Reprint

● How U.S. Farmer Cooperatives Recruit and Maintain

Qualified Board of Directors

● Also: Seeking the Best: Skills Needed for Effective Coop Directors

Nominating, Electing and 

Compensating Co-op Directors
F o r e w o r d

Success in business for today’s cooperatives is becoming increasingly complex, and it often hinges on the

quality of people governing the business. An immutable skill in this regard is people making accurate judgments about other people. It’s a very basic, but critically important, skill that no organization or business can

take for granted.

The need for being a good judge of people comes into play in numerous ways: deciding who serves on the

board; the board’s choice of management; the manager’s ability to hire good employees or to find the right

business partners and major customers.

USDA conducted a survey in 2003 that focused on the ability of cooperative members and directors to

make "people judgments," including selecting, electing and compensating directors. A series of three articles

addressed the procedural aspects of trying to have the best possible people to serve on cooperative boards. 

The survey did not address the important issue of actually forming judgments about potential board candidates—specifically, what are the leadership traits that make excellent directors? When Rural Cooperatives

published the first article of the series, it included a companion piece by USDA Rural Development staff member James Wadsworth on that topic, which is also included in this reprint.

We hope the four articles included in this reprint help cooperatives secure the best individuals they can to

serve on their boards. 

—Bruce Reynolds

e-mail: bruce.reynolds@usda.gov

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis

of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or

family status. (Not all prohibited bases apply to all programs.) 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 USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building,

14th and Independence Avenue, SW, Washington, D.C. 20250-9410 or call (202) 720-5964 (voice or TDD). USDA is

an equal opportunity provider and employer.

Cooperative Information Report 63

Reprint 

December 2004
Rural Cooperatives / November/December 2003 1

By Bruce J. Reynolds,

Economist

USDA/RBS Cooperative Services

bruce.reynolds@usda.gov

Editor’s note: This article is the first in a

series (to be continued in future months) on

selecting and compensating directors.

rocedures for selecting

candidates for boards of

directors are seldom a

central topic of “best

practices” seminars for

either cooperatives or investor-owned

firms. But the recent wave of corporate

scandals has moved this topic to center

stage, at least when it comes to investing in corporations. Business journals

and other media are abuzz with recommendations for more democratic methods of director selection.

Cooperatives are governed by

democratic procedures, which

strengthen trust and accountability.

For cooperatives, it is important to

identify candidates with solid business

and planning skills and with good leadership traits. The current debate makes

it an opportune time to review some of

the alternative procedures agricultural

cooperatives use for selecting directors. 

No single selection

procedure fits all

There is no single “best practice”

for finding excellent board candidates.

Each cooperative must explore what

works best for its members. Clearly,

large membership cooperatives often

need a different procedure for candidate selection than those with relatively

few members. Candidate selection and

nomination are two parts of the

process of getting qualified candidates

on an election ballot. Selection is a

process of deciding who should be

nominated, while nomination is the act

of putting a candidate on the ballot.

Standard procedures for candidate

selection and nomination often have to

be adapted to local conditions. Bylaws

usually authorize more than one procedure for nominating candidates, but

they do not indicate which nomination

methods are used most frequently. 

A survey was recently distributed to

learn more about how cooperatives

select and nominate candidates for

their boards. It listed some of the common procedures and provided blank

space for “other” methods to be

described. Several cooperatives

described additional procedures or sent

copies of policy statements related to

these matters. Responses were received

from 433 cooperatives. A summary of

these alternatives and their potential

strengths and weaknesses may offer

ideas to consider when reviewing your

co-op’s nomination practices. 

Nominating committee

The survey showed that a nominating committee is by far the most widely

used vehicle for selecting candidates.

This method was used by 374 cooperatives, or 86 percent of the respondents,

but most also use other procedures. A

nominating committee is responsible

for finding the best available candidates

from a cooperative’s membership and is

often involved in other preparations

for an election. For example, nominating committees must prepare the 

ballot, which includes their nominations and all others nominated by valid

methods. 

The strength of a nominating

committee depends on the extent of

deliberation and study that go into its

P

Co-ops follow more than one path

for nominating board candidates

Whether overseeing the business affairs of a local farm supply cooperative (above) or a

multi-state regional, success means having a good board of directors. That requires a wellplanned nominating process. Photo by Sandi White, courtesy Tennessee Farmers Cooperative 
choices. Both directors and other members can share valuable insight about the

membership when serving on a nominating committee. Out of 376 cooperatives re p o rting on nominating committee composition, 163 (43 percent) use

only non-director members on the committee. Another 131 (35 percent) use a

mix of directors and non-directors, while

82 (22 percent) have only directors on

the nominating committee.

A director-only nominating committee can operate without conflicts of

interest when there are board vacancies

or when elections are staggered so that

there are always some directors who

are not running. However, a potential

weakness of the board’s involvement is

that nominating committees may not

be formed when elections involve

incumbent directors. 

About two-thirds of the cooperatives

reported that they do not have a policy

requiring that elections be contested,

thus often allowing incumbents to run

unopposed. Although many cooperatives reported difficulty finding members willing to challenge popular

incumbents, nominating committees

perform better if they are actively

searching and recruiting candidates for

all elections. 

Directors, as well as managers, have

experience in knowing what capabilities are most needed on their board.

Managers often work in an advisory

capacity with the nominating committees. Directors have an appreciation for

certain attributes candidates would

bring to the board. For those cooperatives which disallow directors on the

nominating committee, information

sharing between board and committee

can contribute to better candidate

selections. 

Determining who serves on the

nominating committee is often another

way for directors to exercise influence.

Most non-directors are appointed to

the committee by directors. 

Advantages of director influence on

candidate selection may become a

weakness if applied without checks and

balances. Selecting for positive traits,

such as a team player, may unintentionally screen out “devil’s advocate”-type

directors—those who contribute by

questioning the status quo and who

may offer valuable new ideas. Another

possible weakness of director control

over candidate selection might occur if

members feel they have no real influence on the process of who can be

elected to the board. 

These kinds of weaknesses have

inspired a manager of one rural electric

cooperative to recommend “good riddance” to the nominating committee.1

Yet, there are ways to capture potential

strengths and minimize perceived

weaknesses of nominating committees.

For example, to address concerns by

members of too much director control

over candidate selection, nominating

committees can be elected rather than

appointed. At least 20 cooperatives

reported holding elections during their

annual meeting to select the nominating committee. 

Several cooperatives issue a formal

request for volunteers for the committee, and a couple reported using a 

random selection procedure to solicit

non-director volunteers to serve. The

purpose of these efforts is to find ways

to get more members involved in the

process of candidate selection. 

Nominations from the floor

Nominating committees didn’t

become the most widely used procedure for selecting candidates until the

latter part of the 20th century. A similar survey was last conducted by Cooperative Services in 1949.2 At that time,

only 19 percent of 962 respondent

cooperatives used nominating committees, while nominations-from-the-floor

during annual or district meetings were

used by 64 percent of co-ops (which

has now fallen to 36 percent). 

The strength of floor nominations is

in having increased member access to

the candidate selection process. Its

impact is likely to be greatest in cooperatives that report having no nominating committees, or which only occasionally use them, as was the case for

39 cooperatives. 

Weaknesses of nominations-fromthe-floor mirror the strengths of nominating committees. There is potential

for too much spontaneity or lack of

study and deliberation about potential

candidates. But in those cases where

members at annual or district meetings

have substantial familiarity with one

another, nominations from the floor

are unlikely to result in neglect of the

best candidates. 

The shift over time from nominations-from-the-floor to nominating

committees as the most commonly

used procedure may reflect the increasing complexity of business faced by

cooperative boards. More cooperatives

have responded to this complexity by

2 November/December 2003 / Rural Cooperatives

• Nominating committee

– Composed of different combinations of non-director members and

directors

– Board appointments of non-director members of committee

– At-large or district elections of non-director members of committee

• Nominations from the floor of annual or district meetings

• Recruitment by directors

• Member caucus at annual or district meetings

• Nominations by mail

• Ballot write-ins

• Nomination by application

• Associate board

Methods for selecting and recruiting

candidates for directors
reducing their use of spontaneous procedures for selecting candidates. 

Recruitment by directors

Candidate recruitment by directors

is widely reported. Although 157 cooperatives reported such recruitment,

some of it overlaps with the work of

nominating committees that include

directors. However, recruitment by

directors is a distinctive procedure for

candidate selection when nominating

committees are not used by a co-op, or

when they are exclusively composed of

non-directors. These conditions apply

to 45 cooperatives in the survey. 

Member caucus

Member caucuses (usually held during annual or district meetings) can

engage much broader participation in

the nomination process than do nominating committees. In contrast to

nominations-from-the-floor, more

time is allotted for group deliberation. Although not listed as an

option in the survey, three cooperatives reported using caucuses. 

Usually, cooperatives do not

have both member caucuses and

nominating committees. While

most cooperatives use the latter

procedure, it should be noted that

caucuses are used by some relatively

large membership cooperatives, so that

a fairly substantial number of farmers

participate in this method of candidate

selection. 

Nominations by mail

A cooperative’s entire membership

can function as a virtual nominating

committee by soliciting nominations

by mail, or via a newsletter. The

mechanics of this pro c e d u re vary, but,

as an example, one cooperative mails a

response card to each member to

make a nomination. All nominees listed on the re t u rned response cards are

put on the ballot. Ballots are then

mailed to members. In the event of a

tie, a ru n - o ff election is held. The

p ro c e d u re is applied in each of the

c o o p e r a t i v e ’s 22 districts. 

The strengths of nominations by

mail are not only in having all members involved, but also in the opportunity for individuals to make nominations without the pressures for group

consensus that prevail in meetings. A

potential weakness for this procedure is

that it misses the benefits of group discussion about potential nominees. But

familiarity with potential nominees

that often exists in membership districts enables a nomination-by-mail

procedure to work well. Another

potential weakness is plurality voting,

where a candidate might lose when

running against two or more contenders but would win in a one-on-one

election against those same candidates. 

Ballot write-ins

Provision is often made for writingin candidates on ballots when members

are dissatisfied with the official list of

nominees. Ballot write-ins can be

regarded as more of a membership

right than a candidate selection procedure. It recognizes the right to vote for

who you want to, rather than being

limited to the official nominees. It’s

applicable when using paper or other

forms of a written ballot that are distributed by mail or at annual meetings. 

Ballot write-ins are often disallowed

when any number of nominations from

the floor are included in the vote. The

nominations-by-mail procedure does

not accept ballot write-ins because

members had their opportunity to

nominate on the response card. Nevertheless, many cooperatives have bylaws

that authorize ballot write-ins. Out of

the survey response by 433 cooperatives, 52 reported frequent use and 132

have occasional use of write-in candidates on the ballot. 

Nomination by application

Cooperatives generally prefer an

open process of candidate selection, in

the sense of not limiting any member

from running for the board. Similar to

the procedures of nominations from

the floor and ballot write-ins, a member can be nominated without having

major name-recognition among the

membership, and may even get on the

ballot primarily by self-selection. An

applicant usually must submit pertinent

information to the cooperative or

nominating committee several weeks

before the election. 

In some cases, a signed petition by a

specific threshold number of members

is re q u i red. Its advantage over nomin a t i o n s - f rom-the-floor and ballot

write-ins is that cooperatives often distribute a “bio” on each candidate so

that members can use this inform a t i o n

to help them decide whom to vote

f o r. Frequent use of nomination by

application was re p o rted by 26

cooperatives, while 105 re p o rt e d

occasional use. 

Associate board

An associate board is a practical

method for developing quality candidates for directors. These members are usually young farmers who

stand out as good prospects and are

either appointed by directors or can

apply to be confirmed by membership

vote. Associate boards participate in

selected meetings of the board and

may have special committee assignments, with the primary objective

being that they gain experience for

becoming future directors. As a rec ruiting pro c e d u re, this has some similarities with candidate re c ruitment by

d i rectors, as well as being a member

education program. 

Although the survey did not specify

associate boards as a candidate selection pro c e d u re, 17 cooperatives

re p o rted having this type of pro g r a m ,

which suggests that it is re l a t i v e l y

p o p u l a r. A possible limitation is in

having to make choices in the pre s e n t

about directors for the future, in contrast to a search pro c e d u re just prior

Rural Cooperatives / November/December 2003 3

In short, a nominating

committee can operate

as if it were an off i c e

of human re s o u rc e s .
to an election. But it is an eff e c t i v e

way to develop a competent board and

to boost newly elected directors along

the learning curve faster than

would normally occur. 

Searching for candidates

P ro c e d u res for selecting cooperative director candidates are

not often scrutinized and

changed. There has been a gradual shift to pro c e d u res with more

deliberation and study of potential candidates and slightly less

reliance on spontaneous methods

of selection. This change is indicated

by the rise of the nominating committee and the decreased use of nominations from the floor that occurre d

between 1949 and 2003.

Increased use of nominating committees reflects efforts to address some

of the problems that many cooperatives

have encountered in finding members

who have an aptitude for serving and

who are willing to serve. Many survey

participants reported the latter consideration as a major problem. When substantially large numbers of members

are reluctant to serve, there is need for

more advanced planning to search for

potential candidates and to hold discussions about the benefits of serving on

the board.

Candidate recruitment by directors

outside of nominating committee work

has also been driven by the need to find

“willing and able” candidates. In addition, associate boards address these

problems more head-on than the more

spontaneous methods of candidate

selection. 

The weaknesses of nominating

committees are less in their design

than in their execution, part i c u l a r l y

when their search process is too narro w. The committee should not limit

its considerations to a circle of friends

or be satisfied when it has found a

“willing and able” candidate, but must

build a database of capable candidates.

This exercise ought to be carried out,

not only for board vacancies, but also

to find challengers to the incumbent

d i rectors. Nominating committees

could survey the membership for suggested candidates, as well as asking for

i n f o rmation about members’ re l e v a n t

skills for serving on the board. In

s h o rt, a nominating committee can

operate as if it were an office of

human re s o u rc e s .

Candidate selection procedures in

cooperatives will continue to be driven by demand for skilled leadership

in carrying out the increasingly

challenging tasks of fiduciary duties

and long-range planning. Furthermore, difficult issues of business

ethics accompany the growing

financial complexity of today’s cooperatives. In the wake of recent corporate financial scandals, business

ethics are receiving more emphasis

overall. In fact, investor-owned firms

are being urged to apply democratic

principles to reform their director candidate selection procedures. Good

advice that has long been followed by

cooperatives. ■

1 Avram Patt, “Here’s a Novel Concept: Get Rid of Your Nominating

Committee,” Cooperative Business

Journal, NCBA, Aug/Sep 2002. 2 Nelda Griffen, H. N. We i g a n d t

and K. B. Gard n e r, Selecting and

Electing Directors of Farmers’ Cooperatives. USDA/Farmer Cooperative

S e rvice, General Report #14, 1955.

(Note—the survey was taken in 1949,

but the re p o rt was not published

until 1955).

4 November/December 2003 / Rural Cooperatives

T h e re has been a

gradual shift to

p ro c e d u res with more

deliberation and study

of potential candidates.
Rural Cooperatives / May/June 2003 5

By Bruce J. Reynolds,

Economist

USDA Rural Development/RBS 

bruce.reynolds@usda.gov

E d i t o r ’s note: This article is the second in a

t h re e - p a rt series on selecting and compensating directors. The first article discussed

methods cooperatives use to select and 

nominate board candidates (see page 21 

of the November-December 2003 issue, 

on line at: www. ru rd e v. u s d a . g o v / r b s / p u b /

openmag.htm.). This second article examines election and member voting policies.

he critical trade-off in

cooperative voting policies is the need to establish sufficient voice for

members in electing

their directors, while at the same time

p roviding for a certain amount of board

independence from disruptive member

p re s s u res. Election and voting policies

a re designed to choose directors who

will exercise leadership in re c o n c i l i n g

member interests and prioritizing goals

that will yield the most long-term benefits for membership as a whole.

Survey results of election and voting

policies show different ways that cooperatives have sought to establish leadership that both represents members

and achieves business success. The following six policies influence this balance: 

• board size in relation to 

membership; 

• term lengths;

• term limits;

• competitive elections; 

• outside directors;

• member voting power.

Many of these policies have various

kinds of interrelations. For example, in

the first policy issue, the number of

board seats is influenced by the size of

the membership. As another example,

cooperatives with the longest director

terms more often apply limits on the

number of times a director can be reelected. In addition, the much-debated

issue of member voting power centers

on whether larger producers should

have more votes than provided by a

one member-one vote policy. This

point was raised in an article about

preparing for the future in the NovDec 2003 Rural Cooperatives. A question for research is whether voting

method influences a tendency for

either relatively large or small farmers

to serve on cooperative boards of

directors. To help answer this question,

data were collected on the farm size of

directors in relation to the membership as a whole.

Board size

Table 1 reports the number of

director seats on cooperative boards,

sorted by different membership size

intervals. Seven-member boards are

the most popular board size, with nine

and five-member boards being the next

most popular sizes. Only in the largest

membership size interval, 3,000 and

above, are nine directors the most frequent board size (occurring in 16 out

of 80 cooperatives). 

Election and voting policies

of agricultural cooperatives

T

Table 1: Size of board of directors for 437 respondent cooperatives in

2 0 0 3 , expressed as a percent of membership size intervals and in total.

Number of directors on respondent boards

Members 5 7 9 : 6&8 >9 : Cooperatives

<800 13% 52% 19% : 6% 10% : 144

800-1,499 10% 35% 23% : 10% 22% : 107

1,500-2,999 8% 26% 25% : 6% 35% : 106

>3,000 9% 17% 20% : 15% 39% : 80

Total 11% 35% 22% : 8% 24% : 437 

Election and voting

policies are designed

to choose directors who

will exercise leadership in re c o n c i l i n g

member interests and

prioritizing goals... 
6 May/June 2003 / Rural Cooperatives

As membership size increases, so

does the frequency of boards with

more than nine directors (see column

>9, table 1). For boards that exceed

nine directors, no particular board size

predominates, being widely dispersed

in the range from 10 to 51 directors.

But the fact that nine directors is the

median for co-ops with 1,500 or more

members shows that large organizations also tend to restrain the size of

their boards. 

Table 2 reports the data for survey

respondents that have only at-large

directors (no districts), and for those

with districts. There were 145 respondents without districts and 292 with

districts. The latter generally have

larger boards, with a much higher percent having more than nine directors,

while 48 percent of cooperatives without districts have a board size of 7

directors. Another distinction, though

not reported in Table 2, is cooperatives

with membership districts where members, or delegates, elect only the director for their district (and perhaps one

or two at-large directors), vs. those

where directors are elected by district,

but all members get to vote for all

directors, regardless of which district

they live in. 

Term lengths

Length of board terms varied

between one to seven years, with three

years being the overwhelmingly popular choice. The survey results for this

question are reported in table 3. The

seven cooperatives with seven-year

terms are all in Tennessee, suggesting

that at the time these cooperatives

organized there, the state incorporation statute may have specified that

particular term length. 

Term limits

Limits on the number of consecutive

times directors can serve (term limits)

a re used by 154 cooperatives (35 percent), while 281 (65 percent) have no

limits on consecutive terms (based on

435 responses). Te rm limits are now

m o re frequent than in the past, as indicated by comparison with the 1949 surv e y.

1 In that surv e y, 76 cooperatives 

(8 percent) had term limits, while 827

cooperatives (92 percent) let incumbents run for election to board seats for

an unlimited number of terms.

Furthermore, out of 31 respondents

with term lengths of one or two years

(those in the first two columns of table

3), none have term limits. This seems

only practical, since the incumbents

have to run for election so frequently.

Three of the seven respondents having

a seven-year term prohibit directors

from running for a second term, but

the other four have no term limits. 

Of the 154 cooperatives re p o rt i n g

the use of term limits, 149 also re p o rted the maximum number of consecutive terms directors may serve. Four of

these respondents prohibit election to

consecutive board terms, i.e., a onet e rm limit. Table 4 re p o rts the number

of respondents with term limits. In

each of six instances where co-ops limit

d i rectors to five or six consecutive

t e rms, the term length is three years.

Many cooperatives allow members who

have reached the limit on consecutive

t e rms to run again after they have been

o ff the board for one term. 

Competitive elections

Many democratic organizations,

including some cooperatives, have

nominating committees that follow the

recommendations of Robert’s Rules of

Order in submitting only one candidate for each board vacancy.

2 However,

cooperatives have traditionally been

advised to run more than one candidate per seat, usually by encouraging

open and flexible processes for nominating candidates.3 About one-third

(148) of respondent cooperatives

require that at least two candidates run

for each board seat.

Table 2: Size of board of directors for 437 co-ops surveyed in 2003, expressed as a percent of co-ops without districts and with districts.

Number of directors on the boards

Cooperatives 5 7 9 : 6&8 >9

Without districts 17% 48% 22% : 5% 8%

With districts 7% 29% 22% : 10% 32%

Total 11% 35% 22% : 8% 24%

Table 3: Length in years of an elected term on the board, reported by 434

c o o p e r a t i ve s , 2 0 0 3 .

Term length (years) 1 2 3 4 5 6 7

Number of cooperatives 19 12 382 9 4 1 7

Table 4: Single term and consecutive terms that members may serve on

the board, reported by 149 cooperatives with term limits, 2 0 0 3 .

Number of terms 1 2 3 4 5 6

Number of cooperatives 4 17 90 32 5 1 
Rural Cooperatives / May/June 2003 7

There is no practical reason for

nominating committees to limit their

selection and nomination to one candidate per seat. Robert’s Rules have for

more than a century been a useful procedural guide, but their applications

ought to be flexible. The rules have

influenced some organizations to adopt

governance policies that might be

impractical for many applied situations, as noted by one scholar.

4

One survey respondent from a

cooperative without an opposing candidate requirement commented that it

still always has two candidates run for

board seats. Ten other respondents

commented that, although not

required, they still make extra efforts

to recruit second candidates, but do

not always succeed. 

Several respondents commented

that two opposing candidates are

preferable, but finding members to run

for the board is difficult. Another

respondent mentioned that the cooperative recently terminated the policy

of having at least two opposing candidates because “members got tired of

getting beat” when running against

incumbents.

Outside directors

One of the traditional re q u i re m e n t s

for directors is that they are members

of the cooperative. Various objectives

can be accomplished by re q u i r i n g

cooperative boards to exclusively consist of members, with member contro l

being especially important. Members

can also establish control when a

minority of non-members may serve on

a board, so long as member dire c t o r s

can exercise a majority under all voting

and decision rules where more than a

simple majority might be re q u i red. 

In this surv e y, 18 cooperatives

re p o rted having outside, or non-memb e r, directors with the power to vote

on decisions. Two of the 18 cooperatives define their outside board members as “public directors,” while 16

cooperatives select outsiders to serv e

f rom the general community of business leaders and professionals. Four of

the 16 had more than one seat on

their boards designated for outside

d i rectors. 

An equally important trade-off is to

have a board that

can pursue independent deliberation,

and not simply

deliver mandates

f rom their supporters or districts.

Photo by Richard G. Biever, courtesy Indiana Statewide Association of RECs.
8 May/June 2003 / Rural Cooperatives

Some respondents commented that

their bylaws permit outside directors,

but that they did not exercise that

authority. Others said they were studying the use of outside directors. In surveys completed by co-op managers,

several wrote that having one seat on

the board designated for a non-member with special business or professional experience would be very helpful to

management. 

Farm size and voting method

Does a policy of one member- o n e

vote result in dispro p o rtionate influence by relatively small farmers? This

question can only be answered on a

case-by-case basis, but the composition

of boards in terms of relative farm size

is worth a look. The survey re s u l t s

show the extent to which boards are

made up of the largest farmers in a

c o o p e r a t i v e ’s membership. There are

no presumed advantages or disadvantages of directors having either large or

small farms. Of course, the critical distinction is diff e rences in patronage volume, and farm size is only an appro x imation. But above all, electing the best

d i rectors possible is the key task. 

The issue of member voting power

is often debated under the assumption

that the one member-one vote procedure results in boards with under-representation for large farm operators

(large volume patrons). Some argue

that proportional voting corrects such

imbalance, and feel that this method is

used too infrequently. Out of the 379

survey responses on the relative farm

size of directors, only 27 have proportional voting. 

Table 5 reports the percent of directors in the four quartiles (the smallest

25% of members are in the 1st quartile). The percent of directors in the

largest and smallest halves for cooperatives with proportional voting and for

those with one member-one vote are

also reported in table 5. Even though

the size of the two comparative groups

is lopsided, it shows that proportional

voting resulted in more of the larger

producers being elected to boards of

directors. The 4th quartile of farm

operators by size held 37% of the

board seats in 27 proportional voting

cooperatives, in contrast to 26% in the

352 one member-one vote cooperatives. Still, most one member-one vote

cooperatives also prefer to elect directors from among the relatively largest

farmers in their membership. About

63% of one member-one vote cooperatives elect directors who are among

the largest half of farm operating size

in the membership. 

Policy by design

Designing policies for board elections and member voting can be a simple matter of adopting commonly

re p o rted practices or implementing the

recommendations from manuals such

as Robert ’s Rules. It can also be more

demanding when members take it upon

themselves to design a system that

reflects their values and, more specific a l l y, try to balance attributes that

while creating some friction, can

induce more pre s s u res for superior

leadership. Election and voting policies

usually try to offer members good

choices and enough influence from voting so that elected directors will re p resent their interests. But an equally

i m p o rtant trade-off is to have a board

that can pursue independent deliberation, and not simply deliver mandates

f rom their supporters or districts.

Another trade-off, discussed in the

article on selecting candidates, involves

the importance of election and voting

policies that support the development

of strong team-building on the board.

Yet, brought to an extreme, a cohesive

team can be complacent and unreceptive to new ideas that challenge the status quo.

Election and voting policies used

most frequently are not necessarily the

best. That evaluation has to be made

in the context of each individual organization. When members are involved

with designing or revising their policies, a fresh and creative approach can

make the difference between the merely functional and the achievement of

excellence in the governance of cooperatives. 

1 Nelda Griffen, H. N. Weigandt and K. B.

Gardner, Selecting and Electing Directors of

Farmers’ Cooperatives. USDA/Farmer

Cooperative Service, General Report #14,

1955.

2 Henry M. Robert III, et al, Robert’s Rules of

Order. 10th edition, 2000, (1st edition, 1876) p.

419.

3 Helim H. Hulbert, David Volkin, and Nelda

Griffen, Bylaw Provisions for Selecting Directors

of Major Regional Farmer Cooperatives.

USDA/Farmer Cooperative Service, General

Report # 78, 1960, p. 12-13. 

4 Russell Hardin, Liberalism, Constitutionalism,

and Democracy. Oxford University Press, 1999,

p. 110.

Table 5: Percent of directors in farm size quartiles of the membership for

c o o p e r a t i ves with proportional voting and with one vote per member.

Proportional voting One member-one vote

(27 co-ops) (352 co-ops)

Percent Percent

1st quartile 9 12

2nd quartile 17 25

3rd quartile 37 37

4th quartile 37 26

100% 100%

Smallest half 26 37

Largest half 74 63

100% 100% 
Rural Cooperatives / July/August 2003 9

By Bruce J. Reynolds, Economist

USDA Rural Development

bruce.reynolds@usda.gov

Editor’s note: This article is the third in a

three-part series on selecting and compensating cooperative directors. The first article was published in the Nov.-Dec. 2003

issue, and the second part in the May-June

2004 issue. These and other past issues can

be accessed online at:

w w w. ru rd e v. u s d a . g o v / r b s / p u b / o p e n m a g . h t m .

ervice on the board of

directors of cooperatives

involves a significant

commitment of time and

mental energy. Some

members who would make excellent

directors may not seek election to the

board because of these demands.

Financial recompense may offset the

reluctance of some members to serve

as directors.

Cooperatives of a similar type, business volume and geographic location

tend to adopt similar policies as to

method and amount of compensation

for directors. A recent survey identifies

d i ff e rences in the amounts and term s

under which director compensation is

paid. The survey identified three general

types of financial compensation: (1) permeeting payment or per diem, (2) annual stipend or re t a i n e r, and (3) re i m b u r s ement of travel expenses. There were 419

responses to financial compensation

questions. Farm supply (205) and grain

(173) cooperatives were the pre d o m inant types of cooperatives that share d

compensation information. Several

l a rge, high-value marketing cooperatives

also shared this inform a t i o n .

Only two of the surveyed cooperatives indicated that no compensation is

paid to directors. Travel expense is

often negligible for directors of local

cooperatives. Reimbursement is available in 247 out of 419 survey cooperatives. Twenty-five cooperatives cover

travel expenses but do not pay any additional compensation. Survey results for

p e r-meeting and stipend compensation,

but not travel reimbursement policies,

a re summarized below. 

Compensation amounts are influenced by a cooperative’s volume of

sales. Responses are in three sales volume intervals: $2 million to $26 million; $27 million to $89 million; $90

million to $8 billion and for all respondents. The mode (the most frequently

occurring number), median and range

of compensation amounts, as well as

the number of cooperatives in each

sales-volume interval are summarized.

The 27 cooperatives without per-meeting or stipend compensation are

excluded from the calculations of the

summary statistics. 

Policies for directors and members

are established with an eye toward fairness and comparability with general

practices of other cooperatives. For

this reason, the mode — which measures the most frequent or common

value — is an especially relevant summary statistic. Furthermore, the

“mode count,” or number of observations represented by the mode, shows

the relative predominance of certain

compensation amounts. There are a

few cases of ties for the mode (bimodal

values), and several commonly used

compensation values are almost as frequent as the mode. In fact, compensation data are multi-modal in the sense

that there are different strings of identical per-meeting rates or stipend

amounts which cooperatives adopt.

This multi-modal distribution of 

compensation is displayed in stemand-leaf plots in an on-line report at

the NCR-194 Web site (http://www.

a g e c o n . k s u . e d u / a c c c / n c r 1 9 4 / ) .

P e r-meeting compensation

A per-meeting payment applies for

each day of a meeting’s duration. Most

co-ops re p o rted that their board meetings usually do not extend beyond one

d a y. Many cooperatives have variations

in the payment amount for half day or

for evening meetings. A few cooperatives mentioned that this payment was

only for meetings attended and was

t h e re f o re not automatic. Cooperatives

Compensating co-op directors

USDA study reveals wide range of pay plans

A stipend re c o g n i z e s

s e rvice beyond board

meetings, such as a

d i re c t o r ’s role in

helping maintain a

c o - o p ’s positive re l ations with members

and the public.

S
10 July/August 2003 / Rural Cooperatives

often have monthly board meetings,

but several have more than twelve

meetings per year, and for many co-ops

the number of meetings varies fro m

y e a r- t o - y e a r. There f o re, annual compensation is variable for cooperatives

with a per-meeting payment policy.

The mode per-meeting rate is

$100 in the three sales groups. There

is a tie at $200 for the mode in the

l a rges sales class (Table 1). A double

asterisk (**) indicates bimodal values,

re p o rted in a footnote to the table.

Also note that these per-meeting rate

summaries do not include higher

amounts that are often paid to off icers of the board. 

The median is $75, as compared to

the mode of $100, which suggests that

per-meeting rates less than the mode

are also popular. In fact, 45 cooperatives paid $50 and 42 paid $75 permeeting, as compared to 63 paying

$100. Per-meeting compensation is

generally higher for directors of the 42

cooperatives in the sales range $90

million to $8 billion, as indicated by its

median of $150. 

S t i p e n d

The term “stipend” describes fixed

annual payments as a method of compensation. Although stipends are often

paid-out monthly, the amount does not

change when greater or fewer meetings are held in any given year. This

method recognizes the fact that board

meetings are not the only occasions for

a director’s work. 

Director compensation with a

stipend or fixed annual payment is less

frequent than per- meeting payments,

with only 69 cooperatives reporting

this method for non-officers of the

board (Table 2). Several cooperatives

pay these annual stipends to their

directors monthly and others make a

single payment. A stipend recognizes

service beyond board meetings, such as

a director’s role in helping to maintain

a cooperative’s positive relations with

members and the public.

The stipend mode value is $1,200,

which is paid by 17 of the responding

cooperatives. The median stipend is

$900. Stipends of less than $1,000 are

paid to directors by 37 out of the 69

cooperatives having a fixed annual

compensation. Note that a $1,200

stipend is equivalent to the annual

compensation of cooperatives with a

per-meeting rate of $100 and monthly

board meetings. However, several

cooperatives with a per-meeting

method only pay for meetings attended, whereas those cooperatives with an

annual stipend, even if disbursed on a

monthly basis, pay their directors

regardless of meeting attendance. 

Compensation for board officers

Compensation is often higher for

officers of the board. Furthermore,

eight cooperatives provide compensation only to board officers. The 300

cooperatives with a per-meeting payment include 52 that also pay stipends

to board officers. For the 248 cooperatives that exclusively compensate with

a per-meeting payment, 79 have a

higher per-meeting rate for the board

chair than for other directors. The

median for the board chair is $100,

which compares to $75 per-meeting

paid to non-officers of the board

(Table 1). 

Eighty responding cooperatives pay

stipends to board chairs, which include

11 cases where they are not paid to

non-officer directors. In another 36

cases, chair stipends are higher than

the amounts paid to non-officer directors. The median stipend for the board

chair is $1,000, compared to $900 for

non-officer directors. 

B o a rd secretaries are paid higher

p e r-meeting rates than non-off i c e r

d i rectors in 52 cases, with a median of

$95 as compared to $75. In addition,

b o a rd secretaries receive per- m e e t i n g

Table 1:Pe r-meeting compensation for directors, reported for cooperatives in

sales ranges and in total, 2 0 0 3

Sales range* Co-ops Mode Mode count Median Range

($ million) (No.) ($) (No.) ($) ($)

2-26 145 100 31 75 4 – 400

27-89 113 100 26 80 20 – 300

90-8,000 42 ** ** 150 10 – 700

Total 300 100 63 75 4 – 700

* Total sales in 2001 as reported by cooperatives in the RBS annual survey.

** A two-way tie for the mode between $100 and $200 with each having 6 responses.

Table 2: Annual stipend for directors, reported for cooperatives in sales

ranges and in total, 2 0 0 3

Sales range* Co-ops Mode Mode count Median Range

($ million) (No.) ($) (No.) ($) ($)

2 - 26 40 1,200 7 735 150 – 6,000

27 - 89 20 1,200 8 1,200 360 – 5,300

90 -1,880 9 ** ** 1,200 480 – 25,000

Total 69 1,200 17 900 150 – 25,000

* Total sales in 2001 as reported by cooperatives in the RBS annual survey. 

** A two-way tie of 2 responses for $600 and for $1,200.
Rural Cooperatives / July/August 2003 11

payments in 10 cases when either no

such payments are made, or stipends

a re paid, to non-officer directors. In

fact, eight of those 10 have a per- m e e ting payment exclusively for the board

s e c re t a ry. 

Stipends for board secretaries are

higher than for non-officer directors in

28 cases. In addition, there are eight

cases where stipends are paid to board

secretaries but not to non-officer

directors. The median secretary

stipend is $930, compared to $900 for

non-officer directors. 

Combined compensation policy

Combined or mixed compensation,

i.e., paying both a per-meeting amount

and a stipend, was reported by only 15

cooperatives for all members of the

board, while 88 cooperatives apply this

policy exclusively to officers. These

variations for officers primarily apply

to the board chair and secretary.

Results for cooperatives with a mixed

compensation policy are summarized

in a more detailed report, available on

the NCR-194 web page. 

A combined compensation policy is

more exacting than necessary for many

cooperatives. Nevertheless, an examination of the 88 cooperatives with a

combined policy for officers reveals

the different economic purposes of

per-meeting payments vs. stipends that

are less evident when a single method

of compensation is used. 

When cooperatives provide higher

compensation for officers, the chair is

usually the highest compensated position on the board. Yet, cooperatives

with a combined policy more often use

a stipend to pay higher compensation

to the board chair than a higher permeeting payment. In contrast, a higher

p e r-meeting rate is more fre q u e n t l y

used to increase the compensation for

b o a rd secretaries. This diff e rence may

reflect the fact that the added burd e n

of secre t a ry work involves board meetings, whereas the chair not only has

m o re work in running the meetings,

but may also be involved in a lot of

member relations and public aff a i r s

work. These kinds of services are often

d i fficult to track in terms of time spent,

so are more accurately compensated

with a stipend than a per-meeting rate. 

Compensating non-member directors

Farmer cooperatives usually have

members exclusively as their directors,

as indicated by the survey results

showing only 18 out of 437 with nonmembers on the board. Three of these

18 cooperatives were incorporated in

Virginia, where state statutes require

farmer cooperatives — under certain

conditions — to appoint a public

director. As discussed in the second

article of this series, several cooperatives were considering revisions in

their bylaws to allow appointment, if

not election, of a non-member to the

board. If cooperatives increasingly

decide to place non-members on their

boards, especially if such non-members

are professionals or business leaders,

the issue of paying higher compensation will arise more often. 

Only two of the responding cooperatives with non-members on their

boards reported compensation above

what is paid to member directors.

These cooperatives compete in highvalue commodity industries and their

non-member directors are selected for

the purpose of providing business

expertise that would unlikely be available from a board that included only

members. Each cooperative faces its

own set of challenges, and director

selection and compensation policies

must take such individual circumstances into account. 

Although it is not unusual for many

privately owned and publicly traded

companies to have the flexibility to

compensate directors diff e re n t l y, especially high-profile public figures, cooperatives operate with more constraining

business objectives. In cooperatives, the

emphasis on fair and equitable tre a tment gives some salience to the idea of

compensating member and non-member board members the same.

Board excellence

Policies for selecting, electing and

financially compensating cooperative

directors are the topics of this threepart series of articles. These topics all

relate to the goal in cooperative governance of getting the best directors possible to serve on the board. 

The payments to directors —

whether per-meeting, stipends or a

combination — are intended to be a

financial compensation for the extra

time and effort they give to their cooperatives. In many non-cooperative

businesses, directors often seem to

receive excessive compensation, as frequently reported in the news media.

For cooperatives, the challenge is far

more to ensure that director payments

are adequate, rather than one of keeping compensation in-check. 

Some survey respondents commented that even though they have policies

for director candidate selection and

encourage competition for board elections, a large proportion of members

are unwilling to consider serving on

the board. Such member reluctance

raises a question about the adequacy of

director compensation. 

The challenges of electing the best

directors possible involve diligence in

reviewing and updating governance

policies, attending conferences to discuss best practices and participating in

surveys that provide an opportunity for

the cooperative community to share

information. ■

If co-ops continue

to place more nonmembers on their

b o a rds, the issue

of paying higher

compensation will

arise more often.
12 Novemer/Decemer 2003 / Rural Cooperatives

By Jim Wadsworth, Program Leader, Education

and Member Relations

USDA Rural Development

he Greek philosopher Diogenes is said to have

walked city streets, lantern in hand, looking for

an honest man. While honesty is one quality

cooperatives should seek in their leaders, there

are many others. 

As the statement at right implies, cooperatives need strong

leadership to meet present and future challenges. But serious

questions arise. What does leadership mean for a cooperative? What makes an effective cooperative leader? Precisely

what skills or traits are required? What type of people fulfill

this need?

There are many definitions for cooperative leadership.

These may include: having the ability to lead the board of

directors toward sound decisions; being loyal to the cooperative and inspiring loyalty in others; being unselfish and trustworthy; having courage to take on hard problems and the

integrity to stand by decisions; understanding and upholding

cooperative principles and concepts. 

But do these definitions go far enough to enable members

and directors to successfully identify and choose future leaders? To a degree. But other leader characteristics should also

be considered. 

Many would agree that effective leaders often have important personality traits that are intangible, or that lie below

the surface. Indeed, there’s often something inexplicable that

makes some people leaders. The strength of their personality—be it charm or stature (i.e., they connect to people and

carry themselves well)—in itself makes them effective leaders.

These people usually stand out from the crowd. They possess

traits that are difficult to learn, since they often come naturally to such people. There may be some who try to “act out”

these traits, but they are usually seen as just that: as actors. 

However, certain leadership traits, behaviors and methods

can be learned or acquired through experience, education,

training and self-study. The following are traits commonly

found among effective leaders. 

E n t h u s i a s m —Does the person show consistent enthusiasm

t o w a rd the cooperative, people and life in general? Is the person positive and upbeat when challenged with difficult circ u mstances and issues? An effective leader confronts business and

life with enthusiasm, isn’t a pessimist or a complainer. These

people are willing to take on tough issues with the same enthusiasm that they display going about their everyday lives.

Listening ability—A leader listens to people and hears

what they have to say. The listening is sincere and patient

and shows respect for different opinions. A good listener listens to learn, rather than listens only to await a chance to

talk. This trait inspires trust and confidence.

Think before speaking—E ffective leaders are those

who have the ability to think things through before cons t ructing their words and phrases. Speaking very quickly or

o ff the cuff works for some people, but others often find

themselves saying things they didn’t actually mean or

intend to say. Leaders need to have the ability to analyze

i n f o rmation, and then form logical conclusions before

a rticulating their thoughts. 

Stubbornness vs. flexibility—Leaders often learn when

to stick to their guns and when to be more flexible. This usually takes experience, because every situation is different.

Effective leaders are those who have learned when to stay the

course in their opinions and decisions and when to be flexible. Leaders must be careful not to be indecisive, stubborn or

Seeking the best

Director leadership:

what does it take ?

“Little positive can 

happen for cooperatives

unless they have leadership able to meet the

challenges of the 21st

century. Skills required

to lead cooperatives

must be identified and

developed in directors

and managers.”

—Excerpted from “Agricultural 

Cooperatives in the 21st Century”

(RBS Cooperative Information 

Report 60, pg. 17).

T
Rural Cooperatives / Novemer/Decemer 2003 13

overly flexible. Rather, they should use

a blend of those traits, depending on

the situation. Consistency is key—

those being led must come to understand and know the decision-making

processes of their leaders. 

Complete tasks—Leaders complete things when they’re supposed to

be done, or make sure that those

responsible get it done. Leaders are

prepared for action and are able to

instill in others the need to be prepared. Completing work and projects

in a timely manner creates respect and

allows people to witness the ability and

integrity of their leaders. 

Take responsibility—“The buck

stops here” is a slogan good leaders

adopt. They are willing to take responsibility for negative events or occurrences that fall under their jurisdiction.

They don’t try to pass problems off on

someone else, but take them on. They

also know how to graciously take credit

for success and—even more important—know how to give credit to others when it is due.

Thought provoking—A good

leader is able to get others to think

about things rather than just follow

blindly. A leader involves people by

provoking thoughts through challenges

and by providing information. This

trait often allows a leader to build relationships that will endure and create

commitment needed to complete tasks.

Effective leaders will have many of

the qualities or traits outlined here, and

probably some others as well. Often,

various traits compliment each other,

giving the person even greater leadership stature and ability. If some traits

are lacking, an effort should be made to

improve in those areas. 

Understanding and knowing what

traits to look for while identifying perspective leaders is critical. In addition,

it is also important to understand

whether an identified leader will be a

good fit in a specific situation. Even

though a person may be identified as a

suitable leader, it does not necessarily

mean that the person will thrive in all

leadership roles. 

Indeed, a person may be a tremendous leader in one situation, but not a

good leader in a different situation,

such as in a cooperative. These questions may need to be asked:

■ How well will the prospective

leader fit into the situation given the

circumstances? Will the leader be likely

to succeed in the environment?

■ How well will he or she fit, given

the other leaders and personalities

involved? 

■ Will the person be liked and

accepted by the other cooperative players, be they members, directors or

e m p l o y e e s ?

■ Does the situation seem to be one

where the person will have an adequate

opportunity to grow into the leadership position and thrive?

■ Does the person have the right

educational background, experience

and knowledge of cooperatives and

business?

■ Is the person open minded about

learning more about being an effective

director? Will he/she be willing to be

further educated, partake of training

workshops and attend conferences,

etc.?

■ Does the person have the vision,

values and staying power necessary to fit

the opportunities aff o rded by the coope r a t i v e ?

These and other pertinent questions

must be addressed when working to

select quality leaders for cooperatives in

the current competitive enviro n m e n t .

L e a d e r-quality people should be sought

out, even though it may be a challenge to

re c ruit them because they are often very

busy and lack the extra time to take on

additional responsibilities and leadership

roles. Knowing the traits to look for and

the questions to ask can help identify the

best people to lead cooperative board s

and cooperatives as we go forw a rd into a

challenging and competitive future. ■