Board of Director Strategy

Authors: Phil Kenkel, Oklahoma State University, phil.kenkel@okstate.edu, and Bill Fitzwater,
Oklahoma State University

Strategy Board of director meetings are designed to conduct business, communicate with the manager and plan for the future. Parliamentary procedure can help boards accomplish these objectives.

Roles and Responsibilities of the Board of Directors

Planning is a process of setting objectives and determining what must be done to accomplish them. One director of an agricultural cooperative defined planning as:

• Where are we going?

• How do we get there?

• When do we want to arrive?

• How much do we want to pay for the trip?

Planning involves forward thinking (deciding what to do before it must actually be done), decision making, and defining and achieving objectives. The control process is closely related to planning. Controlling is the process of ensuring that actions conform to plans. Control cannot take place unless a plan exists, and a plan has little chance of success unless a control process is in place.

• The Board’s Role in Planning

• Principles of Planning

• Strategic Planning

• Analyze the Competitive Environment

• Assess the Opportunities and Threats

• Assess the Strengths and Weaknesses

• What is Control?

Legal Responsibilities of the Board of Directors

Boards have a fundamental obligation to the member-owners to protect the investment that the members have made in the cooperative. Members must be able to completely trust the board to make decisions for them. The directors and officers of a company, a cooperative or a nonprofit entity, are, in the performance of their duties, under obligation of trust and confidence to those they represent, and must act in good faith and for the interests of the corporation, organization or association and its stockholders.

It is the duty of the directors to see that an organization keeps within its authorized powers and obeys the law. Any intentional deviation or negligent departure from these duties to the substantial injury of the company may result in personal liability.

• Directors’ Basic Responsibilities

• Directors’ Legal Duties

• Directors’ Duty of Confidentiality

• Directors and Conflicts of Interest

• Directors and Potential Liability

• Directors and Financial Liability

• Directors and Potential Legal Action

• Recommendations for Directors

• Voting Procedures

Holding Effective Board Meetings

Often boards loose valuable time and resources on meetings that show few results. An effective board meeting allows the cooperative directors to meet their objectives for the meeting without using excess time and energy. This article will address only a few of the ways to make board meetings more effective.

• Governing Documents

• Minutes

• Committees

• Executive Sessions

• Mini-Executive Sessions

• Other Suggestions

• Conclusions (of effective board meetings)

Developing the Board Meeting Packet

The board packet is a highly useful tool in increasing the effectiveness of your board meeting. This paper will consider the purpose of the board packet as well as its format. The packet’s contribution to the meeting can be substantial if it is properly done, but it requires a little extra preparation.

• Purpose

• Format of the Board Packet

• Timeline

• Conclusion (of Board Packet)

Guide to Parliamentary Procedure in the Board Room

Board meetings are designed to conduct business, communicate with the manager and plan for the future; however, if the meeting is not as efficient as it could be, these objectives are hard to meet. Parliamentary procedure can aid boards in having smooth and well-organized meetings. The following is a crash course in parliamentary procedure according to Robert’s Rules of Order.

• Types of Motions

• Rules for Debate on Motions

• Voting Options

• Role of the Chairman

• Common Errors in Parliamentary Procedure

• Conclusion (of parliamentary procedure)

Importance of Board Minutes

While the minutes of your cooperative board meetings will never make the bestseller list, they are one of the most important documents that you read. Good minutes document the fact that directors are fulfilling their responsibilities. The best rule of thumb is that minutes should provide a thorough record of what the board decided and what was considered in making those decisions. Board minutes provide a lasting record of actions and decisions that can be referenced easily in the future or allow cooperative members to understand the board’s activity.

• What Are Board Minutes?

• Why Are Board Minutes Important?

• What Must Be in Board Minutes?

• What Should be Left out of Board Minutes?

• Recording Executive Session Activity

• Recording Committee Actions

• Supporting Documents

• Taking Minutes during the Meeting

• Approving the Board Minutes

• Conclusion (of board minutes)

Importance of the Annual Audit

Directors, managers and advisers of new and developing cooperatives need to be well informed about the importance of an annual audit.

Annual audits of the cooperative’s financial records are the responsibility of the board of directors. As the board acts as trustee of the cooperative’s assets, it is responsible for safeguarding, auditing and appraising the cooperative’s financial resources. The board performs these duties on behalf of members, stockholders and creditors.

• Reasons for Audit

• Audit Features

• Selection Procedure

• Audit Procedures

• Standards Set for Auditors

• Audit Report

• Audit Opinions

• Post Audit Board Responsibilities

Role and Responsibilities of the Audit Committee

Most cooperative bylaws specify that the organization will hire an outside auditor to conduct an annual audit. The audit helps to prevent deliberate misstatement of fact. The audit also ensures that judgment decisions are not duly biased in favor of management and that records are dependable. It also ensures that generally accepted accounting principles (GAAP) have been consistently followed and that the disclosure is complete.

The audit is a key aspect of the board’s fiduciary responsibility and part of the cooperative’s internal controls. The audit does not shift the responsibility for the financial statements of the cooperative onto the auditor. The board retains the responsibility for the accounting system regardless of the method used to perform the audit. Because of the on-going responsibilities surrounding the audit, many cooperatives form audit committees within the board.

• Why Form an Audit Committee?

• Financial Experts and Financial Literacy on the Audit Committee

• General Fiduciary Responsibilities of the Board

• Specific Authority and Responsibility of the Audit Committee

• Relationship with Independent Auditor

• How the Audit Committee Functions

• What the Cooperative Audit Should Include

• Summary (of Audit Committee)

Tools for Effective Board Decision Making

In the middle of a board retreat while a guest is speaking, a cell phone rings and the owner answers it. While one board member is speaking, another director interrupts. Arguments get heated enough to break into physical fights, special treatment is demanded from employees or information is leaked. Unfortunately, these kinds of problems occur in cooperative board rooms. The key to minimizing them is to build a strong board team that fully understands their role, duties and responsibilities. The best way to do this is to implement good team-building skills into the board room every meeting.

• Making Good Decisions

• Facing Tough Decisions

• Using Decision-Making Tools

• An Ounce of Prevention

Evaluating the Cooperative Manager

Manager appraisal is perhaps one of the most challenging and necessary tasks of the cooperative’s board of directors. The board is faced with the challenge of conducting an unbiased review of the manager’s performance while recognizing factors outside of the manager’s control. The appraisal should always be forward looking. The primary purpose of an appraisal is to provide constructive feedback that will enable the manager to better achieve the organization’s objectives. A strong manager, who understands his/her role in the growth of the cooperative, is a great asset.

Unfortunately, the performance evaluation process can also be a source of stress and discontent for both the manager and the board. The manager may feel threatened by the evaluation process, disagree with the measures of performance or feel the process is too subjective. Developing a formal evaluation makes the process less biased and less confrontational.

• Keys to an Effective Evaluation

• Preparing for Manager Evaluations

• Performance Standards

• The Job Description

• Preparing Performance Standards

• Updating the Appraisal Standards

• Preparing the Evaluation Instrument

• The Appraisal Process

• Sample Management Evaluation Form

Evaluating the Board of Directors

Boards of directors are under increased scrutiny, and accountability has become a major issue following the scandals involving publicly traded companies. Members and stockholders want to feel confidence in the businesses they have invested in, government agencies want those cheating the system to be caught and the public is appalled at the general lack of ethics within businesses. Cooperatives are not immune to this kind of scrutiny, and this makes it more important than ever that boards participate in annual reviews of management, financials and the board’s activities. Laws are becoming stricter, and as members become more distrustful of their cooperative, lawsuits are occurring more frequently. With the spotlight shining on the actions of the board, one mistake could have great consequences.

• Why Evaluate the Board?

• No Excuses

• Guidelines for an Effective Board

• Evaluation Procedure

• Building Strong Boards

Resources

Current Issues in Strategy for Agricultural Cooperatives, Choices magazine, Agricultural and Applied Economics Association, 2011 – A summary of current issues in cooperative strategy is discussed. Strategy is an important topic for senior leaders and boards of directors. Education on the need to align strategy on patrons and cooperative principles is needed.

A Life-Cycle Perspective on Governing Cooperative Enterprises in Agriculture, Choices magazine, Agricultural and Applied Economics Association, 2011 – Cooperatives can be a procompetitive force in agricultural markets. Ensuring that they are, and credibly communicating this to patron owners, provides a unique role for cooperative board members relative to the traditional monitoring and advising roles ascribed to the members of other corporate boards.

Nominating, Electing and Compensating Co-op Directors, Rural Cooperatives, Rural Development, USDA, 2011 – Success in business for today’s cooperatives is becoming increasingly complex, and it often hinges on the quality of people governing the business. This collection of articles addresses the procedural aspects of trying to have the best possible people to serve on cooperative boards.

Case Studies Regarding Cooperative Boards

• The Run Away Board

• Management Succession Case Studies Regarding Cooperatives