Functions of the Board of Directors in a Cooperative PDF

What Are the Functions of the Board of Directors in a Cooperative? A cooperative is an organization formed and owned by its members to serve a specific purpose. Cooperatives in business are usually strategic partnerships consisting of businesses and influential individuals in a single industry co...

What Are the Functions of the Board of Directors in a Cooperative? A cooperative is an organization formed and owned by its members to serve a specific purpose. Cooperatives in business are usually strategic partnerships consisting of businesses and influential individuals in a single industry coming together to achieve a common goal. Cooperatives appoint boards of directors similar to corporations and nonprofit organizations, and the duties of cooperative boards are much the same as their counterparts in other organizations. However, a number of distinct characteristics of co-op board duties are worth studying to gain insight into how cooperatives work. Strategic Guidance Simply stated, the main purpose of a cooperative board of directors is to set grand strategic goals and develop an overarching vision for the organization. The board comes together to set organizational objectives for upper-level managers, who translate grand strategic goals into more measurable and specific objectives. The board of directors bears the responsibility for moving the organization in a productive direction, as defined by the cooperative\'s strategic goals. Representation Cooperative boards of directors can be made up of representatives from each member entity, creating a situation almost resembling a congressional body. Having a representative from each organization on the board of directors of a cooperative ensures that each company has a voice in strategic decision- making. This can ease relations between members of a co-op, which may have been direct competitors before entering into the partnership. Because of this, nonprofit board members almost have to play the role of politicians as well as business leaders, keeping relations smooth between all of the member entities. Hiring Co-op boards are responsible for recruiting and hiring executive level managers in the organization, who are then responsible for hiring at lower levels. This is another way to ensure that each member organization\'s interests are represented in the decisions and actions of the co-op \-- each member\'s organization has voting power in appointing members of the board, who appoint the executives that make day-to-day decisions. Although this can be said of all boards, this function takes on additional significance due to co-op members\' relationships. Policy Development A board of directors in a cooperative functions as a policy-making body when it comes to big-picture issues such as financial responsibility, equal employment opportunity issues, compliance with applicable legal guidelines and the co-op\'s business dealings with its own members. Board members also create policies governing the appointment and duties of board officers, including the board president, secretary and treasurer. The board may set specific guidelines for hiring practices to ensure compliance with EEO laws, for example, or may set policies regarding executive compensation. Financial Functions Cooperative boards of directors are actively involved in the budgeting and financial reporting processes of the organizations they oversee. Board members function as intermediaries between the organization and external stakeholders at annual meetings, press conferences and public relations events, as well as setting financial goals for co-op managers to reach for. In this way, board members function as the face of the cooperative when dealing with the public and potential investors. The Cooperative Board of Directors Every individual should understand the role of the board of directors. While there are differences across the business forms, the board of directors is an important part of the governance of investor owned corporations, cooperative corporations and not for profit corporations. Understanding the functions and role of the board of directors will help you better understand those specificHiring Co-op boards are responsible for recruiting and hiring executive level managers in the organization, who are then responsible for hiring at lower levels. This is another way to ensure that each member organization\'s interests are represented in the decisions and actions of the co-op \-- each member\'s organization has voting power in appointing members of the board, who appoint the executives that make day-to-day decisions. Although this can be said of all boards, this function takes on additional significance due to co-op members\' relationships. Policy Development A board of directors in a cooperative functions as a policy-making body when it comes to big-picture issues such as financial responsibility, equal employment opportunity issues, compliance with applicable legal guidelines and the co-op\'s business dealings with its own members. Board members also create policies governing the appointment and duties of board officers, including the board president, secretary and treasurer. The board may set specific guidelines for hiring practices to ensure compliance with EEO laws, for example, or may set policies regarding executive compensation. Financial Functions Cooperative boards of directors are actively involved in the budgeting and financial reporting processes of the organizations they oversee. Board members function as intermediaries between the organization and external stakeholders at annual meetings, press conferences and public relations events, as well as setting financial goals for co-op managers to reach for. In this way, board members function as the face of the cooperative when dealing with the public and potential investors. The Cooperative Board of Directors Every individual should understand the role of the board of directors. While there are differences across the business forms, the board of directors is an important part of the governance of investor owned corporations, cooperative corporations and not for profit corporations. Understanding the functions and role of the board of directors will help you better understand those specific. business forms. Additionally, many individuals are asked to run for or serve on a board of directors sometime in their career. Any prospective board member should understand the important legal and fiduciary responsibilities as well as the commitment of time, skill and resources. While there are many unique aspects of the cooperative board of directors, understanding the role and responsibilities of the board in a cooperative firm also provides insights into the role of directors in other firms or not for profit entities.business forms. Additionally, many individuals are asked to run for or serve on a board of directors sometime in their career. Any prospective board member should understand the important legal and fiduciary responsibilities as well as the commitment of time, skill and resources. While there are many unique aspects of the cooperative board of directors, understanding the role and responsibilities of the board in a cooperative firm also provides insights into the role of directors in other firms or not for profit entities. Duty of Care which is taking the care and exercising the judgment that any reasonable and prudent person would exhibit in the process of making informed decisions, including acting in good faith consistent with what you as a member of the board truly believe is in the best interest of the organization. The law recognizes and accepts that board members may not always be correct in their choices or decisions, but it holds them accountable for being attentive, diligent, and thoughtful in considering and acting on a policy, course of action, or other decision. Active preparation for and participation in board meetings where important decisions are to be made is an integral element of the duty of care. A board that did ask for a feasibility study prior to making a decision with major financial implications, or a board member that did attend meetings or did not review the meeting packet prior to making a decision, might be viewed as violating the duty of care. Duty of Loyalty which calls upon the board and its members to consider and act in good faith to advance the interests of the organization. In other words, board members will not authorize or engage in transactions except those in which the best possible outcomes or terms for the organization can be achieved. This standard constrains a board member from participating in board discussions and decisions when they as an individual have a conflict of interest (i.e., their personal interests conflict with organizational interests, or they serve multiple organizations whose interest conflict). A board member who participated in a discussion on the cooperative purchasing a tract of land that they, or their family members owned, would likely be viewed as violating the duty of loyalty. When a possible conflict of interest arises the board member should inform the board of the possible conflict, and if the board concurs that it is a conflict of interest, the board member should recluse him/herself from the discussions. The minutes would reflect that the board member left the room during the discussion and voting and returned after the decision was reached. Duty of Obedience which requires obedience to the organization's mission, bylaws, and policies, as well as honoring the terms and conditions of other standards of appropriate behavior such as laws, rules, and regulations. Many cooperatives have a code of conduct for directors which includes items such as being in compliance with the cooperatives credit policy. A director who did not keep their account with the cooperative current might find themselves in violationDuty of Care which is taking the care and exercising the judgment that any reasonable and prudent person would exhibit in the process of making informed decisions, including acting in good faith consistent with what you as a member of the board truly believe is in the best interest of the organization. The law recognizes and accepts that board members may not always be correct in their choices or decisions, but it holds them accountable for being attentive, diligent, and thoughtful in considering and acting on a policy, course of action, or other decision. Active preparation for and participation in board meetings where important decisions are to be made is an integral element of the duty of care. A board that did ask for a feasibility study prior to making a decision with major financial implications, or a board member that did attend meetings or did not review the meeting packet prior to making a decision, might be viewed as violating the duty of care. Duty of Loyalty which calls upon the board and its members to consider and act in good faith to advance the interests of the organization. In other words, board members will not authorize or engage in transactions except those in which the best possible outcomes or terms for the organization can be achieved. This standard constrains a board member from participating in board discussions and decisions when they as an individual have a conflict of interest (i.e., their personal interests conflict with organizational interests, or they serve multiple organizations whose interest conflict). A board member who participated in a discussion on the cooperative purchasing a tract of land that they, or their family members owned, would likely be viewed as violating the duty of loyalty. When a possible conflict of interest arises the board member should inform the board of the possible conflict, and if the board concurs that it is a conflict of interest, the board member should recluse him/herself from the discussions. The minutes would reflect that the board member left the room during the discussion and voting and returned after the decision was reached. Duty of Obedience which requires obedience to the organization's mission, bylaws, and policies, as well as honoring the terms and conditions of other standards of appropriate behavior such as laws, rules, and regulations. Many cooperatives have a code of conduct for directors which includes items such as being in compliance with the cooperatives credit policy. A director who did not keep their account with the cooperative current might find themselves in violation Board Structure Board structure varies across cooperatives. Most cooperative statues require a minimum number of directors, with five being the most common minimum. If one were to poll cooperative board members, most would likely say that a board size from 7-10 is ideal. As board size increases, the logistics of board meetings become more complex and discussion time is increased. On the other hand, a larger board has more ability to create sub-committees to work on specific issues. Cooperatives tend to have an odd number of members on the board to avoid the possibility of a tie vote. Cooperative boards tend to try and work toward a consensus opinion. The board chair traditionally does not vote unless the vote is needed to break a tie. The odd numbered board size does therefore not completely solve the problem of tie votes unless the chair is comfortable being the tie breaking vote. Larger cooperatives and those operating over larger geographic regions tend to have larger boards. Board size also tends to increase after a merger. Many merged cooperatives begin with the members of both former organizations on the board of the merge firm and implement a plan to decrease the board size over time.Board Structure Board structure varies across cooperatives. Most cooperative statues require a minimum number of directors, with five being the most common minimum. If one were to poll cooperative board members, most would likely say that a board size from 7-10 is ideal. As board size increases, the logistics of board meetings become more complex and discussion time is increased. On the other hand, a larger board has more ability to create sub-committees to work on specific issues. Cooperatives tend to have an odd number of members on the board to avoid the possibility of a tie vote. Cooperative boards tend to try and work toward a consensus opinion. The board chair traditionally does not vote unless the vote is needed to break a tie. The odd numbered board size does therefore not completely solve the problem of tie votes unless the chair is comfortable being the tie breaking vote. Larger cooperatives and those operating over larger geographic regions tend to have larger boards. Board size also tends to increase after a merger. Many merged cooperatives begin with the members of both former organizations on the board of the merge firm and implement a plan to decrease the board size over time. Board Decision Making Effective board of director meetings and efficient decision making is both a science and an art. The board chair usually works with the CEO in determining the meeting agenda. An annual calendar may be used to cover specific topics throughout the year. The board chair has a key role in board effectiveness In addition to helping to set the agenda the chair leads the discussion and tries to ensure that every board member has a chance to express their perspective. A good board chair encourages board members not to take a stance on an issue until both the advantages and disadvantages have been discussed. When possible, the chair may want to schedule an issue as a discussion item at one meeting and bring it up as an action item for a vote at the next meeting. That helps to prevent the board from making rash decisions due to the passions of the moment. Board Decision Making Effective board of director meetings and efficient decision making is both a science and an art. The board chair usually works with the CEO in determining the meeting agenda. An annual calendar may be used to cover specific topics throughout the year. The board chair has a key role in board effectiveness In addition to helping to set the agenda the chair leads the discussion and tries to ensure that every board member has a chance to express their perspective. A good board chair encourages board members not to take a stance on an issue until both the advantages and disadvantages have been discussed. When possible, the chair may want to schedule an issue as a discussion item at one meeting and bring it up as an action item for a vote at the next meeting. That helps to prevent the board from making rash decisions due to the passions of the moment. Board Compensation The time and responsibilities required of directors has increased, there has been a tendency to increase director compensation. However, there are still many small cooperatives that still do not pay any remuneration. In almost all cases, directors are reimbursed expenses associated with their cooperative duties. Historically, cooperatives have merely paid a per diem for each day of cooperative business. For the larger cooperatives this generally varies between \$150 and \$300 per day (Weick, Anderson, Henehan, 1997). However, there is an increasing tendency to also pay an annual retainer for time the a director spends on cooperative business that is difficult to specify, i.e communicating with members, keeping abreast of industry issues, preparing for board meetings, etc. The amount of the annual retainer varies. In almost all cooperative directors receive less compensation than do IOF directors for similar responsibilities.Board Compensation The time and responsibilities required of directors has increased, there has been a tendency to increase director compensation. However, there are still many small cooperatives that still do not pay any remuneration. In almost all cases, directors are reimbursed expenses associated with their cooperative duties. Historically, cooperatives have merely paid a per diem for each day of cooperative business. For the larger cooperatives this generally varies between \$150 and \$300 per day (Weick, Anderson, Henehan, 1997). However, there is an increasing tendency to also pay an annual retainer for time the a director spends on cooperative business that is difficult to specify, i.e communicating with members, keeping abreast of industry issues, preparing for board meetings, etc. The amount of the annual retainer varies. In almost all cooperative directors receive less compensation than do IOF directors for similar responsibilities. Board Member Recruitment Despite the importance of the board of directors, many cooperatives do not invest enough effort in identifying and recruiting potential members. Board member recruitment is complicated by the fact that the selection of the board is a member responsibility. This suggest that the directors should have a hands-off approach to the recruitment and nomination process. Unfortunately most members have a poor understanding of the operations of a board of directors or on how well directors perform. Members may nominate or re-elect individuals with good political skills sometimes to the detriment of those with strong business skills. Ideally, both the current board and the CEO should be involved in identifying potential board members while leaving the specifics of the process to the nomination committee. As cooperative's evolve and grow the cooperative may need directors with specific financial, operational or even political expertise. The fact that cooperative boards are restricted to members of the cooperatives limits the opportunity to recruit board members with specific skills. The more limited pool of potential members makes it essential that the cooperative work to identify and encourage the best possible candidates. Board Member Recruitment Despite the importance of the board of directors, many cooperatives do not invest enough effort in identifying and recruiting potential members. Board member recruitment is complicated by the fact that the selection of the board is a member responsibility. This suggest that the directors should have a hands-off approach to the recruitment and nomination process. Unfortunately most members have a poor understanding of the operations of a board of directors or on how well directors perform. Members may nominate or re-elect individuals with good political skills sometimes to the detriment of those with strong business skills. Ideally, both the current board and the CEO should be involved in identifying potential board members while leaving the specifics of the process to the nomination committee. As cooperative's evolve and grow the cooperative may need directors with specific financial, operational or even political expertise. The fact that cooperative boards are restricted to members of the cooperatives limits the opportunity to recruit board members with specific skills. The more limited pool of potential members makes it essential that the cooperative work to identify and encourage the best possible candidates. Board Member Qualifications In general, there are few specific qualifications to be eligible to be nominated for a cooperative board of directors. Any member of the cooperative that is in compliance with the cooperative's policies and meets the criteria of the board's code of conduct is eligible to be elected. A common clause in the code of conduct is that a board member cannot be operating a business in competition with the cooperative. For example, there is no reason that a farmer that also operates a custom fertilizer application business could not be a member of a cooperative. However it would not be appropriate for him/her to serve on the board and make decisions impacting the cooperative's fertilizer application activities. A minority of cooperatives require candidates to complete a cooperative board education program prior to being nominated. Most cooperatives do not want to interfere with the members' right to select board members and encourage new board members to attend educational programs. Board Member Qualifications In general, there are few specific qualifications to be eligible to be nominated for a cooperative board of directors. Any member of the cooperative that is in compliance with the cooperative's policies and meets the criteria of the board's code of conduct is eligible to be elected. A common clause in the code of conduct is that a board member cannot be operating a business in competition with the cooperative. For example, there is no reason that a farmer that also operates a custom fertilizer application business could not be a member of a cooperative. However it would not be appropriate for him/her to serve on the board and make decisions impacting the cooperative's fertilizer application activities. A minority of cooperatives require candidates to complete a cooperative board education program prior to being nominated. Most cooperatives do not want to interfere with the members' right to select board members and encourage new board members to attend educational programs. Director Education For the board of directors to play its appropriate role in cooperative decision making, there is a need to educate and train directors. This is especially true of newly elected directors. A new director is used to considering decisions of the cooperative as a customer. They are now in a different role with the primary responsibility of protecting the viability of the cooperative. Educational programs can help them understand how to "take off their farmer hat and put on their board member hat". Available training sessions cover such topics the legal responsibilities and liabilities of directors, the distinctions between board and manager responsibilities, understanding financial statements, cooperative equity programs, components of sound marketing strategies, etc. Most cooperatives conduct their own internal orientation programs to familiarize their directors of internal operations. More formal and multi-cooperative director training program are offered by state cooperative councils, universities, cooperative banks, and cooperative trade organizations. Cooperative Law Definition: Everything You Need to Know The cooperative law definition refers to a cooperative being formed under a cooperative statute. The definitions differ, depending on who defines the term.3 min read 1\. Legal Definition of Cooperatives Law 2\. Different Perspectives The cooperative law definition refers to a cooperative being formed under a cooperative statute. Cooperative definitions differ, depending on who defines the term. Legal Definition of Cooperatives Law In the simplest sense, when people come together and organize around a common goal, they form a cooperative. The common goal is usually economic. A cooperative may be a corporation or organization. Typically, it\'s a nonprofit that\'s organized by individuals who have similar needs. The cooperative pursue those needs or the common purpose. Cooperatives are distinguished from nonprofit corporations in how they raise capital. Instead of selling shares, cooperatives sell memberships. In addition, cooperatives don\'t give voting rights to shareholders; voting rights belong to those who have purchased memberships. Cooperative law follows a similar process to collaborative law. Cooperative Law Definition: Everything You Need to Know The cooperative law definition refers to a cooperative being formed under a cooperative statute. The definitions differ, depending on who defines the term.3 min read 1\. Legal Definition of Cooperatives Law 2\. Different Perspectives The cooperative law definition refers to a cooperative being formed under a cooperative statute. Cooperative definitions differ, depending on who defines the term. Legal Definition of Cooperatives Law In the simplest sense, when people come together and organize around a common goal, they form a cooperative. The common goal is usually economic. A cooperative may be a corporation or organization. Typically, it\'s a nonprofit that\'s organized by individuals who have similar needs. The cooperative pursue those needs or the common purpose. Cooperatives are distinguished from nonprofit corporations in how they raise capital. Instead of selling shares, cooperatives sell memberships. In addition, cooperatives don\'t give voting rights to shareholders; voting rights belong to those who have purchased memberships. Cooperative law follows a similar process to collaborative law. In business, a cooperative refers to the formation of a nonprofit entity that\'s designed to benefit people who use its services. About 100 million Americans are part of a cooperative. Roughly 47,000 cooperatives exist, and of those, credit unions are the most common type, with over 10,000 in existence. There are other kinds of goods and services that can be provided under cooperative principles, such as the following: Utilities Agricultural goods Insurance Child care Preschools Health care Food Equipment Legal services Employment services Cooperatives are established for various reasons. One is to purchase and market its members\' products. Another is to procure supplies for resale to members; profits are then distributed to members as dividends. These distributions aren\'t based on an individual member\'s investment in the cooperative. Instead, they\'re calculated in proportion to a member\'s patronage, or how much business a member transacts. In a worker\'s cooperative, members come together to manufacture a product and then share the profits based on how much labor they contributed. How you define cooperative usually depends on your perspective. Are you defining it as a cooperative enthusiast? Are you defining it from the viewpoint of a tax lawyer or corporate lawyer? Someone who\'s enthusiastic about cooperatives may say that a cooperative is any organization that puts cooperative principles into practice due to its commitment to those principles. A corporate lawyer may only consider a cooperative to be one that was created under a cooperative statute. A tax lawyer may refer to tax law for defining a cooperative, saying that the statute it was created under is less important than how it operates --- that is, cooperatively. In business, a cooperative refers to the formation of a nonprofit entity that\'s designed to benefit people who use its services. About 100 million Americans are part of a cooperative. Roughly 47,000 cooperatives exist, and of those, credit unions are the most common type, with over 10,000 in existence. There are other kinds of goods and services that can be provided under cooperative principles, such as the following: Utilities Agricultural goods Insurance Child care Preschools Health care Food Equipment Legal services Employment services Cooperatives are established for various reasons. One is to purchase and market its members\' products. Another is to procure supplies for resale to members; profits are then distributed to members as dividends. These distributions aren\'t based on an individual member\'s investment in the cooperative. Instead, they\'re calculated in proportion to a member\'s patronage, or how much business a member transacts. In a worker\'s cooperative, members come together to manufacture a product and then share the profits based on how much labor they contributed. How you define cooperative usually depends on your perspective. Are you defining it as a cooperative enthusiast? Are you defining it from the viewpoint of a tax lawyer or corporate lawyer? Someone who\'s enthusiastic about cooperatives may say that a cooperative is any organization that puts cooperative principles into practice due to its commitment to those principles. A corporate lawyer may only consider a cooperative to be one that was created under a cooperative statute. A tax lawyer may refer to tax law for defining a cooperative, saying that the statute it was created under is less important than how it operates --- that is, cooperatively. Organizations may be created under just about any type of state statute and operate as a cooperative, if it so chooses. However, most jurisdictions have statutes that specifically address cooperatives. For instance, many states don\'t recognize organizations that aren\'t formed under a cooperative statute as cooperatives. Therefore, these organizations can\'t use the term "cooperative" in their name. Different Perspectives If you consider cooperatives from a tax law perspective, these organizations are entitled to a number of beneficial tax treatments. This applies to regular cooperatives, tax-exempt cooperatives, and agricultural cooperatives. Eligibility doesn\'t depend on whether the organization was created under a specific statute. Instead, it simply has to meet the tax law definition of a cooperative. Basically, it must operate on a cooperative basis. Because the IRS\'s Revenue Code and regulations don\'t specify what operating on a cooperative basis means, the definition has been tested through the courts. In the case of Puget Sound Plywood v. Commissioner, the court stated that "operating on a cooperative basis" means the following: It\'s under the democratic control of the members, meaning that the members govern the cooperative on a one-member/one-vote basis. It operates at cost, meaning that if the cooperative has any money left over --- beyond what\'s considered to be a reasonable reserve --- after paying expenses, that money goes back to the members. It involves subordination of capital, meaning that any returns to investors are limited. Individuals who participate in cooperatives often do so with like-minded people or groups. These organizations can be beneficial to all involved. Be aware of your jurisdiction\'s particular statutes that govern cooperatives to ensure you create an actual cooperative that the law recognizes. You may want to consult with an expert in cooperative law if you have any questions about the process. Organizations may be created under just about any type of state statute and operate as a cooperative, if it so chooses. However, most jurisdictions have statutes that specifically address cooperatives. For instance, many states don\'t recognize organizations that aren\'t formed under a cooperative statute as cooperatives. Therefore, these organizations can\'t use the term "cooperative" in their name. Different Perspectives If you consider cooperatives from a tax law perspective, these organizations are entitled to a number of beneficial tax treatments. This applies to regular cooperatives, tax-exempt cooperatives, and agricultural cooperatives. Eligibility doesn\'t depend on whether the organization was created under a specific statute. Instead, it simply has to meet the tax law definition of a cooperative. Basically, it must operate on a cooperative basis. Because the IRS\'s Revenue Code and regulations don\'t specify what operating on a cooperative basis means, the definition has been tested through the courts. In the case of Puget Sound Plywood v. Commissioner, the court stated that "operating on a cooperative basis" means the following: It\'s under the democratic control of the members, meaning that the members govern the cooperative on a one-member/one-vote basis. It operates at cost, meaning that if the cooperative has any money left over --- beyond what\'s considered to be a reasonable reserve --- after paying expenses, that money goes back to the members. It involves subordination of capital, meaning that any returns to investors are limited. Individuals who participate in cooperatives often do so with like-minded people or groups. These organizations can be beneficial to all involved. Be aware of your jurisdiction\'s particular statutes that govern cooperatives to ensure you create an actual cooperative that the law recognizes. You may want to consult with an expert in cooperative law if you have any questions about the process.