Cooperative Governance; Where do you stand?

Over the past 6 months there has been a common theme to questions, and it boils down to one word, participation. How can we get people involved, how can we get people to engage, how do we get others to join? This isn’t only in the cooperative world but in all organizations; personal and professional.
Participation is defined as “to take part in” or “to have a part or share in something”. For cooperatives, participation is a large part of being a member. Either an expectation of using the services of the cooperative, utilizing the resources that accompany the cooperative or reaching a certain quota or goods sold to the cooperatives. All these are dependent on the cooperative by the structure of their bylaws and policies.

Graphic of light colored light bulb and hands connecting colored puzzle pieces
Cooperatives are as unique as people, one cooperative is not the same as another, or the saying of “If you’ve seen one co-op, you’ve seen one co-op.” This holds true for cooperative board of directors. Participating in a cooperative as an individual is difference as representing your cooperative as a director. Directors are elected by the members of the cooperative to represent them, to uphold the cooperative mission and values set forth and to keep the cooperative members informed.

Cooperative board directors have several duties and responsibilities that members have entrusted them with such as the welfare of the co-op, hiring and evaluation the management of the cooperative, setting goals for the cooperative and overseeing the financial health of the cooperative. They aren’t the individual that is in the daily operation role of the cooperative. That responsibility goes to the general manager of the cooperative, the person the board of directors entrusted to run the daily operations. While cooperative board of directors can look similar to those from 20 or 30 years ago, today’s boards need to have a more active role in the cooperative to ensure the longevity of the cooperative is successful and effective.

As stated on the University of Wisconsin, Center for Cooperatives website, the Center released their findings from the Cooperative Governance Research Initiative (CGRI) that was conducted in 2021. As stated in the CGRI report, “Democratic member control is cooperatives’ superpower and Achilles heel. Decades of research has found that strong governance is essential for cooperatives to thrive. Yet cooperatives have lacked the robust data that is needed to benchmark, reflect upon, and improve their governance practices.” The reason for the research was to help understand and improve cooperative governance so cooperative members, directors, developers and interested parties had knowledge to compare to. Those that participate in the survey were from all across the cooperative sector. The Centers website states that the “results of the survey show that one-third of board members tenure of serving on the board is 10 years or more, whereas 36% have 3-9 years’ experience and 34% have less than 3 years. While two-thirds of board members are serving less than 9 years, efficient and effective boards need to always have a plan for succession and ways to recruit new board members.”

Multiple blue gears with various business related graphics inside, such as a light bulb, people, and target.
Part of being a board director is to recognize the need for board trainings, and educational development for not only members but the directors themselves. USDA released in 2002, the ‘Circle of Responsibilities for Co-op Boards‘ and are as follows; 1. Represent members 2. Establish cooperative policies 3. Hire and supervise management 4. Oversee acquisition and preservation of cooperative assets 5. Preserve the cooperative character of the organization 6. Assess the cooperative’s performance 7. Inform members.

As a cooperative director, how do you stack up against the circles of responsibility? As a cooperative member, how can you get involved or engaged? Educational trainings are offered by various organizations and in multiple formats that make is more accessible to attend while maintaining a busy professional or personal workload.

Leading the Co-op: Director Key Responsibilities and Board Training Programs

One of the unique aspects of the cooperative business model is that members democratically control the enterprise.[1] Commonly, cooperative members elect a representative board of directors to govern the business.

Cooperative directors are tasked with varied and sometimes complex tasks, from monitoring financial performance to assessing the co-op’s general manager and more. In serving in a vital role in their cooperative, directors also take on various responsibilities – some of them legal in nature. Key among these responsibilities are the fiduciary duties directors owe to members, other directors, and the cooperative.[2]

  • Duty of care – Generally, requires that cooperative directors use care in their actions as judged based on the care that an ordinarily prudent person in a similar position would exercise. Directors are generally expected to make informed decisions, exercise reasoned judgement, and adequately supervise those to whom they delegate responsibilities.[3]
  • Duty of loyalty – Generally, requires that cooperative directors act in good faith and for the benefit of the cooperative, including not receiving preferential treatment compared to other members and appropriately addressing or avoiding conflicts of interest.[4]
  • Duty of obedience – Generally, requires that cooperative directors comply with applicable laws and authorities. It is important for directors to be generally familiar with key authorities like the co-op’s bylaws, articles of incorporation, policies, and other key legal instruments.[5]

A deeper dive into the legal responsibilities of agricultural cooperative directors, “Navigating Your Legal Duties: A Guide for Agricultural Cooperative Directors,” is intended as a practical resource for directors that includes self-assessment tools to help directors identify areas where they can learn more. The resource is published by the National Agricultural Law Center.

For a wider-view of the types of responsibilities that directors take on in leading their cooperative, “The Circle of Responsibilities for Co-op Boards,” by James Baarda is a helpful publication.

Tan office chairs around circular meeting table

Most Cooperatives Provide Board Training in Key Responsibilities

Cooperative board training programs can help directors understand their roles and responsibilities, including ensuring that new directors, and even seasoned directors, have a firm grasp of their fiduciary duties, among other areas. In a survey of 500 cooperatives across industry sectors and the United States, co-op enterprises shared the topics in which they train directors:

  • 80% or more of responding cooperatives train board members in fiduciary duties, financial topics, and the cooperative model
  • Many cooperatives, between 53% and 78% of responding cooperatives train directors in ethics and compliance, industry-specific topics, legal and regulatory issues, and risk management
  • Almost half of responding cooperatives (49%) train directors in corporate social responsibility/sustainability/social impact
  • Some responding cooperatives train their directors in meeting facilitation and conflict resolution – 41% and 32%, respectively[6]

Training is a Key Part of Global Co-op Principles

According to the globally-recognized cooperative principles stewarded by the International Cooperative Alliance (ICA), Principle 5: Education, Training and Information recognizes that, “Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. . .”[7] The ICA’s Guidance Notes on the Cooperative Principles clarify what might seem like a redundant phrasing – education, training, and information have distinct, important meanings:

“ ‘Education’ is about understanding the Co-operative Principles and Values and knowing how to apply them in the day-to-day operations of a co-operative business…”

“ ‘Training’ is about developing the practical skills members and employees need to run a co-operative in according with efficient and ethical business practices and to democratically control their co-operative business responsibly and transparently.”

“ ‘Information’ is a duty to make sure that others who are members of the general public . . . know about co-operative enterprise.” [8]

Graphic of light colored light bulb and hands connecting colored puzzle pieces

A Commitment to Continued Learning: Developing a Board Training Program

As directors navigate complex business landscapes trying to ensure their cooperative enterprise is responsive to members’ needs and remain sustainable over the long-term, training programs can help directors develop their technical and soft skills. To develop a board training program, cooperatives may look both internally and externally. For example, training programs may be specifically constructed and hosted by a local cooperative’s key employees or by a federated cooperative partner. Various education and nonprofit institutions that work with or support cooperative enterprises like councils, cooperative associations, and universities that offer generalized training opportunities and educational resources. Further, industry-based associations, like agribusiness, housing, or financial industry associations, often host learning sessions, updates, and professional development opportunities.

As cooperative managers, directors, entrepreneurs, and developers look toward a new calendar year, prioritizing training that can help directors lead their co-op more effectively may be a worthy goal to add to the list of resolutions!

Important note: This information is provided for educational purposes only. It is not legal advice and is not a substitute for the need to consult with an appropriately licensed attorney.

 

Sources

[1] “Cooperative identity, values & principles.” (2018).  International Cooperative Alliance. https://www.ica.coop/en/cooperatives/cooperative-identity

[2] Scott, H. & Traxinger, M. E. (2021). “Navigating Your Legal Duties: A Guide for Agricultural Cooperative Directors.” National Agricultural Law Center. https://nalcpro.wpenginepowered.com/wp-content/uploads//assets/articles/Co-op-directors-guide.pdf

[3] Id.

[4] Id.

[5] Id.

[6] Berner, C. & Schlachter, L.H. (2022). “Findings from the Cooperative Governance Research Initiative: 2021.” University of Wisconsin-Madison Center for Cooperatives, 31. https://resources.uwcc.wisc.edu/Research/CGRI_2021Report_web.pdf

[7] “Cooperative identity, values & principles.” (2018).  International Cooperative Alliance. https://www.ica.coop/en/cooperatives/cooperative-identity

[8] “Guidance Notes on the Cooperative Principles.” (2017). International Cooperative Alliance, 59. https://ica.coop/en/media/library/the-guidance-notes-on-the-co-operative-principles

Exploring Cooperative Leadership

Cooperatives, as member-owned and controlled enterprises, are led by a board of directors who are integral to the operation’s success. If you’re considering joining your co-op’s board of directors – or even if you have served as a director for many years – it is important to recognize the responsibilities inherent in board leadership.

Basic Responsibilities of Co-op Directors

A cooperative board of directors is generally responsible for the affairs of the co-op. For example, under Ohio’s cooperative business statute, “all of the authority of an association shall be exercised by or under the direction of the board.” In a cooperative, the board is generally elected from and by the membership, meaning that directors are also co-op members although some cooperatives may have non-member directors.

A specialist from the U.S. Department of Agriculture conceptualized the responsibilities of cooperative directors as “seven circles,” including:

  1. Representing members, including understanding members’ needs and assessing whether the cooperative is meeting those needs.
  2. Establishing policies that guide the operation of the co-op, including both long-range and specific policies.
  3. Hiring and supervising management, often with direct involvement in hiring and supervising top management such as a general manager or chief executive officer.
  4. Acquiring and preserving assets, including establishing policies relating to assets such as oversight and accounting systems as well as monitoring financial performance.
  5. Preserving cooperative character by ensuring the fundamental character of the enterprise follows co-op principles.
  6. Assessing the cooperative’s performance, including financial performance, but also performance related to fundamental objectives like member benefit.
  7. Informing members with a recognition that members are the owners of the cooperative and accurate and complete information helps ensure they make informed decisions.

As directors carry out these important functions, or delegate responsibility to the co-op’s officers and managers, they are expected to uphold basic legal standards because they are considered fiduciaries who have legal duties to the cooperative, the co-op’s members, and the co-op’s other directors. While the concept of fiduciary duties is broad, at the most basic these duties generally require that directors act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner they reasonably believe is in the best interests of the co-op. As two co-op attorneys summarized, these duties require that directors:

  • show up,
  • be prepared,
  • protect the board’s process,
  • disclose conflicts,
  • don’t compete with the cooperative, and
  • don’t breach confidentiality.

Exploring Board Leadership Opportunities  

If you are contemplating joining a co-op board, whether through the encouragement of a neighbor, an invitation from a colleague, or after exploring ways to give back to your community, you likely have multiple questions.

As we learned above, directors play a vital role in leading their cooperatives, taking on various legal duties and other responsibilities. As you explore the opportunity to serve on a co-op board, it is important to consider whether you can effectively uphold these duties and responsibilities.

The following questions, based on recommendations for individuals considering corporate board leadership from the American Bar Association’s Corporate Director’s Guidebook, may help as you think about the opportunity.

  • Do I have sufficient time to diligently perform the duties required of a director? For example, do I have scheduling conflicts with the board’s regular meeting schedule? Do I have sufficient scheduling flexibility to respond to unexpected needs?
  • Do I have skills and experiences that allow me to meaningfully participate as a board member?  Are there special skills I should develop to participate in board activities more fully?
  • Do I have a sufficient understanding of the cooperative’s business to be effective as a director? How can I further develop this understanding?
  • Do I have confidence in the cooperative’s current senior management and directors?
  • Do I have a compelling interest in engaging in board leadership?

The Importance of Co-op Principle 5: Education and Training in Co-op Governance

Co-op members exploring future board leadership, and directors who have led their board for many years, can benefit from ongoing education and skill-building. In fact, as cooperative directors face increasing public and legal scrutiny, there is an increasing awareness of the important role of ongoing education and training for directors. Two legal scholars explained, “Directors are now expected to have more than a passing understanding of financial statements, their fiduciary responsibilities to the cooperative, and other essential items.”[1]

Whether you prefer to learn through reading, in-person teaching, or connecting with peers, there are many resources for co-op members and directors to build their governance knowledge and skills. You can ask your co-op leadership what type of training programs they provide for directors, whether they are members of organizations that provide cooperative education, or whether they partner with co-op educators. You can also explore publicly available resources on your own. Below are a few great places to start!

Join the CFAES Center for Cooperatives and Mid America Cooperative Council for the online training, “Welcome to the Board” on Thursday, September 30 from 10a-12p Eastern time. The interactive training will introduce participants to the roles and responsibilities of cooperative directors and the crucial skills directors use in leading cooperatives. Registration for the training is available at https://go.osu.edu/maccwelcometotheboard.

Explore Co-op Mastery: Beyond Cooperatives 101 online at your own pace. The self-directed platform helps learners explore cooperative governance, taxation, finances, and more using videos, narrated presentations, infographics and more! Explore the platform at https://go.osu.edu/coopmastery

Read Navigating Your Legal Duties: A Guide for Agricultural Cooperative Directors from the National Agricultural Law Center. The guide includes five chapters and reviews topics like fiduciary duties, antitrust laws, securities issues, and risk management tools. Chapters are written to stand alone so readers who want to explore a single topic can skip to the chapter or section of interest. Use the self-assessment at the end of each chapter to explore how the concepts apply in your own cooperative.

 

References

Charles T. Autry & Roland F. Hall, American Bar Association Business Law Section, The Law of Cooperatives 60 (2009).

Corporate Laws Committee, American Bar Association Business Law Section, Corporate Director’s Guidebook 5-6 (6th ed. 2011).

James Baarda, U.S. Dep’t of Agric. Rural Bus. Coop. Serv. Cooperative Information Report 61, The Circle of Responsibilities for Co-op Boards 3-5 (2014).

Hannah Scott & Michael E. Traxinger, National Agricultural Law Center, Navigating Your Legal Duties: A Guide for Agricultural Cooperative Directors 11-26 (2021 https://nationalaglawcenter.org/center-publications/busorg/).

Michael W. Droke, Dorsey & Whitney LLP, Cooperative Business Law A Practical Guide to the Special Laws Governing Cooperatives 57-28 (3d. ed. 2020).

Thane Joyal & Dave Swanson, Precautions and Protections: Summarizing legal responsibilities of cooperative boards, Cooperative Grocer (Mar. – Apr. 2011 https://www.grocer.coop/system/files/legacy_files/precautions.pdf)  

[1] Charles T. Autry & Roland F. Hall, American Bar Association Business Law Section, The Law of Cooperatives 60 (2009).

Appalachia Cooperates Grows Co-op Culture

Q: How can Extension professionals, business and community developers build a brighter future, robust local economies, and living wage job opportunities in Appalachia?​

A: Worker-ownership.​

Worker-owned cooperatives, defined by two advocates of the model as, “values-driven businesses that put worker and community benefit at the core of their purpose . . . [in which] workers participate in the profits, oversight, and, to varying degrees, the management of the organization, using democratic practices,” (Hoover & Abell 2016).​

The Center for Cooperatives and partners are growing co-op culture in Appalachia! Join us on March 22, 2019 at West Virginia State University Economic Development Center in Charleston.

Check back soon for registration details!

References

Hoover, M. & Abell, H. (2016). The Cooperative Growth Ecosystem: Inclusive Economic Development in Action. Project Equity and the Democracy at Work Institute.

Celebrate Cooperatives and Sustainability Today

Today, cooperators everywhere celebrate the International Day of Cooperatives. The United Nations established the holiday to recognize co-ops’ contributions to society, culture and the economy. This year’s theme is “Sustainable Consumption and Production.” ¹ The World Commission on Environment and Development defines sustainable development as “meeting the needs of the present generation without compromising the ability of future generations to meet their own needs.” ²

Cooperatives provide sustainable solutions

Cooperatives are businesses owned by the people they benefit. They exist in every major industry and are common in food and agriculture. Co-ops provide members with sustainable solutions. They help farmers gain access to larger markets, boost product quality, reduce costs and achieve greater efficiency and operational effectiveness.

Dairy Farmers of America (DFA) is owned by 14,500 farmer-members. The co-op’s sustainability program aims to improve animal and environmental health. DFA’s Gold Standard Dairy Program upholds standards set forth by the National Milk Producers Federation’s National Dairy Farmers Assuring Responsible Management Program (FARM), for animal health, nutrition, management, housing and facilities, handling and transporting. DFA offers on-farm consultations to members to identify areas where sustainable practices can benefit their operations. Members that participate in the Gold Standard Program receive tailored resources and on-going technical assistance to improve sustainability on the farm. ³

Ohio’s Electric Cooperatives (OEC) power rural communities in 77 counties. In recent years OEC has diversified their energy sources portfolio to include renewable sources such as air, wind, hydro, biomass, solar and heat recovery. The co-op promotes energy efficiency through advising, energy audits and appliance rebate incentives that reduce members’ energy expenditures and save members money. ⁴

Nationwide Mutual Insurance Company is the No. 1 writer of insurance policies for farms and ranches. Nationwide works towards greater sustainability by reducing environmental waste and carbon emissions and promoting recycling. Nationwide’s green purchasing initiative works with suppliers to purchase eco-friendlier products. The company partners with voluntary government and industry programs such as Energy Star and Leadership in Energy and Environmental Design (LEED). ⁵

On the International Day of Cooperatives farmers everywhere tip our hats to recognize these and other cooperative businesses’ dedication to sustainable consumption and production.

*Article originally published in Farm & Dairy Newspaper

References

  1. United Nations Development. (March 3, 2018). 2018 International Day of Cooperatives. Retrieved from https://www.un.org/development/desa/cooperatives/2018/03/02/coopsday/
  2. United Nations General Assembly. (1987). Report of the world commission on environment and development: Our common future. Oslo, Norway: United Nations General Assembly, Development and International Co-operation: Environment.
  3. Dairy Farmers of America. (n.d.). Sustainability. Retrieved from http://www.dfamilk.com/our-cooperative/sustainability
  4. Ohio’s Electric Cooperatives. (n.d.) Efficiency. Retrieved from https://ohioec.org/oec/efficiency/
  5. Nationwide Insurance. (n.d.) Energy & Environment. Retrieved from https://www.nationwide.com/about-us/energy-environment.jspSTAY INFORMED

CFAES Center for Cooperatives Launches Co-op Mastery

The Ohio State University College of Food, Agricultural, and Environmental Sciences Center for Cooperatives launched Co-op Mastery: Beyond Cooperatives 101, a new and innovative online training course designed to educate cooperative members, boards, management, employees, and students.

Co-op Mastery: Beyond Cooperatives 101 is made possible by a grant from the CHS Foundation 2017 Cooperative Education Grants Program. The training is housed in The Ohio State University’s public-facing online education platform. It is free and can be accessed online at go.osu.edu/coopmastery.

Caption: Co-op Mastery is a new online learning tool launched by The Ohio State University College of Food, Agricultural, and Environmental Sciences Center for Cooperatives.

“Co-op Mastery curriculum focuses on mid-level knowledge about the cooperative business model,” said Center for Cooperatives Program Manager, Hannah Scott.  “Training modules build on existing fundamental materials by providing an in-depth look at governance, finance, taxation and other areas not typically covered by courses in fundamentals, yet challenging topics for stakeholders.”

The training features eight modules which include video interviews with numerous leaders in the cooperative movement:

  • Logan County Electric Cooperative General Manager Rick Petty discusses cooperative principles and various functions of cooperatives.
  • Dennis Bolling retired President and CEO of United Producers Cooperative shares the benefits cooperatives provide members.
  • Mid-America Cooperative Counsel Executive Director Rod Kelsay discusses effective education and training the Board of Directors.
  • Ohio State Univerisity Extension Educator Dr. Chris Bruynis gives insight to key factors that contribute to a cooperative’s success.
  • Nationwide’s VP of Sponsor Relations Devin Fuhrman shares the story of Nationwide’s history as a mutual cooperative company.
  • Agricultural attorney Carolyn Eselgroth of Barrett, Easterday, Cunningham and Eselgroth, LLP addresses legal considerations when forming a cooperative business.
  • Co-Bank Senior Relationship Manager Gary Weidenborner leads users through an interactive financial document exercise.
  • David Hahn, Professor Emeritus the Ohio State University, explains cooperative taxation.

“We invite folks to ask questions and receive answers from our Center staff in the online Co-op Forum,” said Joy Bauman, Program Coordinator.  “They can also browse an extensive collection of online resources in the Cooperative Library.”

The CFAES Center for Cooperatives offers customized in-person workshops to complement the online training. Workshops are designed to serve the requesting cooperative’s needs. Examples include: new employee education, board of director education, strategic plan development, cooperative marketing and policy development. Workshop participants receive a companion workbook with activities to fortify learning. They gain on-going access to Co-op Mastery online training materials, which they may work through at their own pace or search for specific information to meet immediate needs. Users can return to the Co-op Mastery online materials at any time to troubleshoot cooperative issues and they can receive ongoing technical assistance from CFAES Center for Cooperatives staff. To request a workshop or more information, visit go.osu.edu/cooperatives or contact the Center for Cooperatives at osucooperatives@osu.edu or 740-289-2071 ext. 111.