Coping with change :
Merger of local farm supply co-ops forces boards to deal with emotional issues
Katherine L. Hanson
Education and Member Relations
Specialist
USDA Rural Business-Cooperative
Service
armers in Frederick
County, Md., have
depended on their local
Southern States Cooperative
store for their farm
supply and service needs for more than
60 years. The Frederick Southern
States store first opened its doors in
1937 and grew to include nearly 3,000
member-owners. In nearby Woodsboro,
Md., another Southern Statesaffiliated
local cooperative was formed
in 1954, and eventually represented
more than 700 member-owners.
Although the two cooperatives differed
in size, they were always very similar
in their missions and the services
and products they offered. Because the
two cooperatives were located only a
15-minute drive apart, their customers
were remarkably similar as well. Farmers
came to the Southern States-managed
stores to have their livestock feed
ground and mixed, to buy their seed
and fertilizer, and to schedule application
of crop protectants.
Which store a patron frequented
depended largely on proximity and
product availability at a given time.
Most of the member-owners of the two
cooperatives knew each other well,
which is not unusual in a small agricultural
community. They experienced
similar problems, shared similar successes
and relied on their respective
cooperatives to provide for their similar
farming needs.
It seems obvious that farmers in
such a tightly-knit farming community
could work well together to achieve
common goals and would be open to
partnerships. Recently, the memberowners
of these two cooperatives were
challenged to do just that when their
two associations began to consider a
merger.
But change inevitably creates conflict,
and often spawns a hotly contested
tug-of-war to determine perceived winners
and losers. This merger was no
exception.
Mergers inevitably involve give
and take by both parties. How
leaders and members of the two
cooperatives dealt with issues related
to the merger provides an illustration
to other cooperatives of the hurdles
they might encounter in similar
circumstances.
Why local co-ops are merging
Circumstances surrounding the
Frederick-Woodsboro merger are far
from unique. Faced with a prolonged
slump in the farm economy, changes in
farm programs and a decline in producer
numbers, cooperatives in similar situations
across the country are merging or
restructuring in other ways to improve
efficiency and cut operational costs.
The impact of these factors isn’t
confined to local co-ops. As a regional
cooperative with members in 23 states,
SSC recently implemented a multi-step
restructuring plan designed to counter
operating losses and to better position
itself for the future. The effort has
included the closing of 47 companyowned
stores and other operations,
eliminating about 300 jobs at both the
local and corporate levels and the transfer
of its livestock marketing operations
and related facilities to another cooperative.
More recently, SSC announced a
reorganization plan designed to
improve efficiencies and provide better
customer service by realigning and
streamlining the cooperative’s operations,
including the elimination of four
senior vice president positions.
In Maryland, economic factors (such
as the loss of tobacco income and generally
depressed commodity values) and
demographic trends combined to present
a clear choice to the Frederick and
Woodsboro cooperatives: either merge
the two cooperatives or risk closure of
one or both.
By the fall of 2000, both the Woodsboro
and the Frederick cooperatives
were facing financial challenges. The
Frederick (SS Frederick) store had
larger sales volume than Woodsboro,
but had been operating at a loss. The
Woodsboro (SS Woodsboro) store was
carrying a substantial debt load from
purchases of vehicles and other equipment.
The merger proposal was based
on the goals of spreading equipment
use between both locations and distributing
the business volume more evenly.
Southern States management had
initiated discussions on merger possibilities
with local leaders some 18
months earlier, examining the issues
involved and reviewing various scenarios
at individual meetings with the
SS Frederick and SS Woodsboro
boards. A third location also was considered
as a merger partner during
this preliminary phase. Over time, a
Frederick-Woodsboro co-op emerged
as the leading alternative.
SS Frederick would become the primary
association, performing the
administrative and managerial functions
of the combined cooperatives.
Both locations would remain open to
provide supplies and services to their
patrons, but under the same management
umbrella. Inventory would continue
to be separated for each branch,
but with the intention of sharing
resources between the two locations.
Educating members about the reasons
for the proposed merger and the
resulting governance changes became a
top priority as soon as the merger was
first discussed.
Since the Frederick location would
be the surviving entity, their general
membership was not required to vote
on the issue. The Woodsboro association,
however, did have to place the
matter before their membership.
Approval by two-thirds of the general
membership was needed to implement
the merger plan. Within two weeks of
the original discussion between the two
boards of directors, a letter was drafted
and sent to all members of the Woodsboro
cooperative, describing the proposed
merger and calling a special
meeting of members to vote on the
proposal. The letters contained proxy
cards that would allow members who
could not attend in person to cast their
vote and let their opinions be counted.
Remarkably, by January the proposed
merger was complete—less than three
months since the plan’s inception. As
mergers go, this one was relatively
swift and painless, but the road to consolidation
was not without difficulty.
Patronage, board allotment
pose major challenges
When the idea of a merger of the
two stores was first broached in October
of 2000, there were many skeptics
among the two boards of directors.
The members of the financially
stronger SS Frederick Cooperative
were leery of inheriting the substantial
Patronage Refund Allocation (PRA)
responsibilities of the SS Woodsboro
Cooperative, but stood to gain from
access to its abundant equipment and
vehicles. The SS Frederick Cooperative
last paid PRAs in 1982. The SS
Woodsboro Cooperative was responsible
for PRAs dating back to 1974.
Ultimately, there was agreement
that PRAs owed to Frederick members
would not be paid until the older
Woodsboro patronage was retired and
members of both co-ops were on the
same status.
Additionally, many board members
remained fiercely loyal to the notion
that their respective cooperative
deserved equal representation on the
combined board of directors, at all
costs. In fact, during one heated discussion
on this topic, a former board
chairman was so frustrated with the
proceedings that he abruptly left the
meeting. He later reconsidered and
resumed attending the board meetings.
The smaller cooperative (SS
Woodsboro) was very concerned with
achieving an equal “balance of power”
on the board, as determined by which
cooperative board members would be
elected from. Unfortunately, the cooperative’s
articles of incorporation and
bylaws dictated that the board consist
of seven members. Therefore, it would
have been physically impossible to
attain equal representation from each
of the two co-ops.
Frustrated member
interrupts annual meeting
At the first annual meeting of the
combined cooperatives, the election
proceedings were interrupted by an
outburst from a Woodsboro farmer
who felt that the former SS Woodsboro
Cooperative members were not
being given a fair opportunity to elect
enough board members from their
area. In reality, the floor was open for
nominations and any number of candidates
from the Woodsboro membership
could have been posted on the ballot.
Instead, angry member-owners
(who may not have been thoroughly
informed of the process) expressed
their frustration due to the perceived
shift of power on the board of their
cooperative.
Member-owners still felt separated
by issues of ownership and loyalty, even
though the two cooperatives were
merging into one business which they
would all own and control. Board
members were territorial at times, even
though they were neighbors who lived
and farmed in the same community.
They had difficulty perceiving the
combined cooperative as a “one for all
and all for one” organization.
Such a reaction is not uncommon,
according to current theories on how
people adapt to change. In his 1996
book, “Communicating for Change,”
Roger D’Aprix points out that about
15 percent of people react with anger
when confronted with significant
organizational change. Another 40
percent view the transformation with
fear, skepticism, and distrust, and 30
percent are uncertain about change
but are open to it. The remaining 15
percent are hopeful and energized
about change, right from the start.
With these statistics in mind, it is no
surprise that opinions on this volatile
issue varied greatly among board
members.
Disputes subside with time
With each quarterly meeting of the
combined board of directors, an
increasing sense of unity among board
members was evident. Reports of
improvement in the financial status of
both locations also helped heal any
scars from the merger. Attitudes gradually
shifted and board members began
to put aside their notions of distinguishing
between representatives based
on which cooperative the member
belonged to prior to the merger.
In fact, at the most recent quarterly
meeting of the SS Frederick Cooperative
(the combined entity still uses that
name), board members and management
praised the improved efficiency
and overall success of the services provided.
David Stas, manager of the
combined cooperative, says: “I just
couldn’t imagine a better working relationship
than we have between the two
stores. We help each other out every
day — if one of us gets a call to spray a
field and we’re all tied up, the other
one just steps in and helps out.” Of the
relationship between the combined
management of the two stores, Stas
adds, “If I could hand-pick any group
of employees to work with at any
cooperative in the country, I wouldn’t
change a thing.”
Both Stas and Tommy Plunkert,
manager of the SS Woodsboro
branch, agree that they have benefitted
by pooling their resources. Not
only are they able to share equipment
and supplies, but they are also able to
share employees, to a degree. Various
employees from both locations have
responded to requests to perform services
on behalf of their partner cooperative.
These obligations would not
have been fulfilled without this level
of cooperation among management
and staff.
As business profits increase and
mutual goals are achieved, there is
even talk of combining both supply
stores under one roof in the near
future. At one point, the SS Frederick
board of directors was researching the
feasibility of building an entirely new
facility to house both locations as one
entity. When the magnitude of the
financial commitment such an undertaking
would entail was realized, however,
the discussion turned to the
more practical alternative of using one
of the existing cooperative locations
(which could, of course, spark
renewed conflict).
Accident prompts show of unity
The solidarity that has developed
among the board of directors was
recently illustrated when an accident
seriously injured Lloyd Taylor, a
departmental manager at the SS Frederick
Cooperative. During a quarterly
meeting of the board, it was
announced that earlier that day a
2,500-gallon fertilizer polytank had
rolled off a truck and onto Taylor,
pinning him beneath it and breaking
his back. As a testament to his dedication
to the co-op, Taylor used his cell
phone while he was still pinned down
by the tank to call the store and give
instructions on where to deliver
the tanks.
In a display of their unity, the
board members expressed their collective
sympathy for Taylor, and management
from both locations worked
together to solve the employee shortage
caused by Taylor’s absence.
Taylor has since recovered and is back
on the job, grateful for the encouragement
and support he received
from Woodsboro and Frederick
Cooperative members alike.
The future of Southern States
Cooperatives will be linked to the
success of mergers and consolidations
of locals such as the SS Frederick/
Woodsboro merger. When member-
owners identify common goals
and needs, they can band together to
make their organizations stronger,
rather than weaker. As in the case of
the SS Frederick Cooperative, consolidation
doesn’t have to signal
decline, either in membership or
business volume. Communication
between management, board members,
and other member-owners is
vital to the survival of associations
faced with such drastic change. When
members feel informed, they feel
empowered and are not afraid to face
change.
Mergers and consolidations are necessary
adjustments in response to the
agricultural economy. For those cooperatives
that are able to adapt structurally,
the future still holds promise
for success and growth.
