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."

*******

[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.