A classic governance problem is whether the board is able to hold management accountable. The board (known as the ‘principal’) is supposed to oversee the co-op’s management (called the ‘agent’). The problem is that the board tends to have less experience and industry knowledge than the managers, and isn’t present for the day-to-day activities of the co-op.
This set-up makes it difficult for the board to know if there is wrongdoing or bad behaviour among the co-op’s staff, or to know if management’s recommendations and actions are the best course. The board may then “rubber stamp” management recommendations because they don’t know better or don’t know who to ask for confirmation.
To guard against this problem, a board can seek out external experts to guide their decisions or seek out training to ensure they have the skills they need.
Read the rest at Co-operatives First
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