Tuesday, November 30, 2010

Pen Meets Paper Nov.29'10

Opinion by Helge Nome
Most of us, when we go to a store to buy something, are probably focussed on the product or service needed, rather than its supplier or provider. When we sell something, we are primarily concerned about what the return will be, in terms of money paid to us. It is only when problems begin to show up that we begin asking as to why. Something like that happened to a now extinct dairy coop here in Alberta, where producers sent in their milk and got cheques back from the coop. Then one day the coop was no more. It had been sold off to private interests.
The Great Depression in the 1930s spawned a lot of coops because private business failed to serve the needs of people to their satisfaction. Today we are left with the remnants of that great tradition in the form of credit unions, retailing coops and gas and electricity distribution coops in Alberta. The difference between a coop and a regular company owned by shareholders is that each coop member has one vote, and one vote only, in comparison to a shareholder whose vote is one per share owned.
However, both types of organization are prone to the same abnormalities: If the owners do not hold the hired people who run the organization accountable for their actions in running it, things can very easily go wrong with red ink spreading rapidly on the bottom of the balance sheet.
This is where a coop may be at somewhat of a disadvantage, compared to a company, private or public. A private entrepreneur has a very strong interest in keeping his company solvent by making prudent business decisions, as does a large shareholder in a public company. The motivation of a coop member is different because he or she does not have a lot of money invested in shares. So there may be less of a motive to ensure that prudent business practices are followed because the direct financial investment of a company shareholder is just not there. However, coop members are still the legal owners of their coop, and if it is sold as a going concern to private interests, each member will receive a sum equal to the buying price divided by the number of members, which could be substantial if the coop is doing well.
So, what happened to the dairy coop here in Alberta? Anecdotal evidence to hand is that the manager and board during its latter days went off on a tangent and made some unwise investment decisions which ultimately ended up in the sale of the coop. The members were the big losers because their asset, the coop, was not in a very good financial shape at the time of sale.
What is the lesson here? Very simply that coop members need to take an active interest in what their elected board and management are doing with their asset, the coop.

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