate authority shall,
taking into account the economic efficiency, determine the least number of
establishing members through directives issued by itself.
2. The operational area of primary cooperative society established pursuant to article
1 of this article may be confined to one-region or cover more than one regions.
3. Different kinds of primary cooperative societies may be established in the
operational area indicated in sub article 2 of this article.
4. Establishment of a union
1. Subject to the provision of this Regulation and that of other relevant laws on
cooperative society. Primary cooperative societies having similar objective may
establish a union.
2. Subject to the Provision of this Regulation and that of other laws an individual
who carries out similar activities to that of a union and who is willing to observe
the principles of the society may become a member of the union.
5. Establishment of Cooperative Federation
1. Subject to the provision of this Regulation and that of other relevant laws, unions
having similar objectives at Federal level may establish a Federation.
2. Subject to the provision of this Regulation and that of other relevant law,
cooperative societies and an individual that carries out similar activities with that
of the Federation may become a member of the Federation.
6. Establishment of Cooperative League
1. Subject to the provision of this Regulation and that of other relevant laws, primary
cooperative societies, unions, and federations may establish a league that
represents all cooperative societies in Ethiopia.
2. The number of the league established pursuant to sub article 1 of this article may
not exceed one.
7. Operational Area
1. The operational area of a union or a Federation Established pursuant to Article 4
or 5 of this regulation shall be determined by the by-laws of the union or the
Federation.
2. The league shall have an operational area through out the territory of Ethiopia.
Section Three
Types and Functions of Cooperative societies
8. Functions of Cooperative society
A cooperative society may engage in production or service rendering activities or in
both production and service rendering activities.
9. Cooperative Society Engaged in Production Activities
Cooperative Society Engaged in Production Activities shall be one which takes part
in production process or which converts raw materials or semi-finished products to
finished products.
10. Cooperative societies engaged in service rendering activities
A cooperative society engaged in service rendering activities shall deliver various
services to members or cause them to obtain the same.
11. Cooperatives societies Engaged in Production and Service rendering activities
A cooperative society engaged in production and service rendering shall carry out
both activities indicated under article 9 and 10 of this regulation.
12. Types of Cooperative Societies
1. Cooperative Societies of different type may be organized in any economic or
social sector of the country.
2. Cooperative societies differ from other based on their unique nature such as their
working place, establishment, function and legal personality they have.
3. The unique nature of cooperative societies shall be determined by a directive
issued by the appropriate Authority.
Section Four
Registration of Cooperative societies
13. Registration
1. The Federal Cooperative commission shall register the league and the federations
as well as unions t the national level.
2. Any society established pursuant to this regulation shall have legal personality as
of the date of its registration.
14. Particular of by-law of a Cooperative society
Subject to the provision of article 11 of the proclamation, by-law of a cooperative
society shall contain the following particulars:
o Objectives, values and principles of cooperative societies;
o Administrative structure of the society;
o Budget year of the society
o Manner of keeping the fund of the society and ways of its utilization;
o Procedures on loans;
o Procedure to be applied in the instance of withdrawal, dismissal or
death of members;
o Rules of procedures for the meeting of the society and notifications to
be given to members;
o Procedures for the appointment or employment of mangers and other
officers of the society, their powers and duties and term of office;
o Administration of employee of the society;
o Matters requiring special or quorum resolutions (decision);
o Procedure to the applied in cases where the by-law of the society is
amended or in cases where the society is dissolved, divided or
amalgamated with other societies;
o Other appropriate particulars;
15. Share certificate of members of a Cooperative society
1. Any member shall be granted certificate for the amount of full shares he has paid
for.
2. The share certificate shall be printed in confidence (secretly) and shall contain the
following particulars;
Name, address and emblem of the society;
Date of registration and registration number of the society;
Identification number of share certificate;
Par value of each share;
Name and identification number of the member;
The amount of shares he has paid for (bought) and the price of the share he
has bought;
Signature of a person entrusted with a power of leading the society;
Seal of the society;
Date, month and year of issuance of certificate;
3. The share of the society may not be transferred from one member to the other or
from a member to a third party.
16. Dismissal of members
1. A member who failed to meet his obligation shall be deemed not to meet his
obligation where he:
(a) Has failed to pay fully for the shares within a period specified,
(b) Has failed to meet his obligation emanated from the occupational sector
granted by the society for more than two times;
(c) Has not participated for a year in any transaction or services rendered by
the society;
(d) Has not participated in two consecutive regular meetings of the society
without sufficient reason.
2. Any member who has committed a fault shall be dismissed from membership.
The member shall be deemed to have committed a fault where he has;
(a) Committed a fault which is contrary to the objective of the society;
(b) Deliberately caused harm or caused to be harmed the properties of the
society
(c) Misappropriate the properties of the society that he has received for
various reason;
(d) Deliberately misappropriate the fund of the society or facilitate conditions
for the same action to be committed;
(e) Bribed somebody or been bribed by somebody in the name of the society;
(f) Sold or caused to be sold under price or bought or caused to be bought
over price the properties of the society with view to derive unlawful
advantage;
(g) Reduced the amount or the quality of product or service that the society
supplies
17. Charges
Any cooperative society shall pay charges indicated in the schedule attached thereto
to government upon receiving a share certificate or its substitute.
18. Grant of substitute certificate
1. A cooperate society that has lost its certificate may apply to appropriate authority
for the grant of substitute certificate;
2. The appropriate authority shall grant the substitute certificate within 10 days as of
the submission of the request;
3. The appropriate authority shall issue directives on the manner of granting
substituted certificate;
19. Conditions for the Prohibition of Registration
Any cooperative society shall not get registered and be granted certificate where;
1. It has got similar name and emblem with the society that has already registered;
2. It lacks its own project proposal;
3. It doesn’t observe registration requirements specified in this regulation and the
proclamation;
4. Its objective is found contrary to this regulation, the proclamation and directive
issued by the appropriate authority.
Section Five
Meetings of a Cooperative society
20. Regular Meeting of the general assembly
1. Any cooperative society shall convene its regular general assembly at least once
in a year.
2. There shall be a quorum where more than half members of the general assembly
are present.
3. Where there is no quorum of the general assembly called, the second general
assembly shall be called within 15 days as of the date of the first general
assembly. Where there is no quorum for general assembly called for the second
time, the meeting shall be convened by members present.
4. The decision passed by the general assembly, which is convinced in a situation
where there is no quorum as is indicated in sub article 3 of this article, shall be
deemed to have been made in the presence of all members.
21. Emergency meeting of the General Assembly
1. Where there is no quorum in an emergency meeting called as per article 22 of the
proclamation, the management committees shall call the second emergency
meeting within 15 days as of the date of the first meeting. Where there is no
quorum in emergency meeting called for the second time, the appropriate
authority may call another meeting.
2. There shall be quorum where tow third of members of the general assembly are
present.
22. Call for the meeting
The management committee shall make a call, as per the provisions of the
proclamation to all members 15 days before the emergency meeting is convened
through a News Paper having nation wide circulation or using any means found
convenient.
23. Voting Procedure of a Cooperative society
1. Unless and otherwise provided in the by-law of the society, decision of regular or
emergency meeting shall be passed by a majority vote.
2. In cases of a tie, the chairperson of the general assembly shall have a casting vote.
Section Six
Assets and funds of the Cooperative society
24. Allocation of Net profit
1. 30% of the net profit of the society shall be deducted and allocated for the reserve
fund. The amount allocated for the reserve shall be deposited only unti8l is shall
not exceed 30% of the capital of the society.
2. The amount of fund deducted from the net profit and allocated for the reserve
shall be deposited in a saving account opened in the name of the society. The
utilization/application of this fund shall be determined by directive issued by
appropriate authority.
25. Indivisibility of Assets of the society
Where the asset of the society is:
(a) Registered as a reserve fund account.
(b) Obtained through donation or inheritance is shall remain indivisible and
common asset of the society.
26. Distribution of Assets of Dissolved Cooperative society
The assets of a dissolved cooperative society left after the creditors are paid as is
indicated under Article 44 sub article 4 of the proclamation shall be distributed to a
member who is active at the time when dissolution pronounced, to a member who is
dismissed for the reason other than committing a fault, and to a substitute of a
deceased member. Manner of distribution of the asset shall be determined by a
directive issued by the appropriate authority.
27. Repealed laws
Regulations or a directives inconsistent with this regulation shall be inapplicable.
28. Power to issue a Directive
The appropriate authority shall issue a directive necessary for the implementation of
this regulation.
29. Effective Date
This regulation shall come in to force on the date of its publication in the Negarit
Gazeta.
Done at Addis Ababa, this 28th day of June 2004.
Meles Zeawi
Prime Minister of the Federal Democratic Republic of Ethiopia
The Federal Democratic Republic of Ethiopia
Cooperative Commission
Schedule of fees for certificate service
No. Description Fess/Birr Remark
1
2
3
New Registration
Substitution
Temporary certificate
60
30
30
Unit V
Proclamation No. 274/2002
Proclamation to Establish Cooperatives’ Commission
Whereas, it has become necessary to enable the rural and urban working people to solve
the economic and social problems they face by themselves depending on local resources
and become self-reliant by being organized in cooperatives societies different in type and
standard.
Whereas, it has become imperative to establish an autonomous organ responsible for
registering and supporting cooperative societies organized at federal level, conducting
research, rendering training and other technical support to achieve the above mentioned
objective;
Now, Therefore, in accordance with Article with Article 55(1) of the Constitution of the
Federal Democratic Republic of Ethiopia and Article 55 of the Cooperatives Societies
Proclamation No. 147/1998, it is hereby proclaimed as follows:
1. Short Title
This Proclamation may be cited as the “Cooperatives’ Commission Establishment
Proclamation No.274/2002.
2. Establishment
The Cooperatives’ Commission (hereinafter referred to as “the Commission”), is
hereby established as an autonomous Federal Government Organ,.
The Commission shall be accountable to the Ministry of Rural Development.
3. Head Office
The Head Office of the Commission shall be in Addis Ababa.
4. Objective of the commission
The objective of the Commission is to enable rural and urban working people to solve
the economic and social problem they face by themselves and become self-reliant by
being organized in cooperatives different in type and standard depending on the local
resources.
5. Powers and Duties of the Commission
The Commission shall have the powers and duties to:
1. Formulate policies and prepare draft laws suitable for the activities and
development of cooperative societies, and submit the same to the government
and follow up their implementation;
2. Encourage that the organization of cooperative societies be in accordance with
Cooperatives’ Proclamation No. 147/98 and in line with the international
principles of cooperatives’ organization.
3. Direct and supervise cooperatives’ training institute to be set up at federal
level;
4. Undertake research and study to promote traditional and local self-help
associations to modern cooperative societies, it shall make known and
disseminate the results of the study, and follows up the implementation
thereof;
5. Make that the values, principles, organization, and benefits of the cooperatives
be further known by the society and educational establishments;
6. Organize, register, and issue licenses of the legal personality to, the
cooperative societies to be organized at federal level, and the cooperatives
societies to be established by:
o Two or more primary societies found in different regions, and unable
to be organized at regional level due to their peculiar nature;
o Regional cooperative societies found in two or more regions;
o The union cooperative societies organized pursuant to (a) and (b) of
this Sub-Article, or by the union of different cooperative societies
organized pursuant to (b) of this Sub Article;
7. Audit and inspect the accounts of cooperative societies to be set up at federal
level and assign a liquidator, cancel them from its record when dissolved: and
it shall provide uniform standards of accounting and audit for cooperative
societies throughout the country;
8. Promote the product of the cooperative societies so that they may find market,
and facilitate conditions in order to bring consumers and producers to direct
communication in the home market;
9. Provide professional and technical support to process agricultural products of
the cooperative societies to industrial products so that they will have better
added-value, and to develop artisans products;
10. Provide professional assistance to create the organization of cooperatives
based on the culture and experiences of pastoralists and which enables them to
improve their living conditions;
11. Facilitate, in cooperation with regions as may be necessary, means to provide
support for societies by studying and preparing projects suitable for the
development of cooperative societies;
12. Facilitate conditions to enable the cooperative societies in different regions to
exchange their products and information about the market, and to share
experiences with one another;
13. Provide technical and professional assistance for the bureaux and cooperative
societies to be set up in the regions;
14. Establish relationship with concerned local and international organizations in
order to expedite the progress and the activities of the cooperative societies;
15. Formulate and distribute model by-laws of societies which may vary
according to the type and level of societies;
16. Submit reports on its performances to the concerned government organ;
17. Own property, enter into contracts, sue and be sued in its own name;
18. Carry out other duties helpful for the implementation of its objectives
6. Organization of the Commission
The Commission shall have:
1. A Commissioner and a Deputy Commissioner to be appointed by the
government; and
2. The necessary staff
7. Powers and Duties of the Commissioner
1) The Commissioner is the Chief Executive of the Commission and, shall
direct and administer the activities of the Commission.
2) Without prejudice to Sub-Article (1) of the Article, the Commissioner
shall:
(a) Discharge the powers and duties stated in Article 5 herein;
(b) Employ and administer the staff of the Commission pursuant to
the Federal Civil Service Laws;
(c) Draw up work programmes and budget; and implement the
same upon approval;
(d) Effect expenditures in accordance with approved work
programmes and budget of the commission;
(e) Represent the Commission in all its dealings with third parties;
(f) Present reports on the activities of the Commission
3) The Commissioner may delegate part of his powers and duties to other
officials and employees of the Commission to the extent necessary for the
efficiency of the Commission.
8. The Deputy Commissioner
1) He shall act on behalf of the Commissioner in his absence.
2) He shall carry out other activities to be entrusted to him by the
Commissioner.
9. Budget
The income of the Commission shall be drawn from the following sources:
(a) The budget allocated by the Federal Government.
(b) Aid received form domestic and foreign donors and other
resources.
10. Books of Accounts
1) The Commission shall keep complete and accurate books of accounts.
2) The books of accounts and financial documents of the commission shall
be audited annually by the Auditor General or by auditors assigned by
him.
11. Inapplicable Laws
Any law inconsistent with this Proclamation shall not be applicable to matters
provided for herein.
12. Transfer of Rights and Obligations
All rights and obligations relating to the matters provided for by this Proclamation
and given to other organs are hereby transferred to the Commission.
13. Effective Date
This Proclamation shall enter into force as of the 14th day of May, 2002.
Done at Addis Ababa, this 14th day of May 2002.
GIRMA WOLDEGIORGISPRESIDENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
Case I
Specific Topic: Role of Cooperatives in Promoting Democratic
Culture in the Tigray Region
Authors: Dr.G.Veerakumaran and Ato Mengistu Hailu, Mekelle University
Research Issue:
The Federal Democratic Republic of Ethiopia, in its Proclamation No147/1998-A
Proclamation to Provide for the Establishment of Cooperative Societies, declared that the
“Cooperative societies are democratic organizations controlled by their members who
actively participate in setting their policies and making decisions. Every member has
equal voting rights and accordingly one member shall have one vote (Section 5(2))”.
Within cooperatives ‘democracy’ includes considerations of rights and responsibilities. It
means fostering the spirit of democracy within cooperatives. ‘Controlled by their
members’ mean members participating in setting the policies and making decisions. It
implies that members ultimately control their cooperatives and they do so in democratic
manner. Elected representatives hold their office in trust of the immediate and long-term
benefits of members. Cooperatives belong to the members and not to elected officials.
They are trustees on behalf of members. Member control also prohibits a non-member
becoming office bearer through nomination to the committee by the government or
through the process of cooption.
The democracy is the corner stone of cooperative management. The cooperative
democracy is essentially an economic democracy. The principles of freedom of
association, equality within the organization and participation in the organization process
are the foundation of cooperative democracy.
The Government of Ethiopia is encouraging and supporting the establishment of
cooperatives in various spheres for the development of the country’s economy. As a
result, the cooperative movement is expanding, diversifying and growing at rapid pace.
Due to this as on 30th March 2004, there were 4039 Agricultural Cooperatives, 3338 Non-
Agricultural Cooperatives such as Handicrafts Cooperatives, Savings and Credit
Cooperatives, Housing Cooperatives and Construction Cooperatives functioning in
Ethiopia. Moreover 35 Unions have been started at the woreda level to market the
products of the primary cooperatives.
In the years to come, every family is expected to associate with the local
cooperative. Every citizen is expected to believe and lead a civilized democratic life. As a
minor democratic institution cooperatives are to build a strong democratic culture among
their members. Are our cooperatives in Ethiopia adopts the principle of cooperative
democracy in all its endeavors? This question needs to be explored scientifically. Hence,
an attempt has been made in this paper to study the Role of Cooperatives in Promoting
Democratic Culture in the Tigray Region.
Objective of the study:
The major objective of the study is to understand the extent of democratic
management in the cooperatives of Tigray region.
The specific objectives of the study are:
1. To know the level of members’ participation in the General Assembly and in the
election
2. To know the practice of democratic management by the committee members
3. To explore the linkage between the cooperatives and the local administration.
Methodology:
The data for the study to justify the objectives have been collected mainly from
the primary sources. As on 30th, November 2003, there were 556 cooperatives in 35
woredas of Tigray region. Due to the cost and time constraints, the study randomly
identified 24 woredas and from each Woreda one responsible official was selected as
respondent for the preliminary survey. A questionnaire was administered among them to
collect the required data. The variables studied were; (i) members participation (ii)
Democratic Management (iii) local administration. The second stage is to study the
opinion of members and committee members of cooperatives. This paper is the outcome
of preliminary survey conducted during September 2004.
Analytical Framework:
Data so collected were classified into three categories Viz.,
1. Members participation in the election, General assembly and in the business,
2. Democratic Management by the Committee members,
3. Local administration and Cooperatives.
Description of the Sample Respondents:
The study randomly covered 24 woredas of 35 in the Tigray region. The total
Cooperatives of all types come to about 493. The woredas have got Multi Purpose
Cooperatives, Housing Cooperatives, Irrigation Cooperatives, Savings and Credit
Cooperatives, Construction Cooperatives, Handicrafts Cooperatives, Fisheries
Cooperatives and unions. Each woreda has its own Cooperative Promotion Office with
five to ten officials. Cooperative Bureaus were the official development interventionists
for promotion of Cooperative sector in their respective woredas.
The study collected data from 24 officials of the Cooperative Promotion Bureaus
at the woreda level. Out of 24 officials 20 were male and only four were female. It’s
evident that there was gender inequality in staff pattern. Age group of the employees
showed an interesting revelation that all the respondents are below 40,and that too only
four were above 30. All the respondents had a diploma in the related field and were
serving for more than five years in the department.
Members’ Participation:
The concept of Members’ participation in cooperatives denotes (i) members
participation in the General assembly, (ii) members participation in the election and (iii)
members participation in the business. The following paragraphs deals with the concepts
and results of the study.
Members Participation in the General Assembly
General assembly means a meeting of members of the primary cooperatives or
representatives of societies above primary level. The supreme organ of any society shall
be the general assembly (Section 20 of Proclamation No147/1998). The general assembly
of a society shall pass decisions after evaluating the general activities of the society;
approve and amend the by-laws and internal regulations of the society; elect and dismiss
the members of the management committee, control committee and when necessary the
members of other sub-committee; determine the amount of shares of the society; decide
on how the annual net profit of the society is distributed; give decision on the audit
report; hear work reports and give proper decision; decide that a society either be
amalgamated with another society or be divided in pursuance of this proclamation;
approve the annual work plan and budget; decide any issue submitted by the
management committee and other committees. Absenteeism of members in the general
assembly may lead to the loss of democratic character that may result in the dominance
of the vested interest. The ultimate mission of the cooperatives may also be get diluted to
the whims and fancies of the caucus group.
79 percent of the respondents of the study opined that only moderate members’
participation (50 to 80 % of the total membership) was there in the general assembly.
Around 17 per cent of the respondents viewed that less than 50 per cent participation by
the members in the general assembly. The attendance in the general assembly depends on
factors, viz., convenience and place and willingness to attend.
Members Participation in the Election:
Democratic election of the management committee is vital to democratic member
control. This involves three steps: Legal framework, informed member electorate and the
election process. Articles of incorporation and bylaws usually define who may serve,
number of committee members and length of term, method of selection, who may vote,
and the duties and responsibilities of those elected. Members must have a background of
general information on the cooperative before they can make intelligent evaluation of the
qualifications of candidates for management committee. The next step is nominating
qualified members to serve on the management committee and voting in the election
process. Members choose a few of the leading persons from the membership to serve as
committee members. The committee is representative of the general assembly and is
responsible and accountable to it for its acts of commission and omission. Hence, the
general assembly has to take an intelligent decision for electing the members of the
committee. For which the presence of all members is essential. 71per cent of the
respondents of the study opined that at the time of election for management committee,
the members participate in the process moderately (50-80 percent). Moreover, 12 percent
of the total respondents opined that the members participate fully in the election process.
Members’ Participation in the Business:
Members contribute equitably to, and democratically control, the capital of their
cooperative. At least part of the capital is usually the common property of the
cooperative. Members usually receive limited compensation, if any, on capital subscribed
as a condition of membership. Members allocate surplus for any or all of the following
purposes: developing their cooperative, possibly by setting up reserves, part of which at
least would be indivisible; benefiting members in proportion to their transactions with the
cooperative; and supporting other activities approves by the membership. The surplus is
generated by the cooperatives by the active involvement of the members in the business
of the cooperatives. Mere investment in the form of share capital will not pave way for
the business development of the cooperatives. Around 75 per cent of the respondents
opined that moderate participation of members in the business of the cooperatives. At the
same time 17 per cent of the respondents said that the members’ participation was very
less i.e. less than 50 per cent. The trend is not good for any cooperatives in the long run.
Democratic Management by the Committee Members
Cooperatives have user-owners and for all of them to involve in the decision
making process is difficult. So the members elect a few members as members of the
management committee who can make most decisions for them. The committee, most
importantly, function to direct the business affairs of the cooperative and it is the
cooperative’s central decision centre. In carrying out this responsibility, the committee
performs several important supporting roles. It is a communication hub, imparting
information between members and management. It is an advisory body to members and
management, providing recommendations and guidance. But in every role and action, the
committee is accountable to members.
In this respect, the researchers felt it is pertinent to obtain the opinion of the
cooperative officials. 67 per cent of the respondents viewed that moderate members’
participation (50 to 80 per cent) was there in the management committee meetings. One
positive note is, 21 per cent of the respondents have said that there was full participation
of the members in the committee meetings. It could be inferred from the results that the
committee members show interest in the development of their cooperatives.
Democratic Governance:
The uniqueness of the cooperatives is the role of the user, which is different from
any other form of business. With the rapid proliferation, diversified activities and
extensive coverage cooperatives have emerged as the relevant institutions in the
contemporary context. The fundamental concept of the democratic governance in a
cooperative is that those who need and use the services provided by the cooperative
manage it. Hence, a cooperative is organised, owned and controlled by those who need
and use the services of the cooperatives. By keeping this in mind, the researchers got the
opinion of the respondents on the democratic governance. Except one everybody said that
they have belief in the concept of democracy. And everybody was of the opinion that the
elections for the cooperatives were conducted in accordance with the cooperative
proclamation.
It is interesting to note that in three woredas the elections for few cooperatives
were not conducted. Only those cooperatives started during the earlier regime and not
functioning (dormant) were not brought under the election process.
Democratic management is a base for Democratic Governance in the Local
Administration:
The experience, members get from the cooperatives help the people to become
member in the local administration. For many local leaders, cooperatives are the
stepping-stone for their long run political career. All the respondents are of the opinion
that the Democratic management is a base for Democratic Governance in the Local
Administration. This will help the people of the local administration to identify the
problems, needs of the locals easily and surmount it in a democratic way.
Policy Implications
It must be impressed upon the members that the satisfactory functioning of their
cooperatives depends primarily upon their active participation in democratic
management. To secure satisfactory services from the cooperative it would be in their
own interest to participate in the general assembly meetings. It is an obligation to
themselves for protecting and promoting their own interests.
Member contact, member information and member education are extremely
important for democratic management in cooperatives because without enlightening
members, it is impossible to secure members’ participation in management which is the
essence of democratic management.
There are members who do participate in the business of the cooperative but
neglect their right to participate in the management. If such members who do not
participate in the business get undue opportunities to shape the policies in a manner
which may not be conducive to the interests of the former. It is important that the
members of the cooperatives participate not merely in the capital, but in the business and
management as well.
The democratic management of cooperatives is a base for Democratic
Governance in the Local Administration; hence, it is imperative for the government to
promote cooperatives in a big way. This will result in the electing the right person for
local administrations to identify and fulfil the social, economical, cultural and political
needs of the people. It will pave the way for a clean, perfect and efficient political
administration.
Selected Reference:
1. Federal Negarit Gazeta of the Federal Democratic Republic of Ethiopia (1998), Proclamation No.147/1998 Cooperative Societies Proclamation.
2. Ian McPherson (1996), Cooperative Principles for the 21st Century, International Cooperative Alliance, Geneva.
3. R.Selvaraju (2000), Cooperatives in the New Millennium, Vikas Publishing House, New Delhi.
4. Frank Ratna Kumar and et.al.,(2003), A New World Through Cooperatives, Rainbow Publications, Coimbatore.
5. United States Department of Agriculture (1997), Rural Business Cooperative Services, Cooperative information Reports, Washington.
Case II
Title of the Paper: Cooperative Management of Natural ResourcesAuthors: Dr.G.Veerakumaran, Assistant Professor and Head, Department of Cooperatives, Faculty of Dryland Agriculture and Natural Resources, Mekelle University, PO No: 231, Mekelle, Email: [email protected] and Ato Mengistu Hailu, Lecturer, Department of Cooperatives, Faculty of Dryland Agriculture and Natural Resources, Mekelle University, PO No: 231, Mekelle.
Abstract
Management of natural resources of land, water, forests, fish etc., of a nation is an important factor affecting the level and pace of its development. Many alternative systems of management of natural resources have been proposed by academics and practitioners. They include privatization, nationalization or centralized public management, and cooperative / collective management by local people themselves. There is no single best system of management that could be commended for all situations and all times. The choice of an appropriate system depends on several factors such as the characteristics of resources, attributes of the resources users, the decision making- environment, and the goals of resources management. For improving the management of natural resources, it is necessary for resources manager, to understand the conditions under which each of the three alternative systems of resource management is likely to succeed as well as the conditions under which a system is likely to fail. Hence, an attempt has been made in this paper to explore and critically analyze the suitability of cooperatives to manage the natural resources in Ethiopia.
The study was carried out with the following objectives: - (i) to examine the rationale of cooperative management of natural resources, (ii) to review the current status of cooperatives engaged in the management of natural resources, (iii) to propose a cooperative model to manage the natural resources. Both secondary and primary data were used for the purpose of this study.
The core results of the study are as follows. Privatization of natural resources has yielded mixed results: it has been justified on efficiency grounds and condemned on equity and sustainability grounds. Experience with nationalization of natural resources has not been good in most of the cases all over the world. Theoretically and ideologically, the cooperative mode of natural resources management seems to be the best of all for, with proper rules and regulations, it can better meet the goals of efficiency, sustainability, equity, and resource users’ satisfaction. Further more, it and is politically and socially more acceptable in most societies and nations than any other alternatives. Due to the encouragement given by the present government, as on 7th July, 2003 , there were 514 Multi Purpose Coopeartives,38 Irrigation Cooperatives,13 Water Users’ Associations, one Fisheries Cooperative , one Handicrafts Cooperative , 30 Savings and Credit Cooperatives and one Housing Cooperative in the Tigray Region of Ethiopia alone. Multi Purpose Cooperatives, Irrigation Cooperatives and Fisheries Cooperatives are all directly involved in the management of natural resources. Optimum utilization of natural
resources like sand and stones gives employment to a small segment of population and increases the non-business revenue of the cooperatives. The threat of over-exploitation and absence of proper guidance exists. Irrigation Cooperatives could convert the barren lands allotted to the members into irrigated lands and they take three crops in a year. The authors suggest an Integrated Cooperative Management of Natural Resources with the help of other stakeholders.
Introduction
Management of natural resources of land, water, forests, fish etc. of a nation is an important factor affecting the level and pace of its development. Many systems of management of natural resources have been proposed by academics and practitioners. They include privatization, nationalization or centralized public management, and cooperative/collective management by local people themselves. There is no single best system of management that could be commended for all situations and for all times. The choice of an appropriate system depends on several factors such as the characteristics of the resource, attributes of the resource users, the decision-making environment, and the goals of resource management. The resource management warrants an understanding about the conditions under which each of the three alternative systems of resource management is likely to succeed as well as the conditions under which a system is likely to fail. Hence, an attempt has been made in this paper to explore and critically analyze the suitability of cooperatives to manage the natural resources in Ethiopia.
Objectives of the study
The main objectives of the study are:
1. To examine the rationale of cooperative management of natural resources2. To review the current status of cooperatives engaged in the management of
natural resources3. To propose a cooperative model to manage the natural resources
Methodology for the study
The data for the study to justify the objectives were collected mainly from the secondary sources. Observations during the field visits of the authors also form part of the description. Further, the authors had discussion with the officials involved in organization and supervision of cooperatives in the Tigray region. Though this paper can have the limitations of significant level of empirical evidences, the authors believe that this modest attempt would facilitate further research.
Findings of the Study
The findings of the study are presented in the following paragraphs in concurrence with the objectives.
Rationale for Cooperative Management of Natural Resources
The natural resources are dynamic and subject to management interventions that can provide sustainable benefit flows in the form of food, fodder, fuel wood, fibre, timber, manure, etc., clean surface and ground water, air filtration and humidification, and Eco-tourism. Management of natural resources on sustained yield basis depends upon a careful orchestration of the policies and management practices. Lack of equitable access to natural resources and, hence, inequitable distribution of their benefits often leads to clandestine encroachment, or misappropriation of these resources. There is, therefore, a need for exploring viable natural resources management strategies for their restoration and utilization within a development context.
Until recently the role of natural resources in the rural economy was not understood properly. Therefore, privatization or nationalization of natural resources was suggested as a solution to arrest their degradation and preserve the environment. Experience with nationalization of natural resources has not been good in most of the cases all over the world. Privatization has yielded mixed results: it has been justified on efficiency grounds and condemned on equity and sustainability grounds.
For the success of any strategy of natural resources management, the involvement of local people is essential. This is so because the use of natural resources by any user has many unintended side-effects, or in technical terms, externalities on other co-users. For example, pumping of ground water in a watershed affects the aquifer that is a natural resource to which all those who live in the watershed have a legitimate claim. If one of the co-users pumps more water, to that extent, less water is left for use by the others in the watershed. Optimum use of ground water in a watershed, therefore, requires the cooperation or participation of all the people living and using ground water in the watershed. Similarly, soil and water conservation in a watershed requires the participation of all the land-owners having land in the watershed in the form of adoption of the recommended soil and water conservation measures. In a nutshell, all uses of the natural resources, irrespective of whether they are owned privately or publicly, are interdependent and require the cooperation of all the resource users for internalizing/minimizing the externalities involved. This is best achieved when the planning and management of natural resources is done on watershed basis and the resources managed by their users are organized in the form of an association preferably a cooperative society. Cooperative management of natural resources is there fore the most appropriate of all forms of management in most situations. Moreover, theoretically and ideologically, the cooperative mode of natural resources management seems to be the best of all. This is so because, with proper rules and regulations, it can better meet the goals of efficiency, sustainability, equity and resource users’ satisfaction and is politically and socially more acceptable in most societies and nations than any other alternatives.
Current Status of Cooperatives Engaged in the Management of Natural Resources
A Cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.
The people of Ethiopia have got a very long social history of working together to fulfill their socio-economic needs. Agriculture, Trade and Military Operations were carried out through cooperative efforts. Many social events are still taking place in rural Ethiopia through collective effort. The Federal Government of Ethiopia has identified Cooperative form of business organizations as an instrument of socio-economic change. Many Cooperatives have emerged in the recent past to serve the suppressed and depressed community of Ethiopia. Due to the encouragement given by the present government, there were 514 Multi Purpose Cooperatives, 38 Irrigation Cooperatives, 13 Water Resources Associations, one Fisheries Cooperative, one handicrafts Cooperative, 22 Savings and Credit Cooperatives, eight Urban Savings and Credit Cooperatives and one Housing Cooperative functioning in the Tigray region of Ethiopia as on the last day of 1995 EC.
The cooperatives and its members should have social responsibility, which includes preservation and promotion of natural resources. Irrespective of the nature of business, the cooperatives are to function with environmental consciousness. Any form of environmental degradation or pollution is against the cooperative philosophy.
In Ethiopia, the following cooperatives are directly involved in natural resources management.
Multipurpose Cooperatives Irrigation Cooperatives Water Users Associations Fisheries CooperativesThe level of involvement and scope for further expansion of these cooperatives in management of natural resources is examined below:-
Multipurpose Cooperatives
Multipurpose Cooperatives are considered an institutional intervention to increase agricultural production and productivity. Multipurpose Cooperatives are functioning with the following objectives:
1. Provision of agricultural credit2. Provision of agricultural inputs3. Facilitating sale of agricultural produces4. Operating a consumer store5. Optimum utilization of natural resources like sand and stone6. Inculcation of thrift and savings habit among members
The objective of Optimum utilization of natural resources like sand and stone is operational with the help of local administration. The members of cooperatives are engaged in the mining work and get wages for their labor. The cooperative also gets a moderate commission for every load of supply to the urban consumers/contractors. The amount so generated forms part of the cooperative’s income.
The Cooperatives engaged in such mining operations need a detailed geological study as to what extend they could use the resources and where and when it should be stopped (It can’t be a perpetual operation since land mining has an adverse effect on ecology).
The members of cooperatives should be made aware of the conservation of natural resources. Since the entire rural community is involved in the cooperative process, management of natural resources will be very much transparent and more effective. Soil erosion and degradation are the other major threats to the farming land which need to be addressed only through cooperatives.
Water Users’ Associations and Irrigation Cooperatives:
Water Users’ Associations and Irrigation Cooperatives were started for ensuring supply of water for irrigation purpose. Farmer members of many Irrigation Cooperatives are cultivating more than two crops in a year. The Irrigation Cooperatives block and accumulate the stream water and pump for irrigation as per the pre- planned and accepted schedule. They share the fuel and motor operator’s expenses. Though on a small scale, the irrigation cooperatives work perfectly and can be replicated in other regions.
Ground water exploitation has not been explored in any of the irrigation cooperatives. Implications of blocking of a stream have not been studied. Drip irrigation to save water and expand the cultivable area has not been introduced. Hence, the farmers are in need of appropriate help from the development interventionists.
Fisheries Cooperatives
Fisheries Cooperatives are to provide employment to fishing community through fishing and marketing of fish. They have the mandate of preserving and developing the indigenous fish varieties and go for exotic varieties without affecting the ecological balance. They operate on a small scale and need the support of other development interventionists to go for large scale production, processing and marketing of fish and fish products. Wherever we have natural and artificial water reservoirs, we can go for fisheries cooperatives. Fisheries Cooperatives create employment, ensure food security, and provide a better way for preservation and use of precious water resources for multiple purposes.
Forest and Tree Growers Cooperatives
Forest Cooperatives are for the collection and marketing of minor forest products/non-timber forests product such as fodder, honey, wax, medicinal plants, wild fruits, tree bark, resin, gum, roots, and seeds. Tree Growers Cooperatives are for afforestration of dry lands by planting fruits and fodder trees with limited water use.
Unfortunately such cooperatives are not found in Ethiopia, although it needs them very badly. Highly deforested lands were converted in to man-made forest lands in India because of Tree Growers Cooperatives. Forest Cooperatives are the best form of institution to protect the forests while using the resources in a sustainable way.
In Ethiopia the authors note various instances of ‘Community Management of Natural Resources.’ A case study of woodlots in Northern Ethiopia resembles a cooperative. The most woodlots are managed at the village level by the village council, and are used only by members of that village. The most common use allowed on woodlots is to cut and collect grass for animal feed, root materials, or other purposes. Collecting fruits and bee-keeping in woodlots are also commonly allowed. Most other uses, including cutting trees, shrubs, branches, or roots, and collecting fuel-wood, bark, leaves, or dung, are not allowed in woodlots. In a few cases animals are allowed to graze in the woodlot, but only during a drought.
Woodlots are protected in almost all cases by a guard paid in cash or in kind. In some cases, the guard is compensated by being allowed to collect grass from the woodlot. Violations of restrictions are usually punishable by a cash fine set by the community council, though in many cases fines are decided by the local court. Labor for tree planting, constructing soil and water conservation structures, weeding and harrowing are the main collective input. The main benefit of a woodlot is not the value of grass collected, but the value of the trees in the woodlot, a non-liquidated capital gain. The authors observed many such non-formal cooperative experiments. It’s time to regularize such experiments in order to cooperativise the management of natural resources.
Factors responsible for the success of cooperative management of natural resources
The factors responsible for the success of cooperative management of natural resources are as follows;
1. High stakes of resource users in the resources as well as in the cooperative managing of resources.
2. Good local leadership and social and political entrepreneurship.3. Existence and strict enforcement of rules for regulating the use of the resources,
preventing free riding, sharing the cost and benefits of cooperative management equitably (in proportion to the effort put in or contribution made).
4. Willingness of government departments and officials to share power with the cooperatives and to support them in the forms of funds, technical information, legitimacy and coordination.
5. Involvement of external agency as a catalyst.6. Integration of production, processing and marketing.7. Small and cohesive groups have higher chances of success in management of
natural resources.
Based on the above review the authors present the following Model for the Cooperative Management of Natural Resources in Ethiopia (last page).
ConclusionThere are three alternative systems or regions under which natural resources are and can be managed, namely, privatization, nationalization, and Cooperativisation. Experience with nationalization of natural resources has not been good in most of the cases all over the world. Privatization has yielded mixed results: it has been justified on efficiency grounds and condemned on equity and sustainability grounds. Cooperativisation or cooperative management is relatively is a relatively nascent regime. The results of cooperative management of natural resources have so far been mixed. But these mode of management seems to hold the highest promise as an instrument of achieving the goals of efficiency, sustainability, equity and resource users’ satisfaction and is politically and socially more acceptable in most societies and nations than any other alternatives.
Selected References
1. Katar Singh and Vishwa Ballabh, Cooperatives in Natural Resources Management, Institute of Rural Management, Anand, India, 1993.
2. R.Rajagopalan (Ed.), Rediscovering Cooperation, Institute of Rural Management, Anand, India, 1996.
3. Ruerd Ruben, Making Cooperatives Work, Thesis Free University, Amsterdam, 1997.
4. Katar Singh and Kulbhnshan Balooni, Role of Tree Growers’ Cooperatives in Promoting form Forestry in India, IRMA, Anand, India, 1994.
5. Katar Singh, Cooperative Property Rights as an Instrument of Managing Groundwater, IRMA, Anand, India, 1994.
6. Berhanu Gebremedhin , John Pender and Girmay Tesfay, Community Natural Resources Management: the case of woodlots in Northern Ethiopia, International Food Policy Research Institute, Washington,2003.
Model for the Cooperative Management of Natural Resources in Ethiopia
Actors
Members Local Leaders
Government Department
Development Interventionists
Sustainable Management
PreservationPromotion Production ProcessMarketing
National Resources
LandWater Forests Fish
Institutional Intervention
Cooperatives
Agricultural CooperativesIrrigation CooperativesForests and Tree Growers Cooperatives Fisheries Cooperatives
Funds Technical Information
Legitimacy Coordination
Strategies
Case III
Comparison of Andhra Pradesh State Cooperative Laws of 1964 and 1995
Andhra Pradesh Cooperative Societies Act, 1964
Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995
1. Principles of Cooperation
Not stated in the Act Principles of cooperation as interna-tionally accepted at the time of enactment are incorporated in the Act
2. Role of Government
Appoints Registrar; can direct Registrar; can postpone elections; can exempt cooperatives from legal provisions; can nominate directors to board; can appoint persons-in-charge for state level federations; frames rules; can handle appeals, revisions, reviews; can give directions to cooperatives regarding reservations on staff; can hold equity in cooperatives; sets up Special Courts and Tribunals
Appoints Registrar; can not provide share capital, but may provide other funds and guarantee to cooperatives based on memorandum of understanding that it may enter into with cooperative; sets up Special Courts and Tribunals
3. Role of Registrar
Registers cooperative at his discretion; registers by-laws; must approve of transfer of assets & liabilities, of division, of amalgamation; can compulsorily amalgamate, divide, etc; can classify cooperatives; can amend by-laws compulsorily; must approve of all by-law amendments; can admit members; must approve of expulsion of members; can disqualify committee members; can call for special general meetings and for meetings of no-confidence; conducts elections; can supersede committees; appoints persons-in-charge; can give directions for cooperatives; fixes honorarium to president; approves of bank in which deposits can be kept; must approve of investments in own business; audits; inspects; inquires; can summon documents etc; can surcharge; can suspend officers; settles disputes; winds up cooperative; appoints liquidator; can cancel registration; can recover dues; serves on cooperative tribunal; sanctions institution of prosecution; handles
Has to register cooperative and its by-laws if they are in consonance with the Act; registers amendments to certain by-law provisions; takes on record amendments to most by-law provisions; convenes general body meeting where a board fails to do so in stipulated time; receives annual reports and audited financial statements; inquires; can conduct special audit where non-member funds are involved; can recommend dissolution to the tribunal if a cooperative works in contravention of the Act and principles of cooperation, etc
appeals, revisions, reviews; can appoint supervisory staff in cooperatives; constitutes common cadres; approves of staffing pattern; must approve of appointment/removal of chief executive where cooperative is in receipt of government aid
4. Rules
The government is empowered to make rules on every subject covered by the Act
There is no rule-making power. All affairs of a cooperative are to be regulated by the provisions of the Act and the by-laws of the cooperative
5. Multiplicity of cooperatives
Registration can be refused because of non-viability, conflict of area of jurisdiction, for same class of cooperative
Registration cannot be refused except if by-laws are not in accordance with Act, therefore, multiplicity of organisations possible Registrar does not have the right to classify cooperatives
6. Membership
In matters of admission, disqualification and expulsion of members, the Registrar has final say
Admission disqualification and expulsion of members are the exclusive prerogative of the cooperative
7. Management
Size of board fixed; term of board fixed; composition of board fixed; elections by Registrar; reservations on board
Size, term, composition of board left to by-laws; staggered terms; elections by incumbent board failing which by ad-hoc committee; disqualification of all directors for not conducting elections in time, for not conducting general body meetings in time, for not placing audited accounts before annual general meeting
8. Staff
Common cadre possible; too little authority with board; Registrar must approve staffing pattern, service conditions, salaries, etc; an improve deputationists from government
All staff fully accountable to cooperative; deputationists from government and other organisations possible if a cooperative so deserves
9. Share capital
Government and other non-members may contribute share capital
Members alone can contribute share capital and non-member share capital is forbidden
10. Mobilisation of funds
Cooperatives may mobilise funds within the Cooperatives may mobilise funds within
limits fixed by Registrar the limits fixed by by-laws
11. Investment of funds
Investment of funds even in own business restricted; lending limits are fixed by Registrar
No restriction in investment in own business, but other investments to be in any non-speculative manner specified by by-laws
12. Deficit
The issue of deficit not addressed; accumulated deficits are dealt with at the time of liquidation
Deficit is required to be analysed and dealt with on an annual basis; members have to meet the deficit in proportion to their actual use or commitment to the use of the services of the cooperative during the year, if the deficit cannot be set off against reasons
13. Audit
Audit is the responsibility of audit wing of the department; choice of auditors not available to cooperatives; no penalty for non-conduct of audit
Audit is the responsibility of the board; auditor to be chartered accountant or from Registrar's office at cooperative's discretion; non presentation of audit report to general body in stipulated time results in disqualification of all directors
14. Subsidiaries
No subsidiary organisation can be set up by a cooperative
Subsidiary organisations may be set up by a cooperative
15. Rights and privileges
Exemptions from payments of contains stamps, duties, etc
Same as available in 1964 Act
16. Disputes
Registrar or his appointee is the sole arbitrator By-laws must contain manner of settlement of disputes, only after which Tribunal has been given role; Registrar has no role
17. Offences
Offences to be tried by Special Courts; several offences mentioned in detail and their penalties, too; prior permission of Registrar necessary for prosecution
Special Courts to look at offences; directors and officers to prove that they tried to prevent offence, otherwise held responsible for the offence; any affected party can move Special Court; any persons entrusted with responsibility by the Act will be deemed to have committed offences if the responsibility
is neglected
18. Dissolution
Only by Registrar, only in the event of poor functioning; voluntary dissolution by members is not possible; no time limit on liquidation proceedings
By members and by Tribunal; not just because of non-viability, but also because of lack of interest in continuing cooperative; for not functioning in accordance with the Act and Principles of Cooperation; liquidations proceedings to be completed in 2 years
19. Final disposal of assets
After dissolution, surplus assets of a cooperative will vest in Registrar
After dissolution, surplus assets of a cooperative will be disposed of in accordance with the by-laws of that cooperative
20. Cooperative
Projected as an instrument for public good, as chanal for distribution of government resources
Defined as instrument of its members for their economic social betterment, based on mutual aid.
