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January 16, 2024

Supporting agribusiness cooperatives: Understanding the challenges and building resilience

Dan Hanson

Agribusiness is a dynamic and fast-paced industry that requires strong leadership and informed decision-making. If you are or have been a board member, you know it takes many dedicated individuals willing to give back to their communities for little or no pay to make a great board. Successful agribusiness co-op boards understand these challenges and will take steps to help mitigate the risks associated with being a board member before they happen.

Challenges faced by agribusiness co-op boards

Agribusiness co-op boards typically comprise farmers and agricultural producers with extensive knowledge and experience in farming and farm management. Strong boards of directors provide oversight and fill in skill gaps in the management team they are asked to direct.

While the typical makeup of a cooperative board is invaluable in understanding farming operations, it may translate into something other than the broader skills required for effective corporate governance. Financial management, strategic planning, risk assessment, and regulatory compliance may be unfamiliar territory for many board members, leading to potential gaps in decision-making and oversight.

As your agribusiness co-op board evolves, it is vital to continue to add diverse skills and perspectives to navigate the complex business environment and adapt to rapidly changing market conditions. With a sufficient understanding of technological advancements, global trade dynamics, and evolving consumer preferences, co-op boards have a better chance to make informed decisions that maximize profitability, mitigate risks, and ensure long-term sustainability.

Agribusiness co-ops should prioritize board composition and seek individuals with expertise in finance, marketing, legal compliance, and strategic planning. By diversifying their skill sets, co-op boards can enhance their corporate governance practices and position themselves for success in the competitive agriculture industry.

Addressing potential conflicts

Another potential risk to cooperative boards is the allegations of conflict of interest that arise when board members of agriculture co-ops also trade, buy, or sell certain commodities managed by the cooperative. While it is essential to acknowledge that most board members act in good faith, the optics may suggest that they have access to insider information about market trends, pricing, and demand.

This information can give them an unfair advantage over other co-op members who rely solely on the co-op for their agricultural needs. It is essential to establish clear guidelines and protocols to ensure that board members understand when to recuse themselves from specific conversations to maintain transparency and fairness. This ethical practice provides defenses when claims of conflict of interest may be directed toward the board.

We have seen cases where a board member with an outside business uses their influence to direct resources toward their organization. Something like that can directly conflict with the board members' responsibilities to serve their membership and hinder the co-op's ability to serve its members' collective interests effectively. Co-op boards must promote equal treatment and make decisions in the community's best interest.

Addressing the lack of cyber risk protection

The lack of experience in cyber coverage and security on agribusiness co-op boards sometimes illustrates the importance of diversifying knowledge on a board. As the industry becomes increasingly digitized, co-ops handle large amounts of sensitive data, including financial information, customer data, and proprietary research. Without proper cyber coverage and security measures, co-ops are at a higher risk of cyberattacks and data breaches, resulting in financial losses, reputational damage, and legal liabilities.

Agribusiness co-ops need expertise in cyber coverage and security to respond to and recover from cyber incidents effectively. Cyberattacks are becoming more sophisticated and evolving rapidly, requiring specialized knowledge and skills to detect, mitigate, and remediate. By investing in experienced professionals and robust cyber insurance coverage, co-ops can identify and address vulnerabilities in their systems, helping ensure the integrity of their operations. It is essential to prioritize cyber risk protection and adopt proactive measures to prevent future cyber incidents.

Implications for insurance profiles

The challenges agribusiness co-ops face, such as conflicts of interest, lack of skillset diversification, and weak cyber security, can have significant implications for their insurance profiles. Conflicts of interest can create a challenging insurance and claims management environment, potentially leading to inadequate coverage or claims handling. Insurance providers may view conflicts of interest as a red flag, resulting in higher premiums or limited coverage options.

The lack of diversification of skillsets among board members can hinder effective risk management and insurance strategies. Agribusinesses require a wide range of expertise, including financial management, agricultural practices, legal knowledge, and insurance expertise. Board members must gain the necessary skills and knowledge to assess and mitigate risks effectively. Insurance providers may perceive this lack of expertise as a higher risk, resulting in higher premiums or limited coverage options.

Weak cyber security poses a significant threat to agribusinesses in today's digital age. Co-ops need robust cyber security measures and risk management protocols to protect against cyberattacks, data breaches, and ransomware incidents. Failure to implement adequate cyber security measures can lead to higher premiums or limited coverage options, exposing the business to substantial financial risks.

Addressing these challenges

Overcome these challenges by prioritizing the diversification of skillsets among board members. Having individuals with diverse backgrounds and expertise ensures effective management of various aspects of the agricultural industry. Additionally, bringing in outside independent board members can provide unbiased perspectives, identify potential conflicts of interest, and fill valuable knowledge gaps and best practices for the board.

Marsh McLennan Agency is committed to helping agribusinesses navigate the industry's complexities and build resilience. Our specialists can provide insights on addressing these challenges, ensuring adequate insurance coverage, effective risk management, and stability in the face of cyber threats.

Contact us today to learn more about how we can support your organization's growth and sustainability.