ICOS Co-Operative Directors Conference 2018: Insights & Learnings

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

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

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

Irish Co-operative Organisation Society (ICOS) Co-operatives the fundamentals 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 4

Irish Co-operative Organisation Society (ICOS) Economic Factors Dairy co-ops responsible for about 14.5bn in sales Co-op marts sales 180m, sell 1.79 million animals 150,000+ individual members. 14,000 Irish employees. Combined global sales of 15bn. Response to Market Failure Group water schemes 5

Irish Co-operative Organisation Society (ICOS) Group Water Schemes Rural phenomenon Providing water infrastructure where local authorities couldn t or wouldn t Operating more efficiently 6

Irish Co-operative Organisation Society (ICOS) Economic Factors Co-op Failures 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? 7

Irish Co-operative Organisation Society (ICOS) ICOS 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 8

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

Legal Factors Irish Co-operative Organisation Society (ICOS) Corporate Personality means theCo- operative: Is an entity distinct from its members. Enjoys limited liability Limited Liability The Good, the Bad and the Ugly 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) 10

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

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

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

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

Irish Co-operative Organisation Society (ICOS) First up the Society Rules Where are they? in the Rulebook ICOS rules for ICOS affiliates Customised for Sector Customised for Society Certain things must be included 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) 15

Irish Co-operative Organisation Society (ICOS) The Rules As a Director do I need to know every Rule? # Rule of Thumb You You don t need to know everything, don t need to know everything, but but ...do need to know ...do need to know what questions to questions to ask, ask, and and....where to look for the answers. look for the answers. what ....where to 16

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

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

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

Irish Co-operative Organisation Society (ICOS) Governance the IPS Acts 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 20

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

Irish Co-operative Organisation Society (ICOS) Governance Companies Acts Companies Act 2014 Consolidated Company legislation Duties / Responsibilities Members and Employees - Have regard to interests (s.224) Fiduciary Duties - to the Company (and the Company alone) (s.227.1) 22

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

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

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

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

Irish Co-operative Organisation Society (ICOS) Legal horizon 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. 27

Irish Co-operative Organisation Society (ICOS) Good Practise For a co-operative board it s good practise to: Recall - collective needs and purpose Route to market Member control and interests Remember - responsibilities and requirements 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? 28

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

Irish Co-operative Organisation Society (ICOS) 30

Irish Co-operative Organisation Society (ICOS) Thank You 31

Irish Co-operative Organisation Society (ICOS) James Doyle Legal & Governance Executive james.doyle@icos.ie (061) 503066 32