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Corporate governance in agricultural co-operatives.

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Executive Summary

This report investigates aspects of corporate governance as it should apply to New Zealand agricultural co-operatives. It looks at best practice corporate governance in public listed companies and identifies areas which pose challenges to agricultural co-operatives.

The author attended the 55th Advanced Course in Agricultural Business Management at the Imperial College Wye campus in Kent where he received valuable understanding of EU and UK farming policies, practises and challenges. He visited agricultural co-operatives, training organisations, co-operative associations, co-operative directors and chairmen, farms and farmers in England, Ireland, Scotland, Netherlands and the United States on his self-study tour. He met Australasian co-operative directors  at the eighth annual Monash University Agribusiness Co-operative Leadership and Governance Forum held at Hamilton Island in Australia. He met people involved in consumer co-operatives and members of the International Co-operative Alliance at the 2005 co-operative congress in Glasgow where Cooperative UK corporate governance review group presented their final report and had it ratified by the congress.

A key recommendation of this report is that New Zealand co-operatives should voluntarily comply with the corporate governance guidelines published by the New Zealand Securities Commission in 2004.

There are some areas of corporate governance where co-operatives have their own particular challenges. A democratically elected board sourced from the co-operatives members can often result in a board with a wealth of ability, but in a narrow range of skills. There is often a lack of diversity around the board table, directors can be elected without adequate experience or understanding of the role, and there is a tendency for them to stay in the job for too long. To overcome these issues it is even more important in a co-operative, than in a public company, that there is quality training available for directors and prospective directors and that the performance of the board and individual directors is evaluated so that the dead wood can be removed. There needs to be a  process to identify skills required on the board and ensure that the candidates put to a members vote have the skills and experience required for the position. If skills gaps can not be filled by training existing directors, or from the membership base then boards should look to appoint from outside the organisation.

The other major point of difference is in a cooperatives relationship with its members. Cooperatives need their members to be united by common goals, and committed to participating in the co-operative to achieve them. This is a communication issue that often receives insufficient attention. Effective communication is two-way. Newsletters are useful but only one way, hence regular meetings with members and shareholders, perhaps in small regional groups, can be very beneficial. There needs to be a culture of openness in the board’s dealings with its members, with a requirement to disclose more information to members than a public company would to its shareholders. Co-operatives need to be sure that they are meeting their member’s needs and are following a strategic direction that will continue to meet their member’s needs.

This report raises the issue of conformance versus performance. Conforming with corporate  governance principles requires a lot more commitment than just going through the motions ticking the boxes. Good corporate governance on its own cannot make a cooperative successful, it needs a balance of conformance and performance. The performance dimension focuses on strategy and value creation. The focus is on helping the board to make strategic decisions, understand its appetite for risk and its key drivers of performance, and identify its key points of decision-making. Co-operative ownership is no excuse for poor performance.

Finally there are comments made to the author by people involved with co-operatives around the world. These comments represent the wisdom gained through decades of experience serving on and chairing co-operative boards in different sectors of agriculture and in different countries. They offer a balance to the more theoretical content of the report.

Corporate Governance in Agricultural Co-operatives – Tom Mason