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fosterswift.com
LegalResponsibilitiesofCooperativeBoardsofDirectors
SmallandEmergingCooperativesConference:March19,2013
ToddW.HoppeFoster,Swift,Collins&Smith,P.C.
1700E.BeltlineAve.NEGrandRapids,Michigan49525
(616)726‐[email protected]
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Whatarewegoingtodiscuss?
WhatisaCooperative– legallyspeaking? WhatisaBoardofDirectors? LegalrulesthatapplytoDirectors. RecommendationsforeffectiveBoards. Resourcestolearnmore.
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Whatisacooperative– legallyspeaking?
Acooperativeisabusinessorganization. UsuallyaCorporation FormedunderStatelaw
MichiganGeneralCorporationAct MichiganBusinessCorporationAct MichiganNonprofitCorporationAct
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Whatisacooperative– legallyspeaking?
GoverningDocuments ArticlesofIncorporation – FiledwiththeState
Bylaws – Containrulesforoperatingthecorporation,includingacooperativeplan
Policies,handbooks,etc.
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Whatisacooperative– legallyspeaking?
SeparateLegalEntity Generallytreatedlikeanaturalperson. Legallyitexistsseparatelyfromitsowners.
Stakeholders Owners=ShareholdersorMembers Overseers=BoardofDirectors PrimaryManagers=Officers Workers=Employees&IndependentContractors
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
WhatisaBoardofDirectors?
Boardof Directors:Overseethemanagementofthebusiness.
Directors: Electedbyshareholdersormembers Owefiduciarydutiestocorporation/shareholders/members. DirectorFees
NOTE– OfficersareDifferentfromDirectors: OfficersManagetheday‐to‐daybusiness. Mandatory:President,Secretary,Treasurer Optional:CEO,VicePresidents,GeneralManager Appointedbythedirectors. Oftentimesarepaidemployees.
Employees/IndependentContractors
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
LegalrulesthatapplytoDirectors
Noseparatesetofstandardsexistsforcooperativedirectors. Corporaterulesgenerallyapplytocooperativedirectors.
Rulesareestablishedunderstatutes,caselaw(judge‐madelaw),andeachcooperative’sgoverningdocuments
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
LegalrulesthatapplytoDirectors
Whilethelegalrulesarethesame,thebusinessstructureisquitedifferentfromordinarycorporations. Membersarealsothecustomersorpatrons. Membersarenotdisinterestedinvestors.
Differentfroma"normal"corporationwherethecorporation'sboardisresponsibleformaximizingshareholdervalue.
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
LegalrulesthatapplytoDirectors
Fiduciarydutiestothecooperativeanditsmembers: DutytoComplywithApplicableLawandtheGoverningDocuments(i.e.,thedutyofobedience)
DutyofCare DutyofLoyalty
• (DiscussionPoint‐ ConflictsofInterest)
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
LegalrulesthatapplytoDirectors
LimitsonDuties BusinessJudgmentRule Indemnification Insurance
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Recommendationsforeffectiveboards
Beprepared Educateyourselves Askquestions Establishexpectationsofmanagementemployees
Requireregularfinancialreporting Useexecutivesessions
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
RecommendationsforeffectiveBoards1. Boardrepresentscooperativemembers2. Boardestablishescooperativepolicies3. Boardhiresandsupervisesmanagement4. Boardisresponsibleforacquisitionandpreservationof
cooperativeassets5. Boardpreservesthecooperativecharacterofthe
organization6. Boardassessesthecooperative’sperformance7. Boardinformsmembers
SOURCE:USDA CooperativeInformationReport61(http://www.rurdev.usda.gov/supportdocuments/CIR61.pdf)
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsPreserveCharacter
Serveaccordingtolawsandregulations! Laws Bylaws Articles
Andcarryonthecooperative’sspirit!
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsSafeguardAssets
Protectmembers’investmentMakesoundfinancialdecisionsHireauditors
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsHireManager
AppraiseapplicantqualificationsDelegateday‐to‐daycontrolAppraiseperformance
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsSetPolicies
OriginateandapproveFunctionandbusinessrelatedReviewedandupdatedPolicymanual
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsDistributeBenefits
AmountofpatronagerefundProportionincashAllocatedequityUnallocatedequityEquityrevolvementandretirement
USDA,RBS,CIR11Chapter3‐ TheCooperative
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsPlan
Assessbusinessclimate Evaluatechallenges‐‐internalandexternalgrowth,businessvolume,membership,territory,assets
DevelopobjectivesandstrategiesMonitorprogress
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsSelf‐Evaluate
Internalassessments Self‐ ability,performance Wholeboardperformance Boardmeetingproductivity
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsChooseLeaders
ElectBoardOfficers President Vicepresident Secretary Treasurer
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
DirectorsAppointCommittees
Temporaryorpermanent Fieldofstudy(finance,feasibility,marketing,purchasing,etc.)
Recommendationstotheboard Powertodecide
USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Resourcestolearnmore
MidAmericaCooperativeCouncil MSU USDA:
http://www.rurdev.usda.gov/BCP_Coop_Education.html USDA CooperativeInformationReport61
http://www.rurdev.usda.gov/supportdocuments/CIR61.pdf CooperativeDirectors:AskingNecessaryQuestions
http://www.rurdev.usda.gov/supportdocuments/CIR62.pdf Manyothersavailableonline
LegalResponsibilitiesofCooperativeDirectorsMarch19,2013
2013,FosterSwiftCollins&Smith,PC.
Questions?
ToddW.HoppeFoster,Swift,Collins&Smith,P.C.
1700E.BeltlineAve.NEGrandRapids,Michigan49525
(616)726‐[email protected]