The management and the elected officials’ responsibility has been under discussion, particularly after the bank crisis and legal reorganizations. It has been asked, among others, who is liable for the huge losses generated by some companies. The discussion is all the more vivid among cooperative circles as the research has taken an interest in the contents of the so-called corporate governance of the cooperative and its significance for the cooperative companies.
The responsibility of the management and the elected officials can be divided in two: the legal liability and the commercial responsibility, which also involves certain ethical issues we could call “soft aspects”.
Without differentiating the responsibility of the management and the elected officials in their way exposed above, we cannot define the consequences of this liability.
Legal liability
Legal liability means that the cooperative management must function in the context of law, rules and resolutions voted. The powers of the board of directors and even those of the general meeting are also defined by the paragraph concerning the cooperative line of activities.
The board of directors and the elected cooperative officials can render themselves liable if they cause prejudice to the cooperative by negligent behavior.
Any liability implies that the director in question has violated the law or the rules and that this has caused prejudice. Exceptions to standard and diligent procedures may imply liability. Any director who has trespassed the limits of the legal liability may be liable to third parties.
Commercial responsibility
Commercial responsibility has a much broader scope than legal liability. The board of directors and the managing director must manage the cooperative in the context required by the legal liability in such a way that it is able to operate with economic success. If the board of directors cannot do this, the general meeting of the cooperative can discharge the board members (and the managing director) from their duties. There is no way to claim damage if the board of directors has not violated the law or acted against the rules.
The consequence of the commercial responsibility does not necessarily lead to distrust. If the cooperative’s general meeting is satisfied with the conduct of the board of directors, it can thank the latter and re-elect its members. The consequence of the commercial responsibility can be either positive or negative. On the contrary, the consequence of legal liability is always negative.
Ethical and social responsibility
Commercial responsibility includes the responsibility for ethical provisions, like acting by honest practices in commercial matters. Individual members of the cooperative may have to make choices between their own interests and those of the cooperative.
There has been more and more discussion about the ethical or corporate social responsibility of undertakings in recent years. The European union has published a so-called green paper describing the modern European way of thinking and principles. Cooperative undertakings are driven by the internationally recognized principles of the cooperative enterprise, so they should, on their own initiative, take responsibility for their social obligations and the ones related to civil society.
Check the cooperative values and principles. Act accordingly!
Principles of the cooperative enterprise:
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and Independence
- Education, training and information
- Duty of cooperation among cooperatives
- Concern for the community.
Cooperative values:
- Self-help
- Self-responsibility
- Democracy
- Equality
- Equity
- Solidarity
- Honesty
- Openness
- Social responsibility
- Caring for others.
The importance of corporate values, ethical provisions, and social responsibility has increased recently because value judgments are significant in today’s society as competitive factors between companies. In the business in practice, the cooperative principles, which have existed and been tested for more than 150 years, and ethically high values resulting from the fair and genuine cooperative spirit are an unbeatable leading edge, as long as they are used correctly.
Don’t forget to supervise
The management of an enterprise cannot be penalized with compensation claims only because of the low profitability or vast losses of the enterprise unless the management has committed infringements. However, in these cases, the manager director can be discharged, which often happens in practice (distrust).
When it comes to the legal liability and violations against it, it is possible to claim compensation from the managing staff for damage if any prejudice has resulted. Often only slight negligence is enough.
Because the board of directors has the obligation to supervise, they are also responsible for their subordinates’ acts. For example, in embezzlement cases, the board members may become liable if they have neglected their supervision duty.
Some court cases demonstrate that board members, having neglected their duty of supervision, have been required to pay damages to the cooperative (the same principles are usually applied in other legal forms of companies). Also, in cases where the board of directors has exceeded the limits imposed by the stipulation of the cooperative line of activities, the board members have been sentenced to pay damages to the cooperative.
This is why the board and the managing director have all the more reasons to familiarize themselves properly with these matters, examine very carefully every decision to make, and supervise their subordinates.
Once the general meeting of the cooperative has given discharge to the board members and the managing director, it is usually impossible to claim compensation for damage, provided that all matters pertaining to it have been known to the general meeting at the moment the discharge was given.
COMPENSATION FOR DAMAGES MAY BE CONSIDERED IF:
- the cooperative has suffered prejudice
- the prejudice is caused by a member of the board of directors intentionally or with negligence (a slight negligence is enough)
- the board of directors has neglected their duty of supervision
- the board of directors has exceeded the limits imposed by the stipulation concerning the cooperative lines of activities.
CHECKLIST
- Do not forget to keep the membership register update, including each member’s name, address, number of shares, and the date of admission.
- Keep a list of former members until the cooperative has repaid their contributions. The amount to be reimbursed must be paid one year after the end of the financial year during which the membership ended.
- Submit the cooperative’s financial statements for registration at the Trade Register within two months after approving the profit/loss statement and the balance sheet. The Trade Register receives some of the financial information directly from the Tax Administration. Do not forget to complete the data, if needed.