Let’s take a moment to examine our views about money and success, both for ourselves and for our Co-op. Each of us makes choices and experiences effects related to money and individual wealth. Some of us make extensive, life-long efforts to increase our material wealth. If we are fortunate, perhaps we experience some happiness. However, recently we have seen many wealthy people experience disappointments such as losing one’s job, home or life savings unexpectedly. Others of us have great difficulty accumulating any significant wealth at all—even if we work hard. This may be because of our own actions or from circumstances seemingly beyond our control.
If we observe carefully, we see that increasing one’s monetary wealth does not necessarily increase one’s happiness. If money and happiness were perfectly correlated, wealthy people would have no problems and poor people would experience no happiness. Since neither of those conditions is true, it’s logical to conclude that money, in itself, is not a reliable source of happiness. A similar relationship is true for our Co-op, in that neither too much nor too little money leads to a successful (happy) business.
As stewards of the Co-op’s financial well-being, members of the Board of Directors must frequently ask ourselves, “How much is enough?” The Co-op is a for-profit business and must accumulate profit for purposes such as funding inventory and operations, providing security for our loans, gathering capital for growth, and having adequate reserves. With respect to profit, one view would be to make as much money as possible while another would be to adjust prices and operating efficiencies just to break even. Each of these philosophical views has its virtues and pitfalls, but in the end, the Board is responsible for articulating a balanced and practical approach for Management and Staff to follow so our Co-op continues to be successful.
One example of progress towards this balanced approach to profit is discussed elsewhere in the newsletter—the new Access Discount. After extensive input from members and staff, the Board revised long-standing discount and membership practices and now discounts will be based solely on Owners’ financial needs. The intended effect is to benefit all Owners of the Co-op by controlling costs while continuing to offer assistance to those Owners who need it most.
The Co-op’s practice of sharing profits with employees illustrates how difficult establishing this balance can be. At the September 2007 meeting, the Board allocated $96,533—34% of that year’s pre-tax profit as profit share to employees (the following year, there were no profits to share). At about the same time, the Board approved an expansion for a second store at Metropolitan Place at an estimated cost of over $4 million (the lease was later canceled). Even though these actions took place in consecutive meetings, the minutes indicate that the Board made no explicit connection between them. In each of these situations, a more explicit agreement about “how much is enough” might have avoided the perception that the Co-op’s Owners were not appropriately served by the Board allocating too much profit to one purpose and not enough to another.
Subsequent discussions about profit share among the Board, Management and Staff illustrated the different views about the purpose of the Co-op’s profit. For me, the key aspect of this discussion was not that a few staff members expected that the purpose of the Co-op’s profit was to maximize their individual share of profit, but that so many staff members expressed and understood the importance of balancing the needs of all the Co-op’s stakeholders—the Co-op as a whole, Owners, staff and the community. Special thanks to all those staff members who participated in the discussions about profit sharing.
Another example of the Board’s progress toward balancing appropriate profit and business success is the ongoing work of the committee investigating Owner rebates. Wisconsin law allows Co-ops such as ours to designate a portion of annual profits as rebates to Owners based on their patronage (purchases). At the discretion of the Board, this rebate can be sub-divided into two portions—one portion can be refunded to each Owner in cash and another portion can be retained by the Co-op as each Owner’s annual contribution to the Co-op’s capital. The portion refunded to the Owner is tax-free to the Owner and the portion retained by the Co-op is tax-free to the Co-op. The intended effect of the rebate would be to provide a portion of profits as a tax-free benefit to Owners and a portion as a tax-free increase to the Co-op’s retained earnings. Stay tuned as this committee’s work comes to fruition.
The Board’s Finance Committee intends to make more specific progress on the question of “how much profit is enough?” in the coming year. Along with this year’s annual budget, we hope to produce a capitalization plan that balances the needs of the Co-op as a whole, Owners, staff and the community. In concert with the annual budget, we envision the capitalization plan as setting out the Co-op’s needs for retained earnings and capital (which comes from profit and fair share equity) over the next several years as well as establish goals and measures for the Co-op’s ongoing financial health.
As always, I and other members of the Board are always happy to hear from you, the Owners of the Co-op. May the New Year be happy and prosperous for all!