CI

Co-op Essentials

What They Are and the Role of 

Members, Directors, 

Managers, and 

Employees

Cooperative 

Information 

Report 

11
USDA Rural Development
i

Abstract

This is an educational guide for teaching basic information about 

cooperatives. It explains what cooperatives are—their business, 

principle, and structural characterizations, and the responsibilities 

and roles of cooperative members, directors, managers, and employees.

Five chapters make up this guide. Chapter 1—What Are Cooperatives?, is the most extensive chapter and generally describes where 

and how cooperatives fit into the American system of business, 

their unique principles and practices, and their defining structural 

characteristics, and it introduces the roles of the major cooperative 

participants—members, directors, manager, and employees. 

Chapters 2-5 go into further detail about the participants. Chapter 

2 gives an overview of cooperative members, Chapter 3 describes 

directors, Chapter 4 discusses the cooperative manager, and Chapter 5 explains employees.

Each chapter has a companion PowerPoint presentation with slides 

that coincide with and summarize the concepts and information 

provided in the text. These are available as a PowerPoint file 

from Rural Business-Cooperative Service for presentational 

use in educational/informational forums, at the following Web 

address: https://www.rd.usda.gov/files/publications/CIR11_CoopEssentialsPowerpoint.pdf.

Co-op Essentials: What They Are and the Role of Members, Directors, 

Managers, and Employees

This guide combines five earlier publications (CIR 10-18) on the 

same subject written by C.H. Kirkman, Galen Rapp, and Gene 

Ingalsbe while all were employed by USDA's Agricultural Cooperative Service. It was produced by Patrick Duffey and James 

Wadsworth in 2001 and revised by James Wadsworth in 2014.

Cooperative Information Report 11

June 2001; Reprinted May 2018
ii

Publications and information are also available at: 

https://www.rd.usda.gov/publications/publications-cooperatives

Email: coopinfo@wdc.usda.gov for more information.

Published by USDA Rural Development Cooperative Programs.

The mention of brand-names, trademarks, and company names 

in this publication is for illustrative purposes only, and in no way 

constitutes endorsement of any commercial enterprise or product.
iii

Table of Contents

Abstract --------------------------------------------------------i

Chapter 1. What Cooperatives Are ----------------------------- 1

Business Characteristics ---------------------------------- 1

----- Unique Principles ---------------------------------------- 3

 User-owner -------------------------------------------- 4

 User-control ------------------------------------------ 4

 User-benefit ------------------------------------------- 4

Cooperative Practices ------------------------------------- 5

 Patronage refund system ------------------------------- 5

----- Limited returns on equity capital ----------------------- 5

 Cooperation among cooperatives ----------------------- 6

 Cooperative education --------------------------------- 6

Structural Characteristics --------------------------------- 7

 Geographical ------------------------------------------ 7

----- Governance system ------------------------------------ 8

 Functions performed----------------------------------- 9

Roles of Cooperative Participants ------------------------ 10

 Members --------------------------------------------- 10

 Directors --------------------------------------------- 10

 Manager --------------------------------------------- 10

 Employees ------------------------------------------- 10

Summary ------------------------------------------------ 11

Chapter 2. Members Make Cooperatives Work----------------- 13

 Commitment and Use ----------------------------------- 15

 Ownership and Control ---------------------------------- 17

 Control Guidelines----------------------------------- 17

 Governance ------------------------------------------ 18

 Financial Responsibility ---------------------------------- 19

 Startup Capital--------------------------------------- 20

 Control Follows Finance ----------------------------- 21

 Summary ------------------------------------------------ 21

Chapter 3. What Cooperative Directors Do -------------------- 23

 Selecting Directors --------------------------------------- 24
iv

 Director Responsibilities --------------------------------- 26

 Preserving Co-op Character -------------------------- 27

 Safeguard Assets ------------------------------------- 28

 Hire Manager ---------------------------------------- 29

 Set Policies ------------------------------------------- 29

 Distribute Year-End Financial Benefits --------------- 30

 Strategic Planning ------------------------------------ 31

 Self-Evaluate ---------------------------------------- 32

 Elect Board Officers ---------------------------------- 32

 Appoint Board Committees--------------------------- 33

 Summary ------------------------------------------------ 33

Chapter 4. What the Cooperative Manager Does -------------- 35

Manager Responsibilities -------------------------------- 36

 Implement Board Policy ------------------------------ 37

 Advise the Board ------------------------------------- 37

 Manage Daily Operations ---------------------------- 38

 Hire Staff--------------------------------------------- 38

 Set Tactical Goals and Implements Action Plans ------ 38

 Report to the Board ---------------------------------- 38

 Report to Members ---------------------------------- 39

Representing the Cooperative --------------------------- 40

 Community ------------------------------------------ 41

 Other Cooperatives ---------------------------------- 41

 Industry ---------------------------------------------- 41

 Government ------------------------------------------ 41

Summary ----------------------------------------------- 41

Chapter 5. What the Employees Do --------------------------- 43

 Characteristics of Quality Employees -------------------- 44

 Understand the Cooperative -------------------------- 44

 Know and Follow Policy ------------------------------ 44

 Respect All Members and Treat Them Fairly ---------- 45

 Are Well Trained ------------------------------------- 45

 Are Team Players ------------------------------------- 46

 Communicate Well ----------------------------------- 47

 Communicate Well ----------------------------------- 48
v

 Participate in Community Activities ------------------ 48

 Maintain Professionalism ----------------------------- 48

 Summary ------------------------------------------------ 49

 

Appendix: USDA Cooperative Information -------------------- 50

1

Chapter 1

What Cooperatives Are

This chapter focuses on what cooperatives are. It 

explains their business and structural characteristics 

and their unique principles. It introduces the major 

participants—members, directors, managers, and 

employees—whose roles are discussed in greater depth 

in chapters 2-5.

Business Characteristics

There are many ways of conducting a business 

in the United States. People buy, sell, trade, 

borrow, insure, and conduct all kinds of business 

transactions. Businesses are organized in different 

ways depending on: who owns and controls it, 

who buys from (patronizes) it, and who gets the 

profit (earnings) from it.

Businesses fall into one of three categories:

• Individually owned businesses (sole 

proprietorships), where one person owns, 

operates, manages, and receives the profits; 

• Partnerships, which have two or more 

people who jointly own, control, 

and operate the business, sharing 

proportionately in the risks and profit; 

• Corporations, which have multiple 

owners, called investors. An increasingly 

popular type of business ownership is the 

limited liability company (LLC). An LLC 
2

is a hybrid business structure that 

combines some of the characteristics 

of both a partnership and a 

corporation. 

Cooperatives are a type of corporation; 

a State-chartered business organized and 

operating under its laws. Cooperatives 

resemble other businesses in that they have 

physical facilities, perform similar functions, 

and strive to follow sound business 

practices. They operate under bylaws and 

other necessary legal papers. However, 

cooperatives are different from general 

investor-owned corporations, which are 

operated to make a profit for investors.

The cooperative corporation is a business 

owned and controlled by the people who 

use its services. Cooperatives are controlled 

by a board of directors (elected by memberowners), derive equity from memberowners, operate for the benefit of memberowners, and allocate earnings to members 

based on use. 

Cooperative earnings from business conducted with members 

are taxed once, either as income of the corporation when earned or 

as income of the members when allocated to them. Cooperatives 

usually have a perpetual existence – members can routinely join or 

resign without disrupting ongoing operations.

There are more than 29,000 cooperatives of all types in the 

United States that serve more than 350 million members (many 

people belong to more than one cooperative). These cooperatives 

have about $3.1 trillion in total assets, generate revenue of more 

than $650 billion, and employ more than 2 million people. 

Financial, consumer service, and business cooperatives provide 

credit, transportation, facilities, recreational equipment, food, 

housing, health care, home care, child care, wholesale goods 

and supplies, electricity, telephone, and electronic services, farm 
3

production supplies and service, and farm product marketing. 

(Source: University of WisconsinCenter for Cooperatives, Research 

on the Economic Impact of Cooperatives, 2009. http://reic.uwcc.

wisc.edu/summary)

Unique Principles

Three principles distinguish cooperatives from general 

corporations: user-owner, user control, and user-benefits.

User-owner – the people who use the cooperative own it. Memberowners finance the cooperative’s assets and have an obligation 

to provide financing in accordance with their use to keep the 

cooperative in business and permit it to grow.

User-control – as owners, members control the overall operations 
4

and activities of the cooperative. This control is exercised through 

voting at annual meetings and other membership meetings, and 

indirectly through co-op members elected to the board of directors. 

This is generally done on a one-member, one-vote basis. However, 

some cooperatives may use proportional voting based on members’ 

use of the cooperative.

User-benefit – members use cooperatives for the benefits they 

provide. Because cooperatives strive for a goal of providing service 

at cost, distribution of earnings is a key benefit for members. 

Distribution of this financial benefit is based on members’ use of 

the cooperative (that is, their patronage), not on their investment in 

the cooperative. 

The third principle only partially explains the benefits members 

may derive from owning and controlling their cooperatives. Other 

benefits may include: 

• Improved bargaining power – united in a cooperative, 

producers gain marketing clout, helping them sell their 

crops or other products for a fair price. 

• Reduced costs – volume purchasing of production supplies 

and pooled marketing of products helps to lower the perunit costs to members. Doing cooperative-to-cooperative 

business may further reduce overhead for necessary services.

• Filling a market void – cooperatives often provide services 

and/or products that are otherwise unavailable to members.

• Improved quality products and services – by providing 

members with quality products, facilities, equipment, 

and services, cooperatives not only help to increase the 

productivity of their members, but also to “raise the bar” for 

competitors to meet. 

Additional benefits to members, beyond those provided by the 

cooperative’s core operations, may include: 

• Political action – cooperatives and associations of 
5

cooperatives provide a way to organize for effective political 

action. They can develop priorities and strategies on key 

issues for their members, then communicate these positions 

to legislators and regulators.

• Enhanced community strength – having a business 

owned and controlled on a cooperative basis helps the 

entire community. Cooperatives generate jobs and salaries 

for local residents. They pay taxes that help finance 

schools, hospitals, and other community services. Also, 

the additional income derived from the cooperative by 

members is often spent in the community, further helping 

other businesses and services that members use.

• Providing a competitive yardstick – studies have shown that 

cooperatives create an impact on competition that helps to 

keep prices lower for services and supplies, and improve the 

marketing of goods and products for both producers and 

consumers.

Cooperative Practices

These basic cooperatives practices differentiate them from other 

businesses:

Patronage refund system – cooperatives return earnings to members 

– after costs have been covered and needed operating capital 

obtained – on the basis of their use of the cooperative. This is most 

often done at the end of a co-op’s fiscal year, based on earnings 

generated. Earnings are returned to patrons – as cash and/or 

equity allocations – on the basis of how much business each patron 

transacted with the cooperative during the year. These distributions 

are called “patronage refunds.”

Limited returns on equity capital – members form a cooperative to 

obtain a service – such as a source of supplies, a market for their 

products, or to perform a special function – not necessarily for a 

monetary return on capital investment. Most cooperatives don’t pay 

any dividends on capital while others pay a modest return. Limited 
6

returns on equity supports the principle of distributing benefits 

proportional to use, rather than on investment.

Cooperation among cooperatives – many local associations are too 

small to gather the resources needed to provide all the services their 

members want, so cooperatives work together in many instances. 

Federated cooperative structures, joint ventures, marketing agencies 

in common, strategic alliances, and informal networks allow 

cooperatives to pool resources and assets to provide services and 

programs on a collaborative basis at lower cost.

Cooperative education – cooperatives provide education and training 

to members, directors, employees, and others in the community 

about the benefits of co-op businesses. They work to ensure that 
7

members, directors, and employees are well 

apprised of their distinct, important roles in 

the cooperative and that others outside the 

cooperative understand the uniqueness of the 

organization and its benefits to the community.

Such education is carried out directly and 

indirectly. Directly, by advertisements, public 

forums, internal training programs, etc. 

Indirectly, by participation and funding of State 

cooperative councils and other like associations 

that carry out the important role of cooperative 

education.

The International Cooperative Alliance (ICA) 

recognizes seven cooperative principles. The 

principles they promote are in many ways similar 

to the principles and practices explained in this 

primer. The webpage of the ICA statements 

is here: http://ica.coop/en/what-co-op/cooperative-identity-values-principles. For a 

comparison of the USDA cooperative principles 

and the ICA principles, see: USDA Research 

Report 231, Comparing Cooperative Principles of 

the USDA and the ICA, https://www.rd.usda.gov/

files/BCP_RR231.pdf.

Structural Characteristics

Cooperatives are characterized by the geographic territory they 

serve, their governance system, and the functions they perform. 

This provides an understanding of cooperative differences 

pertaining to scope of operations, member structure, and functional 

service.

Geographical – cooperatives are loosely categorized as “local” or 

“regional.” These characterizations describe the cooperative’s size 

and scope of operations in reference to serving members.

Local cooperatives typically operate within a single State, often 
8

within one or two counties. They usually have 

only one or two facilities from which to serve 

members. However, there are instances where 

local cooperatives have three or more facilities.

Regional cooperatives usually serve an 

entire State or a number of States. They can 

have operations that are nationwide or cover 

major portions of the United States. Some 

regional cooperatives also have international 

operations with sales and members in more 

than one country.

Governance system – based on membership 

structure, cooperatives are classified as 

centralized, federated, or mixed. These three 

classifications essentially define who the 

members are and how the cooperative is 

organized to serve them.

Centralized cooperatives have individuals 

and business entities as members. A 

centralized cooperative has one central 

office, one board of directors elected by its 

members, and a manager who supervises 

all day-to-day operations. Business may be 

conducted through branch offices or locations staffed by employees 

responsible to the central management team.

Federated cooperatives have other cooperatives as members. Each 

member of a federated cooperative is a separate cooperative that 

owns a membership share entitling it to voting rights in the affairs 

of the federated. Each member of a federated cooperative has its 

own board of directors, manager, employees, and facilities to serve 

its members.

The federated has its own hired management and staff and 

a board of directors elected by and representing the member 

cooperatives. It performs activities often too complex and expensive 

for them to do individually, such as manufacturing production 

supplies, tapping major financial markets, and marketing on a 

regional, national, or worldwide basis.
9

Mixed cooperatives have both individuals and other cooperatives 

as members. These cooperatives have features of both centralized 

and federated cooperatives.

Functions performed—cooperatives may perform one or more of 

three core functions: marketing products, purchasing supplies, and 

providing services. These functions further explain a cooperative’s 

purpose and scope. 

Marketing cooperatives assist members in maximizing the returns 

they receive for the goods they produce. They sometimes add 

value by developing raw member goods into desirable consumer 

products. 

Marketing cooperatives help members to extend control of their 

products further up the marketing chain and realize additional 
10

margins through processing, distribution, and sale.

Purchasing cooperatives allow members to gain access to 

affordable production supplies and goods. By purchasing for 

numerous members in bulk, cooperatives reduce member costs and 

strengthen their purchasing power.

Many local purchasing cooperatives are affiliated with other 

such organizations, often through regional and national federated 

cooperatives. Such cooperative efforts further reduce member costs 

and strengthen their purchasing power through direct ownership 

of large-scale facilities, such as petroleum refineries, fertilizer and 

feed plants, research facilities, etc. Hardware stores, electronic 

component suppliers, independent grocery stores, school systems, 

and fast food restaurant franchises, among others, have also 

developed purchasing cooperatives.

Service cooperatives exist in a number of business sectors. 

Agricultural service cooperatives provide farm-specific services, 

such as animal feed processing, crop harvesting, and crop 

consultancy services. Utility co-ops provide electricity and 

telecommunication service, while other types of cooperatives 

provide credit, insurance, housing, and health care.

Roles of Cooperative Participants

Cooperative organizations operate through the participation of 

members, directors, manager, and employees. Each has a separate 

role to play in the life of the co-op, although they share the 

common interest of building a successful business.

Members – as owners of the business, they organize, incorporate, 

finance, and elect directors to set the cooperative’s policy and 

govern. Members use the cooperative and are the reason for its 

existence.

Directors – members of the board are elected by, and serve at the 

will of, the membership. While some serve limited terms, others 

may serve multiple terms. They have two primary responsibilities: 

hire competent management and guide the direction of the 

business by providing policy and oversight to its operation.
11

Manager – the manager reports to and works closely with the 

board of directors. He or she is responsible for the day-to-day 

operations and performance of the cooperative.

Employees—hired by the manager, employees work for the 

member-owners in carrying out their responsibilities in the 

cooperative’s operation. Their work and responsibilities are 

dictated by the manager.

It should be noted that the roles of members, directors, and 

managers are basically the same in all types of cooperatives. The 

role of employees, as described in this report, is also the same for 

most cooperative types. But an exception to the employee role 

occurs when it comes to worker cooperatives.

Summary

People and businesses use cooperatives to serve their common 

interests and for mutual benefit. Cooperatives are complex 

organizations with unique principles, practices, member benefits, 

and structural characteristics. Geographic area, governance system, 

and functions performed explain organizational structure and size 

and scope of member service.

Cooperatives exist in many segments of the American 

economy today, providing purchasing, marketing, and service for 

member-owners. Members use purchasing cooperatives to buy 

food, consumer goods, and business and production supplies. 

Cooperatives are used by members to market and process their 

farm-grown commodities, and co-ops often add value to the 

raw commodities. Some cooperatives provide members with 

transportation services, credit, housing, utilities, recreational 

equipment, building supplies, and other services and goods. 

Cooperatives often have branded products and some cooperatives 

perform two or all of the functions of purchasing, marketing, and 

service on behalf of their members.

Cooperatives consist of members, directors, management, and 

employees. All have important participation roles to play and 

responsibilities to fulfill.

13

Chapter 2

Members Make 

Cooperatives Work

This chapter focuses on members: who they are and 

their responsibilities as owners, with particular 

emphasis on control, financing, and patronage.

Members are the foundation of the cooperative. 

They organized the cooperative and meeting 

their needs is the reason for its existence. 

Member support, through patronage and capital 

investment, keeps the cooperative economically 

healthy. Members’ changing needs shape the 

cooperative’s future.

Cooperative members can be individuals, 

businesses, or other organizations drawn together 

by a mutual interest. Members own and use the 

cooperative. They provide sufficient financial 

support so that the cooperative can operate. 

Through active participation in the cooperative, 

and the decisions of their elected representatives 

on the board of directors, members ensure 

that the cooperative has the right mix of good 

management and personnel, as well as the facilities 

and equipment required to meet their needs.

Commitment and Use

The success of a cooperative hinges on the 

commitment of its members. They must be 

committed to using it and financing it. A basic 

requirement of membership in a cooperative is to 

patronize and use its services. Benefits accrue to 
14

members through patronage of the co-op. 

While member commitment to doing business with their 

cooperative should be a given, there are various methods used 

to compel this. Patronage is elicited by cooperatives through 

persuasion—exhorting members to support the cooperative for the 

common welfare of all, by legally binding membership agreements, 

and/or by substantial up-front capital contribution requirements.

Using the cooperative is the members’ easiest responsibility to 

carry out, and by using it as much as they can, members help the 

cooperative succeed in several ways:

• A certain amount of business is needed just to cover the 

cost of operations each day, including maintaining buildings 

and equipment, utilities, and salaries. Greater volume 

reduces these costs per unit of sale and facilities can operate 

closer to capacity. Equipment and employees can be more 

productive. Overall, the cooperative is able to generate 

more income above costs and return patronage refunds to 

members at the end of the cooperative’s business year. (Or, 

covering basic operating overhead if the cooperative does 

not have physical assets.)

• Using the cooperative helps provide the financing to keep 

it operating and growing. Member financing is provided on 

the basis of member use of the cooperative.

• Using the cooperative is how members gain the benefits 

they sought when they first formed or joined the cooperative

• High amounts of member use provides the critical mass of 

business necessary to establish a secure market position.

Members must make a conscious decision to patronize their 

cooperative even when the short-term prices or services may be 

better elsewhere. If a large percentage of the members stop using 

the cooperative, the need for it must be re-examined.

Maximum use helps the cooperative and, ultimately, the 

members as well. The stronger the cooperative, the more 

competitive it can be in the marketplace. With more market clout, 
15

the cooperative will be better able to influence suppliers to provide 

products or services geared to members’ needs. A prosperous 

cooperative with the solid support of its members is often 

recognized as a business leader in its community or industry.

Ownership and Control

As members use their cooperative, it is imperative that they 

recognize their special role as owners. As owners, members have 

certain legal responsibilities. They must: 

• Incorporate the cooperative; approve (and change) articles 

of incorporation, bylaws, and major policies; 

• Sign marketing agreements and other binding contracts; 

• Elect directors according to State statute and cooperative 

bylaws; 

• Vote on significant actions affecting the cooperative’s legal 

status such as mergers, acquisitions, or other asset changes, 

and if necessary, to dissolve the organization; and

• Ensure the cooperative follows general business laws and 

those unique to cooperatives such as taxation.

As incorporated businesses, cooperatives give members limited 

liability protection. Even though this means members’ maximum 

loss is only the capital they’ve invested, inattention to ownership 

responsibilities often dilutes the value of the cooperative to them as 

users.

For example, capital used to defend the cooperative in a lawsuit 

or pay fines for violating regulations could have been used to 

enhance the cooperative’s ability to serve its members.

Although members may have many ownership “partners,” each 

has associated legal responsibilities, just as if he or she were a sole 

owner. Members make business decisions (directly or indirectly) 

through their elected representatives that benefit all member-users.

A cooperative’s success depends largely on how well members 
16

understand what it is and how it operates. It 

is incumbent upon cooperatives to provide 

members with important cooperative documents 

(e.g., an “owners’ manual”) so that they clearly 

understand its business practices and its reason 

for being. Such materials may include:

• The definition of the cooperative (e.g., 

a mission statement or clause clearly 

identifying its major purpose) and an 

explanation of its unique principles and 

practices;

• The history of when and how the 

cooperative started;

• Articles of incorporation and bylaws;

• Information on organizational structure 

and staffing;

• Operational scope and products handled 

and services offered; and

• Operating policies.

Members who understand their cooperative are more likely 

to patronize it, reap benefits from it, and can offer constructive 

criticism and suggestions affecting its future.

Members carry the cooperative’s image to the community and 

business environment. Although large cooperatives often hire 

professionals trained in communications, public relations, member 

relations, and governmental affairs, members are themselves often 

the best representatives. They promote the cooperative to potential 

members and explain it to others. Members also make sure it acts 

as a good community citizen by contributing funds, providing 

leadership, and participating in civic activities.

While cooperatives are politically neutral and avoid political 

affiliation, they often do attempt to influence legislation affecting 

their business environment. Members and directors may participate 
17

in political activities, but the bylaws usually set conditions for 

managers, directors, and employees.

Control Guidelines – Members control their cooperatives by shaping 

its legal framework in the articles of incorporation and bylaws. The 

board of directors and hired management must legally abide by the 

provisions in these documents. Only the membership can change 

them.

The articles of incorporation list the cooperative’s name, place of 

business, capital structure, and the incorporators. They also describe 

the type, purpose, operations, membership qualifications, duties of 

officers and directors, meeting and voting procedures, procedures/

methods for raising and refunding of member capital, and 

procedures and rights in caseof dissolution. Other control documents 

include member applications and marketing agreements.

The policies reflect the operating philosophy and guide actions 
18

the cooperative will take to fulfill its mission. Members delegate 

the responsibility for development, review, and change of policies 

to the board of directors. Policies cover employee conduct and 

work rules, office hours, board/management relations, major 

asset purchasing, lines of business, and other topics related to 

successfully conducting the cooperative’s business.

Governance – Members also control their cooperatives by casting 

votes on major business decisions (for example, a proposed merger 

with another cooperative or business) and by the authority they 

delegate to the board thorough a democratic election. The level of 

control is directly related to members’ degree of participation in 

this important process.

Formal decisions are made by members at the annual meeting 

such as nominating and electing directors, amending the bylaws, 

accepting the audit report, voting on major actions or policies 

proposed by the board and management, and voting on resolutions 

and motions.

Informal participation covers involvement in cooperative 

activities such as:

• Serving on advisory committees and accepting special 

assignments;

• Expressing opinions in discussions with other members or 

directors;

• Providing feedback to employees and management;

• Responding to surveys about attitudes and assessments, 

product and service evaluations, buying and marketing 

intentions, and providing other opinions about changing 

conditions.

Active member participation provides additional information 

that helps the board and management better carry out their 

responsibilities. By active involvement in the governance process, 

members maintain control of the cooperative’s scope, direction, and 

operation.
19

Members place the fiscal health of the cooperative in the hands 

of directors. Members reaffirm performance by re-electing directors 

or seek improvements by electing new directors.

Members must participate in governance activities of their 

cooperative or accept the decisions made by others.

Financial Responsibility

Members have a responsibility to finance their cooperative in 

proportion to their use of it. Members provide operating capital 

(equity) in three primary ways: direct investment, retained margins, 

and per-unit capital retains. 

• Direct investment – refers to cash purchases of membership 

certificates, common and preferred stock, or other forms of 

equity.

• Retained margins – at fiscal year-end, when members 

receive a patronage refund based on their share of net 

income as determined by their use in the cooperative, they 

reinvest part of it as determined by the board of directors. 

Federal tax law requires that at least 20 percent of the 

refund be paid in cash. The rest is typically reinvested in 

the cooperative and later paid back to members according 

to a revolving cycle or other method, as determined by 

the board. Some cooperatives use a base-capital plan, 

whereby members are required to provide a base amount of 

capital that is determined by their proportion of use of the 

cooperative and the needs of the cooperative.

• Per-unit retains – members use this method to invest 

each time they conduct business with the cooperative. 

The cooperative retains a specific amount per physical 

unit (pounds, bushels, or cartons) involved in member 

transactions. Retains are accumulated and then revolved 

back to members over a period of years.

Cooperatives also acquire equity by retaining earnings on nonmember, non-patronage business. (For more detailed information 
20

about cooperative equity and the management of that equity, see 

CIR 55, Co-ops 101.)

Startup Capital – When cooperatives are organized and launched, 

they require an initial infusion of capital. For a proposed 

cooperative business to have a chance at succeeding, prospective 

members must invest in the venture. Their commitment must 

be large enough to compel a continuing concern about how 

their invested money is being managed. Such a commitment 

will also increase their motivation to seriously accept ownership 

responsibilities.

The amount of capital required is determined by economic 

feasibility studies and business plans. Some startup costs – legal 

fees, facilities, equipment, inventory, salaries, insurance, office 

furniture, and administrative supplies – will continue as operating 

expenses.

(See CIR 7, How to Start a Cooperative, and SR 58, Vital Steps: 

Feasibility Study Guide, for more information about cooperative 

start-ups.)
21

Control Follows Finance – Those three words explain the importance 

of members’ responsibility to finance their cooperative. A desirable 

goal is to have members’ contribution of equity capital amounting 

to at least a majority of the cooperative’s total capital requirement. 

A high level of member equity capital provides for greater member 

control and commitment. It also usually makes it easier to access 

debt capital if necessary.

Financing should be provided by active member-users. 

Otherwise, former and long-time members may pressure the board 

to allocate funds to redeem old equity while current members want 

more money invested in new facilities and better services. Being 

financed largely by current members results in a membership more 

likely to have common interests and objectives.

Summary

Members are owners of the cooperative and have associated 

responsibilities. They must use, control, and finance their 

cooperative to gain the economic benefits for which it operates.

In taking an active ownership role by patronizing and financing 

the cooperative, expressing their views and needs, participating in 

the governance process and decisionmaking, and evaluating how 

well the cooperative is performing, they gain other benefits as well. 

They become educated in business practices and see firsthand the benefits derived from working together. They often 

gain valuable leadership training. The experience they gain from 

expressing their views in various meetings, participating on 

committees, serving on the board of directors, and speaking on 

behalf of the cooperative helps develop leadership traits that they 

transfer to other personal and business pursuits. Participation 

in cooperative business affairs can add to a member’s personal 

stature in the community, in the industry in which the cooperative 

operates, and in governmental affairs. 

All in all, cooperative ownership can give a member a wellearned sense of personal and business achievement along with the 

numerous economic and service benefits the cooperative’s existence 

provides.

23

Chapter 3

What Cooperative

Directors Do

This chapter focuses on the board of directors. It 

covers characteristics members should consider in 

choosing a director to represent them, alternatives for 

nominating and electing directors, and functions and 

responsibilities of directors.

The cooperative board of directors – the key 

link between members and hired management 

– determines cooperative policy. As such, it is 

a vitally important body in the make-up of a 

cooperative. Elected by members, directors are 

charged with fulfilling responsibilities within the 

parameters of the cooperative’s policies and the law. 

They must set up overall objectives and chart the 

course the cooperative will follow to achieve those 

objectives.

Being a director is an extremely important 

function in a cooperative and the role must be 

taken seriously. To effectively carry out their duties, 

directors have to be well versed in many critical 

areas and able to provide sufficient time and energy 

to their duties. Serving on a cooperative’s board of 

directors can be time consuming in carrying out 

both formal and informal duties. While attending 

board and committee meetings may take only a 

couple of days each month, informal duties – such 

as listening to, informing, and providing advice 

to members; writing letters, and reading various 

materials to stay informed and prepared for 

meetings – can consume a considerable amount of 

additional time.
24

Directors are also asked to represent 

the cooperative at community 

functions and take leadership roles in 

community organizations on behalf of 

the cooperative. In larger cooperatives, 

directors are periodically asked to 

visit State and Federal legislators and 

officials.

Selecting Directors

In considering director candidates, 

members should look for people 

who are good conversationalists, 

can clearly express their views, and 

are good listeners. This is because a 

good director must also be able to 

establish two-way communications 

with the manager, other directors, and 

members. People who have been active 

in other organizations are often good 

director. 

A director can be a powerful force for strengthening member 

support, promoting the cooperative in the community, and in other 

ways influencing the business environment in which the cooperative 

operates. Thus, a good potential director has the ability to get 

along with others, uses the cooperative fully, is interested in its 

performance, and will actively participate in making decisions.

Because cooperative directors are often involved in complex 

business decisions, they need to be able to exercise good judgment. 

Potential directors are often people already experienced in business 

matters, either gained from running their own business (e.g., farm), 

or from other business-related experiences or jobs (members with 

college degrees or other relevant experience can bring special 

expertise to the board). 

A good candidate can also be a person who makes the most of 

available educational resources, so members need to consider people 

who aren’t afraid to research and seek answers to questions and 

problems if they don’t already have knowledge in a specific area. 
25

Selection Methods – Smaller cooperatives generally elect their 

directors “at-large,” meaning the entire membership can vote 

directly to fill each director position, and each director represents 

the entire membership. As a cooperative grows, or the composition 

of its membership changes or it combines with one or more other 

cooperatives, the “at-large” method may become impractical. 

In these cases, cooperatives turn to other methods to produce 

equitable representation of the membership. 

Other selection methods include dividing the cooperative’s 

territory into geographic districts with nearly equal membership 

numbers. Others establish roughly equal territories based on 

volume of member business. Still other co-ops establish districts 

by the type of commodity members produce. Some cooperatives 

have provisions for a public “at-large” director who can contribute 

a special expertise, such as an agricultural economist, a lawyer, or a 

financial or governmental affairs specialist. 

Cooperatives’ democratic control principle has been interpreted 

to mean equal voting rights, yet this does not preclude using 
26

proportional voting to achieve equitable voting rights. State 

statutes offer guidance on how the cooperative can elect directors.

A nominating committee is often used to select candidates, 

although candidates may also be nominated “from the floor” during 

a cooperative meeting. The committee may be appointed by the 

board chairperson or elected by the membership. Former directors 

are often named to the nominating committee, although existing 

directors, hired management, or staff should not serve.

A biographical sketch of candidates should be developed and 

given to members before the election. An ideal slate offers at least 

two candidates for each position. Some large cooperatives with 

large or scattered membership may use district caucuses or mail 

balloting to nominate candidates. Directors are elected at the 

annual meeting.

Regardless of the method used, the members need to be familiar 

with director qualifications, the articles and bylaws, and who 

– among the membership – might be qualified to be a director 

candidate.

Director Responsibilities

Understanding the differences between the manager and director 

roles is a key requirement for board effectiveness and harmony. 

Their roles in a cooperative are unique among businesses. The 

uniqueness centers on the employee-only status of the cooperative’s 

manager as compared with the manager of other businesses, where 

they typically share in ownership. A cooperative manager should 

not be a member of the board, but must attend and contribute to 

board meetings.

More distinct differences exist between the director and 

manager roles and responsibilities. Directors have primary control 

and use a strategic perspective in determining how to best serve 

members’ needs and in deriving the organizational and operating 

policies required to do that. Directors delegate to the manager 

but should take counsel from the manager when it is appropriate. 

Conversely, the manager controls operations and uses a more 

tactical perspective – delegated by the board – in running the 

day-to-day operations of the cooperative. Decisions made by the 
27

manager must be in line with the cooperative objectives and general 

direction set by the board. The manager also advises the board when 

asked on policies and programs.

Just as it is important that the manager understand that he/she 

is not a board member and must defer to the board of directors 

on major decisions, directors must also recognize the manager’s 

responsibility for day-to-day operations.

Directors are responsible for:

• Preserving the co-op’s character;

• Safeguarding assets;

• Hiring the manager;

• Setting cooperative policy;

• Distributing year-end financial benefits;

• Strategic planning;

• Self-evaluating their performance;

• Electing board officers; and

• Appointing board committees.

These major responsibilities are explained in greater detail in the 

following sections.

Preserving Co-op Character – Directors are responsible for preserving 

the cooperative’s character. Character refers to laws, regulations, 

policies, and practices that distinctly apply to the cooperative. Each 

State has at least one statute related to cooperatives. Federal laws 

have specific requirements for cooperatives related to Government 

programs, antitrust, and taxation. Also, the cooperative’s bylaws and 

articles of incorporation state what the cooperative is and how it 

must operate. Directors can be held legally liable as individuals if 

there are violations by the cooperative to these laws and regulations.

However, over time, a subtle but very real threat to the 

organization’s cooperative character may develop. Management 
28

and board philosophy can drift from the cooperative’s formally 

adopted mission or the cooperative’s operational practices may no 

longer coincide with members’ changing needs. Without continual 

education of the key participants (managers and staff, directors, 

and members) and without careful strategic planning for meeting 

members’ needs, the cooperative character (except those aspects 

defined by law) can slip away, making the cooperative less oriented 

and focused on servicing members. 

Safeguard Assets – Members who invest in the cooperative expect 

some kind of beneficial return. They entrust the board to make 

sound business decisions to protect their investment and increase 

value in terms of producing benefits. Directors are accountable 

for both their actions and those of hired management. The board 

equitably distributes benefits by weighing the cooperative’s business 

needs and those of member owners. Each year the board hires an 

individual or firm to audit the cooperative’s financial records and 

presents results in an annual report to the members.
29

Hire Manager – The board’s most important decision, and one 

that often determines the success (or failure) of the cooperative, 

is hiring (or firing) the manager. The board must objectively 

appraise candidates’ qualifications, including hisor her leadership 

skills, business acumen, ability to manage personnel, potential 

skills in working with a board of directors, and knowledge of the 

uniqueness of cooperatives.

The board delegates day-to-day control and guidance to the 

manager through bylaw provisions, written policies, budgeting, 

strategic planning, reporting requirements, and performance 

accountability. The board also annually reviews the manager’s 

performance and seeks ways to improve problem areas.

Set Policies – The board originates and approves general policies 

that relate to the cooperative’s functions and how it conducts 

business. The policies cover internal and external activities and 

serve as a basis for making consistent decisions that minimize 

conflict among the participants in the cooperative. They also 

determine the accountability of those same participants.

Policies identify: director and manager functions and 

relationships; member, employee, and public relations; 

organizational requirements; and operational activities such as 

credit, pricing functions performed, and purchasing, marketing, 

and services provided. These written policies should be periodically 

reviewed and updated.

These policies are discussed, finalized in writing, approved, 

and reviewed at least annually by the board. A policy manual is 

developed and distributed to each director and the manager. 

General policy statements reflect the board’s philosophy of what 

kind of business the cooperative should be, such as being a civic 

and business leader in the community. Hence, the manager can 

make minor commitments to participate in community events 

without first getting board approval.

Policies may also be specific, such as: “No additional credit shall 

be extended to any patron whose account is 120 days past due.” 

Such a policy gives the manager authority to refuse extending 

additional credit even to a director. Here are some other specific 

examples:
30

• Policy – An independent Certified 

Public Accountant shall audit the 

financial records at the end of the fiscal 

year. Implementation—the manager 

keeps appropriate records and provides 

other information needed for the audit.

• Policy – The manager shall prepare 

an annual business plan for approval 

and make progress reports at monthly 

board meetings. Implementation – 

Without further specifics, the manager 

prepares a budget for approval, 

then compares it to actual business 

transacted, and reports any other 

information that would help the 

board understand the cooperative’s 

operational and financial status.

• Policy – Employee pay raises will be 

based on job performance. 

• Implementation – Job descriptions 

and performance standards are written 

for each employee and performance is 

reviewed annually. Amount of pay raise 

depends on performance evaluation 

results.

• Policy – An annual membership meeting shall be 

conducted. The president of the board of directors shall 

address the membership. Implementation – Management 

plans, organizes, and conducts the annual meeting. The 

president presents a report at this meeting focusing on the 

cooperative’s major accomplishments of the year and broad 

strategic plans going forward.

Distribute Year-End Financial Benefits – The cooperative’s performance 

is recorded on a fiscal year-end statement of operations and balance 
31

sheet. The board determines how the net income (or loss) will 

be distributed. With net income, it decides how much patronage 

refund to pay members in cash (Federal law requires at least 20 

percent), how much to place in allocated equity, and how much to 

retain (unallocated equity). The latter is necessary to help operate 

the cooperative and provide for its capital needs. Allocated equity 

refunds are members’ equity (ownership) in the cooperative and are 

periodically returned to the members on a revolving schedule, as 

determined by the board.

Strategic Planning – The board provides leadership in developing 

cooperative plans to meet members’ needs as time goes on. The 

process starts with an assessment of the general and changing 
32

business climate that affects both members and the cooperative. In 

long-range planning, the board – with input from management – 

considers challenges relating to internal and external organizational 

growth, business volume, membership, territory served, assets, etc. 

The board develops objectives and strategies for management to 

implement to achieve the objectives. They monitor plan progress on 

an ongoing basis and make necessary adjustments.

Self-Evaluate – The board should conduct an internal assessment 

to assess how well it is fulfilling responsibilities. Directors should 

assess: (1) themselves individually, (2) the board’s performance, 

and (3) board meeting effectiveness. Conducting such assessments 

identifies weaknesses and allows for the development of corrective 

actions. Education should be provided to address weaknesses. An 

effective board improves the likelihood of positive cooperative 

performance.

Elect Board Officers – The board usually elects the cooperative’s 

officers shortly after the annual meeting. Each officer has specific 

duties as detailed in the cooperative’s bylaws. The most common 

officer makeup of cooperatives includes a president, a vicepresident, a secretary, and a treasurer.

• The president presides at all meetings, watches over the 

association’s affairs, and serves as the main communication 

link between hired management and the other directors and 

members.

• The vice president, in the absence or disability of the 

president, performs the duties of the president. 

• The secretary keeps a complete record of all meetings of 

the board of directors and general membership and is also 

the official custodian of the cooperative’s seal, bylaws, and 

membership records.

• The treasurer oversees the bookkeeping and business 

accounts to ensure accuracy and proper handling. The 

treasurer also presents periodic financial reports.
33

Appoint Board Committees – The board’s work may be divided among 

special or permanent committees, each dealing with a phase of the 

association’s operations,. These may include finance, purchasing, 

feasibility, marketing, membership, nominating, and others.

Committees study the problems or issues in their particular field 

and make recommendations to the board of directors. In some 

instances, committees may be given certain powers to act for the 

board, subject to later review by the entire board.

Summary

The board of directors is the cooperative’s leading governing body. 

In carrying out this overall responsibility, the board performs 

several important supporting roles. It is a listening post, hearing 

from management and membership. It is a communications hub, 

imparting information between members and management. It 

is an advisory body to members and management, providing 

recommendations and guidance. It is a decisionmaking group, 

deciding on cooperative policies, approving major operational 

changes, and developing strategic plans. But in every role and 

action, the board is accountable to members.

Members choose director candidates and elect them to office. 

From their peers, members select individuals with the best 

judgment and business management skills to represent them 

and conduct affairs on the cooperative’s board of directors. 

Loyalty, integrity, the ability to make wise business decisions, and 

willingness to serve are some of the necessary characteristics for 

board members.

Acting as a group, directors set the objectives for the cooperative 

and make decisions that set the course the cooperative will follow 

in achieving those objectives.

In carrying out their responsibilities, directors serve much like 

trustees, charged with legal obligation to protect the assets of 

the members. Directors must fulfill their responsibilities while 

exercising due care to act within the parameters of the cooperative’s 

policies and the law.
34
35

Chapter 4

What the Cooperative

Manager Does

This chapter focuses on managers and their 

responsibilities, with particular emphasis on 

differences between managing a cooperative versus 

other forms of business.

All businesses are managed to provide a return 

on the investment of stockholder-owners. The 

manager of an investor-owned corporation 

basically needs to satisfy stockholders with the 

yield they’re earning on their investment. The 

manager of a cooperative, likewise, needs to 

satisfy its member-owners, but he or she needs 

help from them, including information and input 

on decisions. Because of the active participation 

of members, there must be considerable 

communication between them and the manager.

The success of a cooperative largely depends on 

the relationship between the board of directors 

and management. The working relationship 

between board and manager requires respect and 

an understanding of each other’s responsibilities.

Like any other business, cooperatives attempt 

to hire the best manager, offering competitive 

wages and benefits, performance incentives, and 

retirement programs. Managers are hired to 

operate the business, focusing their efforts on 

everyday operations to serve members. When 

interviewing manager candidates, the board must 

make the ownership issue clear and further stress 

that the manager is accountable to the board.
36

The board of directors decides what the cooperative will do; 

the manager and immediate staff decide how it can best be done 

– subject to board review – in achieving the primary objective of 

serving members effectively.

Manager Responsibilities

Cooperative, managers have responsibilities that differ from those 

of directors. Understanding the differences in a cooperative is 

a key requirement for an effective and harmonious relationship 

between directors and the manager. In a cooperative, the manager 

does not share in ownership and should not be a member of the 

board. This produces a clear separation between manager and 

director responsibilities.
37

The major responsibilities of a 

cooperative manager are to:

Implement Board Policy – Policies are set by 

the board of directors and implemented 

by the manager. All business operations of 

the cooperative must be managed within 

the boundaries of the policies that are set 

by the board.

Advise the Board – While members and 

their elected directors often operate their 

own farm business, the operations of a 

cooperative usually greatly differ. The 

manager therefore has a responsibility to 

advise the board on how the cooperative 

can be operated more effectively, offering 

direct technical advice in areas such as:

• Competitive strategy – cost cutting, 

pricing policy, service packages, 

cooperative benefits, etc.;

• Financial management – credit 

control, debt load, cash-flow, and 

member equity.

• Operational efficiency – product storage and handling, 

pickup and delivery schedules, administrative procedures, 

facility organization, purchasing and marketing strategies, 

and staffing;

• New technology and equipment – industry innovations, 

improved machinery, computer systems, and research 

results;

• New products and services – additions or replacements and 

product information;

• Policy changes – made necessary because of problems with 
38

implementation or by changes in business environment;

• Regulatory changes – chemical use, worker safety, 

environmental laws and standards;

• Governmental affairs – new or changed legislation, 

governmental assistance programs, and involvement in 

public policy.

Manage Daily Operations – Supervises and coordinates – under board 

direction – the business activities of the cooperative by managing 

the people, capital, and physical resources.

Hire Staff – Maintaining a competent staff is a very important job 

for a manager. How well the manager selects, trains, and supervises 

employees has a direct bearing on how well the cooperative 

performs. The board provides the manager with tools to assemble 

an effective staff, including a wage and salary plan, attractive 

benefits, and safe working conditions. Employees make the 

cooperative work, but the manager provides leadership, direction, 

motivation, and appraises their performance. 

Set Tactical Goals and Implements Action Plans – Significant 

operational planning occurs as managers direct the daily affairs of 

the cooperative. The manager develops tactical goals in line with 

the cooperative’s major long-term objectives, as set by the board of 

directors. The manager develops and implements action plans to 

reach the shorter-term tactical goals.

Report to the Board – The manager must be an active, but nonvoting , participant at board meetings. Managers keep their boards 

informed of issues and circumstances that affect cooperative 

operations. 

Formal reporting occurs at monthly board meetings. The 

manager sends financial statements and information on major 

issues to directors in advance of board meetings so they can review 

the material. Accurate reports to the board are necessary for good 

business management and help build mutual respect and trust 

between the manager and board. Major items include:
39

• Information on special issues and circumstances;

• Statement of operations with budget comparisons;

• Balance sheet with comparisons to one or more previous 

years; 

• Accounts receivable status that notes delinquent accounts’;

• Progress toward objectives set as part of planning;

• Summary of operations activity during the most recent 

period; and

• Proposals for immediate or longer term consideration.

Managers also need to be able to contact their boards at any 

given time. Outside of board meetings, managers must keep the 

board president and other officers apprised of significant events 

that may call for immediate action.
40

Report to Members – Cooperative bylaws require a formal annual 

report be distributed to members and an annual meeting to be 

held. The manager distributes the full annual report to the board 

and creates an abbreviated form to be given out to all members at 

the annual meeting. In more abbreviated form, the report contains 

much of the same information already provided to the board. 

The manager then gives a report to the membership discussing 

operational highlights, issues and problems encountered, special 

activities, and outlook for the coming year.

The manager also writes letters to members, and typically writes 

a column in the cooperative’s newsletter and/or on the Web site, 

and may send out messages via social media. District or regional 

meetings and one-on-one member visits are often used. Periodic 

cooperative publications cover a wide range of information about 

cooperative operations. In addition, the manager will often have 

daily informal contact with some members as they visit or transact 

business at the cooperative.

Representing the Cooperative

As the person in charge on a day-to-day basis, the manager 

represents the cooperative in many ways. His or her representation 
41

is often guided by the cooperative’s policies and specific board 

directives. The manager’s own interests may also influence the type 

and extent of his or her representation on behalf of the cooperative. 

The manager represents the cooperative in at least four areas: 

community, cooperatives, industry, and government.

Community – As a business leader, the manager may be called upon 

to participate in a variety of community activities, such as helping 

raise funds for charities, speaking at business and social events, and 

becoming a member of the chamber of commerce or community 

service organizations.

Other Cooperatives – The board of directors may select the manager 

to be the cooperative’s voting delegate or official representative 

to other cooperatives or cooperative organizations. At the 

board’s discretion, the manager may serve on the boards of other 

cooperatives, such as a federated cooperative it belongs to.

Industry – Most industries have professional or trade associations 

to protect or enhance their business interests. The manager may get 

involved in one or more of the key organizations closely related to 

the cooperative’s functions.

Government – Managers who are particularly convincing speakers 

are often called upon to speak to regulatory officials and 

policymakers on issues affecting the cooperative or its members. 

Even in personal actions and activities, many people see the 

manager – sometimes indirectly – as representing the cooperative. 

That responsibility requires constant and careful attention.

Summary

A cooperative manager wears many hats and fulfills a unique 

position between members, employees, and the board of directors. 

In meeting responsibilities, a manager essentially simultaneously 

serves as coach and player, leader and follower, educator and 

motivator, diplomat and dictator, mediator and magician, judge and 

jury, and analyst and activist.

43

Chapter 5

What the 

Employees Do

This chapter focuses on employees: what they do, and 

the characteristics of quality employees.

Cooperative employees work for a unique 

organization because the owners of the business 

are its day-to-day customers. This close contact 

with owners requires certain sensitivity by 

cooperative employees in serving members’ 

needs. Members want, and expect, good service 

and fair treatment from the employees of their 

cooperative business.

Cooperative employees deal with both the 

member-owners and the cooperative’s business 

associates (i.e., venders, marketers, transporters, 

suppliers, advertisers, etc.) on a day-to-day basis. 

This unique business relationship places added 

emphasis on people skills when dealing with the 

member-owners and those that the cooperative 

deals with to carry out its services for members. 

Employee attitudes are judged whenever they 

have direct contact with members and business 

associates.

Employees promote the cooperative and 

carry out the cooperative’s business: delivering 

supplies, handing members’ products, conducting 

marketing and sales activities, ordering and 

maintaining supplies and inventories and keeping 

accurate accounting records. Their role also 

includes recommending products and services 
44

to members; handling complaints; representing the 

cooperative in the business and civic communities; 

educating members and the public about what the 

cooperative offers; and adequately maintaining 

facilities to serve members.

Characteristics of Quality Employees

Like all businesses, cooperatives need quality 

employees. To be effective and serve the cooperative 

well, employees have obligations and responsibilities.

Understand the Cooperative – Quality cooperative 

employees understand the uniqueness of their 

organization. They understand what a cooperative is 

and understand the cooperative principles that are 

the foundation of the organization.

It’s hard for employees to deliver quality services 

if they don’t understand the business that employs 

them. Ownership entitles members to certain 

information that they would not expect from 

privately held businesses. Cooperative employees 

are often asked questions about internal operations, 

governance, and earnings of the business. A well-informed 

employee knows how to handle these questions in a way that 

satisfies members. 

For non-members, employees must be careful not to reveal 

information that could be useful to the competition. All employees 

must be kept well informed of the cooperative’s distinctive traits 

and operations.

Know and Follow Policy – Well-informed employees keep abreast of 

current cooperative policies and rules. The purpose and application 

of any policy or rule should be discussed with a supervisor 

or explained in an employee meeting. Policies and rules are 

implemented to safeguard the member-owner interests, set good 

business standards, and ensure the cooperative’s success.

An employee’s supervisor and the manager are responsible for 

handling and resolving any conflict with the cooperative’s policy. 
45

Well-informed employees avoid evaluating policy or rules to fit 

a particular situation or circumstance. They should implement 

policy and rules in a fair and equitable manner toward all fellow 

employees and customers. 

Respect All Members and Treat Them Fairly – Cooperative members 

(the customers) want to be treated fairly and honestly by the 

business they own. Special treatment for one customer may 

generate short-term results, but cause ill will and dissatisfaction 

among most customers.

Indeed, special concessions shared with selected members or 

other customers soon bring dissatisfaction among all members/

customers. Employees must be polite and professional and offer 

services or products in an equitable way to all members, regardless 

of their status in the cooperative.
46

Are Well Trained – Employees must be able to explain technical 

information about service areas in which the cooperative operates. 

Customers rely on employees to recommend products or services. 

The ability to respond to member questions and resolve their 

problems plays a role in determining how loyal members will be to 

the cooperative for their future needs.

Because of the fast pace of today’s business and changes in 

technological product and environmental regulations, employees 

must understand the operations and methods the cooperative uses 

to provide products and services.

Are Team Players – Team success, whether in sports or business, 

demands that all players cooperate to reach predetermined 

objectives. Each employee of the cooperative organization should 
47

know the objectives 

of the cooperative 

and understand their 

role in achieving 

them. They must 

work together toward 

overall achievement of 

objectives. 

Employees working 

in service organizations, 

such as cooperatives, 

must be aware of the 

service level required to 

meet the organization’s 

objectives and their 

expected contributions 

to the team effort.

Communicate Well – 

Strong communication is 

the key to any successful 

business operation. 

Employees are the eyes 

and ears of a cooperative 

and some are in positions 

where they constantly interact with members and the public. That 

interaction is important as a communication and feedback system 

can help shape future procedure and policy changes necessary for 

increasing member appreciation and satisfaction.

Employee communication with supervisors leads to 

implementing desired changes. Unsafe working conditions or 

damaged facilities and broken equipment should be reported to 

supervisors for correction or repair. Irregularities in cooperative 

business operations or planned absences from the job must be 

communicated to keep the cooperative operating efficiently. 

Issues with member relations of any kind should be brought to a 

supervisor’s attention.

Effective communication means not only talking, but also 
48

listening carefully to comments and suggestions 

from members, other customers, instruction 

from supervisors, and recommendations from 

other employees.

Maintain Assets – Employees are responsible for 

keeping members’ assets – facilities, equipment, 

inventory, and supplies – in good condition. 

Dirty or poorly arranged merchandise, 

malfunctioning equipment, unkempt facilities, 

and lower or poor-quality products can be a 

deterrent from reaching a cooperative’s goals, just 

as overpricing or poor selection of merchandise 

would be. Malfunctioning equipment and poorly 

maintained facilities suggest that employees 

don’t take member satisfaction seriously.

Participate in Community Activities – Employees 

carry the image of the cooperative to the 

community by participating in civic or service 

organizations, school activities, professional and 

youth groups, or the chamber of commerce. If 

possible, employees should strive to be involved 

in some aspect of a community’s activities.

Volunteering not only contributes to the employee as an 

individual, but also shows the cooperative is interested in the 

needs and welfare of the community. However, it is important to 

note that because they represent the cooperative, employees must 

be cautious about taking a particular stand or participating in an 

activity which has special social, political, or religious orientation. 

Most cooperatives maintain religious and political neutrality.

Maintain Professionalism – Employees present the cooperative’s 

image during their day-to-day contacts and the work they conduct. 

Therefore, it is important that they maintain a professional attitude 

while carrying out their duties. A professional attitude means that 

employees are polite, positive, courteous, well educated, articulate, 

and enthusiastic about the cooperative’s mission.
49

Summary

Cooperative employees play an important role is carrying out the 

cooperative’s business for members. Given the unique principles 

that cooperatives operate under, it’s imperative that employees 

fully understand the uniqueness of a cooperative, compared to an 

investor-owned-firm. 

Many employees interact with the member-owners of the 

business every day and with management as well. They have 

responsibilities to fulfill like all business employees, but the 

relationships they forge with members further define their 

unique position in the business world. Employees – together with 

members, directors, and the manager – run the cooperative business 

to serve and benefit members.
50

Appendix: USDA Cooperative Information

Cooperative Programs within USDA’s Rural Development mission 

area, conducts research, collects statistics, develops educational 

materials, and provides technical assistance to farmers and other 

rural residents interested in organizing cooperatives. See the 

website: https://www.rd.usda.gov/programs-services/all-programs/

cooperative-programs.

General and specific cooperative educational materials are available 

from USDA. These can be found online at: https://www.rd.usda.

gov/publications/publications-cooperatives.

Here is a snapshot of materials that complement and expand upon 

the information in this report:

• CIR 55 – Co-ops 101: An Introduction to Cooperatives

• CIR 5 – Cooperatives in Agribusiness

• CIR 7 – How to Start a Cooperative

• SR 58 – Vital Steps: Cooperative Feasibility Study Guide

• CIR 61 – The Circle of Responsibilities for Co-op Boards

• CIR 62 – Cooperative Directors: Asking Necessary 

Questions

• CIR 63 – Nominating, Electing and Compensating Co-op 

Directors

• CIR 45 Section 1 – Understanding Cooperatives: The 

American System of Business

• CIR 45 Section 2 – Cooperative Business Principles

• CIR 45 Section 3 – The Structure of Cooperatives

• CIR 45 Section 4 – Who Runs the Cooperative Business: 

Members
CIII

• CIR 45 Section 5 – Who Runs the Cooperative Business: 

• CIR 45 Section 6 – Who Runs the Cooperative Business: 

General Manager and Employees

• CIR 58 – Assessing Performance and Needs of Cooperative 

Boards of Directors

• CIR 39 – Sample Policies for Cooperatives

• RR 231 – Comparing Cooperative Principles of the 

U.S. Department of Agriculture and the International 

Cooperative Alliance

• Cooperative Curriculum for Instructors – Understanding 

Cooperatives: 7 Lesson Units on CD ROM

For questions or requests email: coopinfo@wdc.usda.gov
In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) 

civil rights regulations and policies, the USDA, its Agencies, offices, and employees, 

and institutions participating in or administering USDA programs are prohibited from 

discriminating based on race, color, national origin, religion, sex, gender identity 

(including gender expression), sexual orientation, disability, age, marital status, family/

parental status, income derived from a public assistance program, political beliefs, or 

reprisal or retaliation for prior civil rights activity, in any program or activity conducted 

or funded by USDA (not all bases apply to all programs). Remedies and complaint filing 

deadlines vary by program or incident. 

Persons with disabilities who require alternative means of communication for program 

information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should 

contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and 

TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally, 

program information may be made available in languages other than English. 

To file a program discrimination complaint, complete the USDA Program Discrimination 

Complaint Form, AD-3027, found online at How to File a Program Discrimination Complaint 

and at any USDA office or write a letter addressed to USDA and provide in the letter all of 

the information requested in the form. To request a copy of the complaint form, call (866) 

632-9992. Submit your completed form or letter to USDA by: (1) mail: U.S. Department of 

Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, 

SW, Washington, D.C. 20250-9410; (2) fax: (202) 690-7442; or (3) email: program.intake@

usda.gov. 

USDA is an equal opportunity provider, employer, and lender.