Capper-Volstead and Ocean Spray
Does the one member, one vote clause apply?

2/8/00 The Capper-Volstead Act of 1922 has remained unchanged, and rarely interpreted in court, for 78 years. Prior to 1922, farmers who attempted to work together to market their crops were in danger of violating the Sherman Antitrust Act. Senator Clapper the Capper-Volstead Act's  "purpose is to give to the farmer the same right to bargain collectively that is already enjoyed by corporations." 62 Cong. Rec. 2057 (1922). "

Intended to enable smaller farmers to compete with agribusiness by forming cooperatives that were exempt from antitrust laws, it permitted cooperatives like Ocean Spray, Sunkist and Land-o-Lakes to grow and prosper. The drafters of the act intended to provide the antitrust exemption only to farmers and the "people who produce farm products of all kinds." (Cong. Rec. 2052 (1922). It was intended to cover producers, not processors. It gave them the right to enjoy the benefits of size already enjoyed by agribusiness.

The first part of the act enables agriculture cooperatives their exemption from the Sherman Antitrust Act. The second defines the standards an agriculture cooperative must adhere to and put controls into place so the cooperatives themselves don't become monopolies.

There is a "one vote per member" clause in the second part of the act that has been drawing considerable attention among Ocean Spray growers. The Ocean Spray Board voted that decisions, like the downsizing of the board or the election of board members, will be based on one vote per share early in 1999. Previously each growing area could determine how to weight votes; for example, Massachusetts had a weighted vote, with a cap on the number of votes placed at seven, for even the largest growers. The change to votes based on one vote per share gave far greater power to the very large growers.

Proxy Fight

Ocean Spray has traditionally voted in directors who were nominated by the various growing regions. Candidates for positions on the board were all well known to growers, and participated in formal candidates meetings and informal campaigning. There is now a proxy fight under way. A group of growers is proposing an alternate slate to be voted on at the annual meeting (Feb. 23, 2000), replacing some of the nominees already elected, some by wide margins, with other candidates. This group, which includes some of the largest shareholders in Ocean Spray, favors Board members who have in the past  voiced opposition to a sale of the company. Many of those on the alternate proxy were, until recently, staunch supporters of Tom Bullock and his policies. For this reason, the interpretation of the one vote per member clause has become crucial.

There are two parts to this section of Capper-Volstead. The first one says that "no member of the association is allowed more than one vote." The second part connects to the first with the word or and offers the alternative structuring so the cooperative can weight their vote any way it chooses to, if they do not pay dividends on stock or membership capital in excess of 8% per year.

I interviewed two of the top experts on Capper-Volstead, Dr. Robert Cropp, Director of the University of Wisconsin Center on Cooperatives, and Donald M. Barnes, a lawyer who is an expert on agriculture cooperatives and is co-author of "The Capper-Volstead Act: Opportunity today and tomorrow ( 1 ). " Both agreed that Ocean Spray does not pay dividends as defined in Capper-Volstead, and thus is exempt of the one vote per member clause. The fact that payments from Ocean Spray are called patronage dividends is not relevant for the purposes of Capper-Volstead.

While the Ocean Spray Board's decision to go to a one vote per share system may violate the intent of Capper-Volstead, and much of the spirit of cooperatives as discussed in the references below, it is not illegal.

© 2000 by Hal Brown

Bibliography

Highly Recommended: (Link) The Capper-Volstead Act: Opportunity today and tomorrow by  Donald M. Barnes and Christopher E. Ondeck, Jenkens & Gilchrist, A Professional Corporation, Washington DC -  This paper was presented at the National Council of Farmer Cooperatives' National Institute on Cooperative Education, Annual Conference, Pittsburgh, PA. August 5, 1997 in commemoration of the 75th anniversary of Capper-Volstead.

Co-ops 101: An Introduction to Cooperatives This USDA report provides a comprehensive summary of basic information on the cooperative way of organizing and operating a business. This USDA publication covers the nature and extent of the use of cooperatives, compares cooperatives to other business structures, explains the roles various people play in a cooperative, and discusses equity accumulation and income taxation. The purpose is to make available, in a single report, the information someone would need to acquire a general understanding of how cooperatives function.

Director Liability in Agricultural Cooperatives   Farmers and others who serve as directors of farmer cooperatives are subject to responsibility rules applicable to all corporations and are subject to the same liabilities when those responsibilities are not met. This study surveys and discusses sources of liability faced by cooperative directors and suggests practices and behavior that may help avoid liability risks. The common law sources of liability are described. Liability of directors for criminal activities is noted, and statutory laws placing liability on directors for their violation are outlined. Liabilities for improper distribution of dividends, depletion of capital, improper patronage refunds, and antitrust violations are singled out for discussion.

Annual Audits - Board Responsibilities Directors, managers, and advisers of new and developing cooperatives need to be well informed about the importance of an annual audit. This USDA publication summarizes information concerning audits and reviews of accounting systems in four areas: (1) Reasons for an audit; (2) auditor selection; (3) audit procedures and audit report; and, (4) other accounting services.

University of Wisconsin Center on Cooperatives  (Link) A wealth of information about agriculture cooperatives.

USDA Rural Business-Cooperative Services Library of Publications  (Link) This site contains all of the USDA publications, most must be downloaded in PDF format in order to read, but every paper and phamphlet they publish is available online.