Phil Kenkel, John Park
2011 unpublished
Cooperatives are user owned businesses that are an important part of the U.S. economy and particularly prevalent in the agricultural sector. In 2009, cooperative businesses in the United States controlled over $3 trillion in assets, generated nearly $654 billion in revenue, employed over 2 million people and distributed nearly $79 billion in income to user/owners. Agricultural marketing cooperatives generate nearly $130 billion in revenue and over 200,000 jobs (Deller et al.2009) Cooperatives
more » ... erate under a business model that generates unique challenges in financial management, governance, strategy and communication. These unique challenges and the prevalence of cooperatives in U.S. agriculture have encouraged research and education efforts by agricultural economists since the early 1900's. Cooperatives were included as a part of the mission of the Cooperative Extension Service in 1926 and the USDA has maintained research and statistical staff focusing on cooperatives for over 50 years. A National Institute of Food and Agriculture (NIFA; formerly CSREES) Regional Research and Extension Committee for cooperatives has been active since 1993, making it one of the longest running such committees in the United States. Cooperatives, as an industry, are among the most generous supporters of departments of agricultural economics with more than $20 million invested in scholarships, faculty, and other endowments in at least 14 different departments. In addition, more than $150,000 of scholarships are awarded annually by cooperatives to undergraduate students in the United States and another $100,000 for graduate student research. Strategy Issues These outside forces impacted the collective perception of the strategic issues facing cooperatives ( Figure 2) . McKee, Boland, and Hogeland summarize the findings and research needs in strategy in another article. Almost 90% of the cooperative leaders viewed the need for effective strategic planning as an extremely or very important issue. Aside from planning, human resource issues dominated the strategy area. The succession of management and key personnel, attracting and maintaining high quality personnel, and aligning the incentives of managers and employees with member interest all received high importance ratings. A third of the respondents viewed gaining efficiency and maintaining viability in their market segments as an extremely important issue, while 12% gave extreme importance to the cooperative's ability to make effective, timely decisions. The ability of the cooperative to pursue alliances with investor owned firms or with other cooperatives was also considered important. Finance and Equity Respondents identified several financial issues of current importance to the success of cooperatives. The Barton, Boland, Chaddad, and Eversull article summarizes the challenges and research suggestions in the finance area. The panel indicated that acquiring and maintaining adequate equity was the most critical challenge. This issue is related to the features of the cooperative business model since cooperatives often create equity out of the profit stream and simultaneously manage systems to return-redeem-that equity to members. It is therefore not surprising that maintaining sufficient and consistent profitability and risk management were also considered key issues. The panel identified two other financial challenges related to acquisition of equity. The use of outside, nonmember equity was considered important. The majority of the panel also considered the recent trend of creating unallocated equity-retaining earnings-instead of issuing stock to individual members as an extremely or very important issue. The complexity of these challenges is further evidenced by the fact that the panel considered the financial competency of both managers and directors an extremely important issue. Governance Challenges The fact that agricultural cooperatives are governed by producer-members is both a key strength and a key challenge for cooperatives. Hueth and Reynolds summarize the issues and need for future research in this area. The key governance challenge (Figure 4) is that of identifying and recruiting directors with the essential mix of skills. Member involvement in a cooperative-another key issue-often relates to their access to board members or interest in running for the board. Other governance issues identified by the panel were related to the effectiveness and performance of the board of directors. The addition of outside, non-member directors has been a recent development in agricultural cooperatives, and according to the panel, is an important issue facing modern cooperatives. Communicating Value The panel identified a number of issues relating to communications ( Figure 5 ). Bond and Bhuyan summarize these issues and discuss research needs. All businesses, including cooperatives are formed to create and deliver value to their customers and owners. The cooperative member is both user and customer and this creates tension in generating and allocating economic benefits. This also creates unique challenges in communicating the value of the cooperative to both its members and to the general public. Communicating the value of the cooperative to its member owners was the most critical communication challenge identified. Cooperatives create value through the prices they provide members, access to the market place, unique services provided, counteracting market power, and of course, the financial return created at the cooperative level. Communicating this complex value package, particularly to large producer-members, was identified as a key issue. Business strategy is defined as a set of consistent choices made by a firm's top management, within a given time horizon, supporting their collective understanding of how they intend to achieve the firms' selected outcomes within a competitive environment. The scope and sequence of these choices is determined in a process of strategy development, implementation, and assessment. Strategy is delegated by the cooperative board of directors to the chief executive or general manager, but the board must be involved in the process. Strategy is an important topic in director and management leadership development programs. Agricultural cooperatives are the vertical extension of the farm business and a strategy must encompass this aspect. Strategy alignment on patrons' interest is critical in ensuring the success of the cooperative. This article summarizes the results from a survey of cooperative leaders to better understand current issues in strategy development for agricultural cooperatives. Author and lawyer James C. Humes once remarked "the art of communication is the language of leadership." Having also worked as a speechwriter for five presidents, Humes is in a unique position to comment on the value of communication in assisting leaders to guide, motivate, and inspire others. Cooperative leaders are challenged to use their verbal and writing abilities to maintain and enhance their organizations' relevance among various audiences including members, other managers, external stakeholders, and potentially skeptical members of the public. In a fastpaced and information-rich business environment, creating impactful communications, controlling messages, and influencing change is a time-consuming and ongoing process. International Co-operative Alliance. (2011). Statement on the co-operative identity. Available online: