Thirty-Two Exercise in Survival 1981

CHAPTER THIRTY-TWO

Exercise in Survival

New faces at the first board meeting following the annual general meeting, on 30 July 1981, were assured that they would ‘get every courtesy from the executive management’, and that should any information be required they should feel perfectly free to approach the executive. With what seemed like almost insurmountable issues for the directorate to consider, the electing of a new chairman at this time was of critical importance. Whoever stepped into Tom Tarrant’s shoes would need an excess of management skill, good fortune and considerably better weather to steer this ageing enterprise into a safe harbour. Managing director Tom Molesworth took the chair and called for nominations. Naturally parochialism often showed when the stakes were high and this particular issue seemed to split the board, one stance Hawera based and the other that of the more outlying areas of the province. Mr A. G. R. Williams was nominated for the position of chairman by Mr B. D. Veitch and seconded by Mr R. A. Death. There was a further nomination of Mr P. M. Blyde by Mr E. J. Corlett, seconded by Mr J. A. Halton. Both directors accepted and spoke to their respective nominations, and the following secret ballot resulted in the election of Mr A. G. R. (Reeve) Williams. The family of Reeve Williams was not unaccustomed to being in the spotlight. Reeve’s grandfather was one of the earliest pioneer settlers of the Hawera district, and his father, Griff Williams, had held a number of executive positions on local boards and public bodies. Although the task at hand was a daunting one, it was a natural progression of Reeve’s continuing service to the farming sector and the province as a whole. He had served on the Hawera County Council, Egmont National Park Board, Hawera High School Mr A. G. R. (Reeve) Williams, chairman The Farmers’ Co-operative Organisation Society of New Zealand Limited, 1981–87. Board, Hawera Star Board and Taranaki Harbours Board and farmed a large holding in the Ohangai district. This was a most demanding new role. From a provincial perspective his credentials were excellent and the board was COURTESY OF SOUTH TARANAKI STAR pleased with the result. The newly elected chairman called for nominations for deputy chairman. There were two nominations, Mr P. M. Blyde and Mr D. E. Rider, and in a secret ballot Mr P. M. Blyde was elected. This was a popular choice and he would prove to be a tower of strength to the chairman as the decade unfolded. DIRECTORS MANAGEMENT EXECUTIVES

A. G. R. Williams Ohangai (Chairman) P. M. Blyde Lepperton (V/Chairman) MANAGING DIRECTOR: T. F. Molesworth

C. H. Betts Inaha R. L. Bremer Waverley P. E. Bulfin Hawera E. J. Corlett Ratapiko R. A. Death Ararata DISTRICT MANAGERS:

K. P. Newland Hawera P. A. Western Stratford J. A. Halton Kohuratahi G. M. Hobson New Plymouth A. R. Kellick Mangamahu P. O’Shanassy Wanganui J. A.T. McEldowney Okato J. P. V. Norman Manutahi MARKETING: I. B. Spilman D. E. Rider Kaponga FARM SUPPLIES: A. M. Moss D. B. Sarten Opunake MOTOR DIVISION: L. Watkins A. W. Tibby Tokirima B. D. Veitch Hawera

SECRETARY: T. J. F. Pope

Five directors were nominated to the executive committee: Mr A. G. R. Williams, Mr P. M. Blyde, Mr C. H. Betts, Mr D. E. Rider and Mr B. D. Veitch. For the record, directors and trustees were also appointed to the following subsidiary companies and the Farmers’ Co-op Superannuation Fund administered by the board of The Farmers’ Co-operative Organisation Society of New Zealand Limited:

Nolan’s Buildings Limited. West Coast Mortgage & Deposit Company. Taranaki Farmers Wholesale Limited. Farmers’ Co-op Wools Limited. F. H. Campbell Limited.

When Ron Ashton departed from this meeting, which he had attended at the invitation of the board following recent retirement after 15 years as a director, he severed a 49-year association with the company, having worked for Farmers’ Co-op in his youth drafting lambs for the Patea Freezing Works, as a farmer shareholder and finally as a director. With the former immediate past chairman Tom Tarrant, he was precluded from continuing his position on the board due to a provision in the Articles of Association (clause 101) that stated ‘any director who attains the age of 67 years whilst holding office shall automatically cease to hold office on the dissolution of the next annual general meeting at which he shall retire from office’. Fortunately this somewhat archaic requirement no longer applies as discrimination on the grounds of age is now prohibited under the New Zealand Bill of Rights Act 1990. Peter Blyde rose to thank Ron Ashton for ‘the excellent company he had been as travelling companion in the long years’. (He had provided Mr Ashton with a ride from and to his home at Inglewood for many years to attend meetings of the board of directors at Hawera.) There were other words of appreciation for his service from the assembled company, followed by applause.

Robust, no-holds-barred supplementary reports from the managing director to directors were now circulated to provide board members with a more comprehensive and detailed account of the state of the company’s affairs, both financially and concerning other matters such as the expansion programme, which was now coming under close scrutiny and being blamed in some quarters for stretching the resources of the company. The first full directors’ meeting chaired by Reeve Williams on 25 August 1981 provided a complete appraisal of Farmers’ Co-op’s position, including returns for both trading and financials. In general there had been no significant improvement in most areas and rumours concerning the company’s financial difficulties were now circulating. The managing director reported:

There have been comments from some quarters that the expansion programme has stretched our resources and caused the problems of liquidity. It can, however, be strongly debated that if the pre-1976 philosophy had continued to prevail, it would not have changed the liquidity situation and F.C.O.S could have been faced with other problems. There is no doubt we now have a more virile organisation with a stronger base for our operations and improved staff morale. It is not disputed that the expansion has caused problems, particularly in administration and accounting, and which has been part of the contributing fact to the drop in profits. Branch and departmental performance has varied, but it is noted that where management with experience and expertise has been at the helm, performance has been consistently satisfactory. Analysis of results from problem areas shows that reasons include: indifferent management showing a lack of ability in motivation and communications; ‘mushrooming’ turnover that has brought problems in administration and accounting; indifferent support staff; staff ratio versus turnover; excessive turnover in low profit margin areas.

His lengthy analysis concluded: Together with the problem of effective funding of the operation, the basic requirements are to improve our own efficiency by making the best use of the available dollar, improvement in gross earnings and control of expenditure being the major ingredients. The urgency of the situation cannot be stressed too strongly, but will not be achieved merely by the strength of a resolution or the stroke of a pen – it will demand close liaison between Directors, Executive Management and all Staff Personnel. In-depth studies will need to be undertaken to hopefully cover all eventualities and decisions may have to be made which at the moment are unpalatable and do not conform with our present policies. Last year, Mr P. Taylor, Financial Consultant from Wilkinson, Wilberfoss, submitted at our behest a review of our Financial situation together with certain recommendations [some of which were already being undertaken]. A further report based on 1980/81 has just come to hand and whilst it substantially confirms what we have known and are now putting into practice, there are other matters that deserve serious consideration.

It is with respect that I suggest such consideration at this level at this stage would be difficult and could well be the subject of a special meeting of Directors. However, before this can take place perhaps a meeting of Board Executive should be held to study the reports and report back to this meeting with specific matters to discuss and resolve.

Following the executive committee meeting of the 28 August 1981, when the second Taylor Report of August 1981 was fully discussed, a decision was made to mail out copies of the relevant portions to directors to enable them to have time to study the contents before the next meeting. At the September meeting, after general matters had been covered, considerable discussion took place about the report. Mr Veitch summed it up: the report, which was the advice from competent, professional management services personnel associated with our auditors, was a good one, and the board should acknowledge that it is a fair report on the situation and endeavour to carry out its recommendations. It appears that there was no disagreement between the board executive and the management staff of the company on the points made and recommendations offered. Mr Blyde advised the meeting that considerable time had been spent checking the report with the executive, and that a number actions had been under way for some time. On a motion of Mr Blyde, seconded by Mr Rider, it was resolved that the report provided by the financial consultant Mr Taylor be received and adopted. It was also

resolved that the executive committee of the board and the management executive meet with Mr Taylor to discuss the report and the effects and recommendations when the six months company results were available. Following this meeting Peter Taylor forwarded further recommendations suggesting that it was now time for the management of Farmers’ Co-op to address questions relating to: – assessing long-term objectives. – planning for strategies to meet those objectives. – allocating responsibilities to undertake strategies. – measuring and controlling performance. Mr Taylor also suggested that the ultimate aim of the company should be to develop a formal plan with a timetable to ensure that the exercise would be cost effective and would address a number of questions to determine the type of business Farmers’ Co-op was conducting and what it wished to be in the future. The questions were: (a) What is the business and what should it be? (b) Who are our customers and who should they be? (c) Where are we heading? (d) What major competitive advantages do we enjoy? (e) In what areas of competence do we excel? (f) Shall we acquire new resources or develop them internally? Answering these questions would assist the company to determine its corporate objectives in the long term and the executive committee of the board wasted no time in making recommendations to the board. The company was not accustomed to having its back to the wall and the situation had moved so quickly it was clear that any drastic remedy was going to take it where it had never been before. To move away from co-operative principles was not an option, at least at this point in time and there was also a reluctance to depart from the continuing expansion plans which were without doubt beginning to prove an irritating unhelpful part in any recovery plan and present trading climate. Nevertheless, recommendations made by the executive committee of the board were adopted: 1. We should retain our co-operative concept, as it is felt there are advantages to be gained from this over our competitors. 2. We must improve our position and become more profitable, even to the extent of not providing some services to our clients and shareholders.

3. Short-term borrowing should be minimised as it is expensive, but may be necessary at times to cover cash flow problems. 3.b Long-term borrowing, not financing from profits, should be used for capital improvements. 3.c Renewed applications should be made to our Bankers to increase our overdraft ability and reduce dependence on Commercial Bills, as this would be cheaper in that we only pay for what we use. 4. The idea of issuing preference shares is not appropriate as our structure as a Co-operative means that it would tend to damage our relationship with existing shareholders. 5. Management has achieved a great deal in reducing our Sundry Debtors and Stock in Trade in comparison with our Turnover. Debtors are in fact not high in comparison with similar Stock & Station Companies. The policies implemented to achieve this should be continued vigorously. 6. Where possible, gross profit should be increased even to the extent of losing a small amount of nonprofitable trade. 7. Staff Wages and Salaries are the largest of our expenses. These should be watched closely. Little control over the amount that has to be paid to each Staff Member is available, but we do have control

over the number we employ. Manpower Surveys are to be used to ensure efficient use of our labour resources.

8. Management, particularly on Secretarial, Accounting and Computer sections, still requires more assistance so as to have quicker and better control. 9. The Audit Committee continue to examine the Company’s position every three months to ensure that any areas that are not performing are investigated fully. 10. That estimates of future earnings and cash flows presented by Mr Taylor be accepted as guidelines. 11. Dividends and rebates to shareholders be decided annually (as at present). A balance has to be found each time between the money required to be retained by the Company and the cash available to shareholders.

12. The improvement in yearly figures (September 1981) indicates efforts by Management are beginning to show the results required.

After consideration of the Taylor Report, executive directors endorsed the action taken by management in efforts to make the company more profitable and directed them to implement further measures as decided by the board. Christmas was close and the question of the usual staff Christmas bonus was raised by the general manager. He advised that a bonus paid at equivalent levels of previous years would result in a cost in the vicinity of $80,000 and at a meeting of the staff executive it was resolved to advise the directors they believed a Christmas bonus should be deferred due to the liquidity problems being faced by the company. The directors were pleased to receive this intimation, as the possibility of directors considering and approving a bonus under the present circumstances was doubtful and this judgement relieved them of what would have been a difficult but necessary decision.

At the end of 1981, pressure was bearing down on almost every aspect of the company’s operation and beginning to take a toll on the executive and directors who were grappling with a multitude of complex and seemingly insurmountable problems, many of which were outside their control. Although there were undoubtedly many historical and internal cultural difficulties contributing to the current financial woes, other factors were fuelling the furnace of discontent. Agricultural organisations and industries were still heavily subsidised and struggling both locally and internationally with government assistance to the pastoral sector reaching 33 per cent of the value of agricultural output. Unemployment was also rising, with high domestic inflation and declining terms of trade conspiring to challenge the viability of what had almost become a farmers’ institution rather than a trading society. Radical changes and adjustments by the Government were looming and the turbulence within the farming sector as a whole was creating a lack of confidence to such an extent that many thought traditional farming and the associated way of life would be changed forever. The now distinct possibilities of the elimination of farm subsidies was creating an overall negative effect on the industry and agricultural trading enterprises in particular.

The difficulties being experienced by Farmers’ Co-op in terms of continuing viability and the ability to trade out of the present dilemma were now becoming commercial and public knowledge and at the executive meeting of 21 December 1981, Reeve Williams reported: Gentlemen, whether we acknowledge it or not we are on an exercise in survival. To survive in our present form we must generate greater profits. Other similar companies are doing this successfully. Two listed companies have recently approached us with friendly requests to talk regarding amalgamation or ‘take over’. The executive have politely declined to consider this. Our answer has been that we prefer to remain co-operative and we intend to make it on our own. However, the fact that two companies have

approached us, shows that they believe that by amalgamation they can do better with our assets than we can. The chairman of one company said to me recently, ‘You probably can make it alone, but you’ll need to hurry and you won’t need to make any mistakes’.

He praised the staff, top executives and managing director for ‘heroic efforts to implement the measures considered necessary for recovery in the Taylor Report’, and also elaborated on the necessity to recruit expert accounting staff which at this time appeared to be ‘thin on the ground’. To date the burden had been on the shoulders of company secretary Trevor Pope and the individual branch accountants who were ‘over-committed’ and needed assistance. The chairman had requested permission of the executive to try to get a ‘trouble shooter’ from a successful neighbouring stock and station company, to use their ‘proven – keep it simple’ reporting system. However, this was declined by the board, who instead instructed the use of the expertise of the company’s auditors. Following a subsequent meeting with Wilkinson and Wilberfoss a request was made by that company to become more pratically involved in the implementation of their own recommendations by providing the assistance of an accountant who would be available in the ensuing months. This was agreed to. At the same time a decision was made to change the annual balance date from 31 March to 1 August to fall in line with a number of other stock and station companies such as Newton King Ltd and Waikato’s Allied Farmers who had already done this to take advantage of paying tax later and having use of the money for longer periods.