Governance Issues Seen From a Management Perspective (1996)

    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
                         December, 1996

          (Source: Review of International Co-operation
                    Vol.89, No.4/1996, pp.34-36)

          Governance Issues Seen from a Management Perspective

                         by Steinar Sivertsen*

This paper covers two aspects - the first is the need for
professionalism by the board and management of a modern
organisation. The second aspect focuses on the role of the
Chairman of the Board versus the role of the Chief Executive.

My experience regarding these matters is of course rooted in the
life of Coop Norway. I therefore think it would be useful to
begin with a brief description of the consumer co-operative in
Norway. During the nineties, Coop Norway has undergone major
changes. During the last six - seven years, the organisation has
been through a continuous turn-around operation, an operation
which in all humbleness must be characterised as a success. 

In 1990 we had 480 000 members. Today the number of members has
increased to 750 000. The average age of a member in 1990 was 58
years compared with today's 51 years. In 1990 the average member
would buy 30 percent of his or her need in the co-op shop. Today
50 percent of the buying takes place in one of our shops. At the
beginning of this decade, our market share in daily goods was
down at 22 percent. Today it has exceeded 25 percent. Profit-wise
we started with a net result of some 20 million Norwegian kroner.
This year we will see a net profit of more then one billion
Norwegian kroner, of which 350 million will be given as a
dividend to our members. The 750 000 members belong to one of 350
local co-op societies. The local societies are the owners of the
central organisation NKL. The highest authority of NKL is the
Annual Meeting where the Board of NKL reports to 100 delegates. 
The delegates are elected among the 750 000 members at regional
annual meetings prior to the annual meeting of NKL. The Annual
Meeting elects the supervisory board and the Board of NKL. The
Board has 11 Board members, 6 represent co-op members, 4 are
elected among the employees. In addition to that the Chief
Executive is a member of the Board.

In Norway, as in most countries the competition is becoming more
and more fierce. Trade in all branches is restructured from a
multitude of small individual merchants into great national
and even international companies. Instead of the cosy charming
shop on the corner, shops are now members of chains where you
will find three success criteria, namely discipline, discipline
and discipline. In today's retail trade, management is recruited
to a large extent from universities; these recruits will have a
broad professional career before entering the rank of top
management. Briefly, retail trade is being professionalised with
the need for competence in many areas which was not required only
ten - fifteen years ago. The same applies to co-operatives.

The threat from a Governance point of view is obvious: Co-ops
tend to be management driven. Whereas board members in major
private companies are elected within the business environment,
Board members in co-ops are elected among what we could call 
everyday people. Very often solid, earnest people with good
judgement, but without the necessary background for strategic
decisions in the business world. Instead of bringing support and
criticism to the Chief Executive they act as passive receivers
of information. This is a critical situation. Management needs
a demanding board which sets high standards and requires high
performance. So what should be done? I can only speak from my own
experience. In Norway we have started out by defining a target,
saying that one percent of our members are to be trained as
qualified, competent Board members. To attain this target we run
a series of courses which is monitored by our Co-op Institute.
Furthermore, we have focused on the work of the election
committees. In all co-ops you will find en election committee
which is responsible for selecting candidates for election among
co-op members. The election committees are the most important
co-op bodies. During the past year  we have trained the
election committees and pointed out their primary role and
responsibility. It is too early to report any progress, but we
hope to see more young people, more women and more competence on
the board in the future.  

Let me now turn to the second aspect of my presentation, that of
the role of the Chairman of the Board versus the role of the
Chief Executive.

Until the beginning of the nineties the Chairman of the Board of
Coop Norway had a full time job as Chairman. He also had staff
reporting to him, the law department, the department for
organisational matters, the information department. This was
based on the reasoning that the Chairman was responsible for the
co-op structure and member questions, in brief the running of the
co-op identity. The Chief Executive was allowed to take care of
business matters. This created a certain lack of clarity
regarding the organisation. It was possible to bring matters to
the Chairman while by-passing the Executive. A distance developed
between the operation of business and the co-op uniqueness. The
progress of Coop Norway in the nineties is to a large extent due
to the fact that co-op identity, co-op uniqueness is combined
with business operations. In fact, the co-op uniqueness with our
own customers as owners, gives the co-op vital assets in the
market. Through member oriented activities and benefits, the
members are becoming more and more loyal customers - a tendency
which now has given birth to the idea of members' clubs among our
private competitors. However, one important and vital difference
will always be there: the fact that we distribute our profit to
our customer/members.

I know that views differ quite a lot among co-ops regarding the
question of the role of the Chairman of the Board, as views
differ in most questions within the co-operative movement. 
In Coop Norway we are very happy with the changes which took
place in defining the role of the Chairman and Chief Executives. 
Now our Chairman of the Board is the Chairman of the Board. He
runs the Board meetings and he is the one who will be in contact
with the Chief Executive between the Board meetings. The Chief
Executive is the only one reporting directly to the Chairman. 
The departments previously reporting to the Chairman have been
organised in a members division, much in the same way as the
remaining part of the organisation. Today our Chairman of the
Board has a part-time job in NKL. In fact he would not have time
for more, as he also is the Chairman of the Board of the
Norwegian Telecommunication company and the state owned Norwegian
oil company.

I do not intend to go into detail on the questions of the
authorities of the Board and the Chief Executive, but I am of
course ready to answer questions. As I have pointed out already
a couple of times, what I am saying today is based on my personal
experience with Coop Norway. Different times, different cultures,
different traditions may find solutions that work as well as
this, or even better. We live in a time of rapid changes. That
goes for co-op Governance as well.  

*    Mr. Sivertsen has been the Deputy Chief Executive of NKL
     since 1990 and Chairman of INTER-COOP since 1992.