Finance Committee Finesse
By Scott Beers and Margaret Lund
One of the absolutely vital committees of any co-op board is the finance committee. Typically, the finance committee is charged with overseeing and reviewing the financial performance and profitability of the cooperative. The committee reviews and offers comments on financial statements, budgets, capital appropriations and other financial reports. They also develop and review financial policies and procedures -- particularly those involving such areas as investments and remuneration to members, and the committee recommends an outside auditor to the full board for approval.
Occasionally, an ill-guided finance committee member will mistake the committee's role as a financial monitor with the job that the general manager is paid to do -- much to the annoyance of both. Such a director may be confusing accountability with authority. Co-op management must be accountable to the board, accountable for their actions, accountable for the store's performance. But in order to be held accountable, a manager must have authority to act, to make day-to-day management decisions within the parameters set by the board.
As part of approving the annual budget the board sets a labor budget; the manager divides it up. The board sets an overall investment policy citing specific criteria on interest rates, risk, social screens, etc.; the manager decides where the money actually goes. The committee's role is generally an arm's length away from any real financial transaction. The one very narrow exception to this is the finance committee's active involvement with the selection of an auditing firm, only because the audit involves a direct review of the manager's work.
That describes a finance committee that does its job and does no harm. But what about one that actually adds substantial value? While its actions will vary with the stage and size of the organization, a finance committee of real value brings three things to the co-op: perspective, expertise and stewardship.
First, perspective. The committee's role is to take a step back and look at the overall picture of the store as a functioning financial entity. To gain such perspective, it is often helpful to recruit outside members who have just that -- folks with small business skills who are sympathetic to the co-op's goals but able to take a fresh look at its policies and practices.
"This is boring," said a new finance committee member at one co-op we know, as the other members diligently slogged through 16 pages of monthly financial reporting, just because that's what they had always done. He was right. Now the committee gets full reports every quarter, financial summaries in the interim, and spends a lot more time on more interesting (not to mention useful) activities. That's perspective.
The second vital contribution of a sound financial committee is real expertise. If you don't have it on board, find it. Get some training, get some new committee members, or both. A retired small business person, a commercial loan officer from the local bank, a consultant from the local small business development center: lots of people have financial skills to offer. Every co-op needs people who not only have financial skills but who are also able to share them effectively and supportively with management and with the rest of the board. A sound finance committee not only makes sure that the correct financial data and analysis are in place, but also that all board members understand the information. For a manager mired in the day-to-day world of running a grocery store, a skilled and accessible finance committee with real expertise offers a wonderful opportunity for mentoring and growth.
Finally, a superior finance committee brings vigilant and nurturing stewardship to its job. Maybe this sounds obvious, because oversight is every director's job. On the other hand, maybe it sounds ridiculous as you try to imagine all those bean-counting, number-crunching finance folks nurturing anything. But for the finance committee, the oversight role has particular importance. Whatever else it may be, the cooperative is at its essence a financial entity. The important role a finance committee plays in caretaking the fiscal health of the organization cannot be overemphasized. This does not absolve the rest of the board of their responsibility for understanding and monitoring finances, however, just because "finance committee will take care of it."
Let's face it, many of our organizations are financially "fragile," to put it politely. The finance committee has a vital role in protecting and nurturing the organization and helping it to grow. This takes courage as well as caring. Who wants to stand up in front of an angry membership meeting and say the discounts have to be lowered or the co-op will be on life support? Not us -- but sometimes it has to be done.
Everyone is responsible for knowing and understanding the co-op's financial performance, but the finance committee has a special role. And being a steward is not the same as being a watchdog. A watchdog implies a lack of trust -- in the accuracy of the figures, in the co-op's personnel or both. If your co-op's finance committee acts more like a watchdog, either because they have to or because they think they have to, that is a real problem that needs to be addressed at the highest level.
An ordinary finance committee reviews what's put in front of them. An extraordinary finance committee brings its perspective, expertise, and stewardship to bear to help make their co-op extraordinary as well.