Co-op boards' circle of responsibilities - Management Tip

Rural Cooperatives, July-August, 2002 by James Baarda

Editor's Note: This is the first of a three-part series about cooperative boards of directors. This article identifies the sources of authority for boards and describes seven basic responsibilities imposed on every cooperative board of directors. The next article discusses the legal standards directors must meet and outlines practical ways directors can protect themselves as well as the cooperative. The last article describes the numerous special difficulties faced by cooperative directors and shows why a cooperative director's task is more difficult than for directors of other organizations.

Being a director of a cooperative isn't easy. In fact, it is harder to be a good cooperative director than a director of almost any other organization, including the largest corporations in the country. Cooperative directors make decisions that aren't required in a non-cooperative corporation, and bad decisions can hurt the cooperative and all of its members.

Frequently, directors just have too little information about what they need to do as directors. Information that is available to help them become excellent directors is often not appropriate for cooperative directors. Often, advice is so general it isn't applicable and some is so specific that it cannot be applied easily. Advice and information may not focus on the real issues and sometimes the advice is conflicting.

The three articles in this series certainly don't give all the answers. However, existing information related to cooperative directors, as well as the directors of other kinds of organizations, can be distilled and focused for cooperative director use. Concise guidelines are given that can be tailored to the needs of individual directors on the boards of a specific cooperative.

This article identifies authority that gives directors the rights and responsibilities to carry out their work as directors on behalf of the cooperative and its members. Then it describes the seven basic responsibilities imposed on all directors of all cooperatives: the "circle of responsibilities."

Board authority

What gives a board of directors its authority? The basic authority, and the ultimate statement of responsibility, is imposed by law. Statutes under which cooperatives are incorporated identify the board of directors as the key institution responsible for the direction and management of the cooperative. A typical cooperative statute says: "The affairs of the association shall be managed by a board of not less than five directors, elected by the members or stockholders from among their own number." Variations exist, of course, among statutes and states, but the theme is always the same: the law places a cooperative's management and guidance in the hands of its board of directors.

The statutory mandate is broad but isn't described in further detail by most statutes. This is one reason that further explanation is needed to make the directive meaningful. An added source of guidance is a cooperative's own bylaws. The bylaws are not the place to give detailed descriptions of what the board is supposed to do, and bylaws typically do not. However, in describing certain processes and actions of the cooperative, bylaws often identify decisions the board must make on specific issues. Some of these will be described when board function and personal responsibilities are noted in the next article in this series and--even more so--when special issues are described for directors in the final article. The problem faced by directors (who represent members) when members want something that will be detrimental to their cooperative (to whom directors also owe a duty) is also noted in the final article.

Finally, the board will establish its own internal structure, rules and operations to supplement the broader statements in the statutes and the bylaws. These cannot remove or diminish the responsibilities imposed by statute, but can create a framework in which the overall responsibilities and authority are useful in the everyday work of the board.

These are the technical sources of authority. The ultimate authority, though, comes from the cooperative's members. The cooperative is theirs, and without members' desire to create and perpetuate the cooperative, the board would not exist. Members place their trust, their needs, and authority in a board of directors of their own choosing.

Circle of seven responsibilities

Despite significant differences among cooperatives in the United States in size, function, complexity, organizational form, financing methods and membership makeup, it is possible to summarize a "circle" of seven responsibilities applicable to all cooperative boards of directors. Of course, each of the responsibilities will be carried out differently depending on the cooperative, but fundamentally the circle of seven responsibilities describes all cooperative boards of directors.

1. Board represents cooperative members

Cooperatives are created and operated to serve members' needs. Members invest in the cooperative, they patronize it and they exercise ultimate control of the cooperative. The board of directors is the means by which the needs and desires of individual cooperative members are incorporated into the cooperative. In some circumstances, of course, members vote directly on a cooperative issue. But for the most part, members are represented by the board of directors.