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).

Cooperatives Eligible to Receive COVID-19 Assistance

 

Cooperative businesses experiencing financial issues due to the COVID-19 pandemic are eligible to receive assistance through two major programs of the U.S. Small Business Administration, the Payroll Protection Program and the Economic Injury Disaster Loan program.

Payroll Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Payroll Protection Program (PPP), providing $349 billion for small business loans for qualified payroll costs, rent, utilities, and interest on mortgages and other debt obligations. PPP loan amounts are forgivable as long as:

  • Loan proceeds are used to cover payroll costs and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and
  • Employee and compensation levels are maintained.

The National Council of Farmer Cooperatives (NCFC) and National Cooperative Business Association (NCBA CLUSA) have shared that cooperative businesses in agriculture, purchasing, consumer food, and worker cooperatives that meet the size criteria, generally with fewer than 500 employees, are eligible for this program based on the interim rule and Department guidance.

Applicants can apply to the PPP through eligible Small Business Administration lenders beginning Friday, April 3, 2020. Applicants will be required to submit an application and payroll documentation. To find an eligible SBA lending institution, tap or click here.

For a factsheet about the PPP, including information about loan terms, interest rates, and repayment periods, tap or click here.

Economic Injury Disaster Loans

The Small Business Administration’s Economic Injury Disaster Loan (EIDL) program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing due to COVID-19.

In response to the COVID-19 pandemic, small businesses in all 50 states and Washington, D.C. are eligible to apply for an EIDL advance of up to $10,000 for businesses that are currently experiencing a temporary loss of revenue. This loan advance does not have to be repaid and will be made available within three days of a successful application, even if the loan is not approved or if it is approved and not taken.

Cooperative businesses with fewer than 500 employees are eligible for the EIDL program.

To learn more about the EIDL program, including information about interest rates, loan terms, use of loan funds, and the application process tap or click here. Applicants to the EIDL program can apply directly to the SBA.

To learn more about applying to the EIDL program as a cooperative business, watch this webinar, “Demystifying SBA’s Economic Injury Disaster Loans,” hosted by the National Cooperative Business Association (NCBA CLUSA).

Cooperate with the CFAES Center for Cooperatives

  • Visit us online at go.osu.edu/cooperatives
  • Follow us on Twitter @OSUCooperatives
  • Like us on Facebook @OhioStateCooperatives

Learn more about the Mid America Cooperative Council