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!