“Cooperative Governance”, Münkner, February 2013
1
The Legal Context of Co-operative Governance
1.1
Co-operative Governance and Co-operative Identity
From the German perspective, a co-operative society is a special type of business organisation
with a legal framework of its own. It has a dual nature, consisting of a co-operative group and
a co-operative enterprise. Both are linked together by the purpose of member-promotion. As
self-help organisations co-operatives are characterised by the identity of owners and users,
those who own the co-operative enterprise established it or joined it because they seek
advantages derived from membership.
Self-administration is one of the guiding principles of co-operative organisation. Members
play a predominant role and the key rights are reserved for them. Officers are elected by the
members from among themselves.
Another principle is open and voluntary membership. An organisation pursuing long term
objectives while having variable membership needs a stable corporate structure with
governing bodies (organs) composed of office-holders elected for a limited term of office.
In order to work, plan and develop, the co-operative enterprise needs –
 stability of the co-operative group despite variable membership,
 a stable financial basis despite variable share capital,
 a reliable economic framework with a predictable volume of members’ use of the joint
facilities of the co-operative enterprise,
 specially trained leadership and management to run an efficient business organisation
and use scarce resources efficiently while practicing value-oriented co-operative
management geared to sustainable promotion of members, taking social and ecological
effects of its activities into account. Co-operatives need a Janus-headed leadership,
looking simultaneously in two directions: at the external markets in which they
operate like any other business enterprise and at the internal market, where in
transactions with their members, they offer service near cost or at favourable
conditions,
 special methods are required for measuring success as a business enterprise
(operational efficiency) and as a co-operative enterprise (member-oriented
effectiveness).
A special code for corporate governance of co-operative societies was developed in 2003 by
the German Co-operative and Raiffeisen Federation DGRV (DGRV Geschäftsbericht (annual
report) 2003, p. 27, most recent version dated 22 November 2010; see also Hilkenbach
(2004), pp. 1, 2 and Annex). This co-operative corporate governance code was designed
mainly for co-operative banks and other co-operatives having full-time directors.
1.2
Co-operative Governance and National Business Organisation Law
In Germany, co-operative societies are seen and treated by the law-makers as a special type of
business association, having their own legal framework since 1889. With 167 sections, the
Co-operative Societies Act is fairly comprehensive. For matters not regulated in the Cooperative Societies Act and not left to the by-laws, the general law of business organisations
applies, e. g. the Commercial Code (HGB) and laws on keeping of books and accounts
(Transparency and public information law, TransPuG of 2002; Beuthien 2011, § 53 GenG,
note 9). In recent years, partly due to harmonisation of EU-legislation, some matters have
been transferred from the Co-operative Societies Act to a special Act on Transformation of
Enterprises (UmwG, Transformation Act), applying to all legal forms of business organisation, e.g. transformation and merger, division, transfer of assets and change of legal form (old
§§ 93 a - d GenG, introduced in 1922 and revised several times until 1993 (§§ 93 a - s GenG),
adjusted to practical needs in 1994 by the UmwG of 1994 (Beuthien 2011, pp. 1041 ff.).
In other matters, mainly as a result of growth of primary co-operatives, co-operative law has
been approximated to company law, e.g. powers of the board of directors to manage the cooperative enterprise in their own responsibility, only bound by the law and the by-laws, but
not by decisions of the members in general meeting or meeting of delegates.
Competition law is relevant mainly in case of traders’ co-operatives. Co-operative Banks
come under general banking regulations and housing co-operatives under the laws on building
construction and technical matters like safety regulations, labour law (Beuthien 2011, § 24
GenG, note 17) and MitbestG (Co-determination law) applied to co-operatives with more than
500 employees (Beuthien 2011, § 38 GenG, note 5).
1.3
Where are Co-operative Governance Rules Found?
As business organisations, general rules on corporate governance apply (e.g. corporate social
responsibility, CSR), however, the co-operative federations have agreed on a special code of
co-operative corporate governance, obliging office-holders of co-operative societies to respect
co-operative values and principles in their work and in their communication of the cooperative image or brand to their members and to the general public (Leitbild). In 2012, the
National Co-operative Academy in Montabaur (ADG) developed a new training programme
for value-oriented management, offered to senior officers of co-operative societies
(Kring/Walther, 2012). With their focus on sustainable, ecologically sound and environmentfriendly strategies combined with social responsibility (care for the community) as a matter of
principle, consciousness of economic, social and ecological responsibility of co-operative
management goes well beyond general compliance with CSR practiced by commercial and
capitalist enterprises.
2
The Role of the Members
2.1
The Division of Powers among the Organs of the Co-operative
As already mentioned above, the distribution of powers among the organs of co-operative
societies was changed in 1973, when the elected board of directors was given full autonomy
to run the co-operative enterprise: “The board of directors shall manage the co-operative
society on its sown responsibility with due consideration to the limitations imposed on it by
the by-laws” (§ 27 (1) GenG).
In 1922, steady growth of co-operative societies had made it necessary to replace the general
meeting of members by a meeting of delegates (indirect democracy, Lang/Weidmüller 2011,
§ 43a GenG, note 1), prescribing that in co-operatives with more than 10,000 members, the
meeting of members was replaced by a meeting of delegates, while societies having more than
3,000 members could opt for a meeting of delegates. In 1926, the meeting of delegates
became obligatory for societies with more than 3,000 members (Paulick 1956, p. 251) and in
1973 this figure was reduced further to 1,500 (§ 43a (1) GenG). This meant that ordinary
members lost all their rights of participation in the decision-making processes except that of
electing delegates and substitute delegates every four years (§ 43a GenG). Since 1993, in
societies with large membership, substitution of the general meeting of members by a meeting
of delegates is no longer prescribed by law, but may be introduced in the by-laws (Beuthien
2011, § 43a, note 1). The meeting of delegates has to be composed of at least 50 elected
members and their substitutes by secret ballot with conditions for their election to be laid
down in the by-laws (§ 43a (4) GenG).
Since revision of the Co-operative Societies Act in 2006, in societies having introduced the
meeting of delegates, the general meeting is no longer replaced completely by the meeting of
delegates. The general meeting continues to function parallel to the meeting of delegates and
the by-laws may stipulate that certain basic rights are reserved for the members in general
meeting (§ 43a (1) GenG) to be decided with a majority of not less than three quarters of
votes cast (§ 43a (2) GenG), e. g. amendment of by-laws changing the objectives, merger,
change of legal form (Beuthien 2011, § 43a note 2).
Members in general meeting or meeting of delegates have the right to elect and remove their
directors and members of the supervisory committee. In the by-laws, the right to elect
directors may be delegated by the members to the supervisory committee and/or may be made
subject to recommendations by the co-operative federation to which the society is affiliated (§
24 (2) GenG). If this is done, the members or their delegates loose their authority to determine
the leaders and directors managing the co-operative society on their behalf (Beuthien 2012, p
870). They still retain the right to suspend or remove directors, if this is not delegated to the
supervisory committee (§ 24 (2), (3) GenG).
In 2006, the minimum number of members of a co-operative society was reduced from seven
to three (§ 4 GenG). There is no maximum number of members. New rules were introduced
regarding small co-operatives, i.e. co-operatives having not more than 20 members. Such
small co-operatives may operate under the one-tier system, i.e. work without a supervisory
committee, with only one member serving on the board and the general meeting or one
elected representative replacing the supervisory committee §§ 9 (1), 24 (2) GenG). There are
no rules regarding a maximum of members. Since 1993, the list of members is kept by the
board of the society and no longer by the registering authority (local court) (§ 30 GenG).
2.2
Member Voting Rights
Voting rights are exercised at general meetings or at meetings of delegates in person by show
of hand or secret ballot (e.g. in case of elections of directors), as the by-laws provide. Since
1973, voting by proxy is allowed, provided that one proxy cannot represent more than two
members (§ 43 (5) GenG). The possibility of voting in written or electronic form was
introduced in 2006 (§ 43 (7) GenG).
Until 1973, the original co-operative practice of “one member – one vote” was applied
without exception. In 1973, a moderate form of plural voting was introduced allowing
members “who further the business of the co-operative society in a special manner” to be
given up to three votes under the by-laws, provided that certain conditions are met (§ 43 (3)
GenG). However, such additional votes are only valid in decisions regarding routine matters,
while in decisions on key issues, where a three quarter majority of votes cast is required, the
principle of equal voting power of all members still prevails (§ 43 (3) GenG). The trend to
allow plural voting continued in 2006 when in co-operatives composed by three quarters of
entrepreneurs, a member could be given up to 10 votes (§ 43 (3) N° 2 GenG). The provisions
on plural voting do not apply to co-operative federations or secondary organisations in the
legal form of co-operative society (§ 43 (3) N° 3 GenG).
The clear co-operative profile as a self-help organisation (principle of identity of owners and
users) was blurred in 2006 by allowing admission of “investing members” i.e. non-using
members (§ 8 (2) GenG). Already under the old law, admission of “promoting members” had
been practised, however it was quite clear that this meant to go against the spirit of the law
just as in case of tolerating “passive members” (e.g. members of dairy co-operatives holding
dry shares in).
The revised Co-operative Societies Act of 2006 contains provisions to avoid that the influence
of investing members becomes too strong. Investing members cannot outvote user-members
in general meeting or meeting of delegates. In the supervisory committee, the number of
investing members shall not exceed one quarter of its total number (§ 8 (2) GenG). In cooperative banks, at least two board members need professional qualification as bank managers
(Beuthien 2011, § 24 GenG note 8) and one member of the supervisory committee must have
expertise in accounting or auditing (§ 36 (4) GenG). There is no provision in the law
preventing investing members from being elected to serve on the board of directors.
New rules regarding voting of corporate members in general meeting or meeting of delegates,
on the board and in the supervisory committee were introduced. A corporate member may be
represented in the co-operative societies by its board members, even if these are not members
of the society (§ 43 (4) GenG). “If a member of the co-operative society is a legal person or a
partnership, natural persons authorised to represent them legally may be elected as their
delegate” (§ 43a (2) GenG).
2.3
Mechanisms for Member Control: Meetings, Elections etc.
Decisions and resolutions in general meeting or meeting of delegates are taken by
simple majority of votes cast, unless either the law or the by-laws prescribe a larger
majority and additional requirements (§ 43 (2) GenG), e. g. for decisions regarding
amendment of by-laws, removal of directors, or conversion to a different legal form (§§
190, 191 (1) N° 3 UmwG, e.g. three quarters or nine tenths majority of votes cast (§§
193, 194, 260-264 UmwG. Board members may be suspended by the supervisory
committee (§ 40 GenG).
There are no general provisions regarding a quorum, however, such conditions may be
stipulated in the by-laws (Beuthien 2011, §§ 2 ff. UmwG, note 36).
2.4
Dispute Resolution between Members and the Co-operative
There are no special rules for dispute resolution between members and the co-operative
society in the Co-operative Societies Act. Each member may take his/her co-operative society
to court and vice versa. However, under general organisation law there is a rule that every
member owes loyalty to his/her organisation and should avoid acts damaging the image of the
organisation in public (Beuthien 2011, § 18 GenG note 50-56). In addition, the by-laws may
provide that before going to court, arbitration has to be tried.
3
Management and Internal Control
3.1
Powers of a Co-operative's Board or Boards
Since 1973, there is a clear division of powers between the board of directors, the supervisory
committee and the meeting of members or delegates. The offices of board member and
member of the supervisory committee are incompatible (§ 37 GenG).
The Board shall manage the co-operative society in its own responsibility (§ 27 (1) GenG),
independent from the decisions of the members. The supervisory committee shall supervise
the board of directors in its management functions (§ 38 (1) GenG) and report its findings to
the members in general meeting or meeting of delegates. It shall “convene such meeting if and
when this is in the interest of the society” (§ 38 (2) GenG). “They supervisory committee may
appoint an auditing committee to monitor the accounting process and the effectiveness of the
system of controlling, risk management and internal auditing” (§ 38 (1) GenG.
The by-laws may provide that certain important matters of the board’s business need the
approval of or have to be decided together with the supervisory committee. However, too
close co-operation of these two bodies should be avoided.
The liability of directors vis-à-vis a co-operative society for breach of legal obligations is
partly regulated in the Co-operative Societies Act (§ 34 GenG), partly follows the rules of
general civil and commercial law.
The board has the duty to give the supervisory committee full information on the management
of the co-operative affairs and the supervisory committee has the right to claim all
information needed from the board. A special feature of German co-operative law is the role
of Co-operative Auditing Federations: Under the Co-operative Societies Act, to be registered,
a new co-operative has to be accepted as a member by an officially recognised auditing
federation, the auditing federations have the exclusive right to audit affiliated societies and the
scope of audit includes financial and management audit (e.g. to what degree did the board
succeed in promoting the interests of the member). The supervisory committee in charge of
internal audit has to collaborate with the co-operative auditor of the federation and is
informed by the auditor of the audit results (§ 58 (3) GenG). This right to be informed was
introduced in 2006. Before that time, the auditors only had to send their report to the board of
directors.
Basic rules regarding the division of powers between the board of directors, the supervisory
committee and the members' meeting are laid down in the Co-operative Societies Act leaving
room for modifying some of these rules in the by-laws. As already mentioned, often the
power to elect and remove the members of the board is delegated under the by-laws by the
members’ meeting to the supervisory committee. Under the revised Act of 2006 this does not
apply to small co-operatives with not more than 20 members, which may opt for working
without a supervisory committee (§ 9 (1) GenG).
In large societies with a meeting of delegates, the position of members in general meeting has
been strengthened in the revised Act of 2006 by giving them the rights to stipulate in the bylaws that certain decisions are reserved for the general meeting (§ 43a (1) GenG).
The revised Co-operative Societies Act of 2006 provides that  a meeting of members has to be convened if this is demanded by at least one tenth of
the members (§45 (1) GenG),
 a list of candidates for the meeting of delegates can be presented by at least 150
members (§ 43a (4) GenG) and
 introduction of a meeting of delegates can be revoked and returning to a general
meeting of members can be requested by at least one tenth of the members (§ 43a (7)
GenG).
Members are entitled to inspect the summary of the audit report (§ 59 (1) GenG).
3.2
Board Functioning, Structure and Composition
As already mentioned above, in co-operative societies under German law the board of
directors is the executive body. Since 1973, the board has full autonomy to run the cooperative society and only has to respect the provisions of the Act and of the by-laws. In
business matters the board is not bound by directives from the members in general meeting or
in the meeting of delegates. The board has to be composed of at least two directors (four eyes
principle). The by-laws may provide that certain important matters have to be decided jointly
by the board and the supervisory committee or need approval of the supervisory committee.
Until 2006, all co-operative societies had to be organised in a two-tier structure: board of
directors and supervisory committee. Since 2006, there are special provisions for small cooperatives (having not more than twenty members), which can opt for a one-tier structure,
having only a board of one director (§ 24 (2) GenG) and without a supervisory committee (§ 9
(1) GenG). According to § 57 (5) GenG small co-operatives operating without a supervisory
committee, have to appoint one member to represent the society vis-à-vis the auditing
federation (§ 57 (5) GenG).
According to § 9 (2) GenG all board members have to be members of the co-operative
society. With growing size of co-operative enterprises and complexity of their operations, it
often may be impossible to find persons with the required qualifications in the membership
group. To solve this problem, “promoting members” are admitted even if they do not belong
to the general membership group, for the sole purpose of making them eligible for service on
the board as “external” directors. Such directors are usually experts in their field but not
familiar with co-operative, promotion-oriented and value-based management. Often, cooperative federations recommend suitable candidates.
3.3
Mechanisms for Board Election
Under German co-operative law the “four eyes principle” prevails. Each co-operative society
has to have at least two directors. The board members are only authorised to represent the
society jointly, if the bylaws do not provide otherwise (§ 25 (1) GenG). In 2006, this rule was
softened for small co-operatives, which can now work with only one director (§ 24 (2) GenG).
In most of the established co-operatives, board members serve full-time and are paid. There is
also the option of electing unpaid, honorary directors (§ 24 (3) GenG; Beuthien 2011 § 24
GenG, note 15), e.g. for representing the members’ interests on the board of specialists.
However, in established co-operatives, this option is seldom used in practice (Münkner 1990,
p. 64).
Remuneration of board members is usually decided by the supervisory committee or a subcommittee formed for this purpose. Transparency in this field is limited. Some critics plead
for more transparency by making the remuneration of board members subject to approval of
the general meeting or the meeting of delegates (Beuthien 2012, p. 871).
Special qualifications are required for directors serving in co-operative banks. General
banking regulations require that each co-operative bank has to employ at least two board
members with full banking qualification verified by the federal supervisory agency for
financial services (BaFin) as bank managers (Geschwandtner/Helios, p. 91). In co-operative
societies having a large number of employees, one board member has to be in charge of
labour relations (§§ 1 (1) and 33 (3) MitbestG (co-determination law); Beuthien 2011, § 24
GenG note 9).
The supervisory committee is elected by the members from among themselves with a
minimum number of three. In large co-operatives with more than 500 employees, a workers’
representative has to be elected by the employees to sit on the supervisory committee even
without being a member of the co-operative society (§§ 1 and 6 MitbestG; Beuthien 2011, § 9
GenG, note 14). A new rule has been introduced in 2006 limiting the number of “investing
members” on the supervisory committee to a quarter of its total number (§ 8 (2) GenG) to
ensure that user-members have the majority.
Directors of co-operatives have to use “due diligence and accountability of a conscious
management of a co-operative society” (§ 34 (1) GenG). This is interpreted to include the
obligation of directors of co-operatives to pursue the object of member-promotion and
practice value-based management. “Members of the board failing to comply with their duties
are jointly and severally liable to recompense any resulting damage” (§ 34 (2) GenG). The
same diligence and accountability is required from the members of the supervisory committee
(§ 41 GenG).
Internal audit carried out by the supervisory committee and its annual report to the meeting of
members should include an assessment of the board’s success in achieving the object of
member promotion. Instruments for making member-promotion transparent have been
developed by co-operative research institutes (Beuthien 2011 § 1 GenG, note 24 with sources
quoted there):
 promotion plan, proposed by the board to the members in general meeting or meeting
of delegates, discussed and jointly agreed and
 promotion report: presented in the following meeting of members or delegates,
showing success in implementing the promotion report including costs and benefits
and serving as the basis for the following promotion plans.
However, these instruments are relatively seldom applied in practice.
Development-oriented effectiveness in terms of social activities contributing to the
development of the community and the region can be shown in a social balance sheet. This is
the specifically co-operative way of showing corporate social responsibility (CSR), as a
matter of principle rather than as a marketing tool. Whether this is done is left to the
individual society. Some co-operatives mix up “care for the community” and CSR by
publishing their engagement in CSR under the heading “promotion report”
(Emmelius/Krönlein 2012, pp. 68 f.).
External audit is carried out by specially trained co-operative auditors employed by cooperative auditing federations. Their audit reports should include assessment of the board’s
performance with regard to member promotion (Beuthien 2012, pp. 872). However this is
usually not done in detail, if at all. There is a tendency of approximation of co-operative audit
to ordinary financial audit of commercial enterprises. This trend is supported by the policy of
encouraging co-operative auditors to acquire the qualification of chartered accountants (and
thereafter carry out their audit according to what they have learned) as well as by the efforts to
harmonise audit regulations at European Union level.
According to § 9 (2) GenG only members of the co-operative society are eligible as board
members. Minimum age is eighteen years (full age, § 2 BGB, Civil Code). There are no
general rules regarding maximum age, capital stake, minimum transactions with the society or
length of membership.
German co-operative law does not prescribe that persons elected to serve on the board of a cooperative society need special education and training in co-operative subjects. In case of cooperative banks, special banking skills are required under banking regulations as a condition
for being eligible. But this only refers to banking skills, not to proficiency in co-operative
management. Very often, such external directors are fully trained in their field of business but
have little knowledge of the special co-operative way of doing business. Such knowledge can
be acquired in training courses offered by several co-operative colleges at regional level and
by the Academy of German Co-operatives (ADG), however, these special training facilities
are not widely used. As a result, many co-operative directors practice what they have learned,
i.e. act like their commercial colleagues (Kring/Walther 2012, pp. 49 f.). Housing cooperatives have established their own academy and offer a degree course in co-operative
estate management.
Procedural rules such as a quorum, how the chair is selected, voting mechanisms etc. for the
board, the supervisory committee and the members’ meetings are left to the individual society
to regulate in their by-laws or internal regulations. Model rules or regulations are available
from the Co-operative Federations.
Regarding the term of office of co-operative board members, good democratic practice would
require rotation of office-holders, by limiting re-election to two or three terms of office of two
to four years. However, such provisions or practices are more the exception than the rule.
According to a survey conducted among co-operative banks in 1990, the average time of
service of directors was between 11 and 30 years (Münkner 1990, p 96).
4
Information Rights of Members and Transparency Requirements
4.1
Transparency: obligations to inform and rights to be informed or to access to
information
In general terms, the directors have the obligation to inform the supervisory committee and
the members and the members of the supervisory committee as well as the members have the
right to be informed. Co-operative societies usually hold joint meetings of the board and the
supervisory committee.
The members have access to information, e.g. they may inspect the list of members (§ 31
GenG) and the list of delegates (§ 43a (6), (7) GenG). They have the right to see the summary
of the audit report of the external co-operative auditor (§ 59 (1) GenG).
Co-operative societies are providing information to members by publishing newsletters
available in the main office and branch offices, on notice-boards and on their website or
directly by written notice (e. g. § 46 (1) GenG). Details regarding the information to be
provided about both business and co-operative matters are left to the societies however annual
reports are usually published and made available to members before or during the general
meeting or meeting of delegates, where most of the information on the policy and
performance of the co-operative society is given by board members and the supervisory
committee. Electronic communication is permitted, if members opt for using online contracts,
e.g. online banking. In other cases, member agreement would be required.
4.2
Financial Audit
There are special rules regarding external audit in the Co-operative Societies Act which differ
from audit of companies (§§ 53-64 GenG). Financial audit is only part of the auditor’s duties.
Co-operative auditors should also carry out “material audit”, i.e. management audit including
assessment of success in member promotion, reasons for mergers and justification of
allocation of surplus to reserves for risk protection and the development of the co-operative
enterprise, rather than distributing surplus to members as patronage refund or dividend on
paid-up share capital. Joint sessions of the auditor, the board of directors and the supervisory
committee are prescribed (§ 57 (4) GenG), where the auditor reports on the expected results
of the audit. In 2006, provisions ensuring the neutrality and independence of co-operative
auditors were strengthened (§ 55 GenG).
In the revision of the Co-operative Societies Act in 2006, special rules were made for audit of
small co-operatives having a balance sheet total of less than two million Euro (§ 53 GenG). In
such cases external audit has only to be made every second year and does not have to cover
examination of the accounts. It is generally agreed that this new provision only reduces audit
cost to a limited extent (Geschwandtner/Helios 2006, p. 153).
Ҥ 53 GenG РCompulsory audit
(1) For the purpose of verifying the economic situation and regularity in the conduct of
business of the co-operative society, its facilities, assets, and also management,
including the way in which the list of members is kept, shall be subjected to audits in
at least every second financial year.
(2) As part of the audits according to par. 1 of co-operative societies with a balance sheet
total in excess of one million Euro and sales in excess of two million Euro, the annual
accounts must be audited, including the books and status reports. The provisions of
the Commercial Code apply accordingly … “.
With growing size and complexity of business of average co-operatives, there is a trend to
approximate special co-operative audit (financial and management audit) to financial audit of
companies. For co-operative banks, special rules of banking regulations on audit also apply.
4.3
Member Education
There are no legal provisions requiring co-operatives to educate their members, but according
to German co-operative tradition of Raiffeisen, member education is an important aspect of
co-operative work. E.g. co-operative banks continue to apply Raiffeisen’s idea of educating
members in the prudent use of money by charging relatively high interest on overdrafts of
members’ accounts.
Generally, there are no systematic programs for member-education but those who wish to
learn more about co-operatives find plenty of self-study material (e.g. DGRV: How to form a
co-operative, Bonn 1990; BVR: We open the way – guidebook for advising and recruiting
members, Wiesbaden 1991; BVR: Membership Strategy: Achieving more together with a
practical strategy for members – the six pillar model, 2nd Edition, Berlin 2007; BVR:
Membership – a good idea, Berlin 2007; Grosskopf/Münkner/Ringle: Our Co-operative - Idea
- Mission - Achievements, Neu-Ulm 2009 English translation, 2nd Edition in German 2012).
It is regretted by many that co-operative subjects are usually not taught in schools, trade
schools and universities. This means that people know vaguely what a co-operative is, but
little about how it can be formed and how it works. Co-operatives publish newsletters and
pamphlets e.g. depicting the corporate identity “Leitbild” of their co-operative society, but
this appears not to be enough.
A special feature of German co-operative law is that it prescribes pre-registration audit by a
co-operative auditing federation, before a newly formed co-operative society can be registered
(§§ 11 (2) N° 3, 11a (2) GenG). Such pre-registration audit usually goes together with
coaching the founder-members, informing them and advising them how to plan and run the
business of their new co-operative. Such pre-registration audit is seen by critics as too
expensive and cumbersome for small and new co-operatives, working as a disincentive to
choose the legal form of registered co-operative society for new business ventures. On the
other hand, experience shows that pre-registration audit serves as an effective filter against
unviable or unrealistic projects, failure of which would damage the image of the co-operative
movement as a whole.
Efforts are made to inform members of co-operatives by advertising in newspapers and in
television, propagating slogans like: “Co-operatives are good for everyone” or “We open the
way” in the press and on the internet. Co-operative federations publish quarterly magazines,
but these are more directed to co-operative leaders and personnel than to ordinary members.
Regarding their internal structure, modern co-operatives usually do not have a member
relations committee or special member-relations officers (like the consumer co-operatives had
in the 1960s and 1970s), but some co-operatives have introduced complaints committees
which deal with members’ problems and use such opportunities for member information.
Large co-operatives hold regional meetings before their meeting of delegates, to maintain
contact with their members and offer them information on their co-operative. However, such
meetings are often used more for information and entertainment than for member education.
Co-operative education of co-operative officers and staff is a precondition for enabling them
to educate members. However such education is often lacking. Regional co-operative colleges
are usually more concerned with training in business administration and management than in
co-operative education in the narrow meaning of the term. Therefore, usually special
knowledge of the co-operative way of doing business cannot be expected from co-operative
personnel. In 2012, ADG launched a new program for value-oriented co-operative
management (Kring/Walther 2012, pp. 55 f.).
Allocation of surplus in co-operative enterprises is the responsibility of the members in
general meeting or meeting of delegates. Members or delegates are free to allocate funds to
co-operative education if they wish, but in practice this is more the exception than the rule.
There are good examples how member education could work in pactice. Founder-members
planning new projects in the field of renewable energy co-operatives often benefit from
contacts to and advice by existing energy co-operatives, co-operative banks or co-operative
federations.
5
Admission and Expulsion of Members
A “variable number of members” is mentioned as a characteristic feature of each registered
co-operative society in the legal definition in § 1 (1) GenG. Until 2006, there was only one
category of members under the law: the user-member (principle of identity of owner and
user). As a rule it is not insisted on active membership, which means that members, who
could use the facilities of the co-operative enterprise but for some reason fail to do so, are
tolerated. However, in practice, another category of members was introduced: “promoting
members”, i.e. those wanting to support the co-operative society without using its facilities
oor those wanting to become eligible as office-holder. Boards of some co-operative societies
pursue a policy of discouraging passive membership, but in general this is not seen as a
serious problem.
In 2006, the revised Co-operative Societies Act introduced a new category of members in
contradiction to the principle of identity of owners and users: “non-using, investing members”
(§ 8 (2) GenG).
In this way, internal conflicts over pricing policy, surplus generation and allocation,
consolidation or growth of the co-operative enterprise, which are manageable where owners
and users are the same people, are brought into the co-operative structure. A number of
special provisions were introduced in the Act to prevent investing members from reaching a
dominating position vis-à-vis the user-members: “Appropriate measures shall be put in place
to ensure that investing members cannot under any circumstances outvote regular members
and that decisions of the general meeting that require, by law or by-laws, a majority of at
least three quarters of the votes cast cannot be prevented by investing members” (§ 8 (2)
GenG).
Rules on admission of new members and appeals against refusal of admission are as follows:
Members of a formation committee formed for establishing a new co-operative society
become founder-members by signing the by-laws at the inaugural meeting and the application
for registration sent to the registering court. After registration of the society, application for
membership follows procedures and conditions laid down in the by-laws. In most cooperatives, applications for admission are made to the board of directors and are decided
there. In case of refusal, the applicant can appeal to the members in general meeting or
meeting of delegates (§ 15 (1) GenG). The contents of a declaration of membership is
prescribed in § 15a GenG. In case of merger, membership of the merged society is acquired
by operation of law (Beuthien 2011, §§ 2 ff. UmwG note 36).
Open membership implies that members are free to withdraw from the society if they wish (§
65 GenG). However, procedures and periods of notice can be laid down in the by-laws.
Usually the period of notice is between three months and two years. If a longer period of
notice is stipulated in the by-laws, members belonging to the co-operative for at least one full
financial year may withdraw at an earlier date for good reason (§ 65 (3) GenG). In cooperatives of entrepreneurs the period of notice can be extended to ten years “for the purpose
of securing the financing of fixed assets” (§ 65 (2) GenG). Where members have entered into
an agreement with the co-operative enterprise to deliver produce or to buy inputs, such
agreements must be taken into account when deciding on applications for withdrawal from
membership. According to § 66 GenG “a member’s creditor may, for the purpose of having
his claim satisfied, exercise the right to terminate membership on behalf of the member” if
certain conditions are met.
There are also extraordinary rights of members to withdraw: In case of amendment of by-laws
in respect to important matters listed in § 16 (2) GenG or in respect of a major change in the
purpose of the co-operative enterprise, membership may be terminated by any member
protesting against this decision or by any member not present at the general meeting under
conditions listed in § 67 (1) GenG or if such amendment was decided by a meeting of
delegates (§ 67a (1) N° 2 GenG) membership may be terminated by any such member.
In an effort of harmonising the regulations for SCE with national co-operative law and as an
attempt to comply with EU regulations on equity capital, the German Co-operative Societies
Act introduced provisions in 2006, allowing co-operatives to opt for a partly fixed share
capital (§ 8a GenG), which is in contradiction to the characteristic co-operative feature of
variable capital. If the by-laws provide for such fixed capital, members giving notice may still
terminate their membership, but they may have to wait for refund of their paid-up share
capital, until funds for repayment are available (Beuthien 2011, § 8a GenG, note 4;
Geschwandtner/Helios, pp. 57, 58).
Members can be expelled from the co-operative for reasons and in a procedure laid down in
the by-laws (§ 68 GenG). Under general rules of law, such members have the right to be heard
and to defend themselves before being expelled (Beuthien 2011, § 68 GenG, note 15).
6
Conclusion - Matters of co-operative governance still needing to be
reviewed
In Germany, the main issue in the ongoing discussion on co-operative corporate governance is
whether deviations from the characteristic features of the special co-operative legal pattern
and approximation to the company model should continue or be avoided, whether the legal
profile of co-operatives as a special type of self-help organisation should be strengthened or
blurred further.
With the revision of the Co-operative Societies Act in 2006, the German law-makers aimed at
reducing the competitive advantages of the newly introduced SCE as compared with the
registered co-operative society, giving in to indirect pressure from EU authorities to review
and harmonise national co-operative legislation.
According to Beuthien (2011, p. LIV; Beuthien 2012, p. 868), more autonomy should be
given mainly to small co-operatives to make by-laws, especially with regard to the powers of
the board of directors (§ 27 GenG). Co-operatives should be allowed to stipulate in their bylaws that one third of those elected to serve on the supervisory committee could be external
members having the required professional skills for fulfilling their task of effective control of
the directors.
It is proposed to introduce more elements of the discussion on good governance from
company law into co-operative law, e.g. by strengthening the position of the supervisory
committee, by giving members more rights and better access to information, introducing online voting in general meetings and ensuring independence of co-operative auditors even
further (Geschwandtner/Helios 2006, p. 18). Some problems of small co-operatives opting for
a one-tier structure remain unsolved. Some important matters which were not dealt with are:
transactions with non-members, excessive autonomy of the board of directors, suitable forms
of self-administration and compulsory affiliation of co-operative societies to auditing
federations (Geschwandtner/Helios 2006, p. 23).
Provisions related to voting rights of members are debated. Some propose that voting rights in
proportion to share contributions should be allowed (Beuthien 2012, p. 869) like in Austria.
Some want to return to the clear rule “one member – one vote”, others want to extend plural
voting and introduce special rights for “stronger” members, e.g. the right to send their own
candidates into the supervisory committee. It is also discussed whether no or less stringent
limits should be set for voting by proxy. Instead of electing delegates by lists of candidates,
which can only be presented by the board, now such lists can be presented also by at least 150
members (§ 43a (4) GenG). Some prefer election by regions.
It should become an obligation of the board of directors of co-operative societies to prepare a
written promotion plan and promotion report with members having the right to inspect and
discuss such plans and reports.
List of Abbreviations
ADG
BaFin
BGB
BVR
CSR
DGRV
Akademie Deutscher Genossenschaften, National Co-operative Academy
Bundesanstalt für Finanzdienstleistungsaufsicht, Federal Supervisory agency
for financial services
Bürgerliches Gesetzbuch, Civil Code
Bundesverband der deutschen Volksbanken und Raiffeisenbanken, National
federation of peoples’ banks and Raiffeisenbanks
Corporate social responsibility,
Deutscher Genossenschafts- und Raiffeisenverband, German Co-operative and
Raiffeisen Federation
eG
eingetragene Genossenschaft, registered co-operative society
GenG
Genossenschaftsgesetz, Co-operative Societies Act
HGB
Handelsgesetzbuch, Commercial Code
MitbestG
Mitbestimmungsgesetz, Co-determination law
TransPuG
Transparenz- und Publizitätsgesetz, Transparency and public information law
UmwGUmwandlungsgesetz, Transformation Law
ZfgG
Zeitschrift für das gesamte Genossenschaftswesen
References:
Beuthien, Volker (2011): Genossenschaftsgesetz mit Umwandlungs- und Kartellrecht sowie
Statut der Europäischen Genossenschaft, 15. Aufl., München
Beuthien Volker (2012): Die Genossenschaftsidee im Spiegelbild von Rechtssystem,
Unternehmen und Gesellschaft – wie geht es weiter? in: Die Aktiengesellschaft 23/2012,
pp. 867-873.
BVR (1991): We open the way – guidebook for advising and recruiting members, Wiesbaden.
BVR (2007): Membership – a good idea, Berlin.
BVR (2007): Membership Strategy: Achieving more together with a practical strategy for
members – the six pillar model, 2nd edition, Berlin.
DGRV (1990): How to form a co-operative, Bonn
DGRV (2006): Genossenschaften gründen – von der Idee zur eG. Ein Leitfaden zur Gründung
einer Genossenschaft, Berlin, DVD, www.dgrv.de
DGRV (2010): Corporate Government Kodex für Genossenschaften, Version dated 20
November, 2010, Berlin.
Emmelius, Guido und Krönlein, Nadja (2012): Mitverantwortung – verantwortliches
Unternehmertum genossenschaftlich interpretiert, in: Ringle, Günther / Münkner, Hans-H.:
Genossenschaftliche Kooperation – anders wirtschaften! Marburger Schriften zur
genossenschaftlichen Kooperation Band 111, Baden-Baden 2012, pp. 67-75.
Geschwandtner, Marcus und Helios, Marcus (2006): Genossenschaftsrecht – das neue
Genossenschaftsgesetz und die Einführung der europäischen Genossenschaft, Berlin,
München.
Grosskopf/Münkner/Ringle (2009): Our Co-operative – Idea - Mission - Achievements, NeuUlm, English translation, 2nd Edition in German 2012.
Hilkenbach, Bettina (2004): Corporate Governance Kodex für Genossenschaften,
Forschungsinstitut für Genossenschaftswesen an der Universität Erlangen-Nürnberg,
Arbeitspapiere 30, Nürnberg.
Kring, Thorn and Walther, Gerhard (2012): Wider die Glaubwürdigkeitsdefizite in der
Führung: Ansätze zur Revitalisierung einer genossenschaftlichen Mitarbeiterführung, in:
ZfgG-Sonderheft 2012, pp. 49-63.
Lang/Weidmüller
(2011):
Genossenschaftsgesetz
mit
Umwandlungsgesetz, Kommentar, 37. Aufl. Berlin, Boston.
Erläuterungen
zum
Münkner, Hans-H. (1990): Genossenschaftliche Identität und Identifikation der Mitglieder mit
ihrer Genossenschaft, Strukturfragen der deutschen Genossenschaften, Veröffentlichungen
der DG Bank Vol. 17, Frankfurt a. M.
Paulick, Heinz (1956): Das Recht der eingetragenen Genossenschaft, Karlsruhe.