January 2013 Approved Minutes

DAVIS FOOD COOPERATIVE, INC.
BOARD OF DIRECTORS
MEETING MINUTES

January 28, 2013

The regular monthly meeting was called to order at 7:00 pm at the Davis Food Co-op Teaching Kitchen Conference Room, 537 G Street, Davis, California, by Zoë Plakias

Roll Call:

Directors Present: Zoë Plakias, Dina Biscotti, Stacie Hartung-Frerichs, Ed Clemens, Steve Reynolds, Desmond Jolly, Travis Breckon, Bija Young, Ben Pearl (7:04)

Directors Absent: Bernie Goldsmith

Janie attended via written comment

Staff Present: Eric Stromberg, Doug Walter, Julie Cross

Guests Present: Kimberley Yost

Roles:

Facilitator: Zoë

Time Keeper: Travis

Notetaker: Nathan

The Secretary determined that notice of the meeting was duly provided as required by Bylaw Art. VIII §6(C), and that a quorum of Directors was present under Art. VIII §6(B).

Member Comments:

Stacie: So, I received two letters. One was a thank you from a Girl Scout Troup. And the other was a letter about why somebody revoked his or her membership. I had a member comment to me that she would be interested in ordering food online and picking it up in West Davis.

Desmond: I got a communication from a member Martha T. She has wanted to have more explicit directives from the Co-op regarding what items in the deli are recyclable.

Read Ground Rules: Nathan read them

Announcements:

Julie: Souper Bowl tickets go on sale tomorrow. It is the last Sunday of February as usual. We have had a “yes” from every restaurant we’ve invited.

Stacie: I’ve been attending Yolo Food Connect. We are the only retailer besides the Farmers’ Market who attends. The discussion came up about why we don’t push people bringing food into the county to source locally. Sodexo is now sourcing locally due to that initiative. This Thursday is Soup’s On benefiting the kids farmers’ market. February 10 from 4 to 6, we have invited potential directors to come and talk. Over the break, I visited two co-ops and I brought stuff from each of them: one was Quincy the other was a co-op in Carbondale, Illinois; I’ve brought their newsletters and membership material.

Zoë: A week from today we are having a linkage event. It is targeted to member workers and Superworkers. It’s mentioned in one of the consent calendar items.

Safe Conversation:

Steve: Where are we with the liquor license?

Eric: She [our lawyer] hasn’t found one yet.

Stacie: I got an email today from my fish CSA that said we will now be picking up our fish at the Co-op. I think it’ll be really great to get people into the store.

Ben: Zoë, Dina, and I went to the staff party. After the party, I ran into an employee. He pointed out that it was kind of bummer to him that more management didn’t show up. I noticed that when we were there that there was a distinct lack of upper management and board members.

Dina: Is that typical?

Eric: Yeah. Managers live in Sacramento. Managers have young children.

Bija: Partying with your staff can be awkward.

Eric: Our attorney advised us that it’s unwise to fraternize with people you supervise.

Stacie: I wonder if there’s another way to build community that’s more comfortable for the upper management.

Eric: We usually do two daytime events during the summer.

Julie: We also had a lot of illness.

Ed: Regarding this mixing of different levels of peoples, I’ve worked in biotech and we’ve always had everyone from board members to people who clean the cages. It’s an opportunity. One time the company rented a boat, so you couldn’t escape.

Eric: The directors are invited every year.

Ben: I wonder if there’s not a middle road where upper management could come for a token moment at the beginning.

Kimberly: When I worked retail, we did a staff shopping night in the holidays. There was food to eat and the staff just kind of wandered around the store. It gave an opportunity for everyone to be there.

Stacie: I heard we hit a dip in sales.

Eric: We’re down 1.8%. Whole Foods is doing student night now on Thursdays with an activity. They did two–for-one burritos one night. Next week they are having a fashion show courtesy of the Gap, and they are giving free makeovers. It’s the younger demographic that they are attracting. The other thing we’ve heard from other food businesses is that ski-season is hitting everybody hard this year. We know that Whole Foods isn’t going to just take it if sales are down. I do go down and count how many pallets they receive. They really are not doing much business. Even if their goal was to market to students, I don’t think they wanted to have a loss.

Desmond: I listened to the president of that corporation [John Mackey]. He was being interviewed on KQED. It was amazing to me; he’s made so much money, but he’s not that aware of how the society works. He attributes the longevity of people in rich countries to business. He calls labor unions “herpes.”

Eric: There was a comment at the Hibbert Bulletin board that said John Mackey is why we shop at the Co-op.

Stacie: He was the keynote speaker at CCMA in 1991. He said to co-ops, “I know what you do, I can do it better, and I’m going to put you out of business.”

Eric: There were two regional people in our store from Whole Foods taking pictures.

Agenda Review

Zoë moves to adopt the agenda

Dina seconds

Passes unanimously

3.1 Annual Review

Steve: The audit task force met with Eric and Kimberly to go over the review with our accountants. The other part of that meeting was to present Jack Young with the Golden Carrot. Thanks to Jack, we have progressed in a lot of ways. He’d suspected some errors from the prior accounting firm and he was right. It was a clean review. The process was good; in terms of results, we had a big loss.

Kimberly: The loss was due to salary and spiffing the store up for Whole Foods. There was a budgeted loss, but the loss was higher than we’d budgeted.

Steve: There was an adjustment to depreciation.

Eric: Our previous firm had not properly calendared depreciation.

Steve: We had $70,000 in staff leaving and taking severance and paid time off.

Eric: We were out of compliance for one of the banks loan requirements, but because they were one-time expenses, the bank issued a waiver.

Stacie: Was that hard to get?

Kimberly: Not at all.

Steve: Are we doing accruals for future staff leaving?

Kimberly: We have an accrual for vacation. What got us was the severance pay. That was never accrued but it should have been.

Eric: It was never an official policy; it was a practice. When we started the practice, we were flush. You got a week’s pay for every year you worked.

Kimberly: We’d need $450,000 if everyone retired.

Eric: We’ll put out a new handbook to inform everyone. It was never really advertised.

Desmond: People aren’t aware of it?

Doug: I’d never heard of it.

Desmond: Did it precede your coming to the Co-op?

Eric: Yes and no. It was not applied consistently. It’s a really generous gesture, and if we were in the same place we were 7 years ago, it’d be nice to still do it.

Kimberly: We’re thinking of altering the 401k to apply bonuses to retirement based on store performance.

Ben: An employee dividend?

Eric: Sort of.

Stacie: I think it’s in the treatment of staff policy that you have to alert us before you institute that policy.

Kimberly: We’re just barely getting it started.

Stacie: When I was reading through the financials, I noticed we had a 0% interest lease if we kept enough money in our checking account.

Kimberly: There’s a note about that on page 11.

Steve: I would encourage you all to study these [packets] and put questions on the agenda next meeting.

Dina: Is there much we can do with the time of use rates from PG&E?

Eric: No. Not Really. They’re changing the time of use rates on businesses our size. We are continuing to look for upgrades.

Ben: What’s the current percentage that we’re off-putting with solar?

Eric: 5%

Stacie: I was going to ask questions about what makes you nervous or if there is anything you see that we should be thinking about. Especially in light of a potential member shares program and our competition.

Kimberly: I think you have to hire some outside company to administer the preferred stock. Even 5,000 loans is an extreme amount of information. When you’re analyzing going in that direction, we should do some research on the costs involved.

Steve: What we’ve heard from groups that do have preferred shares is that it’s not that much money.

Kimberly: The other consideration then, is that you’re going to have to have a significant amount of preferred stock to really reduce your debt. If you start taking 2,000 member loans, it’s really immaterial compared to your debt.

Desmond: My concerns were similar to yours. I was more concerned with the concerns expressed by Kenna about how we schedule the maturity of these obligations so it doesn’t become a problem. I would want to have professional advise about this.

Stacie: I noticed our cash position was lower at the end of this year than last year. Do you see any issues?

Kimberly: Currently our cash position has been somewhat steady. As far as these financials, we know what the significant issues were that caused us a net loss. As far as these particular statements, we’ve pretty much hit the big topics.

Eric: I felt that Campbell Taylor paid so much more attention than Gilbert.

Kimberly: I would compare the cost of audit versus review. They’re shouldn’t be any adjustments to an audit. They spend more time detail testing our systems. That’s important to have happen. Whether it’s 3 or 5 years doesn’t make much of a difference. If something is going wrong in the point of sale system, the audit may catch it.

Eric: The audit was more than twice what the reviewwas: $14,000 or $15,000.

Steve: And more staff time.

Dina: The last time we had an audit was with Gilbert; we’ve never had an audit with Campbell Taylor.

Steve: That’s an audit task force decision. We’re currently scheduled to meet in June. Maybe we’ll schedule a meeting in May to ask whether we want a review or an audit.

Kimberly: I should be independent of your decisions about that. I can give you information discussing the details of what happens between a review and an audit. But I don’t want you to feel like I’m trying to influence you.

Stacie: I was wondering if you felt like you were getting the support you need.

Kimberly: I think people are listening and doing what I request.

Steve: Depreciation is a huge number these days. What’s it going to be in 5 years?

Kimberly: I want to run some projections. I anticipate we will see drops.

3.2 March Retreat Brainstorm

Ben: I’m interested in getting staff input before the March brainstorm. I think we should get a good picture of what’s happened with employee compensation over the last 5 years. Where we are, how we got here, what could we hope to achieve.

Zoë: Potentially that could be a small presentation.

Stacie: I’m wondering if we couldn’t say that one of items of the March meeting could be the establishment of a task force. Janie is in support of idea number 1. I actually also like number 1, but what would that look like? Would we sit and list things?

Desmond: I agree with you. I’m concerned when you look at options for investment; so much goes into it.

Dina: I guess that discussion would need to be more like values than financial feasibility. What would potentially line up with our values? With the laundry closing on 8th street, there are potential unmet needs in the community.

Stacie: I don’t know where we want to go with the retreat. Last year we did 3 hours on the ends and an hour with Art. I’m just wondering if instead of a brainstorming session, we could start planning a little bit more how we would have this conversation. This whole NCGA meeting is all about that. But it’s a month after our retreat. I’m trying to direct it more to a process.

Steve: This is the time, when we are starting to rebuild, to think about how we look at growth or if we want to be anything other than a former Safeway on G Street.

Zoë: I was envisioning that we need to have an initial conversation about how to have a more productive version of the conversation.

Eric: I think you should frame it one year out from Whole Foods. If a year from now we’re at a place where our cash flow and balance sheet says we’re ready to do more than survive, what do we do? And if we are still at a survival mode, what do we do?

Zoë: I’m hearing short facilitated visioning scenarios. So, are we comfortable with the education task force formalizing that?

Stacie: I want to know a few things, if we want a facilitator. Also should the top leadership team be there?

Dina: I like the framing a lot.

Stacie: There are people in Davis who could facilitate, but do we want someone who knows something about co-ops?

Desmond: Maybe someone from the business school could facilitate?

Zoë: The education task force can pursue having a facilitator.

Stacie: Eric, what do you think about inviting other managers?

Eric: I think it would be fine.

Dina: Would the West Village option be something to throw into this discussion mix?

Eric: I advocate the Zingerman model. We aren’t going to start another grocery store; Davis doesn’t need one. Where can we grow? How do we set those boundaries? How do we engage our members?

Dina: Is there something from the Zingerman’s model we can read in advance of the meeting?

Stacie: Do you need a budget?

4.1 B4- Annual Review and 4th Quarter Financials

Eric: We covered a lot of the highlights already. We had a larger than budget net loss; we discussed why. We can see the sales. We took a hit from Trader Joe’s; we recovered. We more than recovered from Trader Joe’s. Our customer count grew. The other interesting piece is that we haven’t recovered per sale.

Ben: An interesting comment I’ve heard from people who shop at Trader Joe’s is that they won’t stop shopping at the Co-op, but will buy certain items at Trader Joe’s.

Eric: The last graph I gave you was end of year cash. We did end the year with slightly more than 1 million dollars. The challenge in the coming years is to keep cash flow neutral. I wanted to point out one typo. In the paragraph about PG&E, I wrote 2011, but I meant to write 2012.

Desmond: The million-dollar cash target, is that dictated by our bank?

Eric: It’s a best practice; you want 15 days of cash on hand. We’ve always tried to exceed that and have 20 days.

Steve: We could have a windstorm and the store would be closed for three days because we don’t have power.

Janie: Interesting impact caused by the miscalculation of depreciation. I wrote Jack Young about this earlier and he responded favorably (something along the lines of, “change is good”). I am still unclear on the impact of inflation on sales numbers. Maybe Kimberly could comment on this at some point. Clearly, despite zero inflation stated for the U.S. overall, we are experiencing food inflation.

Dina: I had a question about the margins. When there is a transition between managers, I know that’s a hard balance. Are there rewards tied to meeting margins?

Eric: Meeting margins is a basic expectation of the job. Bija has talked about creating minigames around meeting margin.

Ed: Do we have any idea why the customer daily count is up?

Eric: Julie Cross took over marketing. We’ve done a lot of Facebook marketing. I think there’s truth to John Mackey’s claim that Whole Foods will build a market. So does Trader Joe’s. People who aren’t concerned with organic foods will step into those stores and be introduced to new products.

Stacie: I know some people are trying to add trips to the Co-op because they know about the competition. Some people go to Whole Foods and then want to try out the Co-op to compare.

Eric: We did at least one press release a week for a whole year.

Dina: Is the intention to continue that?

Eric: Yes.

Ed: Since money was spent to upgrade the store, is that working?

Bija: I think it encourages people to put more things in their basket.

Doug: I think if we were still operating the store we had in 2007, we’d be in trouble.

Stacie: There’s also the addition of 20% more products.

Desmond: I’ve heard people say they just like being in the store.

Dina moves to accept B4

Desmond seconds

Motion passes unanimously

Break at 8:41; Reconvene 9:00

4.2 Charter Elections Task Force and Staff Election Update

Stacie: Janie is willing to serve as the lead. Does anyone else want to join the task force?

Zoë: I will.

Ben: I will.

Stacie moves to charter the election task force as follows:

Thenominationsandelectionstask forceis authorized to review and approve the 2013 Election Materials, and to serve as the Board's partof the team of persons providing an impartial analysisof measures to be voted on, per Bylaws, Art. IX, Sec. 6 (C)(4)(a). The team will consist of the task force and staff. The task force is authorized to make decisions on all election related issues and speak for the board on such issues. The Task Force will notify the Board of all actions taken within 24 hours. The Task Force has no authority to spend Co-op funds.

Lead: Janie Booth

Members: Zoë; Ben

Zoë seconds

Passes Unanimously

4.3 Member Capital Update

Steve: We’ve sort of been hoping to piggyback on the efforts of others. We’re starting to run out of time; we sort of need to get going on this. There are a couple of steps. 1) We have to amend our articles of incorporation. The Secretary of State’s office clears the changes to the Articles of Incorporation and then the Department of Corporations approves the changes. The Secretary of State was clearing and pre-approving the Ukiah Food Co-op’s changes. We spoke to Therese on Tuesday and the Secretary of State was supposed to have feedback by Thursday, but that still hasn’t happened. There are pre-1984 co-ops and post-1984 co-ops. We have a little more latitude than post-1984 co-ops. The Secretary of State is taking the position that post-1984 co-ops have to have the members approve the shares each time they offer shares. We want to offer a full menu of shares. Those post-1984 co-ops are going to have to go the membership each time they want to offer new shares with new terms.

Stacie: As a post-1984 co-op, Briar Patch has abandoned their member capital program.

Steve: Amending the Articles of Incorporation has to pass by a 2/3 majority. Then we need to amend our bylaws to incorporate that change; that’s a simple majority. I want to move to amend our Articles of Incorporation. We sort of want Sacramento Natural and Ukiah to move forward.

Stacie: Because we need to have the Secretary of State’s office pre-approve our Articles of Incorporation, the task force wants to have the proposed changes to the board first. Then we’d go to the Secretary of State, get her approval and vote to include those changes on the ballot. We hoped to bring information about Ukiah’s proposal. One thing that the task force is going to ask of you is to have a special meeting, so we can come back in a February or March meeting.

Desmond: When and how would our attorney be involved?

Steve: Therese is our attorney; she’s drafting the proposal. We don’t have a formal proposal for that. Using the feedback we are getting from Ukiah and Sac Natural, we can decide with the board what range of shares we want to offer.

Zoë: Before the 4 pm event on the 10th is a possible time for us to get together.

Julie: We have had a situation in the past where we had members challenging us when we placed things on the ballot and then advocated for them.

Stacie: We can’t expend Co-op funds on something once we place on the ballot.

Doug: A lot of the details will be in the bylaws, set by the board at a later time. Stacie’s email had a lot of really good talking points. I’m hoping that we will be able to do a little education about that.

Stacie: The first question we’re going to get asked is what are you going to use the money for. Please send changes to me. I want to also say that I heard Desmond’s comments about cost, and I noted it, so we can address it.

5.1 GP5 Board Task Force Principals - Second Reading

Stacie for Janie: There is no BGM5! This is for GP5. It is very difficult to require each task force to have a non-director on it. This seems like a more reasonable policy.

Ben moves to accept the reading

Steve seconds

Passes Unanimously

5.2 Second Reading GP10 - Binding Initiatives and Boycott Policy

Zoë: It’s hard to read the changes, so we were discussing moving this to next month.

Dina: Is the most current version on the forums on the board website?

Travis: I’ll ask for assistance putting it up there.

5.3 GP6 - Director's Code of Conduct

Steve: The real trick to this one is ongoing education especially with new directors.

5.4 Charter task force to Review B2: Treatment of Staff, and B3: Compensation and Benefits

Desmond: So you’ll be examining methodology?

Dina: We’ll look at what information we have to make decisions.

Zoë: Eric does this seem useful to you?

Eric: I wouldn’t have an opinion until I see the results; conceptually, this falls within the board’s purview.

Steve: I think this is one of the more important pieces of board oversight, but it’s also the most delicate. We want to be very careful not to undercut management.

Desmond: So far it’s just the two of you.

Desmond moves to charter B2 Review Task force which will assess how the DFC Board of Directors monitors our current Treatment of Staff (B2) and Compensation and Benefits (B3) policies, and recommend changes (if any) to the Board.

Bija seconds

Motion passes unanimously

5.5 FYI to the Board about the Co-op POS system and EBT transactions

Dina: This was some information that a former board alternate Sarah Palmer shared with me. Understanding the technical realities as a limitation, I wonder if it’s important to have a running wish list when/if we change our POS down the line.

Eric: You also have to consider that we can wish for whatever we want; we may not get it. We buy the NCGA recommended system. We can’t spend $700,000 for a POS system. There’s a lot of stuff out there for small businesses, but it’s not robust enough for us.

Stacie: How big a customer of Catapult is NCGA?

Eric: Not big enough.

Stacie: If every NCGA store started to make noise maybe Catapult would make changes.

Eric: Maybe; maybe not. We’re also limited by hardware.

Steve: If you go to the other end, CVS at the pharmacy instead of keeping a clipboard for you to sign, you sign on the screen. I would say, we may just want to communicate to Catapult that we would like that functionality. I think the trend is probably towards more functionality.

Zoë: I hear Eric saying that even if we do communicate this to Catapult, these changes aren’t going to happen anytime soon. I think we might look at what we can do on our end to mitigate stigma for WIC customers.

Stacie: It might be worth mentioning to Beth, as our NCGA representative, that if it comes up at a meeting that she could chime in about this being a problem for us.

5.6 Discuss upcoming NCGA Board Presidents Meeting

Stacie: I don’t think they’ve ever done this [held an NCGA Board Presidents Meeting]. It sounds like there’s just a lot of talk of food co-ops growing and how do you grow. They’re trying to understand the disconnection between boards and managements; they’ve invited the presidents and representatives to come to the meeting; we’ve actually been asked to present. Beth and I would talk about preparing to meet new competition.

Zoë: Stacie, what do you hope to get?

Stacie: I got this after the agenda was set. One option is to convene a group of people to talk about this in more depth. I’m not sure anybody does, and I’d be happy to have one-on-one discussions.

Steve: Why not fill it out, post it on the board website, and have disagreements aired there?

Stacie: I can do that. The one that I think would be the most useful to spend just a minute or two on was E8. I would love to get your comments on it.

The board discusses which questions were or are most likely to be asked during times of growth.

Steve moves that Stacie attend the NCGA Board Presidents Meeting

Dina Seconds

Passes Unanimously

5.7 CBLD - Other Board Members Feedback and à la carte services

Stacie: I put this on here because last time I talked to you about CBLD and the CDS consultants. I said I would find out about the cost of à la carte services. The word was we’re not committing any à la carte services to you, but if you want something, ask. I did notice that the guy who had contacted me was the person who invited me to speak.

Zoë: I think we might have more reason to discuss this topic after our March work group.

Consent Calendar

Presented: Consent Calendar items

Retained by unanimous consent:
6.2 Accept December Meeting Minutes Nathan
6.3 Monitoring Chart Nathan
6.4 Task Force Reports Nathan
6.5 Cumulative Attendance Report Nathan
6.6 Board calendar Nathan
6.7 Linkage update for January Zoë
6.8 First Reading - GP1 Governance Style Zoë
6.9 Board Members representing the Co-op Report Nathan

Removed by objection: 6.10 B10 - Communication and Council to the Board - First Reading Stacie (to February)

Zoë moves to accept consent calendar as amended

Dina seconds

Passes unanimously

Zoë moves to adjourn to closed session at 10:04 pm

Stacie seconds

Passes unanimously

Notice of Closed Session

A special meeting of the Board was called to order by Zoë Plakias at 10:05 PM. This session was closed to guests pursuant to Board Policy GP6(D), which requires that discussions concerning Personnel matters be held confidentially.

Directors Present: Bija Young, Zoë Plakias, Dina Biscotti, Stacie Hartung-Frerichs, Steve Reynolds, Desmond Jolly, Travis Breckon, Ben Pearl

The Secretary determined that notice of the meeting was duly provided to all Directors by notice on the agenda published on January 21, 2013 as required by Bylaw Art. VIII §6(C) and Policy GP3, and that a quorum of Directors was present under Art. VIII §6(B).

The meeting was unanimously adjourned at 10:20 PM. For next month: Steve (facilitator), Bija (timekeeper)

/s/ Zoë Plakias, secretary

__________________________________ ______________________

Secretary, Davis Food Cooperative, Inc. Date