Addressing calls for transparency.

AuthorHall, Roland

In an environment where corporate boards have increasingly come under fire, members of some electric distribution cooperatives are now asking for more "transparency" in the form of open board meetings and open access to company documents.

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Recently the members of one cooperative went so far as to propose and approve (against the recommendation of the Board and management) the adoption of bylaw amendments requiring the cooperative to follow the state open meetings act and open records act. Another cooperative recently adopted new open meeting and open records policies as the result of the settlement of a class-action suit against the cooperative.

In the private sector, "open access" policies are the exception, rather than the rule, even among nonprofit companies. Ira cooperative decides to adopt such a policy, it should be carefully considered and developed by the board of directors, management, and legal counsel. On the other hand, if a cooperative prefers not to adopt such a policy (where there is no state law requiring the cooperative to provide "open access"), the cooperative should be prepared to respond to member questions and discuss why such a policy is not desirable. In any event, the cooperative's board and management needs to understand how such policies work and what impact such policies would have on cooperative. This article addresses these issues, and also (1) discusses current cooperative practices; (2) examines the state open access and open records laws applicable to governmental entities, and (3) provides guidance on drafting cooperative "open access" policies.

  1. Introduction

    As with most issues concerning cooperatives, the question of member entitlement to attend board meetings and to obtain cooperative information is tied to the unique structure of cooperatives and the nature of the relationship between cooperatives and their members. An electric cooperative's members own and have ultimate control over the cooperative. Because a cooperative's purpose is to provide services to its members, and each member has one vote under the democratic control principle, the members have a stronger incentive and ability than shareholders of a for-profit corporation to exercise control over their company. (1) From this perspective, the members need information from and about their cooperative to fulfill their responsibilities.

    While the cooperative is controlled by its members, it functions as representative democracy through the election of directors as the elected representatives of the membership. (2) Although the board of directors typically delegates the daily governance of the cooperative to a management team, the board retains the responsibility for the overall direction of the cooperative. (3) Seen from this perspective, the board of directors needs discretion to decide how much information can be provided to the members without impairing or interfering with the business operations of the cooperative, unless a state law requires otherwise. Similarly, the board must decide whether and to what extent members can attend board meetings.

    If a cooperative does not have (and does not desire to have) a policy in place, it should be prepared to address member questions and concerns about open meetings and access to company documents. Having a consistent, reasonable response to such questions could help educate the members and perhaps avoid a situation where members obtain passage of "open access" bylaw amendments that might not be in the best interest of the cooperative.

    On the other hand, if a cooperative decides to allow broader access to documents and board meetings than provided by state law, the policy controlling such access must strike a balance between openness and the cooperative's business needs for confidentiality. A particular member's desire for information should not be allowed to harm the cooperative's ability to serve the membership as a whole. If a balanced policy is developed and implemented, however, it might election arises. As discussed below, once an election is contested, putting new rules in place might cause issues rather than prevent them.

    Consider Forming a Credentials and Elections Committee. A credentials and election committee is made up of members of the cooperative who are not officers or directors of the cooperative or candidates for the Board positions to be filled. The committee can be made responsible for ruling on election questions, such as the validity of proxies or the qualifications of candidates, thus removing the Board and general counsel from the line of fire. The committee can also be made responsible for ruling on candidates' protests or objections to the election process or results.

    If such a committee is used, the cooperative's bylaws should set forth specific guidelines for the appointment and qualifications of committee members and establish the scope of the committee's responsibilities. Although a process can be put in place to maintain such a committee, many cooperatives' bylaws provide for the selection of the committee members by the Board a certain number of days before an election. Also, when considering using such a committee, applicable state law should be reviewed to determine whether there are specific requirements for the establishment and authority of such committees.

    Define General Counsel's Role in Elections. The cooperative's general counsel advises the Board of Directors as a whole and will be placed in a very uncomfortable position if required to take positions relative to the election process. The general counsel's role is to assist the Board in insuring a fair and objective election. When the general counsel is asked for advice by an incumbent Director facing a challenger, the general counsel is placed in the middle of the election process and thus directly in the line of fire. When a contested election arises, this situation can be avoided by having separate special counsel provide advice to the Board, or, if a credentials and elections committee is in place, to the committee.

    Special counsel could work with the Board or the committee to ensure an objective and fair election process. Using special...

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