ECI Conference 2018 12 October 2018 Irish Cooperative

ECI Conference 2018 12 October 2018 Irish Co-operative Organisation Society (ICOS) The Do’s & Don’ts for Co-Operative Directors 1

• What is your co-operative? • Why does it exist? • Who has a stake? Irish Co-operative Organisation Society (ICOS) Your Co-operative 2

• Common purpose and priorities • How to make it happen? Ø How do we structure it? Ø What’s important? § Profit vs Need § Member Involvement § Member Control Irish Co-operative Organisation Society (ICOS) Your Co-operative 3

Why have a co-operative? • Strength in numbers • Enjoy limited liability • Member control Obligations and Challenges • Responsibilities to membership • Responsibilities to the public / state • Fit for purpose • Question of governance Irish Co-operative Organisation Society (ICOS) Co-operatives – the fundamentals 4

• • Dairy co-ops responsible for about € 14. 5 bn in sales Co-op marts sales € 180 m, sell 1. 79 million animals 150, 000+ individual members. 14, 000 Irish employees. Combined global sales of € 15 bn. Response to Market Failure Group water schemes Irish Co-operative Organisation Society (ICOS) Economic Factors 5

• Rural phenomenon • Providing water infrastructure where local authorities couldn’t or wouldn’t • Operating more efficiently Irish Co-operative Organisation Society (ICOS) Group Water Schemes 6

• Co-ops had been involved in meat processing • Beef/Sheepmeat/Pigmeat/Fruit and Vegetable sector • In all cases, they ceased; Why? • inefficient? • slow? • naive? • unprofitable? • reluctant to take a tough stance with members? Irish Co-operative Organisation Society (ICOS) Economic Factors – Co-op Failures 7

• Represents over 130 co-operative businesses and organisations in Ireland • Dairy, Livestock and Rural Co-operative Enterprise sectors. • 13 person board. President: Michael Spellman, Roscommon C-operative Mart. • Providing Co-ops with: • • A Voice Advice, Support, Development Governance & Rules Communication & Networking Training & Education Lobbying: Legislation & Representation Funding Irish Co-operative Organisation Society (ICOS) ICOS 8

Legal status of a Co-operative • A Co-op has “corporate personality” • What does this mean? Irish Co-operative Organisation Society (ICOS) Legal Factors 9

Corporate operative: Personality means the • Is an entity distinct from its members. • “Enjoys” limited liability Limited Liability • “The Good, the Bad and the Ugly” Ø Powers AND Responsibilities § § § Sue (and be sued) Contracts (enter, enjoy, comply e. g. meet covenants) Employees (hire, pay and comply e. g. safe workplace) Bank Accounts (open, trade and comply e. g. AML) Borrow and Invest (contract, enjoy return, pay interest) Co- Irish Co-operative Organisation Society (ICOS) Legal Factors 10

Board Members The Co-Op Executives / Employees • Relationships and responsibilities Ø impact each other Ø balance each other Third Parties Irish Co-operative Organisation Society (ICOS) Governance through relationships 11

As a Director to whom am I responsible? # Rule of Thumb Directors are responsible FOR the Co-operative, . . . While being answerable TO the Members. Irish Co-operative Organisation Society (ICOS) Responsibilities and Relationships • When are the Board answerable to Members? 12

• Who can do what? • Who must do what? • When do they do it? Contesting elections. . Notice of meetings… Irish Co-operative Organisation Society (ICOS) Responsibilities and Relationships 13

…and Governance in turn flows from the legal framework: Related Legislation IPS Acts Rules Responsibilities, Rights, Powers and Liabilities Irish Co-operative Organisation Society (ICOS) Responsibilities and Relationships are defined through Governance 14

• Where are they? Ø in “the Rulebook” Ø ICOS rules for ICOS affiliates • • Customised for Sector Customised for Society • Certain things must be included Ø Schedule 2 (IPS Act 1893) • Meetings • Committee – appointment, removal, powers • Shares – Transfers, withdrawals • Audit of accounts • Other things can be included: • • Representative levels (general/ regional) Member categories (Active Trader / Milk Supplier) Irish Co-operative Organisation Society (ICOS) First up…the Society Rules 15

As a Director do I need to know every Rule? # Rule of Thumb You don’t need to know everything, but. . . do need to know what questions to ask, and. . where to look for the answers. • Irish Co-operative Organisation Society (ICOS) The Rules 16

Some important Rules Ø Objects of the Society Ø Members – Admission and expulsion Ø Share transfers – Discretion to the Board Ø General meetings – when held; notice to members Ø Board – Rotations, eligibility and notice Irish Co-operative Organisation Society (ICOS) Governance - the Rules 17

As directors what can we do and what must we do? • In taking any course of action ask yourself these questions: Ø Do the Rules permit (or insist on) it? Ø Is it legal? Irish Co-operative Organisation Society (ICOS) The Rules 18

As directors what can we do and what must we do? # Rule of Thumb If the Rules do not reserve it* for the members (in General Meeting)…. … the action is for the Board to take** * Subject to “it” being provided for in the Rules. . ** Subject to “it” being legal !!! Irish Co-operative Organisation Society (ICOS) The Rules 19

The Co-op legislation • Industrial and Provident Societies Acts (1893 – 2018) • Sets the minimums for the Rule book • Changes over the years • Triennial Return, Inspection of Members’ Register • Special Resolutions Currently under review • Consolidation • Raising of standards? • ICOS Submission • Efficiencies whilst protecting Co-op principles Irish Co-operative Organisation Society (ICOS) Governance – the IPS Acts 20

• Does Company Law apply to a Co-Op? Ø Strictly speaking: No. Ø But, similar features (e. g. legal personality) Ø Persuasive… • Particularly persuasive on Directors Duties Ø Where are these duties? § Common Law § Companies Acts Irish Co-operative Organisation Society (ICOS) Governance – Company Law 21

• Companies Act 2014 Ø Consolidated Company legislation • Duties / Responsibilities Ø Members and Employees - “Have regard to interests” (s. 224) Ø Fiduciary Duties - “to the Company (and the Company alone)” (s. 227. 1) Irish Co-operative Organisation Society (ICOS) Governance – Companies Acts 22

• Directors expected to act: Ø in good faith Ø honestly and responsibly Ø in accordance with constitution Irish Co-operative Organisation Society (ICOS) Fiduciary Duties 23

• Directors expected to: Ø Not use property, info. or opportunities for own personal benefit Ø Not restrict director’s power of independent judgment Irish Co-operative Organisation Society (ICOS) Fiduciary Duties Ø Avoid conflicts of interest Ø Care, skill and diligence 24

• Some examples from case law: • Acting other than in interests of Co-Op Ø Motive of convening a meeting to frustrate attendance of certain members (Cannon v Trask, 1875) • Interests of Director conflicts with Co-op’s interests Ø Director interest in contract with Co-Op automatically a breach, regardless of motive (Aberdeen Railway Co. v Blaike) • Misuse of information / Secret Profits Ø Entering contract where 3 rd party would not contract with Co. Op held a “secret profit” (Industrial Development Consultants Ltd v Cooley) Irish Co-operative Organisation Society (ICOS) Fiduciary Duties 25

Co-op is a business Ø Regulation depends on its activities and sector Ø Directors responsible for governance Ø Must comply with regulations Sector specific legislation Ø Regulation depends on its activities and sector § Employment law § Tax Law § Health and Safety Irish Co-operative Organisation Society (ICOS) The Law – Other legislation 26

Wider legal environment • Taxation: Co-op Bonus Shares. • Anti-money Laundering Directive: Shareholdings. • General Data Protection Regulation: personal and sensitive data. • Application to Co-ops. ICOS working with Co-op Boards and Secretaries. Irish Co-operative Organisation Society (ICOS) Legal horizon 27

• For a co-operative board it’s good practise to: Ø Recall - collective needs and purpose § § Ø Remember - responsibilities and requirements § § Ø Route to market Member control and interests Two sides to a contract laws of the land Refresh - yourself on the legal structure § § Members, Regional Committee, Board and Management Who does what and when? Irish Co-operative Organisation Society (ICOS) Good Practise 28

• Rule of Thumb #1 Directors Responsible FOR the Co-operative & Answerable TO the Members. • Rule of Thumb #2 Don’t need to know everything; but Do need to know what questions to ask & Where to look for answers. • Rule of Thumb #3 If the Rules do not reserve it for the members (in General Meeting), the action is for the Board to take. Irish Co-operative Organisation Society (ICOS) Final Thoughts 29