This paper builds upon recent advances in the corporate governance framework to extend and complement the economic literature on producer cooperatives. We argue that the problem of governance in a cooperative is twofold and consists in designing mechanisms and setting up institutions that (1) encourage workers to define a goal that maximizes workers’ welfare and (2) induce managers to pursue and internalize such a broad goal. When compared to capital-controlled firms, the agency problems become more complex and harder to solve in the cooperative framework. As empirical evidence of this problem and its corresponding solution, we illustrate the case of the Mondragón cooperatives, explaining in detail the incentive system and the control mechanisms now in place in this successful business group. The study of the governance architecture of Mondragón may help us to propose solutions to traditional problems of the cooperative firm and to reach a better understanding of both the governance of cooperatives and corporate governance in general. © 2006 M.E. Sharpe, Inc.
- Corporate governance
- Producer cooperatives