United StatesDepartment ofAgriculture

Rural Business–CooperativeService

RBS CooperativeInformationReport 11 What They Are and

the Role of Members,Directors, Managers, and Employees

Cooperatives:

Abstract This is an educational guide for teaching basic information about cooperatives. Itexplains what cooperatives are—their business, principle, and structural characteriza-tions, 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 mostextensive chapter and generally describes where and how cooperatives fit into theAmerican system of business, their unique principles and practices, and their definingstructural characteristics, and it introduces the roles of the major cooperative partici-pants—members, directors, manager, and employees. Chapters 2-5 go into furtherdetail about the participants. Chapter 2 gives an overview of cooperative members,Chapter 3 describes directors, Chapter 4 discusses the cooperative manager, andChapter 5 explains employees.

Each chapter includes visuals that coincide with and summarize the concepts andinformation provided in the text. These are available as PowerPoint slides from RuralBusiness-Cooperative Service for presentational use in educational/informationalforums.

Cooperatives: What They Are and the Role ofMembers, Directors, Managers, and Employees

This guide, revised by Patrick Duffey and James Wadsworth, combines five earlierpublications (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 CooperativeService. Also used in this revision was Co-ops 101 (CIR 55) by Donald E. Frederick.

USDA's cooperative interest program is now contained in USDA's Rural Developmentmission area and housed in Rural Business-Cooperative Service (RBS).

For a catalog of related publications, please ask for Cooperative Information Report 4and write USDA/RBS; 1400 Independence Ave. SW, Stop 0705; Washington, DC20250-0705 (phone: 202-720-8381 or FAX 202-690-4083).

Publications and information are also available on the internet, The RBS Web site is:http://www.rurdev.usda.gov/rbs/index.html

Cooperative Information Report 11

June 2001

Contents Chapter 1—What Are Cooperatives? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Business Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Unique Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Cooperative Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Structural Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Participation Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 .

Chapter 2—Members Make Cooperatives Work . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Commitment and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Ownership and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Financial Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Chapter 3—The Cooperative Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Selecting Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Director Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Chapter 4—What the Cooperative Manager Does . . . . . . . . . . . . . . . . . . . . . . . . . .22

Manager Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Representing the Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Chapter 5—What Cooperative Employees Do . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Characteristics of Quality Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

i

Chapter 1—What Are Cooperatives?

This chapter focuses on what cooperatives are, and explainstheir business, principle, and structural characteristics. Itintroduces the major participants—members, directors,managers, and employees—which are discussed in greaterdepth in chapters 2-5.

Business CharacteristicsThere are many ways of conducting a business in

the United States. Businesses carry different namesand offer distinct products and services. People buy,sell, trade, borro w, insure, and conduct all kinds ofbusiness transactions. But businesses are organized indifferent 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: indi-vidually owned businesses (proprietorships) where oneperson owns, operates, manages, and receives theprofits; partnerships which have two or more peoplewho jointly own, control, and operate the business,sharing proportionately in the risks and profit; and cor-porations with multiple owners that offer a variety ofgoods and services to customers.

Cooperatives are a type of corporation; a State-char-tered business organized and operating under its laws.Cooperatives resemble other businesses—they havelike physical facilities, perform similar functions, andfollow sound business practices. They operate underbylaws and other necessary legal papers. However,cooperatives are different from general investor-owned corporations, which are operated to make aprofit for those investors.

The cooperative corporation is a business owned andcontrolled by the people who use its services. Cooperativesare controlled by a board of directors (elected by mem-ber-owners), derive equity from member-owners,operate for the benefit of member-owners, and allocateearnings to members based on use.

Cooperative earnings from business with mem-bers are taxed once, either as income of the corporationwhen earned or as income of the members when allo-cated to them. Cooperatives usually have a perpetualexistence—members can routinely join or resign with-out disrupting ongoing operations.

There are over 47,000 cooperatives of all types inthe United States serving 100 million people, nearly 40percent of the population. Financial, consumer service,and business cooperatives provide credit, transporta-tion, facilities, recreational equipment, food, housing,

health care, child care, wholesale goods and supplies,electricity, telephone and electronic services, farm pro-duction supplies and service, and farm product mar-keting.

Unique PrinciplesThree principles distinguish cooperatives fro m

general corporations: user-owner, user control, anduser-benefits.

User-owner— the people who use thecooperative own it. Member-owners finance thecooperative’s assets and have an obligation to providefinancing in accordance with their use to keep thecooperative in business and permit it to gro w.

User-control—members, as owners, controloverall operations and activities of the cooperative.This control is exercised through voting at annual andother membership meetings, and indirectly throughthose members elected to the board of directors. This isgenerally done on a one-member, one-vote basis;however, some cooperatives may use proportionalvoting based on members’ use of the cooperative.

User-Benefit—The cooperative's sole purposeis to provide and distribute benefits to members on thebasis of their use. Distribution of earnings is a keybenefit based on members' use of the cooperative (orpatronage), not the amount of capital they haveinvested in it.

Extensive Benefits—The third principle onlypartially explains the benefits members may derivefrom owning and controlling their cooperatives. Thereare many potential benefits:

� Improves bargaining power—by combiningresources, needs, or products, members,through their cooperatives, improve their abili-ty to market, purchase, and serve.

� Reduces costs—volume purchasing of produc-tion supplies and pooled marketing of prod-ucts, lowers the per-unit costs to members.Cooperative-to-cooperative cooperationreduces overhead for necessary services.

� Market access—cooperatives often provide ser-vices and/or products that are unavailable tomembers otherwise.

� Improves products and quality of service—cooper-atives work to satisfy members by providing

1

quality products, facilities, equipment, and ser-vice, creating competition with good prices,and adding value to members’ products.

� Provides opportunity for political action—coopera-tives provide a way to organize for effectivepolitical action. They can meet to develop pri-orities and strategies and send representa-tives—speaking for many—to meet with legis-lators and regulators.

� Increases community strength—having a businessowned and controlled on a cooperative basishelps the entire community. Cooperatives gen-erate jobs and salaries for local residents. Theypay taxes that help finance schools, hospitals,and other community services.

� Provides a competitive yardstick effect—studieshave shown that cooperatives in the market-place create an impact on competition thatkeeps prices lower for related purchased ser-vices and supplies and higher for marketedgoods and products.

� Economic enhancement—cooperatives operate onsound business principles to create earningsthat are distributed back to members on thebasis of their use.

Cooperative PracticesCooperatives have basic practices that facilitate

the three distinguishing principles and further differ-entiate them from other businesses.

Patronage Refund System—Cooperativesreturn earnings to members, after costs have beencovered and needed operating capital obtained, onthe basis of their use of the cooperative. This ismost often done at fiscal year end from earningsgenerated on products and services suppliedand/or marketing conducted. Earnings arereturned to patrons—as cash and/or equityallocations—on the basis of the how muchbusiness each patron transacted with thecooperative during the year. These distributionsare called patronage refunds.

Limited Returns on Equity Capital—Membersform a cooperative to get a service—source ofsupplies, market for products, or performance ofspecialized functions—not necessarily a monetaryreturn on capital investment. Most cooperativesdon’t pay any dividends on capital while otherspay a modest return. Limiting returns on equitysupports the principle of distributing benefits

proportional to use.

Cooperation Among Cooperatives—Many localassociations are too small to gather the resourcesneeded 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, andinformal networks allow cooperatives to poolresources and assets to provide services and programson a collaborative basis at lower cost.

Cooperative Education—Cooperatives provideeducation and training to members, directors,employees, and others in the community that promotethe cooperative form of doing business. They work toensure that members, directors, and employees arewell apprised of their distinct, important roles in thecooperative and that others outside the cooperativeunderstand the uniqueness of the organization and itsbenefits to the community.

Such education is carried out directly and indi-rectly—directly by advertisements, public forums,internal training programs, etc., and indirectly by par-ticipation and funding of State cooperative councilsand other like associations that carry out the importantrole of cooperative education.

Structural CharacteristicsCooperatives are characterized by the geographi-

cal territory they serve, their governance system, andthe functions they perform. This provides an under-standing of cooperative differences pertaining to scopeof operations, member structure, and functional ser-vice.

Geographical—Cooperatives are often looselycharacterized as local, super local, regional, national,and international based on the size of area they serve.These characterizations describe the cooperative’s sizeand scope of operations in reference to servingmembers.

Local cooperatives operate in a relatively smallgeographic area (often a single county) with one ortwo facilities from which to serve members.

Super local cooperatives operate in two or morecounties, often with several branch facilities.

Regional cooperatives serve an area comprisingnumerous counties, an entire State, or a number ofStates.

National cooperatives serve a major portion ormost of the United States.

2

International cooperatives operate in more thanone country, with headquarters in the United States oranother country.

Governance System—Based on membershipstructure, cooperatives are classified as centralized,federated, or mixed. These three classificationsessentially define who the members are and how thecooperative is organized to serve them.

Centralized cooperatives have individuals andbusiness entities as members. A centralized coopera-tive has one central office, one board of directors elect-ed by its members, and a manager who supervises alloperations. Business may be conducted throughbranch offices or stores staffed by employees responsi-ble to the central management team.

Federated cooperatives have other cooperatives asmembers. Each member of a federated is a separatecooperative that owns a membership share entitling itto voting rights in the affairs of the federated. Eachmember of a federated cooperative typically has itsown board of directors, manager, employees, and facil-ities to serve its members.

The federated has its own hired management andstaff and a board of directors elected by and represent-ing the member cooperatives. It performs activitiesoften too complex and expensive for them to do indi-vidually, such as manufacturing production supplies,tapping major financial markets, and marketing on aregional, national, or worldwide basis.

Mixed cooperatives have both individuals andother cooperatives as members. These cooperativeshave features of both centralized and federated coop-eratives.

Functions Performed—Cooperatives mayperform one or more of three core functions: marketingproducts, purchasing supplies, and providing services.These functions further explain a cooperative’spurpose and scope.

Marketing cooperatives assist members in maximiz-ing the returns they receive for goods they produce.Most cooperative marketing activity involves eitheragricultural products or those of producers in relatedindustries such as forestry, horticulture, and aquacul-ture. They handle, process, and sell cotton, dairy prod-ucts, fruit and vegetables, grains and oilseeds, live-stock and poultry, nuts, rice, sugar, and otheragricultural commodities. They sometimes add valueby developing raw member goods into desirable con-sumer products.

Marketing cooperatives enable members toextend control of their products—and realize addition-al margins—through processing, distribution, and sale.

Purchasing cooperatives allow members to gainaccess to affordable production supplies and goods. Bypurchasing for numerous members in bulk, coopera-tives reduce member costs and strengthen their pur-chasing power.

Many local purchasing cooperatives are affiliatedwith other such organizations, often through regionaland national federated cooperatives. Such cooperationefforts further reduce member costs and strengthentheir purchasing power through direct ownership oflarge-scale facilities such as petroleum refineries, fertil-izer and feed plants, research facilities, etc. Hardwarestores, independent grocery stores, and fast foodrestaurant franchises, among others, have also devel-oped purchasing cooperatives.

Service cooperatives exist in a number of avenues.They provide farm-specific services such as animalfeed processing and crop harvesting, and recommend-ing and applying fertilizer, lime, or pesticides. Othersprovide electricity and telephone service, credit, hous-ing, and health care.

Participation RolesCooperative organizations operate through the

participation of the principal parties—members, direc-tors, manager, and employees. These cooperative par-ticipators have separate roles, though they share thecommon interest of building a successful business.

Members—As owners of the business, theyorganize, incorporate, finance, and elect directors to setthe cooperative's policy and govern. Members use thecooperative and are the reason for its existence.

Directors—Members of the board are electedby, and serve at the will of, the membership. Whilesome serve limited terms, others serve multiple terms.They have two primary responsibilities—hirecompetent management and guide the direction of thebusiness by providing policy and oversight to itsoperation.

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Manager—The manager reports to and worksclosely with the board of directors. He or she isresponsible for the day-to-day operations andperformance of the cooperative.

Employees—Hired by the manager, employeeswork for the member-owners in carrying outresponsibilities in the cooperative’s operation asdictated by the manager.

SummaryPeople and businesses use cooperatives to serve

their common interests and for mutual benefit.Cooperatives are complex organizations with uniqueprinciples, practices, member benefits, and structuralcharacteristics. Geographic area, governance system,and functions performed explain organizational struc-ture and size and scope of member service.

Cooperatives exist in many segments of theAmerican system of business today providing purchasing, marketing, and service for member-owners.Members use purchasing cooperatives to buy food,consumer goods, and business and production sup-plies. Cooperatives are used to market and processfarm-grown commodities such as corn, soybeans,wheat, and cotton. Others provide transportation,credit, housing, recreational equipment, and facilities.

Coperatives consist of members, directors, mam-agement, and employees. All have important partici-pation roles to play and responsibilities to fulfill.

4

5

A Type of Business Dependent On

Partnership

Individually Owned Business

Corporations

� Who owns the business?� Who conrols the business?� Who uses the business?� Who gets the profis?

One Person

� Owns� Controls� Operates� Benefits/profits

Two or more people

� O w n� Control� Operate� Share in risks and profit

� Multiple owners� Variety of goods and services� Physical faciliies� State chartered� Investors� Profits shared among investors

A-1

A-3 A-4

A-2

Cooperatives Are a Type of Corporation Cooperatives

� Multiple owners who are user members� Variety of goods and services� Physical facilities� State chartered� Members are investors� Owned and controlled by members whouse its services

� Are primarily controlled by a board ofdirectors elected by and from members

� Derive equity from member owners� Operate for the benefit of memberowners

� Allocate earnings to members based onuse

� Earnings from member business is taxedonce

� Have perpetual existence

A-5 A-6

6

The Cooperative Form ofBusiness Is Prevalent

Cooperatives Provide

Types of Cooperatives

Cooperatives Have UniquePrinciples

User--Owner

User--Control

User--Benefit

� More than 47,000 cooperatives in the UnitedStates

� Serve 100 million people, 40 percent of thepopulation

� There are several types of cooperativesserving many sectors

� Credit� Transportation� Facilities� Recreationalequipment

� Food� Housing� Health care� Child care

� Wholesale goodsand supplies

� Electricity� Telephone and electric services

� Farm productionsupplies and ser-vice

� Farm marketing

� Financial

� Consumer service

� Business

User-Owner Principle User-Control Principle

A-7 A-8

A-9 A-10

A-11 A-12

The people who own and

finance the cooperative are

those who use it.

The people who use the

cooperative are those who

control the cooperative.

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Members Exercise Control By

User-Benefits

User-Benefit Principle

The cooperative’s sole purpose

is to provide and distribute

benefits to members on the

basis of their use.

Cooperative Practices

� Voting at annual and membership meetings

� Electing board of directors� Making decisions on major cooperative issues

� Bargaining power� Market access� Communitystrength

� Political action� Reduced costs� Quality productsand services

� Economicenhancement

� Competitiveyardstick

� Patronage Refunds - distribute earningsto members based on use

� Limited Return on Equity Capital - mem-bers form cooperatives for service, notfor a monetary return on investment

� Cooperative Cooperation - joint ven-tures, MAC’s, networks, alliances, work-ing relationships, etc.

� Cooperative Education - promote thecooperative way of doing business andeducate members, directors, andemployees

A-13

A-15

A-14

A-16

Geographical Structure

Geographical characterization defines acooperative’s size and scope of operations in

reference to serving members.

Cooperative Governance SystemStructure

Based on membership sructure and essentiallydefines who the members are and how the

cooperative is organized� Local - small region (county) covered� Super local - two or more counties,branches

� Regional - numerous counties, State ormore

� National - United States-wide� International - worldwide

� Centralized structure - Individuals are directmembers

� Federated structure - Cooperatives are directmembers

� Mixed structure - Individuals andcooperatives both are direct members

A-17 A-18

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Centralized Structure

Mixed Structure

Federated Structure

Cooperative Functions

Cooperative

Member MemberMember

Cooperative

Member

Member

Member Member

Member

Cooperative

LocalCooperative

LocalCooperative

Member Member MemberMember

Three Core Functions:

� Marketing - extend control of members products through pro-cessing, distribution, and sale

� Purchasing - provide affordablesupplies and goods

� Service - provide needed services

Marketing Cooperatives

Assist members in maximizingreturns from goods they produce.

Marketing Cooperatives

Assist members to maximize the return theyreceive for the goods they produce

� Handle, process, and sell� Grade, transport, bargain� Add value� Research new product development

� Agricultural

� Forestry

� Aquaculture

� Horticulture

� Crafts

Extend control

of their products

and realize addi-

tional margins

� Transport� Process� Grade� Add value� Research� Distribute� Bargain� Sell

Member MemberProducts Functions Benefits

A-19

A-21

A-20

A-22

A-23 A-24

LocalCooperative

9

Purchasing Cooperatives

Allow members to gain access toaffordable production supplies

and goods.

Service Cooperatives

Provide needed services.

Purchasing Cooperatives

Used by members to gain accesss to affordable, quality supplies.

Service Cooperatives

� Purchase in bulk to reduce costs andincrease purchasing power

� Provide direct ownership of refineries,plants, retail facilities, research facilities

� Meet many needs� Custom application of purchased supplies,transport of product, etc.

� Provide utilities, credit, housing, health care,technology, etc.

� Hardwarestores

� Indepen-dentgrocerystores

� Fast foodfranchises

� Reducedcosts

� Volume dis-counts

� Quality con-trol

� Increasedaccess

Member MemberProducts Functions Benefits

Used by members to gain access to affordable,quality services

Members MemberProducts Functions Benefits

� Producers� Ruralresidents

� Urbanresidents

� Public

� Access toservices

� Affordableservices

� Quality� Increasedaccess

� Farm applica-tions

� Credit� Electricity� Communica-tions

� Insurance� Health care� Schooling� Housing

A-25

A-27

A-26

A-28

Participation Roles

Cooperatives operate throughthe roles of principal parties.

Organizational Make-Up

� Members� Directors� Manager� Employees

Board of Directors

Manager

Employees

A-29 A-30

Members

� Refineries� Plants� Feed Mills� W arehouse� Manufacture� Buy in bulk� Deliver

Chapter 2—Members Make Cooperatives Work

This chapter focuses on members—who they areand their responsibilities as owners, with particularemphasis on control, financing, and patronage.

Members are the foundation of the cooperative.They organized it and their needs are the reason for itsexistence. Member support, through patronage andcapital investment, keeps it economically healthy. Andtheir changing requirements shape the cooperative’sfuture.

Members can be individuals, businesses, or otherorganizations drawn together by a mutual interest.Members own and use the cooperative. They providesufficient financial support so the cooperative canoperate; and through active participation and theirelected representatives, members ensure that the coop-erative has the right mix of management, personnel,facilities, and equipment to meet their needs.

Commitment and UseThe success of a cooperative hinges on the com-

mitment of its members. They must be committed tousing it, controlling it, and financing it.

A basic requirement of membership in a coopera-tive is to patronize and use its services. Benefits accrueto members through patronage and are thereby direct-ly affected by the extent and consistency of patronage.

While member commitment to patronage shouldbe a given, there are various methods used to compelit. Patronage is elicited by cooperatives through per-suasion—exhorting members to support the coopera-tive for the common welfare of all, by legally bindingmembership agreements, and by substantial up-frontcapital contribution requirements.

Using the cooperative is members’ easiest respon-sibility to carry out, and by using it as much as theycan, members help the cooperative directly succeed inseveral ways:

� A certain amount of business is needed just tocover the cost of opening the doors each day,including maintaining buildings and equip-ment, utilities, and salaries. Greater volumereduces these costs per unit of sale. Facilitiescan operate closer to capacity. Equipment andemployees can be more productive. All togeth-er, the cooperative is able to generate more

income above costs and return patronagerefunds to members at the end of the coopera-tive’s business year.

� Using the cooperative helps provide the financ-ing to keep it operating and growing. Memberfinancing is provided on the basis of members’use of the cooperative.

� Using the cooperative is how members gain thebenefits they sought when they first formed(provided support and start-up capital) orjoined the cooperative.

Members must make a conscious decision topatronize the cooperative even when short-term pricesor services may be better elsewhere. If members don’twant to use the cooperative, the need for it must bereexamined.

Maximum use helps the cooperative and ulti-mately members as well. The stronger the cooperative,the more competitive it can be in the marketplace. Thecooperative may be able to influence suppliers to pro-vide products or services specialized to members’needs. A prosperous cooperative with the solid sup-port of its members is often recognized as a businessleader in its community or industry.

Ownership and ControlAs members use their cooperative, it is impera-

tive that they recognize their special role as owners. Asowners, members have certain legal responsibilities:incorporate the cooperative; approve (and change) arti-cles of incorporation, bylaws, and major policies; signmarketing agreements and other binding contracts;elect directors according to State statute and coopera-tive bylaws; vote on significant actions affecting thecooperative’s legal status such as mergers, acquisi-tions, or other asset changes, and if necessary, to dis-solve the organization; and ensurethat the cooperativefollows general business laws and those unique tocooperatives such as taxation.

As incorporated businesses, cooperatives givemembers limited liability protection. Even though thismeans members' maximum loss is only the capitalthey've invested, inattention to ownership responsibil-ities often dilutes the value of the cooperative to themas users.

For example, capital used to defend the coopera-tive in a lawsuit or fines for violating regulationscould have been used to enhance the cooperative'sability to serve its members.

Although members may have many ownership"partners," each has associated legal responsibilities as

10

if he or she were sole owner. A cooperative's successdepends largely on how well members understandwhat it is and how it operates. Members make busi-ness decisions (directly or indirectly) through theirelected representatives that benefit all member-users.

Cooperatives must provide members with impor-tant documents (e.g., "owner’s manual") so that theyclearly understand its business practices and its reasonfor being. Such materials usually include:

� the definition of the cooperative (e.g., missionstatement or clause clearly identifying its majorpurpose) and an explanation of its unique prin-ciples and practices;

� the history of when and how the cooperativestarted;

� articles of incorporation and bylaws;� information on organizational structure andstaffing;

� operational scope and products handled and ser-vices offered; and

� operating policies.Members who understand their cooperative can

make wide use of it for their benefit and offer con-structive criticism and suggestions affecting its future.

Members carry the cooperative's image to thecommunity and business environment. Although largecooperatives often hire professionals trained in com-munications, public relations, member relations, andgovernmental affairs, members are themselves oftenthe best representatives. They promote the cooperativeto potential members and explain it to others.Members also make sure it acts as a good communitycitizen by contributing funds, providing leadership,and participating in civic activities.

While cooperatives are politically neutral andavoid political affiliation, they do attempt to influencelegislation affecting their business environment.Members and directors may participate in politicalactivities, but the bylaws usually set conditions formanagers, directors, and employees.

Control Guidelines—Members control theircooperatives by shaping the legal framework in thearticles of incorporation and bylaws. The board ofdirectors and hired management must legally abide bythe provisions of these documents. Only themembership can change them.

The articles list the cooperative's name, place ofbusiness, capital structure, and incorporators, anddescribe the type, purpose, operations, membershipqualifications, duties of officers and directors, meetingand voting procedures, raising and refunding of mem-

ber capital, and procedures and rights in case of disso-lution. Other control documents include membershipapplications and marketing agreements.

The policies reflect the operating philosophy andguide actions it will take to fulfill its mission. Membersdelegate the responsibility for development, review,and change of policies to the board of directors.Policies cover employee conduct and work rules, officehours, board/management functions, member credit,safety, risk management, public relations, and othertopics related to successfully conducting the coopera-tive's business.

Governance—Members also control theircooperative by casting votes on major businessdecisions (for example, merger) and by the authoritythey delegate to the board through a democraticelection process. Level of control is directly related tomembers’ degree of participation in this importantprocess.

Formal decisions are made by members at theannual meeting such as nominating and electing direc-tors, amending the bylaws, accepting the audit report,voting on major actions or policies proposed by theboard and management, and voting on resolutions andmotions.

Informal participation covers participation incooperative activities such as:

� serving on advisory committees and taking onspecial assignments;

� expressing opinions in discussions with othermembers or directors;

� providing feedback to employees and manage-ment;

� responding to surveys about attitudes andassessments, product and service evaluations,buying and marketing intentions, and provid-ing other opinions about changing conditions.

Active member participation provides additionalinformation that helps the board and management bet-ter carry out their responsibilities. By active involve-ment in the governance process, members maintaincontrol of the cooperative's scope, direction, and oper-ation.

Members place the health of the cooperative inthe hands of directors. Members reaffirm performanceby re-electing directors or seek improvements by elect-ing new directors.

Members must participate in the governanceactivities of their cooperative or accept the decisionsmade by others.

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Financial ResponsibilityMembers have a responsibility to finance their

cooperative in proportion to their use of it. Membersprovide operating capital (equity) in three primaryways: direct investment, retained margins, and per-unit capital retains.

� Direct investment—refers to cash purchases ofmembership certificates, common and pre-ferred stock, or other forms of equity.

� Retained margins—At fiscal year end whenmembers receive a patronage refund based ontheir share of net income as determined bytheir use in the cooperative, they reinvest partof it as determined by the board of directors.Federal tax law requires that 20 percent of therefund be paid in cash. The rest is reinvested inthe cooperative and later paid back to membersaccording to a revolving cycle determined bythe board.

� Per-unit retain—Members use this method toinvest each time they conduct business withthe cooperative. The cooperative retains a spe-cific amount per physical unit (pounds,bushels, or cartons) involved in member trans-actions. Retains are accumulated and thenrevolved back to members over a period ofyears.

Startup capital—When cooperatives areorganized and started, they require an initial infusionof capital. For a proposed cooperative business to havea chance at succeeding, prospective members mustinvest in the venture. Their commitment must be largeenough to show continuing concern about how theirinvested money is being managed and that willmotivate them to accept ownership responsibilities.

The amount of capital required is determined byeconomic feasibility studies and financial cost analy-ses. Some startup costs—legal fees, facilities andequipment, inventory, salaries, insurance, office furni-ture, and administrative supplies—will continue asoperating expenses.

Control follows finance—Those three wordsexplain the importance of members’ responsibility tofinance their cooperative. A desirable goal is to havemembers’ contribution of equity capital amounting toa majority of the cooperative’s total capitalrequirement. A high level of member equity capitalprovides 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 maypressure the board to allocate funds to redeem oldequity while current members want more moneyinvested in new facilities and better services. Beingfinanced largely by current members results in a mem-bership more likely to have common interests andobjectives.

SummaryAs owners of the cooperative, members have

associated responsibilities. They must use, control, andfinance their cooperative to gain the economic benefitsfor which it was organized.

In taking an active ownership role by patronizingand financing the cooperative, expressing their viewsand needs, participating in the governance process anddecisionmaking, and evaluating how well the coopera-tive is performing, they gain other benefits as well.

They become educated in business practices andsee first hand the benefits derived from workingtogether. They often gain valuable leadership training.The experience they gain from expressing their viewsin various meetings, participating on committees, serv-ing on the board of directors, and speaking on behalfof the cooperative helps develop leadership traits thatthey transfer to other personal and business pursuits.

Participation in cooperative business affairs canadd to a member’s personal stature in the community,in the industry in which the cooperative operates, andin governmental affairs.

All in all, cooperative ownership can give a mem-ber a well-earned sense of personal and businessachievement along with the numerous benefits thecooperative’s existence provides.

12

13

Exercising MemberResponsibilities

� Commitment and use� Ownership and control� Finance

Member-OwnerCommitment and Use

Commit to:

� Use products and services� Maintain control� Provide financing

Member-OwnerCommitment and Use

Using the cooperative is members’ easiest

responsibility to carry out, and by using it

as much as they can, members help the

cooperative succeed.

Member Ownership and Control

� Know legal responsibilities� Understand the cooperative� Make decisions� Vote� Express opinions� Serve (board/commitees)

Owners Must Understand TheirCooperative

Know and understand its:

� Definition and history� Mission or purpose� Articles and bylaws� Organizatonal structureand staffing

� Products and services� Policies

B-1 B-2

B-3 B-4

B-6

Member-Owners Have LegalResponsibilities

� Incorporate� Approve legal documents� Elect directors according to man-dated State law and cooperativepolicy

� Ensure that general business andcooperative-specific laws are fol-lowed

� Make major decisions that alterlegal status

B-5

14

Using the CooperativeIs Essential for

W ays Member-Owners FinanceCooperatives

� Maintaining control� Achieving business success� Fulfilling member needs� Producing continuing benefits

� Direct investment� Retained margins� Per-unit retains� Start-up capital

Member-Owner FinancialResponsibilities

Control follows finance:

� Finance in proportion to use� Most capital from members� Distribute earnings according touse

� Return equity to inactive members� Revolve equity

B-7

B-9

B-8

15

Chapter 3—The Cooperative Director

This chapter focuses on the board of directors. It coverscharacteristics members should consider in choosing a direc-tor to represent them, alternatives for nominating and elect-ing directors, and functions and responsibilities of directors.

The cooperative board of directors—the key posi-tion between members and hired management and themakers of cooperative policy—is an important body inthe make-up of a cooperative. Elected by members, direc-tors are charged with fulfilling responsibilities withinthe parameters of the cooperative’s policies and thelaw. They must set overall objectives and chart thecourse the cooperative will follow to achieve thoseobjectives.

Being a director is an extremely important functionin a cooperative and it must be taken seriously. Toeffectively carry out their duties, directors have to bewell versed in many critical areas and able to providesufficient time and energy. Serving on a cooperative'sboard of directors can be time consuming in carryingout formal and informal duties. While attending boardand committee meetings may take only a couple dayseach month, informal duties such as listening, inform-ing, and providing advice to members; writing letters;reading materials to be informed and prepared formeetings; and other duties can consume a lot of extratime.

Directors are also asked to represent the coopera-tive at community functions and take leadership rolesin community organizations on behalf of the coopera-tive. In larger cooperatives, directors are periodicallyasked to visit State and Federal legislators and offi-cials.

Selecting DirectorsIn considering attributes of a potential director,

members should look for people who are good conver-sationalists, can clearly express their views, are goodlisteners, and are active in organizations extendingoutside the community. A good director must also beable to establish two-way communications with themanager, other directors, and members.

A director can be a powerful force for strengthen-ing member support, promoting the cooperative in thecommunity, and in other ways influencing the businessenvironment in which the cooperative operates. Thus,a good potential director has the ability to get along

with others, uses the cooperative fully, is interested inits performance, and will actively participate in mak-ing decisions.

Cooperative directors need good business judge-ment, often gained from their jobs or operating theirown businesses (e.g., farms). But, in this case, directorsare responsible for a service-oriented business ownedby hundreds or thousands of producers.

A good director candidate over time makes themost of available resources and is known to be a solidthinker. Members with college degrees or other rele-vant business experience bring special expertise to theboard.

Selection Methods—Size, structure, andfunction of the cooperative may dictate how directorsare chosen. Various systems can be used to produceequitable representation of the membership. Some arebased on geographical districts with nearly equalmembership numbers, along commodity lines, orvolume of member business.

Cooperatives' democratic control principle hasbeen interpreted to mean equal voting rights, yet doesnot preclude using proportional voting to achieveequitable voting rights. State statutes offer guidance onhow the cooperative can elect directors.

A nominating committee is often used althoughcandidates may also be offered from the floor. Thecommittee may be appointed by the board chairman orelected by the membership. Former directors are oftennamed although existing directors, hired management,or staff should not serve.

A biographical sketch of candidates should bedeveloped and given to members before the election.An ideal slate offers at least two candidates for eachposition. Some large cooperatives with large or scat-tered membership may use district caucuses or mailballoting to nominate candidates. Directors are electedat the annual meeting.

Many cooperatives elect directors "at large,"meaning the entire membership can vote directly to filleach director position, and each director represents theentire membership. As a cooperative grows, or thecomposition of its membership changes, or it combineswith one or more other cooperatives, the "at-large"method may become impractical.

Other cooperatives have other systems to pro-duce equitable representation of the membership.Some divide the cooperative’s territory into geographicdistricts with nearly equal membership numbers.Others establish roughly equal territories based on vol-ume of member business. And others establish districts

16

along commodity lines. Some cooperatives have provi-sions for a public "at large" director who can contributea special expertise, such as an agricultural economist, alawyer, or a financial or governmental affairs specialist.

Regardless of the method, the members need to befamiliar with director qualifications, the articles andbylaws, and leading candidates among the membership.

Director ResponsibilitiesUnderstanding the differences between manager

and director roles is a key requirement for board effec-tiveness and harmony. Their roles in a cooperative areunique among businesses. The uniqueness centers onthe employee-only status of the cooperative's managercompared with the manager of other businesses typi-cally sharing in ownership. A cooperative managershould not be a member of the board, but must attendand contribute to board meetings.

More decisive differences exist between the direc-tor and manager roles and responsibilities. Directorshave primary control and use a strategic perspective indetermining how to best serve members' needs and inderiving the organizational and operating policiesrequired to do that. Directors delegate to the manager,but should take counsel from the manager when it isappropriate. Conversely, the manager has operationscontrol and uses a more tactical perspective—delegat-ed by the board—in running the day-to-day operationsof the cooperative. Decisions made by the managermust be in line with the cooperative objectives andgeneral direction set by the board. The manager alsoadvises the board when asked on policies and pro-grams.

Just as it is important that the manager under-stand that he/she is not a board member and mustdefer to the board of directors on major decisions, poli-cy and overall cooperative direction, directors mustalso recognize the division of responsibility.

Preserving Character—Directors areresponsible for preserving the cooperative's character.Each State has at least one statute related to it. Federallaws have specific requirements related to Governmentprograms, antitrust, and taxation. Also, the bylaws andarticles of incorporation state what the cooperative isand how it must operate. Directors can be held legallyliable as individuals for violating these laws andregulations.

However, over time, a subtle but very real threatto the organization's cooperative character may devel-op. Management and board philosophy can drift fro mthe cooperative's formally adopted mission or may lose

touch with the members' changing needs. Without con-tinual education of the key participants—managersand staff, directors, and members—the cooperativecharacter, except that defined by law, can slip awayand become regarded the same as any other business.

Safeguard Assets—Members who invest in thecooperative expect some kind of beneficial return.They entrust the board to make sound businessdecisions to protect their investment and increase thevalue in terms of producing benefits. Directors areaccountable for both their actions and those of hiredmanagement. The board equitably distributes benefitsby weighing the cooperative's business needs andthose of member owners. Each year the board hires anindividual or firm to audit the cooperative's financialrecords and presents results in an annual report tomembers.

Hire Manager—The board's most importantdecision that determines the success (or failure) of thecooperative is hiring (or firing) the manager. The boardobjectively appraises candidates' qualifications—leadership, compatibility of attitudes and goals, andknowledge of the uniqueness of cooperatives.

The board delegates day-to-day control and guid-ance to the manager through bylaw provisions, writtenpolicies, budgeting, strategic planning, reportingrequirements, and performance accountability. Theboard also annually reviews the manager's perfor-mance and seeks ways to improve problem areas.

Set Policies—The board originates andapproves general policies that relate to thecooperative's functions and how it conducts business.The policies cover internal and external activities andserve as a basis for making consistent decisions thatminimize conflict and maximize accountability.

Policies cover director and manager functionsand relationships; member, employee and public rela-tions; organizational requirements; and operationalactivities such as credit, pricing functions performed,and purchasing, marketing, and services provided.These written policies should be periodically reviewedand updated.

These policies are discussed, written in finalform, approved, and reviewed at least annually by theboard. A policy manual is developed and distributedto each director and the manager.

General policy statements reflect the board's phi-losophy of what kind of business the cooperativeshould be, such as striving to provide leadership and

17

cooperate with other businesses. Hence, the managercan make minor commitments to participate in com-munity events without first getting board approval.

Policies—may also be specific: "No additionalcredit shall be extended to any patron whose accountis 120 days past due." Such a policy gives the managerauthority to refuse extending additional credit even toa director. Here are some other simplified examples:

Policy—An independent Certified PublicAccountant shall audit the financial records at the endof the fiscal year. Implementation—The manager keepsappropriate records and provides other informationneeded for the audit.

Policy—An annual business plan shall be pre-pared for approval and progress report made atmonthly board meetings. Implementation— Without fur-ther specifics, the manager prepares a budget forapproval, then compares it to actual business transact-ed, and reports any other information that would helpthe board understand the cooperative's financial sta-tus.

Policy—Employee pay raises will be based on jobperformance. Implementation—Job descriptions andperformance standards are written for each employeeand performance is reviewed annually. Amount of payraise depends on performance evaluation results.

Policy—An annual membership meeting shall beconducted. Implementation—Management plans, orga-nizes, and conducts the annual meeting.

Distribute Benefits—The cooperative'sperformance is recorded on a fiscal year-end statementof operations and balance sheet. The board determineshow the net income (or loss) will be distributed. Withnet income, it decides how much patronage refund topay members in cash (Federal law requires at least 20percent), how much to place in allocated equity to helpoperate the cooperative, and how much to retain forcapital needs. Allocated equity refunds are members'equity (ownership) in the cooperative, and areperiodically revolved back to the members on aschedule determined by the board.

Strategically Plan—Knowing the cooperative'sneeds, the board provides leadership in developingplans to meet them. The process starts with anassessment of the general and changing businessclimate that affects both members and the cooperative.In long-range planning, the board and managementconsider challenges relating to internal and externalorganizational growth, business volume, membership,territory served, assets, etc. They develop objectivesand strategies to achieve and they monitor progress onan ongoing basis.

Self-Evaluate—The board conducts an internalassessment to assess how well it is fulfillingresponsibilities. Directors should assess themselves,the board’s performance, and board meetingeffectiveness. Conducting such assessments identifiesweaknesses and allows for the development ofcorrective actions.

Elect Board Officers— The board usually electsthe cooperative’s officers shortly after the annualmeeting. Each officer has specific duties as detailed inthe cooperative’s bylaws.

� The president presides at all meetings, watchesover the association’s affairs, and serves as themain communication link between hired man-agement and the other directors and members.

� The vice president, in the absence or disabilityof the president, performs the duties of presi-dent.

� The secretary keeps a complete record of allmeetings of the board of directors and generalmembership and also is the official custodian ofthe cooperative’s seal, bylaws, and membershiprecords.

� The treasurer oversees the bookkeeping andbusiness accounts to ensure accuracy and prop-er handling. The treasurer also presents period-ic financial reports.

Appoint Board Committees—The board’s workmay be divided among special or permanentcommittees, each dealing with a phase of theassociation’s operations, such as finance, purchasing,feasibility, marketing, and others.

Committees study the problems in their particu-lar field and make recommendations to the board ofdirectors. In some instances, committees may be givencertain powers to act for the board, subject to laterreview by the entire board.

18

SummaryThe board of directors is the cooperative’s central

decision center. In carrying out this overall responsi-bility, the board performs several important support-ing roles. It is a listening post, hearing from manage-ment and membership. It is a communications hub,imparting information between members and man-agement. It is an advisory body to members and man-agement, providing recommendations and guidance.But in every role and action, the board is accountableto members.

Members choose director candidates and electthem to office. From their peers, members select indi-viduals with the best judgement and business man-agement skills to represent them and conduct affairson the cooperative’s board of directors. Loyalty,integrity, the ability to make wise business decisions,and willingness to serve are necessary characteristicsfor board members.

Acting as a group, directors set the objectives forthe cooperative and make decisions that set the coursethe cooperative will follow in achieving those objec-tives.

In carrying out their responsibilities, directorsserve much like trustees, charged with a legal obliga-tion to protect the assets of the members. Directorsmust fulfill their responsibilities while exercising duecare to act within the parameters of the cooperative’spolicies and the law.

19

Selecting Directors

A good director should be able to:

Directors

Potential Directors

� Hold a key position between members and hired management

� Set cooperative objectives and chartits course

� Make cooperative policy� Must be well versed in many areas� Have time and energy� Listen, inform, advise� Represent the cooperative

� Show leadership� Think independently� Place cooperative’s interests first� Make good business decisions� Communicate well� Express views� Make the most of available resources� Promote the cooperative

Furthermore, a Director:

� Gets along with others� Uses the cooperative fully� Is interested in its performance� Participates in decision-making� Understands that he/she is repre-senting owners in their business

� Understands his/her role in rela-tion to management

� Identify potential directors with anominating committee

� Biographical sketch should be studiedby the membership prior to the election

� Considered for election at annualmeeting

Elect Directors Elected Directors

Equitable representation:

� At-large system� Geography� Business volume� Commodity� Personal expertise

Have primary control:

� Use strategic perspective tobetter service members’ needs

� Delegates daily opertional con-trol to the manager

C-1

C-3

C-5

C-2

C-4

C-6

20

Directors Recognize Divison ofResponsibility

Directors Preserve Co-op’s Character

Director Responsibilities

Directors Safeguard Assets

Directors:

� Have primary control

� Strategic perspective

� Develop operational

and organizational

policies

� Take control from

manager

� Big-view decisions

� Provide direction

� Hire/fire manager

Manager:

� Has operational control

� Tactical perspective

� Follows operational and

organizational policies

� Advises board

� Day-to-day decisions

� Acts in line with direc-

tion

� Hires/fires staff

Serve according to :

� Protect members’ investment

� Make sound financial decisions

� Hire auditors

� Preserve cooperative character� Safeguard assets� Hire the manager� Set policies� Distribute benefits� Plan for the future� Evaluate� Elect board officers� Appoint committees

� Laws

� Bylaws

� Articles

C-7

C-9

C-8

C-10

Directors Hire Manager

� Appraise applicant qualifications

� Delegate day-to-day control

� Appraise performance

Directors Set Policies

� Originate and approve

� Function and business related

� Review and update

� Create policy manual

C-11 C-12

21

Directors Appoint Committees

� Temporary or permanent

� Field of study (finance, feasibility,

marketing, purchasing, etc.)

� Recommendations to the board

� Power to decide

Directors Distribute Benefits

� Amount of patronage refund

� Proportion in cash

� Allocated equity

� Unallocated equity

� Equity revolvement and retirement

Directors Plan

� Assess business

� Evaluate challenges—internal and

external growth, business volume,

membership, territory, assets

� Develop objectives and strategies

� Monitor progress

C-13 C-14

Directors Self-Evaluate

Internal assessments

� Self-ability, performance

� Whole board performance

� Board meeting productivity

Directors Choose Leaders

Elect Board Officers

� President

� Vice president

� Secretary

� Treasurer

C-15

C-17

C-16

22

Chapter 4—What the Cooperative

Manager Does

This chapter focuses on managers and their responsi-bilities, with particular emphasis on differences betweenmanaging a cooperative versus other forms of business.

All businesses are managed to provide a returnon the investment of stockholder-owners. The manag-er of an investor-owned corporation basically needs tosatisfy stockholders with the yield they’re getting ontheir invested money. The manager of a cooperative,likewise, needs to satisfy its member-owners but needsa lot more help from them—information, participation,and decisionmaking. Because of the active participa-tion level of members, there must be considerablecommunication between them and the manager.

Success of a cooperative largely depends on goodboard/manager relationships. The working relation-ship between board and manager requires respect andan understanding of each other’s responsibilities (theprevious chapter indicated responsibility differences).

Like any other business, cooperatives attempt toseek the best managers, offering comparable wagesand benefits, performance incentives, and retirementprograms. Managers are hired to operate the business,focusing energies and efforts on everyday operationsto serve members. When interviewing manager candi-dates, the board must make the ownership issue clearand further stress that the manager is accountable to theboard.

The board of directors decides what the coopera-tive will do; the manager and immediate staff decidehow it can best be done—subject to board review—inachieving the primary objective of serving memberseffectively.

Manager ResponsibilitiesFor most corporations, the roles of the manager

and directors are generally the same. Understandingthe differences in a cooperative is a key requirementfor an effective and harmonious relationship. In acooperative, the manager does not share in ownershipand should not be a member of the board. This pro-duces a clear separation between manager and directorresponsibilities.

Implements board policy—Policies are set bythe board of directors and implemented by themanager.

Advises the board—Members and their electeddirectors may lack experience in operating a business,much less an agribusiness cooperative with its diversefunctions and operations. The manager advises theboard on how the cooperative can be operated moreeffectively and provides technical advice in manyareas such as:

� competitive strategy— cost cutting, pricing policy,service packages, and cooperative benefits;

� financial management—credit control, debtload, cash-flow, and member equity;

� operational efficiency— product storage and han-dling, pickup and delivery schedules, adminis-trative procedures, store traffic organization,and staffing;

� new technology and equipment— industry innova-tions, improved machinery, and researchresults;

� new products and services— additions or replace-ments and product information;

� policy changes— made necessary because ofproblems with implementation or by changesin business environment;

� regulatory changes— chemical use, worker safety,environmental contamination; and

� governmental affairs— new or changed legisla-tion, governmental assistance programs, andinvolvement in public policy.

Manages daily operations—supervises andcoordinates, under board direction, the businessactivities of the cooperative by managing the people,capital, and physical resources.

Hires staff—Maintaining a competent staff isthe manager's most important job. How well themanager selects, trains, and supervises employees has adirect bearing on how well the cooperative performs.The board provides the manager with tools to assemblean effective staff—wage and salary plan, attractivebenefits, and safe working conditions. Employees makethe cooperative work, but the manager providesleadership, direction, and motivation.

Sets tactical goals and takes actions—Significant operational planning occurs asmanagers direct the daily affairs of thecooperative. The manager develops tactical plans

23

in line with the cooperative’s major objectives, asset by the board of directors.

Formal reporting occurs at monthly board meet-ings. The manager sends financial statements andinformation on major issues to directors in advance ofboard meetings so they can review the material.Accurate reports to the board are necessary for goodbusiness management and help build mutual respectand trust between the manager and board. Major itemsinclude:

� information on special issues and circum-stances;

� statement of operations with budget compar-isons;

� balance sheet with comparisons to one or moreprevious years;

� accounts receivable status that notes delin-quent accounts;

� progress toward objectives set as part of plan-ning;

� summary of operational activity during themost recent period; and

� proposals for immediate or longer term consid-eration.

Managers also maintain informal contact with theirboards. Outside of board meetings, managers mustkeep the board president and other officers apprised ofsignificant events that call for immediate action.

Reports to members—Aside from dailyinformal contacts as members transact business at thecooperative, the manager may use special events suchas an open house or appreciation day for moreorganized reporting. Letters to members and a columnin a newsletter may be used. District or regionalmeetings and one-on-one member visits are used.Periodic cooperative publications cover a wide rangeof information about cooperative operations.

Cooperative bylaws require a formal annualreport be distributed to members at the annual meet-ing. In more abbreviated form, the report containsmuch of the same information already provided to theboard. The manager discusses operational highlights,issues and problems encountered, special activities,and outlook for the coming year.

Representing the CooperativeAs the person in charge on a day-to-day basis,

the manager represents the cooperative in many ways.His/her representation is often guided by the coopera-tive’s policies and specific board directives. The man-ager’s own interests may also influence the type and

extent of his or her representation on behalf of thecooperative. The manager represents the cooperativein at least four areas: community, cooperatives, indus-try, and Government.

Community—As a business leader, themanager is called upon to participate in a variety ofcommunity activities, such as helping raise funds forcharities, speaking at business and social events, andbecoming a member of the chamber of commerce orcommunity service organizations.

Cooperatives—The board of directors mayselect the manager to be the cooperative’s votingdelegate or official representative to other cooperativesor cooperative organizations. And at the discretion ofthe board, the manager may serve on the board ofdirectors for other cooperatives.

Industry—Most industries have professional ortrade associations to protect or enhance their businessinterests. The manager may get involved in one ormore of the key organizations closely related to thecooperative’s functions.

Government—Managers who are particularlyconvincing speakers are often called upon to speak toregulatory officials and policymakers on issuesaffecting the cooperative or its members.

Even in personal actions and activities, manypeople see the manager—even if indirectly—as repre-senting the cooperative. That responsibility requiresconstant and careful attention.

SummaryA cooperative manager wears many hats and ful-

fills a unique position between members, employees,and the board of directors. In meeting responsibilities,a manager essentially becomes coach and player,leader and follower, educator and motivator, diplomatand dictator, mediator and magician, judge and jury,and analyst and activist.

24

Manager Responsibilities The Manager

The Manager The Manager

� Implements board policy� Advises the board� Manages daily operations� Hires and trains staff� Sets short-range tactical goalsin line with long-range plans

� Reports to the board� Reports to members� Represents the cooperative

Advises the board

� Competitive strategy� Financial management� Operational efficiency� New technology and equipment� New products and services� Policy changes needed� Regulatory changes� Governmental affairs

Understands the cooperative’s

purpose and follows the

policies!

Controls daily operations

� Supervises and coordinates functions� Manages people, capital, and physicalresources

� Is accountable for his/her performance

The Manager

Hires staff

� Trains and supervises� Provides leadership, direc-tion, and motivation

� Appraises their performance

The Manager

Sets tactical goals and

implements actions in line

with the cooperative’s

strategic objectives

D-1 D-2

D-3 D-4

D-5 D-6

25

The Manager

The Manager

The Manager

Cooperative Manager—A Unique Position

Reports to the board

� Issues and circumstances

� Statement of operations

� Balance sheet

� Accounts receivable, delinquent accounts

� Progress toward objectives

� Summary of operational activity

� Proposals for immediate or longer term con-

sidieration

Represents the cooperative

� In the community

� W ith other cooperatives

� In the industry

� W ith government officials

Reports to members

� W orking contact

� Open house

� Letters

� Newsletter

� Meetings

� Visits

� Formal report at annual meeting

� Coach and

player

� Diplomat and

dictator

� Judge and

jury

� Analyst and

activist

� Leader and

follower

� Mediator and

magician

� Educator and

motivator

D-7

D-9

D-8

D-10

26

Chapter 5—What Cooperative Employees Do

This chapter focuses on employees, what they do, and thecharacteristics of quality cooperative employees.

Cooperative employees work for a unique orga-nization because the owners of the business are itsday-to-day customers. This close contact with ownersrequires certain sensitivity by cooperative employeesin serving members' needs. Members want and expectgood service and fair treatment from the employees oftheir cooperative business.

Cooperative employees are the "glue" that bindsmembers to their business. This unique business rela-tionship places added emphasis on people skills whendealing with the member-owners. Employee attitudesare judged whenever they have direct contact withmembers.

Employees promote the cooperative, deliver sup-plies; handle members’ products, order and maintaininventories; keep accurate accounting records; recom-mend products to customers; handle complaints; rep-resent the cooperative in the business and civic com-munities; educate members and the public about whatthe cooperative offers; and adequately maintain facili-ties to serve members.

Characteristics of Quality EmployeesLike all businesses, cooperatives need quality

employees. To be effective and serve the cooperativewell, employees have obligations.

Understand the Cooperative—Qualitycooperative employees understand the uniqueness oftheir organization. They understand what acooperative is and support its business ideals.

It's hard for employees to deliver quality servicesif they don't understand the business that employsthem. Ownership entitles members to services theymay not expect or request from privately held busi-nesses. Cooperative employers are often asked ques-tions about internal operations, governance, and earn-ings of the business. A well-informed employee knowshow to handle these questions in a way that satisfiesmembers. For nonmembers, employees must be care-ful not to reveal information that could be useful to thecompetition. All employees must be kept wellinformed on the cooperative’s distinctive traits andoperations.

Know and follow policy—W ell-informedemployees keep abreast of current cooperative policiesand rules. The purpose and application of any policyor rule should be discussed with a supervisor orexplained in an employee meeting. Policies and rulesare implemented to safeguard the member-customerinterests, set good business standards, and ensure thecooperative's success.

An employee's supervisor and the manager areresponsible for handling and resolving any conflictwith the cooperative's policy. Well-informed employ-ees avoid evaluating policy or rules to fit a particularsituation or circumstance. They should implement pol-icy and rules in a fair and equitable manner toward allcustomers. Special treatment for one customer maygenerate short-term results, but cause ill will and dis-satisfaction among most customers.

Respect all customers/members and treat themfairly—As customers, cooperative members want to betreated fairly and honestly by the business they own.Special concessions shared with selected customerssoon bring dissatisfaction among all customers.Employees must offer services or products in a senseof "best-value" to all customers.

Are well trained—Employees must be able toexplain technical information about service areas inwhich the cooperative operates. Customers rely onemployees to recommend products or services. Theability to respond to customer questions and resolvetheir problems often determines if customers return tothe cooperative for future needs.

Because of the fast pace of today's business andchanges in technical product and environmental regu-lations, employees must be continually trained inproduct and service areas. Employees must under-stand the operations and methods the cooperative usesto provide products and services.

Are team players—Team success, whether insports or in business, demands that all playerscooperate to reach predetermined objectives. Eachemployee of the cooperative organization shouldknow the objectives of the cooperative and understandhis or her role in achieving them. They must worktogether toward overall achievement of objectives.

Employees working in service organizationsmust be aware of the service level required to meet theorganization's objectives and employees’ expected con-tributions to the team effort.

27

Communicate well—Constant communicationis the key to any successful business operation.Employees are the eyes and ears of the business andconstantly deal with customers and the public. Thisfeedback helps shape future procedure and policychanges necessary to increasing customer appreciationand satisfaction.

Employee communication with supervisors leadsto implementing desired changes. Unsafe workingconditions or damaged facilities and broken equip-ment should be reported to supervisors for correctionor repair. Irregularities in business operations orplanned absences from the job must be communicatedto keep the business operating efficiently.

Effective communication means not only talking,but also listening carefully to comments and sugges-tions from customers, instruction from supervisors,and recommendations from other employees.

Maintain assets—Employees are responsiblefor keeping members’ assets—facilities, equipment,and inventory—in good condition. Dirty or poorlyarranged merchandise, malfunctioning equipment,and lower or poor-quality products can be a deterrentto reaching a cooperative’s goals, just as overpricing orpoor selection of merchandise would be.Malfunctioning equipment suggests that employeesdon't take customer satisfaction seriously.

Participate in community activities—Employeescarry the image of the cooperative to the businesscommunity by participating in civic or serviceorganizations, school activities, professional and youthgroups, or the Chamber of Commerce. If possible,cooperative employees should strive to be involved incommunity activities.

Volunteering not only contributes to the employ-ee as an individual, but also shows the cooperative isinterested in the needs and welfare of the community.However, it is important to note that when represent-ing the cooperative, employees must be cautious abouttaking a particular stand or participating in an activitywhich has a special social, political, or religious orien-tation. Most cooperatives maintain religious and polit-ical neutrality.

Maintain personal appearance—Employeespresent the cooperative's image in day-to-day contacts.A positive impression often is based on an employee'spersonal appearance. A well-groomed employeeoutfitted with apparel appropriate to workingconditions is a plus and reflects the person's self-

esteem and cooperative’s professional image.Customers/members are more likely to respect theircooperative if employees present a positive andprofessional image.

Information About CooperativesThe Rural Business-Cooperative Service (RBS)

within USDA’s Rural Development mission area con-ducts research, collects statistics, develops educationalmaterials, and provides on-site technical businessassistance to farmers and other rural residents interest-ed in organizing cooperatives. Followup assistance isprovided as needed.

General and specific educational materials oncooperative operation and organization are availablefrom RBS. Periodically, its staff conducts trainingworkshops for key participants in the cooperative--managers, directors, and employees.

RBS also publishes Rural Cooperatives, a bimonth-ly magazine oriented to the cooperative business com-munity. (Available for $15 per year from: New Orders:Superintendent of Documents, P.O. Box 371954,Pittsburgh, PA 15250-7965.) USDA also has a catalog ofpublications and videos (CIR 4) related to coopera-tives. For a free copy, write: USDA/RD/LAPAS, Stop0705; 1400 Independence Ave., SW; Washington, DC20250-0705.

The United States Department of Agriculture(USDA) prohibits discrimination in all its programsand activities on the basis of race, color, national ori-gin, gender, religion, age, disability, political beliefs,sexual orientation, and marital or family status. (Notall prohibited bases apply to all programs.) Personswith disabilities who require alternative means forcommunication of program information (braille, largeprint, audiotape, etc.) should contact USDA's TargetCenter at (202) 720-2600 (voice and TDD).

To file a complaint, write USDA, Director, Officeof Civil Rights, Room 326-W Whitten Building, 14thand Independence Ave. SW, Washington, DC 20250-9410, or call (202) 720-5964 (voice or TDD). The USDAis an equal opportunity provider and employer.

28

QUALITY Cooperative Employees

Respect all customers/members and treat them fairly!

� Are polite and professional� Do not offer special treatment for somethat might lead to ill will

� Offer services or products in a sense of“best-value” to all

Cooperatives Employees

QUALITY Cooperative Employees

Cooperative Employees

QUALITY Cooperative Employees

Understand the cooperative!

Are the glue that binds

members

to their business!

� Promote the cooperative� Deliver supplies� Handle members’ products� Order and maintain inventories� Keep accrate records� Recommend products/services� Handle complaints� Represent the cooperative� Maintain facilities

� Understand the cooperative� Know and follow policy� Are well trained� Are team players� Keep supervisors informed� Maintain assets� Participate in the community� Maintain personal appearance

� Know the cooperative form of businessand who the owners are

� Are able to answer questions adequately� Do not reveal information that couldhelp the competition

QUALITY Cooperative Employees

Follow cooperative policies and rules!

� Know them well� Implement them in a fair and equitablemanner

� Seek guidance when there might be anexception

E-1

E-3

E-5

E-2

E-4

E-6

29

QUALITY Cooperative Employees

QUALITY Cooperative Employees

QUALITY Cooperative Employees

QUALITY Cooperative Employees

Are well trained!

� Understand operations, can perform required functions

� Can recommend the right products andservices

� Understand the methods the cooperativeuses to provide products and services

Properly maintain member-owners assets!

� Facilities� Equipment� Inventory

Communicate well!

� Are articulate� Keep supervisors and other employeesinformed of pertinent working issuesand problems

� Listen to supervisors, other employees,and members

Often participte in community activites

� Service clubs

� Schools

� Youth groups

� Business organizations

QUALITY Cooperative Employees

Maintain personal appearance!

� Promote a positive, professional

image of self and the cooperative

E-7

E-9

E-11

E-8

E-10

30

U.S. Department of Agriculture

Rural Business–Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business–Cooperative Service (RBS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural

residents. It works directly with cooperative leaders and

Federal and State agencies to improve organization,

leadership, and operation of cooperatives and to give guidance

to further development.

The cooperative segment of RBS (1) helps farmers and other

rural residents develop cooperatives to obtain supplies and

services at lower cost and to get better prices for products they

sell; (2) advises rural residents on developing existing

resources through cooperative action to enhance rural living;

(3) helps cooperatives improve services and operating

efficiency; (4) informs members, directors, employees, and the

public on how cooperatives work and benefit their members

and their communities; and (5) encourages international

cooperative programs. RBS also publishes research and

educational materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family

status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for

communication of program information (braille, large print,

audiotape, etc.) should contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or

call (202) 720-5964 (voice or TDD). USDA is an equal

opportunity provider and employer.

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he b

oard

•C

ompe

titiv

e st

rate

gy•

Fina

ncia

l man

agem

ent

•O

pera

tiona

l eff

icie

ncy

•N

ew te

chno

logy

and

equ

ipm

ent

•N

ew p

rodu

cts a

nd se

rvic

es•

Polic

y ch

ange

s nee

ded

•R

egul

ator

y ch

ange

s•

Gov

ernm

enta

l aff

airs

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Con

trol

s dai

ly o

pera

tions

•Su

perv

ises

and

coo

rdin

ates

func

tions

•M

anag

es p

eopl

e, c

apita

l, an

d ph

ysic

al

reso

urce

s•

Is a

ccou

ntab

le fo

r his

per

form

ance

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Hir

es st

aff

•Tr

ains

and

supe

rvis

es•

Prov

ides

lead

ersh

ip, d

irect

ion,

and

m

otiv

atio

n•

App

rais

es th

eir p

erfo

rman

ce

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Sets

tact

ical

goa

ls a

nd

impl

emen

ts a

ctio

ns, i

n lin

ew

ith th

e co

oper

ativ

e’s

stra

tegi

c ob

ject

ives

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Repo

rts t

o th

e bo

ard

•Is

sues

and

circ

umst

ance

s•

Stat

emen

t of o

pera

tions

•B

alan

ce sh

eet

•A

ccou

nts r

ecei

vabl

e, d

elin

quen

t acc

ount

s•

Prog

ress

tow

ard

obje

ctiv

es•

Sum

mar

y of

ope

ratio

nal a

ctiv

ity•

Prop

osal

s for

imm

edia

te o

r lon

ger t

erm

co

nsid

erat

ion

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Repo

rts t

o m

embe

rs•

Wor

king

con

tact

•O

pen

hous

e•

Lette

rs•

New

slet

ter

•M

eetin

gs•

Vis

its•

Form

al re

port

at a

nnua

l mee

ting

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Repr

esen

ts th

e co

oper

ativ

e

•In

the

com

mun

ity•

With

oth

er c

oope

rativ

es•

In th

e in

dust

ry•

With

gov

ernm

ent o

ffic

ials

USD

A, R

BS,

CIR

11

Cha

pter

4 -

Wha

t The

Coo

pera

tive

Man

ager

Doe

s

Coa

ch a

nd

Play

erLe

ader

and

Follo

wer

Dip

lom

at a

nd

Dic

tato

r

Educ

ator

and

M

otiv

ator

Med

iato

r and

M

agic

ian

Judg

e an

d Ju

ry

Ana

lyst

and

A

ctiv

ist

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Uni

ted

Stat

es D

epar

tmen

t of A

gric

ultu

reR

ural

Bus

ines

s -C

oope

rativ

e Se

rvic

eR

BS

Coo

pera

tive

Info

rmat

ion

Rep

ort 1

1

http

://w

ww

.rurd

ev.u

sda.

gov/

rbs/

inde

x.ht

ml

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Are

the

glue

that

bin

ds

mem

bers

to th

eir b

usin

ess!

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

•Pr

omot

e th

e co

oper

ativ

e•

Del

iver

supp

lies

•H

andl

e m

embe

rs’ p

rodu

cts

•O

rder

and

mai

ntai

n in

vent

orie

s•

Kee

p ac

cura

te re

cord

s•

Rec

omm

end

prod

ucts

/ser

vice

s•

Han

dle

com

plai

nts

•R

epre

sent

the

coop

erat

ive

•M

aint

ain

faci

litie

s

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

•U

nder

stan

d th

e co

oper

ativ

e•

Kno

w a

nd fo

llow

pol

icy

•A

re w

ell t

rain

ed•

Are

team

pla

yers

•K

eep

supe

rvis

ors i

nfor

med

•M

aint

ain

asse

ts•

Parti

cipa

te in

the

com

mun

ity•

Mai

ntai

n pe

rson

al a

ppea

ranc

e

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Und

erst

and

the

coop

erat

ive

•K

now

the

coop

erat

ive

form

of b

usin

ess

and

who

the

owne

rs a

re•

Are

abl

e to

ans

wer

que

stio

ns a

dequ

atel

y•

Do

not r

evea

l inf

orm

atio

n th

at c

ould

he

lp th

e co

mpe

titio

n

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Follo

w c

oope

rativ

e po

licie

s and

ru

les!

•K

now

them

wel

l•

Impl

emen

t the

m in

a fa

ir an

d eq

uita

ble

man

ner

•Se

ek g

uida

nce

whe

n th

ere

mig

ht b

e an

ex

cept

ion

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Resp

ect a

ll cu

stom

ers/

mem

bers

and

tr

eat t

hem

fair

ly!

•A

re p

olite

and

pro

fess

iona

l•

Do

not o

ffer

spec

ial t

reat

men

t for

som

e -

that

mig

ht le

ad to

ill w

ill•

Off

er se

rvic

es o

r pro

duct

s in

a se

nse

of

“bes

t-val

ue”

to a

ll

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Are

wel

l tra

ined

!•

Und

erst

and

oper

atio

ns, c

an p

erfo

rm

requ

ired

func

tions

•C

an re

com

men

d th

e rig

ht p

rodu

cts a

nd

serv

ices

•U

nder

stan

d th

e m

etho

ds th

e co

oper

ativ

e us

es to

pro

vide

pro

duct

s and

serv

ices

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Com

mun

icat

e w

ell!

•A

re a

rticu

late

•K

eep

supe

rvis

ors a

nd o

ther

em

ploy

ees

info

rmed

of p

ertin

ent w

orki

ng is

sues

and

pr

oble

ms

•Li

sten

to su

perv

isor

s, ot

her e

mpl

oyee

s, an

d m

embe

rs

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Prop

erly

mai

ntai

n m

embe

r-ow

ner a

sset

s!•

Faci

litie

s•

Equi

pmen

t•

Inve

ntor

y

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Ofte

n pa

rtic

ipat

e in

co

mm

unity

act

iviti

es•

Serv

ice

club

s•

Scho

ols

•Y

outh

gro

ups

•B

usin

ess o

rgan

izat

ions

USD

A, R

BS,

CIR

11

Cha

pter

5 -

Wha

t Coo

pera

tive

Empl

oyee

s Do

Mai

ntai

n pe

rson

al a

ppea

ranc

e!

•Pr

omot

e a

posi

tive,

pro

fess

iona

l im

age

of se

lf an

d th

e co

oper

ativ

e

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Uni

ted

Stat

es D

epar

tmen

t of A

gric

ultu

reR

ural

Bus

ines

s -C

oope

rativ

e Se

rvic

eR

BS

Coo

pera

tive

Info

rmat

ion

Rep

ort 1

1

http

://w

ww

.rurd

ev.u

sda.

gov/

rbs/

inde

x.ht

ml

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Who

ow

ns th

e bu

sine

ss?

Who

con

trol

s the

bus

ines

s?W

ho u

ses t

he b

usin

ess?

Who

get

s the

pro

fits?

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

One

Per

son

•O

wns

•C

ontro

ls•

Ope

rate

s•

Ben

efits

/pro

fits

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Two

or m

ore

peop

le•

Ow

n•

Con

trol

•O

pera

te•

Shar

e in

risk

s and

pr

ofit

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

•M

ultip

le o

wne

rs•

Var

iety

of g

oods

and

se

rvic

es•

Phys

ical

faci

litie

s•

Stat

e ch

arte

red

•In

vest

ors

•Pr

ofits

shar

ed a

mon

g in

vest

ors

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

•M

ultip

le o

wne

rs w

ho a

re u

ser m

embe

rs•

Var

iety

of g

oods

and

serv

ices

•Ph

ysic

al fa

cilit

ies

•St

ate

char

tere

d•

Mem

bers

are

inve

stor

s•

Ow

ned

and

cont

rolle

d by

mem

bers

who

us

e its

serv

ices

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

•A

re p

rimar

ily c

ontro

lled

by a

boa

rd o

f di

rect

ors e

lect

ed b

y an

d fr

om m

embe

rs•

Der

ive

equi

ty fr

om m

embe

r ow

ners

•O

pera

te fo

r the

ben

efit

of m

embe

r ow

ners

•A

lloca

te e

arni

ngs t

o m

embe

rs b

ased

on

use

•Ea

rnin

gs fr

om m

embe

r bus

ines

s is t

axed

on

ce•

Hav

e pe

rpet

ual e

xist

ence

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

47,0

00 c

oope

rativ

es in

the

Uni

ted

Stat

es

Serv

e 10

0 m

illio

n pe

ople

, 40

perc

ent o

f th

e po

pula

tion

Ther

e ar

e se

vera

l typ

es o

f coo

pera

tives

se

rvin

g m

any

sect

ors

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

•C

hild

car

e•

Who

lesa

le g

oods

and

su

pplie

s•

Elec

trici

ty•

Tele

phon

e an

d el

ectri

c se

rvic

es•

Farm

pro

duct

ion

supp

lies a

nd se

rvic

e•

Farm

mar

ketin

g

•C

redi

t•

Tran

spor

tatio

n•

Faci

litie

s•

Rec

reat

iona

l Eq

uipm

ent

•Fo

od•

Hou

sing

•H

ealth

car

e

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Use

r -O

wner

Use

r -Co

ntro

l

Use

r -Be

nefit

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

The

peop

le w

ho o

wn

and

finan

ce th

e co

oper

ativ

e ar

e th

ose

who

use

it.

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

The

peop

le w

ho u

se th

eco

oper

ativ

e ar

e th

ose

who

con

trol

the

coop

erat

ive

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Mem

bers

Exe

rcis

e C

ontr

ol B

y

•V

otin

g at

ann

ual a

nd

mem

bers

hip

mee

tings

•E

lect

ing

Boa

rd o

f D

irec

tors

•M

akin

g de

cisi

ons o

n m

ajor

coo

pera

tive

issu

es

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

The

coop

erat

ive’

s sol

e pu

rpos

eis

to p

rovi

de a

nd d

istr

ibut

ebe

nefit

s to

mem

bers

on

the

basi

s of t

heir

use

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Use

r-Be

nefit

s

Bar

gain

ing

Pow

erR

educ

ed C

osts

Mar

ket A

cces

s

Com

mun

itySt

reng

th

Qua

lity

prod

ucts

an

d se

rvic

es

Econ

omic

Enha

ncem

ent

Polit

ical

Act

ion

Com

petit

ive

Yard

stic

k

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Impl

emen

t and

Fac

ilita

te B

asic

Pri

ncip

les

•Pa

trona

ge R

efun

ds-d

istri

bute

ear

ning

s to

mem

bers

bas

ed o

n us

e

•Li

mite

d R

etur

n on

Equ

ity C

apita

l-m

embe

rs

form

coo

pera

tives

for s

ervi

ce, n

ot fo

r a m

onet

ary

retu

rn o

n in

vest

men

t

•C

oope

rativ

e C

oope

ratio

n-j

oint

ven

ture

s, M

AC

’s,

netw

orks

, alli

ance

s, w

orki

ng re

latio

nshi

ps, e

tc.

•C

oope

rativ

e Ed

ucat

ion

-pro

mot

e th

e co

oper

ativ

e w

ay o

f doi

ng b

usin

ess a

nd e

duca

te m

embe

rs,

dire

ctor

s, an

d em

ploy

ees

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Geo

grap

hica

l cha

ract

eriz

atio

n de

fines

a

coop

erat

ive’

s siz

e an

d sc

ope

of o

pera

tions

in

refe

renc

e to

serv

ing

mem

bers

.•

Loca

l -sm

all r

egio

n co

vere

d, a

cou

nty

or so

•Su

per l

ocal

-tw

o or

mor

e co

untie

s, br

anch

es•

Reg

iona

l-nu

mer

ous c

ount

ies,

Stat

e or

mor

e•

Nat

iona

l-U

nite

d St

ates

-wid

e•

Inte

rnat

iona

l-w

orld

wid

e

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Bas

ed o

n m

embe

rshi

p st

ruct

ure

and

esse

ntia

lly

defin

es w

ho th

e m

embe

rs a

re a

nd h

ow th

e co

oper

ativ

e is

org

aniz

ed to

serv

e th

em.

•C

entra

lized

Stru

ctur

e-I

ndiv

idua

ls a

re

dire

ct m

embe

rs•

Fede

rate

d St

ruct

ure-

Coo

pera

tives

are

dire

ct

mem

bers

•M

ixed

Stru

ctur

e-I

ndiv

idua

ls a

nd

coop

erat

ives

bot

h ar

e di

rect

mem

bers

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Coo

pera

tive

Mem

ber

Mem

ber

Mem

ber

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Coo

pera

tive

Loc

alC

oope

rativ

eL

ocal

Coo

pera

tive

Mem

ber

Mem

ber

Mem

ber

Mem

ber

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

tives

?

Coo

pera

tive

Mem

ber

Mem

ber

Loc

alC

oope

rativ

eM

embe

rM

embe

r Mem

ber

USD

A, R

BS,

CIR

11

Cha

pter

1 -

Wha

t Are

Coo

pera

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11

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11

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11

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A, R

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CIR

11

Cha

pter

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rate

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role

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Cha

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