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Letter to Saskatoon Co-op Board from Tim Quigley, lawyer and former U of S Professor of Law

Co-operatives Act 1996 Cover and Table of Contents

CM4F member, lawyer, and former professor Tim Quigley has written a letter to the Saskatoon Co-op’s Board of Directors. In the letter, Tim calls for the resignation of all the directors (other than the two CM4F newly elected board members) because of their handling of the labour dispute, conduct at the AGM, and their rejection of the CM4F resolutions.

It’s a particularly cogent letter that clears the air about the specious reasoning the Board has used that touches on many member grievances. Below, we reproduce Tim’s letter in full for your reading pleasure.

We expect the letter will be discussed at the Co-op’s Board meeting on August 12th. Following the meeting, we anticipate a response to the letter from the Board, which will be shared with CM4F members.

June 25, 2019
The Saskatoon Co-operative Association Ltd. 
#201, 503 Wellman Crescent 
Saskatoon, Saskatchewan S7J 0T1

Attention: Grant Whitmore, Board Chair, and Board of Directors

Dear Saskatoon Co-op Board Members:

This is a lengthy letter but I expect a reasonably detailed response beyond a mere acknowledgement of its receipt. That should include an answer to the questions and issues that I have posed. I also ask that my letter be distributed to all members of the Board. I will be following up to make sure that all Board members have received this letter.

I firmly believe that the behaviour of the previous Board, the CEO, and any other involved Co- op managers throughout the labour dispute, the run-up to the AGM, and way the AGM was conducted showed a shocking disdain for democracy, the membership, and Co-op workers. I will itemize in detail below why I make that allegation and why I therefore call for the resignation of all of the directors other than the two new ones elected at the AGM.

References to the Act are to The Co-operatives Act, 1996, S.S. 1996, c. C-37.3. As well, to facilitate understanding of my points, I reproduce here one of the most important principles of co-operatives–democratic control by the membership (and add that there is nothing whatever in the Act that derogates from the full panoply of co-operative principles):

Democratic Member Control
Cooperatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organised in a democratic manner.

(Reproduced from the International Co-operative Alliance website, (https://www.ica.coop/en/cooperatives/cooperative-identity) which is linked to your website. Section 3 of the Act, by different wording, echoes the importance of the democratic control of co-operatives.) 

Also relevant is the concept of the fiduciary duty that directors of a co-operative owe to the organization and to the membership. Among the elements of fulfilling that fiduciary duty are: a duty of care, a duty of loyalty to the co-op and accountability to its members, and a duty of honesty. (These are conveniently set out and described at https://chfcanada.coop/wp- content/uploads/2017/05/2.-Confidentiality-and-ethics-in-your-co-op.pdf .)  It is noteworthy that the fiduciary duty concept is imbedded in both the common law and the tradition of co- operatives).

1. The Labour Dispute

Many of the speakers at the Annual General Meeting very eloquently outlined why they believe the Co-op Board of Directors and management mishandled the labour dispute. I wish only to reiterate some of the important points that were made.

First, the Co-op behaved exactly like a competitor private corporation would behave in its collective bargaining position. This is a race to the bottom insofar as living wages in the sector are concerned. It will also mean that there will be greater turnover in junior staff (perhaps something that the Board wishes to see), less loyalty to the Co-op by staff, and, almost inevitably, future attempts at the bargaining table to further reduce labour costs. In contrast, the UFCW local took a principled approach in striking, not for themselves, but for future workers. My question is: if we are going to behave in the same manner as our private competitors but lack the market clout that they have, how is the Co-op going to exist? Most members support the principles of co-operatives but not the existence of co-ops on the backs of their workers.

Second, the Board and management exhibited a punitive stance by prolonging the strike through bitter winter weather and for several months. My understanding is that the Board refused the union proposal to have binding arbitration. As one of the members stated at the AGM, parties that refuse arbitration generally do so because they know they have a weak case and are bound to lose in the process. Please provide your reasons for refusing binding arbitration.

Third, in spite of the known fact that many Saskatoon Co-op members are also members of trade unions, the Board engaged replacement workers, more commonly known (and properly so) as “scabs.” This term has been in common parlance since at least 1806 in England so the CEO’s anger at the use of the term “scab” was quite misplaced and unnecessary. Did the Board and management not know that the use of replacement workers would be inflammatory, not just to the unionized workers on strike, but to members who are either trade union members themselves or fully supportive of unionized workplaces? You have set the path of reconciliation with members and staff on a very rocky path by hiring replacement workers and then reacting against those who criticise that step.

The intransigence of the Board will have unfortunate repercussions in the longer term. Loyalty to the Co-op will undoubtedly be diminished. Turnover of staff is costly because of the need to hire and train new workers. Instead of persisting in the position that was taken, the Board might have considered other means of protecting the survival of the Co-op. This might have included candid information to members about the need to absorb slightly higher costs but it might also have required a look at creative solutions to reducing costs, such as through reduced packaging, energy conservation measures at the various outlets, and so on.

2. The Treatment of Resolutions Submitted by Co-op Members for Fairness: 

The attitude shown by the Board towards these resolutions was shocking indeed and completely at odds with democratic member control as outlined above and with provisions of the Act. Below I have reproduced for convenience the “Be it resolved” portion of each of the resolutions that were submitted and rejected by the Board. Below each, I have inserted comments and questions in italics that I ask you to respond to.

(a) Democratic control

Therefore be it resolved:

That in time for the next AGM in 2020 a democratically supervised and transparent voting process for members to vote for the selection of board members and on resolutions be expanded to take place at the co-op store locations over five business days.

Both your written response and the statements by the Chair at the AGM were to the effect that legislative changes are required in order to implement a different voting system. This is quite incorrect. Section 74(1) of the Act reads:

74(1) Unless the regulations, articles or bylaws provide otherwise: (a) the election of directors is to take place annually at the annual general meeting[.] [Emphasis added.]

This means that it is entirely possible for the Board to seek a bylaw change from the membership at an AGM and thereafter permit voting by alternative means. The disjunctive “or” makes it clear that any of the named documents may permit alternative voting. The regulations under the Act are silent on this question. The proposed resolution should have been treated as a motion to change the bylaws and the membership should have had an opportunity to vote on it. If you obtained legal advice that a legislative change is required, the advice was incompetent. If you did not obtain legal advice, you were seriously derelict in your fiduciary duties as directors. If the Board Chair on his own wrongly told the meeting that legislative changes are required, it shows a lack of integrity, disrespect for those in attendance, and, again, a breach of the duties placed on him as a director to sustain democratic control of the Co-op.

The Act specifically provides in section 113 that the directors cannot change bylaws. Changes must be made by the membership, again, an affirmation of the principle of democratic control. 

I add that the Board is rather selective about following the legislation. You established electronic voting on the various issues that arose at the AGM. Yet, section 116(1) requires that votes be by show of hands unless the bylaws provide otherwise. The bylaws do not do so. I personally do not quarrel with the use of electronic voting because it is a far more efficient use of time but I point this out to show the hypocrisy of the Board attempting to rely upon the legislation for its position. In this context of democratic control, please also note that section 116(4) of the Act is an affirmation of democratic control since it provides that members present at a meeting “… decide all questions.” This should have included this resolution.

(b) The Other Resolutions

(i) Autonomy and Independence:

Therefore be it Resolved:
That the current management agreement between Saskatoon Co-op and FCL be reviewed and renegotiated to secure membership control by way of the elected board of the policy- making function and restrict FCL to its intended management/administration function.

Your response that management is under the jurisdiction of the directors, not the members, is directly in conflict with the principle of democratic control. You relied on section 72 of the Act for this position. However, to do so is to view that section out of its context. It is a reference to the powers of directors. However, those powers must always be exercised subject to the democratic control of the membership. Moreover, section 111 specifically permits members to submit proposals to the AGM. This resolution does not fall within the exceptions to submission to the membership as set out in section 111(5).

(ii) Reporting, Communication & Co-operative Education:

Therefore be it Resolved:
That our elected Co-op Board adopt a new effective transparent consultation and communication strategy with the membership. Sufficient resources should be allocated to engage board members in proactive dialogue with the membership such as holding regular reporting meetings, posting board member contact numbers, answering calls and talking to members and the public.

Further be it Resolved:
That a qualified education and member relations employee, with the required resources be assigned to co-ordinate, implement and manage a comprehensive co-operative education program for workers, members and the public on the theme “Making a profit with our co- operative advantage”.

Again, this type of resolution is not barred by section 111(5) and should have gone to the membership. It is hard to imagine a more motherhood resolution for a co-operative than educating its members. To insist that it is “primarily a management function” is most definitely not in keeping with co-operative principles or the Act. Moreover, in the challenging climate faced by the co-op, surely there is considerable importance in having a dialogue about making a profit with the co-operative advantage. In your response to this comment, I would like to know just what resolutions you would find acceptable for consideration by the membership.

(iii) Respect and Support for Workers: 

Therefore be it Resolved;
That the Saskatoon Co-op Membership directs the elected co-op board of directors to adopt the principles of respect, fairness, and equality in all its bargaining negotiations and resulting agreements removing the “two tier wages” from any current or future bargaining processes and contracts.

This resolution is also not barred by section 111(5) and it reflects the views of many members. Please tell me where in the Act you derive the authority to say that members do not have the power to direct the board. That is, once again, the essence of democratic control and it is supported by section 111(1) of the Act. The Board and management may think it unwise to adopt the resolution. The answer to that is to argue against it on the floor of the meeting and seek majority support.

(iv) Performance Review: 

Therefore be it Resolved:
That immediately following this AGM when the elected board takes its place it will undertake a comprehensive performance review of the CEO with respect to application of co-op principles, promoting our “co-operative values”, supporting independent board decision-making and implementing board policy.

Be it further resolved:
That the review also specifically evaluate the degree of professionalism and respect for workers, co-op members and the public by management during the current/recent labour dispute.

The preceding points about democratic control and the role of section 111(1) apply here as well. In the climate of a costly and bitter strike, it is not at all surprising that the CEO and management should be reviewed. This type of accountability occurs regularly within corporations at shareholders meetings. Please tell me why the Co-op Board thinks that a co-operative should operate differently from a corporation in this regard. Surely, if anything, there ought to be more scrutiny in a co-op context.

(v) Financial, Human Relations and Reputational Review: 

Therefore be it Resolved:
That the Board and CEO provide a full costing disclosure including the purpose, who initiated and who authorized the use of membership funds to support the management position opposing our workers who our co-operative depends on for financial, human relations and reputational success.

Section 128(1) of the Act requires the directors to place financial information before the membership at the AGM. Section 128(1)(c) is even more specific:

(c) any information, in addition to that mentioned in clauses (a) and (b), respecting the financial position of the co-operative and the results of its operations that are required in the articles or the bylaws.

It is therefore spurious to claim that the membership does not have the authority to seek the information sought in this resolution. I wholeheartedly agree with the member at the AGM who found it incredible that the CEO would not know the cost of the strike or the percentage differences between the new hire wage scale and the previous wage scale. That is information that would have been uppermost in the minds of the management bargaining team. Indeed, I cannot imagine that the entire Board was not privy to this information during and after the strike. You must have known the financial bottom line in order to eventually settle the strike. I cannot state strongly enough that deliberately misleading the membership is highly improper.

I must also say that the directors, other than the two new directors elected at that AGM, should be both embarrassed and ashamed that none of you spoke up to contradict the CEO in failing to provide that important and basic financial information. Below is section 88(1) of the Act. I take the position that those of you on the Board did not comply with this provision because you stood by while misleading statements were made and thereby represented facts to be correct when they very likely were not. 

88(1) Every director and officer of a co-operative, in exercising the powers and discharging the duties of a director or officer, shall: (a) act honestly and in good faith with a view to the best interests of the co-operative; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. (2) An officer or director has complied with his or her duty set out in subsection (1) if he or she relies and acts in good faith: (a) on statements of fact represented to him or her by an officer of the co-operative to be correct; or (b) on statements contained in a written report or opinion of the auditor of the co-operative or a professional person engaged by the co- operative who is competent to give advice with respect to the matter. 

3. The Conduct of the Meeting

I also assert that the meeting was conducted in a manipulated manner apart from the rejection of the resolutions. Although the Bylaws set out items that must be included in the agenda of the AGM, they do not dictate the order in which those items should be presented. To do as you did in placing questions and concerns and resolutions after the voting was extremely unfair. In the aftermath of the strike, questions, concerns, and resolutions should have been considered before the voting for the obvious reason that the discussion would have a great deal of relevance for the election of directors. 

4. Conclusion 

The behaviour of the previous Board, the CEO, and Co-op management before, during, and after the strike is most certainly a betrayal of co-operative principles and, in some respect, the legislation governing co-operatives. The honourable step for directors other than the two new members would be to resign. I do not expect that to happen. Nevertheless, I hope that you will each examine your own conscience and ask whether you have taken the honourable and co- operative path through these events.

I eagerly await your reply.

Sincerely,

Tim Quigley 
Emeritus Professor of Law

P.S.: Lest you think that I am not a longstanding Co-op member, my spouse, Deb Hopkins, and I have been members ourselves for over 35 years (#44590) and we both come from families who were Co-op members for decades: Walter and Lois Quigley (#10915) and Betty and Geoff Hopkins (#2428, now proudly used by our daughter, Ellen Quigley).

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