Cooperative Accountability

Instead of managerial skills and processes, accountability is the disipline the board of directors must master

A recent survey sponsored by the National Cooperative Business Association (NCBA) and a coalition of major national cooperative associations indicated that the public has strong expectations of accountability and ethics in cooperatives. Additionally, cooperatives generate more trust and accountability than investor-owned corporations. That is certainly great news. Cooperatives have a reputation of being closely connected to the interests of their members. Yet, given the continued public scrutiny of organizational accountability, it is useful for cooperatives to know what accountability means, how it is being accomplished elsewhere, and how to ensure it will actually be accomplished. Given high public regard, cooperatives are in a position to define the standard for accountability.

This article revisits the basis of accountability, the board of directors as the agent of that accountability, and the framework in which accountability can be reliably accomplished.

After a board meeting some months ago, I asked a visiting consumer co-op owner what he thought of the proceedings. He said he was fascinated by the process we used to accomplish the agenda and the clarity with which we related to each other. I was a bit surprised by his enthusiasm. I'd never before heard anyone describing a board meeting as 'fascinating,' particularly one dealing with developing, editing or monitoring policies! However, he went on to say that he wished his school board, town council, and meetings at work would focus on what is important and move forward with such discipline. I realized then that his enthusiasm wasn't about the subject matter per se, but from witnessing a group operate with the intent of being accountable.

What does accountability mean? How is it done? How can we ensure it is accomplished?

Back to basics

To understand accountability, we need to start at the beginning, with the purpose of a cooperative. A cooperative creates some common value for its members. To assure that that happens, the board of directors, on behalf of the members, assumes the total accountability for the cooperative. That is, the board is answerable to the members that value is produced consistent with member interest. Members depend on the cooperative board effectively to exercise authority on their behalf to assure that their assets are protected and the value they want is produced.

For the board to be able to 'answer to' or 'be accountable' to the members, it must know what is expected, define what is expected, and then have some way of knowing that what was expected was done. Accountability is a simple concept. However, to account for a complex retail operation on behalf of a large number of members is more easily said than done.

The challenge

The fundamental challenge is, "How can it be done?" Seven to nine board members meet for a couple of hours once a month, with an annual or semi-annual retreat. They need to know what a diversely opinioned membership expects. They need to synthesize those diverse opinions in a way that represents all and that will guide cooperative direction and decisions. They then need to have some way of ensuring expectations are met and some way of accounting to the members. Factor in the likelihood that none of these seven to nine board members may have any retail business experience and that they each have their own opinions, and the challenge is even more daunting.

This challenge is not unique to cooperatives. Any governing board, from elected officials to major corporate boards, faces the same challenge. However, cooperatives do have the advantage of guiding principles that put cooperative values into practice. The cooperative commitment to accountability is evident throughout these principles. Given the level of public trust that cooperatives enjoy, much has gone right.

Yet, assuring cooperative accountability is still a challenge, one with growing stakes. To be effective over time, a cooperative needs to be effectively managed and responsive to changing market conditions. The marketplace is increasingly competitive, and cooperative membership is increasingly diverse, including more and more people who don't know what a cooperative is beyond the product and service they are receiving. Both managing and accountability require effective tools--process, structure, and practices--and handling one without the other jeop-ardizes cooperative values and assets.

Traditionally, boards across all sectors have borrowed from the best practices of management to do their job. They oversee managerial decisions or take on certain operations-related work and decisions in such areas as strategic planning, relocation, or personnel. Boards usually involve themselves in areas that, among others, will have a significant impact on how people are treated, where the cooperative is going, or anything aligned with member interest. Many cooperatives are also set up to involve the members themselves in 'major' decisions. In these cases, members have reserved certain decisions about the cooperative for themselves in the by-laws.

A cooperative's focus on members' interests, whether by involving members directly or through a board operating on their behalf, is a key contributor to the public's high regard for cooperative ethics and accountability. Cooperatives are responsive to members to a greater degree than other businesses. Cooperatives are intended to ensure member interest is met, the fundamental intent of accountability.

Approaching accountability in this traditional manner is challenging. As a board member, I remember serving on a committee researching various models of management as part of a process to ensure a certain quality of work environment and treatment of personnel. This is not my area of expertise, and I had the feeling that we were, with all good intention, reinventing the wheel, not quite sure whether we would make the difference we wanted. We eventually resolved the matter, but only after countless hours of meetings.

The issue we dealt with was personnel. But whether the issue is relocation or taking advantage of a market opportunity, a lengthy process to engage members and/or cause board members to become 'experts' in a new area can be costly, both in human capital and in market opportunity. How can cooperatives retain their strength in accountability while at the same time be responsive in the marketplace?

Many boards within the cooperative sector have adopted Policy Governance, a system designed specifically to fulfill the board's need to be responsibly accountable to a broad and diverse group of members while at the same time delegating operational planning and decisions to management. It makes sense that board members would be the experts at member interests and accountability, while leaving the running of a business to the expertise of a manager. Yet for many boards Policy Governance is itself challenging. However, rather than trying to master managerial skills and processes, accountability is the discipline the board must master. As in mastering anything, the board's focus is to know its job and then do that job with integrity.

Policy Governance altered my experience as a board member. Rather than "helping," "supporting," "endorsing," "advising," my experience became "creating," "leading," "assessing," "accounting for." This is the contribution most suited for boards. Before Policy Governance, a board's unique contribution was not clearly distinguished.

Ensuring accountability with Policy Governance

In working with Policy Governance, as in taking on and mastering any discipline, the first steps are to understand the whole system, its intention, and how it works. Then, a board needs to know whether or not it is 'on track' and be disciplined enough to stay on track. Once these are in place, it's simply a matter of practice in thinking inside the system.

I'm not going to explain Policy Governance in this article. I encourage those who don't know the model and even those who know it to reference the resources listed at the end of the article. Returning to the basics is always a great way to know whether a board is on track. However, I'll address some critical aspects of Policy Governance that enable a board to fulfill its accountability.

  • Trusteeship--governing on behalf of others, and that trust in the leadership is identified and held with regard, as is the board obligating itself to link with the members to identify what is expected and to report accountability.
  • The board explicitly defines what is to be expected regarding organizational performance in policy: Ends are the policies that define success: what is to be produced, for whom, at what cost. Executive Limitations are the policies that control for success: the prudence and ethics, not the 'how,' that guides how Ends are accomplished.
  • To be accountable, the board needs to account for all cooperative activity. Policy Governance defines the delegation to the general manager and the way in which pre-established criteria are monitored.
  • The board organizes itself to be accountable, speaking as one via policy, defining how it will get its work done, and how it will report its accountability.

When a board attends to each part of this system, it can ensure its entire accountability to the members.

Raising the bar on accountability

One of the benefits of mastering of a job is that once you reach a level of proficiency, you're able to improve and expand on the job.

Using Policy Governance allowed our board to separate roles and relationships among our owners, the board, and the general manager. In understanding those roles, the board has been able to clearly identify what we are accountable for, and we can definitively account for what is accomplished and not accomplished.

From there we've been able to take the next step and cultivate the final accountability link--reporting back to our owners. Our annual report has evolved to reporting on progress towards Ends. We will develop this further as we continue to create what accountability to the owners would include.

Accountability is an integral part of the cooperative principles that cooperatives know and practice. This accountability has also become a real market advantage. The opportunity for cooperative boards is to clearly define, understand, and master accountability as a discipline, setting a standard that can be measured, maintained,...and expanded. Policy Governance defines the discipline of accountability for a board. In mastering this discipline, boards will ensure cooperative accountability, thus assuring that those principles are lived.

References

Boards That Make a Difference (2nd ed.), John Carver, Jossey-Bass, 1997. Reinventing Your Board, John Carver, Miriam Carver, Jossey-Bass, 1997 CarverGuide #1: Basic Principles of Policy Governance, John Carver, Miriam Carver, Jossey-Bass, 1996.

The Policy Governance Fieldbook, Caroline Oliver (ed.), Jossey-Bass, 1999. www.policygovernance.com

See also the following from recent issues of Cooperative Grocer: "Demystifying Policy Governance," by Linda Stier CG #109, Sept.-Oct. 2003.

"Practicing Policy Governance," by Ann Waterhouse, CG #106, May-June 2003.

See other articles from this issue: #110 January - February - 2004