The first theoretical concept is Exogenous-Issues which is defined as:
all those contextual issues that have an effect on the co-operative, its supplier-shareholders in their relationship with the co-operative, and by implication the co-operatives’ governance roles that are external to the control of the co-operative governing boards.
While Exogenous-Issues could cover a vast array of actual and potential issues, those repeatedly raised in this fieldwork (see Appendix E for further evidence) are classifiable within three categories formed from an analysis of the data: the Competitive-Environment, the Regulatory-Environment, and the Physical-Environment. Judging from the frequency and intensity with which they are raised, these emerge most powerfully in terms of their impact on actual governing Board Roles. They therefore comprise the subconcepts of Exogenous-Issues.
Exogenous-Issues are present as a conceptual theme in all cases studied, and are referred to by all but one of the participants during the semi-structured interviews (see Table 7-1 for a summary).
Exogenous-Issues
121 Table 7-1 Evidence of Exogenous-Issues
Concept Frequency of mention Examples from interviews Cases Respondents
No. % No. % Exogenous-
Issues
6 100 21 95 [The board needs] to have a very good understanding of the markets that we are operating in and I mean that in a quite wide sense, the market for our products, I mean the market for dairy farmers in a competitive situation with [another co-operative], the market for staff, the market for everything we deal with, the financial markets and everything else (A3, appointed director)
Competitive- Environment
6 100 15 68 So if you are not competitive you are going to lose milk supply, the moment you lose milk supply you start to lose your fundamental base of operation (F3, appointed director)
Regulatory- Environment
6 100 17 77 Recognising that deregulation was on the horizon; how would we position ourselves to take on the demands of a deregulated market? (D4, MD18)
Physical- Environment
5 83 12 55 Whether they can buy the school clothes this year or not. All those things in the drought were obviously pretty emotional from that point of view. But you know why you are here and I think that’s a great thing and from a co-operative, a huge strength (E4, MD)
The effect of Exogenous-Issues on co-operative governance roles varies between the cases studied creating some of the cross-case distinctions19. Discourse demonstrating the nature and existence of each of the sub-concepts of Exogenous-Issues: Competitive-Environment, Regulatory-Environment and Physical-Environment is presented and analysed below.
7.2.1 Competitive-Environment The Competitive-Environment is defined as:
the (dairy) industry environment within which the co-operative company has to compete to both retain (or expand) milk supply and to compete for customers of the products the co-operatives choose to produce and market.
18 Managing Director
19 Cross-case distinctions are understood as lying along dimensions of the properties which define each concept.
122
The Competitive-Environment is raised in 100% of the co-operative cases studied and by 68% of respondents (see Appendix E-1 for evidence and Table 7-1 for summaries). This appointed director highlights the need for directors to understand the Competitive-Environment to undertake their governance roles:
About 75 percent of a board meeting is management educating its board. Educating them in what’s going on, how the business is changing what’s going on in the world, how customers are changing, how competitors are changing, what it means for the company, what things could be coming up in the future, what’s the technologies involved, how are they changing, all those sort of things (A3, appointed director)
The Competitive-Environment relates to issues raised around the threat of takeover as a takeover effectively takes over the co-operative’s milk supply and governance. The following reflects how the Competitive-Environment underlies a supplier-shareholder20 chair’s comments on their own role during a takeover attempt:
It was a very big role, it was an interesting one … we have been … a very successful company for quite some time and we actually pitched our price $2 a share less than the raider and we lived on our record (E1, supplier-shareholder chair)
The Competitive-Environment relates to competition for milk supply (or suppliers’ patronage):
There is competition for that milk out there … you have got to get your raw materials, and if you are not prepared to pay the price you may find yourself short of the fundamental raw material (F3, appointed director)
The competition for milk appears more acute in Australian than New Zealand cases. Product market competition has an important bearing on Board Roles, in this case, Strategic-Involvement21, as this CEO outlines:
20 [For ease of understanding the definition of supplier-shareholder is repeated here] The terms patron, user, member, farmer, producer, owner, shareholder, owner, member-shareholder and combinations of these appear to be used interchangeably in the literature.
While they differ, they all refer to those who patronise, own and control the co-operative firm.
The term supplier-shareholder is utilised as it more accurately reflects the patron’s relationship with a dairy co-operative. That is, they are first and foremost a supplier to the co-operative, but they also have a (less important) shareholding relationship with the co-operative.
21 Covered in Chapter 8
123
[The] added value strategy … has its origins … as the company was thinking through how it was going to be competitive with the changing nature of the dairy industry of the time (A4, CEO)
Also raised within this category are issues around changes in markets that drive the Competitive-Environment such as changes in global supply and demand and the internationalisation of food markets and its influence on the Board’s Role:
What about China? Or what about free trade agreement in the States?
But what does that all mean in strategic terms? And what are we going to do? (E4, managing director)
Customer preferences around issues such as animal welfare, food safety, traceability and sustainable production systems concerns also fall within this category:
GMO free policy … customers who do not trust GMO … they just don’t want to see GM material in the food chain” (E4, managing director) The Competitive-Environment is defined here and shown in this research to be an important subconcept of Exogenous-Issues that are required to be understood when theorising on co-operative governing Board Roles.
7.2.2 Regulatory-Environment
The second sub-concept is the Regulatory-Environment which is defined as:
changes in legislation / regulation (either inside or outside the domiciled country) that affect the co-operative and its governance roles and that are outside the control of the co-operative’s board.
Included in this subconcept are issues related to changes in legislation, regulations, and market access (as it relates to government intervention in market places, e.g., FTA22s) and also changes in financial markets, in particular exchange rates. The latter is included under Regulatory-Environment because of the extent to which co-operatives may be regulated in a sense by market mechanisms and sometimes by monetary (regulatory) policy as well.
The Regulatory-Environment is raised in 100% of the co-operative cases studied and by 77% of respondents (refer to Appendix E-2 for evidence and
22 Free Trade Agreements. Usually undertaken on a government to government level, such as the Australia-United States and New Zealand-China FTAs and the ongoing negotiations under the auspices of the World Trade Organisation.
124
Table 7-1 for summaries). There are distinctions between the Australian and New Zealand regulatory environments and some differences between States in Australia.
The following comments reflect how the Regulatory-Environment concept captures respondents’ observations about changes in legislation and regulation and provides evidence of the relationship of these ideas with co-operative governing Board Roles:
Recognising that deregulation was on the horizon; how would we position ourselves to take on the demands of a deregulated market?
(D4, managing director)
Bear in mind it’s only in this last year it’s been legislated … but culturally getting that across the line took the support of the board speaking aloud about that at some of our [supplier-shareholder]
meetings (E4, managing director)
Changes in exchange rates have an effect on the co-operative and on the Board’s tasks:
If you hedge too far and you get it wrong and your competitor for supply doesn’t get it wrong then you lose supply and that has profound impact … therefore any changes in fundamental policies has to be approved by the board (D1, appointed chair)
This chair and managing director highlight the ways in which the international environment has an influence on the Strategic-Involvement (section 8.3) Board Role:
With some of the large geopolitical movements - was our strategy still appropriate? (C1, supplier-shareholder chair)
And on the Unite Role (section 8.2) attributed to co-operative boards:
The biggest challenge for co-operatives … is as … this business evolves and the food industry … continues to get more and more complex - how they keep in touch and communicate with the shareholders … otherwise you can lose that alignment of what the shareholders want and what the board and the company are doing and what the customer wants (E4, managing director)
The Regulatory-Environment is thus induced from the evidential data as one subconcept of Exogenous-Issues.
125
7.2.3 Physical-Environment
The third Exogenous-Issue derived is the Physical-Environment (see Appendix E-3 for more evidence), is defined as:
the climate and geographically-influenced community within which the co-operative operates.
Dairy farming is a biological process and as such climate and geography have a pronounced effect on supplier-shareholders’ farming operations, their commensurate needs, and therefore the boards who respond to those needs.
The Physical-Environment is raised in 100% of the co-operative cases studied and by 55% of respondents (refer to Table 7-1 for summaries).
Distinctions in the form of size and geographic location effected cases differently. Climatic events, in the form of drought, have a marked impact on the governance roles within the Australian co-operative dairy companies at the time of data collection:
[The co-operative] explained exactly where we’re going … and we gave them support … with acquiring outside feed, be it hay or silage and grain, to try and help through the crisis period … we went out and we faced the farmers on their patch … and explained what we were doing, the problems we had, and talked about their problems. We put field staff in basically to go out and service them, to fill in forms, to help them with drought aid, to facilitate many of the things that under stress they weren’t handling well … there were a few of them that wanted to sell the place and privatise it (E1, supplier-shareholder chair)
The geographic location of the co-operative and the local community in which the co-operative operates also has an impact on co-operative governance roles, particularly in smaller or geographically isolated co-operatives:
There are some very practical reasons why we need to be part of the community … we need to protect the environment. We make it very much a sale point when we’re selling our product … Education - most farmers … have children and so education is very much dear to their hearts … the opportunity to maybe create employment here for their children, so at least they’ve got a choice of living here if they want to, which hasn’t been great in the past. All of those things are quite important (B1, supplier-shareholder chair)
126
The Physical-Environment has been identified as a subconcept of Exogenous-Issues that is important in informing the understanding of Board Roles of co-operative dairy companies.
7.2.4 Conclusions – Exogenous-Issues
Exogenous-Issues are defined here as all those contextual issues that have an effect on the co-operative, its supplier-shareholders’ in their relationship with the co-operative, and, by implication, the co-operatives’ governance roles that are external to the control of the co-operative governing boards. Three groupings of Exogenous-Issues emerge; the Competitive-Environment, the Regulatory-Environment, and the Physical-Environment. These are highlighted in the data as having the most significant effect on the co-operatives’ Board Roles. Therefore, Exogenous-Issues, while external to the co-operative, cannot be excluded from the sources of influence on the governing Board Roles.
127
7.3 Supplier-Shareholder-Needs/Benefits