In many cooperatives when the people running the enterprise become so focused upon ensuring that their organization survives in a competitive marketplace they often completely lose sight of the true purpose and function of their organization. A robust system of oversight that provides structural checks and balances is a crucial element often missing in many co-ops and other forms of member-controlled enterprise. All too often this results in them drifting away from the common purpose established by their founders.
Whenever those running an enterprise are not the same people who own it, a vigorous system of oversight becomes essential, otherwise the owners are likely to find that the main benefits of the enterprise go to those running the enterprise. (The term ‘owners’ refers to the shareholders in the case of a shareholder company, trustees in the case of a charity and the members in the case of a member-controlled enterprise). Universally, all corporate organizations are at risk from those that may misappropriate funds and assets, this is intended to be prevented by systems of audit, both internal and external. In times past the main concern was that employees may steal the petty cash but in more recent times it is not uncommon for executives to steal the entire enterprise. Financial audit systems are, of course, essential but oversight must go far beyond this. Proper oversight is required to ensure that the enterprise actually carries out its function and remains committed to the purpose set by the membership.
Organizational risks: All models of enterprise have inherent organizational risks that need to be effectively managed if the enterprise is to achieve its purpose on a continuing basis. Those involved in co-ops & mutuals need to fully appreciate the inherent risks within the member-controlled enterprise model and to learn how these risks need to be managed.
It is sometimes argued that the supremacy of 'the Board' must be maintained and that current legislation does not provided for the establishment of supervisory boards, however, this can be a diversion because the functions of an oversight body need be little different from the position of a financial audit, but applied to the purpose and function of the organization. Like the financial auditor the oversight body must be given the full powers and resources to carry out their tasks and must report directly to the membership.
Oversight of the purpose and function of the enterprise must not be confused with any other forms of audit that may also be undertaken, for example social audits or environmental audits. The body appointed by the members essentially acts as the guardian of the purpose and function of the enterprise, and could be called the 'board of guardians' or something similar.