Talk to Nuffield Scholars Conference

After such a long gap in posting anything to this blog I'm not sure if anyone will read this. But for those that are interested please find below the text of my speech to last weeks UK & Ireland Nuffield conference.


I am a dairy farmer milking around 200 cows on a grass based, spring calving system, on the Ards Peninsula in County Down.

Our farm like all other dairy farms produces a perishable product with a short shelf life which needs to be collected on a regular basis.

I regard my dairy co-operative which in my case is United Dairy Farmers to be an extension of my farm business. Its performance (or lack of performance) will have a significant impact on the profits of my farm, both now and in the future.

It is with this in mind that I chose to study “World class leadership and capital structures of dairy co-operatives fit to meet the challenges and opportunities of the 21st Century.” On my travels I visited New Zealand and the United States.

I would like to thank my sponsors who made this all possible. The Thomas Henry Trust, United Dairy Farmers, Ulster Farmers Union, Royal Ulster Agricultural Society, Young Farmers Clubs of Ulster, Ulster Bank and Northern Bank.

In my study I looked at leadership structures, including such issues as board composition, recruitment, election and evaluation. Capital Structures looking at share structures, valuation methods, capital funding etc. The issues surrounding the merger and consolidation of co-operatives, and the legislation under which co-operatives are incorporated and governed which is in urgent need of review in the UK.

The issue I wish to talk to you about today is leadership. Why have I picked this issue? The reason is quite simple. If you get leadership right everything else will follow. Indeed this does not just apply to co-operatives but to any organisation.

So what is Leadership? There are many definitions; my favourite comes from Peter Drucker “Management is about doing things right, Leadership is about doing the right things”. This is particularly relevant to co-operative governance where too often Boards spend time debating management decisions rather than looking at the big issues.

There three key areas on co-operative leadership are education, evaluation and election.

EDUCATION
So where do we start on leadership? The level of ignorance on the basics of what co-operatives are all about and on corporate governance is incredible. We need to start at the very beginning.

Modules on leadership, co-operatives and corporate governance need to be included in all agricultural colleges and not just for degree or HND students. This needs to be supplemented with further more specialised courses and programmes which should be operated by co-ops, NFU, YFC etc. In short we need a zero tolerance policy on ignorance. We don’t just need our Boards and committees to be well informed and educated. We need intelligent and probing questions coming from the floor at annual meetings as well.

Not all education need be formal or class based. Getting out, travelling, and meeting positive people are all a vital part of this process. I know I wouldn’t be standing here today if it was not for the beneficial influence of some quite remarkable people. We need to pick out our best young farmers and make sure they “Soar with the eagles and don’t scratch with the Turkeys”

EVALUATION
We need to actively trawl the members of our co-operative looking for the brightest and the best and encourage them to stand for the Board. I believe that in countries the size of the UK or Ireland there is no justification for geographical wards. We want the best directors on our Boards period, whether they come from Devon or Dundee, Down or Dingle is of no relevance. Let’s get one misconception cleared up right away. Directors are not on a Board to represent at particular sector or region they are there to govern. Representation is the job of the shareholders council.

One benefit of changing from a regional to a whole-territory system of election is that the election is no longer a popularity contest. All co-operatives should put in place a candidate assessment panel, this would interview and assess all those wishing to stand for elections and produce a report on each candidate. These reports would be shown to the candidates first giving any who wish to do so a chance to bow out gracefully. Reports on all the remaining candidates would be sent out to all members along with the ballot papers.

It should be recognised that there is no such thing as the “ideal director”. A good board should have a mix of personalities. Leadership guru Brian Rothwell defines four different kinds of leadership style Warrior, Sovereign, Magician and Lover. You need a mix of all these personalities on your board.

ELECTION
The final choice as to who goes onto the Board must remain with the active producer members of the co-operative. It is their co-op, it is their livelihoods that are at stake.

I recommend that votes should be allocated to members in proportion to their participation in the co-op (i.e. volume of milk supplied). Also where there are more than two candidates in an election the single transferrable vote system should be used.

On my travels I asked those who I met what they felt was the best size for the Board. The best answer came from Gary Oldman a Nuffield Scholar and Vice-Chairman of Tatua Co-operative in New Zealand. He said that while seven was probably the best number for discussion and decision making it can take new Directors time to get up to speed, so nine farmer directors would be a more prudent number. My recommendation would be to have three farmer directors elected each year for a term of three years. With a further two to three “external non-execs” co-opted to the Board to provide specialist knowledge.

I know there are those who say that Farmers should be locked out of the Board for their own good. I have to say that I couldn’t disagree with this more. If we can’t find sufficient people with the necessary skills and qualities to be a good director (albeit with a little training), then quite frankly there isn’t any hope for our industry and we should all pack up and go home.

Board remuneration is often a thorny and divisive issue at Annual Meetings. In a year, such as this one, when prices are poor it is often tempting for the Board not to seek a rise. It has often been said to me that “We don’t want people to stand for the Board just for the money”. While this is a valid point, it is just as important that good potential candidates are not put off because they feel they will lose too much. The age of the Gentleman farmer is over!

The best idea I saw for solving this thorny issue was Fonterra’s policy. Each year at the AGM a small remuneration committee is elected. During the year they meet with Directors, and look at comparable positions elsewhere. They then come back to Annual Meeting the following year with an independent recommendation on Board remuneration. This means that the Directors are not put in the undignified position of proposing their own pay rise. In Fonterra’s case the recommendation of the remuneration committee typically passes with 95% of the vote.

Now that we have our Board in place how do we keep them operating at peak performance? Education, evaluation and election.

Education
When a new Director is elected they should undergo an intensive induction process. This should involve time with the Chairman, CEO, CFO and other members of the executive team. During the first few months of their tenure they should see round all of the co-ops manufacturing operations and get a good grounding in marketing as well.

But it doesn’t end there, training should be continual. I believe the best practice is that one day each month the Directors meet in the morning for their formal Board meeting. This should usually finish by lunch time. The afternoon should then be given over to Board development. This doesn’t always have to be formal training, it might involve team building or a specialist briefing by the marketing team.

Evaluation
Evaluation of every director on the Board (including the Chairman) should take place at least every 18 months. This should be done by 180 degree evaluation. Each Director scores their colleagues on a scale of one to five on a variety of issues. Here are some examples of the key issues:

1. Avoids intruding inappropriately on management matters.
2. Is able to keep up with the diversity and amount of information about the business.
3. Contributes effectively to the development of business strategy.
4. Expresses his views in ways that enhance rather than shut down discussion with fellow directors and management.
5. Supports Board decisions after decisions are made.
6. Displays aptitude for free (rather than ‘follow the leader’) thinking.

These results are then collated and the averages presented. It is then the task of the Chairman to meet each Director and discuss their performance and to suggest remedial action that could be taken to address weaknesses (e.g. additional training, or possibly a change in behaviour). If at the next evaluation the Board member has not improved sufficiently the Chairman should suggest that they stand down when their term expires.

It is important to note that having a good Chairman is a super-critical to the success of the Board. Directors must not hesitate to replace an ineffective Chairman. When I met John Roadley the founding Chairman of Fonterra he told me he questioned the need for a vice-chairman. The general opinion is that you need someone able to step in if the Chair is incapacitated. However John says that if any of the Directors are not capable of chairing a meeting they should not be on the Board!

A set of behavioural and procedural rules must be agreed and adhered to by the Board. These include issues such as induction, attendance, board papers, minutes, decision making, personal demeanour, out of meeting communications, Director Appraisal and the personal responsibilities of directors.

Election
Just as it is the Board’s responsibility to evaluate, hire and fire the Chief Executive. It is the responsibility of the members to evaluate, hire and fire the Directors. Directors seeking re-election should be subject to candidate appraisal in just the same manner as other candidates.

Term limits can be somewhat arbitrary. Ideally the Board should manage its own succession. However once a Director has served for 12-15 years you have to ask what more he has to give? If the grim reaper is the only person who removes directors from the Board then you are in trouble.

So there it is – Education, Evaluation and Election. Three vital ingredients to ensure a well run co-operative or indeed any kind of organisation, commercial or otherwise. Without it the talented and thoughtful will often be supplanted by that perennial Board room weed the Meglomaniac.

Finally it must be remembered that leadership is not just for Board members. Co-operatives belong to their members they are our businesses. It is up to each of us to play our part. As with all things in life if you are not part of the solution, you are part of the problem.