Try Flipping Your Board Meeting Agenda

Phil Kenkel, Bill Fitzwater Cooperative Chair

One of the innovative teaching ideas is to “flip the classroom” by spending class time working homework problems while students go over the lecture material on their own. I have found that throwing in an occasional “flipped classroom day” is a great way to invigorate interest and discussion.  Many boards of directors have experimented with a similar concept by “flipping the board agenda”.

Instead of beginning the board meeting with the customary review of financials, committee reports, and expenditure approvals, try starting your board meetings with a lively discussion of industry issues and the cooperatives progress toward its strategic goals. Flipping the board meeting agenda can tap into the energy board members bring to the beginning of a board meeting. Scheduling discussion and action on strategy at the beginning of the meeting emphasizes the board’s commitment to that key area of governance.  Considering the big picture issues first may bring a fresh perspective to the more routine issues which are the nuts and bolts of achieving that desired big picture.  Another benefit of the flipped agenda is that strategic discussion tends to unify the board and that sense of purpose carries over into more constructive dialog on the more routine issues.  Putting the challenging, truly interesting material at the front end of the agenda also provides an incentive for habitual late-comers to arrive on time.

The cooperative board has many roles including strategy, oversight and team work with the CEO.  Flipping the board agenda is simply another tool to ensure that the board’s focus on strategy is not overshadowed by the oversight role. Try flipping the agenda for your next board meeting. A little variety might keep your board from flipping out!

Phil Kenkel

Bill Fitzwater Cooperative Chair

One of the key aspects of managing a cooperative is the control function.  The controlling function involves checking actual performance against benchmarks and historical standards.  This leads to the concept of “Management by Exception” where management attention is concentrated on the areas of greatest need where outcomes differ from the standard.  Many managers think of management by exception in terms of defining when to take corrective action.  However there are actually two types of exceptions: Problems, when outcomes are below standards and, Opportunities, where outcomes are above standards.  The opportunity branch of management by exception is an underappreciated avenue to increased profitability.

A key aspect of management by exception is to attempt to identify the factors that led to the exception.  In the case of underperformance, that understanding would be used to try and correct the situation.  For example, if the cooperative is experiencing a higher than average level of shrink in the feed warehouse the manager would want to investigate the underlying causes. The cause of the shrink may be found to relate to insufficient training on forklift operation, improper warehouse layout, warehouse condition or even theft.  Now consider the alternate condition: what happens when the feed shrinkage is significantly below what other cooperatives experience or is decreasing over time?  The temptation is to conclude “Joe does a great job of managing the feed warehouse! That frees my time for other issues!”  The manager misses the opportunity to identify and understand the factors that resulted in above average warehouse performance.

In a grain handling and farm supply cooperative there are many opportunities to identify opportunities.  When grain shrink is below average and storage problems are low, the manager can investigate the cause.  Perhaps the timing of aeration or fumigation was different.  Perhaps the grain was received at lower than average moisture, or the fall weather was cooler than normal.   The result is a better understanding as how to maximize stored grain quality.  A similar situation could occur when the cost per acre of fertilizer application is unusually favorable.  The manage could investigate whether there were changes in maintenance procedures, scheduling and routing improved, or again, perhaps weather during the application period was above average.  Even in cases where the cause of the exception was outside the cooperative’s control, identifying the impact may help in future planning.

Employees and managers can learn by correcting what they are doing wrong.  They can also learn by noticing what they are doing right.  Don’t forget the opportunity branch of management by exception.

Return on Investment from Infrastructure Reinvestment?

Phil Kenkel

Bill Fitzwater Cooperative Chair

In this series of articles I have been addressing the simple question: “Are we reinvesting enough in our cooperative?”  We have been working through the equation:

Growth rate = reinvestment rate x return on equity

A cooperative’s reinvestment rate is the ratio of net capital reinvestment to net income.  Net capital reinvestment is capital expenditures less economic (or book) depreciation.  Last week we discussed why tax depreciation is a poor measure of actual or economic depreciation.  Our formula would suggest that a cooperative that is reinvesting (net of depreciation) 50% of its net income and has an 8% ROE would grow at 4% per year.  If the reinvestment rate falls to 25% of net income, growth falls to 2%.

Our growth rate formula also shows us that a cooperative’s growth is a function of the return it generates on its net capital investment.  Many boards don’t consider the return on investment from an infrastructure replacement project.  Their thought process is “We have to replace the bin so the rate of return is illrelvant.” However, the return from that investment, along with those of existing assets, does ultimately drive the growth of the cooperative.  Put another way, if our reinvestment in infrastructure is not generating an adequate return, in the long run we cannot deploy the capital to finance it.  Inadequate returns can relate back to our imperfect measures of depreciation.  If we are operating fully depreciated assets we may have a margin structure that is inadequate to support replacement assets. If our capital reinvestment doesn’t generate additional efficiencies, it might have to be paired with some adjustments to margins.

Our growth rate formula also helps to emphasize the importance of feasibility analysis. That was the topic of our recent advanced director educational program.  If we identify and reinvest in higher return projects we can grow our cooperative at a faster rate.  “Are you reinvesting enough?” It depends on how fast you want your cooperative to grow and the returns from your potential investments.  Next week, I discuss how debt financing enters into this equation!