Introduction and Overview to Managing Strategy Formulation and Implementation Risk Michael Boland Professor of Agricultural Economics Arthur Capper Cooperative Center Kansas State University Farmer Cooperatives Program St Paul, MN November 18, 2008

Schedule 8:45 – 10:30 Managing strategy formulation and implementation risk – Introduction and overview: Mike Boland, Professor, Kansas State University – Larry Swalheim, Landmark Cooperative, Cottage Grove, WI – John Blaska, Chairman of the Board, Landmark Cooperative – Tim Lindgren, Immediate Past President and CEO, Sunkist, Sherman Oaks, CA – Nicholas Bozick, Chairman of the Board, Sunkist, Sherman Oaks, CA 10:30 – 11:15 Break 11:15 – 12:00 Managing human resource risk: Attracting and retaining leadership for the future (Boland moderator) – Bob Brockelman, Farm Credit Services

Where does this information come from? Data from National Association of Corporate Directors, Governance Survey Course materials from Arthur Capper Cooperative Center director development module on Strategic Thinking Our experiences with cooperatives

What co-ops have we studied? Productores Unidos Cooperativa Agraria Ltda. (Uruguay) Mountain View Coop Midway Co-op Tree Top Colun Cooperativa (Chile)Cooxupé (Brazil) Farmers Cooperative Grain

Overview Directors state that Strategic Planning and Oversight are the most important topics for % state that they are effective or highly effective in this topic; 50% say they are somewhat effective or below acceptable levels on this topic.

What are the most important topics for directors in 2008?

How Important are these topics to directors?

How effective are directors?

Effectiveness vs Importance 1 Board Leadership10 Corporate Performance and Valuation18Relations with Shareholders/Owners 2 Board/ CEO Relations11 Federal and State Regulatory Compliance19Information Management 3 Board Culture12 Director Recruitment20Mergers/ Acquisitions 4 Board Effectiveness13 Executive Talent Management and Leadership Development21Committee Structure 5 CEO Succession14 Director Nomination/ Succession22Board and Director Evaluation 6 Strategic Planning and Oversight15 CEO Compensation23Restrucutirng 7 Financial Oversight/Internal Controls16 Risk and Crisis Oversight24Director Education and Development 8 CEO Evaluation17 Board Meeting Processes25Corporate Social Responsibility 9 Disclosure 26Director Compensation Strategic Planning and Oversight

Strategic Thinking Process: Strategic Questions Where Are We? – Internal: Strengths and Weaknesses – External: Opportunities and Threats – Summary: Competencies, Success Factors and Strategic Issues Where Do We Want to Go? – Vision – Mission – Strategies How Do We Get There? – Action Plans Strategies Programs – Performance Control Objectives and Policies Budgets What Decisions Need to Be Made Now?

Roles: Organizational Structure and Management Team Members/Producers Board of Directors Director Members Officers Chief Board Officer Chief Executive Officer Board Committees Employees Strategic Management Operational Management

The Board’s Role in Strategy Development

Strategic Thinking Roles Board: 1.Formulates strategy in concert with CEO so stay aligned on customers, especially members. 2.Not just an “advisor” to the CEO, who is the “chief strategist”. 3.Critically appraises and approves or disapproves strategies and strategic action plans. 4.Evaluates CEO and senior management strategy formulation and implementation.

Strategic Thinking Roles CEO: 1.Formulates strategy in concert with the board so keep people and operations aligned on customers. 2.Proposes strategic action plans to the board. 3.Implements approved strategies and action plans.

Strategic Thinking Roles Facilitator of Retreats: 1.Provides a structured process and information to achieve retreat objectives 2.Educates participants about elements of the process 3.Manages the retreat discussion to achieve retreat purposes including maintaining an open, honest, balanced, objective, vigorous and stimulating environment.

Why Strategic Thinking, not Strategic Planning? Strategy formation is a critical factor in future success (Harvard Study and other studies). Strategy formation is most effective if based on seeing the big picture, on synthesis. Strategic planning relies primarily on analysis of the parts, on decomposing the business and its environment into parts. Strategic thinking relies primarily on a process of synthesis.

What is Planning? (Strategic or Operational) 1.Planning is outlining a course of action to achieve an objective. 2.Planning is a formalized procedure to produce an articulated (specified) result, in the form of an integrated system of decisions.

What is Strategy? Four Alternative Views: Is a:Which is a: Such as: PerspectiveVision or concept of To bring happiness the business through creativity PatternConsistent behavior over High volume, low time (realized) margin PositionSelection of customers, High oil corn marketing products, partners and program; strategic markets in view of alliance in feed for hog competitors and SWOT and dairy producers PlanCourse of action to achieve Cutting costs by 5% to an objective (intended) increase ROE to 15%

Final Message We have found that the word “strategy” and a directors role in strategic thinking confuses some directors. Many cooperatives are, in fact, practicing strategic thinking and their CEO understands strategy. But there are examples of cooperatives that have not practiced strategic thinking. Directors have a responsibility to be engaged in strategic thinking in concert with the CEO and stay aligned on customers. But directors must understand your co-op’s – Perspective – Pattern of behavior – Position – Plan And these relationship to your customers, members and employees.