Just as corporations are facing demands for increased democracy through proxy access proposals and vague protests from Occupy Wall Street, some cooperatives, with long-held democratic values are in danger of shifting in the opposite direction through internal takeovers or dismantlement. Mark Latham, in Vancouver, posted the following on the VoterMedia Democracy Blog (Mountain Equipment Co-op AGM: Democracy slipping away @MEC, April 26, 2012):

Democracy took another hit at Mountain Equipment Co-op’s Annual General Meeting yesterday. Intentionally or not, MEC’s board has deceived MEC members into voting for a resolution that shifts power from the members to the board. This is bad governance, harmful to the members, and harmful to MEC.

The board proposed a Special Resolution, and approved the following description of it in the election booklet mailed to every member:“Specifically, the changes would place responsibility on the Committee for identifying and presenting a qualified, diverse ballot of candidates to the membership each year. In essence, the changes result in:

• Better communicating board skill and knowledge needs so we can clearly identify qualified candidates and inform members of the same;
• Ensuring we present a qualified and balanced election ballot each year so members have a positive voting experience;” [full text here]

Whether by intention or by accident, the above language is deceptive. It does not make clear what power we members would give up if we approve the resolution. Most MEC voters wouldn’t have taken the time to click through the two levels on MEC’s website to read the actual text of the resolution. Those few of us who did found this passage:

“… the nominations committee will select those nominees who meet the desired qualifications, experience and other attributes for directors, and decline any nominations for nominees who do not meet the desired qualifications, experience and other attributes for directors, as per its authority set out in the Rules and Board policy.” [full text here]

This gives the board-selected nominations committee the power to exclude any member-nominated candidate from the election ballot, based on their subjective interpretation of the board-defined desired attributes. For example, the board might desire an attribute of collegiality, and criticism of the board’s policies might be interpreted as a lack of collegiality.

The resolution would shift substantial power to nominate, from members to the board and its appointees. This is not clear from the booklet description.

There is no online forum on the MEC website where members can discuss election issues with each other. Had there been one, we could have alerted fellow members to the above deception. The two other resolutions that were presented in person at the AGM, had open pro-and-con discussions before a vote was taken. Most members who unwittingly gave up our nomination rights via the Special Resolution saw only the board-approved positive spin.

The board members seem like nice people, and perhaps they sincerely believe that shifting power from members to themselves by whatever means necessary is good for MEC. Of course, if this concentrated power is not abused, things could work OK. But it’s bad governance to depend on the good will of a small group of people with insufficient checks and balances on their power. The freedom to nominate members who disagree with the incumbent board is our primary check and balance, which we are now giving up. We have allowed our board to entrench itself.

The Special Resolution vote counts:

The lack of accountability of elected leaders is the main root cause of our recent global financial crisis. (I say this as a specialist in finance and governance — see my cv here.) So it’s ironic that MEC’s board chair (at the AGM) and spokesperson (quoted in the Georgia Straight) cited the financial crisis to justify concentrating power in the MEC board, reducing their accountability to members.

It’s especially ironic because the governance of corporations is now moving away from board control of the director election ballot, partly as a reaction to the financial crisis. This reform movement is called “proxy access.”

As a small step toward democracy, at the AGM I proposed that MEC create a members’ online forum, so that we can discuss with each other, topics of our choosing including elections, resolutions, new product suggestions etc.

One of the co-op principles on the MEC website is

“Democratic Member Control Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership.”

Let’s walk the talk!

I also recently learned of troubles at a housing cooperative just down the road from me in Davis, California. That case involves the illegal attempt to dissolve the Davis Area Co-operative Housing Association (DACHA). The DACHA members apparently wanted to gain $200,000 each by illegally dissolving the co-op with the complicity of city staff.Co-operative law in California bars housing co-op members from dissolving a co-op to get at the assets for private gain – and Twin Pines Co-operative Foundation has filed various lawsuits to uphold this law. As David Thompson, President of Twin Pines Cooperative Foundation recently wrote:

The DACHA lesson is that all co-operatives and co-operators need to be the alert to stop any illegal attempt to dissolve a co-op for personal gain. As we have seen with so many de-mutualisations, greed is a very motivating yet unethical factor.

Read more at ItsthelawDACHA.

My first experience with such scandals came when my father’s minister was turned out of his church in 1968 after leading protests against the war in Vietnam. Governing documents of the church allowed anyone to sign up to be a member at any time. On the day his position was to be reaffirmed, dozens of people who had never attended the church signed up, threw him out and never came back. Takeaway:  corporate governance is important… even if the corporation his a noble mission, like a church. As Andrew Jackson said in his farewell address of March 4, 1837.

Eternal vigilance by the people is the price of liberty, and that you must pay the price if you wish to secure the blessing.

Democracy isn’t something that is accomplished once and forever. Like electrical current, we have to keep generating it or the lights go out.

To contact James McRitchie directly, please email jm@corpgov.net