Generally, the co-op members elect a board of directors that has ultimate responsibility for governance. Elections happen regularly and each member has one vote. Day-to-day decisions are generally made by staff; bigger decisions are made by the board; and major decisions such as bylaw amendments generally must be voted on by the members. In some smaller cooperatives, the members may choose to have all of the members serve on the board. This model is sometimes referred to as a collective.
Governance refers to how the company is controlled and how decisions are made. Governance also includes how the company and its workers are held accountable both to their internal members and to external stakeholders. In a worker-owned, democratically-governed business, the workers own the company’s assets, but equally important, they control the company and business. If your cooperative is incorporated, it must comply with formal governance rules as defined by statute; a corporation must have a Board of Directors and Officers. If your cooperative is an LLC, governance can be more flexible and it may or may not have a Board of Directors. If you are an LLC, be careful! In an LLC that has no Board, each member has the legal power to bind the entire cooperative, unless expressly restricted in the Operating Agreement.
Board of Directors
If you choose to form your business as a cooperative corporation, i.e. under your state’s the cooperative corporation statute, you must have a Board of Directors and Officers. The Board of Directors is a group of individuals who serve as the governing body of the cooperative. In most cases, the worker-members of a worker cooperative elect the Board of Directors. The Board of a cooperative has legal responsibilities to be loyal to the company, to act with care and honesty and to operate the company for the benefit of the membership. The Board generally sets its company’s goals and strategies and makes important decisions such as whether to borrow money, purchase capital assets and hire executive management. The role of the Board in day-to-day decisions depends on the size and complexity of the company. In a worker cooperative, if there are few employees, the Board may be composed of all of the workers, frequently referred to as a collective Board. In this case, the Board functions as the policy-making body, deciding everything from whether to move to a larger location to the company’s return policy. Under the California cooperative corporation statute, the Board must have a minimum of three directors. Other states may vary.
If the Board is a subgroup elected from the membership, its authority derives from election by the members. To prevent corrosive “us vs. them” scenarios, the Board should and/or must adopt measures to ensure its accountability to the workers such as: regular elections, distribution of meeting minutes, solicitation of worker input, appointment of workers to special Board committees, etc.
Many or most cooperative corporation statutes require that a cooperative have at least three officers: a president, a secretary and a chief financial officer. Unlike the Board, which has the ultimate governing authority over the cooperative, the officers are the executive agents who carry specific responsibilities within the cooperative. These responsibilities are generally administrative in nature. For example, a president is often empowered to sign documents on behalf of the cooperative. A secretary usually provides required notices to members and keeps meeting minutes. A financial officer manages finances and accounts, and often signs checks for the cooperative.
Officers may be executive managers with authority from the Board to implement company goals, or they may be figureheads who are deployed only to sign necessary documents for outside parties. The role of officers, like that of the Board, varies based on the size and complexity of the business and the company culture.
Workplace Structure for Worker Cooperatives
Regardless of the size of the company, the relationship of workers to the Board and to executive officers should be established at the outset and regularly reviewed and evaluated. Worker-owners might resent having the responsibilities of ownership if they do not feel they are able to make decisions that affect their workplace. If workers perceive the Board as not connected to their daily work lives, then there may not actually be democracy in the workplace.
The fact that workers are owners does not compel them to adopt any one particular workplace organizational model. A democratically-managed business might sometimes be organized along the traditional hierarchies found in American businesses. For example, the Board may hire executive managers who hire employee-owners who carry out board decisions under the managers’ supervision. Some worker cooperatives, by contrast, are characterized by minimal hierarchy, perhaps flat or nearly flat pay scales, job rotation, and individuals held accountable not to a single supervisor, but to the whole cooperative. Of course, hybrids of these two extremes are common. Each company needs to evaluate which model works for their particular business and industry.
A business founded on democratic workplace principles should spend extra time exploring how the ideals of democracy in the workplace will be manifested in the business organization. Be aware that many cooperatives evolve through different models as they grow in size and complexity. What worked when there were 5 members starting the business sometimes becomes unmanageable when there are 25 or more members, so flexibility is important. If the organization grows and becomes more complex, its internal mechanisms for ensuring accountability of workers to the organization as a whole should expand as well. In a cooperative, members should pay special attention to those wearing multiple “hats” in the company, as these de facto leaders are often the first to expand their roles without authority from the membership.
Members vs. Nonmembers Within Worker Cooperatives
Having employees who are not members of the cooperative has positive and negative consequences. Non-member employees can provide an effective temporary workforce for a seasonal business that cannot maintain a year-round level of employment. Non-member employees can also help a company manage volatile revenue swings. This is because, unlike a traditional company, a worker-owned company cannot dispense with unneeded members when the market changes or the business experiences a setback.
However, non-member employees can become a second-class employee group. This can change the dynamics of the democratic workplace. Members then become like bosses to the non-member employees, creating divisions between workers.
It is essential that owners clarify the role of non-member employees. If there is a company program for moving employees to member status, it should be presented clearly and made available to all. Narrowing the gap between members and non-members in their relative access to decision making and profit-sharing may be critical for workplace unity and democracy.
External Governance Issues
If the business was organized under the auspices of a parent non-profit or with the aid of outside investors, it may need to include these outside entities in the internal governance of the cooperative. Co-op founders will need to establish the level of participation of a parent non-profit on the Board of Directors. For instance, how many seats on the Board will be allocated to outside entities? If the participation of the parent non-profit requires a separate membership class, how will that entity share in the risk of the enterprise? If outside investors are involved, will they have some decision-making power related to the protection of their investment? Will these outside investors have more direct representation on the Board? This topic will be discussed in more detail in the section on “Nonprofit Incubators.”
When the cooperative engages with business partners, will this engagement occur under the authority of the Board, or will individuals with management-level roles transact directly with third parties? The members may identify specific contracts that require Board approval and those that may be concluded directly by individual workers.
If a community member or customer has an issue with the company, will their concerns be addressed by the Board or by an individual worker? What sorts of issues warrant resolution by one mechanism or another?
The bylaws or operating agreement of the cooperative are very important because they provide the answers to these and other important governance questions.
Cooperative Principles And Their Relationship To Cooperative Governance
The “one-member, one-vote” principle of cooperatives provides only the starting point for decision-making in a cooperative. Consider these more advanced issues: (1) When will a decision be final: when the board approves by majority, by a 2/3 vote, by consensus, by a vote of directors present, or by all directors? (2) Should some decisions require a higher approval level than others? (3) The Board will not make every decision. If incorporated under a specific cooperative statute, which decisions does the law reserve only to members instead of to the Board? What decisions can be made by the members? By work teams? By individual supervisors? (4) Can the members appeal a decision of the Board? What kinds of decisions are eligible to be appealed?
If a cooperative principle includes contributing to the community in which the cooperative operates, how will the cooperative be held accountable to the community? Will members of the community be invited onto the Board of Directors? How will the company monitor its social, economic, and environmental impacts on the community?
Internal Governance Controls
The company should adopt measures to hold directors accountable to each other and to the Board as a whole. Directors can be evaluated for meeting attendance, participation, and knowledge of issues affecting the business. If an individual director or executive officer acts according to her own beliefs on what is best for the cooperative, , but not in accordance with the deliberated decision of the Board, how does the Board reclaim its own authority?
What mechanism does the cooperative have for members to exercise control over decisions affecting their workplace? Regular Board elections can help make directors accountable, but there often needs to be more than that. Managers need to be directly accountable to the worker-owners, inviting participation from workers prior to making a decision, explaining their decisions, and providing means for review and evaluation by workers. If there are loose structures or no structures of command and control, leaders will arise spontaneously. Most cooperatives want to encourage this process. However, without formal structures, these leaders may operate without accountability and in a way that impairs democracy in the workplace.