Cooperative Management

Management of a cooperative is often 

incorrectly thought of as including only the 

hired manager and his key staff. This is far 

from the truth. Cooperative management 

should be regarded as a team consisting 

of four elements — members (owners), 

board of directors (elected), the manager 

(hired), and other responsible employees 

(paid). Each part of the team has its own 

distinctive duties and responsibilities for 

performing management functions in a 

cooperative. This allows them definite, 

reserved rights in the ownership and control of the business. These important rights 

give them the privilege of taking an active 

part in the management of the business. To 

be effective, each must exercise these 

rights; otherwise they will have no voice in 

management.

Successful management of a cooperative, therefore, is based on intelligent and 

active cooperation of the members with the 

board and with the manager/employees, 

each group shouldering its own responsibilities to the best of its ability.

Cooperatives, as a form of business owned 

and controlled by the people who use it, 

are the same as an opera in that they, too, 

have several important elements needed to 

be successful. The most essential one is 

the people:

u Members, as the owner-users;

u Board of Directors, as the policymaking 

body;

u Hired Management, as the supervisor; 

and

u Employees, as the work force.

Each has specific roles and responsibilities in the overall operation of a cooperative.

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Understanding Cooperatives:

Who Runs the Cooperative 

Business? Board of Directors

Cooperative Information Report 45, Section 5

 When you think about an opera, 

there are several key elements you 

need for a successful performance 

— the conductor, the musicians, a 

score, and the staging. These elements work together to make it happen — the conductor serves as the 

guider; the musicians are the performers; the score is the composition each person follows; and the 

staging is the process of putting it 

all together. 

United States

Department of

Agriculture

Rural Development

Rural Business

and Cooperative

Service

October 1994

Board of 

Directors

Members

Manager

Employees
Duties and Responsibilities of the 

Board of Directors 

This section specifically discusses the 

responsibilities of the board of directors. 

(Section 4 describes the responsibilities of 

members, while Section 6 discusses 

responsibilities of management/employees.)

A cooperative is a user-owned and usercontrolled business in which benefits are 

received in proportion to use. But it is not 

possible for member-owners to directly 

make all cooperative decisions. That control is preserved by members electing 

directors to represent them in much of the 

operation of the cooperative.

The board of directors occupy a key 

position between members and hired management. They represent the members as 

users of the cooperative’s services, and 

consequently must be informed about the 

needs and directions of the members. The 

board must also remember that the cooperative functions for the benefit of those 

members.

Acting as a group, the primary responsibilities of the directors are to employ the 

manager, establish operating policies, and 

direct the cooperative toward its overall 

objectives.

In discussing the roles of directors, 

those that reflect an obligation on the part 

of the individual person are listed as duties. 

Those that require board members to act 

collectively are listed as responsibilities.

Duties

1. Become familiar with the articles of 

incorporation and bylaws of the cooperative and conduct the business in accordance with their provisions.

2. Attend regular and special meetings of 

the board.

2

3. Understand the terms of all contracts 

into which the cooperative has 

entered by authority of the board — leases, 

loan agreements, membership and marketing agreements, supply and other contracts, etc.

4. Be familiar with the State law under 

which the cooperative was 

incorporated.

5. Understand the general legal responsibilities of serving on a board of directors.

6. Be responsive to new ideas and changes that are in the best interest of meeting 

member needs.

7. Commit to participate in training programs to better understand the 

cooperative’s operations, and a director’s 

role in it.

Responsibilities

In addition to the general duties and powers of directors as set out in the association’s articles of incorporation and bylaws, 

the following responsibilities are particularly 

important:

1. Hire a competent manager; determine 

the salary, outline the duties and authority 

of the position, and formally review his/her 

performance at least annually.

2. Adopt broad, general policies to guide 

the manager and make them a part of the 

minutes. They should include such items 

as credit to patrons, source and limits of 

supply inventories, general personnel regulations, etc. It is the manager’s job, rather 

than that of the board as a whole or as 

individual members, to make the detailed 

decisions on how to implement the board’s 

policies. Once established, the board 

needs to monitor and review policies annually and make changes when necessary. 

Remember, board members make policy 

decisions. They should not assume 

The board of directors 

occupy a key position 

between members and 

hired management. 
responsibilities that are clearly part of dayto-day operations.

3. Develop and adopt long-range business 

strategies.

4. Require written monthly financial reports 

and operating statements for board meetings in order to be informed of adverse as 

well as favorable operations.

5. Direct the manager to prepare before 

the close of each year an operating budget 

for the next fiscal year for board approval. 

This budget should estimate the volume of 

sales and gross income of various items to 

be handled, the expenses by account classifications, and the net income expected. 

This constitutes necessary forward planning on the part of the board and management. The budget should be reviewed at 

intervals throughout the year to determine 

the trends of the business.

6. Employ a qualified auditor to make an 

independent audit at least once each year 

to determine the accuracy of the financial 

records. This audit, reported directly to the 

board, is used to evaluate the effectiveness 

of the policies and budget, performance of 

the manager, and insight into the effect of 

past decisions and the need for new ones. 

An audit is the primary method the board 

uses to report the financial condition of the 

cooperative to its members.

7. With the aid of the manager, plan and 

conduct the annual meeting to keep the 

membership informed about the status of 

their business, including operations, finances, and policies. 

8. Determine the patronage refund allocation, weighing legal requirements against 

the need for reinvesting refunds to provide 

money to retire old equities and still meet 

current capital needs. 

9. Obtain competent legal counsel.

10. Keep a complete record of the board’s 

actions. 

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A cooperative director should not expect 

to be granted special favors from the manager or employees and does not have the 

following responsibilities:

1. To act independently on matters that 

should be decided by the entire board.

2. Be a representative of special interests, 

factions, or political entities. He/she was 

elected to direct the business activities of 

the cooperative, not serve as a representative of these groups.

Board Size

Incorporation law normally sets the minimum number of cooperative members serving on the board of directors. Most have an 

odd number such as five, seven, or nine. 

Extremely large boards can be cumbersome, slow, and expensive, while smaller 

boards can be more efficient and effective. 

Generally, small boards will have more frequent and effective meetings.

Board Officers

The board officers are usually elected from 

within the board members, frequently at a 

re-organization meeting after the annual 

meeting. Each officer has specific duties as 

detailed in the cooperative’s bylaws.

Board officers are:

u The president who presides at all meetings, carries out the members’ wishes, and 

watches over the association’s affairs linking communication between hired management and members;

u The vice president who, in the absence 

or disability of the president, 

performs the duties of the president;

u The secretary who keeps a complete 

record of all meetings of the board of directors and general membership and also is 

the official custodian of the cooperative’s 

seal, bylaws, and membership records;

Each officer has specific 

duties as detailed in the 

cooperative’s bylaws.

Board of Directors
This circular is one of a continuing series that provides training information and presentations for education 

resource persons who may or may not be familiar with the cooperative form of business. This series provides the 

basic background material they need and in a form that can be readily adapted, with limited preparation time, to a 

lecture or other presentation.

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

of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental 

status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an individual's income is derived from any public assistance program. (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 to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary 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 

(Spanish Federal-relay). USDA is an equal opportunity provider and employer. 

u Knowledgeable about cooperatives and 

the job of a director, including 

listening to members;

u Willing to accept the responsibilities and 

obligations of a director;

u Someone who will work well with others 

as a team, and support majority decisions, 

even if not agreeing with them;

u Open-minded in considering issues;

u Representative of the goals and direction of the members;

u Recognized as a community leader; and

u Honest and fair.

If the candidate is seeking the job of 

director to gain a personal advantage or 

favors for friends, it is questionable whether 

that candidate should be elected. Electing 

someone to the board to gain that person’s 

patronage is not in the long-term interest of 

the cooperative.

Conclusion

The ultimate control of any corporation is 

legally in the hands of the board of directors. In a cooperative, however, the board is 

responsible to its members as users rather 

than to investors whose first objective is to 

maximize profits. Taking the time to listen to 

member-users, learning the issues, understanding the responsibilities of directors 

and how their role differs from other key 

people, and making decisions based on 

what is in the best interests of the membership, will allow the cooperative director to 

serve members effectively. n

◆ The treasurer who keeps watch over the 

bookkeeping and accounts to ensure accuracy and proper handling and also is 

responsible for presenting periodic financial 

reports.

Selection of Board Members

At most cooperatives, before the annual 

meeting, the president of the board of 

directors appoints a nominating committee 

to develop a slate of candidates for election 

to the board. This committee nominates 

cooperative members they feel can direct 

their cooperative in meeting its overall 

objectives and improving its operations.

In serving, they often look for guidelines to 

use in selecting the right individual. The following are some of the important qualifications to consider.

Is the candidate?

u Objective, willing, and anxious to learn;

u Accepted by the members for having 

good judgment and business sense;

u Successful in his/her own business operation;

u A loyal, participating member of the 

cooperative;

u Willing to take the time necessary to prepare for, attend, and take an active part in 

board meetings;

u Able to protect highly sensitive, confidential material, that if disclosed could damage 

the cooperative, but still be willing to give, 

and even insist on giving, members all possible information;

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In a cooperative, the 

board is responsible to 

its members as users 

rather than to investors 

whose first objective is 

to maximize profits. 

To see this and 

other USDA cooperative publications online, visit: 

http://www.rurdev.

usda.gov/rbs/pub/

cooprpts.htm 

To order hard copies, e-mail: 

coopinfo@wdc.

usda.gov

or telephone:

1-800-670-6553.