Learning from Boards that Deliver

How do we sustain our success? Is our board helping our co-op remain competitive? These and other questions are asked by directors attending the Consumer Cooperative Management Association (CCMA) June conference.

Ann Hoyt, professor at University of Wisconsin-Madison and CCMA conference director, recommended corporate governance consultant Ram Charan’s book, Boards that Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage. Charan notes that boards evolved from “ceremonial” bodies that perform a compliance role to “liberated” boards with more active directors. In the third and ideal phase of the continuum, “progressive” boards fulfill their compliance role and also become effective as a team, maintain an independent viewpoint, and add value in a constructive and collaborative relationship with the general manager.

Progressive boards have good group dynamics among directors and between the board and general manager, obtain vital information in a usable form, and focus on substantive issues. These three building blocks lay the foundation for the five board contributions that count. This article uses cooperative examples to illustrate Charan’s points about progressive boards, and a sidebar contains resources for directors.

Board contributions that count:

1. The right general manager and manager succession
2. General manager compensation
3. The right strategy
4. Leadership gene pool
5. Monitoring health, performance, and risks

1. The right general manager and succession
The board’s most important job is to choose the right general manager. Progressive boards seek to ensure that the cooperative’s success outlasts the general manager and current market opportunities. The board defines manager selection criteria so that skills required are matched by the candidate’s strengths. For example, with a new store planned, criteria might include experience operating a business with multiple locations.

The board must thoroughly assess both inside and outside candidates. Search firms, consultants, and a board search committee have all proven beneficial in this assessment.

Director support helps the new general manager succeed. The board chair may coach the general manager in working with the board and encourage her/him to use directors with expertise, such as in market research, as a resource. Participation in the cooperative community helps the general manager learn about the industry. Periodic reviews enable the board to give ongoing feedback and coaching. Rarely, despite coaching and support, the board must ask the general manager to leave.

A written succession plan gives the board and management a resource for both emergencies, such as death, and planned changes, such as retirement. Annual updates keep the succession plan and strategic plan aligned.

2. General manager compensation
Compensation plans and the general manager’s objectives reflect what the board considers important. Benefits consultants, the human resources manager, and salary surveys in Cooperative Grocer contribute information to the board’s compensation committee. (See also CG #134, “Setting a Process for General Manager Compensation.”)

Defining and using a consistent compensation framework helps directors use qualitative and quantitative measures to evaluate and compensate the general manager. General manager objectives, both short-term and long-term, may address strategy, resource allocation, borrowing, and critical personnel. Cooperative store managers may have profit sharing, severance packages, and deferred compensation plans as part of their compensation.

3. The right strategy
Strategy states how the cooperative will position itself in its marketplace. Strategy includes a shared definition of the term, study and discussion that yield agreement on strategy, a plan, and a monitoring process to evaluate progress toward goals. Progressive boards agree on and help develop strategy with the general manager.

“For many co-ops, access to natural foods as the reason for being may be over. How will we add value in the future?” asked Mark Goehring of the Cooperative Board Leadership Development (CBLD) program, Cooperative Development Services, and former president of Brattleboro Food Co-op in Vermont.

Cooperatives bring member-owners together to meet economic needs. Directors want their cooperative to stay nimble to meet a growing and diversifying membership’s needs while thriving in a changing market. Boards seek to understand member needs through multiple methods including surveys, focus groups, trade area surveys, and member dinners.

“We’re not just another grocery store. What makes us different is the cooperative business model,” said Dana Jackson, president of River Market Community Co-op in Stillwater, Minn. Said Dan Nordley, who has more than 30 years with cooperatives, including five as president of Seward Co-op Grocery and Deli in Minneapolis, directors “should help the co-op push the vision, think outside of its immediate box.”

To develop agreement on strategy, cooperatives hold planning meetings with the board, general manager, and managers to learn more about the cooperative and its environment. Prior to the meeting, attendees receive a strategy blueprint from the general manager and management team, including internal and external information and explaining the relationship between the strategy, member needs, and financial targets.

Strategy discussion includes the principles of cooperation among cooperatives and concern for community. A director, the general manager, or an outside facilitator may facilitate discussion to promote participation from every attendee, ensure directors have their questions answered, recognize consensus, and define next steps. Good strategy gives clear direction to the general manager and helps the board and general manager make tough decisions during hard times.

4. The leadership gene pool
Succession planning suggests that the cooperative needs leaders at every level. Leaders contribute to a cooperative’s performance and longevity, and succession plans covering more than the general manager’s position ensure that the plan addresses leaders who are adaptable to changing conditions. The general manager and human resources manager present the board with semiannual overviews of leadership to compare it with strategic requirements, identify needs, and measure quality.

Directors have exposure to leaders, and educational presentations by managers at board meetings help the board learn more about operations, leaders, and the industry. Managers and others may participate in board committees.

5. Monitoring health, performance, and risk
How a board conducts its monitoring function affects the cooperative. Going beyond regulatory and legal compliance, assessing contributors to cooperative health helps the board and general manager look to the future and focus on critical issues. Separate assessments examine financial health, operating performance, and risk.

Liquidity determines financial health. Adequate operating cash flow allows the cooperative to survive external factors, such as increased competition, and internal factors, such as a high-debt enterprise that did not generate the anticipated cash flow. Debt-to-equity ratios provide another diagnostic measure. Semi-annual or annual analysis of the balance sheet helps the general manager and board assess potential impact of conditions, such as lower margin.

Operating risk and financial risk may combine to threaten the cooperative’s viability. Consequently, risk assessment should be comprehensive, rather than by individual risk. Risks include financial, business, legal, operational, and regulatory. The four options to manage identified risks are: eliminate, mitigate, accept, or transfer.

Maintaining momentum
In addressing key components of leadership, boards can maintain momentum by identifying best practices for board composition, continuing education, committees, and meeting logistics. Boards can adopt these practices and concentrate on contributions that count.

Directors contacted for this article recommended attending CCMA. “We’re all in this together, in that we seem to share similar challenges and successes,” said Ed Stanford, chairperson of Ever’man Natural Foods Co-op in Pensacola, Fla. “CCMA is the only time I get to meet other board members. The closest co-op is 200 miles away,” said Michelle Jacobson, a director at Co-Opportunity in Santa Monica, Cal., “I always pick up some new ideas.”

Before Lost River Community Co-op in Paoli, Ind. opened in October 2007, Kathleen Gifford, secretary, said, “Hearing the stories of successful co-ops” was the best part of CCMA 2007. Former director Janabai Raymundo valued “the lessons learned, advice.” Both attended on Howard Bowers scholarships.

For CCMA 2008, Ann Hoyt said, “Sustainability issues are really important. We do not want to lose the focus that we are building on our role to encourage democracy and community participation and how to do things differently, not better.” “I look forward to a wonderful learning experience and the opportunity to network,” said director Russ Nelson, Food Front Cooperative Grocery. Food Front and People’s Food Co-op are the host cooperatives for CCMA 2008, June 12-14 in Portland, Oregon.

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Candace Dow served on the Wedge Co-op board of directors for 16 years, including five years as president ([email protected]).