Turnover or Tenure:

For some, the subject of limited terms for directors inspires passionate debate; for others the idea of limiting directors' service seems so improbable as to be laughable. Indeed, many food co-ops have more problems keeping board members than getting rid of them! However, this high turnover trend does change - the tenure of directors tends to increase as the co-op's nominations and recruitment efforts improve, as the co-op's management expertise increases, and as the co-op starts attracting members from more diverse segments of its community.

As a policy matter, this is an important and far-reaching issue. Given the significant management role played by a co-op's board of directors, any policy or bylaw provision that institutionalizes turnover is bound to have an impact on the overall performance of the company. It's unlikely that a case could be made that any particular co-op is successful primarily because directors can serve unlimited terms; nor is it likely to be shown that a co-op is unsuccessful primarily due to a limit on director terms. But long-term co-op observers can readily recount many stories of co-ops seriously hampered by weak and inexperienced boards.

Democratic roots

The idea of limited terms for directors is rooted in democratic theory -- certainly no parallel can be found in business or organizational theory. The notion is virtually unheard of among almost all other kinds of corporations. The idea is that members will have more and better choices in selecting directors of their company if no one person can remain on the board beyond a specified period of time (most typically 6-9 years).

Proponents advocate several reasons for limited terms and forced director turnover. To begin with, so the arguments go, even the tenure of the U.S. president is limited. . . . And, as community based corporations owned by diverse memberships, co-ops need to ensure a continuous infusion of new ideas through leadership change. Finally, they assert, limited terms create opportunities for more members to contribute to the co-op through board service -- opportunities that would otherwise be closed due to the stronger candidate position carried by incumbents.

However, these arguments all advocate a structural solution (limited terms) to a management problem (maintaining a good board). The experience of all types of corporations, co-ops and private companies, is that structural solutions are not the best approach to management problems, because they are indiscriminate. In this case, limited terms eliminate good directors (those who continue to provide valuable leadership for the co-op and whose years of service provide some context and memory for the board) as well as directors whose attention, usefulness or skills are no longer providing value. And, in truth, democracy isn't necessarily enhanced by limiting candidates to newcomers.

Arguments against limited terms

Given the board's integral and vital role in a co-op's overall management, the notion of forced turnover seems highly inappropriate. Certainly this approach is inapplicable to the co-op's employees -- management level or not. Why would there be any difference between hired and elected management? What additional benefit could limited tenure for directors bring to the co-op in terms of the decisions a board has to make or the role a board serves? Limited terms only ensures new directors, not better directors.

This policy attempts to address two weaknesses stagnant boards and the difficulty faced by non-incumbents in an election. However, weaknesses need to be addressed through creative, honest assessment and solutions at the source of the problem. In the case of co-op directors, terms of office are still defined for a limited period of time (two or three years), and directors who wish to continue must be re-elected. It is the elections process that must realistically evaluate who is best among candidates -- not a structure that eliminates qualified members after an arbitrary period of time. Properly, the board and every director acknowledges and actively supports an aggressive recruitment process that ensures that the co-op is attracting qualified members for a well managed, contested election among excellent candidates.

Secondly, all successful co-ops need some continuity. A short institutional memory is a well recognized weakness of co-ops, especially at the board level. A common cause of consumer co-op failures for the past thirty years has been boards that are inexperienced or unfamiliar with their roles and functions. Much useless or unnecessary effort is expended on procedures and activities that are inappropriate for the board or that repeat discussions or matters previously resolved by the board. Limiting directors' terms mandates a leve] of management turnover that, without any compelling guarantees of increased democracy or enhanced quality of decision-making, could be considered irresponsible in terms of sound business practice.

But the reality is...

Two matters of reality must be considered in the matter of board tenure. The first has to do with the strong advantage of incumbents in an elections process. Indeed, it is rare that incumbents are defeated in co-op board elections. Truthfully, this advantage may not best serve the co-op members. However, the policy of limited terms for directors doesn't address this problem; such a policy accomplishes nothing in terms of equalizing the elections process. Limits to director terms actually only serve to eliminate some individuals from the elections process, not make it a better or less subjective process.

Secondly, this "ultimate test" is cited by many co-ops as evidence that limited terms don't cause any harm: "Former directors can run for election after taking one year off, but no one ever does." However, in reality, good, talented directors invariably find new outlets for their skills and experience and typically make new commitments with their time that prohibit getting back on the co-op board. Far from proving that a policy of limited terms doesn't hurt the co-op, this test only proves that good directors are much in demand.

In conclusion, institutionalized turnover of personnel is not appropriate for sound business management, and the democratic nature or commitment of co-ops does not add compelling reasons to veer from this maxim. The weaknesses remain -- the need for new skills and new experiences to be brought into the board room, the difficulty in getting new directors elected when facing incumbents. However, the best approach to these problems is through improvements in the elections process.

Ideally, a co-op board is a mixture of veterans with at least 5 years of tenure, "newcomers" with 2-4 years of experience, and one or two novices elected to the board within the last two years. Democracy has no guarantees; limiting choices is not an appropriate way to run elections. Avoid structural solutions to management problems. Recruit excellent candidates for your board, and let the members decide.

See other articles from this issue: #030 September - October - 1990