University of Wisconsin Center for Cooperatives

Selecting and Evaluating
The Cooperative Manager

By Frank Groves
Professor of Agricultural Economics and Chair, University Center for Cooperatives, University of Wisconsin, Madison.
Presented at the ** 1979 NICE Conference, August, 1987.

UWCC Occasional Paper No 9 - September, 1987

As you enter the house you can tell something is wrong by the look on your spouse's face. "There is an emergency meeting of the co-op board tonight at 7:30," she said. You ask what it is about and she informs you that there was no additional message.

On your way to the meeting that night you are thinking about what the emergency could be. There was a bad storm in the other end of the county; could the new feed mill have been damaged? Or were there some problems with equipment?

The president/chairman calls the meeting to order promptly at 7:30 and drops the bombshell: "The manager quit this afternoon and said his resignation was effective immediately, and he was leaving for an extended fishing trip in Canada, and he never wants to see any of us again. Tonight we have to figure out what to do now."

EXECUTIVE SUCCESSION

How many boards are caught in this situation where the central management person is suddenly gone? If the board and the manager had planned for proper executive succession there shouldn't have to be a crisis situation. However, this is a board responsibility that is often neglected. "As long as things are ok, let's not worry about it," seems to be a common rationale.

When a manager/CEO vacancy occurs, the responsibility often falls on the board president/chairman to keep things going. Since the president/chairman and the manager/CEO should have a close working relationship this is a natural line of reasoning. But is it a good one? Too many presidents/chairmen have found that they were making decisions that they didn't want to make or weren't qualified to make. And, these vacancies often occur when the president/chairman is very busy with farm work.

HOW TO FIND A NEW MANAGER

In our hypothetical situation described above, the conversation might continue like this:
"Has anyone notified the regional? They usually have a stable of retired managers that can step in. Our regional Rep. should know of someone looking for a manager's position."

"My son-in-law is looking for a job. He graduated from technical school in computer programing and I wish he would go to work. He doesn't like to farm, and we are sick and tired of the way he hangs around the house."

"How about you, Tom (Tom is the board president)? Now that your son is helping with the farm, why don't you run things for awhile? We can pay you a little extra."

"Why don't we promote the manager of the feed department. He is one of the hardest working people I know. Never takes a break, should make a good general manager."

After a certain amount of expected rhetoric, just what should the board do? One answer might be "all of the above." However, before the board starts a formal recruiting procedure they should notify the employees, major creditors and the bank(s), members. select someone to be acting manager, prepare an up- to- date job description and arrange for an audit.

The Job Description

Because the job description is the standard that should be used to later judge the performance of the new manager, the board should invest enough time to develop a good sound, understandable job description. Sample job descriptions are available from regional cooperatives, and a general position description is in appendix I and in Chapman, ** pi4q.

In their book "The Contemporary Director," Chapman and others state "The single most important task facing a board is the recruitment and selection of its manager." They also give some minimum requirements for a job description for a manager. They are:

    "
  1.  OBJECTIVE: A position objective which outlines the overall purpose of the position.

    2.  

  2. AUTHORITY: An indication of the authority that the board of directors will grant to the manager.
  3. RELATIONSHIPS: A list of the various individuals and groups with whom the manager must develop a sound working relationship.
  4. KNOWLEDGE AND SKILLS: A list of the various skills and areas of knowledge the manager must have to perform his or her job effectively.
  5. ACCOUNTABILITIES: A list of the key areas for which the manager will be held accountable, including each key performance area of the organization." (p 142-3)
The American Management Association suggested the following points be covered in any job description. "Purpose or basic function: includes a broad statement of the job as a whole and what is to be accomplished.
Duties and Responsibilities: includes the principle activities to be performed, usually in a fairly detailed statement.
Jurisdiction: includes the authority to that is associated with the job and the limits of that authority. This section also may contain a description of the relationships with other (organizations)." (Parentheses added.) (Vilstrup & Groves, p 96.)

If the board has access to a regional representative, that person should be brought into the discussion at an early stage. Regional cooperatives often have a pool of available talent that can be tapped.

The board must also decide on how much publicity to give the opening. They may also set a policy on allowing present personnel to apply or not to apply.

After the above decisions are made the board should set a timetable for receiving and reviewing applications, and set a tentative interview schedule.

Summary

    Sources of new managers include:
  1. Other cooperatives
  2. Regional cooperatives
  3. Internal, promote a present employee
  4. Universities and colleges
  5. Other businesses (if this approach is used the board should check on the applicant's knowledge about cooperatives. If the person meets all other qualifications, but has no cooperative background, the board might want to arrange for some cooperative training.)
  6. Other

THE SELECTION PROCESS

The selection process is complex. Restrictions on recruiting, equal opportunity laws and forbidden interview questions are among the pitfalls. Applicants that are not selected must be properly notified so the board won't be sued later for some perceived, or real, discriminatory action.

A standard application form can often be obtained from a regional cooperative or a company distributing standard business forms. Using an application blank has the following advantages:

  1. "It is a simple test of the applicant's ability to spell and give clear, concise answers to factual questions.
  2. It can be used as a screening device before interviewing.
  3. It should include references that the board can check
  4. It assures the applicant that his/her record is on file." (Vilstrup & Groves, p 100)
After all applications are received they should be reviewed by the board, or a designated committee, and three to five candidates selected for interview. Before interviewing, references should be checked by personal phone call or by mail.

Interviewing

If possible, all candidates should be interviewed by the full board at the same time. That way the board can compare the applicants while the interview is still fresh in their minds.

Some tips for interviewing include:

  1. Allow enough time. Don't make the interviewee feel that you are trying to complete the interview as quickly as possible.
  2. Follow a plan. Even if you don't have a formal interview schedule try to ask the same type of questions of all interviewees so their answers can be compared.
  3. Check the application. Before starting the interview, study the application form in order to familiarize yourself with the candidate's background.
  4. Ask short questions, expect long answers. Questions to the interviewee should be relatively easy to understand and should encourage him/her to talk and you to listen, Use "Why" and "How" to gain additional details. Remember, if you talk more than 50 percent of the time, you have been interviewing yourself, not the interviewee.
  5. Ask open ended questions that cannot be answered "yes" or "no".
  6. Ask questions and listen. Remember who is being interviewed and listen, listen, listen. (Vilstrup & Groves, p 100 and others)

Summary

In their book "The Contemporary Director", Chapman and others summarize the recruitment process:
    **
  1. Job Description. Does one exist? If not, develop and review. Identify desired personal characteristics. I
  2. Structure recruitment committee. Budget people, time, and money for the process. Review terms of reference of the committee, including time screening criteria and short-listing.
  3. Write employment advertisement. Post internally. Advertise externally in newspapers and co-operative press. review applications or resumes.
  4. Committee short list. Three to five candidates. Check references.
  5. Interviews with full board. Board decision
  6. Contract. Discussion by board. President makes offer. Candidate accepts. Inform unsuccessful candidates." (p 145)
It is possible that the board may wish to use outside consultants for the selection process. They may hire a firm that specializes in executive searches and will screen the candidates and recommend several to the board for interview.

The selection procedure is summarized in Figure 1. Note, there are. several points in the process where applicants can be rejected.

MANAGER EVALUATION

After the board decides on a new manager eventually they will need to evaluate his/her performance. This is often done in conjunction with the annual salary review and salary setting for the coming year. Wright in "The Effective Bank Director," suggests that the appraisal be done at some time other than setting the salary of the CEO. He argues, "if we are going to find some area in which a better performance is desired (and surely there is no candid review that would not do this), then the CEO needs to be given time to improve before coming up to salary consideration." (p 75). Manager appraisal can be a traumatic time for a board, especially if they **

not usually trained in performance evaluation. Fortunately, most regional cooperatives and many consulting firms Offer guidance and assistance in this area. Smith and Zimbelman in their article, "Assessing Management Performance", said:

"The good news is: you're not alone. Many co-op boards of directors and managers find the prospect of a formal management performance appraisal very uncomfortable to face.

The reasons cited for this reluctance tend to fall into three categories:

  1. the difficulty of developing a truly objective evaluation process,
  2. an understandable aversion to any additional paperwork, and
  3. a concern that the formal appraisal session itself could prove to be awkward, unpleasant, and unproductive for all parties concerned.
The bad news is: to avoid management evaluation is to neglect one of the most important functions of the board and to truly jeopardize the future of the co-op."
They further state that "..it is becoming more and more common to find co-ops where every employee receives a formal annual performance appraisal except the manager."

The first prerequisite for any manager evaluation is to have a standard for judgement. This standard is the general managers job description and the goals that he/she and the board have agreed are proper and are a reasonable guide for judging performance. Without a standard, any evaluation of the manager's performance is strictly subjective and easily influenced by strong personalities, either positive or negative. Without a standard, the board often is left to "manage by crisis."

Douglas Holland in his working paper, "Challenges Facing Directors of Co-operatives," states "The selection, guidance and appraisal of the general manager is the board's primary responsibility in relation to the management of the operations of the cooperative.11(p 12).

In "A Guide to Modern Management" it is suggested that "No man should accept a management position if he is unwilling to undergo periodic and careful examination of the results of his efforts. He should insist on it and he should do the same with his own subordinates." (Chapter 15, p 6).

Even if a formal evaluation is not used an informal system is constantly in operation. Wright says, "No CEO should delude himself. He is being appraised all of the time. Directors are forming opinions in the board meetings, in committee meetings, in individual contacts, and through what they hear 'on the street'." (p 71).

How to evaluate

There are several different ways the board can fulfill their evaluation duties These include:
  1. Conduct an evaluation discussion with the full board
  2. Have a special committee do the evaluation and make recommendations to the board.
  3. Work with a regional representative in either 1 or 2.
  4. Hire an outside consultant to conduct the evaluation and make recommendations to the board.
  5. Some combination of the above
Whatever method the board chooses, there should be agreement between the board and the manager/CEO concerning the evaluation procedure.

Chapman and others suggest the following outline as a guide for the appraisal process:

"A. The board and manager agree to the goals in each key performance area for the coming year.

B. The board decides on a date to review the performance of the manager. This should be an in-camera meeting, with no other items of business on the agenda.

C. The board spends part of a board meeting prior to the appraisal meeting discussing and resolving some basic items of administration, including confidentiality, sources of information and the manager appraisal form.

D. The board identifies all sources of information for its appraisal, including resources from the central organization (if such exists), input or feedback from individual board members or members of the cooperative during the year, and previous performance appraisals

E. The manager completes an appraisal form which includes the previous year's stated goals and a situation analysis

F. A copy of the manager's completed form is distributed to each board member ten days or so prior to the appraisal meeting.

G. The appraisal meeting is held. When appraising the manager's performance, directors must: judge results, not activities, relate the manager's contribution to the co- operative's performance, and judge the manager's achievement rather than his or her personal traits or habits. The board must document its thoughts, positive and negative, on the appraisal form." (p 146)

Smith and Zimbelman feel that:
"Regardless of the approach, however, no managerial performance appraisal system can be completely effective unless it incorporates a number of key elements:
  1. It must be candid and honest.
  2. The appraisal should be presented in writing.
  3. The appraisal form itself should be relatively simple.
  4. The comments given should be as specific as possible.
  5. The full board should participate in the appraisal process.

    6. (Because the full board is legally accountable and because the manager needs the opinion of the full board)
  6. Consider various systems and the input of various parties in designing an appraisal process.

    7. The appraisal should be kept as impersonal as possible.
  7. The appraisal of the manager should be separated, to the extent possible, from labor negotiations.
  8. The focus of the appraisal process should be the future, not the ** past."
Dr. Vannevar Bush in a paper titled "Of What Use is a Board of Directors," states "That a board should judge and not manage is a key point in proper relations. Any Executive in any organization, no matter where placed, should be called upon to justify his important plans and programs before some individual or body competent to judge them adequately."

The appraisal form

The actual forms used in conducting a manager appraisal vary. They may follow a narrative approach where each director fills out the form in his/her own words. These could be summarized and presented to the board for discussion with the manager. Questions on the narrative review form are very general. For example: "List those areas in which you feel the general manager does the best job.", "List those areas, if any, where you feel his/her performance could be improved or strengthened, or where he/she might achieve better end results." This approach uses about 10-12 questions, forms are unsigned and the analysis and summary is done by a non-board person.

Another method is an objective and goal-oriented approach whereby the board and the manager together develop the goals for the next year and at the end of the year look at how well they have been achieved and what to do about those that weren't achieved. The review can be conducted by a committee of the board and then discussed with the whole board. This approach is probably more objective than the narrative approach.

A third manager appraisal approach is the use of a rating scale. These scales usually have from three to five different rating points ranging from unsatisfactory to outstanding. A typical three point rating scale is:

A. Good, minimal improvement needed
B. Fair, some improvement needed
C. Poor or lacking, much improvement needed

Most scales allow room for comments by the raters. and some have developed numerical values for each rating cell. These can later be totaled and an overall score calculated. The overall score is often used in conjunction with a salary recommendation chart, developed by a regional cooperative or from some other source, in setting the annual salary of the manager.

An added benefit of using a numerical scoring system is that the manager's performance can be compared in different time periods and in different categories. Changes may be noted and compared in different responsibility areas.

Some organizations use a combination of the above methods, and may hire an outside consultant to assist in the appraisal.

Some precautions

The idea of rating management by comparing performance to a previously agreed upon set of objectives has been around for quite some time. George Odiorne, generally considered a major proponent and developer of the management by objective technique, listed several "don'ts" that should be observed by the reviewer in any standard performance review. Some of these are listed below and should be considered by the board in reviewing the performance of the manager/CEO.
  1. "Don't get involved in personality discussions.
  2. Don't discuss salary and performance at the same meeting.
  3. Don't hold a man accountable for things that are totally beyond his control.
  4. Don't dwell on isolated incidents at the expense of overall results.
  5. Don't make up your mind about the results a man has achieved until you've had your discussion with him.
  6. Don't nag." (Quoted in Wright, PP 76-77)

SUMMARY

In his book "Directors: Myth and Realty" Myles Mace discusses three generally accepted board practices. These are:
  1. "Establish the basic objectives, corporate strategies, and broad policies of the company;
  2. Ask discerning questions;
  3. Select the president." (general manager/CEO) (p 43)
He also lists three important functions of a board of directors:
  1. "The board provides advice and counsel
  2. The board serves as some sort of discipline
  3. The board acts in crisis situations." (p 13)
Manager evaluation, as with other employee evaluation, will never be an exact science. Subjective judgement will always be present and personal biases will help sway opinions. Remember, the manager can only be judged against the standard that the board and he/she originally agreed upon. Chapman summarized it as follows:
"One final caution: when appraising performance of a general manager, he or she can only be held accountable for decisions delegated to him or her by the board. If the board has kept control over implementing certain decisions, then it must be held accountable for performance in those areas." (p 147)
One measure of how well cooperatives are doing in manager evaluation was provided by Mike Turner in a paper, "Management Factors Affecting Success of Farmer's Cooperatives", at the 1987 National Institute on Cooperative Education (NICE) meeting. He analyzed 63 questionnaires from grain and farm supply cooperatives in Iowa, Nebraska and South Dakota. His findings included the following:
" There were only seven cooperatives which had a plan for management succession ... Nineteen associations used salary surveys of comparable firms in setting their general managers salary. General managers job descriptions were present in 37 of the cooperatives. Less than half had performance standards for general managers or based salaries on performance related to standards."
Anderson and Anthony in "The New Corporate Directors" while agreeing with the observation of Arjay Miller, retired dean of Stanford's Graduate School of Business and former president of Ford Motor Company that "..the best bargain, a board can get for the shareowners (members) is to pay a high salary for a really superior CEO." However, they add. "..but at the same time we feel that a board must be sensitive to the shareowners, (members) labor unions, employees, and the public, with respect to what they feel is appropriate compensation.

"In the midst of these conflicting pressures, the compensation committee (or the board) must make its decisions. In doing so, there are three principal guidelines to keep in mind. The CEO's compensation should:

  1. Be related to performance.
  2. Be competitive.
  3. Provide motivation."

    4. (p 112, parentheses added)
While performance appraisal is an inexact process this should not prevent boards and managers from developing an acceptable, workable and understandable system. Some evaluation is almost always better than no evaluation. Each cooperative is different, as is each board and each manager. What works in one situation may not work in another. Hopefully this discussion will provide some broad guidelines that will help many different cooperatives in many different situations.

REFERENCES

  1. Anderson, Charles A., & Anthony, Robert N., "The New Corporate Directors", John Wiley & Sons, 1986.
  2. Chapman, Harold E., Holland, Douglas A., Kenney, Sean D., and others, "The Contemporary Director", Cooperative College of Canada, #510, 119 Fourth Avenue South, Saskatoon, Saskatchewan, Canada, S7K 5X2, 1986.
  3. Cooperative League of the USA, "A Guide To Modern Management for Cooperatives" ** lgxx.
  4. Garoyan, L. and ** t4ohn, Paul O., "The Board of Directors of Cooperatives, University of California, 1976
  5. Holland, Douglas A. "Challenges Facing Directors of Co- operatives", Cooperative College of Canada, Working Papers, Vol. 3 No.1
  6. Hopping, Robert W. "Securing Management Talent: The GROWMARK System", American Cooperation, 1985.
  7. Kabat, Robert I., "Appraising the Board", Paper presented at the International Conference of Cooperative Board Chairmen, Monterey, CA, 1980.
  8. Mace, Myles, "Directors: Myth and Reality", Harvard Business School Press, 1986.
  9. Performance review procedures used by Land 01 Lakes, CENEX, Farmland Industries, and others.
  10. Smith, Geoffrey, F., & Zimbelman, Karen, "Assessing Management Performance", Cooperative Grocer, February- March, 1987.
  11. Trout, V. Kyle and Overman, Charles L., "Board and Manager Appraisals -- Can they work?", paper presented at an NRECA Chairman of the Board conference, 1981.
  12. Turner, Mike, "Management Factors Affecting Success of Farmer's Cooperatives", National Institute on Cooperative Education, August, 1987.
  13. University Center for Cooperatives, "International Conference of Cooperative Board Chairmen", papers by Don Renquist, Land O' Lakes, "What are the Most Effective Methods of Evaluating Performance and Setting Fair Compensation Levels for the Chief Executive and Senior Executives?" and W. E. Bergen, Touche Ross & Partners, "Co-operative Executive Compensation.", Toronto, Canada, 1980.
  14. Vilstrup, Dick and Groves, Frank, "Cooperative Communications, No. 2, Techniques", University of Wisconsin-Extension, 1970.
  15. Wright, Don, "The Effective Bank Director", Bank Administration Institute, Reston Publishing Co., Reston, VA, 1985.

APPENDIX I

 POSITION DESCRIPTION - GENERAL MANAGER

A. BASIC FUNCTIONS

The General Manager is responsible for the effective management of all the affairs of the cooperative. The General Manager plans, directs, and coordinates the programs and activities of the Association for balanced, comprehensive accomplishment to attain the objectives established by the Board of Directors.

B. RESPONSIBILITY AND AUTHORITY

Within the limits of the articles of incorporation, the bylaws, and the objectives and Policies established or authorized by the board of directors, the General Manager is responsible for the has commensurate authority to accomplish the duties set forth below.

He/she may delegate portions of his/her responsibilities consistent with sound operations and authorized policies and procedures, together with proportionate authority for their fulfillment, but he/she may not delegate nor relinquish any portion of his/her accountability for results.

The General Manager may, in order to carry out the functions properly, secure the services of outside agencies or consultants to examine, investigate, or facilitate changes in operations, procedures, or methods.

  1. Advises and assists the board of directors in consideration and determination of whatever objectives, policies, and other basic controls required for the most effective management of the Cooperative.
  2. Maintains a continuing study of economic, industrial, and technological development and trends, and provides the board with whatever forecasts and plans are necessary to assure that all phases of cooperative operations are adequately equipped to meet members' needs and take full advantage of the long range potentials of the business.
  3. Defines and recommends operating and financial objectives; develops, in conjunction with department heads, short and long term plans and programs with supporting budget requests and financial estimates for each department, and the cooperative as a whole; submits proposals to the board of directors for approval.
  4. Interprets and administers policies established by the board; issues standard practice instructions to members and department heads and other personnel affected, to assure uniform interpretation.
  5. Directs and generally supervises immediate subordinates in their performance of assigned duties and in the manner in which they pursue their objectives and programs; renders advice, assistance, and guidance to subordinates.
  6. Keeps the board of directors regularly informed of the progress and results of cooperative operations for conformity with established objectives, programs, and budgets, and of all important internal and external factors influencing them.
  7. Ensures that the organization structures at all levels of the cooperative are the most efficient for the type of operations in which the cooperative is engaged; plans for changes in the organization structure required to adjust to future trends of cooperative operations, and secures the approval of the Board when major realignments are required.
  8. Ensures that all funds, physical assets, and other property of the cooperative are appropriately safeguarded and administered.
  9. Keeps the members adequately informed of the affairs of the cooperative; encourages their participation, sees that sound relationships are maintained between staff and members, and that proper consideration is given to member complaints and suggestions.
  10. Maintains appropriate contacts and develops necessary relations with government departments, industry organizations, labor unions, and other organizations which have an influence on the attainment of cooperative objectives.
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