The 42nd ICOS Conference took place on 8th November 2018 under the theme of “De-risking the Co-operative Business”.
The Conference included a thought-provoking workshop on the subject of “Strategic Risk – Overseas Examples of Strategy Failures”, conducted by ICOS CEO TJ Flanagan and Kelvin Jackson, former director of Bonlac and Murray Goulburn dairy co-operatives in Australia.
Kelvin is an Australian dairy farmer with over a decade experience on the boards of large Australian dairy co-operatives during a time of significant instability and turmoil in the Australian dairy sector and provided a wealth of information on the theme and gave great insight into how better governance could have prevented the demise of the Australian dairy co-operatives, in addition to giving an informative outline of the co-operative board member’s role in preventing such failures occurring.
The workshop heard that on top of having the requisite industry knowledge and business acumen, a good CEO must be open with his/her board and be able to cultivate high personal credibility with farmers, employees and customers alike. The role of the chairperson was highlighted as being critical to good governance, the success of the board and by extension, the co-operative. While it would probably not be regarded as a surprising outcome, the workshop concluded that good governance is not simply the responsibility of the chairperson; the entire board must be aware of their responsibilities, going on to conclude the most significant of these responsibilities is to understand:
- The co-operatives business and what level of risk it can sustain
- The level of accountability is appropriate for themselves and management
- The expectations placed on the co-operative by farmers/members, employees, customers and the general public and how to fulfil those same expectations
A number of well thought-out guidelines emerged, such as:
- Trust, but verify – a director cannot be expected to question and second guess every action and decision taken by management, however, they should be able to identify what decisions they need to verify the rationale and validity of and carry out sufficient due diligence to verify.
- Talk to employees – discussing the business with employees was suggested as an effective way of seeing how the company is doing and how the board and management’s decisions are being carried out. However, it is critical directors conduct their interactions with employees extremely carefully, ensuring not to give instructions or encroach on the role of the co-operatives management or seek specific operational information they are not entitled to, such as customer/employee personal data they are not authorised to obtain etc.
- Ensure information not being sanitised as it comes ‘up the line’ – as repeatedly mentioned, it is essential that co-operative directors are inquisitive. In addition, a skilled director should identify when the board are possibly being told what they want to hear and figure out what is happening in reality by drilling down into the information provided and promoting open sharing of information by management.
- Benchmarking – Are you as a director aware of your co-operatives product mix, currency hedging strategy, investment strategy, how it competes in various markets, return on equity, its risk appetite and how these compare to the competition?
- Co-op must maximise return to farm gate – Value adding often adds cost, but can you identify it adding profit?
While some items discussed in the workshop and set out above must be considered carefully by co-operative directors in context of the running and governance of their co-operative before implementing, they certainly offer food for thought and are a good starting point for becoming an effective director, in turn helping their co-operative navigate today’s risk-laden commercial environment.
All the presentations from the ICOS Conference can be found here
By Darragh Walshe
ICOS Legal & Development Executive