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fosterswift.com Legal Responsibilities of Cooperative Boards of Directors Small and Emerging Cooperatives Conference: March 19, 2013 Todd W. Hoppe Foster, Swift, Collins & Smith, P.C. 1700 E. Beltline Ave. NE Grand Rapids, Michigan 49525 (616) 726‐2246 [email protected]

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Page 1: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

fosterswift.com

LegalResponsibilitiesofCooperativeBoardsofDirectors

SmallandEmergingCooperativesConference:March19,2013

ToddW.HoppeFoster,Swift,Collins&Smith,P.C.

1700E.BeltlineAve.NEGrandRapids,Michigan49525

(616)726‐[email protected]

Page 2: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

Whatarewegoingtodiscuss?

WhatisaCooperative– legallyspeaking? WhatisaBoardofDirectors? LegalrulesthatapplytoDirectors. RecommendationsforeffectiveBoards. Resourcestolearnmore.

Page 3: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

Whatisacooperative– legallyspeaking?

Acooperativeisabusinessorganization. UsuallyaCorporation FormedunderStatelaw

MichiganGeneralCorporationAct MichiganBusinessCorporationAct MichiganNonprofitCorporationAct

Page 4: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

Whatisacooperative– legallyspeaking?

GoverningDocuments ArticlesofIncorporation – FiledwiththeState

Bylaws – Containrulesforoperatingthecorporation,includingacooperativeplan

Policies,handbooks,etc.

Page 5: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

Whatisacooperative– legallyspeaking?

SeparateLegalEntity Generallytreatedlikeanaturalperson. Legallyitexistsseparatelyfromitsowners.

Stakeholders Owners=ShareholdersorMembers Overseers=BoardofDirectors PrimaryManagers=Officers Workers=Employees&IndependentContractors

Page 6: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

WhatisaBoardofDirectors?

Boardof Directors:Overseethemanagementofthebusiness.

Directors: Electedbyshareholdersormembers Owefiduciarydutiestocorporation/shareholders/members. DirectorFees

NOTE– OfficersareDifferentfromDirectors: OfficersManagetheday‐to‐daybusiness. Mandatory:President,Secretary,Treasurer Optional:CEO,VicePresidents,GeneralManager Appointedbythedirectors. Oftentimesarepaidemployees.

Employees/IndependentContractors

Page 7: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

LegalrulesthatapplytoDirectors

Noseparatesetofstandardsexistsforcooperativedirectors. Corporaterulesgenerallyapplytocooperativedirectors.

Rulesareestablishedunderstatutes,caselaw(judge‐madelaw),andeachcooperative’sgoverningdocuments

Page 8: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

LegalrulesthatapplytoDirectors

Whilethelegalrulesarethesame,thebusinessstructureisquitedifferentfromordinarycorporations. Membersarealsothecustomersorpatrons. Membersarenotdisinterestedinvestors.

Differentfroma"normal"corporationwherethecorporation'sboardisresponsibleformaximizingshareholdervalue.

Page 9: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

LegalrulesthatapplytoDirectors

Fiduciarydutiestothecooperativeanditsmembers: DutytoComplywithApplicableLawandtheGoverningDocuments(i.e.,thedutyofobedience)

DutyofCare DutyofLoyalty

• (DiscussionPoint‐ ConflictsofInterest)

Page 10: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

LegalrulesthatapplytoDirectors

LimitsonDuties BusinessJudgmentRule Indemnification Insurance

Page 11: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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2013,FosterSwiftCollins&Smith,PC.

Recommendationsforeffectiveboards

Beprepared Educateyourselves Askquestions Establishexpectationsofmanagementemployees

Requireregularfinancialreporting Useexecutivesessions

Page 12: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

RecommendationsforeffectiveBoards1. Boardrepresentscooperativemembers2. Boardestablishescooperativepolicies3. Boardhiresandsupervisesmanagement4. Boardisresponsibleforacquisitionandpreservationof

cooperativeassets5. Boardpreservesthecooperativecharacterofthe

organization6. Boardassessesthecooperative’sperformance7. Boardinformsmembers

SOURCE:USDA CooperativeInformationReport61(http://www.rurdev.usda.gov/supportdocuments/CIR61.pdf)

Page 13: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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2013,FosterSwiftCollins&Smith,PC.

DirectorsPreserveCharacter

Serveaccordingtolawsandregulations! Laws Bylaws Articles

Andcarryonthecooperative’sspirit!

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 14: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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DirectorsSafeguardAssets

Protectmembers’investmentMakesoundfinancialdecisionsHireauditors

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 15: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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DirectorsHireManager

AppraiseapplicantqualificationsDelegateday‐to‐daycontrolAppraiseperformance

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 16: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

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DirectorsSetPolicies

OriginateandapproveFunctionandbusinessrelatedReviewedandupdatedPolicymanual

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 17: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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DirectorsDistributeBenefits

AmountofpatronagerefundProportionincashAllocatedequityUnallocatedequityEquityrevolvementandretirement

USDA,RBS,CIR11Chapter3‐ TheCooperative

Page 18: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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DirectorsPlan

Assessbusinessclimate Evaluatechallenges‐‐internalandexternalgrowth,businessvolume,membership,territory,assets

DevelopobjectivesandstrategiesMonitorprogress

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 19: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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DirectorsSelf‐Evaluate

Internalassessments Self‐ ability,performance Wholeboardperformance Boardmeetingproductivity

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 20: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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2013,FosterSwiftCollins&Smith,PC.

DirectorsChooseLeaders

ElectBoardOfficers President Vicepresident Secretary Treasurer

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 21: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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2013,FosterSwiftCollins&Smith,PC.

DirectorsAppointCommittees

Temporaryorpermanent Fieldofstudy(finance,feasibility,marketing,purchasing,etc.)

Recommendationstotheboard Powertodecide

USDA,RBS,CIR11Chapter3‐ TheCooperativeDirector

Page 22: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

LegalResponsibilitiesofCooperativeDirectorsMarch19,2013

2013,FosterSwiftCollins&Smith,PC.

Resourcestolearnmore

MidAmericaCooperativeCouncil MSU USDA:

http://www.rurdev.usda.gov/BCP_Coop_Education.html USDA CooperativeInformationReport61

http://www.rurdev.usda.gov/supportdocuments/CIR61.pdf CooperativeDirectors:AskingNecessaryQuestions

http://www.rurdev.usda.gov/supportdocuments/CIR62.pdf Manyothersavailableonline

Page 23: Legal Responsibilities of Cooperative Boards of Directors€¦ · Legal Responsibilities of Cooperative Directors March 19, 2013 2013, Foster Swift Collins & Smith, PC. Recommendations

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2013,FosterSwiftCollins&Smith,PC.

Questions?

ToddW.HoppeFoster,Swift,Collins&Smith,P.C.

1700E.BeltlineAve.NEGrandRapids,Michigan49525

(616)726‐[email protected]


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