Can Co-op Boards Do the Job?
It will be no surprise to most Cooperative Grocer readers that there are those who think that consumer co-op boards of directors typically represent a weak link in the overall organizational structure of a business operating in a highly competitive, rapidly changing industry. Regardless of your view on this matter, it is true that the days are long gone when being on the co-op board meant occasionally getting together with co-op friends and neighbors to discuss who has a refrigerator to replace the one that just broke down, or to stuff envelopes with membership meeting notices. Gone are the days when being on the co-op board means doing taste tests to decide which peanut butter the store will carry, or deciding who will be responsible for cleaning the peanut butter tubs this month. Co-op board members must not use their position to "play store." If they do, they leave a tremendous void at an important management level position of the cooperative business and pose a potential threat to the co-op and to the assets members have invested in that business.
To be sure, the job of the individual director and the board as a whole, has become a position of increasing challenges and has come to demand more and more skills and diligence~ Changing economic conditions and industry trends have created a business environment that is no longer predictable and which demands more and more sophistication and business acumen. A board is called upon to provide direction for the business and for management (a difficult task, even in the best of conditions and circumstances), to know what is going on, and to measure results. At the same time, the board must avoid interference with the role of management -- professionals who are hired to oversee the day to day operations of the business and who have the most opportunity to reflect on the longer-range operational needs of the co-op. There is no question that this is a tall order for a board comprised of volunteers with limited familiarity with the technical aspects of business and limited time to devote!
But clearly, the issue is not simply how much time directors devote to their positions. If a board is not providing constructive direction and decisions to the corporation, spending more time at it only means more confusion, frustration and headaches. In a recent issue of the National Rural Electric Cooperative Association's Management Quarterly, author Charles R. Weaver outlined four challenges to directors to enhance their effectiveness and contribution to the cooperative which are equally applicable, with some tailoring, to the situation of most retail food co-ops.
Challenge #1: The Quality and Dedication of Nominees
Almost any group of seven or more will find that two or three of its members are real contributors and the remaining members are "ornamental." We must recognize that "today there is no room for 'ornamental' directors. Everyone nominated must be someone who brings both skills and dedication to contribute to the organization." A serious effort to solicit highly skilled directors and develop a well-qualified, professional board of directors will not allow impromptu nominations "from the floor." The recruitment and nomination of directors is a process that warrants serious thought, investigation, search, and concerted effort. Candidates must be solicited who can provide desired qualities, skills and perspectives and who have a working familiarity with the demands and responsibilities of a board member. It should be a prerequisite of candidates that they understand how to read financial statements, the role of a board, the legal responsibilities and liabilities of directors, why planning is important, etc. And, recruiting qualified candidates for the co-op board is a YEAR-ROUND responsibility of all directors; don't save it for the last minute or think you're off the hook because you've given the task to a nominating committee.
Challenge #2: Technical Qualifications
Directors must be experts- - not necessarily experts at the intricacies of running a co-op grocery store, or the natural foods industry, or at store design -- but experts at being directors. They must continuously refine and develop the skills needed in this role: asking probing questions, critically assessing proposals and plans, being able to understand the ramifications of policies, understanding the need for development of plans and strategy for a business, and being able to formulate that type of direction. Homework is essential -- both premeeting preparation (reading, discussion with other directors, reviewing reports), as well as between meeting professional development (training seminars, meetings with business leaders, review of industry and trade publications, familiarizing oneself with other cooperatives, etc.). Acting as a director without challenging yourself to be an excellent director is counterproductive to the cooperative. Those who seriously and sincerely want their co-ops to succeed will devote the necessary time required to be a director. Actions must match intentions.
Challenge #3: Conduct of the Board Meeting Itself
The way board meetings are conducted sets the tone for the effectiveness of a board as a directing body. It is the role of the president (chair) to make sure that the group is using its time wisely on the "big picture questions" and not wasting it all on small details. The president as overall "manager of the board," will be better able to keep the board on track if s/he has worked closely with the general manager prior to the meeting to define what is being asked of the board, to ensure adequate preparatory materials, and to discuss key issues with directors ahead of time. To be done thoroughly and well, this job requires continuous attention and a good, on-going working relationship between the president and the manager and is best not shared among various board members.
In addition, every director, not just the president, must feel responsible for the success of each meeting and of the board itself. Each director has a role in ensuring that the discussion stays "on track," that the board is focusing sufficiently on appropriate issues, that each director contributes, and that each board member is prepared.
Challenge #4: Board Appraisal and Evaluation
A maxim of organizational management is that no performance appraisal system can be effective unless all levels undergo scrutiny. For this reason evaluation systems need to include at least a yearly appraisal of the general manager's performance by the board. It is equally true that the board itself should appraise its own performance with a focus on board development. Few boards have developed regular, effective systems for this type of evaluation because of lack of knowledge of how to do it, or fear of getting into sensitive areas. Although it may feel uncomfortable to hold up for scrutiny those who are giving their time voluntarily, when this examination is done within the context of further development of the cooperative, most people will recognize the value and need for such an activity. Clearly the first question that a board should start with is: "Are we as a board contributing to this organization's ability to meet its purpose?" An honest and frank assessment of current performance can lead to goals for future performance, targeted areas for director training or development and desired qualities of nominees and future directors.
Can directors and boards still do the job? Can your board meet these challenges?
(Thanks to Charles R. Weaver for his list of four challenges from Management Quarterly by National Rural Electric Cooperative Association, September 1984.)
What Would Your Board Do?
The job of being a board member often entails being faced with difficult decisions and situations. Consider the following situation, based on a situation that is true and probably somewhat familiar.
An Item on the Board's Agenda
Superior Cooperative Society operates a retail food cooperative with annual sales of approximately $2.4 million per year. They have been in existence for 15 years and have enjoyed a steady rate of growth in sales and in membership. They occupy a place of prominence in the small urban community of Lacrosse and have assisted in the development of several other independent cooperative enterprises in Lacrosse, including a child care co-op, a community credit union and a food co-op wholesale, of which Superior is the largest member/customer.
Superior recently moved to a new location, requiring a substantial capital investment for renovation, relocation and expanded inventory expenses. For the first time in their history, they have borrowed a fair bit of money from lending institutions. They find themselves facing an even more unprofitable year than expected and for the first time ever. In addition, they are not seeing the kind of sales growth they had projected after eight months in their new location. Needless to say, they are having some cash flow problems and are unable to approach their local banks for additional loans, given their current debt position. Management has presented regular reports to the board on their efforts to reduce cash expenditures and raise their profitability. They are concerned that, without changing the current trend, Superior might not be able to sustain an additional loss above their projected deficit.
At their June board meeting, the board of directors is presented with a manager's report that carries an unexpectedly optimistic tone. Management has found a supplier of the same or similar products that will provide them with an across-the-board 3% discount, given their volume of purchases. In addition, in contrast to their current supplier, the co-op wholesale, this supplier will not require a capital investment to accompany purchases. Management is recommending a switch to this new supplier and an immediate request for withdrawal of its membership capital from the co-op supplier. They are asking for board approval because they know that the board maintains a strong orientation toward supporting other cooperative businesses. However, they feel that without the influx of the capital from their co-op investment and the 3% discount, Superior may not be able to be a viable business.
- What is the board's role in making this type of decision? What is the board's role in supplier relations and negotiations?
- What is your recommendation for board action at this point? Why?