Author: Phil Kenkel

Phil Kenkel

Bill Fitzwater Cooperative Chair

In my last newsletter I discussed a recent research article analyzing the impact of board of director characteristics and operations to cooperative profitability and success.  The more profitable cooperatives had a slightly smaller board size, participated in more director education activities and had more active board members.  The study also investigated other areas such as the tenure of the board chair and CEO, the frequency of board meetings and the use of executive sessions.…

Phil Kenkel

Bill Fitzwaer Cooperative Chair

Last week I discussed the circles of responsibility in a cooperative (member, board member, employee and CEO) and pondered the issues of an employee or ex-employee running for a board seat.  Another interesting possibility is the concept of a board member becoming an employee, or more specifically a CEO.  That practice is not unheard of in Fortune 500 companies. Many of those firms have outside directors selected on the basis of financial or technical …

Phil Kenkel

Bill Fitzwater Cooperative Chair

I recently saw a research article investigating the linkages between characteristics of cooperative board of directors and the firm’s return on assets and return on equity.  As in any study of this nature, the existence of a relationship doesn’t necessarily mean that the board characteristic caused the profitability difference.  It is still interesting to see where there are apparent differences between the boards of more profitable cooperative and less profitable one.

The average board …

Phil Kenkel

Bill Fitzwater Cooperative Chair

As I have been discussing, Section 199A creates another level of decision for cooperative boards.  Before getting lost in the details of retaining or distributing tax credits and profits it is good to examine your overall strategy.  On part of that strategy is how much emphasis you place on keeping most members equivalent or better off from a tax standpoint.  The second strategy question is whether you want to use any tax savings to …

Phil Kenkel

Bill Fitzwater Cooperative Chair

The cooperative business form is unique in that it is owned and governed by its customers.  That means that every member has multiple relationships or roles with the cooperative. The customer role involves marketing commodities and purchasing goods and services.  Cooperative websites and newsletter are full of information relating to the customer role.  Information on market conditions, marketing programs, product specials and risk management services are all useful to cooperative members in their customer …

Phil Kenkel

Bill Fitzwater Cooperative Chair

I recently had a chance to visit with a farm supply firm that was organized as an employee owned stock ownership program (ESOP).  When a new employee was hired they received a small portion of their compensation in stock.  The stock vested (the employee had full ownership rights to the stock) after a set number of years.  At a later date the stock revolved with the value based on an outside valuation of the …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Economics has been termed “the dismal science.”  It therefore goes against my training to write anything positive.  That makes it a struggle to describe the impact of tax reform on agricultural cooperatives, because it is basically all good!  The outcome is a tribute both to our state and national cooperative councils and the apparent positive reputation of agricultural cooperatives among legislators.

The Tax Reform and Jobs Act of 2017 had several provisions that impacted …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Many cooperative separate their functions into departments and track the performance and profitability of each unit.  It is generally easy to allocate revenue and variable costs across departments.  Departmental analysis necessitates allocated fixed or overhead expenses across the units.  Some fixed costs are also easy to allocate.  The ownership cost of the fertilizer application equipment can be assigned to the fertilizer department.  Other expense, like the salaries of the main office staff, the central …

Phil Kenkel

Bill Fitzwater Cooperative Chair

Multi-stakeholder cooperatives have an interesting structure.  Time will tell as to whether they are viewed as a major evolution of the cooperative business model or a niche structure.  It is easy to see how there could be advantages in bringing more stakeholders in as member owners.  Multi-stakeholder cooperatives also have inherent challenges in harmonizing and aligning the incentives and interest of multii classes of members.  Some of the strategies that mutli-stakeholder cooperatives use to …

Phil Kenkel

Bill Fitzwater Cooperative Chair

In my last few newsletters I have been discussing my research on the risks areas in grain marketing and farm supply cooperatives.  The results, which were based on intensive examination of ten case study cooperatives, identified grain volume as the largest risk bucket followed by grain margin and fertilizer margins.  The relative results varied across cooperatives. Fertilizer margin was a major source of risk for at least one case study cooperative.

Just like grain …