Savings to be made from less directors

I support the move by the board for a steady small increase in director fees as good corporate practise, however I do not support the unnecessary lift in the existing fee cap of $1,365,296 at this time and my reasons are as follows;

CBH was formed 87 years ago and it was 10 years later, in 1943, when the concept of a 10-person director board was established.

These 10 directors were elected from 10 electoral zones within the then grain growing regions of Western Australia.

Running alongside CBH was the marketing body, The Trustees of the Wheat Pool which was formed in 1922.

This body evolved into the Grain Pool of WA when the government passed the Grain Marketing Act of 1975 and provided for a board of nine directors consisting of seven grower elected directors from seven regional zones and the appointment of two independent commercial directors with skills in finance, business administration and international marketing.

WA also had two grower director representatives on the Australian Wheat Board.

Therefore in the 1970s and '80s there were 19 grower elected directors overseeing the storage, handling and marketing of the WA crop.

During this period there was a branch of the then Farmers Union in almost every town throughout the growing region and directors were often the welcomed guest speaker at these meetings.

Growers wanted to be kept informed on a range of issues associated beyond the farmgate and directors were available to provide that information and in return, take the requests and comments back to the respective board rooms.

Branch quarterly zone meetings were a special occasion and it was common for 60 growers or more to attend these meetings to receive all the latest information from the respective directors.

Directors contributed to a very important communication role.

CBH shareholder numbers during this period were about 13,000 and therefore the director:shareholder ratio was about 1300 per CBH director.

Moving forward to the 1990s there were two changes to director numbers in the two companies.

The minister of the day appointed a further independent director to the Grain Pool, lifting the number of directors to 10 and long-standing chairman of the CBH board Mick Gayfer retired from the CBH board.

Rather than call for nominations for a replacement director for Mr Gayfer, the board of CBH saw fit to reduce the number of directors to nine by reworking zone boundaries to remove the need to fill the vacant position.

The number of shareholders in CBH continued to decline year-on-year as many farmers retired from the industry, resulting in amalgamations of many of the remaining farms.

In 2002, growers overwhelmingly voted to combine CBH and the Grain Pool of WA to form a new storage, handling and marketing body.

The new company was established with a total of nine grower elected directors and three independent commercial directors, forming a board of 12 directors.

Combining a marketing company with a storage and handling company, the directors of the day deemed it fitting to increase the number of directors to 12 to enable the new company to settle in and adjust to the new roles required within the board.

It is worth noting that 12 existing grower-elected directors resigned their position on the two boards to facilitate the merger of the two companies.

The existing Producers Council, which was part of the Grain Pool and consisted of 21 growers, was reconstituted into a 16-member Growers Advisory Council for CBH.

This council now serves to provide the two-way communication between grower and company, the communication that the directors fulfilled 40 years ago.

By 2003, shareholder numbers had fallen to 9309 as growers continued to leave the industry and the company reclassified some shareholder qualifications to remove bodies such as sporting groups from the share register.

September 2010 saw the share registry record the number of shareholder as 5091.

This number has continued to fall and the most recent report records shareholder numbers at 3855.

If we relate this to the founding director to shareholder ratio of 1:1300, we now have a ratio of 1:428.

In the 17 years since the amalgamation of the two bodies, we have seen the reduction of shareholder numbers from 9309 to 3855.

We have seen modern technology remove the requirement of directors to "service" shareholders, but director numbers have remained at 12, with nine of those being grower-elected growers.

Since the amalgamation we have witnessed the major change in the way we all conduct business.

We have had the period of adoption of the internet, Loadnet, mobile phones, social media and the like, plus the demise of the farmer branch meeting in favour of well-resourced grower research groups such as SEPWA and Liebe Group.

These groups still welcome and rely on information from CBH, but at this level the requirement is for management attendance, not necessarily director input.

The board structure of the company is therefore well and truly "over-represented" for the services the directors now provide.

Good corporate governance practise is to have a board with a range of skills relative to the business involved and it does not require nine directors with the same skill, that of being a producer to provide that good corporate governance.

A reduction of grower directors on the CBH board from the current nine down to four grower directors would still provide the grower control of the company, something that many growers have indicated they require.

With the three independent commercial directors, the board number would then reduce to a board of seven directors.

Grower directors could serve a four-year term with two grower directors retiring every two years and voting would be on a Statewide basis.

The effect of this reduction would be an immediate unlocking of about $600,000 from the salary cap to enable a continued rise in the remaining director fees and negate the need to increase the fee cap by the $311,704 proposed.

There would be a further saving of about $400,000 with a reduction of travel expenses for local, national and international travel, accommodation, meals and the services provided by management to the retiring directors.

To effect these changes it will be necessary to convene a special general meeting of CBH.

Growers can initiate this action if 10 per cent or 386 growers are prepared to sign a petition to call for the general meeting.

I have been encouraged by the large number of growers offering support and agreement with the sentiments I proposed to the annual general meeting and with their assistance I hope to present a petition to CBH in the coming weeks.