Pellervo Coop Center’s Director of Cooperation Kari Huhtala defended his dissertation on the governance of Finnish agricultural co-operatives at LUT University’s School of Business and Management in Lappeenranta in June 2024.
Agricultural cooperatives hold a significant position in Finnish business: their annual turnover is around 3 billion euros. When including the companies owned by these cooperatives, the sum exceeds 14 billion euros.
Agricultural and forestry cooperatives represent critical sectors, playing a significant role in combating climate change and ensuring national security of supply. For the dissertation, the chairpersons of the boards of the 16 largest Finnish agricultural cooperatives, as well as the chairpersons of either the supervisory boards or representative councils, were interviewed.
“It is important that cooperatives have a functioning and well-performing board,” Kari Huhtala emphasizes.
According to the dissertation, agricultural cooperatives are critical in appointing external experts to their boards. The number of women on these boards is also quite low and has not increased over the past ten years. The governance culture of cooperatives favors board selections from within the cooperative.
Regional representation favored
It has long been a practice within the cooperatives that geographical areas have informal influence over board selection. The data indicated an ongoing transitional phase where the importance of regional representation is being reduced.
“Regional representation and the board’s competence requirements create tension in the selection process. There are clear differences in this regard between procurement cooperatives, marketing cooperatives and ownership cooperatives. In procurement cooperatives, the pressure for regional representation is the greatest,” Kari Huhtala notes.
According to the dissertation, agricultural cooperatives are cautious or even reserved about using external board experts. Their appointment is considered justified in situations where the cooperative is undergoing a significant transition or facing challenges.
Marketing cooperatives and ownership cooperatives are increasingly emphasizing the competence of board members. In marketing cooperatives, the entire value chain from raw material procurement to processing and sales is within the cooperative. Ownership cooperative’s role is managing the ownership in a publicly traded company.
Women underrepresented
In Kari Huhtala’s research data, adequate representation of both genders on the board was seen as a desirable goal, but gender quotas received no support. The results indicated that gender was viewed more as a resource. In practice, women are a minority on the boards of agricultural cooperatives, with their share averaging 20 percent. This average is significantly lower in ownership cooperatives in the meat sector and somewhat higher in dairy cooperatives.
The role of the cooperative supervisory board is changing in relation to the ownership control of cooperatives. There are significant differences between different types of cooperatives in this regard. In agricultural cooperatives, the supervisory board and its chairperson were seen as significant user of power.
For members, it is also important that the companies they own have a competent board. A well-functioning board adds value to its members. In agricultural cooperatives, this is particularly crucial, as the cooperative is critical to the success of the member’s livelihood.
Business and member community roles must be combined
“The dual nature of the cooperative as a member community and a business enterprise is at the core of everything. This must be reflected in the work of the agricultural cooperative’s board. The board should consist of individuals who collectively ensure the cooperative’s financial success while also meeting the expectations of its members,” Huhtala emphasizes.
The title of the dissertation, which falls under the field of business management and organizations, is Paradoxes of Director Selection in Agricultural Co-operatives: Understanding Boards’ Conformance and Performance Roles.
The dissertation was supervised by professor Iiro Jussila, with the assistance of Associate professor Pasi Tuominen and RDI Specialist Terhi Tuominen.