Something Completely Different?

[Even by my standards, this is a long post! Perhaps, a tad repetitive. I don't apologize.

The challenges facing Weaver Street are intense and complex. There are important nuances to the 2008 Election for a Worker-Owner Director. And there are significant, if respectful, differences between the two Candidates.

I want to do proper justice to all of this. So, please bear with me. Take a coffee break in the middle, if you like! I'll even come around and do a half-time show, complete with 'wardrobe malfunction'!

In the meantime, I've made it easier by breaking it down into three sections. The first covers the general points. The second goes into more detail about the Board's responsibility to we Worker-Owners. And the third deals with actually making The Decision, including information about the Candidate Forums.]

Don't think of the 2008 Election for a Worker-Owner Board Director as a popularity contest; nor as a contest between stores and locations - [Espanol].

It's not. In reality, it's a Referendum. Nothing to do with personalities, or which location we come from. Quite simply a Referendum on the following question:

'Do you think that the current Board of Directors, with Jacob as its Chair, is protecting our interests as Worker-Owners - whichever location we come from?'

Now, is it fair for me to say that? Well, the fact is that Jacob has been Chair of the Board these past three years. And the primary responsibility of the Board is to protect the interests of its Owners - including we Worker-Owners.

That said, this Board Election is not about personalities. It's not about locations. It's about issues. And who you think can best represent you - and your store, or location - on those issues.

I've worked with Jacob. I like him. We're both nice guys. We both care. We both want to do the best we can for The Weave. That much is clear from the Candidate Information you received in your mailbox, and which is up on the Weaver web-site.

What is not clear from that Information is that Jacob and I disagree fundamentally (but respectfully) on the important issues facing each and every unit within Weaver Street Market at the moment - and Weaver Street as a whole.

And those issues - the truly overwhelming ones - are the same for every unit and location in WSM.

Jacob and I disagree fundamentally on the state of our co-op as it is. We disagree about where we should be going. And we disagree about how we should be getting there.

Simply put, Jacob thinks we're on the right path, that everything's pretty much ok, and that he and the Board are doing a good job of looking after the interests of Workers and Worker-Owners - in all of the different units and locations.

Now, I believe we're a fabulous co-op, with 200 Workers and 100 Worker-Owners ready to pitch in at a moment's notice to ensure we do not fail. But I also think that The Weave has lost its way a bit. And that is the responsibility of our current Board of Directors. They took their eye off the ball. And that affects every unit and location in WSM, exactly the same.

Our Board has allowed Weaver Street to become over-extended and over-indebted heading into what promises to be a severe recession. No-one blames the Board for not forecasting the recession - heck, no-one else did. But the Board now needs to undertake some creative financial alterations so that WSM can return to financial security and stability, and so that we can once again feel comfortable calling The Weave a fully 'authentic' and a fully 'sustainable' co-op.

The problem is that, while I know the current Board truly means well, I simply do not think that, based on the evidence of their recent decisions and discussions, they possess the skill sets necessary both to recognize the complicated challenges facing Weaver Street, and then to come up with the necessary creative solutions - not on their own. And I honestly believe that is why we find ourselves where we are at the moment.

I also believe that, with my former experience in the profit and non-profit corporate world, I can bring a perspective to the Board which it currently lacks, and which will help us all steer a safe course through the immediate challenging times. And which will lead us back to a Board which fully protects the interests of its Workers and its Worker-Owners - in each and every one of our units, fully and equally.

And that's what this Worker-Owner Board Election is about. A clear-cut choice between two fundamentally different approaches. Summed up by your answer to the question: Do you think that the current WSM Board of Directors, with Jacob as its Chair, is protecting our interests as Worker-Owners - whichever location we come from?

*******

[Right. That wasn't too bad. Now for the detail about whether or not the Board has been looking after our interests.

Gets a bit repetitive here. Hmm. What can I say? I feel passionately about the Board looking after us, and making The Weave the very best co-op it can be. And the strongest business.

Er. Is that a negative...?]

What do I mean by 'protecting our interests'? Well, try out your answers to the following questions:

Do you think our interests and those of our fellow Worker-Owners were being protected when the Board allowed our Dividend to be wiped out this year?

And make no mistake, our Board allowed it. They took a decision, backed by Jacob, in the middle of this year to remove the Board Policy requiring a profit of 1%. It was that Policy that protected our Dividend. And by removing it, the Board allowed a loss to be incurred.

Do you think our interests and those of our fellow Worker-Owners and Workers were being protected when the Board did indeed allow that loss - at some $400,000?

And our Board did allow it. They did not do a thorough enough job of monitoring what was going on, so as to prevent it.

I have to be honest - not negative, just straight - I'm not sure if they missed what was happening, or whether they simply didn't understand what they were seeing.

It's no shame to say you don't understand every financial detail of a $21 million turnover co-op - provided you're prepared to admit you could do with some help.

I know we're told that the loss was caused by one-off set-up costs occasioned by Expansion. But in all my years as a management consultant, I have never encountered a situation where such costs were included in operational expenditure, rather than capital depreciation. And I do understand the difference.

Plus, nowhere have we been offered a detailed breakdown of these set-up costs. And our Board has still not asked for one. All we are told is that there will be no such costs next year, and in the future.

Again, my years of experience as a management consultant tell me that there will be continuing extra costs associated with Expansion, that were not there before Expansion, and which will not be off-set by an increase in earnings - not in the near future; not in this recession.

So, without wishing to be the harbinger of doom, I see no reason why the loss from this year will not be repeated in the immediate years to come - not without some financial alterations.

And I would suggest that we need a different Board to bring about those financial alterations, in a way that retains the benefits of Expansion, and in a manner that is not detrimental to we Workers and Worker-Owners.

Do you think our interests and those of our fellow Worker-Owners and Workers were being protected when the Board allowed the future of our co-op to be mortgaged for $10 million?

Our Board personally signed off on all of that debt. Can we honestly say we're building a co-op that will last when it's built on debt? How is that 'sustainable'?

How can we hope to 'sustain' huge debt repayments that will rise to $800,000 in 2011 and $1.5 million in 2012?

Again, I know that we are told that the debt is occasioned by the plans for Expansion, which plans are supposed to secure our future. But tell me, how are we securing our future with a debt we can not afford to repay? Isn't that, in fact, mortgaging our future, and making us unsustainable?

Did our Board request that those presenting them with the plans for Expansion accompany them with detailed forecasts as to cost and debt? If not, how was this protecting our interests and those of our fellow Worker-Owners and Workers?

Do you think our interests and those of our fellow Worker-Owners and Workers were being protected when those plans for Expansion were approved by the Board without the Board even seeking our permission - with all of the consequences that followed?

Do you think that is how the Board of a genuinely 'authentic' and democratic co-op should behave, if it is truly looking out for the interests of its Worker-Owners and its Workers? Shouldn't we be more of a Listening Co-op?

Now, I say this having spoken with many of you who supported Expansion and the Food House. It is not the decisions themselves I believe we should be questioning, but the manner in which they are being made.

Think about it. We don't worry about those big decisions with which we agree. We don't query how they were made. But when a big decision is about to be made with which we don't agree, we want to know how we, as Worker-Owners and Workers, can have meaningful input.

The answer at the moment is we can't. So, try the question again. Whether or not you agreed with Expansion, don't you think we Worker-Owners and Workers should have been allowed to give our approval before the plans went ahead? Bearing in mind we are now paying the cost, with a lost Dividend, and huge repayments of interest?

I have already made several proposals for improving the internal mechanisms for consulting Workers and Worker-Owners. For making us more of a Listening Co-op. Not least an Online Forum (two Consumer-Owners and I are currently putting together a test one). But it requires the right Board of Directors to implement these proposals.

I do not necessarily disagree that the concept of Expansion was an acceptable answer to several problems. For example, the cramped conditions suffered by our food production colleagues, when they struggled in Carrboro. And the lack of suitable equipment for those same work colleagues.

I have seen the Food House and the Administration Offices. I am delighted for those of my colleagues and friends who are themselves delighted with their new facilities. With their honest belief that those new facilities allow them better to support the rest of us and all of our consumers.

But the fact is that WSM's Auditor is sufficiently concerned with their cost (that $10 million), and with the huge, untenable repayments, that he has 'suggested' that WSM's Board now come up with an immediate and comprehensive plan to deal significantly with that debt. I know Auditors. You do not lightly ignore or 're-interpret' their 'suggestions.'

Do you think it is in our interest and those of our fellow Worker-Owners and Workers to depend on the Board, that allowed us to get where we are, now to come up with the way out?

Don't you think it might be more sensible to have a newly-elected Board, one which we feel comfortable has the skill sets and experience necessary to protect our future?

A different Board, one that we can trust to take a completely fresh look at the situation, and come up with a solution that our co-op can afford. That we Worker-Owners can afford. That returns our co-op to profitability. That gives us back our Dividend. While at the same time protecting the interests of all of the Workers and Worker-Owners involved.

In a co-operative, no solution is any kind of acceptable solution if it ignores our Workers and Owners. It is people, not buildings nor inventory nor balance sheets nor awards, but people who are the core value of profit. And we should never forget that in our co-operative.

My own experience tells me that Weaver Street is more than capable of pulling through the immediate challenges.

I hate to borrow a phrase that has been totally corrupted at the national level, but the fundamentals of Weaver Street are strong.

We have $14 million in assets. Our debt burden, although way too large, at a total of $12 million, is covered by our assets.

The problem is the debt repayments. We need a Board that has the skill sets and experience necessary to understand how to come up expeditiously with a comprehensive plan to restructure that debt.

If you are in any doubt whether or not the current Board has those necessary skill sets and experience, then ask them how they intend to deal with the debt. Ask them at the Annual Meeting on October 19 (details on the Weaver web-site), or ask them in the various Candidate Forums (details later on in this post).

Personally, I believe it is possible to resolve the debt situation with some creative re-structuring. And most important, if done by the right Board, it can be done in a way that retains all the benefits of Expansion and the Food House, while dramatically reducing the price all we Workers and Worker-Owners - including all those in the Food House, the Administration Offices and the Hillsborough store - are having to pay.

But, here's the bottom line: it must be done in a way that has the full support of all of the Workers and Worker-Owners involved. Never again in this co-op should major decisions be taken, that have such a dramatic affect on we Workers and Worker-Owners, without the full and express permission of we Workers and Worker-Owners. We need to be a truly Listening Co-op.

And again, if you are in any doubt whether or not our current Board will seek your approval, when they didn't seek it last time around, then ask them. All I can say is that any Board to which I am elected will ask your permission first.

For example, I will insist that those working in the Carrboro store will have final say on any refurbishment changes that may be made to the Carrboro store. I will insist that any new developments with the Hillsborough store and the Food House will only proceed if they have the full support of all those working there. Will the current Board and its Chair make you the same pledge?

I know all this consultation takes time, and may be viewed by some as an irritating intrusion on their normal decision-making processes. But, I feel that, in a co-op, we should be able to find the time, and we should always put people first.

Now, if after all this explanation, you are still happy with where we are and where we are going. If you genuinely believe that the Board which got us where we are is the same Board that can get us out of that situation. If you truly believe that they possess all of the necessary skill sets and experience. And that they will protect the future interests of WSM as a whole - and of your location. If you believe all of that. Then stick with the Board we have. And I would respectfully suggest that you will continue to get more of what's been going wrong. More of the same.

If, however, you believe there is room for something different. If you believe there is room for new skills sets on the Board. And if you believe that something different - those new skill sets - can make all of Weaver Street a better co-op and a stronger business (with each of the individual units and locations becoming better and stronger in their own individual ways), then maybe you should think about choosing something different?

That's what this Board Election is about. Not personalities. Not individual units and locations. Isolated and inward-looking. But the co-op as a whole. Newly empowered. Acting as one. Ready to overcome all challenges.

*******

[Ok. Now's about the time you might want a back-rub and a cup of hot chocolate - or maybe something stronger. But complex situations require complex thoughts and processes.

Onto the last section - where I try to set out the factors that might help you make The Big Decision...or not...]Now it's very easy just to say that. But I know it's a lot more difficult to keep it in mind when you're sat there with your pen poised over the Ballot Paper.

You may well be thinking: geez, why does anyone have to 'lose'? Jacob has qualities. Geoff does, too. Jacob wants to go on serving. And Geoff thinks he has something to add. What to do?

All I can suggest is this: same point, from a different angle. Jacob and I are big boys now. We're grown-up. We knew when we submitted our names that one of us was going to lose. That was our choice, not yours. You have no reason to feel guilt.

Focus on the one thing that is yours: your choice about where you want Weaver Street to go. Do you think everything is ok? Or do you think we need something a tad different?

Make your choice an honest one, based on an honest appraisal of where we are. And I can promise you that neither Jacob nor I will be offended by your choice.

We have an honest difference of opinion. We welcome your verdict. It's not about us. It's about you. It's that simple. Honest!

Another point I want to clear up. One or two of you, when speaking with me, have wondered at the fact that all of our Worker-Owner Directors come from the Carrboro store, when we now have five locations, spread over three towns.

[We are entitled to a total of two Worker-Owner Directors on the Board, each serving two-year terms, elected in staggered years: Lori Washington (Carrboro: Front End) was elected last year, and will serve until the end of 2009; and Jacob (Carrboro: Kitchen) is standing this year.]

I say: absolutely and totally irrelevant. If you genuinely believe that Jacob represents you best on all of the issues, then you vote for him regardless of which unit he comes from. Same goes for me.

Jacob and I are both of us pledged to represent and act for all Worker-Owners equally. This is not some power-play between locations. It's about what's best for all Worker-Owners in The Weave. Jacob and I are agreed on that absolutely. Ok?

And on that last point, when you do finally make your choice, remember that you are choosing for all the Workers around you, too. Your colleagues. Your friends. Both at your own location, and in all the other locations. We are one co-op.

Now, if you're not sure about the answer to this 'Referendum,' then you have the opportunity to ask questions of Jacob and me at a series of Candidate Forums.

To ask Jacob why he thinks we're on the right course. And to ask me what sort of different and more successful path I think we could follow. [By the way, I'm also happy for you to write to me at: geoffgilson@hotmail.com.]

A separate Forum will be held in each of the Weaver units. Managers have agreed to make it possible for Workers (not just Worker-Owners) to attend. The dates and times are as follows:

The Food House Break Room (also for everyone in the Administration Offices)
Tuesday, October 21, 10:30am-11:30am

Hillsborough Store Break Room
Tuesday, October 21, 12:00pm (noon)-1:00pm

Carrboro Store Break Room (also for our fellow work-mates at Panzanella)
Thursday, October 23, 11:00am-12:00pm (noon)

Southern Village Store Break Room
Thursday, October 23, 12:30pm-1:30pm

Don't fret if you're not free to attend the Forum in your unit. You can attend any Forum you choose. And maybe you'd like to hold off voting until you've had a chance to chat with your Candidates?

Voting begins on October 6. The end-point for voting is Sunday, November 2, @ 9.00pm.

Every Worker who has been with Weaver Street for at least 6 months has the opportunity to vote in this Board Election. But first, you must become a Worker-Owner.

You can become a Worker-Owner up to October 25, and still take part in this year's Board Election.

If you want to vote, speak with your Manager, or speak with Linda or Jason in Marketing. They will tell you how to become a Worker-Owner, and how to vote. Or e-mail board@weaverstreetmarket.coop.

At the end of the day, this Board Election is about you. You have the power to choose whatever future you want for The Weave.

And I'm sure there's one thing that Jacob and I do agree upon. That is, please vote! Whichever way you vote, please vote!

You have an opportunity that many people in the world do not possess, so please make use of it. And thank you for bearing with me...all the way to the end!

[I want to take this opportunity sincerely to thank Eliza, Ruffin, Linda, David, Diane, Mickey-Jo and Emily (the WSM Elections Oversight Committee), everyone in WSM Marketing, and the Managers of all the WSM units, for all the endless hours they have put in, along with all the creative brainstorming, and their co-operative spirit, to make this Worker-Owner Election happen in such an open and inclusive fashion. This is my personal spiff to you all!]

A Worker/Owner Program

The most important assets with which Weaver Street Market Co-operative is blessed are its Workers and its Owners (both Consumer and Worker).

As we begin the process of coming up with a comprehensive plan or program (as suggested by our Auditor) to address our Food House-created debt of $10 million, it will be essential for us to find creative ways in which fully to enroll those 'assets' in fashioning and then implementing that program.

Such a people-driven program might well look something like this:

1) Balance the Books

Leaving aside all the jargon about debt-equity ratio and balloon, interest-only loans, the bottom line is that WSM needs to reduce its debt over the next year or two by about $4 million.

To be blunt, anyone telling you differently simply doesn't understand the implications of over-indebtedness. If you want to know where denial leads, take a good long look at Wall Street and the Stock Market.

Such a reduction in debt will not be accomplished by tinkering with minor property or asset sales. Nor by freezing hiring. Nor by messing with the Consumer-Owner discount.

It will necessitate fundamental re-structuring.

One shouldn't try to achieve that overnight. I would suggest the Board make the first task of a new Audit Committee to come up with options over the next 6 months, and report back to a Special General Meeting of Owners, say, in about April 2009.

In fact, the Annual Meeting of WSM Owners supported that very suggestion when I put it to a vote at the Meeting on October 19.

Thet Audit Committee should have an equal number of Board members, Owners and experts from our local community.

Next, the Board should use its Retreat in January 2009 to brainstorm with management ways of eliminating the $400,000 loss we suffered in 2008.

For sure, we need to find savings on expenditure. But to try to do so (as we are at the moment) by reducing staff numbers is neither people-driven, nor is it productive.

Like it or not, we are in the middle of an Expansion project. Unless you want the project to fail - and produce even more grief - you have to see the Expansion through. That means you can't be contracting staff while you're expanding the workload.

All that does is over-work staff, cause further disenchantment, and complicate the implementation of the supposed benefits of the Food House - such as the new vaccuum-packaged meat offerings. This is Business 101.

We are in the first stages of what is likely to be a severe recession. Sales will not pick up simply because we wish it.Our Workers will be at the cutting edge of any sales improvement. And the Board just wiped out our Worker-Owner Dividend.

As much as we Workers all love The Weave, there ain't too many of us who are going to work harder and smile more often, for less money.

I'm not sure that any sensibly cautious businessman would blindly guarantee that a Worker-Owner Dividend will be paid in 2009. Plus, we need all Workers on board with this program, not just Worker-Owners.

I would, therefore, suggest that, as a one-off incentive, we offer all Workers some form of performance-generated bonus at the end of 2009.

Weaver Street used to operate such a bonus. It was called a 'gainshare.' So, the logistics are doable. And 'doable' is what we're about at the moment.

All of this is necessary if we want to regularize our co-op's finances and have any hope of restoring the Worker-Owner Dividend in the foreseeable future.

Now, there are many Workers who were dubious about becoming Worker-Owners, even before the Dividend was wiped out.

Their concerns need to be addressed. The continuing financial health of the co-op depends in large part on encouraging we Workers to become Worker-Owners.

The co-op gains an important source of capital. And Workers gain a voice in the running of their co-op - and a few extra dollars in their pocket, from time to time.

The problem is that many Workers aren't sure what happens to the money they contribute under the Worker-Owner Scheme.

The solution to overcoming Workers' concerns is simple: have the co-op's the Auditor conduct a separate audit of Worker-Owner contributions, and attach his findings to his next Annual Report.

The co-op's own Financial Department could then produce a Statement for each Worker-Owner, to be appended to their Annual Dividend Statement, setting out exactly how much that Worker-Owner has in their own personal central Worker-Owner account - together with a much simpler explanation of how that amount has been calculated.

One final point: never again should the money that is held in each Worker-Owner's central account, along with any 'pooled' Worker-Owner money, ever be used by management or the Board, without the express permission (and that means a vote) of a majority of the Worker-Owners in the co-op.

2) Balance the Board

Management and staff are hired to run the various activities of our co-op. They are accountable, through the General Manager, to the Board. The Board is then accountable to Owners.

That is the equation which is supposed to make our grocery co-op Owner-driven. It is based upon the John Carver Policy Governance Model, to which our co-op subscribes.

By turning the equation the other way round, we see how the equation is supposed to work in practice.

The Board listens to what Owners want. The Board then fashions Policies that set the parameters for management and staff. The Board follows up by monitoring management to ensure they are abiding by the Owner-driven Policies.

Unfortunately, an imbalance has developed within our co-op. As a consequence, the Board has become management-driven, not Owner-driven. The Board listens to management, rather than listening to Owners. And that is why we are where we are at the moment.

The balance now needs to be restored if any comprehensive, people-driven 'rescue' program is going to succeed.

Balance can be restored by first restoring the influence of Owners over management on our Board, and secondly, by creating vehicles that allow more regular input from Owners to the Board (which I deal with in (3)).

The single most effective measure for restoring the influence of Owners on the Board is to institute a Policy change which says that only elected Owner-Directors may vote on Board matters.

I welocme as much expert input to the Board as possible, whether it comes from management, outside experts, wherever. But, if our co-op is truly to be Owner-driven, then only elected Owners should vote on the Board.

We have over 200 Workers in our co-op. Some 100 of them are Worker-Owners. We have only one class of Worker-Ownership. Which means that the General Manager and the dishwasher vote for the same Worker-Owner Directors on the Board.

As utopian as this arrangement may seem, reality suggests that in a mature, $21 million turnover corporation, the dishwasher and the General Manager are not going to have the same agenda. It's time for them to have separate representation.

Remember, management already have their own 'vote' in the decision-making process. They have their own management meetings. Plus, they have their General Manager sitting on the Board.

I think that, with Expansion, we will be looking at enlarging membership of the Board, in any event. What I would suggest is perhaps one elected Management-Owner Director (plus the General Manager = 2) and two elected Worker-Owner Directors.

What's more, I think that, in a co-operative, all Workers should be able to vote for their representatives. Worker-Ownership costs $500. You shouldn't have to pay to vote.

There is nothing radical in these suggestions. They are merely what is required to bring the functioning of our Board back in line with the John Carver Policy Governance model.

Indeed, there is general recognition in the national grocery co-operative movement that more needs to be done to involve Owners in co-operative affairs, in order to maintain their loyalty - and their spending dollars! - to help offset the challenges posed by increased competition and the recession.

This approach is finding expression in concepts which carry the name "Ownership Culture" and "Economic Linkage." But they are essentially just John Carver updated.

3) Balance the Input

For input to be meaningful - as it should be in a co-operative - that input needs to be two-way.

That means that The Weave should have vehicles which allow for a conversation between those making the decisons and those affected by them, whether Worker or Owner, before the important decisons are made, and demonstrably taking into account the input offered.

There used to be a regular Worker-Owner Discussion Program. That should be revived. And one should be created for Consumer-Owners.

An Online Forum is being designed by two Consumer-Owners, Jamie Bort and Sarah Kahn. That forum should be adopted by WSM, and management and the Board 'encouraged' to take part and respond.

Within the business-side of the co-op itself, it might be helpful to have more Department meetings, where Workers actually get to make decisions alongside their management.

Again, this is not all that radical. We're not talking socialism here. We're talking about encouraging Workers to have more incentive to implement decisons, by involving them more in the making of those decisions.

And we should find creative ways to restore the series of Worker Open Forums. Perhaps by allowing Workers to choose the subjects and select the managers who will attend and respond, and maybe by including Workers as facilitators of those Forums?

Weaver Street Market has had its fair share of high points and low spots in its 20 year history. Only time will tell how we come to view where we are at the moment.

I remain the eternal optimist. I believe we will pull through, and we'll end up looking back on this moment in our history as one of the most inspiring of the next 20 years.

But, for that to happen, we need to face up to where we are, we need to find bold and creative solutions to the challenges facing us, we need to encourage new faces to step forward to help, and we need to enroll all of our existing 'faces' in the next steps that will make The Weave a better co-op and a stronger business.

Economic Linkage

There is going to be much talk in Weaver Street in 2009 about "Economic Linkage" and "Ownership Culture." The ambition is to improve the loyalty of our Owners - both Consumer and Worker.

The way it works is that we make the return Owners receive from their investment in us dependent on our performance, and in return for that, we offer Owners a greater say in our performance.

I came across these concepts as I was researching for my involvement in the WSM Elections Task Force at the beginning of 2008. I had an exchange of correspondence with Brett Fairbairn, the academic theorist behind the concepts. I set out one of those e-mails below.

Our exchange formed the basis for the introduction to the strategy document I submitted to the Task Force.

Peg Nolan, whom many of you will know from Weaver Street, has written two articles for The Co-operative Grocer, commenting on Fairbairn's original treatise: Three Strategic Concepts for the Guidance of Co-operatives: Linkage, Transparency, and Cognition.

I link to those articles here and here.

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Dear Geoff,

Thanks for writing -- these are interesting issues, and ones that periodically surface in many co-ops. Unfortunately I have not had a lot of time to develop the ideas I presented at CCMA any further, because I have become quite involved in administrative leadership at my university. Two things that might be of use, both I believe available as downloads from the Centre for the Study of Co-operatives website, are my booklet on 'Linkage, Transparency, and Cognition' which is intended to put issues of this kind into a broad perspective, and my 'Self-Assessment of Democracy in Organizations,' which is a kind of analytical tool for thinking about ways in which organizations are or can be democratic.

The topic of relations between managers, on one hand, and boards/volunteers/members is a huge issue in governance of co-ops and nonprofits, and there are lots of resources available. Generally I would say the basic considerations are that (1) managers have to be free to manage, and be accountable for overall results rather than be scrutinized for individual day-to-day decisions; and (2) the board (at least) has to have a big, participatory role in the part of strategic planning that involves setting long-term directions and highest organizational priorities. Often (I would say) it is helpful for the board and management to engage different members and stakeholder groups in discussions about the broadest aspects of long-term directions. All of this suggests boards and managers who respect each other's roles and competencies, and who work at developing a collaborative relationship in which each party does its job, and not the other's. Generally this kind of relationship carries with it a strong understanding that the board is a collective entity, and that its individual members do not play prominent autonomous roles.

There are aspects of the general Carver governance model (boards worry about policies, managers make decisions within policies) that are not bad at getting at these issues in practical ways, though the Carver formula can be a bit over-prescriptive, I think.

Naturally elections come into all this, since they connect the members to the board. But a director election is usually about people and competencies, and may not be a great forum for discussions of strategic directions. I think looking for ways to stage discussions, participation, and input apart from director elections is a good thing for all co-ops to do. I often wonder whether what most members really want is (a) to have 'someone' do the director's job competently for them (not necessarily a burning desire to participate on this front) but (b) for the co-op to 'listen' to their ideas and concerns when they have them.

I often find that case studies of how other organizations work are good ways for people to think about the issues involved. This allows them to set aside, temporarily, their own organization's issues, think about the more general questions involved, and return to their organization's concerns with fresh understandings. Often a trainer or facilitator, if you have access to one through some network in your area, can help with this. Or maybe a partnership with other local co-ops, to look at common issues?

Those are quick thoughts off the top of my head. I hope some of them are helpful to you!

Regards,
Brett


Brett Fairbairn
Professor and Head, Department of History

Fellow in Co-operative Thought and Ideas
Centre for the Study of Co-operatives

University of Saskatchewan
9 Campus Drive
Saskatoon S7N 5A5 Canada

Tel. (306) 966-8505
Fax (306) 966-5852
www.usaskstudies.coop/ or www.usask.ca/history

Who Moved My Auditor?

[What follows is a copy of a fairly self-explanatory e-mail to Jacob Myers, Board Chair of Weaver Street Market, who is standing for re-election as a Worker-Owner Director in 2008]

Dear Jacob,

I write this e-mail with the greatest of respect to all of its recipients, not least you; but also with a heavy dose of reluctance and sadness.

I have attended almost every Board meeting this past year, along with engaging in the work of the WSM Elections Task Force at the beginning of this year.

I have closely followed every step of the implementation of the capital building projects associated with Expansion. I have listened to what we have been told, and have read what has been written. And I've done a good deal of commenting of my own!

I have two further specific questions in this e-mail. I apologize for the lateness in asking them. Bluntly, that is because I have had to work out the premises all on my own.

The information that has allowed me finally to make the necessary deductions has been withheld or presented in a less than full manner. I'm sorry to have to say that. But it is true.

I am writing this e-mail, even at this late stage, to give you and the General Manager the opportunity, in your remarks to the Annual Meeting, to address the answers to these two questions; to the various previous questions I have asked about debt, the Auditor's Report and the expenditure on the capital building projects; and to address the summary points I raise at the end of this e-mail.

[For those of you reading this e-mail, who have not seen the Auditor's Report, he puts the co-op's long-term liabilities at $9.3 million (not the $7 million our Annual Report states); and he has the debt repayments ballooning from $170,000 this year, to $700,000 in 2012, and $1.5 million in 2013 - which our Annual Report doesn't mention at all...I have asked, without success, for the Auditor's Report to be available at the Annual Meeting.]

If you do not so address these issues, then reluctantly I reserve the right to raise them myself, in the form of questions to you two at that Meeting, and at the various Candidate Forums.

Transparency and accountability are the touchstones of our co-operative integrity. Those running this co-op simply can not ignore the unsustainable debt that has been created for this co-op; the unsustainable repayment amounts; the manner in which we arrived at this situation; and the sensible steps now needed to take us forward.

My two questions:

1) Why was the roughly $400,000 which the GM has attributed to 'one-off' expenses associated with the Expansion building projects paid out of the Operating Expenditure Account rather than by the monies raised and borrowed specifically for the purpose of the Expansion building projects?

In other words, why was any part of capital expenditure covered by monies available properly for the use of operating expenditure? Was there no more capital money available?

This rather strange allocation of operational monies was the sole cause of the Worker-Owner Dividend being wiped out. It is an issue that has never been addressed by you, by the Board or by senior management. And that is why it has taken me so long to work out.

It is also the reason the Board is now finding itself distracted into talking about filling the hole by changing the Consumer-Owner Discount, rather than properly filling that hole by addressing the overly high level of debt that has been incurred by overruns on the Expansion building projects.

2) Why was the Worker-Owner Dividend not paid out of the central Worker-Owner Account, in which is retained all of the 'excess' monies vested by Worker-Owner contributions each year?

Since you have already established that you can use operating money for capital purposes, why did you not use that Worker-Owner capital to pay the Worker-Owner 'operating' Dividend?

And why was none of this explained to the Board, and to Worker-Owners?

The facts are these: the Expansion building projects were advanced as concepts to address pressing problems. Hillsborough wanted its own Weaver Street. And we all wanted better quality food; more of it; and better facilities and more space for our food production workers.

I have re-checked the original game plan for consultation on these concepts. At no point was it ever planned to ask Owners what they wanted or would allow. I think we can now all agree that was a mistake.

You have not answered my questions about what formal studies, analyses, comparisons and the like were undertaken to gauge the true need for the Expansion projects as conceptualized, their cost, and so on. I have to assume there were none.

In other words, we pretty much backed into this whole deal on the basis of our own feelings.

When implementation finally got underway, the projects fell behind schedule; there were problems with equipment, among other things; and eventually, we ran over budget.

At that point, instead of asking Worker-Owners and Consumer-Owners for their permission, we over-borrowed, and when we were no longer able to do that, we simply dipped into operational funds - again without asking Worker-Owners, whose Dividend we were about to wipe out.

And now, to make even more room for this over-extension and over-indebtedness, we are beginning a process of trying to change the Consumer-Owner Discount.

I say 'we.' I'm the one being disingenuous now. Absolutely none of this was done with my support. I either didn't know, wasn't told, wasn't asked, or vehemently objected - at Board meetings; in person; or on my blog and in e-mails.

Back to the Consumer-Owner Discount. Sure, there are co-ops around the country who are addressing the issue of increased competition by changing the Consumer-Owner Discount to a Consumer-Owner Dividend.

But, that is in response to unavoidable competition coming from outside, not from over-extension and over-indebtedness coming from within.

And it is part of a two-part approach to increase Consumer-Owner loyalty. What goes hand-in-hand with the change in return on investment is the notion that Owners be allowed much more say in the running of their co-ops.

The premise is: if your return is now to be dependent on the co-op's performance, then you, the Owners, must be allowed much more say in the performance of the co-op.

I've been pushing for the last point for the past three years. I've written two strategy documents and a blog on the subject. But that's the part you, the Board and senior management have not been addressing so far.

Will you address it at the Annual Meeting? Indeed, will you finally come clean on all of these points at the Annual Meeting. Will you, the Board and senior management finally practice the transparency and accountability we tell our Owners (not least all over our purple trays!) is an integral part of our approach to 'Co-op Ownership'?

What we need to do now, in my opinion, is:

A) Review our "Ownership Culture," so as to ensure that no further important decisions are made in our co-op without the meaningful input of Owners.

B) Re-structure our debt, so that the financial sustainability of our co-op is no longer endangered - and to do so in a way that retains the benefits of Expansion, and to do so in a manner that does not further alienate our Worker- and Consumer-Owners.

See you at the Annual Meeting and the Candidate Forums.

"The Weave": Escuchar A Co-op/A Listening Co-op

[This is the formal Candidate Information I submitted, in Spanish and English, to Weaver Street Market, for the 2008 Election for a Worker-Owner Board Director.

C'mon, you gotta love the photo...it was International Talk Like a Pirate Day...honest!!]

Hola, soy Geoff. Soy el Inglés-americano chavo, que trabaja en Southern Village, en el hot bar.

He estado con el “Weave” hace tres años. Al principio, era sólo para pagar las cuentas. Pero todavía estoy aquí porque he llegado a amar a nuestra co-op, y ahora quiero dar algo a cambio.

Durante mi tiempo aquí, he hecho un montón de escuchar a nuestros trabajadores de la co-op, los propietarios y los consumidores. Lo principal que he aprendido es que es posible que cada uno de nosotros tenemos ideas diferentes en que nuestras co-op debe ir, y cómo. Y eso está bien. De hecho, es buenisimo.

Lo que da el “Weave” su especial singularidad y fuerza es la fuerza individual y la singularidad de cada una voz diferente dentro de nuestra co-op. Cada uno de nosotros usando nuestro poder para participar en decidir lo que hacemos y cómo lo hacemos juntos.

El Junta de Administración existe para proteger ese poder. Para proteger los intereses de nuestros co-op's propietarios, los consumidores y los trabajadores. Sin embargo, la Junta sólo puede hacer ese trabajo correctamente si hay directores que comprende cómo nuestra Junta se supone que trabajar.

Yo sé cómo hacer juntas de trabajo. Hace diez años, dejé el mundo corporativo de perseguir mis intereses creativos. Pero antes de eso, yo era un abogado y consultor de comercializaciòn y gestión con exitò. Yo serví en la Junta de Administración de varias empresas con un volumen de negocios que van de $ 3 millones a 30 millones de dólares.

Hice mi vida soluciónando problemas para las empresas que estaban teniendo problemas. Esto significaba mediando controversias, abriendo canales de comunicación y la creando estrategias basadas en el valores que promito a las Juntas de las empresas a comprender que las personas son el centro de beneficio.

Yo sé cómo conseguir los encargados de prestar atención. Desde mis primeros años veinte, he sido un defensor político, organizador de la comunidad y últimamente, un presentador de radio. Aquellos de ustedes que me conocen entenderán cuando digo no estoy tímido a la hora de levantarme y hablar por los demás.

Tengo una experiencia probada de trabajo de consenso para conseguir resultados significativos para la gente que represento. Lo hice a principios de este año, cuando fui en el Comitè de Elecciones del Weaver St. Market. Y estoy haciendo lo ahora, por el Comité para el Desarrollo de WCOM 103,5 LPFM, la radio comunitaria de Carrboro y Chapel Hill.

Durante estos ultimòs años, he elaborado algunas ideas acerca de cómo creo que podemos hacer el “Weave” una mejor co-op y uns empresa mas fuerte. Comparto estos pensamientos en mi blog (weaverstreetgeoff.blogspot.com), en mi página de Facebook, y en MySpace.

Sin embargo, esta eleciòn de la Junta no se trata de mí. Es acerca de usted, y lo que quiere hacer para que su co-op que realmente escucha, es una que realmente refleje los valores y las aspiraciones que tiene para ello. Usted tiene el poder con esta elección para hacer su co-operativa lo que usted quiere que sea.

*******

Hi, I’m Geoff. I’m the English-American guy, who works in the Southern Village Weaver Street Market, on the Hot Bar.

I have been with The Weave for three years now. At first, it was just to pay the bills. But I’m still here because I have come to love our co-op, and now I want to give something back.

During my time here, I’ve done a lot of listening to our co-op’s workers, owners and consumers. The main thing I’ve learned is that we may each of us have different ideas on where our co-op should be heading, and how. And that’s ok. In fact, it’s great.

What gives The Weave its special strength and uniqueness is the individual strength and uniqueness of each different voice within our co-op. Each of us exercising our power to participate in deciding what we do and how we do it, together.

The Board of Directors exists to protect that power. To protect the interests of our co-op’s owners, consumers and workers. But the Board can only do that job properly if it has Directors who fully understand how our Board is supposed to work.

I know how to make Boards work. Ten years ago, I left the corporate world to pursue my creative interests. But before that, I was a successful lawyer and marketing and management consultant. I served on the Board of several companies with turnovers ranging from $3 million to $30 million.

I made my living troubleshooting for companies that were having problems. This meant mediating disputes, opening channels of communication and creating value-based strategies that encouraged the Boards of those companies to understand that people are the core value of profit.

I know how to get those in charge to pay attention. Since my early twenties, I’ve been a political advocate, a community organizer and lately, a radio broadcaster. Those of you who know me will understand when I say I’m not shy about standing up and speaking out for others.

I have proven experience working by consensus to achieve meaningful results for the people I represent. I did it earlier this year, when I served on the Weaver Street Elections Task Force. And I’m doing it now, on the Development Committee of WCOM 103.5 LPFM, Carrboro and Chapel Hill’s Community Radio.

Over the past couple of years, I have put together some ideas about how I think we can make The Weave a better co-op and a stronger business. I share these thoughts on my blog (weaverstreetgeoff.blogspot.com), on my Facebook page, and on MySpace.

But this Board Election is not about me. It’s about you, and what you want to do to make your co-op one that truly listens; one that truly reflects the values and aspirations that you have for it. You have the power with this Election to make your co-op whatever it is you want it to be.

Palin' Out The Weave

[Most of us saw the 'amusing' debate between Sarah Palin and Joe Biden.

A lot of us have perused the 'less-than-amusing' Financial Statement in the Weaver Street Market Co-operative Annual Report.

There are those of us who thought one or two things were missing from the much-anticipated Vice Presidential debate.

There is definitely something missing from the WSM Financial Statement.

This is the first year in which WSM's management-prepared Financial Statement was Audited by an outside, independent Auditor.

The problem is the Annual Report doesn't contain the Auditor's official figures. It contains the pre-Audit management figures.

I don't know why.

What I do know is that the Auditor's figures paint a grimmer and more accurate picture about WSM's level of debt ($10 million, not $7 million) and the size of the debt repayments (rising to $1.5 million in 2012). I'd hate to think that was the reason.

In fact, the thought is something so removed from what I believe to be appropriate in a co-operative that I decided that I needed to blow off some steam with really bad satire.

And so, I have combined the two events - the debate and the Annual Report - in a little skit, where Sarah Palin is apparently commenting on WSM's Annual Report. Forgive me.

You can, of course, just skip the bad impersonation of Tina Fey, and go straight to the serious italicized points at the end of the post.

There I suggest some action you might want to take, like attending the WSM Annual Meeting and/or voting in the 2008 Board Elections.

In the meantime, here's Sarah...]

"Well, it's been a great year, you betcha'...what?...it hasn't? You made a loss of $400,000? Oh. Would that be the same thing as a Deficit? Right...can ya' sell it to the Chinese?

Anyways, your future is secure...what?...it isn't? Why not? You've mortgaged your future for $10 million? Was that them darned predator lenders again? Can ya' get a bail-out?

Well, it can't be all that bad. What are the repayments? $1.5 million in 2012?! Dang! That sounds like the salary of one of them fancy Wall Street critters.

So, where did all this debt come from? A 'Food House.' Would that be like one of my pork-barrel earmarks? Does it have a swimming pool? No! What good is pork-barrel if it don't give you a swimming pool and a sauna?

Who allowed all this tomfoolery? The 'Board'? Sounds like my John-John needs to do some cleaning-house here as well as in Washington!

Ok. So, what's the plan to get y'all out of here? You're going to charge your customers more by taking away their Discount? Isn't that like stabbing the hand that's feeding your sled-dogs?

Darn tootin,' sounds like these boys on the 'Board' are about as ready to solve this riddle as I am to be President...!

Now wait a second. Just hold onto to yer six-pack. Got me a shout-out comin' on. How come these figures in this here Annual Report don't match what you're telling me?

What's that? You're looking at an 'Audio Report'? What's that? Is it like one of them Audio Books that Todd listens to on his sled? No? Then, what did you say...? An A-U-D-I-T-O-R'S Report...?

Is that like a stamp of approval for Weaver's figures? Oh. Right. And the Auditor's figures are the correct figures, and they're different to Weaver's figures? Ok. I gotcha.

But if the Auditor's figures are the 'real' figures, then why aren't they the ones in the Annual Report? I mean, if I did that in Alaska, I'd be investigated. Oh. That's right. I am being investigated...

So, help me. If you're all out of money, how are you gonna pay for the refurbishment of the Carrboro store?

Wait a minute...do you even have enough money to pay me? No?! Shoot. I'm outta here. I say: never again. I'm off to your Wine Show...!!

*******

Ok. Ouch! But now, let's get to the serious points:

There are two sets of figures floating around, both purporting to detail WSM's loss for 2008, our overall indebtedness, and the repayment terms.

First, there is the Financial Statement in the Annual Report (which is what is available in all the stores). This is the Statement that was produced internally by WSM management, prior to the Audit. And then, there is the independently-produced Auditor's Report and Accounts.

The Auditor's Report and Accounts necessarily present a starker picture of WSM's overall financial state than the General Manager's Statement in the Annual Report, because the Auditor's Report and Accounts have to satisfy not only the Owners, but also, and perhaps more importantly, those financial institutions lending us the $10 million (not $7 million).

I could explain at length what is in the Auditor's Report. How it differs from the GM's Financial Statement in the Annual Report. And what it means for the future of our co-op. But I have a better idea.

Why not find out for yourself?

But before I turn to how, you might be asking yourselves why the difference in the figures even matters.

Simple: you can't fashion the right response to a problem if you're in the dark about the precise nature and extent of the problem.

Ok. So, how can you find out for yourself? Try one or all of the following:

1) Ask for your own copy of the Auditor's Report and Accounts. You should be able to get a copy by writing to board@weaverstreetmarket.coop.

Remember, the Audit is performed on behalf of the Owners of WSM - not its management, nor its Board. Every single Owner is entitled, by law, to see a full copy of the Auditor's Report and Accounts.

A further point: the Auditor's Report and Accounts are, in fact, in 'Draft' form only - until they are approved by vote at the Annual Meeting of Owners, on October 19.

2) Ask questions. As a Worker-Owner, I wrote a letter to Jacob Myers, Board Chair, asking certain questions of the Auditor.

At first glance, it appears that some of those questions (the ones relating to company organization and debt) may have been answered. I deduce this from the manner in which the Auditor drafted his Report and Accounts.

Others of my questions haven't been answered. Those would be the ones asking if the millions that were spent on the Food House were spent in the best possible way. No reason why those questions couldn't also be asked by other people. Or similar questions.

Again, your questions can be directed, in the first instance to the board@ e-mail address mentioned above.

3) Go to the WSM Annual Owners' Meeting on October 19, between 5.00pm and 7.00pm, in the Carrboro Century Center. Details are on WSM's web-site, or can be obtained from the same board@ e-mail address above.

At the meeting, ask existing Board Directors and candidates in this year's Board Election what sort of comprehensive plan the Board is putting together to deal with The Weave's indebtedness - as requested by WSM's Auditor.

Again, remember this, the Annual Meeting is part of the formal Governance Structure of Weaver Street. As an Owner, you may ask any questions you like of the Board and its General Manager. And you may pass any number of motions - all of which are binding on the Board.

4) Whatever else you may or may not do, please vote in the 2008 Board Elections. One Consumer-Owner Director and one Worker-Owner Director will be elected this year.

If you like where Weaver Street is heading, then support your Board, and vote for the incumbents.

If not. If you think we can be a better co-op and a stronger business with a different Board, then maybe vote for something different?

Maybe even 'something completely different'...getting back to my Monty Python theme.

Or. Don't do any of this. It's your choice. It's your co-op. And it's a free world. That's what's great about democracy.

One final point, and I don't apologize for the fact that I'm repeating it 'ad nauseam': I remain ridiculously optimistic about the future of our co-op.

We have all of the elements - physical, financial and human (in the form of 12,000 eager Consumer-Owners and 200 ready-and-willing Workers) - to be able to pull through all of this.

However, a co-op built on debt is not a co-op built to last. You can't describe that sort of approach as 'sustainable.'

As the Auditor has 'suggested,' we need to fashion a sensible and comprehensive plan, to take us back to financial security and stability.

That requires fully engaged - and fully informed - Owners. And the right Board. It's all up to you. It's all in your hands.

Are We Transparent Enough?

The decision-making in a co-operative - and the preceding discussions - ought to be totally transparent. Are they in The Weave?

At recent Weaver Street Board meetings, it has not always been easy to follow a lot of the discussion because so many of the documents before the Board have not been available to we visiting owners.

I have written to Jacob Myers, Worker-Owner Director candidate and the Board Chair these past three years, to ask if all such documents could be made available to visitors in the future.

As a consequence, we got to see many of the financial reports at the September Board meeting. We were not, however, 'allowed' to take away with us copies of the Draft Audited Accounts.

This is a little peculiar because anyone who understands the function of an outside Auditor will know that the Audited Accounts are produced for the Owners, not management nor the Board. The Accounts are Audited to comfort Owners that their investment is safe.

In other words, the Audited Accounts are the property of the Ownership, and we should be allowed to have as many copies as we like - to do with as we like.

Moving right along, the Board have decided sensibly (in my opinion) to move much of their administrative business to a new Google group/Forum, in between meetings, so as to free up time in meetings themselves to address the concerns of Owners and Workers.

The problem is that the Google group is not (at the moment) open to Owners and Workers to see what the Board is discussing among themselves - and on our behalf.

Now, I take the view that all deliberations of the Board should be held in public, unless there is good legal reason. I really don't think that 'convenience' is a compelling legal reason. Do you?

Two matters on the Board Agenda were recently moved into private session for allegedly legal reasons: discussions with the Auditor, and real estate matters.

I served on a City Council back in England. I made it clear, from Day One, that if we went into private session (which they tried to do a lot), and I found that the only reason we were in private session was that it might be embarrassing to have the discussion in public, then I would suggest we report on the discussions in open Minutes.

Private sessions almost completely disappeared. I would like to see the same practice instituted with WSM Board meetings.

As I have already mentioned, an outside Auditor is commissioned each year to produce an independent analysis of the financial dealings of our co-operative.

The ensuing Auditor's Report and Audited Accounts are produced for the benefit of Owners and Workers. Not for senior management. Nor for the Board. But for Owners and Workers. To let them know their investment is safe.

I can think of no deliberations involving the Auditor that should be hidden from Owners and Workers. And I have 30 years experience of 'good business practice' (the excuse proffered at the Board meeting in question for having the discussions both about the Auditor and about real estate dealings in private session.

As to holding discussions about real estate dealings in private session, a lot of us have questions about what is going on with Weaver Street and its real estate dealings. Indeed, there are those who wonder what a co-operative is doing having real estate dealings in the first place.

I am hoping that, after this forthcoming Board Election, the new Board will take a good, hard look at these WSM real estate dealings, wondering whether they should exist or not, and wondering if they really should be private or not.

Now, there is some good news here. Those of us who served on the WSM Elections Task Force earlier this year spent time examining what we could do to make it easier for Owners and Workers to know what was going on in their co-operative, and to be able to have a say about it.

The common verdict was that an online Forum for Owners and Workers, where the Board and senior management are under strong encouragement to respond, would be a great idea.

Two committed Consumer-Owners, Jamie Bort and his wife, Sarah Kahn, have invested a lot of their time setting up a trial Forum. I have helped a bit with the protocols for using it, and the suggested protocols for senior management and the Board to respond.

We are hoping that the Board will recommend that WSM formally adopt the Forum, so that we can then complete the two-step process whereby a user is first verified against the Owner/Worker database, and then, quite separately, is able to sign up and post with complete anonymity - if they so choose.

It is not a difficult process. Most online Forums use something similar. But we realize it is important that some people (particularly Workers) have absolute confidence that they can be free to say whatever they want without recrimination.

Equally, Weaver Street will want to know that everyone participating is a bona fide Owner or Worker, even though they will not know who GoogleFries is!

Clearly WSM already likes the idea of Forums, because it has set one up for Board use. So, there should be no reason why WSM will not agree to let the 'Bort Forum' be an official communication vehicle for use by WSM Owners and Workers.

All of our thanks should go to Jamie and Sarah. They are the very definition of engaged Owners - even if they do cycle an awful lot! Geez, I need a nap every time I see them!

Who's Moving My Weaver Discount?

[What follows is an e-mail I sent to Jacob Myers, Weaver Street Board Chair these past three years, after the September Board Meeting]

"Dear Jacob and Weaver Street Board,

I have no strong feelings either way about the Consumer-Owner Discount. After all, I'm a Worker-Owner.

I do, however, have strong feelings about the manner in which its potential removal is being discussed by the Board of WSM. This affects all of us in our co-operative.

I am worried that the Board may consider the return to Consumer-Owners through the Discount as being the cause of the gaping hole in WSM's finances. This simply is not the case.

That hole is caused by the fact that we find ourselves over-extended (by Expansion and the Food House) going into a potentially severe recession. And the fact that the over-extension has an associated debt of some $10 million (with annual repayments of increasing size, leading to repayments of some $700,000 in 2011 and $1.5 million in 2012).

As the Auditor clearly explained at the September Board meeting (clearly, to anyone who understands the manner in which Auditors address Boards), the Board now has the task in 2009 of coming up with a comprehensive plan to address The Weave's over-extension and over-indebtedness.

Removal of the Discount may well form a part of such a plan. But it is not a substitute for that plan.

The Board is aware that, under the John Carver Policy Governance Model, to which WSM subscribes, the Board is supposed to be accountable to Owners, not to the management of WSM.

It is commendable that management have suggested ways to the Board of keeping WSM on financial track, but it is the Board's responsibility to run those plans by Owners before moving ahead with them.

That much should have been learned from the last couple of years.

Management came to the Board with the plans for Expansion and the Food House. Fine. What was not fine was that the Board then approved those plans without seeking the permission of Owners.

Management approached the Board with requests to borrow $10 million, using Owners' assets and equity as collateral. Ok. Up to the point the Board decided to approve the requests without first seeking Owners' permission.

This year, management asked the Board to remove the Policy requiring a 1% profit, so that management had room to maneuver with its plans for the Food House.

The 1% profit requirement was what protected the Worker-Owner Dividend. Worker-Owners should have been asked. They were not. As a result, we lost our Dividend.

And now, instead of coming up with a comprehensive plan to address over-extension and over-indebtedness, management have come up with the idea of removing the Consumer-Owner Discount.

I hope that, on this occasion, the Board will agree to move ahead only after it has the full permission of Consumer-Owners.

Why not make a start at the Annual Owners' Meeting on October 19? Why not put down a motion (someone; anyone) along these lines:

'That the Consumer-Owner Discount will not be changed unless approved by a Referendum of all of the Consumer-Owners.'

If you can achieve a demonstrable plurality of those present to proceed without a Referendum, then you pretty much have a green light to make the decision on your own. Otherwise, John Carver should apply. Or. You abandon John Carver - but again, you should only do so with the consent of your Owners...

Frankly, I think it very unlikely that you will get the agreement of your Consumer-Owners to mess with their Discount, and replace it with a Dividend.

I'm guessing they'll see this year something like this: our butcher disappeared; our meat turned brown; we made a wopping great loss; and now you want us to pay more for everything; and agree to get a Dividend instead - would that be the same one you just didn't pay to Worker-Owners...?

If you try to proceed with changing the Consumer-Owner Discount without the permission of Consumer-Owners, it is reasonable to assume that this will lead to an exodus of Consumer-Owners.

Aside from having a potentially severe effect upon sales, and therefore the profit margin (which would be counter-productive), it would also leave the General Manager possibly having to report at the end of the 2009 Financial Year that he is now in non-compliance with the Board Policy requiring that he not do anything that has the effect of reducing Consumer-Owner numbers.

If you are intent on attempting to improve the financial numbers, then I believe you will only receive the support of the majority of Consumer-Owners if you present them with a more attractive alternative to their Discount.

The opportunity presents itself. Nationwide, the co-operative grocery movement is learning to cope with increasing competition, the recession (and, I guess, in our case, the over-extension and over-indebtedness caused by Expansion and the Food House) by working to increase the loyalty of their Owners.

This is done with 'Ownership Culture,' whereby Owners are weaned away from the view of their co-op as an organic Sam's Club, into more of a traditional co-op culture, by involving them more in the decision-making of their co-op - much along the lines the WSM Elections Task Force was talking about at the beginning of this year.

Consumer-Owners might be much more likely to support the tough decisions needed to regularize WSM's finances (including, perhaps, the replacement of their Discount by a Dividend) if they felt that they were meaningfully involved in the important decision-making process.

We are where we are. I remain ridiculously optimistic that we can move forward positively from where we are.

But we can only do it by honestly recognizing we have a problem (over-extension and over-indebtedness), and then working collaboratively and creatively to address the over-extension and over-indebtedness in realistic ways, and ways that retain, as much as possible, the benefits of Expansion and the Food House, in whatever form the finances finally allow.

What we can not do is pretend the problem is something else, and then fashion a solution which does not begin to address the real problem, and ends up only aggravating the problem and making it worse."

*******

In the interests of balance, I link here with an article about a grocery co-operative which has quite successfully introduced 'Ownership Culture,' and as part of the move, replaced a discount with a form of dividend.

The important point to notice is that there is a clear sense in this article that owners were and are fully included in the important decision-making in their co-operative - as an important 'quid pro quo' in this co-operative's interpretation of 'Ownership Culture.'

More Board Spam?

[What follows is an expansion on remarks I offered during the Owner Input section to the Board of Weaver Street Market Co-operative at the beginning of their September meeting when they were due to consider their 2008 end-of-year financial reports.

They are fighting words. I was in a fighting mood. Our Board, the Chair of which (Jacob Myers) is a Worker-Owner Candidate this year, had just cost me and my fellow Worker-Owners a couple of thousand dollars each in dividend.]

"The primary responsibility of any Board of Directors is to protect owners' investment from speculation and fiscal jeopardy.

One of the primary measures of success or failure of that duty of care is payment or non-payment of a dividend.

In light of the non-payment by Weaver Street of a dividend to its Worker-Owners, the people upon whom the continued success of WSM truly depends, I wonder if this evening the Board will take the view that it has succeeded or failed in its financial stewardship this past financial year?

This is not a rhetorical question. It is directly the Board's fault that the dividend was not paid.

Earlier this year, the Board - at the request of the General Manager, with the active support of the Board Chair, and without serious objection from any other Board member - this Board took the decision to do away with the Board Policy requiring that there be a 1% profit at the end of each trading year.

It was that Policy requirement which protected our dividend. And its removal was the direct cause of our dividend being wiped out.

I have carefully examined all of the financial documents before the Board this evening. I can find no clear explanation as to why there was no profit in 2008.

The only reference I can find is one small paragraph which talks about $408,000 for so-called 'one-off' start-up costs for the Food House.

I was a management consultant for a good few years before I left the corporate world in the Nineties, to pursue my creative interests. I can't ever recall coming across a situation where start-up costs for new buildings were not a part of capital rather than operating costs.

The only further narrative explanation of these 'start-up' costs is the word "personnel"...??

What also disturbs me is the rather strange addendum offered that these costs will be offset by "future revenues"...

Um. The Food House doesn't have any significant revenues of its own. It's primary customer is...itself. Us.

The fact is that the Food House will be a continuing huge extra cost, on top of what was there before it. Whatever these 'start-up' costs were or were not, they are not "one-off." There will be continuing large extra operating costs of some sort associated with the Food House.

And these costs, along with all of the costs associated with the debt which financed the Food House, will most probably be a drag on profits for years to come - not least in view of the fact that sales will continue to be depressed by what appears to be the coming severe recession.

Denial of these facts serves no-one's interests.

Neither does distraction instead of action, by way of remedy.

I remain the ridiculously-eternal optimist. There is no limit to my belief in the ability of The Weave to pull through anything. But we will only be able to do it if we are totally honest with ourselves, and open to whatever needs to be done to make things different, and make them right.

Which brings me to the smoke-and-mirrors distraction that is offered as a solution to restore the profit in 2009.

The financial reports before you raise the notion that the profit was wiped out in 2008 because of the money [called a 'surplus'] we returned to Consumer-Owners on their point-of-sale discount. [I set out the relevant paragraph of the financial monitoring report in question at the end of this post.]

Hogwash.

The reason we made a loss in 2008 is that we are over-extended and over-indebted going into what is already promising to be a severe recession.

The answer is to deal in a calm, determined and creative fashion with that over-extension and over-indebtedness. Not to frighten away Consumer-Owners by rattling chains at their measly 5% discount.

Besides, after the fiasco with 'consultation' before Expansion and the Food House, don't you think it might be a little short-sighted even to consider introducing a change to the Consumer-Owner discount without first seeking the permission of Consumer-Owners?

The Board was defeated the last time it tried to change the discount. Why do you think you will be any more successful this time?

No. This is a distraction, when what we need is action. This is simply 'more of the same,' when what we need is 'something completely different.'

I would be grateful if this evening I could hear the Board take full responsibility for its non-payment of a dividend to its Worker-Owners.

There is a huge, ongoing price to pay for our gamble on Expansion and the Food House - and we Worker-Owners are the only ones paying that price.

I would be grateful if this evening I could hear our Board setting out meaningful steps to start the process of restoring The Weave to profitability, and giving us back our dividend in 2009."

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[This is the excerpt from the WSM Monitoring Report, where the General Manager raises his thoughts about changing the Consumer-Owner Discount]

MONITORING REPORT
POLICY 2-11: OWNER INVESTMENT AND RETURN
SEPTEMBER 2008

I hereby present my monitoring report on your [the Board's] Executive Limitations policy “Owner Investment and Return” according to the schedule set out. I certify that the information
contained in this report is true...

With respect to owner investment and return, the General Manager shall not cause or allow conditions, procedures or decisions which:

POLICY PROVISION #11:

Allow the distribution of surplus to materially deviate from:

b. Long term financial policy

GENERAL MANAGER’S INTERPRETATION [NEW SINCE LAST REPORT]:

I interpret “long-term financial policy” to mean achieving a balance among: 1) providing a fair return to owners; 2) keeping the co-op competitive and entrepreneurial; and 3) creating a financial buffer to protect against fiscal jeopardy.

DATA:

There are two important questions about the consumer owner discount that relate to achieving our long-term financial policy:

1) given the increasingly competitive environment, does the discount fulfill its role as a motivating factor for consumer owners to shop at WSM vs. the competition?; and

2) does guaranteeing a consumer owner return approaching $500,000 per year achieve one of the three goals of longterm financial policy at the expense of the others?

For the first 20 years of our existence, the discount has not jeopardized our long-term financial situation. The discount has been a sufficient motivating factor for sustained sales increases, or at lease [sic] it has been correlated with strong sales increases.

And we have been able to pay out the discount while simultaneously investing in the future, improving our financial stability, and paying a fair return to worker owners. But it’s not clear that we will be able to continue to balance all of these competing needs in the future.

There are three new factors to consider:

1) With so many other places to shop, its clear that owners are starting to make more shopping trips elsewhere in spite of the discount;

2) As our traditional market niche erodes, we need to make bigger investments to remain competitive and entrepreneurial;

3) As conditions in the grocery industry become more volatile, we need to have a bigger buffer in order to remain profitable, protect against fiscal jeopardy, and pay a dividend to worker owners.

It’s difficult to predict for certain at what point the current discount system moves from a potential concern to a factor likely to jeopardize our long-term financial condition.

However, my confidence that we can continue to pay out a discount that now amount [sic] to half a million dollars per year and meet the other needs of our longterm financial policy on a consistent basis is lower than in past years.

I am therefore reporting that we are out-of-compliance with this provision.

One way to amend the system would be to change the consumer return from a fixed amount to a variable amount based on our actual profitability by converting to a patronage refund system like we have for worker owners [i.e. a dividend].

Another way to amend the system would be to change the discount from a small amount on a regular basis to a larger amount on an occasional basis. Such a discount would be more likely to pay for itself out of increased sales.

Three years ago a proposal to change from a discount to a patronage refund system received strong negative feedback from consumer owners, and we made the decision to withdraw the proposal.

The short-term cost in owner dissatisfaction outweighed the potential long-term gain in financial sustainability.

Most cooperatives have made a transition from a discount to a refund during a financial downturn when it was obvious that the co-op couldn’t afford to pay the discount any longer, and we were not in such a situation at the time.

I report out-of-compliance with this policy provision without a clear plan to bring us within compliance. I request that the Board schedule some time to discuss how the Board and GM can become aligned on our respective roles in addressing this situation.