Co-op Governance + Decision-Making
By Benny Overton, Co-Executive Director
5 min read On July 26, 2021, SEC4CD hosted a training to clarify governance jargon, identify steps to how start-up co-op businesses can answer the question of democratic governance, and work through a case study using decision-making matrix. This included examining some of the key decision making areas. The following includes the four main takeaways from the training. The recording of the class and class materials can be found at the bottom of the page.
#1 There’s a difference between governance and management.
Governance is foundational to how the cooperative runs and guides the organization to remain true to the philosophy or values of the organization’s mission and vision. Governance makes sure cooperatives “walk the talk.” Alternatively, management is more operational, where it has to do with how resources are utilized and the day-to-day operations of the business.
#2 Governance starts with mission and vision, the foundation for accountability.
Mission and vision guide how governance is shaped. Governance is about preserving a sense of who you are as a cooperative. Above all else, governance is the infrastructure to ensure accountability. Membership delegates this responsibility to the Board of Directors to lead this character preservation. An operating agreement is a living document which is why it remains an internal document that is not filed with the state. This allows you to change it on an ongoing basis without having to pay a fee every time you make changes to it.
A good place to start planning your foundational governance document is to look at other cooperative operating agreements that are similar to your organization and tinker with the language so that it fits your mission, vision, and cooperative culture. The main thing is to look at the basics of what the operating agreement all covers. Then, consider a vision for growth and expansion. What challenges may you want to anticipate 5 to 10 years from now that may need to be built into the operating agreement?
For example, one thing to consider is how do you deal with problematic members or Board members? If it came down to it, how would you remove them? Another example may be, if you need to recruit new members or raise investment funding, how would you go about doing that?
#3 Be clear on who makes what decisions.
There are three main decision-makers in a cooperative: members, managers, and board of directors. In some cases, these roles can be combined rather than distinct, but determining which one will guide the decision-making process is crucial.
The role of membership can change drastically depending on the organization; however, they should always be involved in big issues and any decisions that have long term impact on the direction or character of the organization. Moreover, in some cases, if a cooperative is so small that you may only have 4 or 5 members, membership may play a role in everything.
Management should only be making decisions on operational aspects of the business and should not be making decisions that would impact the nature or character of the organization, membership, or mission. These decisions are not within the scope of authority of management. However, depending on the cooperative, managers may be members which would allow them one vote, but they would cast that vote as a member.
For routine decision-making that is not regarding the day-to-day operations, you would use delegated authority, whether that be the Board of Directors or special committee that reports to the Board. This is in an effort to make good use of people’s time. A lot of decision making comes down to efficiency because some decisions, particularly those that are more routine, only require a smaller body to look at and determine how to move forward. Bottom line, all decisions do not have to disrupt the flow of work to have a meeting called, particularly if it is a larger organization.
#4 Consult common tools to advise decision-making responsibilities
Two tools your cooperative can use to be clear and consistent about decision-making responsibilities are tests and matrices.
There are 3 “tests” that can determine who should make decisions. These tests include: Extensiveness, Significance, and Grievability.
The Extensiveness Test determines if a matter should be decided by the managers or the Board. If any of the following questions answers “yes,” then the Board must decide on the issue.
Does it affect a large number of members?
Does it commit a substantial portion of the organization’s resources?
Does it impact operations, personnel or resources over a long period of time?
The Significance Test determines whether a matter is a Board or membership issue. The members must clearly specify in its operating agreement issues which the Board must refer to the full membership for final decision-making. Generally, the Board is the routine policy-making body, and it is only for matters of extraordinary significance that the Board should refer to the membership for review or discussion. If any of the following questions answers “yes,” then the membership must decide on the issue.
Does the matter affect the likely survival of the cooperative?
Does the matter involve policies for the hiring or termination of members?
Does the matter affect the basic character of the cooperative?
The Grievability Test determines whether or not a complaint should be addressed by a management, or depending on the cooperative, a Grievance Committee. If a complaint fails to meet the grievability test, it is the responsibility of co-op management.
Does the complaint involve a violation of existing organizational policy?
Does the complaint deal with a situation for which there is no applicable policy?
Does the complaint question the fairness of an existing policy?
Additionally, a decision-making matrix can serve as a more detailed and specific guide by informing roles within the process. The matrix includes identification of routine decisions that must be made and who is delegated decision making responsibility. For example, Equal Exchange, a worker-owned cooperative, defines these responsibilities as the following:
Decision Maker, also responsible for decision making process
Ratifier, must formally approve or reject the decision
Required Input, decision maker must seek their input and counsel
You can see the full matrix here on page 26.
Using a combination of the tests and decision-making matrix can be helpful to provide a sound basis for determining who makes what decisions.
#5 Cooperative governance is meant to evolve
Governance must evolve as the cooperative grows. At the beginning, you won’t have an all inclusive governance policy or operating agreement until after you’ve done it a while and know exactly what works best for the organization. All the questions may not have solutions initially; however, there are key points that every cooperative should consider for their operating agreement before meeting with a lawyer.
One of the best ways to manage growth is by organizing structures for routine decision making. One way to do this is by creating committees or working groups by electing membership to be responsible for making these decisions. Committee structures may not be required organizational infrastructure for small or start-up cooperatives where there are simply not enough people to create committees and all people can be involved in decision-making without it being inefficient.
Download Class Slides Here
Watch Class Recording Here