McLeod, Watkinson & Miller MEMORANDUM
Re: Legal Opinion from McLeod, Watkinson & Miller Regarding the Executive Committee’s Recommended Changes to CBB’s Policies and Procedures
You asked us to review the recommended changes to the policies and procedures of the Cattlemen’s Beef Promotion and Research Board (the “Beef Board”or “Board”or “CBB”) recently recommended to the Beef Board by the Executive Committee and further requested a formal legal opinion as to whether the proposed changes comply with the Beef Promotion and Research Act of 1985, 7 U.S.C. §§ 2901 et seq. (the “Act”), and the Beef Research and Promotion Order, 7 C.F.R. Part 1260 (the “Order”). In conducting our legal analysis we thought it would also be important to consider the impact of the recently-revised Guidelines for AMS Oversight of Commodity Research and Promotion Programs (the “Guidelines”) issued by the USDA’s Agricultural Marketing Service (“AMS”), and the Board’s own Bylaws (the “Bylaws”) as adopted in 1986 and revised in 1995. We, of course, express no opinion on the advisability of making the proposed changes as that is a question for the Beef Board to decide. We simply opine on whether the proposed changes recently recommended to the Beef Board by the Executive Committee comply with the Act, the Order, the Guidelines, and the Beef Board’s Bylaws.
As we set forth in detail below, it is our opinion that the changes recently recommended to the Beef Board by the Executive Committee comply with the Act and Order, comply with the Guidelines, and comply with the Beef Board’s Bylaws.
In March 2010, the Roles and Responsibilities Committee (“R&R Committee”) was charged with reviewing the Board’s policies and procedures to ensure that the Board is fulfilling its responsibilities under the Act and Order. The R&R Committee’s report and recommendations were approved by the Executive Committee and submitted to the full Board for its consideration in July 2010, but were not acted upon at that time. Thereafter, the Executive Committee further revised the recommendations to reflect subsequent changes to the Board’s policies and procedures and recently recommended those changes to the full Beef Board
Powers and Duties of the Board in General
As you know, the powers and duties of the Board are set forth in the Act and Order. The Board is responsible for administering the provisions of the Order, to make rules and regulations to put into effect the terms and provisions of the Order, to initiate, investigate, and report to the Secretary complaints of violation of the Order, and to review and approve appropriate budgets of the Operating Committee and of the Beef Board itself –in other words, to establish an orderly procedure for the financing and carrying out of a coordinated program of beef promotion and research pursuant to the specific provisions of the Act and Order. Order §§ 1260.149, 1260.150. The Act and the Order delegate broad powers to the Board to accomplish these purposes.
As noted, the Board is vested with the power to administer the Order and to make rules and regulations to effectuate its terms and provisions. Order § 1260.149. The Order also vests the Board with the power to “adopt such rules for the conduct of its business as it may deem advisable.”Id. Pursuant to these broad powers, the Board has the authority to structure its operations as it deems necessary to carry out its duties under the Order. Pursuant to this power the Board has adopted and amended its Bylaws. As noted above, the Beef Board Bylaws were originally adopted by the Beef Board in November 1986, and amended by the Beef Board in July 1995.
Review of Specific Recommendations
Our review of the Executive Committee’s recommended changes to Beef Board roles and responsibilities is set forth below. Only those recommendations that propose changes to the current structure are discussed. For your reference, we have included the Executive Committee’s summary of each recommendation in bold, which are presented in relation to the Board’s responsibilities as determined by the USDA’s Agricultural Marketing Service.
I. Beef Board Responsibility –Develop and implement plans, projects, and budgets.
Recommendation –CBB shall develop its own strategic and annual plans, including the Board’s priorities for funding. QSBCs and contractors shall have input on the Board’s plans and priorities. CBB’s budget shall be developed by a CBB-only budget committee with QSBC input. QSBCs may fund individual programs by sending funds directly to CBB. CBB shall also review the Federation of State Beef Council’s budget to ensure compliance with the Act, Order and guidelines.
The Board has the power to develop overall strategic plans and priorities to guide the Board in carrying out its duties. As noted above, the Board is vested with the authority to administer the Order and the power to “adopt such rules for the conduct of its business as it may deem advisable.”Order § 1260.149. Accordingly, the Board has the authority to define its priorities and develop a strategy for decision-making and resource allocation.
The Board also has the authority to develop its own budget. The Order imposes on the Board a duty to prepare and submit to the Secretary budgets of the Board’s overall anticipated
Memorandum April 29, 2011 Page 3
expenses and disbursements in the administration of the Order, including the Committee’s anticipated expenses and disbursements. Order § 1260.150. With respect to the CBB-only Budget Committee, the Article IX, Section 1.1 of the Bylaws provide that “[t]he Chair shall appoint from the members of the Board committees as the Board may deem necessary for the expeditious handling of the affairs of the Board.” The Bylaws expressly authorize an Audit Committee and a QSBC Compliance and Coordinating Committee. Thus, the foregoing recommendation appears to be within the power of the Beef Board and is consistent with the Act, the Order, and Beef Board Bylaws.
II. Beef Board Responsibility –Design committee structure.
Recommendation – CBB should design a committee structure for its members and implement the new committee structure prior to the 2011 summer conference. CBB members shall serve as chair and vice-chair of each committee. CBB shall encourage QSBC involvement and industry participation in its committees as an integral part of the process. If QSBCs are represented on a committee, the QSBC boards shall determine whether a board member or the staff executive of a QSBC serves on a CBB committee.
As noted above, the Board is vested with the power to structure its operations as necessary to carry out its duties under the Act and Order. Accordingly, the Board is authorized to design a committee structure that, in the Board’s judgment, will allow the Board to most effectively carry out its responsibilities. Provided the specific committee structure designed complies with the requirements for joint industry committees as set forth in the Beef Board Bylaws, it is our opinion that this recommendation is consistent with the Act, the Order, and the Beef Board Bylaws.
Previously, the Board utilized a specific joint committee structure to carry out certain of its program planning functions. It is equally compliant for the Board to implement a new joint industry committee structure in which CBB members serve as chair and vice-chair of each committee. The Beef Board Bylaws, Article IX, Section 2, simply require the Board to establish joint industry committees with the responsibility for “overseeing the development of industry programs authorized by the Act and Order”and to advise the Beef Board and “established national, non-profit, industry-governed organizations”on the development and implementation of such programs. These Committees are to be appointed by the Chair of the Beef Board and “may consist of any number of members of the Board and non-members as may be advisable.” The foregoing recommendation is consistent with this Bylaw provision.
Indeed, nothing in the Act and Order restricts the Beef Board from using CBB-only committees to provide advice and suggestions for promotion and research projects if that is the desire of the Beef Board. The Beef Board Bylaws do contain such a restriction. If the Beef Board desires to change this it can only do so by amending the Bylaws at a properly-noticed meeting (20 days prior written notice setting forth the intent to amend the Bylaws), provided the amendment passes by the required super-majority of Beef Board members — a two-thirds vote of members present and voting.
Memorandum April 29, 2011 Page 4
III. Beef Board Responsibility –Recommend approval of plans, projects, and budgets to the Secretary of Agriculture.
Recommendation –The full Board should review all programs funded by the Operating Committee, along with the plans and budgets, and express any concerns to the Operating Committee.
The Board has a clear duty under the Act and Order to review budgets prepared by the Operating Committee and, if approved by the Beef Board, to forward those budgets on to the Secretary. Order § 1260.150(f). The Order requires the Board, in reviewing the Operating Committee’s budgets, to examine not only the Operating Committee’s proposed expenses and disbursements, but also the promotion, research, consumer information and industry information programs approved by the Operating Committee. Id. Having the Beef Board review all programs funded by the Operating Committee is therefore in line with the Board’s duty to review the Operating Committee’s budget which according to the Order is to include “a general description of the proposed promotion, research, consumer information and industry information programs contemplated therein.” Order § 1260.150(f).
IV. Beef Board Responsibility –Align programs and funding in accordance with the Board’s strategic plan.
Recommendation –CBB shall develop the long-range and annual strategic plans/priorities for CBB and the checkoff, and ensure that all programs funded align with the Board’s strategic plans/priorities. QSBCs and contractors shall be solicited for input during the planning process.
As discussed above, the Order confers upon the Board the power to develop strategic plans and priorities to guide the Board’s decision-making and resource allocation particularly in connection with its review and approval of the budget. See supra, Part I. Consistent with this power and the Board’s fiduciary responsibilities as stewards of checkoff dollars, the Board has the authority, consistent with the Act and Order, to develop long-range and annual strategic plans for the use of checkoff dollars.
V. Beef Board Responsibility –Ensure funds collected under the program are only used for activities authorized under the Act and Order (specific to checkoff funds expended by Qualified State Beef Councils).
Recommendation – CBB shall update and distribute CBB’s Guidelines for Approval of Programs under the Beef Promotion and Research Act. The Board shall improve its outreach to Qualified State Beef Councils to foster a closer working relationship and educate QSBCs about such items as the opportunity to send checkoff dollars directly to CBB for funding specific national programs.
The Board has a duty to “encourage the coordination of programs of promotion, research, consumer information and industry information designed to strengthen the beef industry’s
Memorandum April 29, 2011 Page 5
position in the marketplace and to maintain and expand domestic and foreign markets and uses for beef and beef products.” Order § 1260.150(p). One of the Board’s responsibilities in this regard is to work closely with QSBCs to ensure that all expenditures of checkoff funds are in accordance with the Act and the Order. The Board also has the express power to ensure compliance with the requirements of the Act and Order by virtue of its specific authority to “initiate, investigate, and report to the Secretary complaints of violations of the provisions of this subpart.” Order § 1260.149(c). The proposed recommendation to improve the Board’s outreach to QSBCs in this regard is in accordance with the Board’s duties, as defined in the Order.
VI. Beef Board Responsibility –Ensure funds are not used to influence government policy or action– NO LOBBYING with checkoff dollars.
Recommendation – CBB shall (a) reiterate its position against any person acting as a checkoff representative being engaged in, or voting on, legislative or membership issues in any industry association, and (b) clarify that checkoff dollars may not be used to fund travel or other expenses to meetings that involve legislative policy development, regardless of origin of checkoff dollars (QSBC, Federation or CBB).
The Beef Act and Order expressly bar the use of checkoff dollars for lobbying activities. The Board, the Operating Committee, and the QSBCs are prohibited from using checkoff funds for the purpose of “influencing governmental action or policy”with the exception of recommending amendments to the Order. 7 U.S.C. § 2904; Order §§ 1260.169, 1260.181. The AMS Guidelines for Oversight of Commodity Research and Promotion Programs (“AMS Guidelines”) define “influencing governmental action or policy”as “any action the principal purpose of which is to bring about a change in existing policy or regulation or affect the outcome of proposed policy or regulation, except those actions which are specifically provided for in the act, order and/or rules and regulations.” AMS Guidelines § VII (B). Board members are prohibited from taking any actions which may conflict with this prohibition when acting in their official capacity as board members. As noted above, the Beef Board is expressly granted the power to “initiate, investigate, and report to the Secretary complaints of violations of the provisions of this subpart.” Order § 1260.149(c). This proposal is consistent with the Board’s express power and its overarching fiduciary responsibility to ensure compliance with the Act and Order.
VII. Beef Board Responsibility –Appointed by the Secretary of Agriculture and a representative of USDA.
Recommendation –CBB shall develop and implement a policy indicating that CBB takes non-compliance with the Act, Order and guidelines seriously. If non-compliance is reported, CBB shall follow up and take action. CBB shall also require each CBB member to sign a conflict-of-interest form annually.
As noted above, the Board has the power to “receive or initiate, investigate, and report to the Secretary”complaints of violations of the Act and the Order. Order § 1260.149. The Board is responsible for taking action to remedy any misuse of checkoff funds. AMS Guidelines § V
One Massachusetts Avenue, N.W., Suite 800, Washington, D.C. 20001 (202) 842-2345 Fax (202) 408-7763
Memorandum April 29, 2011 Page 6
(C). The AMS Guidelines require the Board to promptly address issues of non-compliance with appropriate action. AMS Guidelines § XI (H), (L).
The Board is also required, pursuant to the AMS Guidelines, to “develop Disclosure Statements and Conflict of Interest Statements that will be signed and submitted by each board member prior to appointment to the board and annually thereafter.” AMS Guidelines § XI (K). This proposal is consistent with the Board’s duties under the Act, the Order, and the recently updated AMS Guidelines.
VIII. Beef Board Responsibility –Take responsibilities seriously and perform them to the best of Board members’ abilities.
Recommendation –CBB shall remind Board members regularly of the responsibility to perform to the best of their ability and in the best interest of the industry.
Board members are fiduciaries and must perform their duties in furtherance of the Board’s mission to maintain and expand the markets for beef and beef products. AMS Guidelines§XI(K). AsstatedintheAMSGuidelines,“serviceonandtheoperationofthe Federal boards is a public trust, requiring members and employees to place the appropriate legislative authority and ethical principles above private gain.” AMS Guidelines § XI (K). Consistent with this mandate, it is prudent for the Board to regularly remind Board members of their responsibility to carry out their duties to the best of their ability and in the best interest of the industry.
IX. Beef Board Responsibility –Make decisions based on what will have a positive impact on the entire industry.
Recommendation – Refer to 2 and 7 above. A CBB strategic plan to direct funding decisions, and a strong evaluation program, will help CBB be more directed and successful. A strategic plan will help guide decision making, and help leadership set and achieve goals.
As discussed above, the Board has the power to develop strategic plans to guide the Board in carrying out its duties under the Act and the Order. Supra Part I. Also, as noted above, the Board has a duty to “encourage the coordination of programs of promotion, research, consumer information and industry information designed to strengthen the beef industry’s position in the marketplace and to maintain and expand domestic and foreign markets and uses for beef and beef products.” Order § 1260.150(p). The recommendation would call for a process of defining the Board’s objectives and vision for the program, and formulating a process for achieving the Board’s goals and desired outcomes. This recommendation is consistent with Board duties under the Act and Order.
Memorandum April 29, 2011 Page 7
X. Beef Board Responsibility –Create industry unity by communicating and supporting Board programs and projects to QSBCs.
Recommendation –CBB shall review state marketing plans carefully not only to determine compliance with the Act and Order, but also to encourage cooperation between state and national programs.
The Board’s role is to facilitate, oversee, and encourage the coordination of beef research and beef promotion programs funded by checkoff dollars. Order § 1260.150(p). As explained above, the Board has a duty to work with Qualified State Beef Councils to ensure that all expenditures of checkoff funds are in accordance with the Act and the Order, and to encourage cooperation between state and national programs. Id. Consistent with these responsibilities, the Board may conduct its review of state marketing plans with the objective of not only determining compliance, but also fostering cooperation between QSBCs and the national program. This recommendation is consistent with the Act and Order.
XI. Beef Board Responsibility –Evaluate the effectiveness of the checkoff programs.
Recommendation –The Evaluation Committee shall be comprised of CBB members and shall evaluate all CBB and joint programs. Federation members will be included on the committee if all Federation-funded activities are included in the evaluation process. The Evaluation Committee shall also review current program evaluations at QSBCs and compare QSBC marketing plans and budgets to evaluations to ensure all programs are evaluated.
The Board has a fiduciary responsibility to evaluate all programs funded with checkoff dollars to ensure that funds are being spent appropriately. As explained in the AMS Guidelines:
Boards … are accountable for how board funds are spent. When projects are contracted, boards must be aware of how the funds are to be used. Boards must expend all funds— whether the funds are from assessments or from an outside source— in accordance with the act, order, regulations, and AMS policy.
AMS Guidelines § V (C). As the AMS Guidelines make clear, the Beef Board is accountable for the expenditure of all checkoff dollars set forth in any budget approved by the Board (including the Operating Committee budget that must be reviewed and approved by the Board before it is sent to the Secretary). Thus, the Beef Board has the inherent power to review and evaluate expenditures, projects, and results. See Order §§ 1260.149(c), 1260.150(f). The Board has the power to structure the Evaluation Committee as it deems necessary to effectively carry out its responsibilities.
In addition, the Order requires that each plan or project “be periodically reviewed or evaluated by the [Operating] Committee”to ensure that they contribute to “an effective program of promotion, research, consumer information and industry information.” Order § 1260.169(c). This duty imposed on the Operating Committee by the Order, however, does not preclude the
Memorandum April 29, 2011 Page 8
Beef Board from setting up an Evaluation Committee for the purpose of evaluating checkoff- funded programs. The Beef Board and the Operating Committee may conduct their evaluations jointly or separately as they see fit. The requirements of the Act, Order, Guidelines, and Beef Board Bylaws do not compel either approach.
It is our opinion that the recommended changes to the policies and procedures of the Beef Board as recommended by the Executive Committee comply with the Act, the Order, the AMS Guidelines, and Beef Board Bylaws. As noted at the outset, we take no position on the advisability of the Beef Board adopting the recommended changes, as that is a matter for the Beef Board itself. Please let us know if you have any questions or if any of the issues discussed above require further clarification.