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The Board’s Business

As one of the newest members of the Willy Street Co-op Board of Directors, I am often asked about how Directors meet their responsibilities and how the Board functions. The short answer is that the Board aspires to the Carver model of policy governance, where the Board specifies high-level policies and leaves day-to-day operations to the General Manager and her team. My Board colleague, Deb Shapiro, discussed policy governance in this article from the November 2007 Reader:

The drama surrounding the second store has been the Board’s main focus in the few months since I was elected; this has not been a normal period. During this time, I observe that Board members have relied less on the formal model of policy governance and to a greater extent on the legally prescribed Directors’ responsibilities including fiduciary responsibility, due diligence, and ethical behavior. Board members with for-profit business experience have tended to take a more prominent role in meeting these legal responsibilities. Board members who are more familiar with the Carver model, which is designed for non profit and public organizations, have tended to take a back seat. This is not necessarily a bad thing; to quote the late Roger Eischens (and others), “it is what it is.” Let’s look at what these responsibilities mean and how the Board uses them.

Coming from English common law and embodied in today’s laws governing Boards of Directors, a fiduciary responsibility is one of special trust and confidence where an individual is required to act with undivided loyalty on behalf of another person or organization. According to the UW Center on Cooperatives, “A director of a cooperative has a special fiduciary relationship with that co-op and with its members. Cooperative directors have a duty to conduct the co-op’s affairs in the members’ interests; they are trustees of the members’ property…Directors may be liable for damages if they are found to have exercised less than their best judgment.” The legal standard for fiduciary responsibility emphasizes loyalty and a reasonable standard of care (the opposite would be negligence). With respect to the second store, I believe the Co-op’s Directors have been exceedingly loyal to the members’ interests and property and have also exercised reasonable care.

Due diligence is a term that comes from the investment community and has to do with the examination of operations and management and the verification of material facts. According to the on-line version of Investopedia, “due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.” In the case of the second store, evidence of due diligence includes the Board’s review of legal advice and documents, studies related to valuation, feasibility, site selection, competitive environment and expected sales plus many iterations of financial and cash flow models. Sometimes we choose to meet our responsibilities as Board members by hiring independent professionals who have specialized technical, financial or accounting knowledge. Independence refers to the ethical responsibility of a professional to avoid actual and apparent conflicts of interest. For example, accountants and attorneys have professional codes of ethics that specify how they must be unbiased, impartial, and objective and must also be perceived that way by others. As Board members, each of us must also be free of any conflicts of interest or the appearance of conflict of interest. I observe all Board members acting in an ethical fashion, free from conflict of interest or its appearance. Furthermore, I believe the Board continues to ensure that the professionals it hires are independent or function under codes of professional ethics that provide for their independence or both.

In Boards That Make a Difference, A New Design for Leadership in Nonprofit and Public Organizations, Carver says, “the board has a moral obligation to ensure the prudence and ethics of operations.” I think the Carver concept of prudence would probably be consistent with fiduciary responsibility and due diligence while the Carver concept of ethics would be consistent with ensuring the independence of consultants. But, has the Board strayed too far from policy governance?

During the time of emphasis on the second store, Board members who have “been there and done that” in the business world have tended to become involved at the operational level, diverging from strict principles of policy governance. Sometimes this expedient has been very helpful and sometimes we have stepped on the toes of the General Manager and her staff (sometimes both at the same time). The urgency and drama of second store issues have been very seductive, so it has been difficult for the Board to function purely at the policy governance level. For myself, I see no contradiction between having Board members who are experienced and knowledgeable business people and the Board functioning consistently with the Carver model. In fact, as the Board increases both its business acumen and skill in policy governance, I hope this will become the preferred state.

On behalf of the Board, I invite the questions and comments of all Co-op members on any pertinent topic. e-mail us at:.

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