Credit Union and Cooperative Patronage Refunds - Filene ...

epayment, and/or if the asset is one of those expenditures that
begets more expenditures on other assets to supplement the initial
expenditure, there is no assurance that redemptions can be sped up.
The opposite—that redemptions are slowed down—may, in fact,
be true. But, as between an IOF and a co-op, the co-op’s incentives
clearly lean in favor of distributing as much cash as soon as possible
to redeem equity, while the IOF’s incentives clearly lean in favor of
holding on to extra cash and reinvesting it in the IOF.
In fact, an expenditure that triples the co-op’s market value does
not hold the same fascination for a co-op that it does for an IOF. A
natural tension occurs among
members in a co-op, where
The counterweight to members who want redemptions of acquiring assets and growing
equity is usually that the board of directors has a fiduciary the business necessarily mean
obligation to look out for the co-op’s interest in surviving and that cash for rede mptions of
flourishing for future generations.
allocated equity is reduced or
eliminated. This member interplay
pushes management and
the board of directors to carefully examine asset expenditures because
the leadership knows it will be criticized by members who prefer cash
redemptions of their allocated equity over asset expenditures. The
incentives that an IOF operates under to continue investing in assets
to grow the IOF’s value do not exist in a co-op.
Because a co-op’s strongest and most respected members are typically
older, more vocal, and experienced and hold more allocated equity in
the cooperative, their views often carry more weight 9 than the views
of younger members, who care less about redemption of equity and
more about the state of the co-op’s competitiveness, its asset bases,
and the extent to which it is providing for the needs of members. So
the counterweight to members who want redemptions of equity is
usually that the board of directors has a fiduciary obligation to look
out for the co-op’s interest in surviving and flourishing for future
generations.
The only time that a co-op member (or former member) benefits
from the market value of the cooperative is at its dissolution. The
members of the cooperative who purchased an asset tripling the
co-op’s market value would enjoy that added value only if the cooperative
is dissolved, but former members (even members who are
deceased and no longer own allocated equity) would also enjoy that
accretion in value because they are all entitled to a portion of the dissolution
distribution after all allocated equity is first redeemed. The
remaining proceeds are distributed to members and former members
on the basis of historical patronage, theoretically to former members
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