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Understanding : Who Runs the Business? Members Cooperative Information 45, Section 4

Cooperative When you think about sports, wheth- Management of a cooperative is often er it be football, baseball, or basket- incorrectly thought of as including only the United States hired manager and his or her key staff. This Department of ball, you realize several key is far from the truth. Cooperative manage- ingredients are needed to set the ment should be regarded as a team con- Rural Development sisting of four elements — members stage for a successful, winning sea- (owners), (elected), the Rural Business son — a coach, players, fans, and a manager (hired), and other responsible and Cooperative employees (paid). Each part of the team Service game plan. People, using these has its own distinctive duties and responsi- ingredients, work together to make it bilities for performing management func- October 1994 tions in a cooperative. This allows them Reprinted happen — the coach serves as the definite, reserved rights in the April 2011 guider; the players are the execu- and control of the business. These impor- tant rights give them the privilege of taking tors; the fans are the support sys- an active part in the management of the tem; and the game plan is the business. To be effective, each must exer- cise these rights; otherwise they will have blueprint for the team to come no voice in management. together and perform. Each segment Successful management of a coopera- tive, therefore, is based on intelligent and is an important part to the whole. active cooperation of the members with the board and the manager/employees. Each group must shoulder its responsibilities. Cooperatives, as a form of business owned and controlled by the people who use it, are the same as a sports team in that they, too, have several important ingredients needed to make a complete team. The most essential one is people: Members u Members, as the owner-users; u Board of Directors, as the policymaking body; u Hired Management, as the supervisor; Employees Board of and Directors u Employees, as the work force. Each has specific roles and responsibili- ties in the overall operation of a coopera- tive. Manager

1 Rights and Responsibilities of Responsibilities Members are the foun- Members 1. Patronize the cooperative. Members This section specifically discusses the must make a conscious decision to be dation of the coopera- responsibilities of members. (Sections committed to the cooperative and to main- tive business. They describing the responsibilities of the board tain that commitment even when short-term of directors and management /employees prices or services may be better elsewhere, organized it. Their are numbers 5 and 6, respectively.) or competitors make more attractive offers. needs are the reason Members are the foundation of the If members do not want to use the - cooperative business. They organized it. erative, the need for it must be reexamined. for its existence. Their needs are the reason for its exis- 2. Be informed about the cooperative. To tence. Their support, through patronage carry out their responsibilities, members and , keeps it economi- must know what the cooperative is, what it cally healthy. And their changing require- can do for them, its purpose, objectives, ments shape the cooperative’s future. policies, and the issues it faces. They can But along with all of this comes rights obtain information through annual and responsibilities that members must and newsletters, and from talking to the accept and exercise for the cooperative to manager, staff, directors, and other mem- meet effectively the needs of its owners — bers. To effectively exercise their right of specific rights under the law and as out- ownership, a member needs a good under- lined in the cooperative’s bylaws and standing of the present situation and pro- articles of , and responsibili- jected future operations. ties, both moral and legal, regarding those 3. Participate in selecting and evaluating rights. directors. As owners, members assume a positive, broad role in the cooperative’s Rights management. Although the cooperative is Rights of a cooperative member normally a user/owner (democratically) controlled include: form of business, members cannot make u Adopt and amend the articles of incor- all the decisions directly. They select from poration and bylaws. among their peers individuals with the best u Elect and, if necessary, remove directors judgment and business management skills of the business. to represent them in most management u Dissolve, merge, or consolidate the affairs as the cooperative’s board of direc- cooperative or form a joint venture with oth- tors. This is definitely one of the most ers. important responsibilities. u Require officers, directors, and other Selecting the most popular or least con- agents to comply with the law under troversial person is not the wisest choice which the business was set up, and with its for this . Members need to study care- articles of incorporation, bylaws, and mem- fully the strengths and weaknesses of the bership . cooperative and determine how the leader- u Hold directors and officers liable for ship skills of the candidates address them. damage injurious to members. Loyalty, integrity, the ability to make wise u Examine the annual reports. business decisions, and willingness to

2 serve are necessary characteristics for legally enforceable contracts or board members. other legal papers before signing them so Members select from But this does not mean the end that they can fulfill their obligation to the among their peers indi- of the members’ responsibility. They need business. to keep in contact with the directors to ask 6. Evaluate performance of the cooperative. viduals with the best questions, make comments, and request Members should examine the annual report, judgment and business changes or new services. They also need observe whether the cooperative is meeting to observe and evaluate how directors per- their needs, and analyze efforts of the coop- management skills to form. erative to communicate with members and represent them in most 4. Provide necessary capital. A primary the public. responsibility is to the cooperative Certainly this list is not all-encompassing, management affairs as for the purpose of acquiring needed and some of the responsibilities listed are the cooperative’s board and services, not for financial returns. This more important than others. But to be a is done initially through the purchase of meaningful and useful business organiza- of directors. This is defi- or a membership. It is continued tion, the cooperative must have members nitely one of the most through patronage and/or use of the coop- who understand it and take their rights and erative. One-time assessments or invest- responsibilities seriously. important responsibili- ments also may be necessary to finance ties. special fixed or services. For a Qualifications of Members cooperative to be successful, it must have Requirements for membership in coopera- a volume of business. Normally, the greater tives can consist of the following: the volume of business, the greater the effi- u Members must be producers of ciency obtainable, the more services avail- products (if an agricultural cooperative). able, and the higher the earnings () They may be a landowner receiving are for members. Members’ patronage rent as well as an owner-operator or tenant- the cooperative so the business operator. The bylaws of many cooperatives can continue. The greater the patronage, provide that if members do not patronize the more likely the cooperative will be able their cooperative for (1 or 2) consecutive to provide, expand, and improve its ser- years, they lose the right to vote, and the vices. But if that is not the case, and the cooperative loses , members have the same responsibility to share in those losses as they do in the earnings. 5. Adopt legal papers. Members are responsible for understanding, adopting, and amending legal papers. They should read and understand the cooperative’s arti- cles of incorporation and bylaws to know how the business is to operate and what services it can provide. Before voting to approve bylaw amendments, they need to analyze them to determine how they will affect the business. Members must also Members become acquainted with the contents of

3 membership stock or certificate is trans- loan. Rural residents, nonfarmers as well as The sole reason for any ferred to a non-voting status. , in areas served by rural electric or u They must have a financial investment cooperatives, become members cooperative's existence ranging from $1 to $10,000 or more. A few to receive service. Persons wanting to par- is to serve the needs of agricultural cooperatives do not have any ticipate in rural housing, recreation, credit financial requirements — only that a person unions, or other cooperative programs must its user-members. must be a patron, or in some cases become members to receive these servic- also do a specified minimum amount of es. business a year. u A formal application for membership Conclusion must be completed, including of a The sole reason for any cooperative’s exis- membership fee or purchase of a share of tence is to serve the needs of its user-own- common stock for membership. ers. But these needs can neither be flashed Members are obligated to patronize their on a computer screen in response to the cooperative. This varies from a loosely push of a button nor drawn from a hat at implied obligation to a legally binding con- the opening of each board meeting. tract between members and their associa- In truth, there is no way to learn what tion to patronize it on a specific basis. these needs are unless the cooperative Types of service that members want dictate member voices them to the board of direc- the nature of the patronage obligation. Gen- tors and paid management. The annual erally, these agreements are more binding meeting is the vehicle for this. Cooperative in cooperatives providing marketing ser- members attending their annual meeting vices than in those supplies or are not intended to be only an audience, providing specialized services. Some coop- but rather a vital part of the meeting. This is eratives require in their bylaws or legally their opportunity to evaluate the operations, enforceable marketing contracts that mem- finances, and policies of the cooperative, bers must do a specified percent of their along with expressing their needs and business with the cooperative annually. views. Farm Credit System cooperatives require Exercise your rights and responsibilities To see this and eligible persons seeking loans to purchase in participating in the business you own other USDA coop- membership stock before completing the and control, as a cooperative member. n erative publica- tions online, visit: http://www.rurdev. usda.gov/rbs/pub/ cooprpts.htm This circular is one of a continuing series that provides training information and presentations for education To order hard cop- resource persons who may or may not be familiar with the cooperative form of business. This series provides the ies, e-mail: basic background material they need and in a form that can be readily adapted, with limited preparation time, to a lecture or other presentation. coopinfo@wdc. The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis usda.gov of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental or telephone: status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an indi- vidual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) 1-800-670-6553. Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, of the Assistant Sec- retary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call toll-free at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 4 (Spanish Federal-relay). USDA is an equal opportunity provider and employer.