Friday, September 30, 2016

Talkin about a Revolution

In May of 2016, the EFC Board of Directors had a retreat to discuss the upcoming proposal for consolidation. We began by sharing our hopes and our fears about what would happen after this information was disclosed to all EFC Owners.

My biggest hope: That this consolidation could have the potential to revolutionize the entire American economy.
My biggest fear: That this issue would divide our community.

Let's me talk first about my hopes for a successful consolidation. I believed it then and I still do believe today that the cooperative movement can transform the national economy. Why? Because cooperatives are economic models that put the people first. Cooperative corporations answer to their Owners and not to wealthy shareholders as is the case in conventional corporations. The amount of C- and D- share that a Owner purchases bears no influence on how the cooperative is run and organized. Each Owner-Member is alloted an equal voting share with their purchased membership.

When the residents of any given region come together to build a cooperative, the entire community benefits. Cooperatives bring investment in the local economy. They try to pay staff a fair, living wage. Cooperatives build relationships with other small businesses, growers and producers. They put back into the community more than they take out.

A Cooperative's ability to transform the economy is true on our local level. You can see how EFC has nurtured small businesses on Central Avenue.  Before the expansion, numerous start-ups leased space in the back of the building. Recovery bike shop was one of those.

EFC is a steady anchor to Central Avenue development. It is hard to envision what the street was like just 15 years ago. In 1997 when I moved into the neighborhood, the area around Central was decrepit and run-down. The steady presence of our co-op has brought confidence to other businesses hoping to achieve success in NE Minneapolis. And EFC has been the inspiration for two other cooperatives that moved in to the area: Fair State Brewery and NEIC, both of which are experiencing unprecedented success.

Cooperatives work. We've seen EFC take the lead in developing our little corner of NE Minneapolis. 

This is why I believe if done carefully and with the input of all co-op Owner-Members, we can move out of the inner circle, and move towards transforming and empowering others in our country to do the same.

So, I am not entirely against a merger of co-ops. It is the process that is troubling to me. A process that neglected the knowledge, know-how, and hearts that the EFC Owners could have brought to the table. It is because of this troubling process that I am voting "NO" for the consolidation.

Instead we now have deep divisions in our community. My biggest fear has been realized.

Yet, at the same time, I am bolstered by how many Owners have engaged in the issue once they were brought in. For the first time EVER, this upcoming election has 13 board candidates. More than the number of open seats.

I have another hope I want to share. It is about community and democracy.

My hope is that the EFC Board will shift their dialogue away from positive-only dissemination of information. My hope is that the EFC Board will take on the challenge of fostering a genuine discussion within our community that can embrace all opinions that surround this debate.

Do it, please, at the very least to honor democratic processes that our nation is built upon. Do it, please, for the maximum benefit to all EFC Owner-Members.

It is indeed an exciting time for our community. Let's continue the engagement in a way that honors the love and committment we share for our Co-op!

Have you any hopes and fears? Please share with me and others so we can all do our part in understanding what the road ahead of us looks like and where the road will lead us.

Everyone has a role in this revolution. This I believe to be true.

Monday, September 26, 2016

local investment

Do you know what it takes to raise one million dollars in a non-affluent co-op community? In a community that is right in the middle of a food desert? Lots of phone calls, lots of tabling outside the store, lots of personal conversations with small investors and large investors, lots of wishing, and a whole lot of hope.

There was also a good amount of begging.

In the Spring of 2014 we raised enough money to move forward with the expansion of our beloved store. We raised $1 million! For some it was simple funneling of excess funds. For many, many others it was a matter of tapping into their monthly budget and seeing what they could spare. For the majority of EFC's Member-Owners it was dropping their extra change into a bucket.

These are just some of the reasons why EFC Member-Owners came together to raise a million dollars:
  • they wanted to invest in their local community
  • they liked having access to locally produced, organic foods and they wanted more of it.
  • they wanted more jobs in the community
  • they wanted a coffee shop
  • they wanted a store that could adequately serve the neighborhood
 All good reasons, all reasons that point to concerns for the betterment of our local community.

If you are one of these EFC Owners who invested in your local co-op, please take a moment to scroll through the legal consolidation agreement.

On pages 5 and 6, this is what you will read:

(c) Preferred Stock.
Each share of Class C or Class D stock of the Parties issued and outstanding or otherwise standing on the books of the Parties immediately prior to the Effective Time shall be converted into such number of shares of Class C stock of CAFC having the same total par value, and in such denominations or other designations or series as CAFC deems necessary so as to preserve the year of issue and other terms and conditions of the original issuance, except that:

(i)              each share of Class C and Class D stock of Eastside issued and outstanding or otherwise standing on the books of Eastside immediately prior to the Effective Time shall be provided the same rights to accumulation of undeclared dividends as are provided to the holders of Class C shares of Wedge immediately prior to the Effective Time; and

(ii)           the dividend rate on each share Class C Stock of Eastside issued and outstanding or otherwise standing on the books of Eastside immediately prior to the Effective Time shall be reduced from up to 5% per annum to up to 4% per annum.

C- and D-shares invested in your local co-op and in your local community will automatically be converted into shares for the new consolidated co-op and controlled by a board that consists of only three representatives from Eastside. On top of that, the terms of the initial investment will change (see bold blue text).

Why is this important to me?
I left the EFC board of directors on June 1st, 2016. At the time, the EFC board was told that all shares invested in the co-op would be redeemed and returned to those who wanted their investments returned.

One of the reasons why I left and could no longer support the consolidation was the realization that when given the chance to redeem, I would take back my investment when offered because I did not wish to put my investment money towards a business venture outside of NE Minneapolis.

In the months before we began the capital campaign to raise a million dollars for EFC's expansion, the decision was made to redeem all shares invested prior to the expansion project. This was done to allow the return of funds to those who longer wanted to invest. EFC settled its financial affairs before taking on another project. The conversion of all shares into the consolidation co-op breaks with past practices.

And we should all be asking why. Everyone regardless of whether they are advocates of the consolidation or opposed should be asking questions of why the EFC board has decided to divert away from best cooperative practices.

We should be asking why because we own this cooperative business. We supported this cooperative business. We invested in this cooperative business.

Keeping the money in the local economy is a cooperative value.

Friday, September 16, 2016

Problems with the Consolidation Process: Where are the Co-op Values?

We want to begin by confirming the state of the co-op. The co-op was and is in a strong position, even through the challenges of expansion. Advocates for the consolidation have argued that a stronger financial condition is one of the reasons for this big move but very little information is forthcoming about why or even if we should consolidate.

A cooperative business supported by Owners must be transparent. Putting aside the question of whether we should consolidate, we want to elaborate on the process that led to this consolidation proposal - a process that was flooded with secrecy and hierarchical decision-making. There were many successful processes in place that were dismissed.

EFC operates under the principles of policy governance.  One of the keys to policy governance is a clear distinction between the roles of the GM and the board.  The board sets guidelines that the GM operates within.  The GM has wide discretion over the day to day operation of the co-op.  This distinction keeps board members from attempting to micro-manage the co-op.  Policy Governance also advises that strategic thinking is a function of the board, done in consultation with the GM.  This keeps the strategic thinking process focused on values and visioning.

The idea of consolidation did not grow out of any strategic thinking process.  It began with a conversation among the three GM’s.  It was then sprung on the boards, along with a non-disclosure agreement (NDA).  Board members had to sign the NDA in order to find out what it was they were not allowed to disclose.  This isolated board members from the member-owners we represent. What we didn’t realize at the time was the control of the strategic direction of the co-op was taken away in that small gesture. Beginning with the inability to vote on whether the nondisclosure agreement was necessary or appropriate, and continuing with the sustained decision to keep the Owners out of the process. It is important to stress that the idea of consolidation did not evolve from a discussion of co-op values.  The primary concern has always been operational efficiency.  But what went awry here is the manner in which the non-disclosure document was introduced. It effectively undercut the board’s ability to evaluate the idea, to do the due diligence and vetting necessary for such a huge project.

The board was from then on subject to the direction set by the general managers of the three co-ops involved in this consolidation proposal. All three boards were playing catch up to the plans being discussed for a least a year by the GMs/CEO. The three boards finally met later in the June of 2014. We scrambled to figure out what was going on, what were the motives for such a merger, how this fit into the mission of each respective co-op, how we would proceed. At the time the representatives from each board (three directors each) expressed dismay about the beginning process.

One of the first actions of the three boards was the generation of a charter document (approved by all boards by July 3, 2014). The charter was essentially a series of issues that the board wanted addressed before the feasibility of any plan would be examined.  The GM’s response to the charter was given to the boards in September 2015, well over a year after they were directed to do the work.  This was in the depths of the expansion process, which occupied the board’s attention.  The response had very little detail and ignored several important issues.  The steering committee has chosen not to allow member-owners to see this document.

Despite being in the middle of expansion planning and implementation, the EFC Board called a special retreat in July 2015 to focus on the many questions that arose while the GMs/CEO continued working towards consolidation. These questions encompassed a variety of issues, ranging from relationships with local farmers to continued positive impact on the community, keeping the local economy vibrant, and fair labor practices for the EFC staff. We expected answers to these questions but most, if not all, were deemed irrelevant by the advocates for consolidation who often said that these questions would be considered after the consolidation. We believe these are the very issues that build a solid cooperative economy and should have been addressed prior to a vote for consolidation.

This is the point when the push for consolidation sped up. While the GMs/CEO took a year to minimally (negligibly) answer the questions raised by the Boards, the Boards were forced to speed through the decision points in six months.  

After the boards voted to move into the “feasibility” phase on March 25, 2015, the conversation focused exclusively on implementation and planning.  Critical thinking about the direction we were moving was actively discouraged.  Just as at the Town Hall meetings held this summer, participants were managed to minimize opposing voices and not allow debate. Those who continued to ask relevant questions about alternatives to consolidation and questions about cooperative values were treated as trouble-makers.   At this point there was a clear distinction between directors who were skeptical of consolidation and those who saw it as the best way forward.  The skeptics grew increasingly frustrated by their inability to influence the process and withdrew.   The GMs and the steering committee, made up of self-selected advocates for consolidation, pushed the process forward.

It was only at the September 2016 board meeting that the five remaining board members took a vote that endorsed the idea of consolidation.  Board members opposed to consolidation had been slowly worn down, each deciding to resign when they could no longer support the direction the board was moving.

It is legitimate to ask why the board did not end the process on the first mention of a non-disclosure agreement or at any of the decision points after that.  During this time, the board was immersed in the store expansion.  Planning and fundraising for expansion were the priorities.  Consolidation discussions were a distraction.  Advocates stressed that this would be a long process and the ultimate decision would be made by the co-op’s member owners.  The board did not believe it was making an impactful choice, but simply allowing an exploration of ideas.  Even directors who were highly skeptical of consolidation felt a duty to see the process through.  It only became clear in retrospect that consolidation was the only idea being seriously considered.  The willingness of the board to allow the process to move forward was retroactively interpreted as an approval of the idea of consolidation.  

Our member-owners are now preparing for the most important vote in EFC’s history.  They are justified in assuming that the idea has been thoroughly vetted by the board.  That is not the case.  Rather than discussing whether consolidation fits with cooperative values, the board was distracted by the minutia of board structure and bylaws.  Directors were tasked with choosing a name for the new co-op before we decided that there should be a new co-op.  Legitimate debate was replaced with strawman arguments such as “will the three boards all get along?”  “Should we do this?” became “could we do this?”  Essential questions, like “how many employee positions will be eliminated?” and “how much money will these efficiencies save?” have never been answered.

If the three co-ops consolidate, there will be no untangling them.  There is no way to undo this decision.  If you are not certain that consolidation is in the best interest of the co-op, please vote against it.

Manisha Nordine, Former EFC President Seth Erling, Former EFC Vice President