How Governance Practices Shape and Influence Oil Palm Co-operative Performance in Malaysia

Zaifalaila Zakaria; Abdul Rahman Abdul Rahim; Zaki Aman

Governance practices (GP) depict various conceptual designs, yet there are still limited investigations on how GP can influence the performance of the co-operatives. This signified that the most excellent practices from corporate governance literature might not be relevant to co-operatives because they have dual-pronged economic and social objectives for their members. In the case of the Malaysian palm oil sector, the independent oil palm smallholders or growers are encouraged to establish a co-operative to manage their farms and economic activities while finding a solution to the local community’s contemporary conundrums. However, the oil palm smallholders are often neglected in the palm oil sector’s complex value chain due to the remoteness of smallholders from farm knowledge and training infrastructure, and poor farm management. Realising these challenges, the oil palm co-operatives need to implement a comprehensive GP to manage their agricultural activities. Consequently, this study aims to examine the GP as a second-order construct to predict the performance of oil palm co-operatives. Data was obtained from board members of oil palm co-operatives and then analysed using partial least squares structural equation modelling (PLS-SEM). As per our findings, GP is validated as a second-order construct comprised of three crucial dimensions, namely, responsibility, management, and audit and control. Further, the results confirmed that GP had a positive and significant influence on co-operative performance. The contribution of this study is to guide the policymakers and co-operatives’ managers to implement the palatable GP that will lead to greater performance of the co-operatives.

Åberg, C., Bankewitz, M., & Knockaert, M. (2019). Service tasks of board of directors: A literature review and research agenda in an era of new governance practices. European Management Journal, 37(5), 648–663. https://doi.org/10.1016/j.emj.2019.04.006
Achim, M.-V., Borlea, S.-N., & Mare, C. (2015). Corporate governance and business performance: Evidence for the Romanian economy. Journal of Business Economics and Management, 17(3), 458–474. https://doi.org/10.3846/16111699.2013.834841
Ador, S. F., Siwar, C., & Ghazali, R. (2016). A review of palm oil impact on sustainability dimension: SPOC initiative for independent smallholders. International Journal of Agriculture, Forestry and Plantation, 2(feb.), 104–110.
Aini, M. Y., Hafizah, H. A. K., Zuraini, Y., & Zaliha, H. (2014). Modelling the impact of strategic planning, structural capital, relational capital, members’ participation, governance practices and human capital development on cooperatives’ performance. Journal of Business and Management (COES&RJ-JBM), 2(2), 249–256.
Arcas-Lario, N., Martín-Ugedo, J. F., & Mínguez-Verac, A. (2014). Farmers’ satisfaction with fresh fruit and vegetable marketing Spanish cooperatives: An explanation from agency theory. International Food and Agribusiness Management Review, 17(1), 127–146.
ArgÜden, Y. (2016). Responsible Boards for a Sustainable Future. The Handbook of Board Governance, 597–638. https://doi.org/10.1002/9781119245445.ch30
Begum, H., Siwar, C., Alam, L., Choy, E. A., Ishak, S., & Alam, A. S. A. F. (2018). Enhancing sustainability amongst oil palm smallholders in Malaysia. International Journal of Agricultural Resources, Governance and Ecology, 14(1), 62. https://doi.org/10.1504/IJARGE.2018.10011894
Benos, T., Kalogeras, N., Wetzels, M., de Ruyter, K., & Pennings, J. M. E. (2018). Harnessing a ‘currency matrix’ for performance measurement in cooperatives: A multi-phased study. Sustainability (Switzerland), 10(12), 4536. https://doi.org/10.3390/su10124536
Birchall, J. (2017). The governance of large co-operative businesses. https://www.ica.coop/sites/default/files/publication-files/governance-report2017coops-ukfinalweb-1823508697.pdf
Bozec, R., & Dia, M. (2015). Governance practices and firm performance: Does shareholders’ proximity to management matter? International Journal of Disclosure and Governance, 12(3), 185–209. https://doi.org/10.1057/jdg.2014.3
Chareonwongsak, K. (2017). Enhancing board motivation for competitive performance of Thailand’s co-operatives. Journal of Co-Operative Organization and Management, 5(1), 1–13. https://doi.org/10.1016/j.jcom.2017.01.001
Cohen, J. (1988). Statistical power analysis for the behavioural science. In Statistical Power Anaylsis for the Behavioural Science (2nd Edition).
Franken, J., & Cook, M. L. (2013). Impact of board structure and process on cooperative performance. Agricultural & Applied Economics Association’s 2013 AAEA & CAES Joint Annual Meeting, 1–35.
Franken, J., & Cook, M. L. (2015). Informing measurement of cooperative performance. In Interfirm Networks (pp. 209–226). Springer International Publishing. https://doi.org/10.1007/978-3-319-10184-2_11
Franken, J., & Cook, M. L. (2019). Do corporate governance recommendations apply to U.S. agricultural cooperatives? Sustainability, 11(19), 5321. https://doi.org/10.3390/su11195321
Ghosh, S., & Ansari, J. (2018). Board characteristics and financial performance: Evidence from Indian cooperative banks. Journal of Co-Operative Organization and Management, 6(2), 86–93. https://doi.org/10.1016/j.jcom.2018.06.005
Grashuis, J. (2018). An exploratory study of ownership and governance interrelationships in traditional and hybrid farmer cooperatives. Managerial and Decision Economics, 39(6), 664–673. https://doi.org/10.1002/mde.2936
Grashuis, J., & Su, Y. (2019). A review of the empirical literature on farmer cooperatives: Performance, ownership, governance, finance, and member attitude. Annals of Public and Cooperative Economics, 90(1), 77–102. https://doi.org/10.1111/apce.12205
Khan, H. H. A., Yaacob, M. A., Abdullah, H., & Abu Bakar Ah, S. H. (2016). Factors affecting performance of co-operatives in Malaysia. In International Journal of Productivity and Performance Management (Vol. 65, Issue 5). http://dx.doi.org/10.1108/IJPPM-05-2014-0077
Hair, Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2017). A primer on partial least squares structural equation modeling (PLS-SEM). In SAGE Publications, Inc. (Vol. 38, Issue 2). https://doi.org/10.1080/1743727X.2015.1005806
Hair, J. F., Sarstedt, M., & Ringle, C. M. (2019). Rethinking some of the rethinking of partial least squares. European Journal of Marketing, 53(4), 566–584. https://doi.org/10.1108/EJM-10-2018-0665
Halim, E. H., Mustika, G., Sari, R. N., Anugerah, R., & Mohd-Sanusi, Z. (2017). Corporate governance practices and financial performance: The mediating effect of risk management committee at manufacturing firms. Journal of International Studies, 10(4), 272–289. https://doi.org/10.14254/2071-8330.2017/10-4/21
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135. https://doi.org/10.1007/s11747-014-0403-8
Héroux, S., & Roussy, M. (2020). Three cases of compliance with governance regulation: an organizational learning perspective. In Journal of Management and Governance (Vol. 24, Issue 2). Springer US. https://doi.org/10.1007/s10997-019-09468-y
Hu, L., & Bentler, P. M. (1998). Fit Indices in Covariance Structure Modeling?: Sensitivity to Underparameterized Model Misspecification. Psychological Methods, 3(4), 424–453. https://doi.org/10.1037/1082-989X.3.4.424
Jarvis, C. B., MacKenzie, S. B., & Podsakoff, P. M. (2003). A critical review of construct indicators and measurement model misspecification in marketing and consumer research. Journal of Consumer Research, 30(2), 199–218.
https://doi.org/10.1086/376806
Kari, F., & Othman, A. (2008). Enhancing co-operative movement to achieve Malaysia’s development goals. The Role of Co-Operatives in Sustaining Development and Fostering Social Responsibility. https://doi.org/10.1109/RFIC.2003.1213898
Kline, R. B. (2013). Principles and Practice of Structural Equation Modeling (D. A. Kenny (ed.); Vol. 3). The Guilford Press.
https://www.cambridge.org/core/product/identifier/CBO9781107415324A009/type/book_part
Kock, N. (2015). Common method bias in PLS-SEM: A full collinearity assessment approach. International Journal of E-Collaboration, 11(4), 1–10.
https://doi.org/10.4018/ijec.2015100101
Korent, D., ?un?ek, I., & ?alopa, M. K. (2014). Corporate governance practices and firm performance measured by Croatian Corporate Governance Index (CCGI ® ). Economic Research-Ekonomska Istraživanja, 27(1), 221–231.
https://doi.org/10.1080/1331677X.2014.952109
Kyazze, L. M., Nkote, I. N., & Wakaisuka-Isingoma, J. (2017). Cooperative governance and social performance of cooperative societies. Cogent Business and Management, 4(1), 1–14. https://doi.org/10.1080/23311975.2017.1284391
Leviten-Reid, C., & Fairbairn, B. (2011). Multi-stakeholder governance in cooperative organizations: Toward a new framework for research? 2(2), 25–36. http://library.uniteddiversity.coop/Cooperatives/Multi-Stakeholder_Co-ops/Multi-stakeholder_Governance_in_Cooperative_Organizations.pdf
Martins, F. S., & Lucato, W. C. (2018). Structural production factors’ impact on the financial performance of agribusiness cooperatives in Brazil. In International Journal of Operations and Production Management (Vol. 38, Issue 3). https://doi.org/10.1108/IJOPM-10-2015-0637
Maslinawati, M., Intan Waheedah, O., & Arun, M. (2013). Accountability issues and challenges: The scenario for Malaysian cooperative movement. International Journal of Economics and Management Engineering, 7(6), 1503–1508. https://doi.org/scholar.waset.org/1999.10/1437
Masuku, T. ., Masuku, M. ., & Mutangira, J. P. . (2016). Performance of multi-purpose cooperatives in the Shiselweni Region of Swaziland. International Journal of Sustainable Agricultural Research, 3(4), 58–71.
https://doi.org/10.18488/journal.70/2016.3.4/70.4.58.71
Ni Ketut, S. A. (2016). Cooperative performance measurement as an efforts in supporting microfinance institutions business development. South East Asia Journal of Contemporary Business, Economics and Law, 9(4), 30–37.
Nurhazani, M. S., Azlan, Z. A., & Kamarul Baharin, A. M. (2016). Investigating board of directors ’ perceptions on corporate governance practice in cooperatives. International Journal of Contemporary Applied Sciences, 3(1), 265–289. www.ijcas.net
Podsakoff, P. M., MacKenzie, S. B., Lee, J.-Y., & Podsakoff, N. P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879–903. https://doi.org/10.1037/0021-9010.88.5.879
Ramayah, T., Cheah, J., Chuah, F., Ting, H., & Memon, M. A. (2019). Partial Least Squares Structural Equation Modeling (PLS-SEM) using SMARTPLS 3.0: An Updated and Practical Guide to Statistical Analysis (Second). Pearson Education.
Saleh, N. M., & Hamzah, N. (2017). Co-operative governance and the public interest: Between control and autonomy. Jurnal Pengurusan, 51(2017), 209–224.
https://doi.org/10.17576/pengurusan-2018-51-18
Sallehhuddin, A., Said, A. M. A., Hasmanto, N., Mustafa, M. A., Jais, M., Samsudin, A., Masuod, M. S., & Ismail, H. (2017). Crafting preliminary model for mosque cooperatives’ antecedents of performance. Asian Social Science, 13(2), 116.
https://doi.org/10.5539/ass.v13n2p116
Sarstedt, M., Hair, J. F., Cheah, J. H., Becker, J. M., & Ringle, C. M. (2019). How to specify, estimate, and validate higher-order constructs in PLS-SEM. Australasian Marketing Journal, 27(3), 197–211. https://doi.org/10.1016/j.ausmj.2019.05.003
Shamsuddin, Z., Mahmood, S., Ghazali, P. L., Salleh, F., & Nawi, F. A. M. (2018). Indicators for Cooperative Performance Measurement. International Journal of Academic Research in Business and Social Sciences, 8(12), 577–585. https://doi.org/10.6007/IJARBSS/v8-i12/5056
Sharma, J. P., & Khanna, S. (2014). Corporate social responsibility, corporate governance and sustainability: Synergies and inter-relationships. Indian Journal of Corporate Governance, 7(1), 14–38. https://doi.org/10.1177/0974686220140102
Shaufique, S. F. (2017). Independent Smallholders in the Global Palm Oil Value Chain: A Case Study of Malaysia. Conference and Congress of the Indonesian Society and Agricultural Economics (ICC ISAE). http://www.perhepi.org/wp-content/uploads/2017/08/22.-Dr.-Shaufique-F.-Siddique_ICC-ISAE_Speaker-Session-5.pdf
SKM. (2015). GP27:Garis Panduan Tadbir Urus Koperasi (pp. 1–42). Malaysia Cooperative Societies Commision. https://www.skm.gov.my/images/images/Garis-Panduan/GP27-Garis-Panduan-Tadbir-Urus-Koperasi.pdf
Susanty, A., Bakhtiar, A., Puspitasari, N. B., & Mustika, D. (2018). Performance analysis and strategic planning of dairy supply chain in Indonesia: A comparative study. International Journal of Productivity and Performance Management, 67(9), 1435–1462. https://doi.org/10.1108/IJPPM-10-2017-0250
Willems, J., Huybrechts, G., Jegers, M., Weijters, B., Vantilborgh, T., Bidee, J., & Pepermans, R. (2012). Nonprofit Governance Quality: Concept and Measurement. Journal of Social Service Research, 38(4), 561–578. https://doi.org/10.1080/01488376.2012.703578
Yacob, Y., Ali, J. K., Roslin, R., & Ting, H. (2018). The relationships between member participation, trust, Behavioural loyalty, and the moderating effect of ethnicity: An explanatory study of value co-creation among cooperative members in Sarawak. International Journal of Business and Society, 19(2), 505–522.
Zakaria, Z., Abdul Rahman, A. R., & Aman, Z. (2019). Integration of Sustainability-Oriented Practices in the Oil Palm Cooperatives Performance?: Proposal of a Conceptual Model. Asian Journal of Research in Business and Management, 1(2), 1–18. http://myjms.mohe.gov.my/index.php/ajrbm/article/view/7202/3001

In-Text Citation: (Zakaria et al., 2021)
To Cite this Article: Zakaria, Z., Rahim, A. R. A., & Aman, Z. (2021). How Governance Practices Shape and Influence Oil Palm Co-operative Performance in Malaysia. International Journal of Academic Research in Business and Social Sciences, 11(4), 1222–1238.

Copyright: © 2021 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode

International Journal of Academic Research in Business and Social Sciences

Open Access Journal

How Governance Practices Shape and Influence Oil Palm Co-operative Performance in Malaysia

Zaifalaila Zakaria, Abdul Rahman Abdul Rahim, Zaki Aman

Further Information

Our Journals

Get intouch with us