Management Practices in Cooperatives. The Case of Ambo Farmers’ Cooperative Union

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION
1.1. Background
1.2 The Three Tier System of Ethiopian Cooperatives
1.3. Statement of the Problem
1.4. Objectives of the Study
1.4.1. General Objective:-
1.4.2. Specific Objectives
1.5. Research Questions
1.6 Significance of the Study
1.7 Scope and Limitation of the Study

CHAPTER TWO: REVIEW OF LITERATURE
2.1. General Concept and Definition
2.2. Importance of Cooperatives
2.2.1. Economic Importance of Cooperatives
2.2.2. Social Importance of Cooperatives
2.3. Concept of Leadership in Cooperatives
2.3.1. Functions of cooperative Leaders
2.3.2. Qualities of Cooperative Leaders
2.4. Governance Concepts in Cooperatives
2.4.1. Internal Governance
2.4.2. External Governance
2.4.3. Individual Governance
2.6. Conceptualization and Operationalization
2.6.1. Conceptual Framework
2.6.2. Operational Definition of Variables

CHAPTER THREE: RESEARCH METHODOLOGY
3.1. Description of the Study Area
3.1.1 An Overview of Oromia National Regional State
3.1.2. An Overview of West Shoa Zone
3.1.2.1. Types of Cooperatives in West Shoa Zone
3.1.2.2. Types of Cooperative Unions in West Shoa Zone
3.1.3. Description of Ambo Farmers Cooperatives’ Union (AFCU)
3.1.4. Justification of the Selected Cooperative Union
3.2. Sample Design
3.2.1. Sampling Frame
3.2.2. Sampling Size
3.3. Data Types and Sources
3.3.1. Primary Data Sources and Collection Methods
3.3.1.1. Interview Schedule
3.3.1.2. Focus Group Discussion (FGD)
3.3.1.3 Key Informant Interviews (KIIs
3.3.2. Sources of Secondary Data
3.4 Methods of Data Analysis
3.4.1 Descriptive Analysis
3.4.2 Logistic Regression Analysis

CHAPTER FOUR: RESULTS AND DISCUSSIONS
4.1. General Information:-
4.2. Descriptive Analysis of Institutional Determinants of the Management Practices:-
4.2.1. Leadership Qualities (LDRSQ)
4.2.2. Internal Stakeholders’ Participation
4.2.3. Good Governance
4.2.4. Communication
4.2.5. Job specification and description
4.2.6. Equity and Financial stability
4.2.7. Attitude of Members
4.2.8. Nepotism
4.3. Descriptive Analysis of Legal determinants of Management Practices
4.3.1. Bylaw Awareness (BLAWR)
4.3.2. Internal Rules and Regulations
4.3.3-Government Strategies
4.3.4. Cooperative Proclamation
4.4. Identification of Institutional and legal determinants:-
4.4.1. Statistical results for binary Logistic regression Analysis Model
4.5. Other External Determinants of Management Practices of AFCU:-

CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions
5.2. RECOMMENDATIONS

6. REFERENCES

7. APPENDICES

DEDICATION

This Thesis is dedicated to my grandmother w/or Giddittu Haey and my grandfather Ato Yilma Basha whom I lost them in 1993 and, 1985 E.C., respectively .They were ones who laid the foundation of all of my life at my early stage of childhood. They physically gone, but they are in my heart for ever.

BIOGRAPHICAL SKETCH

The researcher was born in Toke Kutaye District West Shoa Zone, Oromia Regional State of Ethiopia on December 17/1970 E.C. He has completed his primary and secondary schools at Toke Irrensa Elementary School and Ambo Comprehensive Senior secondary School respectively from 1977-1989 E.C. He has certified in teaching profession from Robe Teachers’ Training College in 1990 EC. The researcher graduated in accounting and Business Management Diploma and BA from Alpha University College by 2000 E.C respectively.

The researcher has been worked in different governmental offices in teaching profession in elementary Schools for six years, at the Cooperative Promotion office for two years and until his entrance for MA program has been worked at Ambo Town Administration in Micro and Small Scale Industries Development Office for five years as an auditor, loan expert, generalist, coordinator of MSE development centre for five years. The author is married and now blessed with two kids.

ACKNOWLEDGEMENT

Above all, glory to Jesus for his uncountable compassion and for everything he did for me. With his will, nothing will be impossible.

I am highly grateful to Ambo town administration for giving me the chance of Scholarship for further education and for arranging the appropriate time and providing me with Laptop computer for the study.

I would like to express my deep whole-hearted gratitude and indebtedness to my Advisor

Dr.J. Subramani for his unreserved assistance, guidance and very constructive supervision from inception to the completion of my research work. His constructive suggestions for perfect organization, logical flow and attention to details were very decisive in bringing this work to the really its present form.

I would like to express my sincerely thanks for my friends; Dereje Hirpa along with his family, Gashaw Abera (an American), Niguse Guteta, Hailu Megersa, Asefa Urgaha, Ebissa Adugna, Shimelis H/Mariam, Birke Diribsa, Roman Tamiru, Tasew Wogeta, Benti Deressa, Mirkena Dhabessa, Ayansa Daba, Bekele Hailmariam, Gelana Yedessa, graduate fellowship and others for their provision of material and morale supports for me during my study.

I wish to express my appreciation to w/ro Zewditu Yilma and her husband Ato Getachew Negera for the morale support they did to me during my study and to w/ro. Senait Belete whom contributed the valuable morale and secretarial support with her computer to my study.

The understanding, support and encouragement I have obtained from my wife w/ro Fasika Mamo was a driving force through my study time. She has taken all the responsibilities and the burden of the house hold lonely and W/ro Kebedech Asfaw, in nursing my children during my study also really credited; I wish God may bless them with long live.

Last, but not least, I am also grateful to Ambo Farmers’ Cooperative Union leaders and staffs, West Shewa Zone Cooperatives’ promotion offices and Ambo University Cooperative Department staffs and Instructors for their greater contributions directly and indirectly for the fruitful accomplishment of my study.

ACRONYMS

Abbildung in dieser Leseprobe nicht enthalten

LIST OF TABLES

Table 3. 1: Types of primary Cooperatives in West Shewa Zone

Table 3. 2: Types of Cooperatives Unions in West Shoa Zone

Table 3. 3: Table-3.3: Invested Share Capital to AFCU by the Sampled Cooperatives:

Table 3. 4: Sample Size of the Sampled Respondents:-

Table 4. 1: Demographic Characteristics of the Respondents

Table 4. 2: Training related to Cooperatives’ Management taken by the respondents

Table 4. 3: Qualities Possessed by BODs of the Cooperative Union

Table 4. 4: Leadership quality roles played by the BODs of the Cooperative Union:

Table 4. 5: Extent of Cooperative leadership roles performed by BODs

Table 4. 6: Functional duties of a manager of the Union (current performance):-

Table 4. 7: Subordinates' Participation in the Management Decisions

Table 4. 8: Members’ participation in the Cooperative Union

Table 4. 9: Extent of agreement to the participation of members

Table 4. 10: Delay in calling for annual meeting and reporting

Table 4. 11: Good governance practice in Ambo Farmers’ Coop Union

Table 4. 12: Good governance Components practiced by AFCU:-

Table 4. 13: Problems of Communication in the Cooperative Union

Table 4. 14: Marketing Communication problems in the Cooperative Union

Table 4. 15: Importance of job description and specifications

Table 4. 16: Status of debt financing (liability) of the Cooperative Union:-

Table 4. 17: Continuous profitability (Surplus) of the Cooperative Union:-

Table 4. 18: Financial Position of the Union increased during 1999 –

Table 4. 19: Members’ attitude to the required service delivery of AFCU:-

Table 4. 20: Agreement of members to the service provision of the Union:-

Table 4. 21: Free from the practice of Nepotism (NPTSM);-

Table 4. 22: Legal factors affecting the management practices of the Cooperative Union:

Table 4. 23: :The extent of the practices of the Cooperative Union in respecting its bylaw

Table 4. 24: Aspects of limitations of the proclamation No.147/98:-

Table 4. 25: Definition of the Explanatory Variables in the Equation:-

Table 4. 26: Parameter Estimation for binary logistic Regression:-

Table 4. 27: State aid to the Cooperative Union (STAD):-

Table 4. 28: External determinants to the Union’s functional activities other than legal factors

Table of Figures

Figure 1: Conceptual framework of the study

Figure 2: Map of the Study Area

Figure 3: Graphical presentation of capital growth of the AFCU

ABSTRACT

The success of any business undertaking lies greatly on an efficient management and addressing the challenges that emerge with its operations. The study entitled “A study on the determinants of the management practices in Cooperatives, the case of Ambo Farmers’ Cooperative Union” conducted to address the general objective “To assess the determinants of the management practices in Cooperatives” and the research was conducted in Ethiopia, Oromia regional State, and west Shoa Zone. In the research process the purposive selection of Ambo Farmers’ Cooperative Union was followed by the simple random sampling to select 48 primary member Cooperatives of the Cooperative Union and 96 member respondents. Both primary and secondary data were taken for this study. Descriptive statistics such frequencies, percentages, charts, cross-tabulations were used to analyze the institutional, legal and external determinant factors affecting the management practices of Ambo Framers’ Cooperative Union. Primary data was collected from selected respondents by using semi- structured interview schedule from the members, FGD and KIIs. The secondary data was also collected to evaluate bylaw and internal bylaw of the Union and its capital strength. As a result of descriptive analysis they were leaders (BODs and a Manager) possessing the qualities of good leaders in the cooperative Union. The result of the data analysis illustrated that BODs of the Cooperative Union played their leadership roles poorly but the manager of the Cooperative Union played his leadership roles well. As a result managing the general and functional areas of the Cooperative Union found lay on the shoulder of the manager of the Cooperative Union. Binary Logistic regression model was employed to identify the Institutional and legal factors affecting the management practices of the Cooperative Union that was under the study. The result of logistic regression model analysis revealed that leadership quality roles, Members participation, bylaw awareness of members, communications of the cooperative Union internally and externally, attitude of members to the service delivery of the cooperative Union, and cooperative proclamation of Ethiopia were found to be significant at significance level of 5%, 5%,1%,10%,10%, and 5% respectively and found negatively determining the management practices of the Cooperative Union. Others externally challenging the proper service delivery of the cooperative Union were also assessed. The major ones were local competitions, interference of governmental bodies in the business of the Union and Infrastructural problems (road facility). Hence the recommendable areas to improve the management practices of the Union and the implication for future study on the same title were recommended in this research paper.

CHAPTER ONE: INTRODUCTION

1.1. Background

Cooperation is the very basis of human civilization .The interdependence and mutual help among human beings have been essentials of social life. History tells us that man cannot successfully live by himself and for himself alone. He is dependent on others. Therefore working together is as old as human society. Since the beginning of the human society; men have cooperated first in foraging and then hunting; later in agriculture and still in manufacture. There is practically nothing which a man by himself alone can achieve. Cooperation is therefore, the basis and essence of human life (V.Kulandaiswamy, 1987).

Cooperatives are member-owned business enterprises. The simplest way to understand cooperatives is that they aggregate the market power of people who on their own could achieve little or nothing, and in so doing they provide ways out of poverty and become powerful.

According to the International Cooperative Alliance (ICA) 1995; the definition of cooperative is defined as ‘an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.

Center for Cooperatives (2004) defined cooperative as a private business organization that is owned and controlled by the people who use its products, supplies or services. Although cooperatives vary in type and membership size, all were formed to meet the specific objectives of members, and are structured to adapt to members changing needs.

This definition emphasizes that cooperatives are independent of government and not owned by anyone other than the members. They are associations of persons, which can mean individual people but also ‘legal persons’, organizations that may themselves have members.

They are intended to meet their own needs and are distinguished from shareholding firms by their democratic nature, with voting rights being assigned by person rather than by size of shareholding. Finally, they are enterprises, and not charities, NGOs or branches of government (ILO, 2003).

Across Africa four separate models are proposed which are derived from the different colonial powers and their spheres of influence. They are as follows:- The first model is typical of the British-derived tradition and is based on a single co-operative system underpinned by a common legal form. This involves primary and secondary societies with a single apex body. The sector is controlled by a government department which is headed up by a Registrar with considerable powers and functions.

By contrast, the French-developed co-operatives as one of several rural institutions for development alongside mutual, associations and trusts. Starting with Native Provident Societies, these semi-public institutions had compulsory membership and were controlled by civil servants. Over time they evolved into mutual societies for rural development but remained centrally orchestrated.

A third tradition is linked to social movements and was embedded in central Africa by the Belgians. Here co-operatives are linked to a lead social movement agency such as a trade union, women’s association or farmer’s organization, with the co-operative being viewed as an instrument of collective action.

A fourth tradition situates co-operatives as vehicles primarily for agricultural producers to help their social development and is rooted in the Portuguese cooperative systems .

Finally, some co-operative traditions have been ‘ home-grown’ within countries such as Ethiopia, with only a limited experience of colonization J.Subramani, (2006).

Cooperation among people has existed since history has been record. Traditional forms of cooperation involved community members voluntarily pooling financial resources through "Equb", which was an association of people having the common objectives of mobilizing resources, especially finance, and distributing it to members on rotating basis. There were also initiatives for labor resource mobilization that were to overcome seasonal labor peaks, known as "Jigie”, “Wonfel”, among others. There also was the idir, which was an association for provision of social and economic insurance for the members in the events of death, accident, damages to property, among others. These informal associations continue to operate in Ethiopia.

According to G.Veerakumaran (2007), the above traditional forms of associations which are the values and customs of our society should be brought to modern form of cooperatives so that they can contribute to the economic and social development of the people of Ethiopia.

Some special features of traditional Cooperatives in relation to modern Cooperative are as follows; Established on the felt needs of members and voluntary membership, fair and equal compensation, equal contribution, equal participation of each member, serve their members, cultural development and other development activities, political neutrality, equal opportunity to all members, they can be organized at working place, living area bases. Therefore, traditional form of cooperatives can be the bases for modern cooperatives. They can have management committee and serve on honorary base, have by-laws, different books of accounts, and have accounts in near-by banks, conduct annual meetings, election and even amend their by- laws.

History records that the modern cooperative movement is the by-product of Industrial revolution which took place in about 1750 A.D. (V.Kulandaiswamy, 1987). More than 50 years have been passed since the modern cooperatives came into existence in Ethiopia. The first period to the emergence of modern cooperative societies was during the Emperor Haileselasie ruling period in 1961. During the imperial ruling period, modern cooperatives in the agriculture sector came in to existence mainly to undertake commercial agricultural production for export purposes.

During this time the first cooperative legal action was made and it is known by Decree number 44/1960. The main reasons for this decree was the increase in number of unemployment, the fast increase of migration from rural area to urban, the increase in number of students who drop out of their education, and finally the disarmament of the military without proper compensation and pension. Cooperative movement in Ethiopia was started in the 1960s with the launching of the comprehensive agricultural development projects such as the Chilalo Agricultural Development Unit (CADU) (Zerihun, 1998). Cited by Mahmud, J.(2008).

Accordingly, the first cooperatives’ proclamation known as proclamation number 241/1964 was put in place. Based on this proclamation 158 cooperatives were established with 33, 400 members and 9, 970, 600 Birr total capital. However, the focus was only on potential areas for agricultural production in order to enhance the production of economically important crops/cash crop for export and as a result, land ownership was basic criterion for membership. In most part of the country few landlords owned the land. So from the very beginning, it failed to meet the demand of the marginalized group of farmers. Commercial farmers were encouraged to become members of the cooperatives (Zerihun, 1998).cited by Mohmud, J. (2008).

The new cooperative movement in Ethiopia was triggered by reforms made to the socio-political system. During the socialist government (the Derg regime), cooperatives were formed to assist in the implementation of the Government’s policy of collective ownership of properties. Under this system, cooperatives were forced to operate in urban, especially consumers’ cooperatives in rural mainly focused on multipurpose agricultural cooperatives in line with socialist principles, which meant that production and marketing of produce were undertaken through collective mechanisms. Membership to a cooperative was also compulsory, which contravened the basic cooperative principle of voluntarily participation. Currently, cooperatives are recognized as an important instrument for socioeconomic improvement of the community (FCA, 2007b). The Cooperative Proclamation No. 147/1998 identified clear goals and authorities, which supported a more conducive legal environment for the formation of Ethiopian cooperatives. The goals include social, economic and other motives for the members.

1.2 The Three Tier System of Ethiopian Cooperatives

The term tier in Cooperatives is the level of organization of cooperatives. In Ethiopia, system the tiers of co-operatives as per the regulations by the council of ministries are three:-

Primary Co-operative:- Primary co-operative society shall be established by voluntary individuals who live or work in the same area or engaged in the same profession. Number of members establishing the society shall not be less than 10. The operational area of a primary co-operative society may be confined to one region or cover more than one region.

Secondary Co-operatives or Unions:-Subject to the provision of Co-operatives' Regulations and that of other relevant laws on co-operative society, primary co-operative societies having similar objective may establish a co-operatives' union. Subject to the Provision of Co-operatives regulations and that of other laws an individual who carries out similar activities to that of a union and who is willing to observe the principles of the society may become a member of the union.

Co-operatives' Federation - Subject to the provision of Co-operatives regulations and that of other relevant laws, unions having similar objective at Federal level may establish Co-operatives' Federation. Subject to the provision of Co-operatives' regulations and that of other relevant law, co-operative societies and an individual that carries out similar activities with that of the Federation may become a member of the Federation.

1.3. Statement of the Problem

Cooperative management is the process of pursuing cooperative objectives by utilizing the resources available to the organization, including people, capital, and facilities (Nakkiran, 2004).

Sometimes people believe that forming a cooperative automatically will solve business problems faced by individual farm households. In reality, cooperatives are subject to the same socio-economic forces, legal restrictions and international relations that other businesses face (Krishinaswami and Kulandaiswamy, 2000).

According to Mellor, W. (2009), effective cooperatives require four conditions: sound business practices; strong membership participation; efficient apex organizations that provide oversight and services; and a facilitating economic environment.

Among the fundamental issues in cooperatives business concern is the general management of the business because it dictates the overall business activity of cooperatives. The success of any business undertaking lies greatly on the management practices as well as addressing challenges emanate with and out of its operations. Along with the prevalent problems that affect the general management of cooperatives are management information systems, involving strategic planning, and control, management techniques, leadership skills and attitudes. The establishment of a principle of cooperative management enables the cooperative enterprise to be managed professionally and cooperatively in that member involvement and democracy will remain key aspects of cooperative practice (Davis, 2000).

Mulugeta, A.(2011),in his paper ”Factors Affecting The Development of Primary Cooperatives’ Movement” stated that leadership in Cooperative management is still Unsatisfied because of the poorly played roles by the member-patrons and other stakeholders. Managerial and skill of the leader’s problems are among the problems in cooperatives. Cooperative Leadership has diverse functions. It includes mobilizing people and resources for joint action, shapes the attitude of members, harmonizing the group members and imparting the cooperative values and principles, make decisions and developing strategies to put the decisions in to practices. The major functions of Cooperative leaders are initiating, encouraging, suggesting and implementing, (Karthikeyan, 2008).

Despite of their socio-economic significance, cooperatives are surrounded by the multitude of the whole inherent managerial problems which imamate from their organizational nature that resulted to poor Cooperatives development evidently based on empirical studies on cooperative management. Without regard to the level of organization, Management Practice is the common system for all cooperative societies which made the researcher interested to investigate its determinants in Ambo Farmers’ Cooperatives Union based on the above stated problems.

1.4. Objectives of the Study

1.4.1. General Objective:-

- The general objective of this study is to investigate the determinants of management practices of the Cooperative Union.

1.4.2. Specific Objectives

- To examine the institutional factors that affecting the management practices of the cooperative.
- To identify legal factors determining the management practices of the Cooperative Union.
- To explore external determinants of the management practices of the cooperative Union.

1.5. Research Questions

What are the institutional factors affecting the management practices of the cooperative?
To what extent the legal factors determine the management practices of the union?
What are the external determinants of the management practices of the cooperative union?

1.6 Significance of the Study

Even though the development of secondary cooperatives in Ethiopia is immature; the improvement of their structure in managerial aspects will be an opportunity for their primary cooperative members’ improvement in management practices. So that best model in managerial practices is required for the development of cooperatives at all the tier systems due to the fact that the development of cooperatives at the same level of organization is far apart from each other in the same country which indicates that the major problems may have not been addressed clearly or common problems identified are still not exercised which leads to find improved solutions depending on the changing world business environment.

Investigating the determinants of management Practices of the sampled Cooperative Union will provide beneficial information to the cooperatives, government bodies; policy makers, educational institutions for academic purposes and donor organizations to focus their attention to the problems or best practices will be identified in order to enhance the development of Cooperatives. In addition, findings of this research work will give insight for researchers and students interested in similar research theme for further investigation in other areas.

1.7 Scope and Limitation of the Study

Generalizing the only factors for the success and failure of each individual cooperative society is not an easy task due to the fact that the differences in services provision, management practices and recurrent cooperatives’ constitutional changes from cooperatives to cooperatives and from country to country. But by conducting an investigation on the determinants of Management Practices of Cooperatives will help to highlight some weaknesses and best management practices of the cooperatives; the outcomes may be good lesson to be learnt and the basis for other studies in future.

The scope of this study covers only the investigation of the determinants of Management practices (institutional factors, social factors, political and legal factors and financial factors) of cooperatives stated in this research proposal. Probably other variables which are not stated as variables may affect the Management Practices of the cooperative Union which may have impacts on the results of this study. Additionally the validity of certain primary and secondary data that have been collected from the officials, BODs, representatives of GA and documents might be biased.

The study area is limited to Ambo Farmers cooperatives’ Union which is located in Ambo town West Shewa Zone Oromia regional state of Ethiopia purposively due to the real applicability of investigation on the determinants of its Management practices and for its research finance and time budget effectiveness.

CHAPTER TWO: REVIEW OF LITERATURE

The relevant literature pertaining to the concept and definition of cooperatives management, cooperative development in the world and empirical studies are presented in this chapter.

2.1. General Concept and Definition

Through cooperation, since the beginning of human society, individuals have found advantage in working together and helping one another in all over the world .In Ethiopia too, it is common for people to be inter-dependent in mutual help and self-help activities in their day-to-day socio-economic conditions and managing same traditionally cooperating that are the basis to modern form of cooperatives development. These traditional cooperatives are the self-help social organizations whose management bodies are elected by the member users of the services.

Management is the functions of an organization’s planning, organizing, staffing, coordinating, and controlling in order to attain certain goals. There is a received wisdom that has prevented any real evolution of the concept of `Co-operative' management as a focus for management development. This is that whilst Co-operative membership-based organizations may hold similar values and principles, Co-operative Management operates separately as a technically competent civil service functioning purely or mainly in terms of functionally specific organizational and commercial contexts, (Davis, 2000).

Cooperative management is the process of pursuing cooperative objectives by utilizing the resources available to the organization, including people, capital, and facilities. The success of Cooperatives management depends on successful democratic member participation, member vigilance over BODs, cardinal relationship between the members and the BOD, between the BOD and the paid management and appropriate application of cooperative values and principles, (Nakkiran, 2002).

2.2. Importance of Cooperatives

According to the statistical information of ICA (2011) on cooperatives, the cooperative movement brings together over 1 billion people around the world. The United Nations estimated in 1994 that the livelihood of nearly 3 billion people or half of the world’s population was made secure by cooperative enterprises. These enterprises continue to play significant economic and social roles in their communities. Below are some facts about the movement that demonstrate their relevance and contribution to the economic and social development.

2.2.1. Economic Importance of Cooperatives

According to the statistical information of ICA (2011), Cooperatives play the role in contributing to the economic development of the world. For instance, In Belgium, co-operative pharmacies have a market share of 19.5%; In Benin, a savings and credit co-operative federation provided USD 16 million in rural loans in 2002; Brazilian agricultural co-operatives exported their products for a total of USD 3.6 bill.; Canadian maple sugar co-operatives produce 35% of the world's maple sugar production; In Kenya, co-operatives are responsible for 45% of the GDP and 31% of national savings.

A large number of cooperatives in Ethiopia participate in marketing of agricultural inputs and produce. As a result, a significant proportion of cooperative unions are engaged in marketing of agricultural produce (Bernard et al., 2007).

2.2.2. Social Importance of Cooperatives

As of the statistical information of ICA (2011), Co-operatives provide over 100 million jobs around the world, 20% more than multinational enterprises. For instance, In the United States, 2 million people are secured employment by cooperatives. Data obtained from FCA indicates that as of 2007, in Ethiopia, there were 23,000 employees of primary cooperatives in Ethiopia. In the same year the employees of cooperative unions were estimated at 838, making the total number of employees working in cooperatives to be 23,838 in 2007.

2.3. Concept of Leadership in Cooperatives

Conceptually speaking, leaders are those who generally hold the key position in any organization. Directors, executives, administrators, and managers would generally fall in this category. Leadership is the process of influencing the activities of an individual or a group in effects towards goal achievement in a given situation, Hersey P. (1998).

Cooperative leadership is an institutional phenomenon which refers to a set of roles whose influences are conditioned by the characteristics of group members or its followers (Thimmaich, 1998), as to cited by Fekadu, (2009).

In Cooperatives, leadership refers to the influence of BODs over the paid management functions. With referencing to Thimmaich, (1998), leadership has two broader classifications, viz., official leadership and non-official leadership. Official leadership includes both the institutional officials and government officials. Institutional officials refer to full time paid managerial and administrative officials of cooperatives at various levels. On the other hand the government officials refer to officials employed by the government in promoting cooperatives running from federal Cooperative Agency (FCA) to the district levels. Non-official leadership includes the elected leaders of primary, secondary and subsequent higher level cooperatives that mean members of management committee.

2.3.1. Functions of cooperative Leaders

The functions of cooperative Leaders according to Hersey, Blanchard and Pandey (1998) as cited by Baysa B. (2009) are; guide and inspire employee’s leader’s and inspire employees towards higher performance and help in the attainment of organizational goals; securing cooperation of members-Leaders persuade employees to work cooperatively, create confidence-leaders create confidence among employees by their conduct and expression, develop and maintain conducive environment to maximize work effort, act as an intermediary between the subordinates and higher level management, act as counselor –leaders guide and advise the subordinate, develop workgroup as team, help employees by motivating and boosting their morale and help in establishing cardinal relations.

Generally, Cooperative Leadership has diverse functions. It includes mobilizing people and resources for joint action, shapes the attitude of members, harmonizing the group members and imparting the cooperative values and principles, make decisions and developing strategies to put the decisions in to practices. The major functions of Cooperative leaders are initiating, encouraging, suggesting and implementing, (Karthikeyan, 2008).

2.3.2. Qualities of Cooperative Leaders

People will follow the leaders only when they identify their needs and strive towards satisfying it. How long followers follow their leaders depends on the qualities of the leaders (Gopalakrishinan, 1980). The qualities possessed by good cooperative leaders are character, intelligence, and temperament, complete acceptance by members, dedication, courage, broader vision, clear understanding, knowledge, sympathy, common sense and clearness as to suggest by Karthikeyan (2008).

2.4. Governance Concepts in Cooperatives

In a functional sense governance refers to the institutional frameworks that define the structure and linkages, fixing the rules of conduct, behavior, interaction and conflict resolution, and provide for incentives or disincentives for performance (of organizations, firms, and individuals). The governance structure of an organization allocates income rights and decision rights, i.e., it determines who receives income from the use of the organization's assets and who may decide over these assets (Hansmann, 1996). Other governance attributes are the supply of equity capital, the assignment of ownership title, and the owners' control of the management.

Co-operative governance is the set of relationships between the co-operatives members, the board as representatives of members that advise management for the members and the management that has the care and control of the co-operatives for the members and how a business can be best governed in the interests of its owners. Co-operative governance provides the structure through which the objectives of the co-operative are set and the means of attaining those objectives and the monitoring of performance . Governance is the job of the board of directors on behalf of members. As to ICA, (1996) an internal governance in cooperatives broadly comprises structure, continuity, balance, accountability; the external governance in Cooperatives comprises transparency, compliance and public accountability and an individual governance in cooperatives comprises integrity competence and commitment. Other governance attributes are the supply of equity capital, the assignment of ownership title, and the owners' control of the management. Governance is the job of the board of directors on behalf of members. Specifically the Cooperative governance classifications with the detailed concepts as follows:-

2.4.1. Internal Governance

Structure:- Structurally, the BODs should be composed of an odd number, no less than five, BOD should be rotated based on the Cooperative’s (union’s) bylaw, BOD should encourage dialogue with general members at the annual GA, the annual GA of members should be adequately promoted to ensure sufficient member participation.

Continuity:- Concerning continuity, the BOD should create strategies to maintain the competitiveness and sustainability of the Cooperative Union, the BOD should create succession plans for both directors and management to ensure sustainability.

Balance: - R egarding the balance in cooperatives, the composition of the board should aim to adequately reflect the demographic makeup of its members and balance the financial service demands of members, the board should seek to balance diversity and experience, but all directors must meet the standards of individual governance.

Accountability:- In the case of accountability in internal governance the BOD is formally accountable to the GA of members, which is the highest governing body, the roles and responsibilities of the board, committees and managers should be established clearly in the bylaws or other policies. It is the duty of the board to establish strategic direction, approve policies and monitor management’s implementation of these policies and achievement of targets. It is the duty of management to prepare the plan and budget, undertake operations, implement the policies approved by the board and achieve the targets set forth.

2.4.2. External Governance

Transparency:- The board should commit to regular, honest communication of its activities with members and regulators in the spirit of full disclosure. Financial statements, compliant with generally accepted accounting principles and local regulatory standards, should be made available to members and to the external stake holders.

Compliance/Conformity:- The board is expected to comply with both the letter and spirit of regulation, to cooperate fully with its regulatory body and to comply with national laws. The board should ensure that the Cooperative meets or exceeds the International Cooperative Principles as well as any other relevant standards that support the development of cooperative business institutions. Cooperatives should undergo annual external audits by the end of each fiscal year.

Public Accountability: - The board of directors and management must be constantly aware of responsibilities to governmental structures, including but not limited to regulators, legislative bodies, the media, the community and the public.

2.4.3. Individual Governance

Integrity: - Cooperatives should adopt a standardized code of conduct clearly explaining proper behavior, directors or managers must not have criminal backgrounds, recent bankruptcies or penal backgrounds. Immediate family members should not serve on the board or in management at the same time and they must excuse themselves from participating in discussions and voting on matters from which they or their family have conflict of interest.

Competence:- All members of the board should have basic cooperative society knowledge back ground (may be through training or professionally), or commit to acquiring these skills through education or training within the first year of service.

Commitment:- Directors individually should be willing and able to commit the necessary time to their cooperative. They must also respect the decisions made by the BODs, adhering to all policies that have been adopted, regardless of personal opinion and required to attend board meetings.

2.5. Review of Empirical Studies on Cooperatives

An immense in number of studies conducted on the determinants of effective functioning of cooperatives business organizations throughout the world. Here under few empirical studies recently undertaken by different researchers taken to conceptualize some aspects.

Cooperatives in Ethiopia failed in the past not because of failure inherent in the collective management but because of forced membership without the interest of the farmers and formation of the cooperatives in hurry without any sufficient preparation and feasibility study. The problem of intervention of the Derg regime in the affairs of cooperatives i.e. using them for its political ends and the largeness and complexity of the organizations for the managerial capacity of the farmers were also a reason for the failures of the cooperatives in Ethiopia (Tesfaye A. (1995).

Study conducted on differences in financial management and goals between the investor-oriented firms and cooperatives in America by David, S. (2000), concluded that the financial management differences are not only reflected between cooperatives and investor-owned firms but also different among cooperatives themselves.

Neal, S. ( 2006) The Management of three coffee cooperatives in Rwanda with special reference to management training, resulted with major findings of the study include that one or more of the cooperatives need education programming in the areas of cooperative member ownership, job descriptions, and ways in which to increase participation in decision-making.

Study conducted by Thegaye, T. (2011) with the title “Analysis of Working capital Management of Ambo Farmers’ Cooperatives Union “, Oromia regional state, Ethiopia. His findings show that the Union’s sound capital structure , insufficient safety margin for creditors and the Union has practiced seasonal operations in delivering inputs that lead it low working capital turnover.

Fassil, T.(1990) with the title “The Development of peasant service cooperatives in post revolutionary Ethiopia”, in his findings that in spite of the several tasks best owed upon peasant service cooperatives, they were mainly engaged in the supply of consumer goods to members followed by grain purchase and selling activities. The problems of the cooperatives were evident in the sphere of marketing and management, which includes the problems in the supply of both consumer goods and agricultural inputs, participation in purchase and sale of products especially grain, shortage of skilled manpower and financial management. Therefore, provision of different services and benefits is a crucial means in increasing the participation of the farmers in marketing their farm produces through their cooperatives.

Study conducted by Gerem, A., (2011) with the title “Evaluation of internal Control system of Admas Farmers’ Multipurpose Cooperatives Union” in Amhara Region of Ethiopia, concluded that the union practiced ill transparent in decision making, weak management review activities and high information gap between the union and members due to infrastructural difficulties.

Haileselasie, G.(2003), with his study title, “The Benefits of Co-Operative Membership” conducted in Tigray regional Ethiopia, his findings have been disclosed that; inadequate capital, illiterate membership, unskilled management committee, low commitment and disloyalty of members, unwillingness to serve as committee member, low level of infrastructure development and the unhappiness of members with the co-operative services.

Study conducted by Guta, A. (2011) with the title “Role of Lume Adama Farmers’ cooperative Union in Fostering Social Responsibility” in Oromia regional state of Ethiopia concluded in that the cooperative Union practiced arbitrary and random social responsibility which indicates that the cooperatives should be guided by planning to foster their social responsibilities.

2.6. Conceptualization and Operationalization

2.6.1. Conceptual Framework

This study is aimed to investigate the determinants of Management Practices on the selected Cooperative Union in terms of institutional factors, social factors, legal and political factors and financial factors.

In view of that, the knowledge will be shared from the result of this study and will help to fill the gap in overall Management Practices of the cooperatives under similar or different situations. So it is important to know the chained problems and best management practices of cooperatives in order to sustain them in the business world and to solve the socio-economic problems of the members. Thus the conceptual framework interlinks the dependent variable with each of the independent variables as shown in the conceptual framework figure-1 below.

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Fig.1: Conceptual framework of the study.

Source: Researcher’s own sketch

2.6.2. Operational Definition of Variables

Dependent variable (DV): This attempt is to represent the “Management Practices” of the Cooperative union. Management Practices is the trend of performance of an organization’s managing the whole operating system which can be performed daily, monthly, and quarterly or annually by the Cooperative union. It is a dummy variable that takes a value of “1” for good management practices and “0” otherwise.

Independent variables (IV): This demonstrates that different internal and external factors bearing impact on the Management Practices of the cooperative Union. For the purpose of this study these include institutional factors, social factors, legal and political factors and financial factors those were highlighted in the model of conceptual framework of this study.

Leadership Quality: - Leadership is the process of influencing the activities of an individual or a group in effects towards goal achievement in a given situation, Hersey P. (1998).Quality of leadership in this study focuses only to the quality of non-official leaders (BODs) and institutional officials (paid management) of the cooperative Union in order to playing their leadership roles or duties in the Cooperative Union. Leadership is a dummy variable which have a value of 1 for its positive relations with the Management Practices of the cooperative union, otherwise 0. It was expected to have positive effect to the management practices of the Cooperative Union.

Governance: - Governance is the job of the board of directors on behalf of members. For the purpose of this study, it covers the internal governance, the external governance and the individual governance capability to be possessed by the BODs in group and individually in the Cooperative Union. It is a dummy variable that have a value of “1” if it has a positive relationship to the management practices of the Cooperative Union otherwise “0” and was expected to have positive effect to the management practices of the cooperative Union.

Internal stakeholders’ Participation:- This refers to the involvement of members, managers and subordinates of the Union in the general business and management practices of the Cooperative Union. Member participation, manager’s participation and employees’ participation are all dummy variables in character that have a value of “1” if each separately related positively to the management practices of the cooperative Union, otherwise 0.

Communication: - The communication of information in cooperatives has the ability to promote or expand the cooperatives’ operations and its nature and benefits. This may comprises Communication with internal stakeholders and external stakeholders. Communication is a dummy variable that have a value of “1” if it is positively related to the management practices of the Cooperative, otherwise 0. It was expected to have positive effect on the management practices of the Cooperative Union.

Job Description and Specification:-Job Description is a document that identifies the tasks and duties to be performed by a job and Job Specification is a document that identifies the qualifications required by a job. It has a value of “1” if it has a positive relation with the Management Practices of the cooperative Union, otherwise”0”. It was expected to have positive effect to the management practices of the cooperative.

Bylaw Awareness (provisions):- It is a cooperative’s constitution which establishes formally several organs of governance. For the purpose of this study it refers to the condition of bylaw of the Union whether its awareness was diversified among the members. It is a dummy variable that have value of “1” if it is positively contributed to the management practices of the Union, otherwise 0. It was expected to have positive or positive effect to the management practices of the Union.

Internal Rules and regulations: - refers to the canon and directives of the Cooperative Union emanate from the bylaw of the cooperative union or other bases and approved by the general assembly (GA) for the proper management of the Union. It is a dummy variable having the values of “1” for its positive relation to the management practices of the Union and “0” otherwise. It was expected to have positive or negative effect to the management practices of the Cooperative Union.

State aid :- For the purpose of this study, it refers to the support of state in technical services, training of leaders, financial support and other facilities provisions without the abolition of the autonomy of the cooperative union. State aid has a value of “1” if it has positive relations to the Management practices of the Union; otherwise 0.It was expected to have positive or negative effect to the management practices of the Cooperative.

Proclamation provisions : -Refers to Ethiopian cooperatives proclamation specifically cooperatives proclamation No. 147/98, is the dummy variable that have a value of 1 if it has positively contributed to the management practices of the Union, otherwise 0. It was expected to have positive effect to the management practices of Union.

Government Strategies: -These refer to the guideline document and plan of the government towards the development of cooperatives. It is a dummy variable that have a value of “1” if it is positively contributed to the union’s management practices, otherwise 0. It was expected to have positive effect to the management practices of the Union.

Government Interference:- Refers to the interference of local regional or national government in the affairs of the cooperative Union. It is a dummy variable that have a value of “1” if it has the positive relation to the management practices of the Union, otherwise 0

Equity:-This refers to a debt free financing of the union. It is a dummy variable that have a value of “1” if the equity to debt ratio equals or exceeds 2:1 ratio otherwise “0”. It was expected to have positive effect to the management practices of the Union.

Financial Stability: - This refers to the continuous profitability of the Union without an interruption resulted to capital progress annually may be as a result of good financial management of the Union or members economic contributions. Financial Management refers to planning, organizing, coordinating and controlling the finance of the Cooperative union. Financial instability may result from weak financial management practices or poor members’ participation. Financial Stability is a dummy variable that have a value of “1” if it has positive relations to the Management practices of the Union, otherwise 0.It was expected to have positive effect to the management practices of the Union.

Infrastructure:- Refers to the road facilities that help the cooperatives in transporting services to their destination. It is a dummy variable that have a value of “1” if it is positively related to the management practices of the cooperative union, otherwise “0”.

Attitude of Members: - It refers to an outlook of the members of the cooperative Union towards the services provided by Cooperative Union to its members and to the community in which it operates. It is a dummy variable that have a value of “1” if it has the positive relation to the management practices of the Union, otherwise 0. It was expected to positively determine the management practices of the Cooperative Union.

Competition: -For the purpose of this study it refers to the competition in marketing from the local traders and similar cooperatives in the Union’s working areas. It is a dummy variable that have a value of “1” if it has the positive relation to the management practices of the Union, otherwise 0.

Nepotism:- Nepotism is defined as favoritism or patronage granted to one’s relative. It is a dummy variable that have a value of “1” if the Union management practices is free from the practices of nepotism, otherwise 0. It was expected to have negatively determined the management practices of the cooperative Union.

CHAPTER THREE: RESEARCH METHODOLOGY

3.1. Description of the Study Area

This section has included information about study area, the research method, sampling design and method of data collection. Finally, the methods that used for data analysis are specified.

3.1.1 An Overview of Oromia National Regional State

Oromia regional state is the largest and populous state in Ethiopia. It is located in the central part of the country and lies between 340 8E1 to 430 111E longitudes and 3040 N to 100 311N latitudes’. Based on data obtained from Oromia Regional office, the region has an estimated of area about 359,619.8 square km, which constitutes about one third of the total area of the country. In addition to its large size, the region has great physiographic diversity. It is subdivided in to three agro-ecological zones high lands, mid highland & low lands.

The region is divided in to 18 administrative zones and 3 urban administrative councils with 261 urban and 36 urban districts. There are a total of 6,197 rural kebeles in the region. According to the summary report of population and house census by CSA, (2007) the total population of the region is 27,158,471 of which male 13,676,159 (50.4%) and female 13,482,312 (49.6 %), 23,788,431(87.6%) rural and 3,370,040(12.4%) urban residents.

3.1.2. An Overview of West Shoa Zone

The study was conducted in Oromia national regional state in West Shoa administrative Zone the case of Ambo Farmers cooperatives’ Union officially located in Ambo town. West Shoa zone is one of the zones in Oromia region, it is found between 80 17” north to 90 60”north latitude and 370 17”east to 380 45’east longitude. It is located in the central part of Regional state, though some part of its areas do inclined to the western part. The zone is adjacent to Amhara Region in the north , East Wollega and Horo Guduru in the west and north west, Jimma zone in South West, South West Shoa Zone in South East and North Shoa Zone in the South East whereas the Zone is 170kms long from north to south it is 183kms wide from east to west. As per the population and housing census conducted in 2007 the population of the Zone was 2,412, 795 of which over 2, 139, 685, (88.68%) people are rural based and the remaining 273,110 (11.32%) is estimated to dwell in urban areas (CSA, 2007).

3.1.2.1. Types of Cooperatives in West Shoa Zone

As of the West Shoa Zone Cooperative Office annual report of 2011, there are 1048 primary cooperative societies with 147,018 members and 32,261,587.88 capitals by engaging in different socio-economic development activities. These different types of primary cooperative societies contribute for the development of socio-economic activities of the society in the Zone.

Table-3.1.Types of primary Cooperatives in West Shewa Zone

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Source: West Shoa Zone Coop. Office, 2012

3.1.2.2. Types of Cooperative Unions in West Shoa Zone

There were about seven cooperative unions’ affiliated 162 primary cooperative societies in West Shoa with 102,690 individual members and 17,125,139 capitals by participating in agricultural input importing and distribution, consumer goods supply and grain marketing activities and other services. Therefore, these all cooperative unions contribute to the zonal, regional as well as national socio-economic development.

Table:-3.2: Types of Cooperatives Unions in West Shoa Zone

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Source: West Shoa Zone Coops Promotion Office, 2012

3.1.3. Description of Ambo Farmers Cooperatives’ Union (AFCU)

AFCU is one of the seven cooperative unions in west Shoa Zone, which is located in Ambo town at 114kms to the west of Addis Ababa.

It was established on Oct.25/1998 G.C by five primary cooperatives consisting 1975 members. Currently the number of primary members’ cooperatives and members from 14 districts of the Zone reached 64 and 59,646 respectively. Its apex organ; general assembly (GA) is represented by 2 members from each primary members cooperatives with a total of 128 GA representatives. The initial capital birr.70, 000 now reached 40,911,276.20 birr. Structurally the Cooperative union has BODs and control committee accountable to the general assembly of the Union and has four functional management departments accountable to the General Manager. Namely Accounting, Marketing, HRM and Material management and Industrial Management additionally have legal services department that comprises legal expert and an internal auditor (fig.3.1) with a total of 28 professional and non professional employees.

Table-3.3: Invested Share Capital to AFCU by the Sampled Cooperatives:

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Source: AFCU, (2012)

Totally the sampled primary members of the Cooperative Union are 48 with 282 shares of capital valued in ETB 1,410,000.00 that has been invested to the Cooperative Union.

3.1.4. Justification of the Selected Cooperative Union

The study titled “A Study on the Determinants of the management Practices in Cooperatives” was conducted in Ambo District West Shoa Zone, Oromia Regional state. The study covered 12 districts of the Zone in membership coverage. The Selection of the study area for this research work was purposive due to the Cooperative Union up on which the research was conducted is located in and the Union is also Purposively selected due to no one researcher has attempted to conduct research in relation to this research topic, the wider operational area covered by the union, and availability of document; so that based on the above justification, the Management Practices of the Cooperative Union was investigated.

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