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How to create a governance structure

Creating a Governance Structure

Who’s in charge? Who gets to decide?

To answer these questions, groups need to figure out how to create a governance structure. An organization’s governance defines people’s roles and responsibilities so everyone knows what needs to be done, and who does what to make the organization function properly.

This tool outlines the process of setting up a governance structure.

What is Governance?

Governance is often defined as “who gets to decide what”. In organizations like co-ops, this means everyone involved need to understand the purpose of the organization, how they fit into this vision, and what they need to do to fulfill their roles.

Here’s the model many organizations use:

creating-governance-structure

The graphic above shows the different roles in the organization and who reports to whom. In a co-op, members as owners have the final say on many important decisions. But they delegate authority to the board of directors. The board, in turn, delegates authority to management (if there is any). Management oversees staff (if there is any).

Who owns this thing?

The first step in figuring out “who should decide what” is answer the question “who owns this?” Co-op members are the people or businesses who use and own the co-operative business.

For this reason, it’s important during a co-op’s start-up phase to be clear about who the members should be. Choosing people or businesses with aligned interests to be in the ownership group is important to the success of co-operative governance.

Types of co-operative ownership

If we break this down into types of co-operatives, we can see how this works:

  • Consumer co-ops have consumers of a specific good or service (housing or farm to fork organic groceries, for example) as their members/owners, and these co-ops exist to provide goods and services to these members.
  • Producer co-ops add value to their producer owners’ operations, reduce input costs, and help members access new or larger markets.
  • Worker co-ops provide their owners with employment and a say in how the business operates. This type of co-op is well-suited for a group of entrepreneurs that value equal decision-making.
  • Community Service co-ops are non-profit co-ops. This type of co-op simply provides a service to a group of people – nothing more. For example, a fitness centre, day care or community hall are often set up as community service co-ops. They are owned by people who want a service not provided by market or government entities. These co-ops can be a bit different from those above as members aren’t necessarily the ones who use the services of the co-op.

Sometimes it’s easy to tell who a co-op’s members/owners should be. If a group of farmers want a co-op to package and ship their vegetables, those producers should own and make decisions about the co-op.

But it’s not always immediately obvious who the owners of a co-op should be. To figure out a co-op’s structure, you also need to determine who has the skills and resources needed, and who is willing to put in the work to get the co-op started and keep it running.

Case Study

Consider the following scenario

A rural community with a population of about 330 is located between two cities in southern Saskatchewan.  Its population has declined steadily over the last decade. Many senior citizens in the community need to move out of their homes to a place that provides more care. Currently, they generally move to a city to find a housing option that works for them. But this means leaving their family and friends behind.

A group of community members see a business opportunity in opening a senior’s facility, but private developers are hesitant to invest in a project that can be accessed within an hour’s drive of a larger center. None of the interested community members have the experience or resources to make the investment themselves. The town has strong charitable spirit and people are interested in providing volunteer time to help seniors stay in or return to the community.

Consider the following

  • Who benefits from a seniors’ facility being in the community?
  • Should the primary beneficiaries of this facility also be its owners?

This case study is based on the real story of the Furrows and Faith Retirement Villa Co-operative in Mossbank, Saskatchewan. Generally, residents of a housing co-op should be its members (and therefore owners). In this case, the group did something different.

Instead, Mossbank formed a community service co-op. The co-op has an open membership and is led by volunteers. Three important considerations went into this decision:

  1. The primary beneficiaries and users of the service (the seniors) may not be able to operate the business themselves. The Mossbank group decided against a traditional resident-owned housing co-op because they found people wanted a place to live but didn’t necessarily want to be involved in the running the facility.
  2. The community service (i.e. non-profit) model allows the co-op to have charitable status. This status means the co-op can offer tax-deductible receipts as an incentive for people to donate money.
  3. Being a community service co-op means anyone over the age of 18 can be a member. This large membership base ensures enough people are available to fill director roles and support the co-op’s activities now and into the future.

Summary

This case highlights some important practical decisions groups need to make to ensure the business is sustainable in the immediate, and long-term, future. As your group starts a co-operative business, ask yourselves these questions:

  • Who will benefit from the co-op?
  • Does this group have enough financial resources to provide start-up funds to the co-op? If not, who does?
    • Are there others that might consider investing in the co-op?
    • Would those investors want some control over the co-op?
  • Is the ownership group we’ve identified too narrow? Will we have enough people willing do the work of the co-op and use its services in 5 years? In 10 years?
  • Are there enough people in this group to act as the board of directors?
  • Does this ownership group have the skills required to start and run a business?
  • Should our plan for raising money for the co-op impact the governance structure?

Help is out there!

Crafting a co-op’s governance structure and making sure all the necessary pieces are in place can be tricky. Co-operatives First can help your co-op through this process with our incorporation support and good governance workshop. If you’re interested in a deeper understanding of co-operative governance, check out our free, online Good Governance Matters course.

Business resources make life easier

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