Staying on track: the directors

PART THREE: RUNNING A CO-OPERATIVE

Staying on track: the directors

Once the co-operative is operating, it is essential to ensure it continuously meets its aims. It is crucial that members elect a competent board of directors to oversee the management of the co-operative and ensure its success. The members need to trust the board to act in their best interests. Directors should meet at least once a month in the first 18 months, and at least once every three months once the co-operative is established.

Officers

The board of directors will have a number of officers including the directors, chairperson and secretary, and perhaps vice-chairperson, treasurer and general manager.

The legislation also specifies as officers people who make, or participate in making, decisions that substantially affect the business of a co-operative or affect the co-operative’s financial standing, including those who provide instructions that the directors are accustomed to follow (with some exceptions), and others including administrators, receivers, liquidators and trustees.

Choosing directors

It is important to have a diverse board of directors, so include people of different ages, skills, genders and personal values. The board should respond to the needs and wants of members, keep the members informed, allow members to participate in the co-operative’s affairs, and make members feel that their participation is meaningful.

A nomination for appointment or election of a director must provide details of the person’s qualifications and experience. Members should elect directors who reflect the membership and are prepared to undergo training.

Avoid excluding members who would make good directors by organising meeting dates and times which don’t conflict with a potential director’s work or family commitments, and at places which are accessible. Encourage experienced directors to remain on the board, but also support new people to be elected to give the board a change in outlook and skills.

Depending on the size of the co-operative and its rules, there may be three directors on the board, or many more. At least two directors must be ordinarily resident in Australia and all must be aged 18 or older. The majority of directors must be member directors, but an employee or another non-member who has special skills in management or other technical expertise may also be a director of a co-operative (independent director).

There are people who are not permitted to be directors, including:

• The auditor of the co-operative and any employer, employee or partner of the auditor.
• Undischarged bankrupts.
• A person who has been convicted of a criminal offence.
• A person disqualified from managing corporations under the Corporations Act 2001.
• A person disqualified from managing co-operatives under co-operatives law during the first five years after the conviction or release from prison.

Penalties of up to $24,000 or two years imprisonment, or both, may be imposed for contravention.

Electing directors

The rules determine how positions on the board are filled, including how the chairperson is elected, holds office, retires or is removed.

The rules usually also allow the directors to elect their chairperson, but may permit the chairperson to be elected at a general meeting. The secretary is appointed by the directors. The rules may allow appointment of a person to fill a casual vacancy of director until the next annual general meeting. The board may, if the rules allow, appoint a person to act as an alternate for a director in the director’s absence.

The rules may allow the board to delegate the board’s functions to a director, committee of two or more directors, or a committee of members and others.

A co-operative must notify the Registrar within 28 days of the appointment, resignation or removal from office of a director, CEO or secretary. Information required for an appointment includes: the name of the co-operative, the name and position of the person giving notice, and details about the appointees, including full name, any former names, address, date and place of birth, office held and date appointed.

The Registrar must also be advised if a director, CEO or secretary changes their name or address.

Directors – their power and duties

The rules and Co-operatives National Law determine the directors’ powers and duties.

While it is important that the day-to-day operations of the co-operative are efficient, and often a CEO is hired to do this, the directors need to direct policies and the longer-term strategy. They need to monitor whether the co-operative is meeting or exceeding cash flow and profit and loss forecasts and paying its bills on time. They also need to make sure the co-operative is meeting its objectives, sticking to the rules and meeting legal requirements.

Directors might not be experts, but they must serve to the best of their ability, represent the interests of members impartially and put members’ interests first, be accountable for financial management, and ensure members are informed while not disclosing confidential information.

The direction and prosperity of a co-operative is highly dependent on the strategic ability of directors, who decide:

• To review operating results and decide if existing policies are working.
• If there are enough members and who will be new members.
• Whether to issue shares and declare dividends.
• Whether to hire or fire the CEO, whom the board supervises.
• To liaise between the CEO and members.
• What the strategic objectives are.
• Production and sales policies.
• The guidelines for control of business activities.
• Plans for expansion.
• What debt level is appropriate.
• Which assets to dispose of or acquire.
• To propose the amount of dividends to be distributed to members, or donations to other organisations.
• To call special meetings when required.
• To ensure board policies are implemented by management.

Directors also undertake a more general business role:

• Renewing or changing contracts.
• Approving salary and human resource management policies.
• Preparing and submitting an annual report of activities to the general meeting.
• Budgeting for the co-operative’s operations.
• Arranging for handling of funds and deciding who the bank account signatories are.
• Ensuring appropriate bookkeeping systems are maintained.
• Ensuring audits (if required) are undertaken and financial reports provided.
• Ensuring complete and accurate minutes are kept of meetings.
• Implementing policies and procedures in line with the co-operative’s objectives.

If a director holds an office or has an interest in a matter that could conflict with the director’s duties, the conflict of interest must be declared at a meeting of the board of directors. Unless the board decides otherwise, the director cannot be present while the Board deliberates on the relevant matter. The conflicted director cannot take part in the board’s decision on the matter. However, no conflict of interests exists if a member director simply holds an interest in common with all other members.

The secretary

The secretary of a co-operative has an important role and many responsibilities. These usually include calling meetings, keeping minutes and documents, maintaining registers and being the returning officer for postal ballots if another person is not appointed.

Co-operatives National Regulations also lists the following duties as the responsibility of the secretary:

• Ensuring the co-operative’s name appears in legible characters on each seal of the cooperative, in all notices, advertisements and other official publications of the co-operative,and in all its business documents.
• Ensuring the co-operative has a registered office which has a publicly and conspicuously displayed notice of the co-operative’s name and the fact that the premises is the cooperative’s registered office, and providing the Registrar with written notice of a new address within 28 days.
• Lodging notice within 28 days of the appointment, or cessation of appointment, of directors and officers with the Registrar.
• Filing with the Registrar, within 28 days, a notice of the address at which registers are kept if at any time they are not held at the co-operative’s registered office.
• Retaining financial records for seven years after transactions are completed.
• Lodging annual reports with the Registrar.
• Lodging half-year reports with the Registrar (disclosing entities).
• Relodging financial statements or directors’ reports to the Registrar if they are amended after lodgement, and notifying members of the amendments.
• Notifying the Registrar of the appointment of an auditor.

If the co-operative contravenes any of the listed requirements, the secretary is also held responsible for the contravention.

Directors’ remuneration

Directors cannot receive remuneration for their services, as a director, except for fees, concessions and other benefits approved at a general meeting, including travelling and other
expenses properly incurred to attend co-operative meetings.

Directors and their associates must not receive financial accommodation from the co-operative unless it is approved at a meeting of the board by a two-thirds majority or provided on terms no more favourable than they would be at arm’s length.

Co-operative officers who are not directors can only receive financial accommodation from the co-operative with the approval of a majority of directors.

Directors’ insurance

The co-operative may consider obtaining insurance to cover the liability of its directors and officers if sued for actions they have taken while carrying out their duties. The insurance will not protect directors and officers who have failed to meet a minimum standard of care, have committed a wilful breach of duty or have authorised illegal acts. Co-operatives cannot exempt an officer or auditor from a liability to the co-operative or a related organisation, or a liability owed to someone else that did not arise out of conduct in good faith, apart from a liability for legal costs (in some cases).