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

Abstract

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.