FAQ for New Board Members in a California Cooperative Corporation

Q: What does the Board have to do?

A: The Board of directors oversees the operations of a cooperative. The Board’s job is to make policy and major decisions about the direction of the cooperative’s development. The Board is responsible for guiding the cooperative towards sustainable operations (net income) and achieving its mission, so decisions should be made towards those goals. 

The Board does not have to make every decision. Usually there are management roles filled by staff. Those managers make the decisions in their realm of authority. Boards should expect managers to manage the cooperative’s operations. The Board reviews how well things are working, and makes changes if needed.

Some specific responsibilities of the Board are:

• Making sure that the cooperative follows required legal formalities, like filing annual reports and tax returns;
• Making sure the cooperative gives an annual report to members, if required;
• Making sure board meetings and member meetings happen, including elections for directors.

Q: Do directors have a duty of loyalty?

A: Yes. Directors must exercise their decision-making power in a manner they believe to be in the best interests of the cooperative. In a cooperative, directors are usually members, and as members, they do patronage business with the cooperative. This is not considered a conflict of interest. (See more detail at Corporations Code s. 12373.)

Q: What is a director’s standard of care?

A: To act reasonably. To act as carefully as an ordinary person would. A director may rely on committees and professional advisors if they seem knowledgeable, but if there is a reason to doubt them, the director has a duty to inquire, not turn a blind eye to something that seems like a problem. (See more detail at Corporations Code s. 12371.)

Q: Is it risky to be a director? Can I be held liable?

A: This is usually addressed with indemnification clauses and directors’ and officers’ insurance. “Indemnification” means that if a director is named as a defendant in any lawsuit because of their action in their role as a director, the cooperative must pay the costs of that defense. There is likely an indemnification clause in the articles of incorporation or the bylaws. Read it to find out how your cooperative distinguishes between situations in which the cooperative will pay all costs of defense, and situations in which the behavior was too bad for the cooperative to pay for the harm.

Directors’ and officers’ insurance can be purchased to help a cooperative be able to afford the cost of indemnification.