University of Wisconsin Center for Cooperatives
By Bob Cropp
Director, UW Center for Cooperatives
The greatest threat to the survival of a cooperative is the
While this is a strong statement, it also emphasizes the fact
that boards of directors are ultimately
accountable for policies, practices, and procedures that will
determine whether the cooperative
will live or die.
A March 1994 report by the Plunkett Foundation -- Developing
Directors of Cooperatives and
Other Similar Enterprises -- recommends that boards
...recognize that the success of any business
upon the capacity of its directors to provide the vision and
direction needed not
only to survive, but to develop and prosper. Therefore,
make a commitment to
develop the capacity of the board of directors to improve
both their personal and
collective contributions to the overall development of the
What is your job as a board member?
The job of the board of directors is to improve the bottom line
for members. In order to
accomplish this, the board must make management of the
Although it may be easier for a cooperative to succeed with
good management and a
weak board than with a good board and weak management, even the
eventually will falter without board support.
Strong managers like strong boards.
The board has as its role a "change agent." This differs from
the traditional judicial performance
of making "go" or "no-go" decisions on management proposals. A
board can develop ideas on its
own, but this requires an atmosphere conducive to change and
board members able and willing to
go beyond traditional evaluative or judicial postures.
Imagination, innovation, and willingness to
try new concepts and ideas are attributes vitally needed in many
User benefits vs. return on equity investment
User-benefits versus return on equity investment are resulting in
structural changes in
- Conversions to Investor Oriented Firms (IOF's).
- Move to proportionality -- capital more accordance to use;
lessens equity redemption
- New cooperative structure -- new generation cooperatives:
- value added;
- up-front capital;
- closed membership; and
- appreciable and transferable property
Mike Cook's review of governance of IOF's indicate three major
- How well are boards interacting and communicating with
- How independent and objective are the compensation and
nominating committees relative
to inside influences?
- Have boards begun evaluating their own
Further, chemistry sessions are in. Boards need to understand
each other in terms of values,
beliefs, and purpose. This session is "Evaluating Board
Performance," or we could refer to this as
a "Board of Directors Audit."
Do you represent a cooperative that does or has done a board
Some of the important jobs of a co-op board of directors are to:
- evaluate management;
- evaluate the co-ops financial performance;
- evaluate the membership and structure; and
- periodically step back and evaluate the co-op's basic
mission and goals.
Evaluation is a way of checking your progress against your
plans and visions. For the
same reason, it is important for the board of directors to
evaluate its own performance on a
regular basis. After all, shouldn't the board hold itself to the
same standards it holds for all
other areas of co-op operations?
Directors could provide members with a more meaningful measure of
accountability and bring the
governance process full circle if the board's performance were
subject to some sort of formal
Why board evaluation?
- Provides the board with a chance to reflect on and
assess its areas of strength and
- May provide the board with an invaluable yardstick by
which it can prioritize its
activities for the future.
- Can serve an educational and consensus-building function
-- by clarifying and defining the
overall standards of performance for the board.
- A formal appraisal encourages all directors to reflect on
what the board has
accomplished, as well as on what it should be doing and how it
works. Such a review can
optimally result in all directors contributing to setting
goals of the board. The commitment of
all directors to the board's priorities and to improving board
effectiveness makes those goals
all the more likely to be completed.
- Being a responsible board member is hard work and is often
a thankless job. An
evaluation which points up strengths as well as weaknesses can
give a board a sense of its
own competence and accomplishment as a group. This is a good
foundation on which to
build positive change.
Value of time:
- less time on the weather;
- asking bottom-line questions;
- management's role in member needs; and
- board's role in member needs.
Challenges to co-op board:
- return on management time;
- return on board time;
- political stability; and
- governance as a leader.
Why the increased interest in board evaluation?
- More accountability expected by:
- government agencies, and
- public in general is interested in business ethics.
- Stricter enforcement of laws.
- More lawsuits against boards of directors.
- Great consequences for mistakes made by the board.
Board evaluation should not be a personal performance review.
A board assessment
evaluates the performance of the board as a whole.
Who should evaluate the board of directors?
- Board's self-evaluation: All board members
An internal evaluation can be a good process. As a board, you
have an opportunity to know
your own strengths and weaknesses better than someone who has
only limited contact with
- A committee of the board does the evaluation.
- A non-board committee does the evaluation.
- The evaluation is done by an outside consultant.
An outside consultant may be particularly useful if a board
has never evaluated its
performance before. The consultant can provide some objective
criteria, offer a perspective
on the co-op board standards, and can help the board set up
criteria on which to base future
An outside consultant may be useful where
there are emotionally-charged
issues, or where the board's internal process
has not been the best.
Should management evaluate the board?
Management undoubtedly has a perspective on the board's
effectiveness. However, it may be
hard for an employee of the board to objectively analyze the
performance of his/her boss. If
management evaluates the board, the board needs to recognize that
they may receive a different
set of answers from their own self-evaluation. A mature board
may effectively use this manager
evaluation to strengthen board performance and board/management
What should be done with the evaluation?
A compilation of all directors' responses to questions (or
outside consultants' responses) should
be prepared and copies distributed to all board members. But
this is not the end. One or two
board members could review the data and prepare an initial
analysis for the board. But more
importantly, the entire board should review the data and then
discuss priorities for future
boardwork -- setting goals for the board for next year or
directing a committee to follow-up on
A board evaluation should provide guidelines for effective
board of director
performance. It should answer the question, "Are we as a board
contributing to the co-ops
ability to meet its purpose?"
An honest and frank assessment of board performance and practices
should serve as a starting
point for discussions about how to improve the board's systems
and overall effectiveness.
How often should the board be evaluated?
The board may choose to evaluate itself annually or have an
outside consultant conduct the
evaluation annually. Rather than annually, every other year may
be viewed as adequate.
Starting an evaluation procedure.
The first step in starting an evaluation procedure is to set
- Selection procedure for directors. This should not be
left to chance at the annual
meeting. The selection procedure for the board should be in the
bylaws or in the policy manual.
- Duties of directors. If the board has no job description,
one should be developed or
- Performance of directors. Many cooperatives currently
have bylaw or policy provisions
covering board attendance. The board may wish, and the
members may include in the
bylaws, other performance requirements for directors such as a
minimum volume of business
done with the cooperative, or some other requirement.
Any evaluation system should:
- Set standards for evaluation;
- Judge performance against these standards; and
- Make corrections in performance.
Steps for an effective board assessment:
- Obtain commitment by all board members to the process.
- Set performance objectives or criteria.
- Plan the process and gather the information.
- Discuss and interpret the data.
- Develop a plan of follow-up; identify areas for change and
What criteria should be used?
- Simplicity has great value.
- Each question should ask about one item or aspect of
- Use a simple rating scale -- such as 1 to 5 (5 for
outstanding or excellent performance; 1
for performance that is non-existent or needs improvement).
- It is advisable to allow directors to indicate where they
don't know the answer to a
- Allow for written comments.
What to evaluate?
- Membership accountability and governance.
The board is the representative of the members and the steward
of their interests. However,
it is important that an individual board member, and the board
as a whole, does not cater to
special interest groups, but considers what is best for the
cooperative (membership) as a
Criteria may include:
- approval of applications for membership;
- effectiveness of membership meetings (annual meeting);
- process of director selection;
- membership communication;
- membership relations program;
- annual report is presented to members; it clearly
describes the co-op's operations and
financial status; and
- the co-ops capital plan creates an adequate capital base
for the co-op's current and
- Board operations.
Criteria may include:
- an organizational chart has been established;
- board job descriptions established;
- meeting packets that include agenda, clear written
reports, recommendations or options
from the general manager or CEO and committees (mailed prior
- length of board meeting;
- board discussions and participation;
- policies regarding board terms, elections, officers,
meeting attendance, committee
- orientations of new board members;
- are decisions made in a timely manner?
- written record of board policies and decisions;
- executive sessions;
- annual board calendar;
- board manual;
- job description for general manager, CEO;
- procedures for appraisal and compensation of general
- training and development of general manager, CEO;
- procedure for board training and development; and
- effectiveness of committee structure.
- Legal responsibilities.
To direct affairs of the organization within the guidelines
provided by the act of incorporation,
articles, bylaws, and any regulations governing the
Criteria may include:
- degree in which board members are informed;
- board members are knowledgeable of articles, bylaws,
- articles and bylaws are reviewed (annually) by the board;
- board reads and approves minutes of each meeting; and
- written policies on board ethics and conflict of
- Financial overview.
To establish financial plans and policies and to monitor the
organization's operations for
soundness and stability.
Criteria may include:
- financial policies reviewed and updated;
- capital and operating budgets approved annually;
- goals/policies for important financial ratios established;
- board receives regular financial reports;
- insurance program reviewed and updated annually;
- policies established for member equity/redemption; and
- procedure for annual audit.
To approve the organization's mission, the goals and objectives,
major plans and programs,
capital and operating budgets. Planning is a culmination of al
the board's responsibilities. IT is the
process that pulls all of the elements together and makes the
board's vision for the co-op become
Criteria may include:
- board approves mission and vision statements;
- board approves annual business plan;
- board reviews and approves a 3-to-5 year plan;
- board evaluates the mechanism(s) provided for member input
into the planning process;
- board is adequately informed about the business and market
environment in which co-op
- Board-management relations.
The line between board and management roles can be blurred at
times. Board and management
responsibilities (delegation from board to management) often
change as co-ops grow and/or
boards and management mature. Established procedures and strong
Criteria may include:
- written job description of general manager/CEO;
- procedure established for general manager/CEO annual
review and compensation;
- manager's/CEO's reports to the board;
- board chair or executive committee's relationship with
- board and management work together to determine the
direction of the co-op;
- does the board focus on goals and results and leaves
day-to-day decisions, methods, to
- board provides overall personnel guidelines to management
and remains uninvolved with
specific personnel matters.
Good boards of directors continually strive for
Good boards of directors:
- understand the uniqueness of user-benefit co-ops;
- are mentally aggressive;
- ask good questions;
- participate in education/training;
- value time;
- are good decision makers; and
- are leaders.
To receive a paper copy of this report, call UWCC at
608-262-3981, or write
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