1. Structure, Governance, Systems Baku, Azerbaidjan, November 10- 11, 2004 By: Pierre Giguère Baku, Azerbaidjan, November 10- 11, 2004 By: Pierre Giguère

2. Models of Institutional Structures Various 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 relations  When resources are shared, this is often bilateral without involvement of the Central. Various 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 relations  When resources are shared, this is often bilateral without involvement of the Central.

3.  Atomized Networks  Agreements are made on short term basis  Each member may opt out at any time  Rules for affiliation and disaffiliation are lightly defined  Attention drawn towards the primary institution much more than on the Network Individualism and weak solidarity  Agreements are made on short term basis  Each member may opt out at any time  Rules for affiliation and disaffiliation are lightly defined  Attention drawn towards the primary institution much more than on the Network Individualism and weak solidarity

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

5. Federated Networks  Decision making by all; decision taken become Mandatory for all  Delegation of power to the Central Entity  Clear division of power between the Central and the entities  Rules of Affiliation and disaffiliation are clear and stringent  Decision making by all; decision taken become Mandatory for all  Delegation of power to the Central Entity  Clear division of power between the Central and the entities  Rules of Affiliation and disaffiliation are clear and stringent

6. 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. 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.

7. Key Criteria and Components of a Federated Network Model

8. 10%20%30%40%50%60%70%80%90%100% Level of integration (%) Sharing of comon Ressources (20%) Stratigies & internal rules of governance (20%) Standardisation of Systems (30%) Financial contractual Solidarity (20%) Respect of subsidiarity Principle (10%) Key criteria of federated model Network of Lithuanian Credit Unions Federated ModelAtomized model

9. Why FI Coops in many countries are little federated ?  Historical reasons  Scandals, fraud, corruption  Inadequate legal framework  Asymetric membership  Markets not competitive  Members not demanding  Weak leaders At level of the authorities At level of Coop Sector  Historical reasons  Scandals, fraud, corruption  Inadequate legal framework  Asymetric membership  Markets not competitive  Members not demanding  Weak leaders At level of the authorities At level of Coop Sector

10. 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 operate If one contemplates Auxiliary Model : CONDITIONS  Coops must be bound within a federation, with a good level of cohesion in their organisation  Being 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 Gvt must exert its roles and authority : define norms ; monitoring and quality control ; sanctions & penalties, up to loosing right to operate If one contemplates Auxiliary Model : CONDITIONS  Coops must be bound within a federation, with a good level of cohesion in their organisation  Being 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

11. 5,162,662 MEMBERS IN QUÉBEC 608 CAISSES POPULAIRES AND CAISSES DE GROUPES IN QUÉBEC Fondation Desjardins Société historique Alphonse-Desjardins Fonds de sécurité Desjardins Desjardins Bank N.A. Caisse centrale Desjardins Capital Desjardins Fédération des caisses Desjardins du Québec Développement international Desjardins Cooperative Network As at December 31, 2003 391,947 MEMBERS IN NEW BRUNSWICK, ONTARIO AND MANITOBA 3 FEDERATIONS IN NEW BRUNSWICK, ONTARIO AND MANITOBA 68 CAISSES POPULAIRES IN NEW BRUNSWICK (34), ONTARIO (27) AND MANITOBA (7) DESJARDINS CREDIT UNION (ONTARIO) 40,000 members and 28 branches - - - Auxiliary members

12. Organizational Chart 391,947 MEMBERS IN NEW BRUNSWICK, ONTARIO AND MANITOBA 5,162,662 MEMBERS IN QUÉBEC Desjardins Venture Capital Société immobilière Place Desjardins Desjardins Financial Corporation Place Desjardins Desjardins General Insurance Group Desjardins Specialized Financial Services Management Desjardins Securities Desjardins General Insurance * 3 FÉDÉRATIONS IN NEW BRUNSWICK, ONTARIO AND MANITOBA Fonds de sécurité Desjardins Fédération des caisses Desjardins du Québec 608 CAISSES POPULAIRES AND CAISSES DE GROUPES IN QUÉBEC Développement international Desjardins Capital Desjardins Desjardins Financial Security Desjardins Trust SFL Management* Sigma Assistel Optifunds Investments 0ptiinsurance Certas Direct Insurance Company * The Personal Insurance Company * The Personal General Insurance * Desjardins Asset Management Desjardins Leasing 68 CAISSES POPULAIRES IN NEW BRUNSWICK (34), ONTARIO (27) AND MANITOBA (7) Cooperative Network Subsidiary Network As at December 31, 2003 DESJARDINS CREDIT UNION (ONTARIO) 40,000 members and 28 branches Caisse centrale Desjardins Desjardins Bank N.A. Six Desjardins regional investment funds Disnat Desjardins Securities International Shared ownership Auxiliary members * Fondation Desjardins Société historique Alphonse-Desjardins Desjardins Global Asset Management Gestion Fiera Capital *

13. Role of the Federation (Desjardins)  Ascertain that the Group carries out its Mission « …creating value for its owners- users »  Guide, plan and coordinate all the Group operations  Strategic planning process; network’s Business Plan  Strategic communication policy  Systems definition, maintenance, upgrade and operation  Identify & manage main RISKS  Oversee and control: Internal Control & Supervision  Ascertain that the Group carries out its Mission « …creating value for its owners- users »  Guide, plan and coordinate all the Group operations  Strategic planning process; network’s Business Plan  Strategic communication policy  Systems definition, maintenance, upgrade and operation  Identify & manage main RISKS  Oversee and control: Internal Control & Supervision

14. Role of the Federation (Desjardins)  define & harmonize the Group’s 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 report  Technical Assistance Unit which may help correct soft spot and detected weaknesses  transparency, benchmarking (strata)  define & harmonize the Group’s 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 report  Technical Assistance Unit which may help correct soft spot and detected weaknesses  transparency, benchmarking (strata)

15. 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 - 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 audit - Borrowing - Investing - Advertising & Promotion - Modifying a policy - Modifying /introducing a work tool - Introducing a new system - Modifying a standard

16. Roles of decision-making bodies within a financial coop GENERAL MEETING OF THE MEMBERS ultimate authority Adopts and modifies by-laws Adopts and modifies by-laws Decides how to distribute surplus Decides how to distribute surplus Elects officers Elects officers Decides on amalgamations Decides on amalgamations BOARD OF DIRECTORS (5 to 15 members)decides-guides-controls Establishes orientations, priorities and policies for CoopEstablishes orientations, priorities and policies for Coop Decides on business plan and budgetDecides on business plan and budget Oversees completionOversees completion Represents CoopRepresents Coop Ensures associational lifeEnsures associational life  Reports on its mandate at general meeting general meeting CAISSEDESJARDINS UPPER MANAGEMENT manages operations Implements and controls business planImplements and controls business plan Plans organizes, directs and controls operationsPlans organizes, directs and controls operations Ensures quality of service to membersEnsures quality of service to members  Reports to Board of Directors AUDIT AND ETHICS COMMITTEE (3 or 5 members)supervision-advice Supervises Coop operations for zones under their supervisionSupervises Coop operations for zones under their supervision Handles complaints Handles complaints Ensures that laws, norms and ethics are observed Ensures that laws, norms and ethics are observed Formulates observations, suggestions, recommendations or Formulates observations, suggestions, recommendations or notices to the Board of Directors notices to the Board of Directors  Reports on their mandate to the general meeting

17. 7 key responsibilities for Board of Directors at Desjardins 1.Ensure Coop mission & values are respected 2.Strategic choices: Strategic planning structureestablish policies and ensure their application 2.Strategic choices: Strategic planning; organizational structure; establish policies and ensure their application 3.Performance management: Adopt annual business plan and budgetmonitor its performance 3.Performance management: Adopt annual business plan and budget; monitor its performance 4.Monitor upper management: Set duties for and hire Director Generalmonitor performance by setting objectives, measuring achievement and setting salary 4.Monitor upper management: Set duties for and hire Director General; then monitor performance by setting objectives, measuring achievement and setting salary 1.Ensure Coop mission & values are respected 2.Strategic choices: Strategic planning structureestablish policies and ensure their application 2.Strategic choices: Strategic planning; organizational structure; establish policies and ensure their application 3.Performance management: Adopt annual business plan and budgetmonitor its performance 3.Performance management: Adopt annual business plan and budget; monitor its performance 4.Monitor upper management: Set duties for and hire Director Generalmonitor performance by setting objectives, measuring achievement and setting salary 4.Monitor upper management: Set duties for and hire Director General; then monitor performance by setting objectives, measuring achievement and setting salary

18. 7 key responsibilities for Board of Directors at Desjardins 5.Relationship with members & community Ensure member satisfactionEnsure member satisfaction Encourage active associational lifeEncourage active associational life Ensure commitment to communityEnsure commitment to community Report to members on mandate.Report to members on mandate. 6.Risk management: Identify main risks and abatement strategiesIdentify main risks and abatement strategies Ensure follow-up for Audit and Ethics and Surveillance CommitteesEnsure follow-up for Audit and Ethics and Surveillance Committees 7.Internal operations Set up process to assess board operations and self assessment procedure for board membersSet up process to assess board operations and self assessment procedure for board members 5.Relationship with members & community Ensure member satisfactionEnsure member satisfaction Encourage active associational lifeEncourage active associational life Ensure commitment to communityEnsure commitment to community Report to members on mandate.Report to members on mandate. 6.Risk management: Identify main risks and abatement strategiesIdentify main risks and abatement strategies Ensure follow-up for Audit and Ethics and Surveillance CommitteesEnsure follow-up for Audit and Ethics and Surveillance Committees 7.Internal operations Set up process to assess board operations and self assessment procedure for board membersSet up process to assess board operations and self assessment procedure for board members

19. Key Management Systems (Desjardins) a.The Cooperative Identity: participation rate; products served by subsidiaries of the Group; patronage refund paid/ turnover b.Sales management: fidelity ratios; market share growth / product; business volume / member c.Financial results: gross margin; net margin; loan losses; RH costs; IT costs d.Risk management: credit risk & coverage ratio; NPA; loan concentration; interest rate risk; liquidity risk; capital risk; image risk e.Members satisfaction: customers satisfaction survey f.Performance of resources: productivity ratios per employee; % of automated transactions; profitabilty / product/ service / member a.The Cooperative Identity: participation rate; products served by subsidiaries of the Group; patronage refund paid/ turnover b.Sales management: fidelity ratios; market share growth / product; business volume / member c.Financial results: gross margin; net margin; loan losses; RH costs; IT costs d.Risk management: credit risk & coverage ratio; NPA; loan concentration; interest rate risk; liquidity risk; capital risk; image risk e.Members satisfaction: customers satisfaction survey f.Performance of resources: productivity ratios per employee; % of automated transactions; profitabilty / product/ service / member

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