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2 Rating Conference Presentations? By Co-op?By Member? Closing Plants & Branches Great!Less service? Executing Growth Strategies Great!For Whose Benefit? Achieving Strong Brand Name Great!At Whose Expense? Keys to Success – a Synthesis Great!Whose Success?

3 Distinguishing a Co-op From Other Business Organizations Each Member / Patron Has at Least One Business Interest in Common With Every Other Member / Patron Those Common Business Interests Form Business Relationships that Each Member / Patron has in Common With the Cooperative Unique Governance Speed Bump: Co-op Directors are Simultaneously Co-op Patrons and Fiduciaries of the Co- op, Which Creates Conflict of Interest for each Co-op Director. No For Profit Business Organization has that Organic Conflict in its Governance.

4 At the Margin... Directors Must Favor the Cooperative Favor CooperativeFavor Members Stronger Gross Margins > Weaker Gross Margins Tougher credit > Generous credit Fixed Asset Expenditures > Stock Retirements Profitable Service > Unprofitable Service Working Capital > Stock Retirements More Earnings > Less Earnings Tight Inventory Control > Weak Inventory Control

5 Managing the Governance Speed Bump Manage the Conflict. Recognize the conflict between the needs of Co-op and its members & patrons (“this conflict”) must be managed – governance will not necessarily be comfortable as this conflict is rationalized. Make Hard Choices. Recognize management should not be expected to successfully implement business strategies if the Board of Directors will not make the hard choices that are predicates for success.

6 Managing the Governance Speed Bump Conflict is About Capital. Recognize this conflict is related to Co-op’s capital needs; –Communicate with members & patrons about Co- op’s capital needs. –Turn the investment of members & patrons in your Co-op into a valuable asset on their own balance sheet. Cash today or capital gain tomorrow? Defend the Co-op. Recognize that directors must lead by defending the legitimate needs of the Co- op. If directors defend the Co-op, the employees will too.