Equity is the essential currency.
Douglas L. Beresford is a partner in the Washington, D.C. law office of Hogan & Hartson, LLP.
We’ve all heard stories like the one of the savings and loan (S&L) executive who took his S&L public and cashed out with enough money to buy his own bank. Or, the director of human resources at an S&L that converted to stock form and merged with another bank, providing the employee with a high six-figure nest egg and the opportunity to quit work to spend time with her children.
Are stories like these enough reason for rural electric cooperatives to convert to stock corporations? Of course not. Conversion is not the right course for every mutual S&L or every electric cooperative, and not every conversion can guarantee financial success. Enriching management and employees is not the purpose of conversion.
What, then, is a good enough reason for a cooperative to convert to a stock corporation? The one overriding consideration is whether a cooperative’s members will benefit from the conversion. Co-ops exist for their members. They should undertake a stock conversion only to improve the position of members or as a defensive strategy to protect members from harm.