Special Shareholders' Meeting 052219

Meeting called to order at 6:33pm.

Special Shareholders' Meeting: Governance

Seminary Co-op Bookstore

May 22nd, 2019

MINUTES

1. Call to Order

Ken Warren, Chair of the Seminary Co-op Bookstores Board of Directors, called the meeting to order at 6:33pm. Introduced Jeff Deutsch, Director of the Seminary Co-op Bookstores, Inc.

2. Directors’ Remarks

Introduction:

I am so grateful to you for being here on what I hope will be an historic occasion. I couldn’t be more excited about our potential transition to an Illinois not-for-profit corporation! So many of you, and so many in our community, have been engaged in this conversation over the past five years;  I have heard your enthusiasm for a renewal of the Seminary Co-op Bookstores. And tonight, as Ken noted, we will bring the matter to a vote. Specifically, we will vote on an amendment to our by-laws that would empower the Board to transition the DC co-operative to an IL not-for-profit corporation. You all have the verbiage in front of you.

I’d like to share a bit of history, and a bit about the process, in advance of sharing the details of the proposed structure.

The Co-op’s Origins:

We were founded in DC in 1961 by students of the Chicago Theological Seminary. Our purpose, according to Article One of our Articles of Incorporation, “is to make available, primarily to students, faculty members and administrative officers of theological seminaries and other scholastic institutions located at or near the campus of the University of Chicago and to such seminaries and scholastic institutions, books, publications and supplies used in the study of theology and for the building up by such persons, seminaries or institutions of their professional and scholarly libraries.” I have been told by John Moedscheidler, who managed the store in the 60s, that they founded the store in order to leverage their resources to purchase obscure books more cheaply. Other than our continuing commitment to obscure books, our bookstores are unrecognizable in this description of our purpose.

Our Purpose:

These bookstores – the Seminary Co-op and 57th Street Books -- are both a physical space and a community of booklovers. Their primary purpose is to stock and sell a wide inventory of books that provide cultural, literary, and intellectual value to their distinctive and engaged worldwide community of readers. They do this by maintaining an eclectic collection of titles not readily available elsewhere and by promoting a culture of informed book-buying through an array of events and vibrant discussions.

Had we remained loyal to our original – and current for that matter – purpose, none of this would have been possible. I would like to pause for a moment to acknowledge the wisdom of Jack Cella and the booksellers that built this unlikely and unique institution. They were as cavalier about the articles of incorporation as they were thoughtful about building a culture that both reflected and created our community.

Tonight we have an opportunity to be as deliberate and thoughtful in our governance structure as we are in the curation of our inventory and the creation of our culture.

Recent History:

For those of you who don’t know, I took on the directorship 5 years ago, after a wonderful decade in the Bay Area, directing the University of California, Berkeley and the Stanford Bookstores. I expected to live out my days in the verdant and bountiful East Oakland Hills. When Jack retired and this position opened, the call to steward these bookstores for the next generation was deeply compelling. Since my first visit to the Co-op in 1994, I knew this was a bookstore of an entirely different order – the platonic ideal of a bookstore, as far as I was concerned.

While the core attraction of the assignment was the stacks and the community they supported, I was an enthusiast on behalf of the co-operative element of the bookstores. Having helped found a student food collective in Berkeley, serving on their initial advisory board, I had been inspired by the ways in which a co-operative model can bring people together in common cause, creating a foundation from which they might work toward a higher ideal.

From 2007 to 2014, the year I started, we lost 49% of our sales, our annual revenue plunging from $5.3 million to $2.7 million. In addition, we were losing $300k per year and had a retained loss of $1.8 million. While all of this was shared with me in advance of my accepting the position, I was undeterred, buoyed by the notion that our co-op would embrace the third principle of co-operative governance: member economic participation.

And yet, despite my best efforts to raise awareness of our dire situation and our need for engagement from the shareholders; and despite attracting one of the largest audiences for my first shareholder meeting in 2014 (that audience represented .1% of our ranks), it was clear the co-op was not functioning as intended. In 2016, during our annual shareholder meeting, I and the Board proposed that we enact a clause in our bylaws that required an annual purchase of $10 to maintain shareholders status. We spoke to the difference between perks of membership and the responsibilities of shareholders for the governance of the institution. Over the last two years, we have acknowledged the loss of 53k shareholders from our ranks.

Even after separating governance from perks and trying to strengthen the cooperative elements,  including that third principle of cooperative governance, member economic participation, it was clear that our community was overwhelmingly indifferent to our structure. Our shareholder meeting last year, still among the highest attended on record, attracted .8% of our shareholders.

The fact is, we are not operating as a functional cooperative. The more I reflect on our struggling industry, and speak with other booksellers, small businesses, cultural institutions, cooperatives, collectives, and co-op experts, the more convinced I’ve become that our structure does not support our mission. By doggedly promoting cooperative governance, we have been trying to force a level of engagement that not only misrepresents the challenges facing our industry, it also misrepresents our relationship to our shareholders, and does so on behalf of a mostly imaginary community.

Our unimagined community is profoundly committed to these stores and largely indifferent to the minutiae of their governance. They care deeply about the stacks and our independence; about our internal culture and our commitment to collaboration with our patrons; about the quality of our programming and the transparency of our leadership; about working toward a higher purpose and doing so without being arrogant or didactic; about providing a means of discovering, exploring, and understanding our least quantifiable, most meaningful values.

Community Engagement:

I have been engaging you on the question of moving to a not-for-profit for the last four years. The issue has been covered in the press and has been the subject of countless conversations with and between community members. In addition to the informal conversations and the formal presentations at shareholder meetings and town halls, the Board and I invited approximately 40 of our most engaged shareholders, focusing especially on those who have been most critical of me and the Board, and most skeptical of change to work through the details. We held two group discussions where we collaborated on a path forward, considering the concerns, enthusiasms, and ideas of the group. The participants included Hyde Park community members, University of Chicago faculty, community members from the larger south side, executive directors of two local non-profits, the owner of three beloved local businesses, a librarian, an editor at the University of Chicago Press, a community college administrator (and his baby), a long-time Hyde Parker who teaches at Notre Dame, a few co-operative enthusiasts, including the manager of a co-op, a scientist, a leader with the Midway Plaisance Advisory Council, and a dear man, Sam Guard, who graduated high school on D-Day and just attended his 75th high school reunion. They joined the co-op between 1974 and 2016, ranged in age from 34 to 93, and were a truly representative delegation from our eclectic and diverse community.

I’d like to ask Connie Spreen, Executive Director of Experimental Station, Board member, and participant in the community meetings to share a bit about her experience of the process.

3. Connie Spreen’s Remarks

I have been a shareholder for about 30 years and Board member for the last 2.5 years or so. I discovered conversation already taking place about moving to not for profit when I joined the Board. Knowing about stores, and running a not for profit, it made a lot of sense to change. The importance to Board and Jeff of community engagement component has stood out -- all realize stores wouldn’t be what they are if not for community. There have been many individual conversations over the years as well as focus groups. I participated in one focus group, which brought important stakeholders including critics to help think through the process, as well as share their ideas. Out of the conversation came an apparently unanimous understanding of why the move was a good idea, and suggestions that were made by the attendees were reflected in the new bylaws. The stores are a treasure -- as shareholders, you have one relationship to it, but the fact is we are all stakeholders, and the viability depends less on us being shareholders than us being real stakeholders. The demand is less of shareholding role, more of book-buying role.

4. Conclusion of Directors’ Remarks

The New Structure:

What is the new structure? We are proposing a move to an Illinois not-for-profit corporation. As Connie mentioned, after the governance change, there will no longer be shareholders, only stakeholders.

Current shareholders will no longer be eligible to receive dividends (a prospect that is highly unlikely anyway given our current retained losses and our business philosophy). In addition they will no longer vote to elect Board members or to change the bylaws—those activities will be handled by the Board of Directors going forward. These are the only changes that will occur by dint of this transition.

In practical terms, then, little will change. Our engaged, book-buying community will continue to receive perks such as rebates, will be invited to participate in annual meetings where bookstore performance is reported, will receive regular communications and updates from the bookstore leadership. They will be invited to participate in the full range of events offered to our community, as always. Community members will be able to nominate candidates for the Seminary Co-op Board, and those nominations will be considered and elected by the Board.

Most importantly, we will continue to focus on creating unparalleled browsing experiences, showcasing exceptional writers and thinkers, and building a community based upon the power of books to help us discover, understand, and connect with others and ourselves.

Our not-for-profit status is entirely unrelated to the IRS and tax savings. The 501c(3) option was thoroughly explored. While there are bookstores that operate as 501c(3) organizations, they do so on behalf of causes unrelated to bookselling. We are adamant that bookselling itself is our cultural contribution, and determined to establish the bookstore as cultural institution, which needn’t justify its public good in any other way. We are relatively certain that the IRS is not incentivized, assuming they are sophisticated enough to acknowledge a difference, to distinguish between the browsing experience we create and that of our fellow booksellers who operate as a more traditional business. How might we be different from a Barnes & Noble, not to mention any of the dozens of wonderful bookstores in Chicago and its surrounding areas? You know the answer, but it is not readily apparent to the uninformed eye.

Once again, tonight we have an opportunity to be as deliberate and thoughtful in our governance structure as we are in the curation of our inventory and the creation of our culture.

Since announcing the meeting, I have received nearly 50 written requests, and nearly as many verbal requests, to vote for the measure by proxy or in abstentia. I have not received a single “no” vote. While our by-laws don’t currently allow for proxy voting, the community support is clear.

The process for identifying a structure that best suits the needs of the bookstores – working closely with the various constituencies that compose our special community –  has been deeply inspiring. It has seemed to me a model of collective community work and, of course, cooperation. (Just look around the room!) I am so proud of the process and am grateful that the conclusion is one that clearly states our primary goal as cultural, not economic. I have been saying throughout my tenure that these bookstores are cultural institutions disguised as retailers; it’s time to remove the disguise.

Before we move to a vote, I would like to entertain your questions and comments.

5. Discussion

Q: I don’t like the idea that nonprofit corporation will operate with formally self-perpetuating Board. All non-profits I’ve associated with have had a membership that elects the Board, and while this rarely works in practice as memberships aren’t generally engaged, the proposal’s elimination of the possibility of accountability is in principle objectionable. There should be some kind of membership so that at least in principle there is some oversight.

A: The fourth bullet point on the handout includes the possibility of any stakeholder submitting nomination. Shareholder-ship has a barrier for entry, and we want to be able to engage our full community. This is a more -- not less -- democratic way to involve the community. As it stands now, we’re submitting a slate to the Board based off of community feedback and voting up and down on the slate, with only one abstention in past 5 years. In practice, it will be essentially the same.

Follow-up comment: The absence of proxy voting has contributed to the long-term governance problem. Nowadays with internet and email list, it’s easy to solicit and collect votes.There should be some formal mechanism for oversight, and it wouldn’t damage proposal to do this.

Q: It seems that the reason we’re selling fewer books is because of electronic media. How will changing the structure help us sell more books?

A: This isn’t meant to help us sell more books, it’s meant to establish who we are and what our purpose is, and change the conversation about what our industry looks like. The only reason we’re still here is money from outside institutions and individuals, not the shareholders. We’re not trying to make this move to solve the sales problem -- we have 32% increase over the past five years -- this is about stating who we are. Sam Guard said that, if for 25 years we haven’t paid dividends, and our goal as a co-op is to pay dividends, then we’re a failure. We know we’re not a failure, how can we build a structure that supports the success that we know we are, and use a metric that shows that success.

Follow-up Q: This change is not a financial imperative?

A: This is not a means of selling more books.

Follow-up Q: What will you do with the new governance structure to try to balance the books?

A: We had a non-gala gala last year that raised $22,000 from 200 people. We’re going to continue that conversation, and talk about these stores as the cultural institutions they are. It’s not about book sales only, there are other avenues -- we have a podcast, do 600 events per year,  The ultimate reason we’re here is to sell books, but we need to find alternative ways of raising money, and this is one way of saying that people can give us money as they do to other not-for-profit corporations -- this is saying we’re not just a retailer.

Q: What is the difference between stakeholders and shareholders?

A: For not-for-profits, stakeholders are the owners. We currently have shareholder, and,  if we ever make money, we would pay out dividends (financial) to shareholders. Stakeholders get dividends that are cultural, and they don’t need to be economically invested in order to do that.

Follow-up Q: Does this change to IL business instead of DC co-op require that we not have a membership?

A: What is it about shareholder system that feels different? If it’s not about the dividends, then what is the worry about losing in terms of sense of belonging?

Follow-up Q: What is the necessity of undoing membership, when you could just undo dividend part?

Audience answer: You can’t just get rid of dividend part -- there are laws, etc. We can’t just never pay a dividend, and we’d always be leaving ourselves open to being forced to pay them. This is something we can do -- given our options as they exist right now, this is the best one that is available to us.

A: This isn’t about a dividend or the Co-op model itself. It’s a recognition that, if we were to start today and ask what the best way is to run a store to maximize the conversation we have in the broader community, it would not be as cooperative. We would start it as a not-for-profit -- there have been 4 years of conversation about it, and they’ve been overwhelmingly positive. Loyalty of non-shareholder membership indicates that non-owners also feel sense of belonging.

Q: One point not raised is the limitations imposed by current setup -- we cannot change business model, and nothing can ever get done. As shareholders, we’re in charge, and if we don’t show up or if we all have to be informed/queried/considered, it’s hard to get support/make decisions. Not because of disinterest, but because they’re not here and it’s not the top thing on their list.

A: There is a feel-good aspect to the co-op model, but there are legal and financial implications that make it difficult.

Q: What happens to the shares? Are they now worthless?

A: The shares are already worthless. You’re all stakeholders, I will still listen to you, you’ll still show up to meetings, you’ll still have certificates, etc. You’ll have the same experience. This is an honest answer to the question what it means to be a shareholder -- where was everyone when we had major crises over the past 15 years? Where is everyone now? Who is ready to pay us just to keep the doors open? We want to make sure we’re sticking to our mission, and there’s nothing worth saving if it’s not this -- that’s why we’re here and why this change is important to us.

Q: The new structure allows us to raise money outside of selling books?

A: The old structure did, too, but it makes more sense to most people to give to a not-for-profit even if it’s not tax-deductible vs a store.

Q: Do you have a timeline (if so please share) are docs drafted (if so are they available) and is there a legal opinion on how this is going to happen?

A: We have two legal opinions from both IL and DC counsel and have spoken to lawyers on our Board and in our community. We think we know the steps we need to take, but all we’re doing now is voting to empower the Board to start transition. If yes, we’ll ratify at the next Board meeting then start the documents. There’s nothing currently to be reviewed. If you want to review what our plan is, it is the document that has been shared. It doesn’t bind us to any particular audience etc. We don’t have further documents drafted because we haven’t voted, and the Board hasn’t voted.

Followup Q: Will documents be posted online when they’re ready?

A: I don’t see a reason why we couldn’t share, but that conversation hasn’t happened yet. The transparency is the idea here, and I will make a strong recommendation that we post documents, but it is not my decision.

Q: Why did you decide to go with a self-perpetuating Board rather than a membership-elected Board? I think the current management and Board doing a great job, but what about the future -- is there a mechanism for replacing the Board?

A: We had a difficult time answering the question as to who gets to have a say. With this change, we’d be expanding vs contracting the pool of stakeholders. Right now, it’s $30 for a vote -- but why is it that way? It doesn’t speak to a deeper commitment than someone who comes to events or browses our shelves and can't afford books. We want to expand our audience and ask what is the public good? Please ask yourself: how many co-ops are you a part of that work, and how are they structured so that they does? How many are you a part of that do this kind of work? How is our business different? We’ve found that we’re unique -- there’s no one else like us. If there are ideas for accountability that differ from what’s in the handout, let us know. What else can we put in there?

Audience comment: There is a sense that members are losing control. But, even though it would be a not-for-profit, it’s still a business, and if someone changes things so that we didn’t like it anymore, people would stop coming here and it wouldn’t work. At the end of the day, accountability is still there.

Q: Are there legal ramifications for our name -- do we have to change it?

A: We aren’t sure, but we hope not. If it’s a matter of losing a hyphen or something similar, we’ll figure it out. We don’t want to change the name. We will no longer be in the seminary building, and no longer a co-op, but we’ll still be the Seminary Co-op.

Q: What’s the difference between a charter member and a shareholder?

A: This is a reference to the change made 2 years ago -- anyone who hadn’t spent a minimum of $10 in a given year were moved off of the shareholder role, as reflected in our bylaws. Charter members get the sale, and are welcomed back if they decide to come back. Perks do not change for shareholders. We’re just changing the governance.

Q: How can you tell the difference between charter members and members?

A: It’s a lot of administrative work but our computer system keeps track.

A shareholder who is also a bookseller offered perspective: Students come in and tell us books are cheaper on Amazon. Booksellers point out that our books are here, and that if they sign up for a membership they get 10% back in store credit. We then hear students sell the co-op to other students on that basis.

Q: I want to offer an amendment to the proposal to add a clause saying the Board will create a membership, and would trust the Board to make the decision regarding definition of membership.

A: We currently offer membership in exchange for email -- would that do it?

Q: Sure.

Audience comment: I am a lawyer for a large Chicago not-for-profit, and have worked for not-for-profits for many years. It is true that Illinois not-for-profits can or can’t have memberships. The trend is against having membership because of enormous administrative burden, as well as barrier for entry implied. To be a member means having rights, such as voting for directors -- the difficulty of keeping track of all of that is part of the point of getting away from the co-op. To find other ways of having commitment is great, rather than thinking if someone has paid or maintained membership or not. It is unnecessary if we can find other ways to get oversight. One way is including in bylaws certain provisions, which are harder to change. This is the direction we’ve been trying to go because the quantity and type of members doesn’t really matter. Also, we can’t do proxy voting because of the DC law under which we’re currently operating.

6. Move to a Vote

Ken Warren, Chair of the Seminary Co-op Bookstores Board of Directors, noted that Board members are shareholders, and he has been a shareholder for 31 years. All concerns raised during this meeting were raised in previous discussions about this change -- many us had a sentimental hold on idea of membership Over the course of discussion, however, the conclusion was that this is the best way forward. The decision might not feel 100% right for everyone, but the action item tonight is to approve an amendment to bylaws.

Question is raised whether, procedurally, an amendment to the bylaws can be accepted prior to the vote.

Amendment proposed by shareholder: I would propose that on the proposed amendment, section 3 be changed to section 4, and a new section 3 be added with the words “and create a membership for said corporation,” with implication that Board is trusted to set it up with its discretion.

Co-op Director Jeff Deutsch clarified that the amendment being discussed has nothing to do with what we are voting on tonight. It is a set of commitments we’re making.

Another shareholder commented that using words such as corporation have legal ramifications, and we need more information about what we are committing ourselves to. The shareholder who proposed the amendment observed that this term is already present in the document, and that we’d be committing to creating a membership.  

Ken Warren observed that the suggested change does not commit the Board to establish a membership. The subsequent actions are what the Board is being enabled to do, not what it commits to doing. Further clarifying questions regarding the exact nature of the proposal were asked and answered.

Another shareholder observed that we’re voting yes or no to consider a change, and that if one has concerns with empowering the Board to consider the change, then one would be a “no” vote. The shareholder who proposed the amendment observed that he is objecting to the formality of a self-perpetuating Board

Ken Warren asked if there was there a motion to approve the amendment to the bylaws of the Seminary Co-op as indicated on the document. So moved and seconded.

Discussion: the shareholder who proposed the amendment again formally proposed that on the proposed amendment, section 3 be changed to section 4, and a new section 3 be added with the words “and create a membership to elect the Board of Directors of the said corporation.”

The proposed amendment to the amendment is seconded.

Votes cast. 4 yea votes, 42 nay votes, and 8 abstentions.

The proposed amendment to the amendment fails.

7. Vote

Ken Warren calls a vote for the proposed amendment to bylaws indicated in the handout with raised hand.

Votes Cast. 68 yea votes, 0 nay votes, and 0 abstentions.

The motion carries.

Meeting adjourned at 7:41pm.