Unit II., Part B Board 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 co-op board of directors: 1.Who CAN serve? => Who is ‘eligible’? 2.Who SHOULD serve?  Who is ‘qualified’?

Eligibility to serve as a Director: Local co-ops: must be a farmer member Local co-ops: must be a farmer member Regional co-ops: Regional co-ops: Must be a farmer member OR a managerial representative of a local co-op member Must be a farmer member OR a managerial representative of a local co-op member The number of farmer members must be greater than the number of nonfarmer members (usually) The number of farmer members must be greater than the number of nonfarmer members (usually)

Director Qualifications Personal Characteristics Personal Characteristics Honest-tells the truth Honest-tells the truth Obedient-complies with the law Obedient-complies with the law Diligent-hard working Diligent-hard working Prudent-cautious (no undue risks taken) Prudent-cautious (no undue risks taken) Democratic-willing to accept group decisions Democratic-willing to accept group decisions Willing to commit time needed Willing to commit time needed

Director Qualifications Leadership Skills Leadership Skills Communication Communication Decision making Decision making Motivational Motivational Loyalty (team or group oriented) Loyalty (team or group oriented)

Director Qualifications Business Skills Business Skills Knowledge of co-op principles and practices Knowledge of co-op principles and practices

Election Procedure Criteria 1. Representation of all members 2. Enhances chances of best candidates getting elected 3. Simplicity 4. Cost 5. Legal

Co-op Voting Practices (U.S.) Area representation: Area representation: 65% at large 65% at large 25% district 25% district 10% combination 10% combination Determination of no. of votes: Determination of no. of votes: 90+% = 1 vote per person 90+% = 1 vote per person 10% = voting in proportion to patronage 10% = voting in proportion to patronage

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

Board Size Criteria 1. Ease of arranging and conducting meetings 2. Representative (of members) 3. Cost 4. Amount of work to do 5. Continuity (ease of dealing with board member turnover) 6. Legal

Size of Co-op Boards Locals Locals Most 6-15 Most 6-15 IA ≥ 5 by law IA ≥ 5 by law Regionals Regionals Most Most s and –s of  no. of directors? +s and –s of  no. of directors?

Length of Term% of co-ops >33 Term Limits 15% of co-ops limit no. of terms 15% of co-ops limit no. of terms Most common term limit = 3 (  9 yrs) Most common term limit = 3 (  9 yrs)

Possible Limits on Director Tenure 1. Length of Term Most common = 3 yrs (about 3/4) Most common = 3 yrs (about 3/4) 2. Number of Terms Most do NOT limit (85%) Most do NOT limit (85%) Most common limit if have one = 3 Most common limit if have one = 3 3. Age Most do not have age limit Most do not have age limit

Automatic Director Rotation Advantages: Advantages: 1. Automatic Removal of Unwanted Director 2. New Perspectives from New Directors 3. Expanded Member Involvement

Automatic Director Rotation Disadvantages: Disadvantages: Automatic Removal of Best Directors Automatic Removal of Best Directors

Co-op Versus IOF Directors 1. Board Sizes Comparable (= co-ops have more directors in proportion to size of business) 2. More separated from management 3. Less education/experience in operating a non-farm business 4. Customers 5. Less compensation

Legal Obligations of Directors 1. Obedience = obeying and complying with All Laws, Articles, Bylaws 2. Loyalty = acting in good faith, putting co-op interests first, avoiding conflicts of interest or special treatment (actual or apparent) 3. Diligence = acting with prudence, exercising same care as would with own affairs

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

Director Loyalty “Learning to discipline themselves to discern between personal interests, neighborhood interests, and cooperative interests; between short-run advantages versus long- run jeopardy; between ‘we’ve always done it that way’ versus openmindedness is difficult to say the least. “But the most difficult job may be to set aside the dislike of one person or the close friendship of another person and make objective decisions that will be in the best interests of the cooperative and its membership.”

Strengths & Weaknesses Co-op Boards Strength: Strength: Board members are farmer customers of the business Board members are farmer customers of the business Weakness: Weakness: Board members are farmer customers of the business Board members are farmer customers of the business

Co-op Versus IOF Management DUAL Co-op Objectives: DUAL Co-op Objectives: 1. Investor/Stockholder Interests 2. Member patron interests

Methods for Selecting and Recruiting Candidates for Directors Nominating committee (86%) Nominating committee (86%) Composed of different combinations of non-director members and directors Composed of different combinations of non-director members and directors Board appointments of non-director members of committee Board appointments of non-director members of committee At-large or district elections of non-director members of committee At-large or district elections of non-director members of committee Nominations from the floor of annual or district meetings (most common method 50 yrs ago) Nominations from the floor of annual or district meetings (most common method 50 yrs ago) Recruitment by directors Recruitment by directors Member caucus at annual or district meetings Member caucus at annual or district meetings Nominations by mail Nominations by mail Ballot write-ins Ballot write-ins Nomination by application Nomination by application Associate board Associate board Note: only about 1/3 require contested elections. - Rural Cooperatives, Nov/Dec 2003

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

Co-op Challenges in the 21 st Century EXTERNAL 1. Changing farm demographics (today 8% product 68% and 62% produce 8%) 2. Technological change (transportation, information, biotech) 3. Food system consolidation 4. Globalization of markets 5. Consumerism

Co-op Challenges in the 21 st Century INTERNAL 1. Acquiring equity capital 2. Diverging membership (who is our customer?) 3. Improving board effectiveness 4. Making more tmiely decisions 5. Managing ‘service’ versus ‘price’ trade offs. - Rural Cooperatives, Jan/Feb 2003