Business failures underscore need
for dose of preventive medicine
By Dan Campbell, editor
How should cooperatives respond to the recent bankruptcy
filings by several of the nation’s largest farmerowned
co-ops and the collapse of some of America’s corporate
heavyweights? More effective director training
programs and communications efforts geared to better
educate members about how their co-ops function would
help, according to panelists who tackled
this thorny issue during the annual institute
of the Cooperative Communicators
Association (CCA) in Burlington, Vt.
“Fortune” magazine blames lack of
vigilance by boards of directors for the
financial and ethical lapses that have
contributed to the collapse of some of
America’s corporate giants, said Catherine
Merlo, a communications consultant
from Bakersfield, Calif. Quoting from the
article, she said, “Nothing will change
until directors realize ultimately that
they must reform themselves. They have
to go beyond the rules, ask tougher
questions, be more skeptical and critical
of management and never forget that
their No.1 job is to watch out for shareholders,
not the CEO.” The same doubtless
holds true among many co-op boards, she noted.
In recent conversations with co-op representatives,
Merlo was told that some are convinced that their directors
“don’t have a true grasp of the nitty-gritty details”
of the co-op financial statements they review. She said
this strongly suggests that more time and effort be spent
on director training.
The need for more effective education extends
beyond co-op directors and “goes to the heart of member
communications efforts,” said Pamela Karg, a Wisconsin-based co-op communications consultant. “How
many of your members really understand those beautiful
annual reports we put out? How many of you really
understand the numbers the finance office gives you?”
As another example of the need for more basic member
education, Karg said she was approached by a dairy
co-op to produce an article explaining how milk is
priced and how this determines the bottom line on a
producer’s milk check. If something this
basic to the livelihood of farmers isn’t
always well understood, think how
much tougher it is for producers to move
from the farm to the board room, where
they must deal with complex financial
statements and global marketing issues.
Chuck Lay, communications director
for MFA Inc., said he feels most co-ops
“have access to talent” in their ranks.
Farmers who are still in the business
have survived this long only if they are
astute businessmen, he said, adding
that MFA’s board represents deep
knowledge of a wide range of commodities,
including hogs, soybeans, corn,
beef cattle and dairy.
Lay said some co-ops struggle with
“large board syndrome.” Several years
ago, MFA reduced its board from 30 to 14, and most
believe it was a good move. A “smaller board composed
of sharp producers can make quick, intelligent decisions,”
Lay said.
Lani Jordan, communications director for CHS, said an
article in “The Economist” magazine also addressed the
meltdown of some of the nation’s major corporations. It
printed a list of recommendations for corporate boards to
consider as preventive medicine. These recommendations
range from the need for more aggressive audit com
mittees to conducting thorough annual performance
reviews for CEOs. As she worked her way down the list,
Jordan put checks by all the items that CHS is already
doing. She wound up checking most of the items on the
list. Thus, the co-op governance structure was, in effect,
being held up to corporate America as an example of the
way it should be doing business.
“Yes, co-ops do sometimes end up with unqualified
directors on their boards,” Jordan said. But most are
selected by their fellow producers based on their business
acumen and they know well that their duty is to
their fellow producers, rather than being “handpicked
choices of the CEO” based on their willingness to support
his or her agenda.
Merlo said she is increasingly hearing that members
are only concerned with the bottom line, particularly
younger members. One staff member of Tri Valley Growers,
a now-bankrupt and defunct California fruit processor,
told her the co-op’s members always wanted the
best possible price from the co-op for their crops, but
also wanted the co-op to be competitive in the marketplace.
A major challenge of the co-op was to balance
those two divergent demands.
The response of some co-ops is to admit that they
cannot guarantee they will pay the top price to producers
every year, but will be competitive over the long
term and provide a reliable home for their crops. “This is
a constant member-education challenge,” she said.
“The bottom line is crucial, but we have to do a better
job telling the rest of the story about the value of coops,”
said Jim Rodenburg, communications director at
AGP. He noted that AGP member meetings used to
always start with the financial report, but now begin
with a management report that focuses on marketing
efforts. He said that in no way downplays the financial
statement, but puts new emphasis on marketing as the
key to the co-op’s future success.
It was noted that one farm columnist laid some of the
blame on the rise in co-op bankruptcies on the nation’s
farm press, which he said traditionally gives co-ops “a
free ride” and is rarely critical of them for fear of being
perceived as anti-farmer.
Lay disagreed, saying he has usually found the
farm press to be “skeptical and even hostile toward
cooperatives.” Most ag journalists, Lay continued,
“have to be dragged kicking and screaming to cover a
co-op event.”
Jordan said the media “generally ignores co-ops
unless they file for bankruptcy.” She acknowledged
efforts of those in the room who strive to get the coop
story out to mainstream press, but said it is hard
when the press is so geared toward covering crisis
and conflict.
Patrick Duffey of USDA Rural Development said the
situation can best be addressed if farm, electric and
consumer co-ops continue to work together as they
do under the umbrella of CCA to promote greater public
understanding of cooperatives. Well-planned media
events can still attract positive press coverage, he said.
It is vital to remember that these co-ops “did not
get into financial trouble because they are co-ops
they got into trouble because of some bad business
decisions,” Jordan said. Most co-ops form as a
response to failure in the marketplace, she noted.
“When no longer needed for defensive purposes,
co-ops must adopt an offensive business strategy to
survive,” she said. In the case of CHS, the strategy is
to continue to move to position itself as a producer of
value-added products.
“Co-ops will survive,” Jordan said, “but this is a time
of transition,” and the co-ops of tomorrow will look different
than those of today. Our members are telling us
we have to earn their business every day. A co-op is not
a social club; you can’t count on loyalty. You must earn it
through solid business performance.”
“We don’t run the board or management, but we can
make suggestions about director training and help members
understand how their co-op works,” Karg said,
urging those present to “communicate about the difficult
issues before questions arise among members.”
