Photo by Jon Flobrant on Unsplash
It’s common knowledge that a board of directors should include members with a mix of skills and experience. Every board aims to have an accountant and a lawyer — and most larger organizations try to gather at least a couple of directors with executive management experience.
But rarely does a group form a governance Dream Team.
For co-ops, this is particularly true. Co-ops elect their board members, which can bring more uncertainty than organizations that appoint them. But co-ops tend to do better with an active membership — elections help with that. The result is co-op boards with highly-engaged members, but not often are all the ideal qualities or qualifications around the board table. Usually, people refer to this as a “lay board.”
The challenges of a “lay board”
So-called ‘lay-people’ may lack the business knowledge or specialized training that larger organizations often seek for their boards. And that’s because having a “lay board” can cause issues.
Some prominent examples of lay boards ‘gone wrong’ include Agrifoods International, Co-op Atlantic, and the Saskatchewan Wheat Pool. Because they may lack business expertise, lay boards run the risk of becoming “rubber stamp” boards — meaning they go along with the co-op managers’ suggestions without properly considering the outcomes. Boards need to be both a check on management and a voice for members, to make sure their interests are central to the co-op’s decisions. These three prominent co-ops all suffered from these issues in different ways, and two of them shut down completely. Only Agrifoods survived as a co-op and, following a spectacular fall, has spent the last 20 years rebuilding.
So how to balance the need for expertise with the importance of focusing on members — especially if the co-op has quite a few members or operates in a challenging industry?
One large co-op tried a new approach to building a board with the right experience — but not without controversy.
MEC* (formerly Mountain Equipment Co-op), a Canadian retailer of outdoor activity gear, implemented policies designed to get the best possible directors around their board table. They required nominees to have “experience of serving on a board or senior management in an organization of comparable complexity to MEC, in terms of size, scale, and reach.” The board then recommended its preferred candidates to MEC’s membership.
The new rules passed a membership vote, with 91% of voters favouring the changes.
But not everyone was happy with this approach. Many members felt the co-op had strayed from its roots and the new process was undemocratic, as it eliminated many members from running for a position on the board.
Many other co-ops use additional qualifications to screen candidates and ensure they recruit people that support the organization. For example, the Saskatoon Co-operative Association requires candidates spend at least $2,000 per year at the co-op, and housing co-operatives prohibit candidates that haven’t paid money owed the co-op. Vancity — one of Canada’s largest credit unions — has more intangible requirements. Their directors must have previous board experience, but also need to demonstrate “community leadership and decision-making ability”, and to reflect the communities it serves. Other qualities include effective judgement, respect for others, and good listening skills.
MEC’s response to the “lay board” governance challenge raises important questions for all co-ops. Chief among them: how does a co-op balance having a qualified board with representation from its membership? And, considering the importance of diverse perspectives to a well-functioning board, how does a co-op’s selection process cultivate and define diversity?
Board elections that are open to all members can create challenges, especially if they elect directors that escalate conflicts, have ideological agendas, or never use the co-op.
And failing to encourage diverse candidates or lacking critical skills can lead to missed opportunities for innovation and growth.
Plus, co-ops with highly experienced, diverse boards benefit from something called superadditivity – when a group can create innovations by building on each other’s different lived experiences. This state is highly desirable but hard to achieve.
But a board of directors still needs to represent the interests of the co-op’s membership. If not, the co-op’s purpose is at risk, and the business may make decisions that alienate members. And that scenario has caused co-ops to fail as well.
Sometimes co-ops don’t have enough candidates for board seats even to hold an election. That’s okay — it can be a tough job. That said, boards should think about how to recruit directors.
Forming a Governance and Nominations Committee is an excellent place to start. This committee can shoulder-tap key members and encourage them to put their names forward.
A nominations committee can also lead the board through a skills inventory exercise to help identify gaps – this handy recruitment tool can help.
And, if a co-op has many members running for election, the committee should consider endorsing specific candidates — possibly based on the skills inventory and a candidate’s credentials.
Larger co-ops, or those with more open memberships (like community service co-ops), may consider approaching non-members with the necessary skills to sign-up.
Another option is to encourage directors to get training in identified areas, like reading financial statements or industry-related expertise.
Get Expert Advice
Despite the above strategies, electing directors with all the skills desired is hard. But there are other options, such as experts. Approaching experts to help make decisions, develop plans, or sit on committees is a good strategy.
Industry-specific professionals or experts in finance, risk, and human resources can provide helpful insights for boards. Plus, they provide independent input and can help the co-op make better decisions. And, while these experts don’t get a vote at the table, their insights can help guide those who do.
Take a FREE online course
Good Governance Matters is a FREE course exploring governance in co-operatives and tackles some of the tough questions mentioned here.
Created in partnership with the Centre for the Study of Co-operatives at the University of Saskatchewan, thousands of co-op board members (and potential board members) have taken this fun and informative course to study real examples of co-ops working through governance challenges. Join them.
*Note: MEC recently announced it is being acquired by a private investment firm and will cease to be a co-op.