“For an 80 year-old-company, we should look better than this.” That’s what Tony Alongi, the chief financial officer of the Hanover Consumer Cooperative Society had to say at the October 28 meeting of the Co-op’s Board of Directors, when queried about the fiscal health of the cooperative in the wake of its $5 million renovation of its flagship store.
What did he mean? It is difficult to say.
Financial Disclosures Refused
Alongi and Co-op General Manager Terry Appleby were discussing the financial report they make to the Board on a quarterly basis. The Board has steadfastly refused to make available to Co-op members the information being reviewed by Board members at their regular meetings, Article III, Section 10 of the Co-op’s Bylaws notwithstanding.
According to that provision, “[u]pon request, a Member shall have access to the books and records of the Cooperative as provided by law.” A request for the quarterly financial statements, transmitted to Alongi, Appleby and Board President Margaret Drye, produced this response from Drye the day after the meeting: “We don’t distribute unaudited, internal, interim financials.”
Several members of the Board appear to have a different view, and have publicly expressed support for the notion of allowing those members who attend Co-op Board meetings to look at the same documents the Board is reviewing. Drye summarily rebuffed that effort as she adjourned the meeting. (See below.)
Declining Sales, Increasing Competition
Drye’s insistence on secrecy notwithstanding, it is possible to draw reasonable inferences from Wednesday’s discussion to the effect that the Co-op is not in immediate financial peril. Management submits the quarterly financial statements to the Board to demonstrate compliance with the Board’s “Financial Condition and Performance” policy, which states that management may not “jeopardize the current and long-term financial health” of the Co-op. There were no references to non-compliance with the policy and the Board approved management’s report as compliant with the policy.
Nevertheless, it was clear that the recently completed renovation of the Hanover store, along with an increasingly competitive landscape in retail grocery generally, have been stressing the Co-op financially. Appleby confessed that sales took a significant hit while the store renovation was in progress – a larger hit than he had projected – and he warned the Board that the anticipated post-renovation rebound may not be as large as had been projected.
Again, it is impossible to assess the magnitude of these issues in the face of the Board’s refusal to disclose financial data to the membership. But Appleby shed some light on what he and the Board clearly regarded as a worrisome trend. “We were way off on what we thought was going to happen to the Hanover Store,” he said, noting that a previous store renovation actually produced a sales increase of five percent during the renovation period. “When we extrapolated,” he said, we thought we weren’t going to lose sales and we lost 22 percent of our sales” at the Hanover store during the recent construction period.
“How quickly are we going to bounce back? It’s hard to say,” Appleby added, saying he doubted that the conventional industry figure for a post-renovation sales bounce – six percent – is unlikely to apply in this instance.
Alongi said that in terms of overall financial performance, “this quarter is significantly better than last quarter. We would have expected that. Construction is done, we don’t have construction bills any more, [we’re] building the business back up."
However, he added: “There’s a couple of things that are slightly worse . . . lower sales, lower cash flow.” The CFO said he is “always apprehensive” about the financial health of the Co-op, warning the Board that “we have to build the strength of the balance sheet. That’s not a one or two year thing. That’s a 10- or 15- or 20-year thing.”
No more cash for shares?
Terry said the onus is on the Board to make the case to the membership that the Cooperative needs to strengthen itself financially by increasing the amount that members have invested in the Co-op – i.e., its member equity. “From operations, we can talk about how nice it is and the good food we have, but from the Board perspective it’s talking to the members about the value of equity . . . who owns it and who needs to supply it. “
“For 80 years, we’ve always had these conversations about how big the patronage refund is gonna be. We apologize when it’s not more than 1 percent and yet all we’re doing [by paying out cash patronage refunds] is giving away the equity the members need to run their own business. We have to have that conversation seriously with the members.”
Board member and treasurer John Rosenquest pointed out that the Board had precisely this conversation with the membership in connection with the bylaws amendments that were approved in 2013, authorizing the creation of a new class of shares – B shares – to comprise patronage refunds that would be allocated to members but kept by the Co-op. Alongi said it might be time to take another step – one that would be likely to produce controversy.
“It may well be time that we put a stop to [members] selling back A shares,” he said, reminding the board that “you don’t have to say yes” to such requests.
This bears translation into plain English from co-op financial jargon, because it would be a big deal. For as long as anyone can remember, the Co-op has routinely bought back shares from members, either because they were ending their memberships or because they had shares in excess of the number (10) required for full membership. Several years ago, at Alongi’s suggestion, the Board began specifically authorizing each of these these cash payments. And, yes, the Board could simply stop authorizing them, particularly if continuing to redeem shares would leave the Co-op in financial difficulties.
How close is the Co-op to needing to stop cashing in what are now, after the recent Bylaws amendments, known as “A shares”? It is impossible to say without access to the financial reports. The problem -- a chronic lack of cash on hand -- is one with which the Board has been grappling for a long time now.
Keeping it Going for the Kids
“The biggest frustration for me on the financial buildup of capital is watching members who are longtime members with a lot of equity in the Coop cashing in all but [the minimum of] ten shares,” said Board member Kay Litten. “These are people that I know [whom] I can’t convince that this is a travesty because the Co-op needs their 450 or 550 dollars a lot more than they do at this point. It’s keeping this grocery store, that they claim to love so much, going for their kids.”
The phenomenon to which Litten alludes is not the only sign that the Co-op is leaking loyalty in the face of escalating competition from the investor-owned grocery chains. According to Appleby, the number of shopping trips made by each individual Co-op patron is on the decline. “The other thing is that we have Hannaford’s in the market that we didn’t have several years ago . . . . They’ve been a big drag. . . . Another issue is the way people shop and where they are able to shop these days. People are buying on line. I don’t shop for groceries on line but somebody told me the other day that a lot of people in Hanover are starting go buy groceries on line.”
The financial discussions reported above turned out to be the highlight of the civilized portion of the Board meeting. As the Board got into the latter part of its agenda, the tone turned from thoughtful to hostile.
Food Fight Over Nominations
It started innocently enough, with Kay Litten announcing in her capacity as chair of the Board’s Nominating Committee that she had recruited four other people to serve on the committee: Dale Shriver (a former board member), Michael Bettmann (a current Board member), Rosemary Fifield (the Co-op’s recently retired director of education and member relations) and community member Joan Wolter. Argument quickly erupted about whether Litten had the authority simply to pick the rest of the Nominating Committee and, indeed, whether the Nominating Committee could then develop a slate of Board candidates for next April’s election without gaining the approval of the Board.
“We don’t manage the Nominating Committee,” said Board member John Rosenquest, thus coming down on the side of the view that the committee is independent.
“This committee will not operate in isolation,” explained Litten. “We will interview, we will call for candidates, we will interview people who are interested and we will create a slate.”
“You’re stacking the Board,” responded Board member Brett Tofel.
“I am not trying to control anything,” countered Litten, insisting that she had cast a wide net in search of Nominating Committee members.
“Let’s cut to the chase,” replied Board member Tony Roisman. “Did you call CATC?” He was referring to Concerned About the Co-op, the informal grass-roots organization of Co-op members, from whose ranks came Roisman, Tofel and Board member Victoria Fullerton as a result of the 2015 election.
Litten replied that she had not, in fact, contacted CATC.
“That answers my question, Kay,” said Roisman. “That’s not a very broad net.”
Nevertheless, Roisman’s motion to table the appointment of the full Nominating Committee, pending a public announcement of the opportunity to serve on the committee, failed on a 6-3 vote. Thereafter, the Board agreed to appoint the committee members Litten had proposed, noting that additional committee members could be appointed in December.
Search for New GM to Begin in Early 2016
Meantime, the “succession planning” committee, which plans to recruit a new general manager to replace the soon-to-retire Appleby, is moving forward, according to chair and Board member Michael Bettman. He said that Board members Harrison Drinkwater and Sarah Blum had agreed to serve on the committee along with Elizabeth Dycus of Strafford, who has a background in academic recruiting.
“Our plan is to hold a series of forums starting in January with members and employees to look for input on what we should be looking for and how. To fill out the committee from four to seven I would like to get suggestions from all of you and anybody,” Bettman added, noting that he would like to have filled out the full committee by December.
Transparency in Retrograde
Transparency was supposed to be the Board’s big project this year, and yet to the extent there is progress it is retrograde. In his capacity as co-chair of the Communications Task Force – the one that somehow dropped “transparency” from its name – Tony Roisman said he and his co-chair, absent Board member Sarah Blum, “met a couple of times” since the September Board meeting but still had not agreed on who else should serve on the committee. He said that “conceptually,” the task force could be done with its work by the December Board meeting. But if by “work” you are hoping the task force will make specific recommendations to the Board, you are destined for disappointment. Explained Roisman: “Our view of [our] mission is that we are to gather as many suggestions regarding communications and transparency as we can and organize them in some way, . . . provide all of that in the form of a report to the Board that says ‘Here’s what we learned – now you decide whether to set up a committee to make specific recommendations.'”
So, while the membership awaits Roisman and Blum deciding who else will serve on their communications task force so the group can collect ideas, perhaps by December, that some future committee can then massage into specific recommendations so that the Board can some day make a decision, the Board’s leadership is using the existence of this process as an excuse to refuse to disclose information – like quarterly financial statements – that the CFO once openly offered to provide any inquiring member. Motions to consider near-term reforms are gaveled “out of order” and even discussion is shut down by Board President Drye.
Or, as Drye herself said when Board member Harrison Drinkwater tried to discuss the motion she had just ruled out of order: “No. It’s done. We’re done.”
Author's Note: The above is a highly selective summary of what transpired at the October Board meeting. Other topics, notably the Co-op's contractual obligations to the National Cooperative Grocers Association, were discussed at length without being summarized here. Although I have tried to be as objective and fair as possible, I freely admit to this bias: I believe strongly that it is time for transparency reform at the Co-op, and I am frustrated by the total lack of progress since the April 2015 election in which transparency was the big issue.