Co-ops follow more than one path
for nominating board candidates


By Bruce J. Reynolds,
Economist
USDA/RBS Cooperative Services
bruce.reynolds@usda.gov

Editor’s note: This article is the first in a
series (to be continued in future months) on
selecting and compensating directors.

rocedures for selecting candidates for boards of directors are seldom a central topic of “best practices” seminars for either cooperatives or investor-owned firms. But the recent wave of corporate scandals has moved this topic to center stage, at least when it comes to investing in corporations. Business journals and other media are abuzz with recommendations for more democratic methods of director selection.

Cooperatives are governed by democratic procedures, which strengthen trust and accountability. For cooperatives, it is important to identify candidates with solid business and planning skills and with good leadership traits. The current debate makes it an opportune time to review some of the alternative procedures agricultural cooperatives use for selecting directors.

No single selection
procedure fits all
There is no single “best practice” for finding excellent board candidates. Each cooperative must explore what works best for its members. Clearly, large membership cooperatives often need a different procedure for candidate selection than those with relatively few members. Candidate selection and nomination are two parts of the process of getting qualified candidates on an election ballot. Selection is a process of deciding who should be nominated, while nomination is the act of putting a candidate on the ballot.

Standard procedures for candidate selection and nomination often have to be adapted to local conditions. Bylaws usually authorize more than one procedure for nominating candidates, but they do not indicate which nomination methods are used most frequently.

A survey was recently distributed to learn more about how cooperatives select and nominate candidates for their boards. It listed some of the common procedures and provided blank space for “other” methods to be described. Several cooperatives described additional procedures or sent copies of policy statements related to these matters. Responses were received from 433 cooperatives. A summary of these alternatives and their potential strengths and weaknesses may offer ideas to consider when reviewing your co-op’s nomination practices.

Nominating committee
The survey showed that a nominating committee is by far the most widely used vehicle for selecting candidates. This method was used by 374 cooperatives, or 86 percent of the respondents, but most also use other procedures. A nominating committee is responsible for finding the best available candidates from a cooperative’s membership and is often involved in other preparations for an election. For example, nominating committees must prepare the ballot, which includes their nominations and all others nominated by valid methods.

The strength of a nominating committee depends on the extent of deliberation and study that go into its choices. Both directors and other members can share valuable insight about the membership when serving on a nominating committee. Out of 376 cooperatives reporting on nominating committee composition, 163 (43 percent) use only non-director members on the committee. Another 131 (35 percent) use a mix of directors and non-directors, while 82 (22 percent) have only directors on the nominating committee.

A director-only nominating committee can operate without conflicts of interest when there are board vacancies or when elections are staggered so that there are always some directors who are not running. However, a potential weakness of the board’s involvement is that nominating committees may not be formed when elections involve incumbent directors.

About two-thirds of the cooperatives reported that they do not have a policy requiring that elections be contested, thus often allowing incumbents to run unopposed. Although many cooperatives reported difficulty finding members willing to challenge popular incumbents, nominating committees perform better if they are actively searching and recruiting candidates for all elections.

Directors, as well as managers, have experience in knowing what capabilities are most needed on their board. Managers often work in an advisory capacity with the nominating committees. Directors have an appreciation for certain attributes candidates would bring to the board. For those cooperatives which disallow directors on the nominating committee, information sharing between board and committee can contribute to better candidate selections.

Determining who serves on the nominating committee is often another way for directors to exercise influence. Most non-directors are appointed to the committee by directors.

Advantages of director influence on candidate selection may become a weakness if applied without checks and balances. Selecting for positive traits, such as a team player, may unintentionally screen out “devil’s advocate” type directors those who contribute by questioning the status quo and who may offer valuable new ideas. Another possible weakness of director control over candidate selection might occur if members feel they have no real influence on the process of who can be elected to the board.

These kinds of weaknesses have inspired a manager of one rural electric cooperative to recommend “good riddance” to the nominating committee.1 Yet, there are ways to capture potential strengths and minimize perceived weaknesses of nominating committees. For example, to address concerns by members of too much director control over candidate selection, nominating committees can be elected rather than appointed. At least 20 cooperatives reported holding elections during their annual meeting to select the nominating committee.

Several cooperatives issue a formal request for volunteers for the committee, and a couple reported using a random selection procedure to solicit non-director volunteers to serve. The purpose of these efforts is to find ways to get more members involved in the process of candidate selection.

Nominations from the floor
Nominating committees didn’t become the most widely used procedure for selecting candidates until the latter part of the 20th century. A similar survey was last conducted by Cooperative Services in 1949. 2 At that time, only 19 percent of 962 respondent cooperatives used nominating committees, while nominations-from-the-floor during annual or district meetings were used by 64 percent of co-ops (which has now fallen to 36 percent).

The strength of floor nominations is in having increased member access to the candidate selection process. Its impact is likely to be greatest in cooperatives that report having no nominating committees, or which only occasionally use them, as was the case for 39 cooperatives.

Weaknesses of nominations-from-the-floor mirror the strengths of nominating committees. There is potential for too much spontaneity or lack of study and deliberation about potential candidates. But in those cases where members at annual or district meetings have substantial familiarity with one another, nominations from the floor are unlikely to result in neglect of the best candidates.

The shift over time from nominations-from-the-floor to nominating committees as the most commonly used procedure may reflect the increasing complexity of business faced by cooperative boards. More cooperatives have responded to this complexity by reducing their use of spontaneous procedures for selecting candidates.

Recruitment by directors
Candidate recruitment by directors is widely reported. Although 157 cooperatives reported such recruitment, some of it overlaps with the work of nominating committees that include directors. However, recruitment by directors is a distinctive procedure for candidate selection when nominating committees are not used by a co-op, or when they are exclusively composed of non-directors. These conditions apply to 45 cooperatives in the survey.

Member caucus
Member caucuses (usually held during annual or district meetings) can engage much broader participation in the nomination process than do nominating committees. In contrast to nominations-from-the-floor, more time is allotted for group deliberation. Although not listed as an option in the survey, three cooperatives reported using caucuses.

Usually, cooperatives do not have both member caucuses and nominating committees. While most cooperatives use the latter procedure, it should be noted that caucuses are used by some relatively large membership cooperatives, so that a fairly substantial number of farmers participate in this method of candidate selection.

Nominations by mail
A cooperative’s entire membership can function as a virtual nominating committee by soliciting nominations by mail, or via a newsletter. The mechanics of this procedure vary, but, as an example, one cooperative mails a response card to each member to make a nomination. All nominees listed on the returned response cards are put on the ballot. Ballots are then mailed to members. In the event of a tie, a run-off election is held. The procedure is applied in each of the cooperative’s 22 districts.

The strengths of nominations by mail are not only in having all members involved, but also in the opportunity for individuals to make nominations without the pressures for group consensus that prevail in meetings. A potential weakness for this procedure is that it misses the benefits of group discussion about potential nominees. But familiarity with potential nominees that often exists in membership districts enables a nomination-by-mail procedure to work well. Another potential weakness is plurality voting, where a candidate might lose when running against two or more contenders but would win in a one-on-one election against those same candidates.

Ballot write-ins
Provision is often made for writingin candidates on ballots when members are dissatisfied with the official list of nominees. Ballot write-ins can be regarded as more of a membership right than a candidate selection procedure. It recognizes the right to vote for who you want to, rather than being limited to the official nominees. It’s applicable when using paper or other forms of a written ballot that are distributed by mail or at annual meetings.

Ballot write-ins are often disallowed when any number of nominations from the floor are included in the vote. The nominations-by-mail procedure does not accept ballot write-ins because members had their opportunity to nominate on the response card. Nevertheless, many cooperatives have bylaws that authorize ballot write-ins. Out of the survey response by 433 cooperatives, 52 reported frequent use and 132 have occasional use of write-in candidates on the ballot.

Nomination by application
Cooperatives generally prefer an open process of candidate selection, in the sense of not limiting any member from running for the board. Similar to the procedures of nominations from the floor and ballot write-ins, a member can be nominated without having major name-recognition among the membership, and may even get on the ballot primarily by self-selection. An applicant usually must submit pertinent information to the cooperative or nominating committee several weeks before the election.

In some cases, a signed petition by a specific threshold number of members is required. Its advantage over nominations-from-the-floor and ballot write-ins is that cooperatives often distribute a “bio” on each candidate so that members can use this information to help them decide whom to vote for. Frequent use of nomination by application was reported by 26 cooperatives, while 105 reported occasional use.

Associate board
An associate board is a practical method for developing quality candidates for directors. These members are usually young farmers who stand out as good prospects and are either appointed by directors or can apply to be confirmed by membership vote. Associate boards participate in selected meetings of the board and may have special committee assignments, with the primary objective being that they gain experience for becoming future directors. As a recruiting procedure, this has some similarities with candidate recruitment by directors, as well as being a member education program.

Although the survey did not specify associate boards as a candidate selection procedure, 17 cooperatives reported having this type of program, which suggests that it is relatively popular. A possible limitation is in having to make choices in the present about directors for the future, in contrast to a search procedure just prior to an election. But it is an effective way to develop a competent board and to boost newly elected directors along the learning curve faster than would normally occur.

Searching for candidates
Procedures for selecting cooperative director candidates are not often scrutinized and changed. There has been a gradual shift to procedures with more deliberation and study of potential candidates and slightly less reliance on spontaneous methods of selection. This change is indicated by the rise of the nominating committee and the decreased use of nominations from the floor that occurred between 1949 and 2003.

Increased use of nominating committees reflects efforts to address some of the problems that many cooperatives have encountered in finding members who have an aptitude for serving and who are willing to serve. Many survey participants reported the latter consideration as a major problem. When substantially large numbers of members are reluctant to serve, there is need for more advanced planning to search for potential candidates and to hold discussions about the benefits of serving on the board.

Candidate recruitment by directors outside of nominating committee work has also been driven by the need to find “willing and able” candidates. In addition, associate boards address these problems more head-on than the more spontaneous methods of candidate selection.

The weaknesses of nominating committees are less in their design than in their execution, particularly when their search process is too narrow. The committee should not limit its considerations to a circle of friends or be satisfied when it has found a “willing and able” candidate, but must build a database of capable candidates. This exercise ought to be carried out, not only for board vacancies, but also to find challengers to the incumbent directors. Nominating committees could survey the membership for suggested candidates, as well as asking for information about members’ relevant skills for serving on the board. In short, a nominating committee can operate as if it were an office of human resources.

Candidate selection procedures in cooperatives will continue to be driven by demand for skilled leadership in carrying out the increasingly challenging tasks of fiduciary duties and long-range planning. Furthermore, difficult issues of business ethics accompany the growing financial complexity of today’s cooperatives. In the wake of recent corporate financial scandals, business ethics are receiving more emphasis overall. In fact, investor-owned firms are being urged to apply democratic principles to reform their director candidate selection procedures. Good advice that has long been followed by cooperatives.


1 Avram Patt, “Here’s a Novel Concept:
Get Rid of Your Nominating
Committee,” Cooperative Business
Journal, NCBA, Aug/Sep 2002.
2 Nelda Griffen, H. N. Weigandt
and K. B. Gardner, Selecting and
Electing Directors of Farmers’ Cooperatives.
USDA/Farmer Cooperative
Service, General Report #14, 1955.
(Note the survey was taken in 1949,
but the report was not published
until 1955).



‘CHS Inc.’ now official name

In an effort to ease confusion and simplify its corporate name, Cenex Harvest States will henceforth be recognized as CHS Inc. In a vote of the membership, 87 percent favored the legal name change, which only required a majority for passage. About half of the cooperative members and producers in 27 states cast ballots.

Meanwhile, CHS is shifting its Tex-Mex food business in January to a new location in Fort Worth, Texas, which will be a more automated facility. The cooperative purchased Rodriguez Foods two years ago and will shift its tortilla and chip production to the new site. The company also makes tamales, burritos and enchaladas and supplies Texas prisons, the U.S. military and restaurant chains. CHS plans to invest $15 million in the 100,000-square-foot facility at Fort Worth and move 15 million pounds of annual production there from Minnesota.


Methods for selecting and recruiting candidates for directors





November/December Table of Contents