The Ozark Natural Foods board of directors is ready to settle a controversial issue that has led to 16 months of turmoil amongst owners, employees, and management.
The board will announce their decision on whether to use reserve funds to pay off the store’s building loan at an event set for 1 p.m. on Wednesday, Dec. 5 at Ozark Natural Foods.
The loan payoff issue is one of a handful of factors that ultimately contributed to a worker strike over the summer.
Co-op officials said that owners, shoppers, and community members are encouraged to attend the announcement.
What is the basis for the “controversial turmoil”?
Seems like a basic business issue.
If they are paying off their loan or have the ability to, what’s the problem.
Think the cash is earning as much as the loan is costing?
There are several issues here. Paying off this mortgage will cost, in addition to the principal amount owed, over $400,000 in penalties. This penalty was part and parcel of the original mortgage which was negotiated only four years ago. This $400K penalty is a pure cost with little benefit to the CoOp members (owners). Why would a business entity negotiate a mortgage with such a penalty and then turn around four years later and pay the mortgage off early?
The question is not whether ONF is now earning more on the excess cash than the mortgage interest. Right now, they are doing very little with it. The question is what *could* they be doing with that money (improved operations, better utilization of building, recruiting of professional management, etc.). A truly professional board and management would be finding more productive uses for this money than to just hand it over to Bank of America. What is needed is vision and creativity. In the world of business there is the phrase ‘Cash is King’ — liquid assets are prized. Owning the building outright ties up cash and will require keeping prices high to replenish cash for our future capital needs.
The money that ONF has accumulated belongs to its members. It is a direct result of the markup (high by CoOp standards) on the goods they sell. As a member cooperative, prices charged to owners above cost and overhead belong to the owners in the form of patronage to be returned to the members. The last several years only a small portion of that patronage has been returned – and the rest belongs to the members. It is our money. While we delegate many decisions to our elected board of directors this decision, the largest single transaction in CoOp history, rightly belongs to the membership as a whole. The current board and the current management have not demonstrated they understand asset and debt fundamentals. What is called for is bringing in outside advisers who can analyze the pros and cons of various uses of our money – and these options brought forward to the general membership.
Are they seriously going to blow $400k paying off a mortgage early? If so, that’s crazy. How many members do they have?
How much would $400k be if given to each member? I mean, if they are just going to be throwing away money….
They could always expand into that gym next door. Don’t they own that too? I’ve wondered why their recent renovation didn’t include more landscaping of the hot, ugly parking lot.
Because they were given a 5 yr lease with an option for another 5 yrs. Not having this space available makes the development of the basement as a community resource impossible because we need multiple exits.
Poor planning also means they don’t have a space for their own meetings. Board and/or membership groups have been renting space for meetings off the premises in another part of town. One Board member said for the record that the gym building is off limits for years.
As owners we might agree that 1) paying off the mortgage now is in our best interest, and 2) paying a very hefty fee to pay it off early is also in our best interest.
Many owners have been asking for more information about this issue including having a professional asset manager provide insights on the pros and cons of the payoff versus other options we have with these ‘owner paid excess profits’. But the majority of the current board does not feel that we need professional assistance or insight. They express their support for the ‘professional management’ team in place at the store and want to rely on their judgement. If the current management team was as financially competent as the board now suggests, why did they get us into this mortgage only four years ago. Was it a bad decision then, or is it a bad decision now.
The board should do their job and find out for themselves if this is the best way to use these excess funds. Their reluctance to get independent professional advice leads me to believe they are not convinced that professionals would agree with their decision.
Some board members and management report that in the fall of 2011 they had an equity drive to raise additional funds to payoff the mortgage. During this drive some owners did pay additional money into their equity account. Now these board members and management claim that those owners who made these payments all support the payoff. Unfortunately, during the drive they failed to inform the owners that there would be a substantial prepayment penalty. Don’t you think that would have given most owners a reason to question the payoff decision then, and now?
As an owner, I want real professional advice and insight so the best decision for the co-op can be made and I want the owners to have a vote on this issue. It is the single largest financial transaction this co-op has ever undertaken (40 + years) and it deserves full owner input.
As I recall, the Chair of the ONF Board of Directors, along with a couple of board members, tried to oust two board members for asking for additional input on the decision from financial professionals, indicating a desire to bring the matter of the building sale to the members, and various other breaches of the cloak of nontransparency.
Here is a relevant thread:
http://www.fayettevilleflyer.com/2012/06/11/ozark-natural-foods-workers-on-strike-demand-resignation-of-board-members/#comments
In addition to links to ONF board meeting minutes, it includes the following letter from Sue Graham, one of the board members threatened with removal (originally posted on the ONF Facebook page):
“Response to Garrett Brown’s Petition to Remove Susan Graham There has been much discussion about the Ozark Natural Foods’ Board of Directors and its duties. In many ways, this discussion parallels discussions in the media about corporate boards. A recent article in the NY Times by H. Hurt blames the financial crisis on the failure of many, if not most, corporate boards to simply do their jobs. ‘The boards were supposed to monitor risks, provide judgment and supervise managers on behalf of shareholders.” Ironically, “Four days before Lehman filed for bankruptcy, the CEO announced that the board had been wonderfully supportive.” In February 2012 Ozark Natural Foods (ONF) Board Director, Garrett Brown filed a petition to remove me from the board with the complaint that I was an obstruction to the functionality of the board. In his original petition, he stated that I tried to stall voting on the proposal to pay off the loan on the ONF building. The remaining loan amount is 1.9 million dollars, which includes a $300,000.00 pre-payment penalty. I had, indeed, requested the Board wait on the vote for several reasons. The newly elected Board had just received the proposal in June, 2011, with instructions from the General Manager (GM) to not tell or discuss it with anyone. The GM did not tell the Board to seek the opinion of experts as she stated at the 2012 Annual Owners’ Meeting. Instead, she told the Board if they had any questions, to come to her. The GM wanted the board to vote to pay off the building loan at the July meeting. I thought we should seek the advice of an expert regarding how much we needed to leave in reserve if we pay off the building and become debt-free. The GM said she would retain $400,000.00, which would take care of any unforeseen events. The Business Plan the GM handed in the month before she gave the debt-free proposal said $600,000.00 would be needed to cover such events. I also questioned whether it might be necessary to leave a certain percentage of owner equity in our account. And, of utmost importance, Linda Ralston and I both wanted to wait so the owners could give their opinion since ONF is a COOPERATIVE. Paying off the building loan meant many projects, like expanding into the basement, would have to be put on hold. We felt the entire membership should have been consulted, not for their vote, but for their opinion. Our request to delay the vote was ignored and the President called for the vote, stating she was doing so because that is what the General Manager wanted. The General Manager had stated that if the co-op did not have to pay the $15,000 monthly mortgage payment, she would be able to lower prices. However, when I later asked that the decision be tied to a commitment to lower prices, I was told the building pay-off was for no other reason than to simply be a debt-free company. After hearing that, I felt like we had been given a bait-and-switch; that while we were told it would then be possible to lower prices after the payoff, then were told there was to be no guarantee regarding lower prices. After looking over some specifically requested financials, I saw the huge profit margin. The quarterly reports we had been given had not shown that information. It is this huge profit that created the reserves, which made the 1.9 million dollar building pay off possible. I was surprised that I never heard an owner ask how we were able to pay off almost two million dollars when only 12 years ago ONF was nearly bankrupt. The answer to this unasked question is that the General Manager has been saving $60,000.00 a month. She even reported to the last board that we were ‘swimming in money’. At that meeting, the finance manager, Gary Cook, said if Whole Foods comes in, we could lose a third of our business and still have $300,000.00 excess annual cash flow. I investigated other cooperatives and looked up suggested benchmark figures for the profit margins. I found that other cooperatives worked with only one and a half to two percentage points as their profit margin.
“The 2012 General Manager’s Business Plan lists an expected profit margin of 6.8% for 2013, 6.77% for 2014, and 6.55% for 2015. Those figures do not represent lower prices at all. If ONF was a traditional, profit-seeking corporation and I were a shareholder, I would be thrilled with the picture these figures painted. Someone from ONF regularly visits the Whole Foods store in Little Rock or Tulsa and has announced that our prices are in line with those stores. I am not comforted with this fact. Whole Foods is a corporation with shareholders who expect a profit. Yet the profit margin listed on their site when I looked up these figures was only 2.9%. I brought this issue up at a lot of the meetings, which may have given one cause to say I was ‘obstructing’ other business, but I felt that this was an important concern that many owners are likely to share. Another issue raised in Garrett’s original petition discussed my feelings about the treatment of the staff. I did have a problem with the most recent employee satisfaction survey. Surveys for the past six or seven years have all indicated there were issues of favoritism by the General Manager. The most recent survey taken had only one question concerning favoritism and it was combined with nepotism, which caused confusion. Linda, Jim, Kathryn, and I wanted to use a provision in the bylaws that allows for employees who work more than 20 hours, and who have been there longer than six months, to evaluate the GM. We felt it would be helpful if the employees were allowed to do a free-write narrative to help us with an evaluation. This evaluation, or any other, was never done. I did have other concerns about the employees that take me back to the topic of the amount of our cash reserves. The 2011 General Manager’s Business Plan (page 25 – 27) discusses changes that she would make if competition comes to the area. She lists these changes under the heading of ‘Contraction’, which means benefits are ‘taken away’. Discounts would be systematically removed, starting with the deli, then the wellness discounts, and finally reducing the overall discount. IRA contributions would be lowered and possibly eliminated. Insurance benefits would be changed with a complex system for figuring out which non-management employees would retain coverage. And, finally, there would be a hiring and pay-freeze as was done when ONF first moved to Evelyn Hills. If we had more money in reserve, we might be able to handle competition without hurting our employees. This is another reason I wanted to be able to get the owners input before the ‘debt-free’ vote was taken. The GM’s contract was one more issue that was brought up. I was not trying to prevent the development of the GM’s new contract. For the record, the General Manager was never without a contract. All four of us in the majority felt it was important to follow the eight-step guideline for making a contract. This guideline was provided by the organization of consultants that are used by both the board and management. ONF pays a lot of money for both management and the Board to have consultants from this organization and it seemed irresponsible to ignore their advice. The GM’s contract automatically rolled over to a new one, so we felt we had the time to do things properly. The eight steps included evaluating the General Manager. Past President Tuesday Eastlack repeatedly has said the primary purpose of the Board is to support the General Manager. Jim, Kathryn, Linda and I believe our main job as directors is to ensure accountability to the owners. Several economists talking about the world financial situation have criticized many corporate directors for acting like cheerleaders for the CEO and being weak people who did not ask questions. This whole issue brings Ozark Natural Foods to a real crossroads. Owners must decide if they want a ‘rubber stamp’ board, or a board that will ask questions, monitor risks, provide judgment and supervise the general manager. Do member/owners want directors that represent management, or directors that represent owners? Owners cannot lose sight of the ideology that made Ozark Natural Foods so great, a store that provides foods of the highest quality at the lowest prices. More than ever, our co-operative needs the strength of oversight that will make it even stronger in a competitive world! Susan Graham”
Note that the letter cites a $300,000 payoff penalty.
Unfortunately, the ONF is run by people with no background in finance and no understanding of liquidity vs. desirable debt. The ONF’s future is in the hands of a clique of well-intentioned-albeit-naive folks whose only leverage right now is that they have no local competition. This is not a business plan, unless duress counts as a business plan. I hope they get some competition, in the form of a Trader Joe’s, Whole Foods or a Fresh Market in Fayetteville. Only then will their entitlement, ludicrous costs and bad business practices change.
I’ve heard there are also buying clubs people can join or form as alternatives since there is virtually no brick and mortar competition: Country Life Natural Foods and Azure Standard.
Co-ops are for people to buy fresh food at bargain prices. ONF is just a pricey food boutique shop for people with more money than sense.
Hey Blarrrgh: what is your hourly rate?
Instead of duress as bus. plan, I would say armageddon-type panic is more like it.
With a hat tip to the Coody admin. ala Wilson Spring, I offer some FUQ’s
[Frequently Unanswered Questions]
Why was the Board told to keep secret the Mortgage payoff proposal and come to a decision almost immediately in July of 2011?
Why have there been no significant price reductions as promised in exchange for supposed Member support of the mortgage payoff?
Why has it taken the Board over a year to decide not to hire an independent expert on the $2million payoff?
Why has Management refused to offer a precise financial rationale as to how the debt payoff will enable lowering of prices?
If carrying debt is such a problem, why was the building purchased in the first place in 2008?
Can Management and Board explain how a strategy of excess profit accumulation (almost $1m per year) is appropriate in the context of ONF and its Cooperative structure?
Why did Management support the Staff lockout of the Membership by not running the store with a skeleton crew?
Why has Management decided to prepare for ONF contraction in the face of compeititon rather than expansion of: the Store, cultivating Membership loyalty, and increasing dividends to Members?
BTW FLYER:
THIS PAYOFF doesn’t really “settle” anything…
Since the staff and management lockout of the store earlier this year I’ve been tuning in how the ONF Board operates and can say that it appears to be in closed “executive” sessions far too often. This means no owners are allowed to attend . Our representatives on the Board have been forbidden from communicating with the owners (ie threatened with legal action by other Board members or management) about the mortgage payoff. Now suddenly there’s to be a press conference. It seems its either too early for owners to become informed or too late.
Then there are issues like the fact that $250,000 a year is listed on the ONF books as “waste”–what is this about? Is this good management? Is inventory walking out the back door? What happens to high priced food items that are never discounted to the membership? Does anyone take it home or is it just thrown out?
This is supposed to be a co-operative and a co-op has certain obligations to it’s membership. So why can’t owners find answers to such basic questions backed up by real data–not just an offer of a personal meeting with management where one is left feeling blown off and after which nothing changes?
“… closed “executive” sessions far too often. This means no owners are allowed to attend “.
Lately the Board holds these “executive” (i.e. closed) sessions almost regularly as part of its meetings. Criteria for “sensitive” topics include just about anything to do with money, real estate, personnel, etc. It’s the increasingly broad interpretation of these topics that’s the problem.
If we grant that secrecy is sometimes justified, there’s still the matter of members being asked to vote for new board members without knowing what’s transpired at meetings. Minutes aren’t approved and released for a couple of months. Secret session minutes are of course never released but the decisions made there are supposed to be communicated to the membership and the subject of each secret meeting is supposed to be announced in advance. I believe these things aren’t always done in a timely manner if at all.
The Board has the capacity to tape meetings (video or audio) but refuses to do so. Members are not allowed to tape. However, at an official ONF “owners forum” several months ago, anyone wanting to speak was video taped without being asked first. I’ve no idea how those tapes were used.
Members who have asked for clarification and facts have been told they don’t need to worry about board deliberations and actions. Members are told to just “vote with your dollars”. In other words: Lie back and think of England.
I was in the dark before the strike last summer, except for the vague letter send in March by the board, so then decided to do some research. I was frankly appalled at what I found. I watched the YouTube video from the “unofficial owners fourm” that tried to remove the 2 board members that brought the question of asking a professional financial expert. The general reason given for their requested removal was that these board members were being “uncooperative”. It seems like the video has since been removed, as I had trouble finding it again, but to me the meeting was reminiscent of a lynch mob, and had about a much information of the issues as one. Only after reading the minutes of the past 12-18 months of meetings did I start to get some inclination of what was going on, together with some “insider” postings, which may or may not be biased. There are a lot of issues, many discussed in the thread posted above, so I won’t repeat them, but since summer I have limited my shopping at ONF – I may go by now and again for produce and Quorn products – but spend less than 1/2 of what I used to spend there (voting with my dollars as one comment above stated). Refusing to obtain professional financial advice when $300,000 – 400,000 (reports vary) is at stake is, at best, irresponsible. The multiple closed door meetings suggest to me that its probably not an “at best” situation.
Regarding $300,000 vs $400,000 payoff penalty, the amount has varied. It is tied to the LIBOR (London InterBank Offered Rate). As LIBOR goes up the penalty goes down. At the most recent board meeting (Nov. 27) where the payoff schedule was announced Mike Anzalone reported the current amount of the penalty was ‘more than $400,000′. We need a financial expert with deep experience in asset management to consider the calculation of the payoff penalty amount, the future rate of LIBOR, and a number of other complex factors and report back to the board and the membership before making this important decision.
I have been to ONF three or four times in the past year or so. Each time, when I am asked by the checkout clerk if I want to join, I told them that the board shenanigans and high member prices– never mind the “outsider” prices– kept me away. (I don’t buy enough there to recoup the membership fee in rebates.) A couple of them didn’t seem to know at all what I was talking about. And in each case, when I asked if the board was still determined to pay off the building loan, the clerk didn’t know.
If this is still going on, and if the membership generally doesn’t know what is going on, and if the members who know haven’t been able to do anything about it, then those are huge reasons to not join. I am beset enough already by Teabaggers who don’t know anything; I certainly don’t want to go into business with a bunch of know-nothings posing as hippies.
Let me know when the membership prepares to sue the board over this issue, and I’ll think about reconsidering.
You sure spread alot of type for someplace you only go to a few times a year. Maybe if you had a pompus font you wouldn’t have to type so much. Peace and Love.
The Flyer’s software doesn’t allow pompous font, so I make do. I’m hoping they will upgrade soon. The addition of the pompous-font option will enable the whiny-font option for you as well.
I know it all looks very difficult to you, but copy-and-paste is even easier than research or knowing what you’re talking about. I do all three. Let me know when you matriculate.
I learned to cut and paste prior to elementary school and to opine with abstract thought in high school.
Yet you retain that child-like ability to marvel at the arcane undertakings of adults.
@mmueller:
And in college, I learned how to do the first and make it look like the second.
From what I’ve gathered the building is worth far less than what it was worth at time of purchase. If this is true, would it be wise to spend nearly 2 million dollars to pay off a building worth let’s say 1? million? Or is it wiser to invest that 2 million on store expansion and improvements that would actually give us a return on our investment? The minute we pay off the building we may be throwing away a huge amount of equity. I feel there is a lot of secrecy and withholding of the financials which should be made public. Most cooperatives have all their financials available online.
Below is the language of a petition that is being circulated to demand the ONF Board of Directors actually get professional advice on managing our money and hold a vote on uses for the cash we have accumulated. If you are interested in signing, please email ONFMembers@GMail.com for arrangements to receive/sign a petition. Time is running tight on this — if you want to sign it, please do so today.
~~~~~~~~~~~
TO: Ozark Natural Foods Board of Directors
We the undersigned owners of Ozark Natural Foods do hereby petition you to:
1. Provide more information about the currently approved mortgage payoff to include advice from a professional asset manager who can address advantages and disadvantages of this and other possible uses for the current cash balance, and
2. Allow the owners to vote on the use of the current cash balance. If more than two options are considered, and no option receives more than 50% of the votes, then a runoff vote must be taken to ensure that the selected direction for these funds is supported by the majority of owners who vote.
Would the Flyer staff be so kind as to put OneCoOpOwner’s post above on their Facebook page? It needs to be distributed.
You are a mensch Franks. And thanks to all the other folks who have spoken out.
YOU WOULD THINK, IN THIS DAY & AGE, that those acting in a fiduciary capacity (i.e., use of OTHER PEOPLE’S MONEY) would be beyond DO IT BECAUSE WE SAY SO,
but unbelievably this is not the case.
The Board majority insists on making this a binary (yes-no) issue to their everlasting dis-credit! Some of us dissenters will offer that THIS JUST MIGHT BE THE BEST THING SINCE the invention of Granola. But in the utter absence of any financial rationale whatsoever (appeals to “no-brainer” common sense & other empty forms of rhetoric are irrelevant but all that has been offered to date), we will never know whether this is true or not.
Aside from that fact that in Fiduciary Land it is not only WHAT your decisions are, but HOW they are reached that is significant– one would think with all those uninformed Board / Manager rear-ends hanging out there, they would get that independent expert advice protects all concerned.