2013-01 LMC Board Minutes

La Montanita Food Cooperative

Board of Directors Meeting Minutes Draft

January 15, 2013 – 5:30 pm

Board Present: Martha Whitman, Marshall Kovitz, Roger Eldridge, Ariana Marchello, Lisa Banwarth-Kuhn, Betsy VanLeit, Susan McAllister, Kristy Decker, Jessica Rowland (Advisory member)

 

Also Present: Deborah Good (admin assistant), Jennifer Cornish (facilitator), Sarah Skenazy (board research fellow), Terry Bowling (GM), Michelle Franklin (CDC Manager), John Mulle (Valley Store team leader), Sharrett Rose (Co-op admin.), David Ritchey (Finance Committee, Co-op member), Peter Chestnut (Finance Committee, Co-op member), Elizabeth Chestnut (Co-op member), Maggie Seeley (UNM Sustainability Studies, Co-op member), Thomas Garduño and Alexandra Mirabol (UNM students)

 

Board Not Present: Jake Garrity

 

The meeting started at 5:30 p.m. at the Immanuel Presbyterian Church in Albuquerque.  Jennifer Cornish facilitated and Deborah Good took notes.

 

  1. General Welcome and Introductions

 

  1. Approve the Agenda

Issues Raised: Susan moves and Kristy seconds to approve the agenda.

Actions Taken:  The agenda is approved unanimously.

Actions Required:  None

 

  1. Member Comments

Issues Raised:

  1. Marshall received an email from a Santa Fe member who suggested that a sign at the store should read “ten items or fewer” (instead of “ten items or less”) so as to be grammatically correct. Marshall forwarded her concern to Terry as an operations issue.

Actions Required: None

 

  1. Consent Agenda
  1. Board Minutes December 2012

Issues Raised: None

Actions Taken: Passes unanimously

Actions Required: None

 

  1. Management Monitoring Reports – Financials X3 thru X3.10

Issues Raised:

  1. Kristy moves and Roger seconds to approve the report.
  2. Terry:
    • First quarter financials improved from last year; Terry is very satisfied with the numbers. The first quarter is typically one of the hardest of the year.
    • Nob Hill did not make budget for the quarter, although numbers were still reasonable. They’ve gone through a lot of staff transitions. We can do better. There are plans to have some Santa Fe staff come down and help with some training.
    • Rio Grande was over budgeted income—a fantastic quarter.
    • Gallup – We have reduced our losses but it is time to start making some money there. Terry is putting in a new structure there. He can’t give details right now but will give the board more information as changes are made.
    • CDC lost in the first quarter. After a decent August and September, October was weak. November was good. The CDC goes up and down a lot.
    • Next week we will be doing Zing training on open book management for department team leaders, who will then go back and train their staff.
  3. Questions:
    • Martha: What is causing the dip in cash in the cashflow report? Terry – The dip was caused by implementing the new POS system and by the patronage rebate.
    • Kristy asks about chart on page 19, which shows a drop in the debt service ratio in one quarter. Terry – Yearend changes go into the month of August, which made the quarter look like a loss. Also we pay insurance costs at that time.
    • Kristy: You don’t report on the UNM store as separate from Nob Hill. How is the UNM store doing? Terry – We won’t make a lot of money there; that’s not its purpose. It is doing well. The UNM store is an extension of the Nob Hill store.
    • Susan: What kind of impact does that have on Nob Hill’s numbers? Terry: Helps them more than hurts them during most of the year. In the summer it hurts them a little bit.
    • Roger: Zing sounds like a terrific thing to do. Terry: My only hesitation is that it has most often been used in single store coops. Roger: I will be interested to hear whether any changes result in staff behaviors.
    • Deborah will add the following comment to the GM Annual Monitoring Check Sheet: Excellent report overall.

Actions Taken: Passes unanimously.

Actions Required: None

 

  1. Agenda Addition: Change to Board Policy Wording

Issues Raised: Policy X3.3 currently reads, “Expenditures thatdeviatemateriallyfromBoardpolicies onEnds E1throughE4,” but there are now five ends. Proposal is to change the wording to read, “…policies on Ends,” removing “E1 through E4.” Deborah would make the change in the Board Policies document and the Handbook. Martha moves and Ariana seconds the proposal.

Actions Taken: Passes unanimously

Actions Required: None

 

  1. Board Study – Annual Financial Review – Finance Committee

Issues Raised:  See Attached

Actions Taken: None

Actions Required: None

 

  1. Board Self-Evaluation – 2nd half of R Policies

Issues Raised: All board members completed the survey on the second half of R policies, which deal with how the board monitors and evaluates the GM’s performance, and the compiled results did meet the board’s self-evaluation grading system. Comments from board members on the survey state that this set of policies can be a little confusing. In addition, the most common comments expressed that the board needs to improve our ends reporting. We need stronger measurements.

Actions Taken: None

Actions Required: None

 

  1. Board Functioning – All

Issues Raised:

  1. Marshall reads board emails, but would like to transfer the responsibility if another board member is open to it—and Ariana agrees to take it on. She will need to monitor the email account every day in case something comes up, even though fewer than a dozen emails come over the course of a year, and should respond to any emails that require it. Marshall will pass on instructions to Ariana. Martha and Marshall will serve as back up.
  2. CDS Training Jan 12 report-back (Jessica, Sarah, and Deborah attended the 101 training, Martha, Marshall, and Ariana attended the Leadership Development training):
  • Jessica appreciated the emphasis in the 101 training that the co-op’s goal is to make people’s lives better, and particularly after today’s presentation on the financial review, wonders what further efforts we could take to increase membership.
  • Sarah expressed gratitude to the board for sending her to the training. She found a number of exercises eye-opening and enjoyed meeting and learning from folks from other co-ops.
  • Deborah gained a better understanding of co-op structure and policy governance.
  • Ariana said it was fantastic to be there. She summarized the content of the Leadership Development training, which described different levels of leadership that are called out of individual board members, and ten principles of servant leadership. They also talked about the board as a team, how we relate among ourselves, and then how we can speak as one voice in our communication with the outside. The board also provides strategic leadership for the whole organization.
  • Marshall – Presenters essentially offered a model of how they think high-functioning boards work. I spent a lot of time looking at their criteria and reflecting on our board, and by and large, I felt that our performance is consistent with what they were presenting. Needless to say, we can improve a lot, but we’re on the right track. I wonder if there is a way we can align board strategies nationally. CDS has already started offering regional conferences.
  • Martha notes that the western corridor has already paved a lot of ground in helping boards work together. In the training, she honed in on awareness (a servant leadership principle) – self-awareness and awareness of surroundings. It made her think about the experience of new board members trying to join a very established group. What is it like for a new person to board this train?
    1. Board Development Committee meets at Betsy’s on Feb 13 at 5:30
    2. Member Engagement Committee meets at CDC on Jan 28 at 5:30
    3. Board Retreat is scheduled for May 18. Marshall will check with the Source as a location.
    4. Co-opera – Martha, due January 23

Actions Taken: None

Actions Required: None

 

  1. Administrative Assistant Duties

Issues Raised: None

Actions Taken: None
Actions Required:  None

  1. Meeting evaluation

Issues Raised:

  1. Martha – Breath of fresh air to have the finances presented this way. Betsy – I mentioned to Maggie it wouldn’t be a bad idea for her class to get a version of that presentation.
  2. UNM students will be attending board meetings regularly this semester because of a requirement in Maggie’s class. Board discusses that it is best for students to be prompt and, if possible, for Maggie to give us advanced warning of how many will be coming.

Actions Taken: None

Actions Required:  None

  1. Next Meeting Agenda Construction

Issues Raised:

a. CCMA – June 6-8 Austin. Martha encourages everyone to think about going. We will be completing a board survey at next meeting.

Actions Taken: None

Actions Required:  None

 

  1. Adjourn regular session

Marshall moves and Martha seconds.

Actions Taken: Unanimous vote to adjourn the meeting at 7:45 p.m. This was followed by an executive session.

Actions Required:  None

 

 

 

 

ATTACHMENT A: BOARD STUDY

 

La Montanita Food Co-op

Board of Directors Meeting – January 15, 2013

 

Topic: Annual Financial Review – Finance Committee

 

 

Goal for group conversation: David Ritchey (Finance Committee, Co-op member) and Peter Chestnut (Finance Committee, Co-op member) shared a Powerpoint presentation to deepen the Board’s understanding of Co-op finances and help directors digest the CPA’s report.

 

 

Readings:

  1. Mackie Reid’s Annual Financial Statements for Fiscal Year 2012
  2. Powerpoint presentation I: Patronage Dividends – a Cooperative Advantage and Financial Overview Fiscal year 2012

 

 

Presentation Part I: From Discount to Dividend

Peter Chestnut

 

History

  • 1976 – La Montanita started as an unincorporated group
  • 1977 – 300 households incorporated; multiple price levels (members, working members, and nonmembers)
  • 1990 – One price level (i.e. members and nonmembers paid the same amount at the cash register); first patronage dividend – which the co-op has done every year since except one

 

Benefits of one price/patronage dividend structure instead of giving members a “discount at the register”:

  • Dividend amount can be determined after the profit is known.
  • The amount of the dividend is excluded from taxable income for the cooperative and for members.
  • It encourages the general public to shop at the stores by offering them the same price as that paid by members.

 

Legal basis:

  • According to state law, the “cooperative basis” for operation means that “net savings” are allocated in proportion to each member’s patronage.
  • According to federal law, patronage dividend amount is not subject to federal income tax.

 

Discussion:

  • Member purchases compose a little over 70% of co-op’s total sales.
  • Peter prefers the word “dividend” over “rebate” because it better reflects that this is the members’ investment in the co-op.
  • Susan: If a coop were to go out of business, is that when inventory and everything gets sold off and divided out to members/owners? Answer: First the co-op pay off the debts, then returns share capital, and then returns what’s left to members based on patronage over last 6 years.

 

Part II: Financial Overview for FY 2012

David Ritchie

 

Balance Sheet – David explains the components of the balance sheet:

  • Assets – financial value of everything coop owns
  • Liabilities – all debts and other financial obligations of the coop
  • Equity – financial value of coop that is owned “free and clear”

Total liabilities + total equity = total assets

 

David compares the current debt-to-equity ratio with a benchmark. La Montanita is in a good financial position. Our ratio is lower than the benchmark ratio, even with forecasted expenses, meaning that we are in the position to entertain possibilities for using some of our equity for new projects.

 

Marshall: Coops in general are relatively conservative and risk averse. In general, it has served us well over the years.

 

Income statement – Compares financial activity in 2011 to 2012

  • Sales growth between the two years was 6.2%
  • Operating expenses were proportionately higher (36.61% in 2012 compared with 35.77% in 2011)
  • Net income was proportionately lower (1.99% in 2012 compared with 2.79% in 2011)

 

Net Income: Where it comes from

  • 24% Member dues
  • 47% Member purchases
  • 22% Non-member purchases
  • 7% Other income (interest, dividends)
  • Coop pays taxes on all non-member activities: 22+7= 29%

 

David presents a slide that illustrates how it would look if we gave no member dividend:

  • We would pay more taxes
  • More $$ would stay in the coop

And another that illustrates how it would look if we gave less or more member dividend.

 

Why did we make the decision we did?

  • We thought it better to give cash back to the members than to pay a larger amount in taxes.
  • The goal is to balance a significant member benefit with the growth and strength of coop’s economic picture.

 

Discussion:

  • In a survey, members said they gave very little consideration to the dividend in their decision to be a member. But past years’ experience has shown that members do raise objections when the divided was low. It is hard to make a judgment based on the sample of members who completed the survey and the likely different sample who raise objections. This leads to a discussion of what is the “happy place” that will keep members happy and keep the coop strong.
  • Terry explains that he has no formula. He has a good sense about what members want and determines the dividend accordingly.
  • Why in the one year did we not give a dividend? Answer: We lost money that year. You only give a dividend when there is net income to distribute.
  • Ariana – How does our performance compare? Terry – For coops, ours is good. Peter – Our performance is above average for coops. We are looked at nationwide for excellence. Many coops don’t give dividends.
  • David – How much do owners get in a traditional natural food store? Terry – Not sure. David – How much actual profit? Terry – I would guess 3-4%. Pretty high.
  • Roger – Over years, operating expenses and particularly payroll tend to creep up. Is it necessary to have certain events or circumstances (certain amount of turnover, open new stores) to make sure your expenses don’t get too high? Peter – One thing you do is grow sales. Terry – I have worked under the turnover model in the past, in which you turn over staff in order to keep costs down. Not a good model.

 

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