It has been said that the job of the G&T director is the same as that of the distribution cooperative director – there’s just more zeros in the budget reports!
That may be true from a narrow financial standpoint, but the role of the director on the G&T or Statewide board is more complicated than that.
While the fundamental legal responsibilities owed by directors are the same for all boards; that is, the duties of care, loyalty and obedience, when a director serves on multiple boards at the same time, the question of which entity the director owes his/her duties can become tricky.
What is a ‘federated director?’
A federated system is one where a group of cooperatives owns and are the members of another cooperative, such as a G&T or statewide association.
DID YOU KNOW?
Federations are a fascinating mechanism in the cooperative movement that safeguards mutual benefit through interconnectedness among cooperatives.
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The federated director must be prepared to address the potential for conflicting interests between the two cooperatives upon which boards he/she sits. This is often referred to as the “two hat” issue.
Given this potential additional burden, how does a distribution cooperative select its director for these federated boards?
Like many governance practices, there is no “one size fits all”
Co-ops make these selections in several different ways. Some use a nominating process with a secret ballot. Others may use a “round robin” approach where an “it’s your turn this year” or some other rotation applies. Some cooperatives may use seniority or officer or committee chair experience as selection criteria, among other things.
No magic formula, but common useful questions
Put simply, there is no magic formula for selecting the federated director. Here are some questions that may be helpful when making your selection at your distribution co-op.
Does the candidate for the federated board:
- Have the commitment, energy, and motivation to take on the additional role of the G&T or statewide board member?
- Have the time and availability to fulfill this new role?
- Have the integrity and accountability to fulfill the “dual director” role?
- Demonstrate objectivity and impartiality in his/her decision making at the distribution level?
- Demonstrate independent thinking as well as informed and good judgment?
- Have the interpersonal and communication skills to participate on what is often a much larger board?
- Have the financial, industry and other knowledge, skills, and experience needed to understand the G&T or statewide’s business?
- Demonstrate a willingness and ability to learn about the G&T or statewide, its entire membership, and its operations?
- Respect that there may be multiple points of view and be open-minded to hearing and seeking to understand them?
- Recognize that he/she is expected to bring the distribution cooperative perspective to the board table of the G&T or statewide, but when sitting in the G&T or statewide boardroom must act in that entity’s best interests?
Using the guidelines above may help your board make an informed decision on who will represent your co-op at the statewide or G&T level.
RESOURCES YOUR CO-OP CAN USE IN PERFORMING THIS IMPORTANT DUTY
A three-part NRECA Legal Reporting Service series by Ty Thompson, NRECA’s Vice President and Deputy General counsel of Director and Member Legal Services, delves deep into the questions about G & T Director fiduciary duties.
Part 1: Dual Directors.
Part 2: What about conflicting interests between the G&T and distribution co-op?
Part 3: Examining the duty of confidentiality and disclosure.
NOTE: It never hurts to revisit basic director qualifications.