Is CHS Dumb and CoBank Smart?

The point of this blog is not that CoBank or CHS is smarter than the other Co-op judged by their approaches to equity management.  CHS is extremely successful.  It is named in the Fortune 100 list of US companies.  CHS is so valuable that gossip in the co-op community is about whether CHS will convert to a corporation.  CoBank has a long history of strong success.  

The distinctions between CoBank's and CHS's equity management approaches provide fertile ground, however, for examining just two of the many equity management alternatives that are open to all Boards of Directors of cooperatives.  CHS distribution of patronage earnings is a very traditional approach.  This approach - which is to allocate every dollar of patronage earnings and redeem it as and when CHS can do so - is how many, many cooperatives approach equity management.

CHS's approach may, in fact, make the most sense if it converts to a corporation.  Allocating all patronage earnings will minimize, to the maximum extent possible, the amount of taxable gain that members pay taxes on following a CHS conversion.  

But 99.9% of the rest of co-ops are not large enough to contemplate a conversion, nor would many see it as a viable option for their cooperative anyway (conversion is very much out of favor in the co-op community).  Hence, the discussion that follows in the coming days will have more relevance to those cooperatives than it could ever have to CHS.