Unit II., Part BUnit II., Part B

Board of Director IssuesBoard of Director Issues

Board of Director IssuesBoard of Director Issues

Who can and should serve?Who can and should serve? How to elect?How to elect? How many to elect (board sz)?How many to elect (board sz)? How long to serve (terms)?How long to serve (terms)? When, where & how to meet?When, where & how to meet? How to compensate?How to compensate? Training?Training? Liability?Liability?

Basic Qs about serving on a Basic Qs about serving on a co-op board of directors:co-op board of directors:

1.1. Who CAN serve?Who CAN serve?

=> Who is ‘eligible’?=> Who is ‘eligible’?

2.2. Who SHOULD serve?Who SHOULD serve? Who is ‘qualified’?Who is ‘qualified’?

Eligibility to serve as a Eligibility to serve as a Director:Director:

Local co-ops: must be a farmer Local co-ops: must be a farmer membermember

Regional co-ops:Regional co-ops: Must be a farmer member OR a Must be a farmer member OR a

managerial representative of a managerial representative of a local co-op memberlocal co-op member

The number of farmer members The number of farmer members must be greater than the number must be greater than the number of nonfarmer members (usually)of nonfarmer members (usually)

Director QualificationsDirector Qualifications

Personal CharacteristicsPersonal Characteristics Honest-tells the truthHonest-tells the truth Obedient-complies with the lawObedient-complies with the law Diligent-hard workingDiligent-hard working Prudent-cautious (no undue risks Prudent-cautious (no undue risks

taken)taken) Democratic-willing to accept group Democratic-willing to accept group

decisionsdecisions Willing to commit time neededWilling to commit time needed

Director QualificationsDirector Qualifications

Leadership SkillsLeadership SkillsCommunicationCommunicationDecision makingDecision makingMotivationalMotivationalLoyalty (team or group Loyalty (team or group

oriented)oriented)

Director QualificationsDirector Qualifications

Business SkillsBusiness Skills

Knowledge of co-op principles Knowledge of co-op principles and practicesand practices

Election Procedure CriteriaElection Procedure Criteria

1.1. Representation of all membersRepresentation of all members

2.2. Enhances chances of best Enhances chances of best candidates getting electedcandidates getting elected

3.3. SimplicitySimplicity

4.4. CostCost

5.5. LegalLegal

Co-op Voting Practices (U.S.)Co-op Voting Practices (U.S.)

Area representation:Area representation: 65% at large65% at large 25% district25% district 10% combination10% combination

Determination of no. of votes:Determination of no. of votes: 90+% = 1 vote per person90+% = 1 vote per person 10% = voting in proportion to 10% = voting in proportion to

patronagepatronage

‘‘Staggered’ TermsStaggered’ Terms

This is when the ending dates of This is when the ending dates of individual board member terms individual board member terms are NOT the same (i.e. they are are NOT the same (i.e. they are varied or staggered). This is to varied or staggered). This is to ensure that a co-op does NOT ensure that a co-op does NOT have to elect all new board have to elect all new board members at the same time.members at the same time.

Board Size CriteriaBoard Size Criteria

1.1. Ease of arranging and Ease of arranging and conducting meetingsconducting meetings

2.2. Representative (of members)Representative (of members)

3.3. CostCost

4.4. Amount of work to doAmount of work to do

5.5. Continuity (ease of dealing Continuity (ease of dealing with board member turnover)with board member turnover)

6.6. Legal Legal

Size of Co-op BoardsSize of Co-op Boards

LocalsLocals Most 6-15Most 6-15 IA IA ≥ 5 by law≥ 5 by law

RegionalsRegionals Most 16-36Most 16-36 +s and –s of +s and –s of no. of directors? no. of directors?

Length of TermLength of Term % of co-ops% of co-ops

33 7474

1-21-2 2323

>3>3 33

Term LimitsTerm Limits 15% of co-ops limit no. of terms15% of co-ops limit no. of terms Most common term limit = 3 (Most common term limit = 3 (

9 yrs)9 yrs)

Possible Limits on Director Possible Limits on Director TenureTenure

1.1. Length of TermLength of Term Most common = 3 yrs (about 3/4)Most common = 3 yrs (about 3/4)

2.2. Number of TermsNumber of Terms Most do NOT limit (85%)Most do NOT limit (85%) Most common limit if have one = 3Most common limit if have one = 3

3.3. AgeAge Most do not have age limitMost do not have age limit

Automatic Director RotationAutomatic Director Rotation

Advantages:Advantages:

1.1. Automatic Removal of Unwanted Automatic Removal of Unwanted DirectorDirector

2.2. New Perspectives from New New Perspectives from New DirectorsDirectors

3.3. Expanded Member InvolvementExpanded Member Involvement

Automatic Director RotationAutomatic Director Rotation

Disadvantages:Disadvantages:

Automatic Removal of Best Automatic Removal of Best DirectorsDirectors

Co-op Versus IOF DirectorsCo-op Versus IOF Directors

1.1. Board Sizes ComparableBoard Sizes Comparable(= co-ops have more directors in (= co-ops have more directors in

proportion to size of business)proportion to size of business)

2.2. More separated from More separated from managementmanagement

3.3. Less education/experience in Less education/experience in operating a non-farm businessoperating a non-farm business

4.4. CustomersCustomers5.5. Less compensation Less compensation

Legal Obligations of DirectorsLegal Obligations of Directors

1.1. Obedience = obeying and Obedience = obeying and complying with All Laws, Articles, complying with All Laws, Articles, BylawsBylaws

2.2. Loyalty = acting in good faith, Loyalty = acting in good faith, putting co-op interests first, putting co-op interests first, avoiding conflicts of interest or avoiding conflicts of interest or special treatment (actual or special treatment (actual or apparent)apparent)

3.3. Diligence = acting with prudence, Diligence = acting with prudence, exercising same care as would with exercising same care as would with own affairsown affairs

Director LoyaltyDirector Loyalty

In the Iowa Institute of Cooperation’s In the Iowa Institute of Cooperation’s newsletter, Gerald Pepper, executive newsletter, Gerald Pepper, executive director emeritus of the institute, director emeritus of the institute, spoke of a discipline cooperative spoke of a discipline cooperative directors must exercise for the directors must exercise for the welfare of their organization. “They welfare of their organization. “They wear many hats and it should be wear many hats and it should be implicit that upon assuming their implicit that upon assuming their office only the cooperative hats office only the cooperative hats should be worn when serving in that should be worn when serving in that office.office.

Director LoyaltyDirector Loyalty

““Learning to discipline themselves to discern Learning to discipline themselves to discern between personal interests, neighborhood between personal interests, neighborhood interests, and cooperative interests; interests, and cooperative interests; between short-run advantages versus long-between short-run advantages versus long-run jeopardy; between ‘we’ve always done run jeopardy; between ‘we’ve always done it that way’ versus openmindedness is it that way’ versus openmindedness is difficult to say the least.difficult to say the least.

““But the most difficult job may be to set aside But the most difficult job may be to set aside the dislike of one person or the close the dislike of one person or the close friendship of another person and make friendship of another person and make objective decisions that will be in the best objective decisions that will be in the best interests of the cooperative and its interests of the cooperative and its membership.”membership.”

Strengths & WeaknessesStrengths & WeaknessesCo-op BoardsCo-op Boards

Strength:Strength: Board members are farmer Board members are farmer

customers of the businesscustomers of the business

Weakness:Weakness: Board members are farmer Board members are farmer

customers of the businesscustomers of the business

Co-op Versus IOF Co-op Versus IOF ManagementManagement

DUALDUAL Co-op Objectives: Co-op Objectives:

1.1. Investor/Stockholder InterestsInvestor/Stockholder Interests

2.2. Member patron interestsMember patron interests

Methods for Selecting and Recruiting Methods for Selecting and Recruiting Candidates for DirectorsCandidates for Directors Nominating committee (86%)Nominating committee (86%)

Composed of different combinations of non-director Composed of different combinations of non-director members and directorsmembers and directors

Board appointments of non-director members of Board appointments of non-director members of committeecommittee

At-large or district elections of non-director members At-large or district elections of non-director members of committeeof committee

Nominations from the floor of annual or district Nominations from the floor of annual or district meetings (most common method 50 yrs ago)meetings (most common method 50 yrs ago)

Recruitment by directorsRecruitment by directors Member caucus at annual or district meetingsMember caucus at annual or district meetings Nominations by mailNominations by mail Ballot write-insBallot write-ins Nomination by applicationNomination by application Associate boardAssociate board

Note: only about 1/3 require contested elections.Note: only about 1/3 require contested elections.- Rural Cooperatives, Nov/Dec 2003- Rural Cooperatives, Nov/Dec 2003

Associate BoardAssociate Board

An associate board is a practical method An associate board is a practical method for developing quality candidates for for developing quality candidates for directors. These members are usually directors. These members are usually young farmers who stand out as good young farmers who stand out as good prospects and are either appointed by prospects and are either appointed by directors or can apply to be confirmed by directors or can apply to be confirmed by membership vote. Associate boards membership vote. Associate boards participate in selected meetings of the participate in selected meetings of the board and may have special committee board and may have special committee assignments, with the primary objective assignments, with the primary objective being that they gain experience for being that they gain experience for becoming future directors. They do not becoming future directors. They do not have a vote on official board decisions, have a vote on official board decisions, however.however.

Co-op Challenges in the 21Co-op Challenges in the 21stst CenturyCentury

EXTERNALEXTERNAL1.1. Changing farm demographics Changing farm demographics

(today 8% product 68% and 62% (today 8% product 68% and 62% produce 8%)produce 8%)

2.2. Technological change Technological change (transportation, information, (transportation, information, biotech)biotech)

3.3. Food system consolidationFood system consolidation4.4. Globalization of marketsGlobalization of markets5.5. ConsumerismConsumerism

Co-op Challenges in the 21Co-op Challenges in the 21stst CenturyCentury

INTERNALINTERNAL

1.1. Acquiring equity capitalAcquiring equity capital

2.2. Diverging membership (who is our Diverging membership (who is our customer?)customer?)

3.3. Improving board effectivenessImproving board effectiveness

4.4. Making more tmiely decisionsMaking more tmiely decisions

5.5. Managing ‘service’ versus ‘price’ Managing ‘service’ versus ‘price’ trade offs.trade offs.

- Rural Cooperatives, Jan/Feb 2003- Rural Cooperatives, Jan/Feb 2003