The Co-operative Movement of the Russian Far East

This page is made up Russian Far East Association of Co-operative Movement for accumulation, collection and systemization information of Russian and Foreign Scientists, experts, practicians, representatives of co-operative society and all who will be interested make prove and develop Co-operative movement in Russia, Russian Far East Aria and all countries of our small World.

2.4. Democratic management - FARMER COOPERATIVES VERSUS COLLECTIVE FARMS American Studies on Ukrainian Problems Vitaly V. Zinovchuk

Cooperatives, as a special type of business organization, have a special type of management required by the member control principle. But members of cooperatives can not make all decisions directly. A system of delegation of authority is needed. This is achieved by members electing, from among their own group, those who will represent their personal interests and interests of cooperative as a whole in a board of directors. The board of directors in turn have to delegate daily managerial functions to somebody else who is educated and skilled enough for that. In federated cooperatives, the same tasks are solved by local cooperative members. Thus, all participants of management process in any cooperatives could be divided in three groups: 1) members themselves as both controllers, owners and users of cooperative, 2) board of directors elected by farmers, 3) and hired professional management. Each group has clearly defined functions and responsibilities that are sometimes blurred in practice.

Members of cooperative, or the persons who own and use its services at the same time, normally must meet some requirements to be identified. Usually, they are producers of farm products who must have financial investment in cooperative ranging from $1 to over $10,000. Federated cooperatives require that member cooperative must be agricultural production associations with investment $25-1,000 or even more [Kirkman, p.2]. Important obligation of members is their usage of the cooperative (Box 9). In many cooperatives the members who do not patronize their cooperative more than one or two year, lose the right to vote, and their membership stock shall be transferred to a non-voting status. Generally, cooperatives are required to have at least 50% or even 100% of their business with their federated cooperative to achieve voting status. The cooperative has the responsibility to be economically efficient and to feel economic needs - otherwise members have good reason to leave the cooperative. But members must also be wise, courageous and humble.

Box 9

Case of May-Port Farmers Co-operative
(Mayville, North Dakota)

This local elevator cooperative has open membership for any agricultural producers who live within the market area of the cooperative. Any person who is also a farmer may become a member of cooperative after written application and positive decision of the Board of Directors. Membership fee is symbolic, and equal $1.00 for all members. But farmer members are required to patronize their cooperative annually. Membership will be automatically terminated, losing voting rights, if any member fails to patronize the cooperative during a twelve month period. This requirement is motivated by the necessity of reducing per unit costs by more fully utilizing processing facilities owned by the cooperative. Membership can be restored through regular application procedure and the renewal of patronage [Berthhold, p.3].

The main responsibility of all cooperative members is to support and develop the idea of cooperation. But it can be possible only when they definitely understand their organization: its purpose, objectives, benefits, advantages, limitations, operations, finances, strategy, long-range plans and programs, etc. Members must be well informed about the state of matters in organization. Under these conditions membgrs are really able to maintain effective control of their own business. The role of members in management also concerns a certain set of more concrete tasks which could be summarized as follows:

- adopting and amending of legal papers (articles of incorporation and bylaw);
- selecting the most able and best qualified members to serve on the board of directors, evaluation of their performance, and recalling of incompetent directors;
- through the board of directors selecting, controlling the hired managers' performance of duties;
- attending general meetings regularly and discussing problem in a constructive and intelligent manner;
- providing necessary equity capital and approving the capital structure of the cooperative;
- giving the cooperative complete loyalty and support, based on good perfomance, effective communications, and justified criticism if any;
- sharing business risks in proportion to individual equity and patronage;
- approving all reorganizations and other principal changes in the strategy of cooperative;
- keeping the board informed on any matters of common interest.
- involving new members.
- accepting decisions made by general meeting majority or to leave the association if there is anything fundamentally unacceptable.

The active role of members and their positive performance of managerial functions is of great importance for success of the cooperative venture. And vice versa, members' neglect to participate in management leads to failure of the cooperative because it contradicts the idea of cooperative as a member control organization. In order to make their membership more active many cooperatives develop communications with and between their members through better information, general and special meeetings, personal contacts, and education. An important task of cooperatives in activization of their membership is connected with recognizing and promotion of leaders among the members.
Normally, informal leaders of a cooperative are also members of its board of directors at the same time. The general qualification and personal requirements to be elected as a director could be expressed as:

- to believe sincerely in advantages and success of cooperative business organization, invest in, patronize the cooperative and do his own business well;
- to demonstrate leadership capacity and be respected by neighbors;
- to be experienced enough and qualificated for decision making process in the organization;
- to be able to work within the team, to possess organizational-inclinations
- to keep safely confidental information concerning joint interests;
- to be honest, available and accomodate different personalities;
- to be receptive to and be willing to promote profitable new ideas;
- to willingly make personal contribution to the successful management of the cooperative.

Election of directors is an important stage in providing democratic management. Often a nominating committee is created to select and nominate a slate of candidates. It is recommended that voting be by secret ballots. Personal participation is critical; therefore, as a general rule, proxy voting is prohibited except that the cooperative's bylaws may provide for representation of members by delegetes apportioned territorially. The officers of the board (chairman, one or more vice chairmen, secretary, and treasurer) are usually elected by board members. The functions of the secretary are to keep the minutes and records, and attend to correspondence. He is also the official custodian of the seal, the stock book, and membership records. The treasurer is responsible for personal supervision of the bookkeeping and accounts. Additional officers may be authorized and the offices of sectetary and treasurer may be combined. Certain officers are required to be stockholders. Members may remove an officer at a members' meeting for cause and fill the vacancy caused by removal [Minnesota Co-op Law, p.69j.
The length of service for directors is an internal affair of cooperatives. Many cooperatives prefer 1-3 years service term of their directors (Table 14). The main agruments for that are that new board members can bring new ideas and energy, new approaches to the solution of traditional problems. Rotation of the directors is also important for increase and promotion of cooperative leaders, and can help to avoid embarrassment that may arise when a director has been in office for a long time and, for a number of reasons, may not be suited to continue [McBdde, p.132]. But some cooperatives prefer longer terms of directors' service. For instance, eleven directors of regional centralized Cass-Clay Creamery, Inc. have such individual period of service as members of the board: 4, 6, 6, 8, 9, 10, 10, 12, 13, 19, and 23 years for chairman of the Board. The reason for that, of course, is the importance of continuity, competency and experience, necessarily to continue successful policy worked out by this board staff. Some cooperatives have policies of limiting the number of times a board member can succeed themself.

Table 14. Length of cooperative directors terms by size
of cooperative (percent)

Length of cooperative directors terms by size of cooperative (percent)

Source: Bigg, Gilbert W. 1978. Farmer Cooperative Directors:
Farmer Cooperative Service Report 44. Washington, D.C.: Economics, Statistics and Cooperatives Service, USDA, p.40.

As for number of directors (Table 15), every cooperative also has an individual consideration. State law requires only the minimum number of directors. For example, according to the South Dakota Codified Cooperative Law, the number of directors of a cooperative shall not be less than five, provided that in a cooperative with less than fifty members, the number of directors shall not be less than three [SD Codified Co-op Law, 47-16-13]. Of course, the interest of each member of cooperative should be represented at the board. But generally an excessively large board does not lead to effective and flexible management. These two limitations, democratic representativeness and economic reasonability, finally define the optimal size of the board in each particular case. If members of cooperative are divided in certain groups, for example regions, counties, business arrangements, etc., the board of directors usually is formed from representatives of these groups (Box 10).

Table 15. Cooperative boards of directors size by size of
cooperative (percent)

Cooperative boards of directors size by size of cooperative (percent)

Source: Bigg, Gilbert W. 1978. Farmer Cooperative Directors:
Farmer Cooperative Service Report 44. Washington, D.C.: Economics, Statistics and Cooperatives Service, USDA, p.40.

The primary function of the board is to establish cooperative policies for finances, services, pricing, credit, insurance, membership, public relations, employee relations, internal operations, and to direct and control the affairs and activities of the association in the fulfilment of the defined objectives. Very important for directors is to avoid conducting members' functions or substituting professional management to run the company. It is better when the duties and responsibilities of directors are clear defined (Figure 19). Directors are required by law and by a moral obligation to their fellow members to reasonably conduct the affairs of a cooperative. They must act as a board, not as individuals. Individually, directors are no different from other members.
Although the board is charged by law with managing the affairs of the cooperative, this does not mean day-to-day management. This function is delegated to the general manager, who is accountable to the board for his decisions and performance. The success

Box 10

Case of Southern States Cooperative, Inc.

Southern States Cooperative, Inc. (Richmond, Virginia) was organized more than 70 years ago as a regional federated cooperative of mixed structure which purchases, processes and manufactures high quality feeds, seeds, fertilizers, fuels and farm, home and garden supplies for thousands of farm and nonfarm people in Virginia, North Carolina, West Virginia, Delaware, Kentucky and Maryland. It distributes these supplies through some 550 local dealers in those six states. It also markets small grains, corn and soybeans for farmers in certain areas. Anyone — farmer or nonfarmer, member or nonmember -- may buy from Southern States. But only an acting farmer can become a voting member by acquiring at least one share of common stock. Membership qualifies a farmer for additional benefits. Regardless of the amount of membership stock owned or volume of business done with Southern States, each member has only one vote in controlling the cooperative. In all, there are 375,273 memberships in the Southern State system which includes Southern States, Inc. and its local member cooperatives. Some farmers are stockholder-members of both Southern States and a local member cooperative, and thus are counted more than once in the total membership. The Board of Directors consists of 17 farmers, including one from each of 11 electoral districts with nearly equal geographic area and volume of patronage. These eleven directors are elected for 3-year terms by delegates who are elected by stockholder-members, on a trading point basis. The Board also includes public directors -one from each of the six states in which Southern States Cooperative operates - selected for 3-year terms through a process involving state Extension Service directors. The 17-person Board makes basic policies for the organization, selects management, controls expenditures, authorizes audits, distributes net earnings, defines election district and authorizes the issuing of stock [Southern State Cooperative, Inc.: Annual Report 1994].


of the cooperative depends on how directors are able to select a qualified manager and establish qood relations with him. Unlike investment oriented firms, where the position of a director and the manager could be combined, cooperative directors always have to select somebody out their circle. As a rule cooperative directors are farmers, often without special training and little experience in management of business organization.
To be selected, the manager should have experience and demostrated ability in the type of work to be done. He must be able to solve different kinds of technical business problems such as sales promotion, purchasing, physical distribution of commodities and services, pricing, etc. Besides technical competence, the candidate is required to provide effective management of human resourses, as well as to understand the cooperative values and principles. There are some specific features of manager's work in cooperatives which make it different from other types of business organizations and more difficult. For cooperative manager, the clients of his company and its owners are the same people. The manager must be able to develop membership confidence and loyalty. His ability to balance the interests of patrons and owners in each member is highly valued.

The manager's duties are defined by legal documents of the cooperative and can vary depending on type, scale and specialization of the cooperative (Box 11). Generally the manager is responsible for planning, organizing, directing, and controlling the use of personnel, capital, facilities, and equipment. Managers are also in charge of commodities or materials handled and services provided by cooperative. A very important task is to

Box 11

Case of Farmers Union Elevator Co. (Minot, North Dakota)

Article V. Management (from "Restated Articles of Association")

Section 1. Manager: The Board of Directors may employ a manager who shall manage the affairs of the Cooperative under the supervision of and in accordance with the policies of the Board of Directors, and may terminate the employment of such manager at the board discretion.

Section 2. Manager's Duties: Duties of the manager shall be to have charge of the direct management of the business of the Cooperative, in accordance with the instruction of the Board of the Directors and under supervision of the Board of Directors; to engage and discharge the employees of the Cooperative in accordance with authority given by the Board; to cause accurate books and records to be kept of the business of the Cooperative and to submit the same, together with all files, records, inventories, and other information pertaining thereto for inspection at any time by the Board of Directors or by auditors appointed by the Board of Directors; to disburse funds of the Cooperative in payment of its debts in accordance with authority given by the Board of Directors, making proper vouchers for such disbursements; when requested, he shall furnish to the Board of Directors at their meetings, a monthly report of the management; to attend to such other duties and offices as the Board of Directors may require, including such duties as might ordinarily in the absence of such requirement be performed by the treasurer of by some other officer of the Cooperative. The manager shall treat all members on a uniform basis, without discrimination or favoritism. He shall be responsible for the collection of all accounts of the Cooperative.

Section 3. Audits: The Board of Directors shall require the manager or auditor to submit a detailed report of the financial condition of and business transacted by the Cooperative at least monthly, and shall have the books audited by a public accountant affiliated with the cooperative movement at least once a year, and at such other times as is consistent with the volume of business.

hire cooperative employees, to authorize the use of resources, and to delegate responsibilities to implement tasks. So the employees, especially those with direct member contact, are the key link between executive management and membership. Adequate and efficient performance of cooperative services needed by members will be possible if eminently qualified persons are selected who understand what kind of business organization they are involved in.
Management of cooperatives is deservedly called as democratic. The main reason for that is, of course, the user control of the business (Figure 20). But democracy in cooperative management is essentially broader than only control. It is an atmosphere in which the organization exists. Involving new members, establishing effective communications, solution of conflicts, providing members education, or even ceasing cooperative activity -any problems are solved in favor of all and everybody. Each member of cooperative is assured that his personal interest will be taking into account. And at the same time, at any managerial level it is impossible for any person or group of persons to get an exclusive right to the decision making process. The system is constructed in the way that at each higher stage in management is accountable and fully controlled by lower one. The highest power belongs to those who cultivate land, grow agricultural animals, who produce the most important commodity that ever existed - food.