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5.10: Organizing the Governance of Cooperatives

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  • Globally, cooperatives have organized themselves in one of three types of membership structures: centralized, federated, and a combination of centralized and federated. There is no right or wrong structure. A centralized structure is one in which members are individuals. This model works well when members are in close geographical proximity to the cooperative, and has the advantage of communication about the cooperative’s purpose and ability to operate as a true democratic form of governance system. Directors are elected from the membership based on geographical districts or chosen at large. Some wholesaling cooperatives have centralized their structure entirely by merging some or all individual cooperative members into one cooperative. In federated cooperatives, each member is a cooperative. This resembles a republican form of government such as the U.S. and its 50 states. Directors are chosen from among the members of the cooperative, can include managers, farmers, or consumers, and often reflect proportional voting based on business volume.

    Some wholesaling type cooperatives have a combination of the two structures. There is no right or wrong answer, but members should choose the structure that best fits and communicates the cooperative’s economic purpose, and consider its impact on the three ways members participate in the cooperative: 1) governance (which structure provides the best qualified directors), 2) benefits (which structure creates the best customer transaction and after-tax cash flow to the members), and 3) ownership (which structure creates the best equity structure that takes into account the member’s life cycle and ensures that they are invested proportional to their use in the cooperative).