Co-operative Development and Corporate Governance Structures in German Co-operatives: Problems and Perspectives

In Germany exist a large number of co-operatives that are engaged in a broad variety of business activities. Their organisational structure is determined by co-operative law and to a lesser degree by statutes or by-laws. As has been shown for German rural co-operatives by applying property rights theory the corporate governance structure as determined by law is formally still in existence, while it actually has been shifted in favour of the executive board. This has created an imbalance where on the one hand no longer any corporate governance is actually taking place while on the other hand members' interests may easily be neglected, because it is the executive board that determines the members' interests and also whether they have benefited from the cooperatives activities. In theory, suitable instruments to improve the corporate governance structure within such co-operative are the promotion plan and the promotion report as developed by Boettcher. However, for transaction cost reasons and due to the current attenuation of property rights, it is unlikely that these instruments will be implemented without outside pressure, e. g. through a change in cooperative law. A superior alternative to promotion plan and promotion report may be a combination of promotion task controlling and member oriented quality management. While such instruments would indeed improve members' ability to execute co-operative governance, managers' willingness to submit themselves to stronger governance may well be assumed to be very low. Taking into account the current distribution of property rights in big German co-operatives, managers will accept stronger governance structures only if some other incentives exist. An ongoing research project indicates that such incentives might exist in the realm of improved business opportunities due to better information about members' aims and needs.