A message from the General Manager: Proposed Bylaws Change
Howdy fellow Wheatsvillagers!
Our annual co-op election begins September 7, and I encourage each of you to vote at your earliest convenience! As usual, we have an excellent slate of board candidates for three rotating open seats as well as an impactful group of non-profit organizations hoping to be selected as our monthly Community Action recipients for the 2023 calendar year. Democratic Member Control is one of the International Cooperative Principles upon which all co-ops are founded, and voting for your board and Community Action groups is the primary way Wheatsville’s owners help to set the direction of our shared cooperative endeavor.
In addition to the usual candidate statements and non-profit groups, there is also another, less common item on the ballot this year—a bylaws change. It has been roughly a decade since we last modified our bylaws, so this is an unusual occurrence. As such, further explanation is both appropriate and necessary to help owners understand what your co-op’s board and management are hoping to accomplish with this change.
The change itself is quite simple. We would like to strike the word “natural” from the phrase “natural person” in section 2.2, which outlines eligibility to become an owner the co-op. This would allow the legal definition of “person” to be eligible to join the co-op as opposed to what you or I might normally think of as a person. This means that trusts, self-directed IRAs, non-profits, businesses, and other organizations would be eligible for co-op membership.
Our bylaws currently have only one set of member eligibility requirements for both regular co-op ownership—or “common stock” as it is known in a legal and financial sense—and investor shareholders. Wheatsville’s investor shareholders are those owners who purchased what’s known as “preferred stock” in the co-op, which was offered in both 2005 to fund the expansion of our Guadalupe location and 2013 to fund the opening of South Lamar.
It is important to note that these are non-voting shares, which means that they do not give the investor shareholder any additional control or rights over co-op governance than any other co-op owner. However, they are a critical element of your co-op’s ability to raise capital to grow both the services we can offer and the impact we can have on our community. Without these investor shares, we would effectively have no way to raise capital beyond our retained earnings from prior fiscal years.
What are the benefits of this change?
First, by allowing trusts and similar legal instruments to be eligible for co-op membership, we introduce an option for survivorship of our outstanding investor shares. It is unfortunately a fact that the co-op’s founding generation is not getting any younger—a group that is heavily represented among our investor shareholders. The passing of an investor shareholder is becoming an increasingly common reason for redemption of shares. This presents a financial challenge to your co-op and negatively impact our cash position. By allowing trusts to be eligible, investor shareholders have a viable option to pass their shares on to the next generation of cooperators without them ever needing to be redeemed back to the co-op. This is an option we would likely encourage in future share offerings.
We also maximize eligibility for future investor share offerings. A real-life example may be helpful here. In 2010, Wheatsville invested the final $50,000 that our friends at Black Star Co-op needed to open their doors. We still hold that investment to this day. This was only possible because Black Star’s bylaws allowed for cooperative organizations to be members in addition to “natural” persons. The proposed bylaws change will allow your co-op to similarly solicit investment from a broader range of sources in any future efforts to raise capital. The goal is to better equip ourselves to ensure the health and future growth of Wheatsville.
What is the worst-case scenario of this change?
Let’s address the elephant in the room. The most cynical read of this proposed change is that it would allow a corporation or privately-owned business to become a co-op member and to thereby have a voting interest in our co-op. I will not deny that this is true. However, there are a few caveats to note here that significantly curtail any negative impact that this might bring:
1. There is already nothing stopping the CEO or another officer of a corporation from joining the co-op as an individual. This would entitle them to a vote and access to summary annual financial statements, among other rights. In other words, allowing (for example) HEB to become a member has little functional difference from allowing Howard Butt to personally become a member. Their rights and access would effectively be the same.
2. A corporation joining the co-op would have exactly the same say as you or me—one single vote out of 27,338 and counting. This is not enough to have any significant level of control over our co-op.
3. This was already the case in the not-too-distant past. When I first joined the co-op as both an owner and employee in 1999, the co-op had a number of businesses and other organizations as members. Several area housing co-ops were (and still are) members. But beyond that, Ballet Austin had a membership. So too did Half-Price Books when it was still located across the street in the building now occupied by Black’s BBQ and Hopfield’s. These are but a few examples, and none of them caused significant issues for the co-op as a business.
4. The board is empowered to set expectations and capital requirements for co-op owners—including any organizational ones—through our Membership Administration Guidelines, which co-op management is then obliged to execute.
5. As a final recourse, the board also has the ability to expel any co-op member under Section 251.152 of the Texas Business Organizations Code. Thus, should a significant problem arise from this eligibility change, the board already has the tools necessary to address it.
I would absolutely understand any co-op owner having skepticism regarding this change. Were I not so involved in the process, I might feel the same way. I hope the above sheds sufficient light on the reasons for the proposed bylaws change as well as its ramifications. Like each of you reading this, Wheatsville’s board and management want to position our co-op to grow and thrive into the future through additional locations and services. Making this change to the bylaws supports this goal by protecting our current cash position and allowing us greater fundraising flexibility in the future. I hope you will join me in helping to secure your co-op’s future by voting in favor.
Thank you for your loyal patronage and support of your co-op!