The principles of governance are the same whether a company is a multi-national co-operative or a family farm, an experienced director says. Anne Hardie reports.
A company or business can have a great strategy worked out and put on paper, but it’s pointless without good governance driving that strategy and making sure it happens.
Golden Bay farmer, Tony Reilly, has a long history in governance that stretches back to the Tasman Milk Products’ board which he chaired before it became part of Kiwi Co-operative Dairies. At the same time he was a director of the NZ Dairy Board, representing small dairy co-operatives and part of the McKinsey’s business development group in the formation of Fonterra.
Since then he has been a director for Ravensdown, Pamu Farms and Network Tasman. So he has learnt a thing or two over the years about governance.
It doesn’t matter whether it’s a multinational dairy co-operative like Fonterra, or the family dairy farm, he says the principles are the same – having a strategy in place and driving that strategy.
“For any business, think where you want to be in five years, 10 years time and plan how you are going to get there – how you are going to make it happen. Commit to paper so you can plan and have clear communication with your business partners. That includes your leadership in driving it.”
It’s how he and his wife, Kathy, run their own business and the farm succession plan they have in place.
At the heart of the business is the family farm near Takaka which has grown from land purchased from Maori in the 1850s and today encompasses 90 effective hectares milking 285 cows. Family farms dominate the Golden Bay productive land, making it hard to expand existing farms. Instead, they are equity partners in a 600-cow farm the other side of town with a contract milker in charge of day-to-day management. Plus, they are equity partners in a 700-cow self-contained dairy farm in Southland.
Succession planning with three grownup children who have other careers or work elsewhere, needs governance as well, with annual meetings to examine the business. So far, there have been nine meetings involving the family plus partners of their children, which initially began with baby steps and progressed to open-book meetings where everyone knows the budgets and Tony and Kathy are accountable to those budgets.
On a larger scale of governance, he points to Fonterra’s leadership during the past two years and says he has been encouraged as the board gains better control of management structures and capital. It’s a good example of leadership implementing the strategy, he says, with the result it is reducing debt and heading toward a stronger balance sheet, while enforcing more control over costs.
“They’ve got a long way to go to get confidence back. We haven’t got the value-added activities delivering yet, but I’m encouraged by the improved focus.”
The most important thing the Fonterra board can do in its governing role, is hold management to account to ensure the strategy is delivered, he says.
While he is happy with the direction of Fonterra now, he doesn’t hold back when he says the Fonterra Shareholders’ Council is a waste of time. He says it should be restructured and its role reduced.
Simply: “They’re ineffective and not adding value.”
Tony says a key strength of Fonterra for its dairy farmers is that it is a co-operative and he has long been a big fan of cooperatives, which led to an eight-year stint as a director of Co-operative Business NZ.
Even Network Tasman where he still sits as a director, works in a similar way to the co-operative model in the way it gives funds back to consumers.
“With Fonterra, the method by which we sell products globally means we control the value chain right until we have a sale.
All that value add should come back to our farmgate. I think that model and the way it is respected and admired around the world is something to be very proud of.
“The co-operative structure works well with farmers – as a partnership.”
One area he says dairy companies have yet to show strong leadership is ensuring firm consequences when it comes to farmers letting the industry down, whether it’s milk quality or environmental problems. That means kicking the worst offenders out of the industry.
Which brings him to external audits for farm environmental plans; something he wants integrated with other inspections onfarm, including greenhouse gases.
“As an industry, for our customers and the communities at large, we need to demonstrate our social licence to farm and that should include an external audit.
“We have three reports done with Fonterra, local authorities and AgriQuality and I would prefer one that is either a random audit or three yearly.”
The greenhouse gas part of the equation is a moving target which is still being debated, but the way it is recorded and measured means the agriculture industry needs to ensure it is involved in that process rather than have it imposed on it.
“It relies on the gases being separated and methane being recorded on what it is. It is the main gas heating the environment, but it is a shorter-lasting gas than carbon. That needs to be recognised.”
The New Zealand Government works out methane figures based on The Paris Agreement which assumes methane enters the atmosphere and stays there forever, which he says is simply wrong.
Meanwhile, he points out farmers are also disadvantaged when it comes to carbon farming because of the 30ha requirement in each tree block. On the family farm, Tony and Kathy have been planting locally sourced native trees and other plants alongside the river for the past 20 years and many farmers around the country have done the same. Yet it is not recognised for the financial benefits of carbon farming.
The river through their farm comes from a spring that surfaces just a couple of kilometres away. The farm also lies in the catchment area for the Te Waikoropupu Springs, the largest freshwater springs in NZ and known for the clarity of the water.
Tony is one of 10 parties that have taken a draft conservation order on the springs to the Environment Court because of the impact it will have on the 14 dairy farms in the catchment.
His argument is that there was no scientific research to prove that dairy farmers had any impact on the springs, yet they would be penalised by the conservation order.
“We support the protection of the springs, but just want the facts recognised,” he says. “It’s all just innuendos and modelling work and it’s untenable that we should be expected to change when you don’t know it’s us. It could be just nature.”
The springs saga highlights the urban-rural divide which Tony says has become too polarised, with both sides talking past each other. Yet both have similar values and strive for the same things.
“The values the urban folk want, we want too. You’d struggle now to find a farmer that didn’t want to care for the environment, didn’t expect high animal welfare standards, or didn’t look after staff how you would want to look after yourself.
We seem to be entrenching ourselves way too early in the conversations.
“I wonder if it is the RMA (Resource Management Act) because it forces people to be adversaries. In my mind there’s a major need to restructure the RMA because it has had 19 amendments since it has been around and it is not serving the environment well, but not serving the social needs of people well either.”
Both major political parties have stated they would restructure the RMA, while bypassing it for housing needs and he says they need to start with blank bits of paper.
“I’m quite keen on blank bits of paper!”
While talking about the environment, Tony says constraints on nitrogen use will bring about a “readjustment” in land values in some dairying regions and farmers in those areas need to use good payout years to retire debt as soon as possible to offset a squeeze on their equity.
“Dairy farming has relied on capital gain for decades and that’s now gone.
Now they’re going to have to farm for farm economic return on capital invested.
Longer term it is a workable outcome, but there will be a transition to get to that spot. With good payouts it will be a gradual progression.”
Back to strategies and governance, Tony says the agriculture industry needs to place more focus on mental health and make sure it goes beyond just putting it on paper. As part of Pamu Farm’s board, he chaired the Performance and Safety committee which is an area recognised as the most important factor on its farms, with major changes implemented in recent years. Throughout the industry, the importance of health and safety is widely recognised now and he wants mental health to have an equal focus.
“The number of farm accidents is half the number of suicides. In the industry, health and safety has come a long way, but there’s a long tail and it needs to cover the mental health issue.”
GOVERNANCE:
The process of leading, controlling and directing a business so that it delivers a desired set of outcomes for the owners. (DairyNZ)
