Failure of cooperative self-regulation: An exploration of cooperative regulatory violations

Abstract

Cooperative organizations are built on strong principles and values rooted in equity and social responsibility. However, we observe a group of cooperatives that have become embroiled in material legal violations. They egregiously commit 602 violations over 20 years related to the safety and just treatment of their members, employees, community, customers and the environment, with penalties for misconduct totalling $2.3 billion. This directly opposes the ideals espoused by cooperatives, and their susceptibility to misconduct challenges the assumption that cooperatives are immune to the ethical failures seen in public firms. We find that when government agencies bring enforcement actions against misconduct, it reduces future negative behaviour. We also find that some cooperatives make changes to the leaders who are present at the time of wrongdoing, and these cooperatives have a decrease in the severity of misconduct in the future. Collectively, these findings suggest that a number of cooperatives harm the groups they claim to serve but that government enforcement and cooperative disciplining carried out in response to regulatory violations can mitigate future misconduct.