United States

Department of

Agriculture

Rural

Development

Administration

Cooperative

Services

Otto ber 1994

developed by

Tammy M. Meyer

Cooperative

Education

Specialist

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When you think about sports,

whether it be football, baseball, or

basketball, you realize several key

ingredients are needed to set the

stage for a successful, winning

season - a coach, players, fans,

and a game plan. People, using

these ingredients, work together

to make it happen -the coach

serves as the guider; the players

are the executors; the fans are

the support system; and the game

plan is the blueprint for the team

to come together and perform.

Each segment is an important part

to the whole.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cooperatives, as a form of business

owned and controlled by the people who

use it, are the same as a sports team in

that they, too, have several important

ingredients needed to make a complete

team. The most essential one is people:

+ Members, as the owner-users;

+ Board of Directors, as the policymaking body;

+ Hired Management, as the supervisor;

and

+ Employees, as the work force.

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

cooperative.

Cooperative Management

Management of a cooperative is often

incorrectly thought of as including only

the hired manager and his or her 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 the manager/employees. Each

group must shoulder its responsibilities.

MEMBERS

BOARD OF

DIRECTORS

MANAGER
Members are the

foundation of the

cooperative business.

They organized it.

Their needs are the

reason for its

existence:

Rights and Responsibilities

of Members

This section specifically discusses the

responsibilities of members. (Sections

describing the responsibilities of the board

of directors and management /employees

are numbers 5 and 6, respectively.)

Members are the foundation of the

cooperative business. They organized it.

Their needs are the reason for its existence. Their support, through patronage

and capital investment, keeps it

economically healthy. And their changing requirements shape the

cooperative’s future.

But along with all of this comes rights

and responsibilities that members must

accept and exercise for the cooperative to

meet effectively the needs of its owners

- specific rights under the law and as

outlined in the cooperative’s bylaws and

articles of incorporation, and responsibilities, both moral and legal, regarding

those rights.

Rights

Rights of a cooperative member normally

include:

+ Adopt and amend the articles of incorporation and bylaws.

+ Elect and, if necessary, remove directors of the business.

+ Dissolve, merge, or consolidate the

cooperative or form a joint venture with

others.

+ Require officers, directors, and other

agents to comply with the law under

which the business was set up, and with

its articles of incorporation,

bylaws, and membership contracts.

+ Hold directors and officers liable for

damage injurious to members.

+ Examine the annual reports.

Responsibilities

1. Patronize the cooperative. Members

must make a conscious decision to be

committed to the cooperative and to

maintain that commitment even when

short-term prices or services may be better elsewhere, or competitors make more

attractive offers. If members do not want

to use the cooperative, the need for it

must be reexamined.

2. Be informed about the cooperative. To

carry out their responsibilities, members

must know what the cooperative is, what

it can do for them, its purpose, objectives,

policies, and the issues it faces. They can

obtain information through annual reports

and newsletters, and from talking to the

manager, staff, directors, and other members. To effectively exercise their right of

ownership, a member needs a good

understanding of the present situation and

projected future operations.

3. Participate in selecting and evaluating

directors. As owners, members assume a

positive, broad role in the cooperative’s

management. Although the cooperative

is a user/owner (democratically)

controlled form of business, members

cannot make all the decisions directly.

They select from among their peers individuals with the best judgment and business management skills to represent

them in most management affairs as the

cooperative’s board of directors. This is

definitely one of the most important

responsibilities.

Selecting the most popular or least controversial person is not the wisest choice

for this job. Members need to study carefully the strengths and weaknesses of the

cooperative and determine how the leadership skills of the candidates address

them. Loyalty, integrity, the ability to make

wise business decisions, and willingness

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to serve are necessary characteristics for

board members.

But this election does not mean the

end of the members’ responsibility. They

need to keep in contact with the directors

to ask questions, make comments, and

request changes or new services. They

also need to observe and evaluate how

directors perform.

4. Provide necessary capital. A primary

responsibility is to finance the cooperative for the purpose of acquiring needed

goods and services, not for financial

returns. This is done initially through the

purchase of stock or a membership. It is

continued through patronage and/or use

of the cooperative. One-time

assessments or investments also may be

necessary to finance special fixed assets

or services. For a cooperative to be successful, it must have a volume of business. Normally, the greater the volume of

business, the greater the efficiency

obtainable, the more services available,

and the higher the earnings (profit) are

for members. Members’ patronage

finances the cooperative so the business

can continue. The greater the patronage,

the more likely the cooperative will be

able to provide, expand, and improve its

services. But if that is not the case, and

the cooperative loses money, members

have the same responsibility to share in

those losses as they do in the earnings.

5. Adopt legal papers. Members are

responsible for understanding, adopting,

and amending legal papers. They should

read and understand the cooperative’s

articles of incorporation and bylaws to

know how the business is to operate and

what services it can provide. Before voting to approve bylaw amendments, they

need to analyze them to determine how

they will affect the business. Members

must also become acquainted with the

contents of legally enforceable marketing

contracts or other legal papers before

signing them so that they can fulfill their

obligation to the business.

6. Evaluate performance of the cooperative. Members should examine the annual report, observe whether the

cooperative is meeting their needs, and

analyze efforts of the cooperative to communicate with members and the public.

Certainly this list is not all-encompassing, and some of the responsibilities listed are more important than others. But

to be a meaningful and useful business

organization, the cooperative must have

members who understand it and take

their rights and responsibilities seriously.

Qualifications of Members

Requirements for membership in cooperatives can consist of the following:

+ Members must be producers of farm

products (if an agricultural cooperative).

They may be a landowner receiving share

rent as well as an owner-operator or tenant-operator. The bylaws of many cooperatives provide that if members do not

patronize their cooperative for (I or 2)

consecutive years, they lose the right to

vote, and the membership stock or certifiMEMBERS

Members select from

among their peers

individuals with the

best judgment and

business management skills to represent them in most

management affairs

as the cooperative’s

board of directors.

This is definitely one

of the most important

responsibilities.

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The sole reason for

cate is transferred to a non-voting status.

+ They must have a financial investment

any cooperative’s ranging from $1 to $10,000 or more. A

few agricultural cooperatives do not have

existence is to serve any financial requirements - only that a

the needs of its userperson must be a farmer patron, or in

some cases also do a specified minimum

owners. amount of business a year.

. . + A formal application for membership

must be completed, including payment of

a membership fee or purchase of a share

of common stock for membership.

pleting the loan. Rural residents, nonfarmers as well as farmers, in areas served by

rural electric or telephone cooperatives,

become members to receive service. Persons wanting to participate in rural housing, recreation, credit unions, or other

cooperative programs must become members to receive these services.

Conclusion

Members are obligated to patronize

their cooperative. This varies from a

loosely implied obligation to a legally

binding contract between members and

their association to patronize it on a specific basis. Types of service that members

want dictate the nature of the patronage

obligation. Generally, these agreements

are more binding in cooperatives providing marketing services than in those purchasing supplies or providing specialized

services. Some cooperatives require in

their bylaws or legally enforceable marketing contracts that members must do a

specified percent of their business with

the cooperative annually.

The sole reason for any cooperative’s

existence is to serve the needs of its userowners. But these needs can neither be

flashed on a computer screen in response

to the push of a button nor drawn from a

hat at the opening of each board meeting.

In truth, there is no way to learn what

these needs are unless the cooperative

member voices them to the board of

directors and paid management. The

annual meeting is the vehicle for this.

Cooperative members attending their

annual meeting are not intended to be

only an audience, but rather a vital part of

the meeting. This is their opportunity to

evaluate the operations, finances, and

policies of the cooperative, along with

expressing their needs and views.

Farm Credit System cooperatives Exercise your rights and responsibilities

require eligible persons seeking loans to in participating in the business you own

purchase membership stock before com- and control, as a cooperative member. H

This circular is ona in 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, in a form that

can be readily adapted, with limited preparation time. to a lecture or other presentation.

For a complete listing of the series. write to RDA-Cooperative Services, U. S. Department of Agriculture, Education and Member Relations Program Area, Ag Box 3253, Washington, DC 20250.3253.

The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of rata, color, national origin,

sex, religion, age, disability, political beliefs and marital or familial 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

the USDA Dffice of Communications at (202) 720-5881 (voice) or (202) 720-7808 (TDD).

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call (202) 720-7327

(voice) or (202) 720-1127 (TDD). USDA is an equal employment opportunity employer.

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