Case Analysis

MGT: 489.1

The Birth of the WATERCOOP

Prepared for:

Dr. Jashim Uddin Ahmed,

Associate Professor.

Prepared by:

Group 6

ID Members

1111170030 Avra Barua 1110055030 Navila Kalam 1110919030 Md. Monirul Hassan 1110398030 Nemphy Chakma 1010685030 Md. Abdullah Hil Mahmood

Dated:

2/01/2015

Government-Owned-Controlled-Corporation or Consumer-Owned-Controlled

Cooperative? Which one do you favor? Why? Are there alternatives?

Government-Owned-Controlled-Corporation (GOCCorp) is a term in the Philippines used to

describe government owned corporations that conduct both commercial and non-commercial

activities. Consumer-Owned-Controlled Cooperative is owned and democratically controlled by

its members. This ownership and control give social empowerment to the consumer-members. A

cooperative democratically operates and manages a business enterprise that can economically

benefit members. Although a business organization, a cooperative is a “non-profit” organization.

Finally, a cooperative is a model to redistribute wealth and resources for the common good. I

favor Consumer-Owned-Controlled Cooperatives because of the following reasons.

Cooperatives have become very successful because of the adherence to the cooperative ideology

and values (including transparency, accountability, good governance, concern and care for

others, self-help-mutual-help, etc.); their continuous education and development of members,

officers and staff; and selecting (electing) officers with leadership qualities that include character

(i.e., trustworthiness, good community reputation), competence (e.g., professionalism) and

commitment to serve the community. Sound management skills have helped to achieve this goal

too.

Like any business and human organization, a Government-Owned-Controlled-Corporation is not

foolproof. It can fail because of many factors such as mismanagement, corruption and dishonesty

of officers or members, as well as inefficiencies and ineffectiveness. Problems can also arise

from unsupportive and disloyal behavior or from a misunderstanding of how a corporation

should work. These factors have caused many corporations to become non-operational in the

sense that they have become privatized. Many other corporations are struggling to survive in the

face of a highly competitive business environment.

There are alternatives to government owned corporations and consumer owned cooperatives like

public- private partnerships.

What are the biggest problems on the way to WATERCCOOP? How can they be solved?

The problems observed were:

Disloyal behavior: The Bureau of Internal Revenue assessed the Water District of unpaid taxes

for the period of 1997–2003 which totaled USD 757491.44 inclusive of penalties and surcharges.

The Bureau made some actions that jeopardized the Water District operations.

Irresponsibility: Problems arose from a questionable contract between the Water District and Rio

Verde Water Company regarding a bulk water supply project. They initially entered initially into

a “model agreement”, demanding the latter to supply water to the Water District. The model

agreement was later converted into a legal contract (prepared by Rio Verde) and signed by both

parties. However, the Water District management had later discovered and pointed out some

“differences” between the original model agreement and the revised legal contract. Due to this

water consumers ha to pay higher bills by as much as P1.45/m3 of water based on a parametric

formula in favor of the Rio Verde Water Company. Regarding the contract, disturbing details

came to the surface. Upon authorization by the Board of Director, the contract was signed by

Water District’s general managers. Two years later, two members of the Board admitted the

board’s negligence to carefully examine the contract prior to signing due to “time pressure”.

Illegal disbursement: The Water District 2005 audit report noted some questionable payment.

The amount of $3,220,089 was paid “without legal basis” and/or in violation of government

authorized standards. The Water District 2006 audit report also revealed similar “illegal

disbursements” totaling $2,583,054. In other words, for every Pesus of water bill that consumers

paid in 2005 and 2006, 37 and 22 centavos respectively were spent “without legal basis”. The

“illegal disbursements” included the legally allowed travel per diem(an allowance made for each

day) per member of the Board of Directors which was $20 per day. The actual amount collected

by each Board was P4,500 ($110) per day. The limit of benefits per Board member was P20,000

($490) per month or P240,000 ($5,900) per year. The actual average amount collected per board

member was P718,000 ($17,700) in 2005; and P930,000 ($22,900) in 2006.

Inefficient management: The Commission found several incidents, revealing questionable and

inefficient management by the Water District: The system’s loss was estimated at 60%.

Procurement of materials without bidding amounted to $369,000 in 2005 and $196,802 in 2006.

The cash inflow was lower than the cash outflow in 2005 by as much $182,042. This negative

cash flow was due to huge payments to suppliers and personnel and to interest on loans.

Internal conflicts: Conflicts developed between the Board and the First Labor Organization of

the Water District personnel (FLOW). The latter produced documents showing irregularities and

other wrong-doings committed by the Board. Since FLOW lost its trust and confidence on the

current Board to manage the Water District it went public. From April 2010 on, it informed the

people through media and other means about the irregularities (e.g., the questionable contract

with Rio Verde).

Solutions

1. Establishing values in the coop: It is essential to establish values in the coop so that there is no

scope for disloyal behavior and the coop doesn’t have to pay the penalties and face problems in

operations.

2. Form proper management team: A proper management is vital to the success of the coop.

Forming a proper management team may solve operational problems of the coop and boost

communication among the members of the coop. Other than that a management team can take

care of all the agreements that the coop signs and point out problems that may appear in the

agreement.

3. Clearly state responsibilities: The responsibilities of every stakeholder of the coop should be

clearly stated. Who is responsible for signing papers, who is responsible for reading the papers,

who is responsible for interpreting them. All of these should be clearly stated and strictly

followed.

4. Transparency to avoid conflicts: Maintaining transparency in a coop can solve a lot of

problems instantly. Transparency gives other companies less to no opportunity to reveal anything

that may jeopardize the coop in any way.

What will be the challenges after a transition into a WATERCCOOP? How can they be

met?

After a transition into a WATERCOOP, they will face various kinds of organizational and social

challenges. The water District has about 70,000 water-meter connections (with consumers)

spread over most of the 84 Barangays of Cagayan de Oro City.

Organizing a cooperative of this large magnitude is definitely a big challenge. They can meet this

challenge by breaking the large membership into geographic chapters (or sectors) for practical

purposes and democratic manageability. The cooperative democratic control principle (One-

Man-One-Vote) will empower the individual members to directly participate and get involved in

the affairs of the cooperative that may affect them. There will be a regular annual general

assembly at which they will hear reports from management and officers. They will discuss and

decide on issues, and elect the cooperative officers. The democratic principle needs to prevail at

all levels of decision making (i.e. chapter-level general membership assemblies, Board of

Directors and committee meetings).

Among other challenges, there can be mismanagement, corruption and dishonesty of officers or

members, as well as inefficiencies and ineffectiveness (e.g. being unable to deliver quality

products and services at reasonable costs). WATERCOOP will find it challenging to deal with

unsupportive and disloyal behavior. Challenges can also arise from a misunderstanding of how

coop should work.

To meet all these challenges WATERCOOP needs to adhere to the cooperative ideology and

values. These ideology and values include transparency, accountability, good governance,

concern and care for others, self-help-mutual-help etc. WATERCOOP should deliver continuous

education and development of members, officers, and staff. They need to select (elect) officers

with leadership qualities that include trustworthiness, good community reputation,

professionalism and commitment to serve the community. Also, sound management skills will

help WATERCOOP to cope with these challenges.

How does corruption block and hinder business and community activities?

Corruption inevitably leads to a diminished business climate when the public trust is put at risk.

Corruption can take many forms that can include graft, bribery, embezzlement and extortion. Its

existence reduces business credibility and profits when professionals misuse their positions for

personal gain. Such multitude of corruption practices were evident for the Water District of

Cagayan de Oro City before it was converted to a full-fledged cooperative presently known as

WaterCoop.

The impacts of corruption on business and communities can be summed by the following factors:

Inefficiency:

When resources are tampered with and used improperly, the efficiency of a business suffers.

Insufficient resources are available to effectively run the business and maintain its levels of

operations. Legal fees, penalties and public relations efforts redirect important resources form the

core business and lead to an inefficient use of company funds and personnel. For instance, Water

District’s unpaid taxes for the period of 1997–2003 which totaled P34 resulted in garnishment of

the Water District bank accounts in April 2007and the issuance of a levy on Water District

properties in November 2007. This meant considerable amount of legal fees were spent to

stabilize the issue.

Encouraging Crime:

The results of corruption in business add to the burgeoning roles of crime-fighting government

agencies, police departments and internal investigators. The trickledown effect of corruption

usually ends up feeding black market interests, and may even support the efforts of organized

crime as the activities infiltrate various business levels. For example, The Water District 2005

audit report noted some questionable disbursements amounting P130.89 million ($3,220,089).

These disbursements occurred in terms of travel allowances, financial assistance and bonus

payments that thoroughly exceeded the established quota.

Stakeholder dissonance:

Corruption within a firm can dent the image of the business organization concerned. As

customers and the general public get a negative picture of the company, they may lose trust in

the company and its products. This may result in loss of clients and reputable business partners.

Likewise, general public voiced concerns about the actions of Water District and forced the issue

to conversion of a cooperative based institution.

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