1 New Generation Cooperatives: Managers’, Directors’, And Owners’ Responsibilities Gary Brester Dept. of Agricultural Economics and Economics Montana State University AGBE 445
2 OUTLINE 1.Overview of New Gen Cooperatives 2. Management Responsibilities 3.Director Responsibilities 4. Owner/Grower Responsibilities 5. Questions
3 Motivation 1.$2 billion of investments 2.Lots of publicity 3.Rural development? 4.Value-added agriculture? 5.Risk management? 6.USDA Resources
4 New Generation Cooperatives 1.They are different from traditional cooperatives 2.Capitalization 3.Rights and obligations to deliver 4.Stock is tradeable 5.But, should not be considered similar to other tradeable stocks a. Why are IOFs ignoring this opportunity? b. Rationale is usually market access
5 What Do The Following New Gens Have In Common? 1.South Dakota Soybean Processors 2.Pro-Gold 3. Spring Wheat Bakers 4.North American Bison 5.Walton Bean Co-op 6.Bushel 42 Pasta 7. Century 21 Alliance
6 OUTLINE 1.Overview of New Gen Cooperatives 2. Management Responsibilities 3.Director Responsibilities 4. Owner/Grower Responsibilities 5. Questions
7 Management Responsibilities 1.Fiduciary responsibility to owners a.Protect investment and sustain business entity b. Maximize returnson investment Higher beet prices Patronage refunds Growth in price of delivery rights
8 Management Responsibilities 2.Incentives must be structured to optimize grower-to-sales issues a. Price of delivery rights b. Financial condition Strong balance sheet Annual net income c. Reduce costs across the system d. Capital investment At least replace depreciation
9 Management Responsibilities 3.Develop/implement the strategic management business plan a.Monitor progress b.Solve problems 4.Hire employees 5.Evaluate employees 6.Reward employees 7.Fire employees
10 Management Responsibilities 8. Provide leadership a.Communication b.Understand problems c. Listen d.Quick action e. Explain decisions f. Realize how people view decisions
11 Management Responsibilities 9. Foster trust a.Why? b.Because trust is more difficult to create than money And much easier to lose c.Actions foster trust/distrust d.No place for arrogance Fosters an “US” vs. “THEM” e.Communication Listening/oral comments Newsletters
12 Newsletter Topics 1. Quarterly/easy to create a. Human interest b. Regional crops/issues c. Sugar prices/policy/branding d. Share prices e. Harvest/pile conditions f. Changes in policies
13 OUTLINE 1.Overview of New Gen Cooperatives 2. Management Responsibilities 3.Director Responsibilities 4. Owner/Grower Responsibilities 5. Questions
14 Director Responsibilities 1.Manage ONE employee: CEO a.Hire/retain/replace decisions b. Develop written annual goals c. Evaluate CEO performance annually Provide written evaluations Reward good performance 2. Help CEO to develop strategic direction
15 Director Responsibilities 3. Educate CEO about member concerns a.Must communicate the relative importance of various concerns 4. Provide owners with explanations of decisions a.Recognize that reasons for some decisions cannot be made public b. Directors serve an important education function
16 Director Responsibilities 5. Seek/attend management education 6. Request outside help as needed a. Ex-Officio members b. Use consultants on specific matters 7. Submit themselves to evaluation 8. Must be seen as unbiased
17 Board Conflict of Interests 1. As a member, you can be more concerned about self-interest 2. As a director a. Act for benefit of organization b. Benefit the largest number of members Could harm smaller groups c. Communicate interests of members d. Recognize inherent conflict of economic interests
18 Board Conflict of Interests 3. Balance conflict by a. Requiring efficiency and competitiveness b. Avoiding subsidizing others or free riders c. Having a long-run view d. Recognizing life-cycle and member diversity e.Protecting the process that generates profits
19 Board Legal Responsibilities 1.Duty of care or diligence a.Act as a prudent person would and in good faith 2. Duty of loyalty a. Act in the best interest of members and avoid conflict of interest 3. Duty of obedience a. Comply with laws, regulations, bylaws, contracts and Board policies 4. Duty of oversight a. Proactive in ensuring full information and internal controls
20 Governance Focus: Management 1.Board role a.Passive b.Advisory c.Essentially “rubber stamp” 2. CEO role a.Proactive b.Strong c.Dominant d.Self serving
21 Governance Focus: Board and Organization 1.Board role a.Proactive b.Strong c.“One voice” d.Focus on purpose e.Focus on owners 2. CEO role a.Proactive b.Strong c.Focus on Purpose
22 Governance Focus: Director and Representative 1.Board role a.Proactive b.Strong c.Individual directors represent sub- groups of owners 2. CEO role a.Proactive b.Strong c.Focus on aligning with the most powerful coalition
23 Governance Focus: Stakeholder 1.Board role a.Individual directors represent sub- groups of owners b.Individual directors represent others (community, employees) 2. CEO role a.Focus on pleasing competing stakeholders
24 OUTLINE 1.Overview of New Gen Cooperatives 2. Management Responsibilities 3.Director Responsibilities 4. Owner/Grower Responsibilities 5. Questions
25 Owner/Grower Responsibilities 1.Growers must realize that they are no longer on an island a. They are part of a group effort b. Sometimes have to sacrifice as an individual to contribute to the whole c.This requires strong leadership in return
26 Owner/Grower Responsibilities 2. Growers must follow the rules a.Pre-defoliating b.Loading trucks if hot c. Hauling mud d. Beginning harvest on-time e.If the rules are bad, get them changed 3. Ask questions a. Demand reasonable and logical answers 4. Must participate in education
27 QUESTIONS?