Two dimensions of financial stewardship.

• Author: Luecal, Scott
• Position: Report

The front page of the paper is a tough place to be these days.

Almost daily, headlines identify corporate scandal after corporate scandal involving waste, perilous excess, violations of the law and failures of leadership.

The rural electric industry is composed of cooperative-owned and other public power entities with excellent track records of success. And though rural electric cooperatives do not often find themselves the subject of negative front-page headlines, they are not immune from difficulties. We are certainly familiar with events that have brought challenges and stress to our organizations and board rooms--a group of members dissatisfied with rates and perceptions regarding spending, an accidental violation of a wage and hour law that created a legal challenge, an accidental spill of contaminated oil, an employee injured on the job, an economic development loan that went bad, or a technology project that doesn't get completed.

When these events occur, cooperative leaders--the board of directors and the CEO--responsibly question why the event happened.

* "Did we do everything possible to anticipate and prevent it?"

* "We thought we were doing everything right--our planning, analysis and implementation."

* "What went wrong?"

Often the answer is that appropriate attention was given to one dimension of stewardship but not to the other.

Rural electric cooperative mission or values statements typically address the concept of financial stewardship. This stewardship concept establishes accountability on the part of the board, CEO and management--those who are accountable to the membership and are the stewards of the organization responsible for properly directing or carrying out the affairs of the organization in a manner that protects and effectively utilizes organization resources.

This financial stewardship responsibility has always existed. However, it may be argued that fulfilling one's stewardship responsibility to the cooperative and its membership is increasingly more important due to current circumstances, such as:

* The current era of heightened corporate accountability.

* The pressures associated with the current economic downturn.

* The increasing complexity of the decisions that are being made today versus in prior decades.

* The plethora of new laws and regulations, as well as those that will come, that increase risk and create precarious legal challenges should those laws and regulations be violated or ignored.

In their role as stewards of the organization, directors and CEOs must not only be diligent in spending money wisely, but if they are not also giving the same level of attention to those unexpected threats to the organization that could result in financial loss, they may find their cooperative at risk. Financial stewardship must be two-dimensional in order to be responsible. The cooperative must have a good process around which planning and decision-making takes place, as well as a process around which unexpected risks are understood and addressed.

Stated another way, how do we fulfill this financial stewardship responsibility? By focusing on both essential dimensions of financial stewardship:

1. Developing and consistently following a formal decision making and implementation process for spending money.

2. Developing and consistently following a formal risk management process for avoiding the loss of money.

   Decision Making and Implementation Process--The First Dimension of Financial Stewardship

   Cooperatives must ensure that their decision-making and implementation process is consistently applied and includes sound planning, evaluating, executing and assessing components. Once sound methodologies are adopted, the cooperative must give continuous attention and seek ways to improve and optimize current practices.

   Planning; A good steward is not just good at creating a plan, but is good at creating and updating company--wide integrated plans. The strategic plan is at the heart of our integrated planning process and impacts a number of other plans, including load forecasting plans, energy management plans, long range engineering plans and four-year construction work plans, technology plans, maintenance plans, human resource plans, facilities plans, equity management plans, financial forecasts, and...