MEC — a large Canadian retail co-operative that specializes in outdoor activity equipment — implemented a number of controversial changes three years ago to strengthen the knowledge and skill sets at its board table and to ensure its governance structure could continue to guide the growing company.
Formerly known as Mountain Equipment Co-op, MEC was started by a small group of friends from the University of British Colombia who found they couldn’t buy good quality climbing gear in Canada. Since its inception in 1971, it has grown to twenty stores across the country, with 4.5 million members and $366 million in annual sales. With this growth and the expectation of further growth, the co-op felt it needed a more experienced board to navigate not only its scope, but also the increasingly competitive market for the goods it sells.
It takes considerable ingenuity to create a board of directors that encompasses the specific skill sets, perspectives, and cohesiveness required to govern effectively. A good board has a range of experience, knowledge, and insight at the table, and will help management to navigate the decision-making process effectively.
In a November 2016 presentation at the Centre for the Study of Co-operatives, MEC’s Chief Governance Officer Shona McGlashan outlined how the organization identifies potential directors to stand for election and the impact of recent changes on that process.
MEC has three categories of criteria that potential directors must meet to run for the board — the basic regulatory requirements (such as age); minimum conditions (such as having voted in one of the two previous elections and purchased or rented from MEC in the previous two years); and discretionary criteria. For its 2014 board election, MEC made changes to the process of director selection that included requiring the board to recommend from four to nine nominees, based on discretionary criteria that outline twelve areas of desired qualifications and experience, including retail sector experience, brand management, information technology, financial acumen, and co-operative leadership.
In 2014, the co-op added a stipulation to the minimum standard criteria: new directors were required to “have experience of serving on a board or senior management in an organization of comparable complexity to MEC, in terms of size, scale, and reach.” This was controversial among some of MEC’s members, who saw it as a divergence from the values of the co-operative business model.
McGlashan, however, indicated that the change was beneficial for the overall structure of MEC’s governance, in that it allowed the co-op to elect directors who could understand the needs of a large business while maintaining its commitment to co-operative values. Though a minority of members expressed concerns about the change, MEC also had its largest election turn-out ever in 2014, and the membership has thus far elected the candidates put forward by the board, which she claimed is an indication that members trust the process.
The relationship between a board and management is dynamic and needs to reach a point of mutual respect to function well. In her presentation, McGlashan drew attention to the following spectrum of board-management relationships, indicating each side’s perspective of the other. The optimal relationship is when the board sees management as “engaged collaborators,” while management sees the board as “helpful partners.”
McGlashan explained that every board shifts along the scale at various times and is constantly trying to arrive at this “sweet spot” of governance. For MEC, implementing new board criteria has been part of trying to find this balance.
MEC felt the new minimum criteria standard was not needed for the 2017 election, so it will not be applied this year. According to McGlashan, there were a number of reasons for this. First, enough strong candidates were available without imposing this particular restriction. In previous years, she explained, the nominating committee had spent a lot of time determining whether applicants fit the criteria and less time on whether they were a good fit for the organization. Finally, this particular criteria made MEC’s goal of increased diversity on the board more difficult. Changes are made to nomination criteria on an annual basis, and although the restriction will be removed this year, it could be implemented again in the future if the co-op feels it necessary.
MEC is not alone in experimenting with modifications to the board selection process — indeed, a number of other co-op are altering their governance structures as they become larger and more complex. Some boards are reserving a fixed number of positions for people with specific professional skills, while others are following a somewhat similar process to MEC and screening candidates against a list of desired competencies. Other co-ops are working with elected directors to identify missing skills and then providing training to address these gaps.
For MEC, the changes to the board nomination process have been valuable. As McGlashan commented, ““We’re responding to modern-day pressures to ensure the success of the co-op business model.… In order to be a phenomenally successful business, I think we need great sophisticated leadership.”
If you find our blog useful, please add our link to your website.