9. Management and governance

9.1 Project company structure

The optimum structure for the Initiative will reflect the following factors:

The need for operational simplicity. This Initiative, if expanded into a full commercial operation, should not be a complicated business as it will initially have one product line and employ few staff. A simple structure is appropriate.
The number of parties involved in the ownership, management and control of the business. The greater the number of parties involved the greater the structuring arrangements required to ensure the business is run on a proper commercial basis and that all stakeholder interests are effectively protected.
The extent to which stakeholders wish to operate the project on a purely business basis or, alternatively, see the project as more of a community initiative.

While there are many possible structural permutations, the following two are most likely to be effective taking account of the above factors:

a standalone company
a charitable trust.

Other structures considered but discounted are partnerships and sole trading arrangements.

9.1.1 Standalone company

This option would be the simplest where one or two stakeholders (such as an industry player) wish to implement the project as a straight forward business opportunity. In the case of one stakeholder, they could simply establish a new subsidiary company or set up a new division to develop the business.

Where there are two or more shareholders they would need to enter into a shareholding agreement setting out their roles in operating the company and covering such matters as governance and management, funding requirements, dividend policy, capital repayments and pre-emption rights,.

The type of company best positioned to develop the business would most likely have the following characteristics:

knowledge and experience in waste collection and management
knowledge and experience in the recycling industry
ideally have national coverage
sufficient financial strength and management capability to undertake the project.

Such a company may wish to partner with a business with skills in advertising and marketing. Of particular relevance would be experience in outdoor advertising.

An alternative possibility is that a major international outdoor advertising company, such as Adshel or JC Decaux, may be interested in developing the scheme.

9.1.2 Charitable trust

The Initiative could be established as a charitable trust if stakeholders agreed to develop the business as a community project. The trust could trade directly itself or alternatively trade through a wholly owned subsidiary company. Specific tax advice would need to be obtained before finalising the structure.

The charitable purpose of the trust could be to promote recycling through education and research. Initial projections suggest that after a three year establishment period, the trust may be able to distribute as much as $0.7 million to $2.5 million per annum for charitable purposes, depending upon funding arrangements and capital expenditure commitments.

To simplify operational matters, the management and operation of the business activities could be contracted out under a long term management contract to a company with the characteristics detailed in 9.1.1 above. At the same time, the sales and marketing could be subcontracted to an advertising sales company.

The weakness of this structure is that industry and others would need to make available significant amounts of capital and bank loan guarantees to support the project during its establishment. Although the project could repay these funds over time, participants would need to accept the risk of non-repayment over the first five years or more of the project.

9.2 Governance

Governance arrangements must facilitate the optimal development and operation of the project while at the same time protecting stakeholder interests. These will vary depending on the structure adopted, as shown below.

9.2.1 Standalone company

In this case the principal stakeholders will be the company or companies who invest in developing the business. Appropriate governance arrangements will include an appropriate constitution for the company, suitably qualified directors and accurate and relevant and timely reporting arrangements.

Commercial imperatives would drive the operating company to meet the needs of site owners and advertisers while at the same time ensuring that the bins are clearly branded as recycling bins. However, it should be noted that the operating company would not have a strong incentive to invest in promoting recycling per se as the revenue generated from the sale of the recyclables is always likely to be low.

9.2.2 Charitable trust

Given the charitable objectives of the charitable trust structure, it would be appropriate to include a wider range of stakeholders in the governance of the project. However, it would be important to maintain a separation between management of the business and the control of its charitable activities. This could be achieved in one of two ways as described below. Choosing between them may come down to tax and legal considerations.

Option 1 structure

The charitable trust would have a board of trustees comprising representatives of key stakeholders. This board would have the responsibility to maintain strategic oversight of operational activities and direct its charitable activities. Once the charity was in a position to make grants it may wish to form a grants review sub-committee to make recommendations to the board on grant applications.

In this option it is assumed that the trust would form a subsidiary that would be responsible for operational matters. This company would have its own (small) board whose role would be to oversee the management of the business operations. This structure would ensure the separation of charitable and business governance.

To ensure effective decision-making, the board should have no more than nine members drawn from industry groups such as the Environmental Beverage Action Group and the Packaging Council. A Ministry for the Environment representative may also be appropriate. Members should have knowledge and experience of recycling and waste issues. At least one member should also have an understanding of advertising and marketing and it is important that major financial contributors be represented.

The operating subsidiary board should comprise directors with direct commercial experience in the recycling and waste industries together with at least one director with experience in the advertising industry. It is recommended that at least two of the directors are also members of the trust board to ensure good communication and accountability.

Option 2 structure

This is similar to Option 1 with the exception that the operating business would be conducted by the trust itself. In this case, the trust would manage the operations directly under either a sub-committee of the board or a separate operations committee. The function and composition would be the same as the subsidiary board described in Option 1 above.

9.3 Operational management

With respect to operational management, it is vital to get people with hands on industry experience in the key management roles. These are most likely to be found in the recycling and waste industry. Additional skills would be required in the sale of advertising space.

It is recommended that many of the activities be outsourced to reduce overheads. These include the following: accounting; information technology; bin delivery; removal, cleaning, repair and storage, bin emptying and sorting; fitting and removal of advertising posters and advertising sales.

The majority of these could be undertaken by an existing company within the waste and recycling industry. Such a company would be able to perform these activities using its existing staff and infrastructure more economically than a standalone start up company could. This avoids duplication of effort and builds on industry knowledge to allow a rapid roll out of the project. Additionally, the sale of advertising space could be performed by an outdoor advertising company. This would allow the bin advertising to be immediately integrated into the advertising industry media mix.

If activities are outsourced as proposed, direct staff required by the project company should be able to be limited to 4-6 personnel.

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