Are the Right People on Your Board Bus?

Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

If you haven’t had a chance to visit the CHS Center for Cooperative Growth website, take a few minutes to see the videos and download my white paper on board alignment. Board alignment has numerous dimensions, including internal alignment, alignment with the cooperatives strategy, alignment with the CEO and alignment with the members’ interest.

Effective, internally aligned boards have the “right people on the bus.” Internal alignment requires a balanced combination of experience, financial expertise and diversity of perspectives. While continuity is important, a degree of turnover on the board helps to maintain a fresh perspective. Boards composed of directors with long tenures often fall prey to group thinking and have reduced objectivity in questioning the decisions and opinions of the CEO or board chair. The cooperative board room needs different perspectives. Imagine a soccer team with 12 goal keepers. It wouldn’t allow many goals, but it also wouldn’t score any goals.

The challenge of recruiting and retaining talented directors is complicated by the significant time and work commitment of board service and by the cooperative culture of modest or even trivial director compensation. Board selection is a member responsibility. Nevertheless, successful cooperatives must develop the culture and procedures to ensure multiple quality candidates for each open board seat.

Some cooperatives have established associate board member positions. The associate board members participate in board discussions but do not vote. The associate board can be a vehicle for recruiting and grooming board members.

New directors should receive a comprehensive orientation. The orientation should help them understand their roles and responsibilities. Ideally, it should be much more comprehensive and enable new directors to gain an understanding of the cooperative’s operations and its risk profile.

Get the right people on your bus, and make sure you have a good pool of future directors waiting at the bus stop!

Why Do Cooperatives Have Boards of Directors?

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

When a small new cooperative is formed, members often do not perceive a need for a board of directors. Since “member-controlled” is a fundamental cooperative principle, it seems logical for the members to be involved in the decision making. That raises the question as to why cooperatives, as well as investor-owned corporations, establish a board of directors.

There are three accepted rationales for the board of directors.

  1. The first rationale: it allows for more efficient decision making. It would be difficult and expensive to inform a large membership group about the issues facing the cooperative and facilitate timely decisions.
  2. The second rationale: it protects member groups from each other. Many decisions in a cooperative, such as the decision to fund cash patronage or to retire equity, have different impacts on different groups of members. When a cooperative is faced with the decision to convert a location to seasonal operation, for example, it is an obvious advantage for the team making the decision to consider the impact on all groups of members.
  3. The final rationale: the board is designed to take a long-term view of the firm. Individual members of the cooperative have specific time horizons. Older members might not be interested in investing in infrastructure that pays off after their anticipated usage of the cooperative. The board, at least in theory, is the entity that is thinking about positioning the cooperative for the next generation.

These rationales can help you explain the importance of the board of directors to your membership. They can also guide your board operations and development. The rationale for more efficient decision making is enhanced by improving the board’s internal operations. The rationale to avoid conflict between member groups is enhanced by good member communication, both in listening to key constituencies and in explaining the rationale for key decisions. The rationale for maintaining a long-term view is enhanced by effective strategic planning sessions.

Now if I can just discover the rationale for the existence of winter!

 

Different Systems for Cooperative Governance

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Members of U.S. agricultural cooperatives are familiar with the basic governance structure. The membership elects members of the board of directors from within their ranks. The board of directors hires the CEO. The board sets policy, oversees the manager and sets the strategic direction. The CEO manages all other employees and makes operational decisions. Interesting enough, governance structures for cooperatives vary among cooperative sectors and across the world.

At one end of the spectrum is direct member control. This structure can work for a new smaller cooperative and is more related to the lifecycle stage of the cooperative than its geographic location. As the membership grows and the members become less homogenous, direct member control becomes less workable.

The next stage of the continuum towards centralized control is the board-controlled cooperative. In this structure, the board makes operational as well as strategic and policy decisions. It is popular in both Europe and South America. The board chair often functions more like a CEO, but subcommittees of the board may be charged with specific decision areas. The board-run structure is sometimes supplemented with a supervisory committee. This committee is elected from the membership and takes on the role of the audit committee and the oversight role of the risk management committee. The committee may also review regulatory compliance and the policies created by the board. In essence the supervisory committee watches the board to safeguard the members’ interests. The committee members do not take action or create policy. They evaluate the board’s actions and policies. Many credit unions in the Unite States have a supervisory committee as well as a board of directors.

The traditional (at least to us) structure of a board and CEO is also used in other countries. The addition of outside (non-member) board members is more prevalent internationally. The cooperative bylaws typically specify the number of appointed board members. In European countries, the outside members are typically outside experts, while in Australia and New Zealand, employee representatives to the board are more common. These expanded board structures are often combined with a supervisory committee. The addition of the supervisory committee becomes more logical with the blended member and non-member board. The role of member oversight becomes important to ensure that the board is protecting member interests.

It is always interesting to observe how the cooperative business model is used differently in different countries.