The ownership relations of savings cooperatives, as cooperatives with special activity, are regulated by the Act X of 2006 on Cooperatives (Act of Coop.) and the Act CXII of 1996 on Credit Institutions and Financial Enterprises (Hpt. as follows), and the detailed internal rules are defined by the constitution of the cooperatives. In terms of owners the Act of Coop. specifies a minimum of 7 members, 50% of the actual number of members has to be an individual (natural person) and 50% at most has to be a legal person or an economic association without a legal person, not taking into consideration the citizenship of the members or the incorporated head office. Secondary cooperatives, which can be exclusively created by cooperatives, enjoy an exception in terms of the requirements of the setup of membership. The higher number of members compared to economic associations refers to the person merging character, as opposed to the typical capital merging role of a single-membered joint stock company.
The subscription of at least 1 share is compulsory for members (respectively, a non-financial contribution of the same value if the constitution of the cooperative makes it possible), the total amount of the par value of the share (basic share) and the maximum limit of purchasable shares by one member are defined by the constitution of the cooperative. The amendment suggestion Nr. T/1479/49 to Statue 1996/CXII about credit institutions and financial enterprises, was passed by the Parliament in December 2010[1], which (besides some other issues) defines the maximum par value of fundamental shares by 10,000 HUF.[2] The aim of the regulation is the strengthening of open membership and the person merging character, to ward off the internal and external intentions for capital merging ambitions which are in opposition with the basic characters of cooperatives. One of the tools of the regulation could be the security, which embodies pecuniary contribution. Shares in Hungarian savings cooperatives are in many ways similar to shares or stocks of banks, but they show a significant and basic difference in capital accumulation and capital concentration. The one very crucial difference is that as opposed to stocks in another banks the number of shares in savings cooperatives is not limited, the number of owners can change constantly. The other difference is that shares in savings cooperatives cannot be subjects of turnover or free trading as opposed to stocks of joint stock companies. In order to prevent concentration of ownership the Hpt. has a regulation (Section 216/paragraph 3) which states that in case of cooperative credit institutions one member's direct and indirect property cannot be more than 15% of the subscribed capital. Do these limits really offer the necessary protection against external buyout ambitions and the internal merging ambitions? Are the legal limits really necessary and are they really qualitatively able to fulfil their role?
First of all we have to examine, which exact goals these regulators serve, what and who against did they get into the legislation. Savings cooperatives have accumulated a significant amount of reserves during their barely half a century long existence. These are all reported as their elements of equity. Most of these are present in the equity and liabilities of the cooperatives as unnamed, undivided property and accumulated profit reserves and these can mean the tenfold or twentyfold of the subscribed capital. According to Section 216/A of Hpt. members cannot form any right to this capital fund, as opposed to cooperatives not being under the regulations of Hpt. In case of stepping out, members can only have a claim to wealth which has been really brought in by them. Over the wealth besides the above mentioned the other members have the right to dispose with the help of their democratic institutions and elected corporations. If we have an approach to the properties of the cooperative members from the law of property, then we can treat these as some kind of temporary property configurations, somewhere in between private and public property, because the right of ownership is carried out by more people, which have merged a certain part of their private property. This interpretation is covered by the definition of cooperative property defined by the Hungarian Constitution which was included in the constitution until 22 October 1989.[3] According to this, exercising the partial authorization embodied in the property right also shows a significant difference as compared to private or public property. If we restrict the examination of the above only on the accumulated profit reserves, we can make the following assumptions.
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The membership of cooperatives can be divided into two groups: The one group contains members who in person actually participate, whereas the other group only fulfils financial contributions and their ownership authorization are only used on general assemblies (general assembly, meeting of delegates) Among the previous group there should be a distinction made between top officers and those participating in person who do not have actual and direct role in the management. The accumulated result reserve can be embodied in various assets such as tangible assets, liquid assets and receivables. While, for example, a private individual can be in possession with the above in general, in terms of cooperative- or state property this is not necessarily the case. In savings cooperatives these goods are characteristically in the property of members who in person participate in the matters of a given cooperative, respectively in the property of employees who are not members. (e.g. real estates, vehicles, tools for carrying out different work activities). In case of the public property of a local government the question of ownership is very often not even clear: it is very difficult to decide whether a public park is in the property of the local government, the company who carries out the maintenance or the people who actually visit the park. The property of savings cooperatives is most frequently in the hands of members who participate in person.
The authorization of owners can be easily separated in such cases, when the ownership can be connected/ bond to a clearly definable property which has constant parameters and is registered in a controllable way. For example in case of a 10 hectare 25 gold crown (the quality of soil is measured in gold crown value) plough-land of a private individual, which is noted down in the property-registry, it is easy to define the subject of property, the person of the owner and the right of usage too, because this land is either by its owner or by its tenant.[4] In case of private parks or squares, the right of usage applies to everybody. In terms of the property of savings cooperatives, where the wealth consists of more elements which are very often non-definable with physical parameters, the picture is more complex. Usually the banking real estates, the IT and communicational devices and liquid assets, which embody the property, can used by the members who participate in the matters in person, or non-member employees, who actually own these wealth elements. The usage of these is carried out with strict internal controls based on job descriptions and internal regulations. The usage is not only a right, but in order to reach certain goals it is also a duty for the sake of the cooperative.
The utilisation right of property - just to stick with our previous example - belongs to the owner of the land; the owner can decide whether he or she uses the land or gives this right to someone else for example rents it out. In terms of public property this can happen very often with limitations, because a park or a public square can be handed out for various occasions only for a certain amount of time, but they cannot be utilised permanently for other purposes as their basic function, or for example a road being in the property of a local government cannot be closed down for a longer period of time, because with such a regulation,the local government would actually face itself with legislative barriers e.g. breaking basic personal rights. In case of savings cooperatives, the utilization right of property is similar to public property: in terms of utilization of property elements the decision makers (management, caretakers etc.) have to operate in the framework of strict regulations and barriers. The utilisation of real estates and the communication and bank technical equipments is exclusive, but in case of liquid assets, taken those into consideration as property elements, we can refer to a legislative barrier (Section 216/c of Hpt.) according to which the undividable property of a transforming cooperative credit institution has to be put in the deposit reserve of the legal successor, this means it cannot be paid out for the members. According to Section 71/ Paragraph (5) of Hpt. the so called "community fund", as an undividable property, of a cooperative transforming to a economic organisation or a cooperating closing down without a legal successor, has to be handed over to another cooperative or a cooperative organisation. This way the utilisation right of the cooperative, in terms of this property element, gets from the hands of the cooperative to the hands of another cooperative institution. About the utilisation of some other property elements, mainly elements which can be connected to credit institutional activities, such as liquid assets, the management can decide with relatively large independence, but the decision has be influenced and limited exclusively by the economic rationalities and investment limits. Altogether, the utilisation right of cooperatives works within a very limited scale, and
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in case of utilisation mainly economic priorities are kept as major guidelines.
The picture of practicing the power of disposal is very diverse over cooperative property elements, which partly can be brought back to the complexity of the power of disposal and partly to the variety of property elements. For example as a characteristic of public property, that although the power of disposal is carried by the community with the help of their officials which act as their representatives, this representation does not give the right for the destruction of the property, as opposed to the private individual, who can do this any time with his private property. On the contrary, people disposing over public property have to act with the carefulness of a good proprietor, are meant to deal with the property with loyalty, always having the interests of the public as their top priority. (For example writing off things, filing documents, dealing with data have strict rules in local governments and cooperatives). According to this the management cannot even renounce property without any equivalent, but there are some exceptions. Outside the circle of management, the cooperative has the right to make decisions about handing out support and donations inside the framework of their social role and responsibly taking. In most of the cases the managers of savings cooperatives have the wide ranging authority for the transformation of properties, debits and its alienation for an equivalent in the framework of reasonable management and legal regulations. For example managers can make a decision on his/her own about the opening of a new branch (where he transforms liquid assets into material funds), provision of bails (the debit of property) and the sale of assets (claims against clients, assets taken over as coverage of claims). A local government can carry out such type of rights in a more strict and rigid way. (e.g. cannot put debit on its equity and can not let go of any debts.)
We can make the assumption about the property of savings cooperatives that the major part of partial authorization is carried out by the management; this means the members and a very limited circle of owners. Those partial authorizations bond to property which aren't carried out by the management directly, are either evident, this means that the framework of reasonable managements defines the behaviour of owners, or the management can have an indirect impact on them through their employer and legislative function. This way the management has actually authorization over the complex community property which is very similar to authorities over private properties. This type of ownership stands a bit further away from the characteristics of public property. The other owners are actually real community owners; their access to property is very tiny, only existing through the representatives. This is also strengthened by the fact that as opposed to the management, they are in a strong disadvantage in terms of the flow of information, because they are neither members nor professional investors. From the investment these owners can only have a claim for their shares and the dividend of those, but the whole of the share capital is characteristically smaller than the accumulated profit reserves or accumulated property.
It is clearly visible, that the management has the opportunity to dispose over the common property as it was its own private property. This can only be limited by the personal attitude, decency and cooperative motifs of the managers. To the seats of savings cooperative managers being in a privileged position and attitude for decades, get naturally new managers, who have been socialized by different values and who have a very different approach to cooperative property. As regards to these managers, there is not a single personal guarantee, that the authority they dispose over is really used for the sake of the community. Due to this I do agree that the guarantee should be forced out by legal tools and external regulations.
The accumulated profit reserves are not only the target of owners who are in an advantageous position, but also of external investors and speculators. The market characters, who got in contact with savings cooperatives, have realized the business opportunities in the deficiency of regulations. According to open membership, as a theory having to be applied compulsorily in terms of cooperatives, a saving cooperative has to accept all applicants who agree with the aims of the cooperative and provides a financial contribution, to become its member. Due to the fact that the amount of these financial contributions is very often only symbolic as compared to equity, these obviously do not mean any barrier for the regulation of membership, but this kind of regulation would also be in contradiction with the basic principals of cooperative organizations. The conditions, which can be defined in the constitution regarding the creation of membership, cannot be restrictive in a negative way due to the basic principals of cooperatives and various legislatives. This means that those criteria, which are declared in terms of members, do not really mean any obstacle for speculators. For example, the most common regulation that the residence or the head office of the member should be in the operational territory of a given savings cooperative, is only a mat-
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ter of administration. The very loosely and without enough prudence defined and used constitution of cooperatives in terms of membership, does put the cooperatives in real danger. As we have seen it in practical examples, speculators have hired people for a couple of thousand HUF ,taking the number of members into consideration, and those people had to be accepted as members of the cooperative due to the deficiency of constitution. Those speculators, getting in a position of election majority this way, have replaced the management and have put the control and the cooperative into their own hands. This contains real threat form the perspective of prudent, financial institutional operation. All those values and together with these the institutional guarantees will be lost which have been based on safe, prudent operation and collective organizational aims. Just to highlight a few. The relationship between the members will disappear, the clients and the management and with this parallel the immense ability of capital supplement innate in the large number of members (which is actually essential in a financial institution) will also disappear, because the members will not invest in a such company, where the right of management is out of their hands and cannot have any impact on the amount of yield of their investment, on the dividend or on the pricing. Making decisions collectively will completely disappear; the speculators will treat the property of the cooperative as their own, and with this they can dispose independently over the property which does not belong to the cooperative, but it was only given to take good care of it. This above mentioned property can be tenfold or twentyfold of the own property, where only a certain amount of money belongs to the speculator. This way a kind if unrealistic situation can come into existence, that with about a couple of thousand HUF investments, a speculator can actually dispose over billions of HUF in one person, even without a tiny or non professional knowledge. This cannot be allowed to happen either for the sake of the cooperative, the sector or the national financial market.
This means regulation is necessary; the only question is, whether it is good enough to organize the internal ownership within cooperatives and to preclude speculative capital.
The rules and regulations and their interpretation applying expressly on savings cooperatives do not show an example for any desired internal ownership relations. The task is to define a new ownership structure which can be used in the current socio-economical environment and it can preserve the characteristics of savings cooperatives. The establishment of the new ownership structure has to be supported by positive legislations instead of negative legislation.
According to my view, the solution does not hide in the creation of a "new" typed savings cooperative, which has been actually ran down by the seemingly or deliberately radical amendment of Hpt., but in the strengthening of the cooperative nature. For this we have to rethink the internal relations.
First of all we have to re-examine and define the new policy of membership. The theory which lasted until the first part of the 1990s, that more and more member should join the cooperative as a stipulation for selling the products, was obviously inaccurate. This was reached by agitation and this way a large mass basis has been created. Raising the number of members has appeared in the yearly agenda of cooperatives as a general cooperative aim. Savings cooperatives have really gained a large number of new members this way, without these having any practical advantage. In contrary, the untreatable number of members was not only for the new members formal, who treated their symbolic financial contributions as some kind of credit fee and with the discontinuance of the business relation their genuine relationship with the cooperative has come to an end, but also for the "real" members, whose authority gained through their membership and their influence became insignificant with the large amount of members. Beside this, the management had to face itself with a large amount of administrative duties. For dealing with these a number of makeshift arrangements came into existence which also decreased the cooperative nature of ownership. As the orders of cooperative policies (together with the cooperative policy) have faded away, the downsizing of the cooperative basis has started to take place.
In the first place, with the increase of the amount of base shares, most savings cooperatives were able to decrease the number of their membership, very often to the minimum number defined by the legislation of the time (100 persons). This had actually various advantages: On the one hand the administrative duties of cooperatives have decreased immensely, the organization became efficient again, on the other hand the membership of the cooperative comprised of such members more and more, who have taken greater financial risk than just a symbolic amount and due to this they started to behave as real owners.
At the same time with the decrease of membership the capital addition ability of the cooperative has also decreased. The legislative authorities have evaluated this process rather negative, and in order
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to avoid an extremely strong owner concentration, have very soon increased the necessary minimum number of members to 200 people. It is a fact that a membership number between 200 and 500 people is still manageable, but this only can mean a real protection for capital and can mean real economic power, if this potential is active. One of the most significant tasks of the management is to activate its members for the sake of the cooperative. They should consult with the members on a regular basis, (in a form of a general assembly) gather the information being at hand for members about the aims and problems of the cooperative, include the members into the acquisitive work through their personal relations, and into the broadening of social relations.
Making members interested in a management organization this way in cooperatives too, can mainly happen through financial contributions and keeping touch in person. This way the legislation, although created with good intention, which defines the amount of base share being subscriptive by a member in a maximum of 10,000 HUF, is actually fundamentally wrong. The aim of this is to avoid those speculators could close out the traditional (original) members with the increase of the base share by a random amount, which characteristically consists of such rural population, who have a very limited opportunity in the participation of capital increase. The amount of the base share has to be always defined in a way, that a member disposing over only one share should take and actual financial risk in exchange for being able to participate in the decision making mechanisms. The degree of real financial risk is obviously different by different members and at different times, but for its assessment such changing degreed economic standards can be taken into consideration as the amount of the minimum wage.
There is a phenomenon which is recognizable by dynamically developing cooperatives, that is that member policies undergo the current economic interests, mostly by the sustainability of the growth route. These cooperatives have raised their exposure against their clients taking an advantage over their advantageous or seemingly advantageous opportunities, and this way they have raised their capital demand. Faster than the income creating ability of these risk takings could have enabled, this way the internal capital formation had to be supplemented by capital which was collected among the members or among external investors. One of the tools of this is the increase of the base share, but the value of the base share cannot be increased over a certain degree in order to protect members, and moreover because the increase of the base share very often goes with the stepping out of members, and with an extreme increase the management easily can be faced with the barrier of the minimum amount of membership. On the other hand, the increase of all base shares noted by one member (the amount of base shares) - due to the lack of real membership relations - can only have any positive results, if the net yield of this can overgrow even in a short term the net yield of other alternative investment opportunities (e.g. government securities, short term bank deposits). Taking the different taxing practices into consideration, the dividend in case of private individuals is a more costly payout than the deposit interests (not even mentioning the deposit interests for entrepreneurs[5]) in these cases the cooperative has to deal with a dividend which is higher than deposit interests, which obviously has a very negative effect on profit making and internal capital accumulation. The higher capital cost make cooperatives to take maximum risk projected on a unit capital, because due to pricing barriers the cooperative can only create its capital costs by expansive methods. The higher exposure belonging to a unit capital creates obviously a greater demand for capital, this way the circle closes up.
It is easy to admit, that these cooperatives are extremely sensitive towards increasing base interests and, this way, towards costs of liabilities because their capital costs, as they cannot let their capital to drain, grow even to a larger extent than their source costs, respectively these financial institutions react more sensitively to any negative changes in the economic environment. As a result of the above, these institutions are forced to keep their capital adequacy for the sake of success on a very low level due to the high cost of capital.
Due to the barriers of internal capital growth (profit or the contributions of members) and in order to avoid the procedures which go wit the increase of internal capital, the savings cooperatives which disposed over a larger capital demand has to undergo external capital withdrawal, which can be with the acceptance of new members. In terms of costs of external capital the above mentioned statements about internal capital can be applied, moreover, taking into consideration that the attitude of external members to cooperatives is of an investor rather than of an owner due to the characteristics of interest enforcement in cooperatives, external members consider the risk of the various investments, and if they find this high they also want to have a high yield. It is very typical that these investors deposit larger amount of money at savings cooperatives, this way the dependency of the cooperative is higher on them and with the departure of them the management suddenly would have to supplement a large amount of capital (this usually cannot happen from within),
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this way sooner or later they will get defenceless against these investors, which, as it unfortunately is shown by various practical examples, can lead to the complete remodelling of the ownership structure. I should say, that cooperative law even currently has regulations about the status of investors (Section 60) but these legislative limits has proved to be incapable in practice, and the changing of the limits to a great extent would strengthen the vulnerability of savings cooperatives. Due the existence of legislation the dependency of cooperatives would be smaller than in case of current solutions.
My conclusion is the following. As smaller the ratio of the accumulated profit reserve within the equity and as smaller the ability and will of capital supplement of cooperative membership for accumulated profit reserves as bigger the capital risk of the cooperative. According to the above mentioned, beside proper membership policies, a consequent capital and dividend policy is another important element in the strengthening of cooperative characters.
The self helping attitude of classical cooperatives was based on the fact, that members have lent each other important but at the time replaceable capital through the cooperative, in the hope of getting capital in the future. This way a very tight private, confidential and wealth bond and attachment has been established between them. As smaller the cooperative, as bigger this attachment is. With the growth of the membership, the personal feature disappears and relationships become rather impersonal. With the growth of membership the cooperative becomes a capital merging organization from a person merging organization, it is undeniable, that in practice cooperatives with a large membership show characteristics of economic organizations, and work as shapeless joint stock companies. Due to this, besides the protection of original (capital accumulating) membership, it is also very important that the member setup has to be transparent for actual members and the sum of the base share should be determined in such way, that it would not exclude old members but a real risk taking community could be established among members.
As I have already written down, there is a need for a real financial interest and dedication between savings cooperatives and single members. In order to reach this, the limitation of the minimum amount of share par value (the actual financial contribution being put in disposition) purchased by the members is not the only solution. We should also take into consideration, that in protection of the capital the Hpt. contains a legislations (Section 216/A) which is different from the legislation regarding credit institutional cooperatives, this is that a leaving member can only apply at most for the sum of his share (par value) from the equity of the savings cooperative. What does this really mean?
This can mean that a person having been a member for 50 years and has significantly contributed to the accumulation of the profit reserves of the cooperative with his decisions, work and financial contribution, can have a right to the very same sum as a member who joined the cooperative a month earlier with the same amount of share. It is true although that the old member got his dividend every year according to the successful activity of the cooperative, but the accumulation of capital and the wealth growth has gone far beyond the dividend having been paid out. It is easy to see, that the present par value of the share purchased 50 years ago is very different from the par value of the share purchased a month ago.
The third pillar of the strengthening of the cooperative characteristics is the presence of an external control which does really have a cooperative nature. Such organization structure has to be established and run which is beyond the cooperatives[6] and due to its institution protecting functions and on the right of risk community, can carry out a frequent control on the management of the various cooperatives when it notices certain processes which are negative from the perspective of institution protection, (extreme capital concentration, irresponsible risk taking, the change of the ownership structure in a very undesirable way, etc). In the current system, as I have written it down before, the ambitions of the external speculative capital and the current management are very similar, only the loyalty of the management towards cooperatives makes them distinct from speculators. But even a manager who is loyal and devoted to the cooperative can make different decisions in certain situations, which is a non acceptable risk from the perspective of the organization.
According to my conviction, the regulations of future savings cooperatives have to serve the creation of proper proportion. A proportion has to be created on the one hand among the dividable and non dividable property elements, on the other hand among the actual presence of members in the success of the cooperative (contribution to its success), the received dividend from the results and among the degree of frequent risk taking. This means the following in practice:
- taking the present special regulations into consideration, that optimal proportion has to be defined
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among the equity which really means a serious financial risk (and this way real control) for the members, but a larger stepping out of members, does not result in the critical decrease of capital
- from the perspective of taking part in effectiveness the type of the contribution provided by the member has to be qualified (financial and/or personal contribution) , the proportion and duration of impact on success
- the type of share (dividend, bonus, royalty etc.)
- the type, duration and proportion of risk taking ( real financial contribution, bonus bases being separated in time, personal responsibility)
Among the property elements (equity) the proportion of dividable wealth has to be defined in a way that the amount of it should not make the members to leave. One of the economic withholding force of this is the dividend. As I have written before, the amount of net dividend has to go beyond the net yield of any actual alternative investment, this means for example, if the amount (without the interest tax) of bank deposits running out in 12 months is 5%, then (taking a 25% dividend tax[8] and 14% for health care into consideration) a 10% large dividend can be appealing for members. Taking an average of 100 million profits after tax into consideration a 30 million HUF (30%) dividend is reasonable for the sake of capital accumulation, this way the shares which are meant to serve the dividends cannot be more than 300 million HUF. The dividable wealth can be figured out from the 300 million HUF valued shares if we take away the subscribed capital which was earlier put in the names of the members. Staying with our example, if the subscribed capital is 150 million HUF, the dividable wealth is also 150 million HUF. Of course it is necessary to define other proportions (legal) too, because the determination of the dividable wealth from the income producing ability is only one perspective. The maximum limit of dividable wealth can be defined concretely, for example it could be the 50% of the actual accumulated profit reserves or 30% of the total equity. These together can to an extent limit the drain of wealth, as opposed to a joint stock company having been established from a savings cooperative and without the above mentioned limitations. If there the whole property becomes stocks and gets demutalised, there is a much larger chance of capital drain if they do not limit the repurchase of shares and transforming those into own share. It we take the tenfold of the numbers from the previous example (taking into consideration that the minimum own property of a bank operating in form of a joint stock company has to be 2,000 million HUF) then we can see that for shares in a value of 3,000 million HUF with a 10% proportion, a 300 million HUF large dividend has to be paid out, which would, taking into consideration a 30/70% allocate proportion, require a 1,000 million HUF average, taxed yearly result, which is very unlikely or even, I would say, impossible.
Of course these numbers, proportions are highly theoretical, but they are good for us to see that in case of demutualisation of the whole property (transformation into a joint stock company or the total liquidation of the cooperative wealth) the chance of capital drain is more likely. Due to the fact that by the demutalisation the member gets back manifold of the wealth contributed in the form of shares, the member is actually encouraged to purchase his shares (especially if the member does not get a proper amount of dividend). Because this claim can happen on a large-scale it not at all sure that a customer can be found among the other owners, so this way in case of a closed membered joint stock company, the company has the right to buy back the shares, which can result in capital drain. Of course with the help of administrative tools this process can be limited, but the real goal is rather the establishment of such internal relations, which can create the long term, internal, economic interest of the members. The dividable wealth applying to this can be actually modelled with a formula.[9]
For the protection of capital situation of savings cooperatives it is appropriate to define those legislatives which limit capital drain, either on a legislative or on a constitutional level, being supplemented with the right of veto of the institution protection fund. Such regulation could be that the share embodying the demutalised accumulated profit reserves cannot be paid out for 5 years (starting at the demutualisation) and even then in such a proportion that the accumulated profit reserves cannot go under the total amount of the closure balance of the year of demutalisation.
If the demands go beyond the share funds being outpayable this way, the payments among members should happen proportionally and in the next year the demands of the previous year have priority and so those have to be cleared first. The payment of sums which are actually at hand are not influenced by the above regulations, the payment of those should happen according to the present regulations of Hpt. These regulations together are able to guarantee the safety of savings cooperatives, at the same time strengthen the bond and attachment of owners in such way, that every owner can be interested in the successful and fruitful operation of the company,
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on the other hand the principle of one member one vote being supplemented with the amendments of Hpt. put in force on 1 January 2011 (except the determination of the maximum limit of base shares by 10 thousand HUF) should result in a real and strong control from the side of the owners.
The contribution of a member to the results can be financial or a personal participation, or both together. A financial contribution is very typically the amount of the paid share. From the perspective of registering wealth under a name it is a very crucial parameter where and to what extent the member has put this in the possession of the cooperative. Savings cooperatives have raised the par value of their base shares several times since their founding, this way from the perspective of putting the sum in the possession of the cooperative, if there is a chance to this, every data and sum should be taken into consideration and this data should be included in the share-registry.
The member can contribute in person as an official or an employee, or both together to the wealth growth of the cooperative by its profit. This can be very different according to the given office (duty), range of responsibilities and the amount of time having spent in the given area or field. Moreover, there can be a difference in contribution even between members having the same office or responsibilities.
The manner of getting shares can be different according to the above mentioned criteria. According to the amount of contribution the member has received a dividend from the actual results, this way the dividend is in proportion with the duration of the financial contribution. It is another question, whether the savings cooperative, with the help of the contribution, has been able to create common properties beyond the dividends, which also has to be taken into consideration by the division.
In case of contribution in person, the employee member receives a salary according to the market relations. It is hard to say, whether the cooperative could have been similarly successful with having employed a different person for the very same position and for the very same salary, or a single employee has really outstandingly contributed to the growth of the wealth. Similarly, the fee (royalty) is very often a merely symbolic amount of money, compared to the dominant and responsible work of the officials for the sake of the cooperative. To define the impact of the single members on the creation of the accumulated profit reserves is very difficult, it is partly subjective and this way inaccurate, this way the quantification of this requires a consensus among members, and the regulation of this should happen in stripes.
From the perspective of the size and duration of risk taking, again the classification according to financial contribution is the easiest, because this way the risk taking of single members can be well compared in sums and in time as well.
According to the allowance policies being put compulsory by the new legislative (Hpt. Section 69/B-69/E), the government regulations still in the process of creation, and according to the internal regulations, a part of the bonus going to the management has to be separated at the right time, for the sake of making the managers being interested in safe risk taking rather than in the endless increase of credits and deposits. This means that bank managers actually take risk beyond the value of their shares for the sake of the cooperative, which can be manifold more than the amount of their financial contribution having handed over for the cooperative. Going beyond the above mentioned, in case of a loss being created by them, bank managers have to face the consequences of labour law and criminal law and have to take financial and moral responsibility which is a real but very complicatedly quantified risk taking from the perspective of wealth division.
The establishment of the proper methodology of wealth division of savings cooperatives and the acceptance of it by the general assembly or the meeting of delegates has to happen within the legal limitations of cooperatives and with the help of previously defined and registered qualities and proportions.
The suggestion about wealth division could be vetoed by the fund for the institutional protection, if dissolution (liquidation) cannot take place for the sake of a secure operation of the cooperative, or the dissolution is in opposition wit the regulations being put down earlier.
After the liquidation of the notion "cooperative property" (the cancellation of the notion from the Hungarian Constitution) the ownership relations have stayed unorganised and unresolved within cooperatives, these problems have come up gradually and are on their peak nowadays to such extent that the problem cannot be left without any focus.
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It is still my strong belief [10] that the present patterns for transforming the cooperatives are maybe legal, but not at all ethical and nevertheless righteous. The amendment to the Htp. as regards to this matter has arrived somewhat late, and it is only a rather superficial cure of the matter. For these reasons I find an amendment to the legislation, coming from the level of interest representation of cooperatives, reasonable. This piece is of writing is not an untouchable statement, but rather a suggestion reflecting my own personal view and of course open to any debate whose aim is to put forward the establishment of a new legislation.
The remodelling of the internal ownership relations being presented in this writing could offer a real solution for an ultimate settlement of ownership structure, putting an end to speculations which surround the savings cooperatives not only externally but internally too[11].
As a result of this, not only a real and strong ownership interest could be established, but a new, more effective organisation could come into existence due to the process of partial ownership authorities being put closer to each other. The new organisation can have a much stronger structure compared to present cooperatives and it can preserve all the advantages and values of cooperative form.
With its transparent owner structure, in is a very good alternative to joint stock companies in terms of the establishment of internal interests, but as compared to joint stock companies the principle of one member- one vote enables a much more democratic decision making, which decreases the dependency from the notion of concentrated possession (which is not at all welcomed by financial institutions) and its way of unique methods of wealth division can protect itself from capital drain, and is even able to capital supplement.
The limitation of the base share by a maximum of 10,000 HUF (the amendment to the Hpt. which came into force on 1 January 2011) becomes senseless as a permanent solution; a final, ultimate and complex solution can be created which offers, instead of solutions based on limitations, a solution based on real financial interests. Moreover with registering the wealth under certain names, makes it possible for even traditional members (with lower income) to dispose over shares with high par value.
In the operation of the above described system, the integration and funds for the institutional protection have a great role to play, because they have to be built between the internal lines of defence and external supervisory organisations in a way, in which they could recognise and treat all the internal and external attacks on cooperatives with larger efficiency and competence as it is at present. ■
NOTES
[1] The amendment to the Statue 2010/CLIX (about the amendment of some statues with financial subject) was announced on 22 December 2010
[3] With putting the Statue XXXI of 1989 into force the notion "cooperative property" was eliminated from the Hungarian Constitution. It is my strong view, that this unique form of common private property and collective property, is almost as import as state property and local government property, which presence in the Constitution is essential. I believe treating cooperative property as an alternative from of the property of economic organisations is rather wrong and harmful. Just to mention one reason, this type of property has a completely unique and special right of disposal (ius disponendi) as compared to other organisations.
[4] Not taking certain special cases into consideration such as usufruct right
[5] Savings cooperatives can accept and very often they do accept legal persons as their members
[6] I have dealt with putting the integration on new foundations and with the question of network organisations earlier in various other studies. This way, I do not intend to write about these matters in this piece of study.
[7] The registry of wealth under names in savings cooperatives, although in forms of business share, does have a legislative and practical forerunner. The statue 1992/II about the coming into force of the statue 1992/I about cooperatives and temporary regulations has legally regulated the property relations between the members and the cooperative, the changes in the organisation and the regulations about procedure. Beside this the statue 1992/VI amending statue 1992/II gives further framework for registering the property under names:
"(1) The proportion of the business share has to be defined in a way, which should be in harmony with the participation proportion of the creation and accumulation of the registerable property. In the process of this, except small cooperatives according to § 4. Section (3), to the minimum 40% of the value of registereable property, the duration of the membership and the weight and proportion of participation in person has to be taken into consideration. Whereas, up to 20% of the regisreable property, the proportion of financial contribution has to be taken into consideration. If the number of entitled members through the right of financial contribution is smaller than the number of members who actually contributed financially, the 20% limit can be changed according to this. By defining the number of entitled members through the right of financial contributions in case of more inheritor the legal predecessor has to be taken into consideration who actually has handed over financial contribution."
[8] The general amount of divident tax decreased to 16% from 2011
[9] Dividable wealth=5 year average of taxed profit*0.3 subscribed capital but <=own capital (Equity)*0.3 and <=accumulated profit reserves*0.5
[10] See Moizs, Attila: The ethical and legal problems of property registration in savings cooperatives In JURA vol.15. issue 1
[11] See Papp Emilia: Reloaded (Transforming savings cooperatives) Heti Világgazdaság December 2010
Lábjegyzetek:
[1] The Author is PhD-student.
Visszaugrás
