Fewer farmers but more commercial insight for FM Board

Published 11 November 15

At its AGM, First Milk (FM) introduced its proposed new Board structure to members that will see the number of farmer directors reduce from five to two. The proposal also sees the 13-strong Area Representatives replaced with a seven member Council. The decision will now be taken to a Special General Meeting (SGM) in December with the aim of implementing the new Board from 1st February 2016.

One of the key challenges for co-operatives is ensuring expertise on the Board while managing the cost of membership participation. According to the recent independent governance report by Greenburn Associates a number of failings in FM could have been avoided with more commercial focused expertise on the Board.

The change will give FM one extra external expert on the Board, moving from two to three as well as delivering a cost saving by reducing the total number of directors from 9 to 7. The new Board structure will have a different overall dynamic with farmer representation reducing from more than 50% to less than 30%. This will potentially make hard commercial decisions, which are for the good of the overall business but specifically impact on farmer-members, easier to reach agreement on.

For comparison, the Co-operative Group (Co-op) undertook a similar change last year and now have a Board made up of one-third member-elected directors. Further afield, both Fonterra and Friesland Campina have 13-strong Boards including 9 farmer-elected directors. Arla has a Board of 24, consisting of 20 farmer directors.

Co-operative structure 11 Nov 15

The other interesting point to note is with reference to the Voluntary Code of Practice (Code). The Code includes permitted exceptions for co-ops where they can demonstrate they are under the control of their producer members and acting on their behalf. An easy rule to prove when you have a majority of farmers on your Board but not so easy when you don’t. FM will rely on the new member Council having significantly enhanced powers to hold the Board to account. Crucially, however, this does not appear to include having an input into milk price changes.