Annual Report 2014

Corporate Governance

The Irish Dairy Board Co-operative Limited (IDB or “the Society”) is committed to operating in accordance with best practice in corporate governance. This means maintaining the highest standards of financial reporting, business integrity and ethics.

Governance in Action

The IDB Board (“the Board”) consists entirely of non-executive Directors, appointed or elected in accordance with the Rules of the Irish Dairy Board Co-operative Ltd. The non-executive Directors (Board members) represent supplier members to the Society and farming organisations.

The Board’s principal responsibilities are to agree overall strategy and investment policy, approve major capital expenditure, provide an essential challenge function to the Chief Executive Officer (CEO) and other Executives, monitor Executive performance and ensure that good corporate governance is observed at all times, including the presence of proper internal controls and risk management practices.

As well as ensuring compliance with its principal legislative duties, as set out under the Companies Act 1963-2013 and the Industrial and Provident Societies Acts 1893-1978, the Board has a number of matters reserved for its consideration.

It plays a key role in scrutinising financial and business performance. The Group’s planning and financial reporting procedures include detailed operational budgets for the year ahead, the delivery of KPIs and a regularly updated five year plan, all of which require Board review and approval.

The Board receives regular reports on important operational and business issues arising in the three Group divisions. It also receives topical briefs during the year to help individual Directors remain fully informed and responsive to relevant developments.

The Board held 10 ordinary meetings in 2014 which covered routine Board business. Separate strategically themed workshop meetings were also held.

Measures like these ensure that all Board Directors are aware of, and are in a position to, monitor business progress and to discharge effectively their individual Directors’ duties under the governing legislation.

Our Governance Structure

Board Performance Evaluation

The Board has established a formal and rigorous process to evaluate its performance and that of its sub-committees.

Appointment and Induction

Board members are appointed or elected to serve for one or more terms of four years each. There is no restriction on re-appointment. The Chairman and Vice-Chairman are elected annually by the Board. Newly appointed Board members undergo a structured induction programme involving presentations and site visits to ensure that they have the necessary knowledge and understanding of the Group and its activities. Ongoing training and development is made available.

Conflicts of Interest and Business Conduct and Ethics

A register of Directors’ interests is maintained. Directors make declarations of interests upon appointment, then again periodically during their term of office where a particular issue or event prompts a declaration of interest. A Code of Conduct for the IDB Board of Directors addresses the standards required of each member in the performance of his/her functions as a member of the Board, including the management of conflicts of interest. Board members are also required to comply with the IDB Code of Business Conduct and Ethics.

The Chairman

The non-executive Chairman’s primary role is to ensure good corporate governance by ensuring that the Board is in full control of the Society’s affairs and alert to its obligations to shareholders. He ensures that the Board is kept properly informed, is consulted on all issues reserved to it and that its decisions are made in a timely and considered way so as to enable the Directors to fulfil their duties. There is a clear division of responsibilities between the Chairman and the CEO.

The Non-Executives

All non-executive Directors are entrusted to bring an independent judgement to bear on the issues the Board considers. Their wide ranging experience, backgrounds and skill-sets ensure that non-executive Directors can contribute significantly to the Board and, specifically, engage in constructive debate and challenge management in relation to both the development of strategy and the performance of the Group against the goals set by the Board and the Society’s stakeholders. The Chairman meets with the non-executive Directors informally during the year. These meetings and other regular informal discussions create the opportunity for valuable input from the non-executive Directors.

The CEO and Executive Team

The CEO has responsibility for ensuring that the organisation and its subsidiary companies operate effectively and to a high standard of probity. The appointment and removal of the CEO is a decision reserved to the Board, in accordance with the Rules of The Irish Dairy Board Co-operative Limited. The operational day-to-day management of the Group is delegated by the Board to the CEO. The CEO chooses to deliver performance of executive functions by a team of Executive level employees. The CEO is responsible for leading, managing and controlling the Group, save for those matters reserved for decision by the Board and/or its Sub-Committees. The Executive team is subordinate to the Board.

The key responsibilities and tasks delegated to the Executive team include:

  • implementing Board strategy, decisions and Board policy;
  • monitoring compliance with legislative requirements and rules of the Society;
  • ensuring effective performance and co-ordination of the Group’s business activities within its divisions;
  • overseeing operational performance, including health and safety and sustainability performance;
  • monitoring and controlling financial performance; and
  • approving expenditure and other financial commitments as delegated by the Board.

The Secretary

The Board is guided in the lawful and diligent performance of its functions by the Secretary who attends all Board meetings. The Secretary facilitates Board business through the provision of timely and appropriate advice on matters of law and governance. The Secretary recommends to the Chairman and the CEO corporate governance policies and practices for Board consideration where appropriate and advises the Board on appropriate procedures for the management of its meetings and the effective discharge of its duties. With the approval of the Chairman and on the advice of the CEO, the Secretary sets the Board meeting agenda and order of business and follows up on all outstanding matters.

The appointment and removal of the Secretary is a decision reserved to the Board. All Board Directors have access to the confidential counsel of the Secretary as and when necessary.

Board Committees

To provide effective and proper control, certain Board functions have been delegated to the following Board sub-committees:

Audit Sub-Committee

The Audit Sub-Committee is responsible for a wide range of matters including the scrutiny of the financial statements, significant financial reporting issues, the effectiveness of internal controls, the Group’s risk management systems, recommendations to the Board as to the appointment of external auditors (including remuneration and other terms of engagement), and the ongoing management of, and the unrestricted access to these relationships, once they are established.

The Audit Sub-Committee monitors, through reports to it by both internal and external auditors and management, the controls which are in force and monitors any remedial actions. Periodic updates of the work of the Audit Sub-Committee are provided to the Board to facilitate the Board’s informed assessment of the Group’s internal control system and risk management framework.

Personnel and Remuneration Sub-Committee

The Personnel and Remuneration Sub-Committee is responsible for inter alia, setting the remuneration policy of the Board and determining the remuneration arrangements of the CEO and, on the recommendation of the CEO, his Senior Direct Reports. In addition, the Sub-Committee is responsible for the oversight of reward structures for the Society to ensure they are consistent with shareholder interest.

Acquisitions and Investment Sub-Committee

The Acquisitions and Investment Sub-Committee reviews and considers proposals from management in respect of significant acquisitions, investments, disposals and capital expenditure and, where appropriate, makes recommendations to the Board. A budgetary process and authorisation levels regulate capital expenditure. All investment projects as well as material capital expenditure proposals are evaluated by the Acquisitions and Investment Sub-Committee and are then escalated for Board consideration. Approved projects are reviewed periodically by the Acquisition and Investment Sub-Committee to ensure they are being implemented in accordance with the approvals received.

Rules Sub-Committee

The Rules Sub-Committee oversees the implementation of the Rules of the Society and reviews the Rules periodically to ensure that they are appropriate in their application, consistent with Group strategic objectives and of good corporate governance. Where necessary, it makes recommendation to the Board on any alteration to or amendment of the Rules.

Internal and External Audit

Internal Audit

The Group benefits from an internal audit function. The internal audit plan requires annual approval and periodic review by the Audit Sub-Committee. The results, recommendations and significant findings are reported to the Executive team via the Head of Internal Audit and are summarised for the Audit Sub-Committee. The Internal Audit function reports directly to the Chairman of the Audit Sub-Committee and the CEO, thereby ensuring its independence and objectivity and is afforded unfettered access to these reporting lines and throughout the Group.

External Audit

The external auditors provide the Audit Sub-Committee (as delegated by the Board) with reports on the external audit of the Group. The Sub-Committee annually assesses the external auditors’ independence and objectivity, the effectiveness of the external audit process, the provision of additional services and the level of non-audit fees.

Risk Management, Assurance and Internal Control

The Board acknowledges it has ultimate responsibility for risk, which includes the Group’s risk governance structure, and for determining the Group’s risk appetite to ensure success in achieving its strategic objectives and maintaining appropriate internal controls. The Audit Sub-Committee has responsibility for reviewing the design and effectiveness of the Group’s risk management and internal control systems to ensure an effective process exists for the identification, assessment and management of risk.

Risk Management Framework

The Risk Management Strategy and Policy set out the Group’s attitude to risk. The Group’s risk assessment framework underpins a common language and approach to risk management and facilitates the timely identification and assessment of the principal risks and uncertainties facing the Group today. This framework is used as a tool to identify business risk and to consider the appropriate mitigation steps or management actions required to eliminate the risk or to reduce the risk to an acceptable level. The Group’s business risk assessment process is carried out annually and involves the Executive team, senior business managers and Internal Audit. While the process is sponsored by the Group Finance Director and Chief Operating Officer, the Board and Audit Sub-Committee have a key oversight role.

Risk Monitoring and Reporting

Significant business units are requested to submit their risk register of key business risks for periodic Executive level review. The process requires significant business units to rank their top risks by impact and likelihood of occurrence, and to continually assess the appropriateness of the risk mitigation steps in place. The key focus of this review is to ensure the Group’s residual risks are within the scope of what the Board is willing to accept in order to achieve its strategic objectives. During the yearly cycle, these risks are presented to the Audit Sub-Committee as a consolidated register of significant group risks, along with management’s key mitigations. This is in addition to ongoing business risk updates provided to the Audit Sub-Committee during the year.

Principal Risks and Uncertainties

The IDB operates in a fast moving, global foods market which is becoming more and more complex and challenging. The Group is becoming increasingly exposed to a large variety of risks which need to be managed in order to achieve our strategic objectives. The Group has policies, processes and controls in place to largely mitigate against the factors affecting results, where possible.

Some factors affecting results

The success of the IDB depends on its ability to further strengthen its position as a leading international dairy organisation, rewarding its customers and stakeholders through the delivery of high-quality, innovative products using world-class brands and superior customer service. These objectives are subject to a degree of seasonality or climatic factors which may have an adverse impact on Group operations.

Any major food safety issue or Irish dairy industry issue could lead to a supply disruption which would ultimately impact on the Group’s ability to operate and have a serious impact on the Group’s reputation and brands, or our customer’s brands. These may result in a loss of revenue growth momentum, however, IDB is confident in the underlying strength of our key brands and our strong brand platform should continue to lead product innovation and market growth.

The Group is highly dependent on commodity pricing, and the sustainable supply of raw materials which includes members’ forecasted volumes following the abolition of milk quotas in 2015. Any adverse changes in these could have a negative impact on the Group’s financial results.

Current volatility in the global economy may adversely affect customer spending which could result in less demand for our products.

The Group is also exposed to financial market volatility including currency fluctuation risks which are controlled via our centrally operated Treasury function. Furthermore, some trade receivables and large customer concentration risks give rise to credit risk, which is diversified based on our risk appetite, while the Group has trade credit insurance as a measure of last resort.

Failure to execute, identify or properly integrate new acquisitions and/or divestitures could impact the overall financial performance of the Group.

The Group is largely reliant on timely and accurate information including numerical data from key software applications. These are required without disruption to enable an effective and efficient day-to-day decision making process to occur, and controls are in place for disaster recovery to minimise business interruptions.

The Group has controls in place to comply with environmental regulations which apply in all countries in which it operates. The Group is committed to growing its business in a sustainable manner, mindful of our impact on the environment. We take pride in the fact that our products are sustainably produced and this has become an inherent expectation of our key customers.

IDB is subject to Health & Safety regulations in all countries in which it operates. Certain policies and procedures have been put in place to ensure the Group is compliant with each of these regulations and has ensured the protection of the safety and welfare of all employees and contractors.

As with any business, there is a risk of fraudulent activity, which the Group’s control environment and anti-fraud programme is designed to mitigate.

The Group can be subject to legal claims arising through the normal course of business. The Group has put in place relevant policies and procedures to ensure there are valid defences against such claims.

As the Group continues its growth strategy to build new routes to market for Irish dairy produce, our business may be negatively impacted by political decisions, civil unrest, or any other developments in the countries in which we operate. This leads to heightened integration risks which are closely monitored and managed by the business.

The Group is dependent upon the quality, ability and commitment of key personnel in order to sustain, develop and grow the business in line with its key objectives. Failure to attract, retain and develop creative, committed and skilled employees may impact the Group’s ability to achieve its strategic objectives.