2009 Davis Food Co-op Ballot Propositions
Each Proposition is presented here with an analysis of the nature and effects of the measure (as called for in our Bylaws).
Davis Food Co-op election results as of 6/8/2009
These results are not final until the mail arrives for the next two days. If there are ballots with a postmark of June 5, 2009 or earlier, and the envelopes are signed by a member in good standing, then their votes shall be added to the totals. There's a slight possibility that some ballot envelopes will be cleared for inclusion that were not ready as of the 6/8/09 counting. It's likely this page will not be updated until 6/16/09, when the Board will have met to accept final reported results.
Proposition One – Additional Non-voting Shares FAILS
(required two-thirds of votes cast to pass, in order to amend Articles of Incorporation)
Yes – 426 (57.18%)
No – 319 (42.82%)
Proposition Two – Staff Directors FAILS
Yes – 306
No – 468
Proposition Three – Alternate Directors FAILS
Yes – 311
No – 424
Proposition Four – Method of Removal of Directors PASSES
Yes – 696
No – 50
Proposition Five – Member Initiative PASSES
Yes – 455
No – 284
Proposition Six – Election Calendar PASSES
Yes – 621
No – 112
Proposition Seven – Termination of Membership PASSES
Yes – 660
No – 76
Proposition Eight – Elections PASSES
Yes – 639
No – 78
The first argument submitted for and against each ballot measure — if any was
received before the deadline — is included on this page (again, following
our Bylaws).
Jump to a Proposition:
Proposition 1: Additional Non-voting Shares
Proposition 2: Staff Directors
Proposition 3: Alternate Directors
Proposition 4: Method of Removal of Directors
Proposition 5: Member Initiative
Proposition 6: Election Calendar
Proposition 7: Termination of Membership for Cause
Please note that as of 6/3/09 there is a correction to the Analysis for Proposition 7
Proposition 8: Elections
Along with each Proposition and arguments is a link to the text of what would be changed, showing how the sections will read if the Proposition passes.
Proposition 1: Additional Non-voting Shares
Shall the Articles of Incorporation and the Bylaws of the Co-op be amended to allow for the issuance of additional classes of Voluntary Non-voting Shares that are eligible to receive a dividend?
Background: The Co-op’s original incorporation in the 1970’s limited it to only one class of non-interest bearing shares. Since then, the Co-op’s sales, operations and assets have increased dramatically. Consequently, we have needed to finance large projects, such as the remodel, by borrowing from banks.
This proposition creates additional classes of non-voting shares which are allowed to pay a dividend. Investment in these shares is voluntary, does not add voting rights and, like the existing shares, would be unsecured. These non-voting shares provide an alternative financing option that other consumer co-ops have now taken. Shares would attract member investments by paying dividends at a competitive rate of return. However, the dividend rate paid by the Co-op would be lower than the rate being paid on our current bank loan. This would result in savings for the Co-op and an investment opportunity for the members.
The Co-op intends to use proceeds from the issuance of these shares to reduce the amount owed on the current bank loan therein reducing the Co-op’s cost of borrowing. Proceeds from these shares would also contribute long term to the funding of future capital improvements. In addition, the issuance of these Voluntary Non-voting Shares would provide members who chose this option with a local investment opportunity.
Effect of Vote
A “yes” vote on Proposition 1 would amend both the Articles of Incorporation and the Bylaws of the Co-op to allow creation of a class of voluntary, non-voting dividend shares. As required by the Bylaws, amendments to the Articles must receive the votes of at least two-thirds of the shareholders in good standing voting in a duly conducted election.
A “no” vote on Proposition 1 would leave the Bylaws and Articles as they are.
Investors in Non-voting shares must already be full share members, they gain no additional
voting rights, and the overall size of investments is limited by the Articles to four percent
(4%) of the total number of shares (of any class) issued. This would limit total investments
by any individual shareholder to $81,576 as of the end of the last fiscal year (September
27, 2008) – the limit would now be slightly higher. If amended, the Bylaws would limit
dividends on non-voting shares to eight percent (8%), a level historically accepted by the
Internal Revenue Service as not exceeding a reasonable rate of return.
Fiscal Effect
Costs are anticipated to start the program. Legal documents must be filed
with the State, as well as other publicity and administrative costs. Ongoing administrative
costs should not be significant, although they will probably be somewhat proportional to
participation. Dividend payments will be an ongoing, adjustable obligation, and intended
to be offset by savings from reduced interest payments on loans. The difference in equity
held by the shareholders with the most total shares (member and non-voting shares) and
the least total shares would likely increase, while at the same time the growth in lower cost
member capital would reduce the Coop’s reliance on higher cost bank loans. By replacing
debt with these share investments, the Co-op’s Balance Sheet is strengthened by reducing
the debt to equity ratio. Lower debt to equity ratios are generally viewed as financial strength
by lenders. If the Co-op was dissolved and the assets liquidated, Non-voting shares would,
by law, have a financial preference over Membership shares.
Placed on the ballot by unanimous vote of the Directors.
Directors recommending passage: J. Booth, S. Frerichs, D. Pazirandeh, D. Pichotti, S. Reynolds, M. Ulrich, K. Wolf,
J. Young.
Directors opposing passage: J. Cross.
A two-thirds vote of the shareholders in
good standing who vote in this election is required for this amendment to pass, because it
amends the Articles of Incorporation. If it passes, it will take effect immediately, as soon
as the results are known.
Argument FOR Proposition 1
The National Cooperative Grocer Association reports that 50% of US food co-ops are doing major remodels, etc. To do that requires a great deal of capital. The Davis Food Co-op set up a DFC Member Capital Task Force (MCTF) which met and studied for a year. The MCTF found that voluntary member share capital (non-voting and dividend bearing) played a major role in financing these remodels. However, the Articles of the Davis Food Co-op allow only one class of non dividend bearing share. The MCTF recommended changes to the DFC board.
The DFC board recommends membership approval of Proposition 1.
Passage of Proposition 1 will allow the DFC to issue voluntary, non-voting-dividend paying shares but only to members who have invested at least $300 in the Co-op. The goal of the DFC is to use the incoming funds to pay the remodel loans down quicker.
If passed, the board will adopt policies about dividend rates, etc. We anticipate the dividend paid to members will be higher than you can get on a savings account but lower than the cost of our existing bank loans. As a result, the DFC’s overall cost of capital will be reduced.
DFC extensively studied a similar share program at North Coast Cooperatives. The results are outstanding. 788 members have voluntarily invested $1,783,489 in non-voting dividend bearing shares for an average of $2,263 per investing member. With those results DFC would be able to reduce our bank debt by almost half.
Not only would the DFC encourage members to buy locally but to invest locally. If you
wanted to know where your money was it would be here working for the DFC.
No member will be required to invest in these shares. No non-member will be allowed to invest in these shares and these shares are non-voting and unsecured.
To invite members to invest in shares above $300 requires that the DFC must submit a plan to the State of California. State approval is an important protection for the members.
Please join us in voting yes on Proposition 1.
Marcelo Campos, 30 year member and former DFC President
Ann M. Evans, DFC Co-Founder and former DFC President
Lucas Frerichs, 12 year member and former DFC President
Bill Kopper, 30 year DFC member and former Davis Mayor
John Mott Smith, 30 year DFC member and former DFC board member
David J. Thompson, 17 years as board member and former DFC Vice-President
Argument AGAINST Proposition 1
On the face of it, Proposition 1 seems like a great idea – it raises money for the Co-op and offers a local investment opportunity.
After you think about it for a while, though, it becomes apparent that Proposition 1
fundamentally alters the structure of our co-op. Where we now have 9,000 households all
participating with an investment somewhere between $10 and $300, Proposition 1 will change
that spread to between $10 and $81,576.
That’s a pretty significant change, and it’s reasonable to expect that it might result in a
change in the behavior of members who have invested the maximum and would like a return
on that investment. Those shareholders may well feel that our store should make choices that
maximize their dividends, rather than providing lower prices, supporting our community or
being an exceptional employer. If just a few of those shareholders become directors, they might
choose a course for our store that’s significantly different from the one the average member
might want.
Other Co-ops do offer alternative shares. What is right for one co-op, however, may not be right for another – for example, some food co-ops sell cigarettes, a source of income that we have chosen to forgo. Unfortunately, we haven’t been presented with any data on how alternative shares have affected the operations or membership of other co-ops.
Co-operatives in the US have long been viewed as bastions of social and economic
equality. Everyone who belongs to the co-op has committed just a little bit to a shared vision.
While it is within our legal rights to change that vision, I don’t think it’s necessary or desirable to do so.
If we were in dire need of funds, alternative shares might be the best option, although
there are other choices. At the moment, however, our store is in strong financial shape. Why
make a choice that threatens our ability to cooperate now?
Julie A. Cross
View Proposition 1 text changes
Proposition 2: Staff Directors
Shall the Bylaws of the Cooperative be amended to prohibit employees of the
corporation from election as Directors of the Corporation?
Impartial Analysis
Background: Our bylaws presently permit (but do not require) the election of up to two paid staff of the Co-op as regular directors. The Bylaws presently say “The vote of a Board member who is also a paid employee of the Cooperative shall not be counted in matters relating to the employment of the General Manager.” The written Policies of the Board require any director with a conflict of interest to abstain from voting on that matter.
Effect of Vote
A “yes” vote on Proposition 2 would prohibit paid staff from being Directors. Director Mike Ulrich would serve out his term, which expires in 2011 and any board
candidates on this Ballot who are DFC staff would be declared ineligible for election.
A “no” vote on Proposition 2 would leave the Bylaws as they are, and permit two paid staff to serve on the Board of Directors.
Fiscal Effect
No significant fiscal effect is anticipated.
Placed on the ballot by unanimous vote of the Directors.
Directors recommending passage: J.
Booth, S. Frerichs, D. Pichotti, S. Reynolds, K. Wolf, J. Young.
Directors opposing passage:
J. Cross, D. Pazirandeh, M. Ulrich.
A majority vote of the shareholders in good standing
who vote in this election is required for this amendment to pass. If it passes, it will take
effect immediately, as soon as the results are known.
Argument FOR Proposition 2
This Amendment aims to decrease legal vulnerability of the Co-op from staff conflicts-
of-interest and favoritism charges while strengthening the Board’s integrity in its role as the
independent oversight body. It also helps to reduce a significant amount of undue stress on
the Board that has disrupted its effective functioning. Directors and staff have vital, legally
distinct roles and responsibilities that our by-laws should unambiguously reflect.
Benefits of staff input will not be compromised by this change. The General Manager
regularly provides input to the Board. Information is provided formally and informally by the
Financial Services Officer and the Membership Director, both attend all Board meetings. Staff
members are welcomed at meetings, to participate in task forces, and to provide input into the Board process. With the passage of this proposition, staff will continue to be integrally involved
in the Board’s decisions-making process.
Directors are legally charged with fiduciary oversight for assets and shareholder equity. Placing employees in sometimes-tortuous, conflict-of-interest circumstances creates liability issues for our corporation and for supervisory staff. Employees who serve as Directors are in inherently untenable positions: they ultimately monitor their own performance, that of their colleagues, AND their boss, the General Manager.
Furthermore, staff directors are not charged to represent staff interests, but are free to advocate for their individual benefit.
Ultimately they could be faced with sacrificing their own jobs and advancement should it prove necessary for the health of the Co-op.
Employee-Directors have caused significant disruption to the cohesiveness of the Board, seriously impacting effective oversight. Departmental turf issue conflicts were carried into the Board governance arena resulting in staff-based power struggles taxing volunteer Directors’ resources and time engaging in damage control. Attorneys in advice to the Board have urged the structural change that Prop Two now offers. Status quo creates unnecessary challenges to Board credibility and threatens our Co-op’s health and vitality.
Governance and operations will function more effectively if these roles are again separate and complementary. Please vote YES on Two.
Joan Randall - past president,
Doreen Pichotti - current president,
Tom Jankowski –owner/member,
Marcelo Campos – past president,
David Thompson – past VP & 17 year board member.
Argument AGAINST Proposition 2
For more than three decades, The Davis Food Co-op has practiced an alternative to linear, top-down models of corporate management. By allowing our employees a voice in the top-level management of the organization, we truly are an association of individuals working together.
In keeping with this tradition, we urge you to join us in voting: NO ON PROPOSITION 2.
In its inception, the Co-op consisted entirely of worker-members. After 3+ decades of growth, the DFC now employs the services of over 100 individuals, but despite this evolution we have never lost touch with our cooperative vision: every member gets one vote, and any member is welcome to serve on our board of directors.
Proposition 2 threatens this spirit of cooperation by barring one class of members – the folks doing most of the work - from serving on the managing Board. While it may not be intended, such legislation would turn managers into ‘bosses’ (however benevolent), who in turn are ‘bossed’ by the Board of Directors. By contrast, we feel that the DFC’s long-standing tradition of Cooperative Management creates a much more inclusive, reciprocal dialogue when it comes to authority within the organization.
Beyond the political, our Co-op derives practical benefits from its staff-inclusive board.
Whether it be their insight into the inner-workings of the store, greater accessibility to the average customer, or their relationships with fellow employees...staff directors have a great deal to contribute. In many cases, their knowledge and commitment to cooperative industry is unparalleled.
The Co-op has existing bylaws and policy to handle conflicts of interest, and DFC policy dictates that the GM seek legal counsel when questions regarding staff oversight arise, whether that employee is a Director or not. With organizational structure already in place to deal with such challenges, and with our 30-year track record of having navigated these challenges successfully, we feel that Prop 2’s proposed protections are superfluous.
Please support our long tradition of Cooperative Management at the Davis Food Coop, and join with us in opposing this potentially very damaging bylaw amendment.
Thanks,
Ben Pearl
Julie Cross
Kathleen and Paul Robins
E. Bija Young
Angela Avery
Cathy Speck
Seth McOmber
Aaron Sikes
Lis Harvey
Deborah Knight
Mandy Dawn Kuntz
Michael Ulrich
April Kamen
View Proposition 2 text changes
Proposition 3: Alternate Directors
Shall the Corporation amend the Bylaws to eliminate the election and/or appointment of Alternate Directors?
Impartial Analysis
Background: The Bylaws presently allow the first and second-place runners-up in a Co-op election to be seated as Alternate Directors for a one-year term. Our Bylaws also permit (but do not require) the Board to appoint Alternates. Alternates have all the rights and responsibilities of Directors but vote only if an elected Director is absent at the moment a vote is called. This practice was adopted from the Consumers Cooperative of Berkeley (a.k.a. The Berkeley Food Co-op). To the best of our knowledge, no other US consumer cooperatives are now using this method.
Effect of Vote
A “yes” vote on Proposition 2 will eliminate Alternate Directors. If Proposition 3 is adopted, no Alternate Directors will be elected in this election.
A “no” vote on Proposition 3 will allow Alternates to continue to serve on the Board of Directors. If Proposition 3 is not adopted, and if there are more eligible candidates than Board seats available, the first and second place runners-up in this election will be seated to one-year terms as First and Second Alternates.
Fiscal Effect
No significant fiscal effect is anticipated.
Placed on the ballot by unanimous vote of the Directors.
Directors recommending passage:
J. Booth, J. Cross, S. Frerichs, D. Pazirandeh, D. Pichotti, S. Reynolds, J. Young.
Directors
opposing passage: K. Wolf. Directors abstaining: J. Booth, M. Ulrich.
A majority vote of
the shareholders in good standing who vote in this election is required for this amendment
to pass. If it passes, it will take effect immediately, as soon as the results are known.
Argument FOR Proposition 3
In this election, you’ll have three votes for Directors: one for each vacant seat. Under our current rules, however, five Directors will be seated from this election: one for each vacant seat plus two alternates, who serve for a one year term.
Alternates vote any time a Director is not physically present, even if she’s merely left
the room for a moment. When that Director returns, the Alternate goes back to being nonvoting. Depending on the director and the alternate in question, this can result in a pretty
significant change in results.
The problem with this system is that, since Alternates aren’t actually elected by our membership, there is some question as to whether they have the authority of Directors in the eyes of the law. Since that debate is almost impossible to resolve until it becomes a legal issue, it seems in the best interests of our store to simply remove the problem.
We inherited the alternate system from the Consumers Cooperative of Berkeley and, as far as we can tell, are the only US food co-op using it. It is not recognized as a generally accepted practice in the co-op world.
We can, as an organization, offer many opportunities for non-directors to participate in our governance: attending Board meetings, working on a task force, subscribing to Board listserves and attending special events with the Board all offer ways for members to “train” for the Board without risking the validity of our decisions, or our democratic process.
Please vote “yes” on Proposition 3.
Julie A. Cross
Argument AGAINST Proposition 3
Please vote No on this proposed by-law amendment; it is premature. Laddie Lushin, our
cooperative’s consulting attorney, was contracted to review our Bylaws and to propose revisions. He recommended that the Board put in place a recruitment and training mechanism that
creates a “reasonably ready to serve” pool of owners/members as the appropriate alternative
to the current “alternate director” provision. We believe it to be a prudent and wise choice to
do that first. Until we have that in place, it is at best unwise and seems a bit reckless to remove
our one small in-place buffer. We say reckless because it would be an exception that a Board
year passes without one of the nine Directors resigning.
Some current directors have stated that this volunteer job is more complex than most
candidates expect; and it carries serious consequences requiring us to design supports
comparable to the responsibilities that the Board carries. Elected director candidates
find they have backed into many confusing and foreign concepts (policy governance)
and all that is involved in making policy for a retail business and monitoring account-
ability data. Most recently, a new first year Director, one not naïve to DFC and co-op
lingo, process and politics, stated that it took her most of this year to gain a measure
of comfort with what was required. Constant turnover is very hard on the board (and
the staff). We do not yet have enough training and support for directors considering
their investment of time and the legal (fiduciary) obligations they take on in this
volunteer position. And, as yet, we have nothing in place that creates a “reasonably
ready to serve” director pool. To date, governance training that is planned is targeted
exclusively for sitting or newly elected Directors.
We hope to see this back as a proposition in a different future circumstance. Please vote a NO on 3.
Joan Randall
Marcelo Campos
David Thompson
View Proposition 3 text changes
Proposition 4: Method of Removal of Directors
Shall the Bylaws be amended to conform the process by which a Director may be removed by the Board for absences to statute, to allow the Board to remove a Director who has been declared of unsound mind by a court, or been convicted of a felony and to remove the distinction between excused and unexcused absences?
Impartial Analysis
Background: The Bylaws of the Co-op presently allow for the removal of a Director by the Board for missing an excessive number of meetings. Our attorney, Laddie Lushin, has advised us that this language is not in compliance with the current statutes. He recommends that we recast the removal as a presumed resignation, and add the ability to remove a director who has been declared of unsound mind by a court, or been convicted of a felony. Mr. Lushin says “Except for the process being easier and being legitimate, the intended effect is very nearly the same.” The current Bylaws also create a distinction between excused and unexcused absences.
Effect of Vote
A “yes” vote on Proposition 4 changes the process by which a Director
may be removed by the Board for absences to conform to statute, and allows the Board to
remove a Director who has been declared of unsound mind by a court, or been convicted
of a felony and removes the distinction between excused and unexcused absences.
A “no” vote on Proposition 4 leaves the Corporation out of compliance with statute and leaves the distinction between excused and unexcused absences.
Fiscal Effect
No significant fiscal effect is anticipated.
Placed on the ballot and passage recommended by unanimous vote of the Directors.
A
majority vote of the shareholders in good standing who vote in this election is required for
this amendment to pass. If it passes, it will take effect immediately, as soon as the results
are known.
View Proposition 4 text changes
Proposition 5: Member Initiative
Shall the Bylaws of the Corporation be amended to change the matters that members may place on the ballot by initiative to “any lawful and proper purpose” and shall the number of signatures of Shareholders in Good Standing required to place an initiative on the ballot be reduced from 15% to 5%?
Impartial Analysis
Background: Our Bylaws limit member changes by initiative to those “reserved to the
members by the bylaws.” Our attorney, Laddie Lushin, has advised us that this limitation
is not in compliance with the current statutes. He recommends extending the language to
include “any lawful and proper purpose”. He also recommends reducing the number of
signatures required to place an initiative on the ballot from 20% (in the case of Special
Elections) or 15% (in the case of Member Initiatives) to 5%. As of March 31, 2008, 15%
of the membership was 1,376, 20% of the membership was 1,970 and 5% was 492.
Effect of Vote
A “yes” vote on Proposition 5 expands the matters that members may place
on the ballot by initiative, and reduces the number of signatures required from 20% of
Shareholders in Good Standing to 5%.
A “no” vote on Proposition 5 leaves the Corporation
out of compliance with statute.
Fiscal Effect
This amendment has the potential to increase the number of member initiatives, and the cost associated with such initiatives.
Placed on the ballot and passage recommended by unanimous vote of the Directors.
A majority
vote of the shareholders in good standing who vote in this election is required for this amendment to pass. If it passes, it will take effect immediately, as soon as the results are known.
View Proposition 5 text changes
Proposition 6: Election Calendar
Shall the Bylaws be amended to change the Ballot deadline for candidates materials to 20 days and for member initiatives to 45 days?
Impartial Analysis
Background: Our Bylaws presently allow candidates for election to the Board of Directors to submit materials for the Ballot within 10 days of the mailing date of the Ballot. This effectively makes the filing deadline 10 days before the mailing. Because of printing requirements, this deadline means that the Ballot must be put together in about 72 hours. Member initiatives presently can be submitted 30 days before the mailing date. Member initiatives presently require signatures of 20% of the Shareholders in Good Standing, about 1,700 signatures, each of which must be verified before the initiative is placed on the ballot. Passage of Proposition 6 would require materials from candidates to be submitted 20 days before the mailing date and signatures for member initiatives 45 days before the mailing date.
Effect of Vote
A “yes” vote on Proposition 6 changes the deadline for candidates materials
to 20 days and the deadline for member initiatives to 45 days.
A “no” vote leaves the deadline for candidates materials at 10 days and the deadline for member initiatives at 30 days
Fiscal Effect
This amendment may cause a slight decrease in election expenses by eliminating the overtime required of staff to meet deadlines.
Placed on the ballot and passage recommended by unanimous vote of the Directors.
A
majority vote of the shareholders in good standing who vote in this election is required for
this amendment to pass. If it passes, it will take effect immediately, as soon as the results
are known.
View Proposition 6 text changes
Proposition 7: Termination of Membership for Cause
The references to Article IV, Section 4 in the impartial analysis for Proposition 7 should refer to Article IV, Section 12.
Shall the Bylaws be amended with respect to Article IV, Section 4 Termination of Membership for Cause (and related sections) to further define “cause” and clarify the procedures for termination?
Impartial Analysis
Background: Article IV, Section 4 of the Bylaws permits the termination of membership for cause. Based on our experience with the use of this section, we are amending this section to more clearly define “cause,” to allow for suspension as well as termination, and to clarify the procedure by which membership may be terminated.
The Co-op has historically used Article IV, Section 4 very rarely: three times in the past decade.
Effect of Vote
A “yes” vote on Proposition 7 changes the definition of “cause” as applied
to member termination. (Please see p. 12, first column for the new definition.)
A “no” vote leaves the Bylaws as they presently are.
Fiscal Effect
In the event that Article IV, Section 4 is invoked, this measure may result in a lower risk of legal action, and thus a savings to the Co-op in legal fees.
Placed on the ballot and passage recommended by unanimous vote of the Directors.
A
majority vote of the shareholders in good standing who vote in this election is required for
this amendment to pass. If it passes, it will take effect immediately, as soon as the results
are known.
View Proposition 7 text changes
Shall the Bylaws be amended to include more details about equal and reasonable access to publicity, to restrict Board and management actions when a measure has been placed on an election ballot, and provide more details about campaigning?
Impartial Analysis
Background: This Amendment incorporates sections of the existing Board Election policy, clarifying “equal and reasonable access to publicity,” clarifying access rights, addressing election spending, and addressing campaigning activities. The latter two topics have not previously been addressed in the Bylaws, only in policies of the Co-op.
Effect of Vote
A “yes” vote on Proposition 8 adopts the new Bylaw.
A “no” vote on Proposition 8 leaves the Bylaw as it presently exists.
Fiscal Effect
No significant fiscal effect anticipated.
Placed on the ballot and passage recommended by unanimous vote of the Directors.
A majority
vote of the shareholders in good standing who vote in this election is required for this amendment to pass. If it passes, it will take effect immediately, as soon as the results are known.