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New Generation Cooperatives: Managers’, Directors’, And Owners’ Responsibilities

Gary BresterDept. of Agricultural Economics and Economics

Montana State University

AGBE 445

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OUTLINE

1. Overview of New Gen Cooperatives

2. Management Responsibilities

3. Director Responsibilities

4. Owner/Grower Responsibilities

5. Questions

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Motivation

1. $2 billion of investments

2. Lots of publicity

3. Rural development?

4. Value-added agriculture?

5. Risk management?

6. USDA Resources

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New Generation Cooperatives

1. They are different from traditional cooperatives2. Capitalization3. Rights and obligations to deliver4. Stock is tradeable5. But, should not be considered similar to other tradeable stocks

a. Why are IOFs ignoring this opportunity?b. Rationale is usually market access

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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

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OUTLINE

1. Overview of New Gen Cooperatives

2. Management Responsibilities

3. Director Responsibilities

4. Owner/Grower Responsibilities

5. Questions

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Management Responsibilities

1. Fiduciary responsibility to owners

a. Protect investment and sustain business entity

b. Maximize returns on investment

Higher beet prices

Patronage refunds

Growth in price of delivery rights

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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

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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

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Management Responsibilities

8. Provide leadership

a. Communication

b. Understand problems

c. Listen

d. Quick action

e. Explain decisions

f. Realize how people view decisions

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Management Responsibilities

9. Foster trusta. Why?

b. Because trust is more difficult tocreate than money And much easier to lose

c. Actions foster trust/distrustd. No place for arrogance

Fosters an “US” vs. “THEM”e. Communication

Listening/oral comments Newsletters

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Newsletter Topics

1. Quarterly/easy to createa. Human interestb. Regional crops/issuesc. Sugar prices/policy/brandingd. Share pricese. Harvest/pile conditionsf. Changes in policies

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OUTLINE

1. Overview of New Gen Cooperatives

2. Management Responsibilities

3. Director Responsibilities

4. Owner/Grower Responsibilities

5. Questions

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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

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Director Responsibilities

3. Educate CEO about member concerns

a. Must communicate the relative importance of various concerns

4. Provide owners with explanationsof decisions

a. Recognize that reasons for some decisions cannot be made public

b. Directors serve an important education function

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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

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Board Conflict of Interests

1. As a member, you can be more concerned about self-interest2. As a director

a. Act for benefit of organizationb. Benefit the largest number

of members Could harm smaller groups

c. Communicate interests of membersd. Recognize inherent conflict of economic interests

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Board Conflict of Interests

3. Balance conflict bya. Requiring efficiency

and competitivenessb. Avoiding subsidizing othersor free ridersc. Having a long-run viewd. Recognizing life-cycle and

member diversitye. Protecting the process thatgenerates profits

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Board Legal Responsibilities1. Duty of care or diligence

a. Act as a prudent person would and in good faith2. Duty of loyaltya. Act in the best interest of

membersand avoid conflict of interest3. Duty of obediencea. Comply with laws, regulations,

bylaws, contracts and Board policies4. Duty of oversighta. Proactive in ensuring full information

and internal controls

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Governance Focus: Management

1. Board rolea. Passiveb. Advisoryc. Essentially “rubber stamp”

2. CEO roled. Proactivee. Strongf. Dominantg. Self serving

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Governance Focus: Board and Organization

1. Board rolea. Proactiveb. Strongc. “One voice”d. Focus on purposee. Focus on owners

2. CEO rolef. Proactiveg. Strongh. Focus on Purpose

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Governance Focus: Director and Representative

1. Board rolea. Proactiveb. Strongc. Individual directors represent sub-

groups of owners2. CEO role

d. Proactivee. Strongf. Focus on aligning with the most

powerful coalition

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Governance Focus: Stakeholder

1. Board rolea. Individual directors represent sub-

groups of ownersb. Individual directors represent others

(community, employees)2. CEO role

c. Focus on pleasing competing stakeholders

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OUTLINE

1. Overview of New Gen Cooperatives

2. Management Responsibilities

3. Director Responsibilities

4. Owner/Grower Responsibilities

5. Questions

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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

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Owner/Grower Responsibilities

2. Growers must follow the rulesa. Pre-defoliatingb. Loading trucks if hotc. Hauling mudd. Beginning harvest on-timee. If the rules are bad,

get them changed3. Ask questions

a. Demand reasonable and logical answers

4. Must participate in education

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QUESTIONS?