Chairman backs change in Board structure

At this month’s Annual General Meeting, shareholders have the opportunity to vote on a proposed change in the structure of the Farmlands Board of Directors. In place of the current arrangement of eight shareholder-elected Directors (four from each Island) and two Independent Directors (one from each Island), the resolution proposes a structure of six shareholder-elected Directors (three from each Island), with three Independents (from anywhere in New Zealand).

This change in Board structure, which aims to ensure that we are able to assemble the right set of skills and competencies to govern a large and increasingly complex enterprise, is supported unanimously by the Farmlands Board. Farmlands Chairman, Lachie Johnstone, talks to The Farmlander about the resolution.

What is the role of the Farmlands Board of Directors?

The Board has a broad responsibility for the affairs and activities of the co-operative, while the day-to-day operations and administration are delegated to the Chief Executive and the Leadership Team. That’s what we mean when we point to the distinction between “governance” and “management”. Both arms of leadership need to be working in harmony and at a high level of effectiveness for the business to flourish.

The Farmlands Board follows best governance practice – and, in particular, we adhere closely to the “Four Pillars of Governance”, the code set by the New Zealand Institute of Directors as the definition of best practice. More specifically, the Board’s responsibilities involve:

  • Ensuring our co-operative’s goals are clearly established and effective strategies are adopted to achieve them.
  • Establishing that there are policies in place to improve performance.
  • Monitoring the performance of management.
  • Overseeing and monitoring the co-operative’s financial position.
  • Ensuring our co-operative adheres to appropriate values, ethics and corporate behaviour.
  • Ensuring that we have robust risk management and compliance policies in place.

Why has this resolution been put forward to shareholders at this year’s AGM?

A key element of “best practice” is that we review the structure of our organisation and the way it’s governed on a regular basis. When you pull two large organisations together in the form of a merger, it’s inevitable that the governance framework will reflect the conditions applying at the time of the merger rather than looking out to what might be more appropriate further down the track. Compromise gets embedded in the rules – and in our case, we decided on ten Directors, two of them independent, with parameters on where they had to be domiciled.

We believe our situation has changed. What was right for 5 years ago, at the time of the merger, is not necessarily the way we should be doing things now. Farmlands is a big and complex organisation, increasingly challenging to run and requiring some quite specific skillsets at Board level.

If we are going to forge ahead on the path of growth and success, it is vital that we are able to build a critical mass of Independent Directors, who can complement and augment the competencies of our elected Shareholder Directors. The skill-sets we are seeking in our Independent Directors are clearly defined and we need to find the best possible people to work alongside and challenge management as we drive our co-operative forward.

Why does the proposal moot a new structure (3/3/3), with Independent Directors not bound by geography like the Shareholder Directors?

Farmer Directors tend not to have the depth and breadth of governance experience that Independent Directors do. Independent Directors build their skills and experience in a variety of environments and they bring this to Farmlands. What I see is a sort of cross fertilisation of skills and perspectives around the Board table, which is going to be more and more important to our sustained business growth.

We feel that if an Independent Director has the right skill-set to bring value to Farmlands, because they’re Independent, it shouldn’t matter where they are domiciled.

Why the change from ten Directors to nine?

We think in the modern world there’s no need to have such a big board and we’ve done some analysis to establish what is best practice in terms of board size. This was one of the matters we considered in our review and the change we are proposing follows on from it.

I appreciate that a reduction of one is far from a revolution – but the change in the mix of skills and perspectives at Board level will suit the changing needs of our co-operative, as we evolve into a larger, nationwide business.

Is there concern that the change could mean a perceived “loss” of shareholder voices?

No. Farmers are still in control of our co-operative. The majority of Directors will still be farmers and shareholders and it is stipulated in the constitution of our co-operative that the Chair must be a shareholder-elected Director.

What we are proposing isn’t unusual. Other organisations such as Ballance Agri-Nutrients have taken this step – Farmlands is actually an outlier in terms of our Director numbers.

First things first, though. We need shareholder approval to effect these changes and the best way to do that is through a shareholder resolution at the AGM. We’re bringing this to shareholders and providing them with supporting documentation to help explain why we think it’s important to take this step. Ultimately, it will be the shareholders’ decision. Should they decide in favour, we would look to implementing it over time. We see that the rule change needs to be made but we can leave options open in terms of the speed and path of implementation.

Further information about these changes can be found in the "Proposed changes to the rules of your co-operative" booklet.