Good governance is critical to business. Companies that focus on ensuring robust governance while building a talent pipeline for the future will be more successful in building a comparative advantage.
In this article Principal and chair of The Boardroom Practice Janine Smith (MNZM) shares insights on governing in a co-operative. Janine is also a lead facilitator of the Cooperative Governance Development Programme, a six-month course designed to support future and new co-operative directors.
What are the main differences between governance in a co-operative and in a corporate?
Firstly, co-operatives need to give more attention to the nature of the co-operative and the risk profile when looking at strategy, particularly capital allocation. It is not as easy to replace capital in a co-operative as it is in a publicly-listed company, where there is the option of going to the market to raise equity.
There can also be differing needs – co-operatives value member returns however there will be times when a co-operative must invest in growth.
In terms of the board membership, if there are only shareholder directors then potentially a company can lack the expertise or skill balance that is needed around the board table to govern effectively.
Despite the best intentions, there can be difficulty over which hat a director is wearing. Directors need to make sure decisions are based on what is in the best interests of the co-operative, rather than what is best for themselves personally.
With combined shareholder and independent directors, there can be conflict around understanding each other’s role, so building trust is important.
Why is succession planning so critical and what is the main advice you would give to boards regarding planning for succession?
It goes back to why co-operative boards exist – to create and preserve shareholder value. There needs to be the right skills around the table so the board is able to question management effectively and make the best decisions possible.
A board needs a diverse range of skills based on sector and strategy so they must plan for this. Additionally, succession is crucial for keeping a board refreshed.
How can co-operative boards ensure they remain relevant and agile, especially after the events of recent months?
Co-operatives, and boards in general, should be reviewing their strategy taking into account their comparative advantage and how COVID-19 has affected the markets they operate in. Cash is particularly important right now – costs need to be cut to match revenue earlier rather than later. It is hard to do this, and do it early, but it is important.
How can boards balance diversity of thought, especially between appointed or independent directors and elected directors?
A key challenge for elected directors is ensuring the shareholder base understands what skills are required on the board as the election process can at times be about personalities and familiarity. But having the right skill mix is important for the board to bring judgement and to make the best decisions possible. And we shouldn’t forget that good board dynamics are important for an effective board.
Independent directors are often able to fill gaps in skills and there will be times when it will be necessary to get independent advice in order for the board to be able to make robust decisions.
About the Cooperative Governance Development Programme
The programme is designed to support new and aspiring future governors operating within co-operative and governance environments. The programme involves residential workshops, coaching, mentoring and remote learning. Applications are open until 15 March 2021.
About Janine Smith (MNZM), BCom, MPhil (Hons1st class), Principal - The Boardroom Practice Limited
Janine has been a company director for more than 20 years. She is a founding Principal of The Boardroom Practice Limited (TBPL), which specialises in boardroom practice, organisational development and change issues for boards and management.
She is Chair of REANNZ (Research and Education Advanced Network New Zealand), the only independent member of Fonterra’s Governance Development Committee, a Council member of AUT, President of the London Business School alumni Auckland chapter, a well-known judge of business awards and a member of ArcAngels and Global Women.
Janine has held a number of non-executive independent board positions as director and chair in publicly listed companies, State-Owned Enterprises, private companies and with companies in the arts and education sectors. She was also a member of the screening panel for Crown directors for more than 10 years. Janine’s executive director positions were with Telecom Directories and Arnott’s NZ, where she was the GM/CEO.
In 2010 Janine completed a Master of Philosophy, research only, on Effective Boards from Inside the Boardroom, which at that time was one of the first studies of its type in the world. She was also acknowledged in the 2015 New Year’s Honours List, receiving a MNZM for services to corporate governance.