Developing Strategy in a Cooperative

Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Establishing the strategic direction for a cooperative is a key role of the board of directors. A board that is not actively engaged in strategic planning is abdicating one of its key responsibilities.

While the board is responsible for strategic direction, the role of the CEO and the interaction between the board and CEO during the planning process is seldom discussed. The CEO has an in-depth understanding of both the performance of the cooperative and emerging issues in the business environment. For this reason, the CEO is often in the best position to propose strategic alternatives. The strategy can then be developed (or rejected) through an interactive dialogue with the board of directors. This goes back to the old adage “the manager proposes and the board disposes.” In other cases, the board proposes strategy and the CEO leads an interactive discussion as to whether the cooperative has the financial and human resources to implement the strategy.

In an aligned cooperative, the board should develop the strategic plan and be the strategic advisor to the CEO on a continual basis. The CEO is charged with implementing the strategic plan. That plan is being rolled out in a constantly changing environment. In challenging years, the CEO discusses the short-term issues facing the firm, and the board shifts their advice toward those choices. In more favorable times, the CEO cautiously alerts the board about the possibility of above average cash flow, and the board shifts advice toward infrastructure re-investment decisions. Strategy is a board function but strategy development and implementation is a team effort.

 

Worker Cooperatives

Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

Worker cooperatives, or employee-owned cooperatives, are relatively rare in the United States, making up around 1 percent of all cooperatives. This form of cooperative is more common in Europe and Canada. In the United States, most worker cooperatives are located in urban areas and operate in retail operations.

To become a member, the employee/owner must make an initial investment, which is sometime financed through payroll deduction. In some cases, the investment is substantial. Isthmus Engineering, a worker cooperative in Madison, Wisconsin, requires a $10,000 investment, which must be financed by the member.

Profits are allocated on the basis of patronage, which may be calculated as hours worked, earnings or a combination. Governance is usually on a one-member, one-vote basis. Small worker cooperatives typically operate with all of the employee/members serving as a board of directors. Larger firms have a board and management structure similar to that of agricultural cooperatives. Some worker cooperatives do not allow the CEO to be a member because they believe that management is a separate role.

Worker cooperatives are formed as start-up businesses and as conversion of existing firms. Some firms have converted to a worker cooperative when they were unable to acquire traditional financing. Another common rationale for conversion is when a long-time owner/manager decides to retire and transition away from the business.

Data on employee well being at worker cooperatives relative to other comparable firms is scarce. The evidence seems to suggest that employee/members enjoy higher job satisfaction and job security, and perceive more access to training and development. On the other hand, they face additional risks because their earnings are linked to the cooperative’s profitability.

Employee-owned cooperatives are another interesting example of the cooperative model and could be a vehicle for business development in rural areas.

 

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!