You’d have to be nuts to behave like this!

With conflicts of interest and directors’ duties perennial topics in the world of governance, we thought we might have a bit of enlightening fun this week with a little story riddled with conflicts of interest. Your challenge is to identify the breaches of duty by this collection of ‘mixed nuts’, count them up and let us know how many you found. We’ll throw all correct responses in a hat, draw and announce the winner, present a prize and share the breaches in a subsequent blog.

Bob Jones, the local zone elected director of Bingledale Co-op, wore a worried expression as he entered the co-op’s hardware store in Palmville. The co-op had been formed over 50 years ago by a group of visionary peanut growers and had since swallowed up a number of smaller co-ops in the state. Bob, who had represented his zone for over 10 years, was a well-known figure in Palmville.
“G’day Bob”, hailed the store’s manager, Eric Idle. “What’s up?”

“Well, Eric, I think you should know that the board decided last week that they’ll put in an offer to buy that big hardware store at Barra. We’ll probably get an agent to put in an offer so they won’t know it’s us behind it. I guess you know what this means, Eric. They won’t want to run two stores so close to each other. I want you to understand that I voted against it. We both know how important this store is to the community. I’ll be in there fighting for Palmville. The trouble is Fred Stone has been pushing this for quite a while”.

Bob loaded up six bags of fertiliser and paid for the purchases, less the 10 per cent discount Eric always insisted Bob deserved as a director of the co-op. Bob jumped into his ute and set off for Barra wondering why co-op chairman Fred Stone had called a special meeting and what might be afoot.

Fred and the other directors greeted Bob as he arrived at the co-op’s office, before Fred informed the gathering that it was about the co-op’s 51 per cent shareholding in Petersons Ltd. Petersons was a large and reasonably successful processor and marketeer of nuts. As the co-op’s best investment, other investors were continually looking to buy in and there was even a possibility, with some good results, that Petersons might one day be listed on the stock exchange.

“The Chairman of Petersons rang me yesterday and told me they have the opportunity to buy out their major competitor, Salmon Ella Ltd,” Fred explained. “The deal stacks up on the basis that Petersons will be able to lift their wholesale prices without the threat, any more, of being undermined. Petersons wants to fund it with a mixture of debt and equity. Our problem is we can’t stump up with our share of the $10 million share issue. As you know, our store at Palmville has been bleeding and the bank has told us that we’re up to our limits. One of Petersons’ other shareholders, Greatwhite Pty Ltd, is willing to take up our shares if we don’t want to fund it, but of course if that happened we’d lose our control over Petersons.”

After some discussion, the board agreed that it was not willing to give up control. They did not want to admit to Greatwhite that they could not fund their share so they directed Bob who, with three of the other directors, represented the co-op on the Petersons board, to vote against proceeding with the acquisition of Salmon Ella.

Bob reminded the board that another item on the agenda for the upcoming Petersons board meeting was the review of next season’s pricing for peanuts. Petersons was the major buyer of the co-op’s peanut crop. Bringing out his Petersons board papers, Bob confided in the board that the recommendation from Petersons’ management was that the price be dropped by $30 per tonne for the next season.

“Forget it,” Fred exploded. “If we’re only gonna get $160 a tonne we won’t even clear our costs. And I can tell you that some of our growers will start selling outside the system at those prices. So, Bob, I guess you and the boys know which way to vote on that one,” he smiled at Bob.

After the meeting broke up, Bob started the long drive back to his property, silently congratulating himself for the way he had handled himself with respect to the complicated commercial dealings the co-op had involved itself in.

“Not bad for a peanut farmer from the back blocks!” he mused.

Until next time,


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