During 2007 and 2008, the Wheatsville Board of Directors undertook the huge task of revising our organization’s Bylaws. During that time there were numerous efforts to educate the Owners on the meaning of the Bylaws and to keep you involved in the process of their revision. This web page was one of those efforts. Bylaw revisions must be approved by the Owners, so the proposed changes were presented on the fall 2008 election ballot and passed by an overwhelming percentage.
This web page was developed as part of our Owner outreach during the revision process. Its purpose was to post details of the project, including why we were doing it, the history of what we’d done up to that point, and information on what the future held. The web page was also an opportunity to educate the Owners about The Articles of Incorporation a document that’s closely related to the Bylaws and was also revised during the process. This web page is now presented as a history of the project and a resource for Owners to learn more about the revision and why it was necessary at this time.
We thank you for your continued interest and encourage you to contact the Board of Directors with any questions.
E-mail us at: email@example.com
Or send snail mail to:
Wheatsville Board of Directors
Austin, Texas, 78705
- What are the Bylaws (and Articles of Incorporation)?
- Why Did We Do This?
- Content and Length
- The New State Statute
- Who Helped Us to Get This Done?
- What Specific Topics Did We Consider?
- Calendar of the Revision
Bylaws are the governing document of an organization. They state the regulations that, subject to statutory law and the Articles of Incorporation (see below for a definition of this term), provide the basic rules of how an organization will operate. These rules include topics such as the election of directors, duties of officers, process by which decisions are made and many other issues related to our internal governance.
To see our previous Bylaws, click here.
To see our new Bylaws (2008 version), click here.
The Articles of Incorporation is the document that an organization must file with the state in order to incorporate. This document states a number of things, which typically include such items as the name and address of the organization, its general purpose and the number and type of shares of stock to be issued. This is the first legal step in forming a corporation (or cooperative).
To see our previous Articles of Incorporation, click here.
To see our new Certificate of Formation (2008) (previously called the Articles of Incorporation), click here.
As implied above, the Bylaws and Articles of Incorporation are closely linked to one another. They are the primary documents that govern our co-op and make us recognized by the State of Texas. Because these documents are so important and contain a number of legal considerations, the revision process was very complicated. The Board took the process very seriously and took our time to be sure that we got it right.
The Board started talking about revising the Bylaws in early 2007. We were initially motivated to undertake this project by the fact that the majority of our Bylaws were written over 30 years ago. As our co-op has evolved and we’ve learned more about the practices of other co-ops across the nation, we have realized that our current Bylaws are long and overly-prescriptive in nature. In addition, many of the provisions and practices that they contain are no longer suitable for Wheatsville in the 21st century. Lastly, in 2003 the State of Texas enacted a new statute, the Texas Business Organization Code (TBOC), which will eventually affect the way that our founding documents are organized/written. These considerations combined to convince us that now is a good time to address these concerns and start the process of revising the Wheatsville Bylaws.
The rest of this page is dedicated to discussing these motivations in more depth.
If you ever tried to read our old Bylaws you know that they were fairly lengthy and detailed. These characteristics were an indirect symptom which spawned our initial motivation to make some Bylaws revisions. The heart of the former document was essentially crafted at a different stage of Wheatsville’s evolution, when the organization was transitioning from being primarily volunteer-run to having employees conduct the bulk of the operational work. In the days of yore, Owners gathered together in person to discuss and make organizational decisions. Communications and other technologies were in a very different state.
There are several characteristics of ideal Bylaws. They should be written in clear and concise language so that they are easy to read and minimize the opportunity for unintended interpretations. Bylaws should comply with all applicable state and federal regulations, and include language stating the minimum legal requirements for often-needed provisions such as information standards for annual reporting to stakeholders of the organization. But it is also important to choose wisely the level of detail that should be incorporated because the lengthier the document, the more cumbersome it can be to keep track of all the provisions, and likewise the more challenging it can be to stay in compliance. In keeping with the objective of clear and concise language, Bylaws should only be as prescriptive as necessary for the organization’s needs. For example, adequate provisions for ensuring that our Ownership is empowered with decision-making mechanisms should be provided. However, they should not be written to the level of detail that the color of envelopes used for mailed-in ballots is included! While this is an extreme example of prescriptive detail we are sure that you can imagine the fine line between just the right amount of detail and excess. It is the kind of question that our board regularly explores within the policy governance system, where we should write just enough detail into policy that we will accept “any reasonable interpretation.” Speaking of which, policies are part of a tiered set of documents which are the construct of Wheatsville’s foundation and procedures. At the fundamental level, our Certificate of Formation (previously called the Articles of Incorporation) creates the base upon which our Bylaws exist. The Bylaws, which must be approved by a vote of the Ownership, in turn support policies which the board has authority to enact. Our former Bylaws were relatively lengthy, and consequently it was challenging to master their content.
The Bylaws revisions project was focused on improving one of our organizations most fundamental documents, so that it could be brought in line with modern ways, laws, and desired practices. We produced a shorter, more concise, internally (and externally!) consistent document which can now carry Wheatsville forward for the next 30 years!
WV was previously incorporated under the Texas Cooperative Association Act, a statute that is scheduled to expire January 1, 2010. The Cooperative Association Act will effectively be replaced at that time by Chapter 251 of the TBOC which, as mentioned, became effective in 2006. Organizations formed under the old Cooperative Association Act (like Wheatsville) can choose to be governed by the TBOC by filing an early adoption statement with the Secretary of State, or they can continue to operate under the old law until January 1, 2010, at which time they will automatically become subject to the TBOC.
There are a number of changes that governance under the TBOC will bring to our organization. Our lawyers and consultants helped us to ensure that we understood what the changes are and that we are operating appropriately under the law. One major change that TBOC will bring is a shift in the requirements of the Articles of Incorporation, which will now be called the Certificate of Formation. As it stands, WV could have continued to operate under its old founding document (The Articles) until such time that an amendment to the document was necessary. At that time, The Articles would have to be revised to make them compliant with the new statute by converting them to the Certificate of Formation format.
As mentioned, the Bylaws and the Articles of Incorporation (or Certificate of Formation) are intimately linked. As part of the revision process (and in an effort to stay ahead of the game) the Board decided that it was in our best interest to become compliant with the TBOC at this time. We, therefore, ensured that all of our Bylaws revisions were in line with the statute and transformed our Articles of Incorporation to the Certificate of Formation format.
The Board of Directors took revision of the Bylaws and Articles of Incorporation very seriously, as it will affect the privileges and responsibilities of all Wheatsville Owners. There were also lots of legal and financial issues to sort through. So to make sure we were able to consider and ultimately recommend well-reasoned and legally and financially sound revisions, the Board retained the services of several advisors, including
- The nationally renown co-op consulting firm, CDS Consulting Co-op (CDS CC). CDS CC was co-founded by former Wheatsville member Walden Swanson and we’ve used their services for many years. The CDS consultant that worked on our Bylaws revision is Thane Joyal. Thane was a more recent addition to the CDS consulting team, but has already helped a number of co-ops through successful Bylaws revision projects. She is a lawyer by training, which gives her a unique insight on how this complicated process should be undertaken.
- Our primary legal help on this project was Manuel Escobar and Melissa Salhab Sykes at Austin-based McGinnis Lochridge & Kilgore. We chose to work with McGinnis based on their expertise in Texas business law and previous experience working with co-operative organizations.
- For insight on some of our financial and accounting questions we consulted Wegner LLP CPAs and Consultants out of Madison, Wisconsin. Wegner specializes in consumer food co-ops and is currently serving as Wheatsville’s CPA.
There are a number of specific topics within our old Bylaws that are no longer reflective of how Wheatsville operates or appropriate for the growth of our co-op over the next 30(+) years. In the space below you’ll find the details of some of these topics and what we considered as an alternative approach.
There are mixed feelings in the national co-op community about the role of staff (or “internal”) directors on co-op boards. Staff directors play a unique role on a board, by providing valuable insight from an “insider’s” perspective, but also having the potential for some unique conflicts of interest. Some of these conflicts may include the additional challenge of maintaining confidentiality when you spend your days in the store, wrong impressions of other employees as to the role that you play on the board (staff directors are not “staff representatives”), and evaluating the general manager who is also your boss. In the past it has also been a challenge to find staff who were interested in serving on the board. Many staff members are reluctant to commit to spending more time at the store as a volunteer board member after working their full shift during the week.
Wheatsville’s old Bylaws required that two of our nine board members be staff directors (§ 126.96.36.199). These staff directors served one-year terms, which led to the undesirable possibility that the board could have up to 6 new directors in a single year – a situation that we were actually faced with in the 2008 election!
The board researched the pros and cons of staff directors and investigated the trends on this issue nationwide. After much research and discussion, the board developed a compromise solution where instead of requiring two staff directors on the board, we will allow up to 2 staff directors. The one-year term length is also changed so that all directors have the same term length (two years under the old Bylaws, changed to three years in the new document). Among the benefits of instituting this change is the fact that a staff director could change their employment status with the co-op and still continue to serve on the board. Overall, the hope is that this compromise is flexible enough to allow Wheatsville to continue to benefit from staff directors without tying our hands by mandating the role that staff must play.
The old Bylaws stated that Wheatsville should have a total of nine directors, two of whom were Wheatsville staff members with one-year terms (§ 188.8.131.52), and seven of whom were not on staff and had two-year term lengths (§ 184.108.40.206). This meant that each year we had the possibility of having regular turnover of five or six directors, and even more if other anomalies occur. In fact, in both 2008 and 2007 we had six open seats during our annual elections. What we call “anomalies” are associated with vacant seats that are filled by appointments. Vacant seats have typically occurred when a director has some life change that precludes them from continuing their effective participation on the Board of Directors, and in three of the past four years the board has had a vacant seat to fill. The board is permitted to appoint a director to a vacant seat until that seat can be filled by the election of a new director by the Ownership (§ 3.1.4).
The board consists of interested volunteers who come together to provide leadership and oversight of our organization. It takes time to develop the knowledge and skills, which are helpful in conducting our board’s work. Because we are owned by a large group of people rather than one individual or a small group of shareholders, the role of the board in representing all of our Owners and ensuring organizational success is very important work. With the old one- and two-year terms, there was a constant potential for a large portion of the board to turn over, which bore the risk of creating organizational instability. The process of learning and really understanding the board’s work as an individual director also takes some time. In our experience, individual directors tend to start ‘blossoming’ in their roles toward the end of their second year, just as many terms came to an end.
In an effort to provide greater continuity on the Wheatsville board, we recommended that the Bylaws be revised to allow for nine directors with three-year terms. This change will help to accomplish multiple goals:
- With nine directors, three-year terms will help limit turnover to 1/3 of the board each year. This will help ensure continuity and help to maintain our ‘institutional memory.’
- Three-year terms will enable our directors to progress through their initial learning period, and then to contribute the full strength of their knowledge and wisdom to our board and our organization within a single term.
- Having a single term length rather than two different terms will provide simplicity and help dispel the misconception that staff directors represent staff. In conjunction with a change to the requirements for staff directors, a change to one consistent term length will allow staff directors who change employers to remain on the Board of Directors. In short we hoped to eliminate the disparity between directors based on employment at Wheatsville.
The potential disadvantage of a three-year term length is that it is more of a commitment than a two-year term. However, it generally seems advantageous to seek individuals who are interested in providing that level of commitment when it comes to the governing body of our organization! While we have been fortunate to not have a year when 2/3 of the board was newly-elected (due to incumbents choosing to run again, and being successful in their campaign), as an organizational practice it seems healthy to have a codified process for limiting the possibility for significant loss of continuity in a single year.
Democratic owner control of Wheatsville means that Owners actively participate in setting policy and making decisions. This core co-operative principle translates through to a number of settings, from a general store vote to how the Board makes decisions in its governance of our co-op.
Our old Bylaws mandated a wide variety of decision-making methods and thresholds that were not always clear and may no longer have been in tune with today’s Wheatsville. For example, if, under the old Bylaws, an owner or group of Owners wanted to call a special meeting of the co-op Ownership they could do so by a petition signed by 10% of the total active Ownership (Article 2.2). Today, the total active Ownership of our co-op is over 10,000, equating to a requirement of more than 1,000 Owners to sign under this particular provision.
In keeping with the desire to simplify and modernize, the board proposed language to streamline, clarify, and standardize Wheatsville’s Bylaws. To achieve this simplification we considered decision-making methods that reflect a much larger Ownership than in the past. Using the example above, would perhaps 5% or 500 as a threshold be more realistic and achievable? What about the concept of a defined period of time for a store vote to occur, much like voters observe in general municipal or national elections? Under the old Bylaws store votes must have continued until a minimum number was achieved (§ 2.6.12). Keeping to a consistent and predictable business calendar could be difficult under that provision.
The most important aspect of decision-making is that the rights and responsibilities of Wheatsville’s Owners are maintained in such a way that is not cumbersome, that is representative, and that’s inviting and appealing to participation.
Democratic control by the Ownership is a fundamental cooperative principle, and § 2.6 of our old Bylaws described a process for “Store Voting” by which Owners could exercise their voice. Other sections, such as § 2.5 on Membership Meetings also contained provisions for democratic control by the Ownership.
In today’s modern world there are new technologies for communication, and it would be helpful for our Bylaws to be as accommodating as is reasonable to allow for both the protection of Owners AND the use of more convenient tools for exercising our right to democratic control. We were previously required to obtain at least 400 valid votes to complete an election; this process took an unknown amount of time generally in the range of 10-14 weeks. While the board continually strove to encourage owner participation in the election process, it was challenging to have such uncertainty around the timing of results for our annual ballot. Based on the former language, it would be possible for the election of board directors to not be completed by the beginning of the new term (not to mention the timing for our Community Action Wednesday organizations)!
There are a few options that we considered for the proposed Bylaws including:
- How to provide adequate provisions for burgeoning technology while maintaining adequate protection for Owners and a high standard of integrity within the democratic process;
- Whether, similar to the voting process for local and state issues, we could have a designated date and time for the close of voting;
- Whether the requirements for participation (previously we required to have a minimum of 400 valid votes cast) should be modified either to be tied to a minimum number and/or percentage of Owners, or even to be based strictly on length of time (in conjunction with Bylaws provisions around minimum time and proper notification procedures), similar to our local city council and bond elections.
- Discussion on this topic was also tied to the “Decision-making Thresholds” concepts.
Under the old Bylaws, our basic owner investment and capitalization structure was largely left to the discretion of the Board of Directors, as set forth in board policies subject to the statutory requirements for all cooperative associations (see Articles 7, 10, 11 and 14). Our practices were codified by the board in a policy document called the Membership Administration Guidelines, which specifies categories of member Ownership and the investment requirements for each. We are not currently anticipating dramatic changes in our bylaw provisions regarding membership capital, however we continue to seek legal and financial counsel as well as advice from CDS on how other co-ops are structured to assure that we are able to take advantage of the best co-op practices and continue to be in compliance with all legal requirements.
We do have specific provisions in our Bylaws and Articles of Incorporation (and now the Certificate of Formation) authorizing “investor shares” (Article 8 of the new Bylaws), a capital investment program by which we have raised over $700,000 from approximately 170 members to help fund our expansion project. Investor shares are non-voting shares that provide a modest annual dividend to the shareholders according to contracts negotiated with each investor. These investor shares provisions were carefully drafted to comply with our enabling statute as well as securities and tax laws. The only significant change that occurred in this area was to increase the number of shares authorized to reflect the statutory maximum.
Our old Bylaws said that no director could receive compensation for being a director, except such compensation as was given to all other volunteer workers of the cooperative (Article 3.1.9). They also stated that the board would determine the compensation of the officers (Article 3.2.11). Officers are identified in the Bylaws as the president, secretary, general manager, and additional officers that the board may elect. For many years it has been Wheatsville’s practice to compensate directors for their time and energy by giving them a 10% “volunteer” discount on all store purchases. (For directors who are also staff members, there is instead an additional 5% added to their 15% staff discount.) At times in the past, the board president received a 15% discount on purchases. Currently all non-staff directors receive 10%.
Many food co-ops around the country today compensate their board members by giving them a discount, an annual stipend, or both. Karen Zimbelman, (National Co-op Grocers Association Western Corridor Development Director), expresses a commonly held view that “directors take their job more seriously and are willing to live up to some basic standards of performance for the board if/when they are being compensated.” She adds, however, that the compensation should never be in an amount that it would be what motivates directors to serve on the board.
The Board proposed a revision to the old Bylaws that will allow director compensation to be set through board policy, rather than the old provision, which ties director compensation to that of “all other volunteer workers.” Director compensation will be set at a level that the board determines is appropriate to attract good board members, and more reflective of the amount of time and energy expected from them. This consideration also includes making sure that any such compensation is regularly monitored and reported to the Ownership.
The Board made efforts to keep you, our Owners, educated on the revision from the very start. The Breeze featured six articles over the project timeline, four presenting general information (January/February 2007, March/April 2007, Summer 2007, September/October 2007), one giving more details on the process (Summer 2008) and the Special Election Issue October 2008.
We met our goal of presenting a proposed draft of the Bylaws to the Owners in the fall of 2008. We had many opportunities to provide you with information and discuss any questions or concerns that you had. These opportunities included:
- Breeze articles.
- This web page: This web page was the easiest way for us to provide you with the most recent information available and to get some feedback from you.
Face-to-face interactions: The Board was present at a number of regularly scheduled events. We enjoyed the opportunity to engage in two-way conversations about what we were doing and to address any questions/concerns that you had.
- Coffee with the Board - This regular and on-going event was used to discuss the revision project. On the first Saturday of every month you had the opportunity to join us on the patio for a free flowing discussion over some coffee and pastries from the deli.
- Monthly Board meetings - Owners were (and are) always welcome at our Board meetings.
- Special Bylaws forum - The first time that we did something like this. We held the forum on a weekend morning in September and concentrated solely on this topic for our discussion.
The Board of Directors thanks you all for your participation and votes! This Bylaws revision was a major project in Wheatsville’s history and we now have a document that we can be proud of and will serve us well into the future.
Wheatsville Board of Directors, Bylaws Committee