Winter 2021 TCA Small Business Forum

Published January 3, 2022 By Barbara Wech, Jennifer Hamrick, and Caleb Houston

Originally published in The Cooperative Accountant, Winter 2021 Issue

Violations Enforced by Governmental Agencies 


To inhibit damaging practices and to encourage compliance, a plethora of government agencies enforce the compliance of regulations. Agencies like the Environmental Protection Agency (EPA) provide efficiencies to the market and peace of mind to consumers regarding the businesses and products they engage with regularly1. At the same time, the Securities and Exchange Commission (SEC) seeks to protect investors and enforce fairness in the financial markets (SEC, 2016). While regulating bodies protect consumers and the general public, a cooperative is an entity owned and managed by the individuals that use the products or services. With ownership and control resting with the same individuals, there is a greater chance of thorough self-regulation. This makes it seems unlikely that cooperatives would violate laws and regulations designed to protect their interests and provide efficiencies to the market.  

In this study, we examine cooperatives that have violated laws and parameters set forth by governmental regulating bodies, such as the EPA, SEC, and others, and have experienced monetary enforcement as a result. In our sample, there are 602 violations subject to penalties averaging $3.9 million per cooperative. Violating cooperatives are spread across 15 industries, with infractions clustering in the Agribusiness and Food Products industries. The primary offenses in 86.4% of the violations were Environmental, Workplace Safety or Health Violations. Further, 98.5% of the cases are enforced on a federal level, with an entity such as the EPA or the SEC policing the wrongdoing. Overall, the results demonstrate the frequency and costly nature of violating regulations.  

Monetary penalties are not the sole cost of these indiscretions; there is also a "social penalty" that can be imposed by consumers when companies have corporate social responsibility failures or violate regulations. To show disappointment or disapproval, consumers can withhold support through their buying behavior and public reviews (Crane et al., 2004). For example, consumers with a large and influential social media following could encourage their audience to examine recent infractions, discredit the cooperative and encourage a boycott (Russell et al., 2016; Trudel & Cotte, 2008) 

We posit that the motivation to abide by established laws is driven by incentives to maintain safe practices and avoid economic penalties. In addition, since consumers are aware of the culture created by a cooperative, outsiders could impose social penalties for cooperatives whose actions do not match their mission. By actively avoiding violations, the cooperative can profit from maintaining a positive image and not drawing negative attention to themselves. Therefore, it is vital for cooperatives to understand standard regulations to avoid violations and the associated penalties.  

Our discussion is as follows. We begin by examining the number of cooperative violations by year and providing a detailed analysis of the violation characteristics. Then, we tabulate the related penalties cooperatives experienced for these violations. Next, we identify the enforcement agencies to uncover which government entities are policing these infractions. Finally, we conclude with the implications of disregarding laws and regulations and how cooperatives can better track and analyze their behavior and avoid violations.  

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