Corporate governance and management control systems in European co-operatives

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                        November 1995


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     CORPORATE GOVERNANCE AND MANAGEMENT CONTROL SYSTEMS 
                   IN EUROPEAN CO-OPERATIVES
                   *************************


GENERAL TRENDS, FINDINGS AND RECOMMENDATIONS


November 1995


Table of Contents

I.   Reference and Working Procedures    
II.  Co-operative Objectives
III. Co-operatives and Membership
IV.  Formal Democratic Structure
V.   External Control (Auditing)
VI.  Education and Information
VII. Financial Involvement
VIII.Findings and Recommendations
IX.  Co-operatives in Eastern and Central Europe
     Annexes  


I.   Reference and Working Procedures
*************************************

Since the beginning of 1994 the review of corporate governance
and management control systems in European co-operatives has
been a top priority within the work of the ICA Region Europe.

This topic came to the fore because more and more
co-operatives in different sectors and different parts of
Europe had experienced grave problems, which have threatened
the profile and identity of the whole co-operative system. 
These problems include mismanagement, financial scandals, poor
management control, growing distance between members and their
co-operative society, failure of democracy and an unbalanced
relationship between management and elected lay directors. 
Similar experiences appear to be common and therefore, for all
co-operatives, there are valuable lessons to be learned and
dangers to be avoided.

On behalf of the ICA European Council an in-depth study of the
problems mentioned above was made in 1994, with particular
respect to four  co-operative sectors: consumer, agriculture,
banking, and housing.  Similar  findings may be true for other
co-operative sectors.  The review was based  on personal
interviews with around 45 key persons in several European 
co-operatives.  In addition various books, articles and
published research  have been considered.

After having presented a detailed analysis of the specific
problems in the  four sectors to the ICA European Council in
Seville in May, 1994, a second  summarized report was
submitted to the Regional Assembly of the ICA Region  Europe
in Prague in October 1994.  This report was also published in
the  Review of International Co-operation 3/94 providing
co-operatives in other  parts of the world with the
opportunity to evaluate the findings and  recommendations.

In order to discuss further some important aspects of the
Corporate  Governance report a seminar was held on the 11th
July, 1995 in St.  Petersburg. The lectures and discussions
focused on Governing Bodies,  balance of power between elected
lay persons and management as well as on  strengthening ties
with members (see Annex 1).  Information about the  findings
of the Governance project was given to the ICA Congress,
October  1995 in Manchester.

This final report can only touch upon the most important
trends and common  problems and ends with some conclusions and
recommendations which have been  discussed and agreed upon
during the presentations.  It has not been  possible to deal
with the specific differences that exist from society to 
society.  There are still a lot of societies in all sectors
which are  operating successfully with good governance and
management control systems.


II.  Co-operative Objectives
****************************

The main objective of co-operatives today, as in the past, is
to promote  the interests of members.  This was also
underlined by the statement on the  Co-operative Identity
adopted on the ICA Congress in Manchester October  1995 (see
Annex 2).  Additional objectives include: to safeguard the
right  of consumers, to protect the environment, to work for
healthier products,  to offer information and education and to
pursue social activities as a  form of solidarity.

Without members there exist no co-operatives.  Members are the
owners,  goalsetters and users of their own organisation and
have in this context to  safeguard good governance and
management control systems.  That means in  relation to their
jointly owned and democratically-controlled enterprise.

The members expect from their co-operatives good performance
including  special benefits.  This could be high selling
prices for agri-products,  accommodation of a good standard
and at reasonable prices, comprehensive  financial services,
low prices/quality products, special offers, discounts, 
bonus-payments, dividends etc.

An efficient and profitable business operation is an absolute
precondition  to reach the economically based targets for
member promotion.


III. Co-operatives and Membership
*********************************

Co-operatives and their central institutions have large market
shares  within their respective fields of activities and
employ significant work  forces.  The overall figures include,
however, very different sizes,  structures and development in
each European country.  Planned expansion and  profit goals
have not always been reached.  In some countries co-operatives 
have stagnated or failed with heavy losses e.g. consumer
co-ops, banks,  agriculture co-ops.

With a membership of around 75 million, the four co-operative
sectors still  hold a strong position within the West European
population.  Continuous  increases can be noted within the
housing co- operatives and co-operative  banks in larger towns
and communities, whilst decreases can be observed  within the
consumer and agricultural co-operatives.

The recruitment of new members has frequently been neglected
because of  insufficient resources and information.  Too often
the members have been  regarded by management as a necessary
evil; as a hindrance for quick  decisions and expansion.  The
business transacted with non-members has  grown considerably. 
As a consequence, the interest and loyalty of members  is
often very low.  From their role as owners and goalsetters,
the members  are changing to mere customers, interested in
immediate benefits from the  society or elsewhere.  The
co-operative profile has become blurred and  interchangeable
with that of private competitors.

At present, however, there is evidence of some change.  In
several  co-operative organisations there is lively debate and
action programmes  introduced to revitalize membership.  It is
increasingly recognized that  good economic performance is a
precondition to serving the members properly  and also in
offering them special benefits.

In general, members of agricultural marketing societies and
housing  co-operatives are far more interested in the economic
activities of their  society than members in the consumer and
banking sector where many  alternatives exist in the market
place.

Despite varying interests between the co-operative sectors, it
can be  observed that the participation of members within the
formal democratic  structure is low.  The distance between
members and societies has grown,  especially in large-scale
societies.

Some of the reasons are:

- poor performance, no benefits from the society.

- members do not know very much about the special
characteristics of  co-operation in general, and about their
society specifically, due to lack  of information, Management
is not really interested in membership.

- members do not feel at ease with the growing size and
complexity of the  business operations.

- members do not want to take responsibility or offer their
spare time.  They want to use the services and obtain the
economic benefits, but do not  want any other involvement.

- genuine membership rights are transferred to delegates who
are often not  known to the ordinary members.

- active members are disappointed about the real opportunity
for  influencing and controlling the operations of the society
and consequently  they resign from the Governing Bodies.

- rotation within elected delegates and members of the
Boardrooms is low,  giving interested members very limited
chances to participate.


IV.  Formal Democratic Structure
********************************

The formal democratic structure is similar in all countries
and  co-operative sectors, with some variations in detail. 
Within this  structure both the monist and the dualist systems
are used: Shareholders'  Meetings, Board of Directors/
Shareholders' Meetings, Supervisory Board,  Executive Board.

Annual Shareholders' Meetings are either open to all members
(in small and  medium sized societies and most British
consumer co-ops) or only to  delegates.  Delegates are elected
for between two and four year terms at  district meetings or
on tickets (lists) voted upon in special election  offices or
by letter.  On average, participation in elections is low.
Elections are rarely contested.  Often it is difficult to find
a sufficient  number of candidates.

The duties for Shareholders' Meetings are almost the same in
each country  and co-operative sector.  These include the
approval of the annual accounts  and balance sheet, elections
of Board members, change of rules, decision  about mergers,
election of auditors.

Critical comments and questions to the Senior Management (CEO)
about the  current situation and development of the society
are rarely heard in many  Shareholders' Meetings.

The Board of Directors/Supervisory Board is elected for a two
to four year  term.  Except for being a loyal member, no
formal qualifications for  candidates are required.  In many
co- operatives, elections are not often  contested but this
has increased somewhat during recent times.  It is known  and
generally accepted, that candidates are often preselected and
proposed  by the sitting Board and chief officials. 
Re-election is possible and  frequent.

In the monist system, it is the Board which legally exercises
the ultimate  power and responsibility in all matters of the
society but it delegates the  running of the daily operations
to the chief official (CEO) and his  management team who are
appointed/approved by the Board.  In some countries  and
societies, the chief official is member of the Board e.g. in
Sweden, or  its President e.g. holding the office of PDG in
many French and Italian  societies, thus putting him in a very
strong position.

In the dualist system, e.g. in Germany and Austria the exact 
responsibilities of the Supervisory Board and the Executive
Board are laid  down in the co-op laws and/or rules of the
society.

The Supervisory Board monitors closely the development of the
operation and  performance of the management, examines the
financial statements and  balance sheets, follows up the
results of the auditors and, most  importantly, appoints and
removes the Executive Board.  The Executive Board  runs the
business in its own right and in the framework of given
guidelines  and limitations set by the law and the statute of
the society.  In large  societies, the Executive Board
consists increasingly of full time salaried  executives only.

Employee representation in the Boardrooms i.e. elected by the
employees, is  governed by workers' participation laws or by
voluntary agreements.  Representation ranges from nil to 50
per cent.  Severe conflicts of  interests between employee
representatives and the general interests of  members were not
reported but, realistically must occur in case of crisis, 
staff reductions and closures.  Urgent changes and decision
making may be  slowed down because of such conflict of
interest.  On the other hand, there  are also examples e. g.
Sweden) where employee representation helped to  implement
necessary changes.

In Great Britain, most consumer co-ops have some directors who
are  employees but who are elected by members.  This can cause
conflicts as  mentioned.  The Registrar of  Friendly Societies
is limiting numbers of  employees to below quorum level.

The frequency of Board meetings varies between six and twelve
times a year,  with dates set beforehand e.g. up to one year. 
In general the attendance  is high, up to 90 to 100 per cent. 
A varying degree of sophisticated  information is sent out
before the meetings, supplemented by further  documentation
and reports by senior management at the meeting.

To a varying extent the Boards, especially of larger
societies, work with  sub-committees on specific areas, such
as finance and financial accounts  (auditing), investments,
membership, personnel, loans etc.  A special  committee
chaired by the President is often responsible for preparing
the  appointment of chief officials and senior management and
determining their  remuneration package.

Only a few women are represented on the Boards, which means
that they do  not necessarily represent the interests of all
members, especially in those  societies with a large share of
women within the membership.

In all West European co-operative sectors and societies
strengths and  weaknesses in the functioning of the formal
democratic structures and in  the collaboration between Boards
and management are to be found.  In  successful societies
there are normally few problems in the Boardroom and  there is
confidence in the ability of the management to run the
business in  a proper way promoting the interests of members. 
But there is a warning  voice from Sweden which has to be
taken into account - that continuous  success creates inaction
and lack of drive for new initiatives and  innovations with
the danger of future failure.

The following weaknesses and problems in the Boardroom and in
the  collaboration with management have occurred in one way or
another:

-The elected directors have not been strong enough to exert
the authority  and power given to them by the law and rules in
relation to management.  In  the case of continuously failing
to meet budgets and excessive losses, the  Boards did not
take, or only hesitantly took, the necessary measures e.g.
the removal of the executives.

- Some of the Board members did not have the background and
ability (and/or  time and commitment) to lead and monitor
large complex business operations  thus failing to recognise
wrong developments, mismanagement and heavy  losses in time. 
Matters became worse by gaps in vital information provided  by
management.

-The balance of power is sometimes inappropriate.  The real
power lies with  chief officials.  Only they have detailed
knowledge of the business.  They  have more or less an
information monopoly and may decide, to a large  extent, the
information to be given and the topics to be dealt with on the 
agendas of the Boards.

-The Board appointed inadequately qualified management who
lost control of  a growing, complex business in an
increasingly competitive environment,  thus leading to
disaster.

-Management is not generally interested in membership nor in
responding to  a questioning Board but in pursuing own
priorities in relation to rapid  expansion and own careers.

-Boards have grown too close to management, leaving too little
room for  critical questioning and unpopular decisions.

-Board rotation is too low, giving younger active members very
little  chance to participate.


V.   External Control (Auditing)
********************************

The important external control and supervision role is
executed by external  auditing.  As a rule, co-operatives are
audited every year under law e.g.  in Austria and Germany
and/or in accordance with the rules of the  societies.  These
services are provided by external professional auditing 
companies elected by the Shareholders' Meetings or by the
co-operative  federations.  In several organisations,
additional auditors from the  membership, are appointed by the
Shareholders' Meetings.  Their role is to  monitor the
professional audits and to ensure that the results and 
decisions are in accordance with the interests of members.

The audit reports are given to the Governing Bodies for
discussion and for  taking necessary action.  At the annual
Shareholders' Meetings, it is  normal for a short summary of
the audit to be presented, including a  statement on the
accuracy of the balance sheet and accounts.  The audit 
reports help the Boards to carry out the control duties,
despite the fact  that the information about the performance
of the society is historical.  In reality, Shareholders and
elected directors do not always recognise the  importance of
the auditors' role.


VI.  Education and Information
******************************

To a varying degree, most co-op organisations offer their
elected directors  introductory seminars and/or educational
programmes on commercial and  co-operative matters.  In
general the interest in participating is high.  Training
seminars for elected delegates and ordinary members are only 
available in exceptional cases, e.g. in Denmark, Norway,
France or Germany.  In some organisations e.g. in Great
Britain, Germany and Norway, Board  members are provided with
a detailed handbook about the background and  structure of
their co-op society and the rights and duties of the elected 
lay-persons.  These are well received.

As a rule, management and staff training has a high priority
in most  societies and is carried out internally by own
educational facilities, and  externally using outside training
schools and seminars.  The training  concentrates largely on
commercial matters and on improving professional  skills. 
Employee knowledge about co-operation is generally low and is 
often not seen as important by management.

In large societies it is inevitable that only a small number
of members are  able to be directly involved in the formal
democratic structure.  In  varying extent, societies are
trying to explore new ways of providing  information and
improving information and consultation with members, 
especially within consumer co-op organisations but also in
some  agricultural co-operatives e.g. in Denmark and housing
co-ops.  Examples  given include members' meetings around
shops or housing complexes, district  meetings, shop
committees, study circles, debate evenings, cultural and 
leisure time arrangements, consumer forums, women's guilds
etc.

However, generally these are not sufficient to improve the
often poor knowledge of members about co-operation or to
revitalize the interest of  members in the affairs of their
society.  Important and additional  activities include the
giving of regular information via member magazines, 
newsletters, press releases, films and TV spots, short annual
reports,  social balances etc.  These information channels are
known but used  insufficiently.  High costs are mentioned by
management as a reason for  doing little or nothing.


VII. Financial Involvement
**************************

It was underlined by many of those interviewed that a
substantial financial  involvement is able to contribute to
stronger loyalty and commitment by  members in the affairs of
their society and this involved paying them an  attractive
dividend or interest rate.

In most countries members invest one or more shares in their
co-op society,  with a minimum and maximum amount.  As the
amounts are widely different,  anything from 1 pound to 20,000
pounds, members play a varying role in financing and  risk
bearing in their society.  In addition to the member shares,
parts of  the profits are retained and transferred to the
equity capital, especially  important in Denmark, Holland and
Denmark, where member shares are not  required.

For improving the level of risk bearing equity capital, new
financial  instruments for attracting more capital have been
developed.  Some German  societies e.g. consumer Co-op
Dortmund - Kassel have issued "participation  certificates"
(Genuss-scheine) via the Stock Exchange and banks.  In France 
and Italy new legal regulations provide the possibility of
placing  preferred non-voting shares with "investor members"
or to float  co-operative investment certificates.  The
envisaged European Co-operative Statute includes similar
regulations.

Several European consumer and housing co-operatives collect
savings from  members, which are shown as liabilities in the
balance sheet, but add to  liquidity and financing of the
societies (but are withdrawable on short  notice).  Members of
housing co-operatives have to make a substantial extra 
contribution in shares and loans, when moving into a new
co-operative home.

Limited liability companies and stock holding companies are
widely used at  secondary levels (central co-operative
institutions) for large scale  business operations,
subsidiaries, daughter companies and takeovers.  In  Germany,
several co-operatives were changed into stock holding
companies  trying to maintain the co-operative character by
corresponding regulations  in the new statutes e. g. voting
rights, auditing.  That proved to be a  failure in the case of
the consumer co- ops and in the end the majority of  shares
were taken over by large competitors.


VIII.     Findings and Recommendations
**************************************

1.   Ready-made solutions to improve corporate governance and 
     management-control systems are not available.  It is
     recommended that the  individual societies and their
     Boards carefully consider their own  situation and, if
     necessary draw up and implement the necessary measures. 
     Against the background of the Corporate Governance report
     and experience of  members, the ICA could act as a
     catalyst for information and  recommendations.

2.   In theory, the message and corporate identity of
     co-operation is very  clear but in practice not very well
     recognized by members, customers and  public.  It has
     become blurred and interchangeable with that of private 
     competitors.  Weaknesses in detail can easily be detected
     by each society  by member interviews and feedback.

     A radical change can only be made if both Boards and top
     management really  want it and implement the necessary
     action programmes.  The policy and  strategies of the
     society have to be redefined with priorities set for 
     member orientation and member promotion, but which will
     in no way harm or  hamper the efficiency and
     profitability of the business operations.  They  are, on
     the contrary, preconditions to reach the necessary
     economically  based targets for member promotion.

     At present profile programmes have been introduced e.g.
     in Italy, Sweden,  Norway, France and Denmark.  The
     success story of the consumer  co-operatives in Norway
     was presented at the seminar in St. Petersburg (see 
     Annex 3), which is worth studying in more detail.

3.   It is mostly recognised that an active and involved
     membership  remains the motor of each society.  On the
     basis of an agreed Board policy,  strong efforts have to
     be made to revitalise the interests of members and  to
     recruit new members.  Appropriate financial and
     management resources  have to be budgeted for.  It is
     recommended that responsibility for  membership should be
     placed with the top management with the obligation to 
     report regularly to the Board about the development and
     measures taken.

     Furthermore, membership lists should be updated from time
     to time, allowing  a realistic review and launching of
     action programmes aimed at existing  members loyal to the
     society.

4.   With the revitalisation of member interests it should be
     possible  to encourage qualified members to become
     candidates for elected delegates  to annual meetings or
     directors of the Boards.  Whilst it seems to be 
     legitimate and in order for elected delegates, Board
     members and/or  administration to identify and propose
     suitable candidates it should be  normal practice that
     candidates are nominated by grassroot members either  in
     writing or spontaneously at the election meetings.  An
     election  committee chaired by the President could be of
     great help.

     For a healthy democracy it is of great advantage if
     elections are  contested.  Direct elections at election
     meetings are to be preferred but  participation could be
     improved by more attractive arrangements at these 
     meetings.  If list votings are used, information on all
     candidates should  be added to the lists to allow
     informed voting.  New methods of voting  should be
     examined e.g. postal ballots, ballots in election
     localities in  easy reach (shops, banking branches).

5.   To be a loyal and active member should still be the only
     formal  qualification for the elected member
     representatives to the Governing  Bodies.  Further formal
     qualification conditions, even if desirable, would  limit
     the rights of members to nominate and elect a candidate
     of their own  choice and reduce further the grassroots
     interest.  As many examples show,  it is possible,
     especially in societies with large membership, to find 
     member representatives with the appropriate skills,
     strength and  qualifications.  More important is that
     these elected delegates and  directors are willing and
     able to offer sufficient time and commitment for  their
     new office, to become acquainted with the business and to
     fully  involve themselves in the demanding duties of the
     Governing Bodies, not  least in the Boardrooms, and to
     attend ongoing training programmes.  

6.   In order to improve the knowledge and skills of the
     elected Governing  Bodies it should be the obligation of
     all co-op societies to offer  introduction courses and
     comprehensive training programmes on commercial  and
     co-operative matters.  At the same time it should be an
     obligation for  the elected directors, to attend any
     training that is provided.  In  addition, handbooks and
     other written documentation could be of great help  in
     explaining the co-op structures and targets as well as
     the duties of the  Governing Bodies.

7.   In co-operative societies, especially with a large share
     of females in  membership it should be an objective to
     elect more women to the Governing  Bodies and, within the
     staff, employ at all levels.  A corresponding  resolution
     was unanimously adopted by the ICA Congress in
     Manchester,  October 1995 (see Annex 4).

8.   There should be a clear cut division of legally binding
     responsibilities  between the Board of Directors and
     chief officials, (and the respective  Supervisory Board
     and Executive Board) written down in the society's rules 
     and/or standing orders where the law does not provide for
     it.

     The advantages and disadvantages of the monist and of the
     dualist system  were presented and discussed at the
     previously mentioned seminar in St.  Petersburg (see
     Annex 5).  Further research is recommended, also in 
     connection with the role of the chief official (CEO)
     including the question  of whether the CEO should be a
     member or even President of the Board.  Another important
     topic could be employee representation in the Board rooms
     and possible conflicts.

9.   An age limit for elected member representatives,
     introduced already  by several co-op organisations, is
     one example which other societies may  wish to consider. 
     The purpose of age limits is to improve rotation, giving 
     interested members the possibility to participate within
     the Governing  Bodies.

10.  For their important, responsible and time-consuming work
     the Board  members should be paid a realistic financial
     compensation.  The level of  this fee could be fixed in
     collaboration with the co-op federations or in 
     accordance with guidelines provided by the federations
     and should be  carefully balanced.  In the comments to
     the financial statements presented  to the Shareholders'
     Meetings, information about the total sums paid to 
     elected directors and top executives should be given as a
     sign of full  openness to members.

11.  Board meetings, with set agendas, should be held at
     regular periods,  with timetables fixed well in advance. 
     An absolute minimum seems to be six  meetings a year. 
     The notices for meetings are sent out by the society but 
     in the name of the Board's President, who is also
     responsible for setting  up the agenda.  The topics on
     the agenda should be well documented.

     The Board (Supervisory Board) has to instruct the chief
     officials  (Executive Board) which information and key
     figures are to be supplied to  directors on a regular
     basis between meetings and before and at the  meetings. 
     The information has to be comprehensive, but short and to
     the  point, and easily understandable.

     At any time, the Board has the right to full information
     about the affairs  of the society.  On the basis of an
     agreed Board policy and guidelines  Board members should
     have the right to seek independent advice if special 
     problems, developments and proposals have to be clarified
     in more detail.  For such requests, the elected auditors
     or the auditing departments of the  co-op federation
     should be available.

12.  Dependent on the size of the Board, it is advisable to
     employ  sub-committees for special areas, which are able
     to consider the subjects  in question in more detail and
     inform the Board as a whole accordingly.  Such
     sub-committees are used for example for finance and
     financial  statements (auditing), investments, loans,
     personnel, membership.    

     One of the most important duties of the Boards is to
     appoint a qualified  management, This duty implies that
     Boards must also be prepared to issue  management with
     warnings, and even removal, if objectives are not
     achieved.  In many cases, a special Board committee for
     senior management has the  responsibility of preparing
     for the appointment of the chief official and  his
     management team, deciding service contracts with
     remuneration and terms  of office.  The appointment of
     the top management (Executive Board) is  often made for a
     four to five year term.  Re-appointment is possible and 
     common but gives the directors the possibility of
     reconsidering the qualifications and achievements of the
     management in question.

13.  The important role of the President/chairperson of the
     society should be  fully recognized.  The election of a
     suitable person with ability, power  and commitment has
     to be considered very carefully as he or she has to 
     guide and organize the work of the Board, agree the
     agenda of Board  meetings, initiate and monitor strategic
     decisions and oversee and  collaborate with the top
     management.

14.  As with the functioning of the formal democratic
     structures and  management within primary co-operatives,
     the collaboration between the  primary societies and
     their central organisations is of great importance  for
     the progress of the whole group.  Due to weaknesses and
     flaws e.g. lack  of confidence, much time, energy and
     resources have been wasted during  recent years.  As
     shown by successful examples, it is important to have a 
     clear division of work and responsibility on all sides
     and on different  levels.  In this context, the election
     of qualified member representatives  into the Governing
     Bodies of the central organisations is highly desirable, 
     giving them influence in protecting the overall
     membership interests.

15.  The reports of external audits, either by elected
     independent  professional auditing companies or by
     auditing departments of the co-op  federations, can be of
     great assistance for the control of the business 
     operations of the society.  They support the supervising
     duties of the  Governing Bodies.  Furthermore the
     auditors are available if special audits  are required.

     The results of the audits should be thoroughly evaluated
     by the Board.  In  this context the sub-committee for
     Finance and Financial Statements  (sometimes called the
     Audit Committee) should examine the audit report 
     together with the auditors and formulate, if necessary,
     critical questions  to be put to the management.

     In order to guarantee, from the outset, the necessary
     distance between the  auditors and the administration of
     the society it is advisable to change  the auditors from
     time to time.

16.  In large co-operatives only a small number of members are
     able to  participate actively within the Governing
     Bodies.  
     Therefore, it is of the utmost importance that societies
     develop and  introduce new ways for consultation and
     information as already adopted by  consumer co-ops and
     societies in some other sectors.  Among other methods 
     mentioned are district meetings, shop committees, study
     circles, debate  evenings, consumer forums, cultural and
     leisure activities etc.


     In addition, members should receive by right, on a
     regular basis,  information about their own society and
     other co-operative and consumer  related matters.  Only
     informed members are loyal members and therefore 
     providing information must be a priority.  The existing
     information  channels are known, and to a varying degree
     used, e.g. member magazines,  news letters, press
     releases, films and TV spots, short annual report, 
     social report etc.

17.  Co-operative aims and targets can only be reached if the
     employees at  all levels are motivated and encouraged to
     achieve these targets.  They  need a high standard of
     professional skills which are mostly obtained  through
     training provided internally in own schools and
     externally at  seminars.  It is also important that the
     employees identify themselves with  co-operative
     philosophy and with the special profile of co-operatives
     in  order to understand the significance of the
     economically based targets of  member promotion in their
     daily work.  In this context, staff education in 
     co-operative matters should be intensified.

18.  In many societies, financing and increasing the
     risk-bearing own capital  are a high priority.  Besides
     the traditional form of member shares, new  financial
     instruments are available or under consideration.  It is 
     recommended that the Co-op Banks of the EU in Brussels
     keep ICA members  informed of the latest developments.  

19.  As demonstrated above, Corporate Governance and
     Management Control  systems include many aspects of
     membership and membership involvement.  In  some
     countries (Great Britain and France) Co-op organisations
     are trying to  identify the most important aspects in
     Codes of Behaviour or Codes of Best  Practice.  It should
     be of great interest for the European co-op 
     organisations to follow the working of these codes and
     the future  experiences.  The British Co-op Code of Best
     Practice was presented at the  seminar in St. Petersburg
     and attracted great interest from the  participants.  It
     is suggested that a code similar to the British Consumer 
     code be prepared on an European level which should cover,
     if possible, all  co-operative sectors.


IX.  Co-operatives in Eastern and Central Europe
************************************************

A separate section on co-operatives in Eastern and Central
Europe is  required because of the very different
circumstances which affect them.  These co-operatives are
heavily engaged in adopting and streamlining their  operations
to the conditions of the free market economy.  Despite the 
difficulties they have made remarkable progress and are still
holding  significant market shares in their respective fields
of activities.  But  they are aware of the fact that the
growing competition from private  companies and the needs of
members make it necessary to improve further the  efficiency
and profitability of their operational units.  This means high 
investments in reconstruction, modernizing and closing down of
unprofitable  units.  As a consequence this requires large
investment in education and  training thus improving the
professional skills at all levels.  
In addition one of the most important tasks seems to be to
revitalize  membership and the functioning of the formal
democratic systems.  In the  past members were not accustomed
to (nor permitted to) influence and  control the affairs of
their society.  At present, most of them are not  interested
in doing so, leaving the affairs of the society more or less 
without guidance and control by members.  In this context many
problems are  similar to those in West European co-operatives
meaning that similar  solutions have to be found.

A continuous close collaboration between the member
organisations of the  ICA Region Europe and with the ICA
headquarters in Geneva is of great  importance to supporting
the ongoing process of reconstruction and  modernisation.


November 1995 
by Reimer Volkers