Structure, Governance, SystemsBaku, Azerbaidjan, November 10- 11, 2004By: Pierre Gigure

Models of Institutional StructuresVarious models are found around the world. Two majors trends can be outlined.

The Atomized network model: networks in which the units have relatively weak links and only share resources to a small extent the accent is on the individual units, limiting integration to: representation, lobbying and public relationsWhen resources are shared, this is often bilateral without involvement of the Central.

Atomized Networks Agreements are made on short term basisEach member may opt out at any timeRules for affiliation and disaffiliation are lightly definedAttention drawn towards the primary institution much more than on the Network

Individualism and weak solidarity

Models of Institutional Structures (cont.)The federated network model many components highly interrelated & equipped with apex organizations providing significant integrationsharing of resources is raised to a high level of partnership the supervision of base units is highly integrated & thus, facilitatedDelegation of Powers & Solidarity

Federated NetworksDecision making by all; decision taken become Mandatory for all Delegation of power to the Central EntityClear division of power between the Central and the entitiesRules of Affiliation and disaffiliation are clear and stringent

What is preferable ? Why ?Research & Analyses have shown superiority of federated model: economies of scale, better control of complex procedures and markets; sharing of specialized HR faster response to change, improved business flexibility to markets, control/investment in new technologies, access to a variety of sources of capital and financing, up-to-date expertise, risk reduction through distribution conquest of new markets leaner internal structure for business.

Key Criteria and Components of a Federated Network Model

10%20%30%40%50%60%70%80%90%100%Level of integration (%)Sharing of comonRessources (20%)Stratigies & internal rulesof governance (20%)Standardisation ofSystems (30%)Financial contractualSolidarity (20%)Respect of subsidiarityPrinciple (10%)Key criteria of federated modelNetwork of Lithuanian Credit Unions Federated ModelAtomized model

Why FI Coops in many countries are little federated ?Historical reasons Scandals, fraud, corruptionInadequate legal frameworkAsymetric membershipMarkets not competitiveMembers not demandingWeak leadersAt level of the authoritiesAt level of Coop Sector

SUPERVISON: Which approach to choose ?

Gvt must exert its roles and authority: define norms; monitoring and quality control; sanctions & penalties, up to loosing right to operateIf one contemplates Auxiliary Model : CONDITIONSCoops must be bound within a federation, with a good level of cohesion in their organisationBeing member of a group, they share identical quality norms, standards, systems; share cost of supervision, of corrective measures, ultimately, share cost of a Security Fund; this forces discipline from Peer Pressure. Independence of the function

5,162,662 MEMBERS IN QUBEC608 CAISSES POPULAIRESAND CAISSES DE GROUPES IN QUBECFondationDesjardinsSocit historiqueAlphonse-DesjardinsFonds de scurit DesjardinsDesjardinsBank N.A.Caisse centrale DesjardinsCapital DesjardinsFdrationdes caisses Desjardins du QubecDveloppement international Desjardins Cooperative NetworkAs at December 31, 2003 391,947 MEMBERSIN NEW BRUNSWICK, ONTARIO AND MANITOBA 3 FEDERATIONSIN NEW BRUNSWICK, ONTARIO AND MANITOBA68 CAISSES POPULAIRESIN NEW BRUNSWICK (34), ONTARIO (27) AND MANITOBA (7) DESJARDINS CREDIT UNION (ONTARIO)40,000 members and 28 branches- - - Auxiliary members

Organizational Chart 391,947 MEMBERSIN NEW BRUNSWICK, ONTARIO AND MANITOBA 5,162,662 MEMBERS IN QUBECDesjardinsVenture CapitalSocit immobilirePlace DesjardinsDesjardins FinancialCorporationPlaceDesjardinsDesjardins GeneralInsurance GroupDesjardins SpecializedFinancial ServicesManagementDesjardinsSecurities

Desjardins General Insurance *

3 FDRATIONSIN NEW BRUNSWICK, ONTARIOAND MANITOBAFonds de scurit Desjardins

Fdration des caisses Desjardins du Qubec

608 CAISSES POPULAIRESAND CAISSES DE GROUPES IN QUBECDveloppement international DesjardinsCapital DesjardinsDesjardins Financial SecurityDesjardinsTrustSFL Management*SigmaAssistel

OptifundsInvestments

0ptiinsuranceCertas DirectInsuranceCompany * The Personal InsuranceCompany * The Personal GeneralInsurance *DesjardinsAsset ManagementDesjardinsLeasing68 CAISSES POPULAIRESIN NEW BRUNSWICK (34), ONTARIO (27) AND MANITOBA (7)Cooperative NetworkSubsidiary NetworkAs at December 31, 2003 DESJARDINS CREDIT UNION (ONTARIO)40,000 members and 28 branchesCaisse centrale DesjardinsDesjardins Bank N.A.Six Desjardins regionalinvestment funds DisnatDesjardinsSecuritiesInternationalShared ownershipAuxiliary members*Fondation DesjardinsSocit historiqueAlphonse-DesjardinsDesjardinsGlobalAssetManagementGestion Fiera Capital *

Role of the Federation (Desjardins)Ascertain that the Group carries out its Mission creating value for its owners-usersGuide, plan and coordinate all the Group operationsStrategic planning process; networks Business PlanStrategic communication policySystems definition, maintenance, upgrade and operationIdentify & manage main RISKSOversee and control: Internal Control & Supervision

Role of the Federation (Desjardins)define & harmonize the Groups rules and practices marketing of trademark at national level internal reporting system & integrity of control systems a well applied follow up process after the Inspection reportTechnical Assistance Unit which may help correct soft spot and detected weaknessestransparency, benchmarking (strata)

Support services offered by the federation

Compensation Liquid funds mgement & matching Hum. resource mgt Training personnel and management Introducing new products Approving major loans Opening a service outlet Purchase of software, hardware

External auditBorrowing Investing Advertising & Promotion Modifying a policy Modifying /introducing a work tool Introducing a new system Modifying a standard

Roles of decision-making bodies within a financial coopGENERAL MEETING OF THE MEMBERSultimate authority

Adopts and modifies by-laws Decides how to distribute surplus Elects officers Decides on amalgamations

BOARD OF DIRECTORS(5 to 15 members)decides-guides-controlsEstablishes orientations, priorities and policies for Coop Decides on business plan and budgetOversees completionRepresents CoopEnsures associational life

Reports on its mandate at general meeting

CAISSEDESJARDINSUPPER MANAGEMENTmanages operationsImplements and controls business plan Plans organizes, directs and controls operationsEnsures quality of service to members

Reports to Board of Directors

AUDIT AND ETHICS COMMITTEE(3 or 5 members)supervision-adviceSupervises Coop operations for zones under their supervision Handles complaints Ensures that laws, norms and ethics are observed Formulates observations, suggestions, recommendations or notices to the Board of Directors

Reports on their mandate to the general meeting

7 key responsibilities for Board of Directors at DesjardinsEnsure Coop mission & values are respectedStrategic choices: Strategic planning; organizational structure; establish policies and ensure their applicationPerformance management: Adopt annual business plan and budget; monitor its performanceMonitor upper management: Set duties for and hire Director General; then monitor performance by setting objectives, measuring achievement and setting salary

7 key responsibilities for Board of Directors at DesjardinsRelationship with members & community Ensure member satisfactionEncourage active associational lifeEnsure commitment to communityReport to members on mandate.

Risk management: Identify main risks and abatement strategiesEnsure follow-up for Audit and Ethics and Surveillance Committees Internal operationsSet up process to assess board operations and self assessment procedure for board members

Key Management Systems (Desjardins)The Cooperative Identity: participation rate; products served by subsidiaries of the Group; patronage refund paid/ turnoverSales management: fidelity ratios; market share growth / product; business volume / memberFinancial results: gross margin; net margin; loan losses; RH costs; IT costsRisk management: credit risk & coverage ratio; NPA; loan concentration; interest rate risk; liquidity risk; capital risk; image riskMembers satisfaction: customers satisfaction surveyPerformance of resources: productivity ratios per employee; % of automated transactions; profitabilty / product/ service / member

www.did.qc.ca

voquer ici la direction unique du Mouvement Desjardins: les administrateurs de la Fdration des caisses Desjardins du Qubec composent galement le CA de la Desjardins Socit Financire et de la Caisse Centrale.

M. DAmours est Prsident et chef de la Direction du Mouvement des caisses Desjardins et Prsident du Conseil de la Fdration.

Desjardins Bank N.A. = National Association.

Placements Optifonds = bureau de courtiers faisant du courtage en pargne collective (fonds de placement) avec les produits Desjardins et ceux des concurrents.

Optiassurances = bureau de courtiers pour les produits dassurance vie offrant les produits Desjardins et ceux des concurrents.