Governance Control Mechanisms in Portuguese Agricultural Credit Cooperatives

The ACC is run by the management board⁵ that is elected by the general assembly and his
main task is to oversee the daily operations of the cooperative. The audit board, also elected by
the general assembly, has as main task to assure to the members that the AAC is being managed
according to the law and the cooperative principles and that annual balance sheets and income
statements reflect the true economic and financial position of the cooperative.

Except concerning banking operations, the Portuguese ACCs are ruled following the traditional
cooperative structure with open membership, democratic control and restricted residual claims.
The strict application of these rules can promote a set of vaguely defined property rights, namely
free-rider, horizon, portfolio, control problems and influence costs, with negative effects on the
transaction costs (Cook and Iliopoulos, 2001). Additionally, Nilsson (2001) suggests that the
property rights allocation within the traditional cooperative structure does not provide members
with the necessary incentives to invest, causing negative effects on the capital structure.

The higher the transaction costs of changing control, the greater the inefficiency must be to
trigger a change (Gorton and Schmid, 1999). In the ACCIS control changes are usually proposed
by the central ACC that operates the auditing function and therefore, is the first to learn about
managerial failures. In cases of gross management failure or fraud, the management can be
formally discharged by the central ACC. Long-term inefficiencies can be solved through
obligated mergers with more efficient ACCs. ACCs mergers act as an external control
mechanism because, although mergers are friendly (they must be approved by the general
assembly) the influence of central ACC is considerable, being this top institution the trigger and
even the one that choose the merger partners (Cabo, 2003).

⁵ The board of management usually includes three members who must be elected among the ACC members.
Management skills are required. Thus, the board of management can include two additional individuals
(management experts) not members of the ACC.

<<   2   3   4   5   6   7   8   >>

More intriguing information