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Case Study: Hauhungaroa Partnership

Background

Hauhungaroa Partnership is a Māori Incorporation subject to the provisions of Te Ture Whenua Māori Act 1993. There are currently around 600 shareholders. The core purpose is to administer the lands for the benefit of the owners. Parekawa is the hapū; all the owners can whakapapa back to Parekawa.

Part of the Partnership's operation was first established around 1965 and is a combination of two incorporations that were responsible for Hauhungaroa Block 1D2 and Hauhungaroa Block 1D3B. The reason for joining the two incorporations was to simplify governance as most of the owners had interests in both blocks which meant that there were two sets of governance for the same people.

When the blocks were amalgamated, the interests held by the owners of the two properties were evaluated and the shares were divided accordingly so that:

• Hauhungaroa Block 1D2 got 40%; and
• Hauhungaroa Block 1D3B got 60%.

Only recently have the two blocks of land been released from the restrictive provisions of the governing legislation through a process of handover and devolution. The land had previously been administered under the Māori Affairs Act 1953. Under this administration there had been no real benefitsgained for the land. When the Partnership took over the responsibility for the land it was facing the possibility of inheriting a debt of $1.8 million.This meant that technically the Partnership was insolvent. Negotiations began between the Partnership's Chairman at the time, Samuel Andrews Snr, the Crown and the Treasury. The owners were not prepared to take over the land with such a large debt and so, through direct negotiations with the Crown, a large proportion of the debt was removed reducing it to $0.5 million dollars.

Structure Diagram

Business Environment

The core business of the Partnership is agriculture. The Partnership currently deals with sheep, beef, deer and dairy. These farming activities are carried out on Māori land. Other investments are in Gourmet Mokai, Gourmet Paprika and Gourmet Blueberries based in Hawke's Bay. The Partnership is currently looking into the purchase of other freehold land.

The Partnership has chosen to deal in agriculture because the risk can be spread across the different types of stock where the prices that canbe received are cyclic. For example, when the price of sheep is down the price for cattle may be high. Recently both types of stock have been upin price. Dairy and sheep are proving to be significant contributors to the Partnership's financial success.

Opportunities to provide investment in a number of companies and to obtain shareholdings in horticultural projects, such as Gourmet Mokai, have beensurprise business opportunities and have not been part of the Partnership's original portfolios.

Governance

A Māori Incorporation has greater freedom under Te Ture Whenua Māori Act 1993 than an Ahu Whenua Trust as it is not subject to the process ofhaving the Māori Land Court approve appointments to its governing board. The Partnership does not have a Board of Governors as such but the owners elect representatives to a Management Committee to represent the interests of everyone. There are currently seven positions on this Committee and the Partnership encourages nominations from the shareholder base. However, it will also accept nominations from outside this group. In accepting nominations the Management Committee will identify skill gaps and seek to meet these needs; however there are no formal criteria.

Samuel Andrews Jnr, a member of the Management Committee and its acting Supervisor, believes that the number of representatives could be less to improve the efficiency of decision-making, which is quite a time consuming process.

The Partnership has an Executive Committee which is responsible for spearheading business, accessing the right information and providing recommendations. The Executive Committee improved decision-making efficiency. Shareholders can vote by hand or by poll, however the actual choice of the voting option is left to the discretion of the Management Committee. The Committee considers the issue and decides on an appropriate voting process. The Management Committee can mitigate the risk of 'vanload voting' by choosing the type of voting procedure.

There is currently no formal induction process for people coming onto the Management Committee. The new Board members are expected to develop and learn from the experienced members who have previously held the position. All members on the Management Committee are appointed for a period of two years and can be reappointed. There are four meetings a year with full Management Committee participation.

There are a number of governance practices that are evolving, such as the election process and policies on board performance reviews and best practice. All conflicts of interest are recorded in the minutes and the person will abstain from voting. Additionally, if a dispute cannot be resolved informally, the Partnership reverts back to the provisions of Te Ture Whenua Māori Act 1993, which provides its own process. Over the past two years the Partnership has developed a newsletter which is sent out every six months to update the owners on the progress of projects, where Hauhungaroa is heading, and how issues identified at the AGM are being dealt with.

Strategic Thinking

The Partnership currently does not have a clear, documented direction outside its core business. As an entity the Partnership is very open to new opportunities outside the Committee's area of expertise. However, Committee members do tend to stick to the areas they believe they know, such as farming. The Management Committee undertakes an annual planning process. The farm advisor, who is an external consultant, takes part in the annual budget planning. He advises the Committee of possible opportunities for the farm and provides views and rigour to the discussions. The planning team also sets goals for the season, for example, an increase in lambing by percentage. The farm advisor advises how Hauhungaroa can best achieve and deliver on these goals.

The Hauhungaroa Partnership has also created a five and ten-year strategic plan for its farming projects. Sam Andrews Jnr points out that the Partnership is coming of age, where the initial investments and projects are maturing to a point where they provide for other opportunities in new directions. The mission at this point is to establish a viable economic base for the Partnership. Therefore the focus of the Management Committee has been to ensure that the entity has the ability to deliver a dividend to its owners. The Partnership is still in the process of developing and establishing an economic base so as yet there is no financial base to deliver social benefits effectively. Once there is a stronger financial base, providing social services will be a consideration for the Partnership.

Risk Management

The Partnership may not have a formalised due diligence policy but the Committee members do look at the feasibility of any project before they make a decision to enter into it. For example, Tuaropaki and theHauhungaroa Partnership carried out a joint due diligence process on the basic strengths of their potential partner and the best utilisation of the steam. This process highlighted the in-house opportunities that were available.

With respect to accessing quality information, the Partnership first assesses whether there are any individuals within its own group who can provide expertise. However, when required it has always sought the professional advice of specialists, including lawyers, accountants and banks. If an investigation is carried out prior to a decision, then the people responsible for carrying out this process are required to do a report and present it back to the Management Committee which considers the information and makes a decision.

The process of consulting with the beneficial owners is dependant on the types of risks surrounding the decision. The Committee carries out its own risk management processes and the type of risk will determine whether the Management Committee will make the decision without going back to the shareholders. Shareholder report-backs can be too lengthy for decisions that require urgency. Time can also be against you when it comes to seizing opportunities, so the Management Committee will sometimes take a certain amount of risk in making decisions on such opportunities. The Committee does, however, take on board the advice provided by the bank, accountants or lawyers. If it is beyond their comfort zone then shareholder consultation is undertaken.

The Partnership currently has insurance policies covering assets and trustee indemnity. There is no formal risk management policy in place and it does not operate a conflict of interest register. It is each committee member's own responsibility to declare their interest if a conflict arises. This is recorded in the minutes and they abstain from voting.

Throughout the year the Committee meets monthly to monitor progress against budgets. This gives the Partnership foresight and forewarning of the risk of a budget blowout. Sam Andrews Jnr points out that "this process ensures that we are following the right path and enables us to identify the areas we need to pick up on as we are consistently moving forward".

Operations

One member of the Management Committee is appointed as the Supervisor. This is a quasi-CEO role that liaises between governance and operations, and is the day-to-day face and representative of the Partnership. There are no formal operational manuals and when an issue arises the Partnership reverts to its governing rules.

There are currently two managers employed by the Partnership, one for dry stock and one for dairy. They report monthly to the Management Committee. These managers are also responsible for hiring their support teams. The sheep operation currently contracts six workers and the dairy operation contracts five workers. Casual employees are also hired on a seasonal basis as required. The Partnership applies the principle of best person for the job when employing new staff and enjoys employing their own suitably skilled whānau if they apply for a position. To date only a small number of whānau have applied for positions within the Partnership's operations. This highlights the need to upskill whānau to take up these positions.

The Partnership has recently identified the need to respond to changes in employment legislation and is currently in the process of developing new employment contracts, especially for the sheep and beef operations. This initiative will provide a more comprehensive plan regarding employment obligations and issues. The Partnership would like to think of itself as a good employer and has realised the need to have comprehensive formal processes to govern employment relationships.

Horticulture Joint Venture

The Hauhungaroa Partnership has a 25% stake in a glasshouse horticulture venture called Gourmet Mokai Ltd. The Partnership's role is as an investor. Tuaropaki Trust also has a 25% shareholding in Gourmet Mokai along with the company Gourmet Paprika.

Gourmet Mokai and Tuaropaki Trust are discussed in further detail in the following chapters. The Gourmet Mokai project began in January 2003 and the venture partners decided to implement a formal agreement in late August 2003.

Financial Summary - Hauhungaroa Partnership