What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
This comes after an email sent out last Friday to shareholders by Shareholders Council chairman Duncan Coull. The email stated the council did not support the proposal put forward by former Fonterra directors Colin Armer and Greg Gent.
To succeed the proposal needs 50% support from the council and at least 75% support of voting shareholders.
Gent and Armer say they are disappointed but not surprised by the council's position.
"If the owners of the company, who own the constitution, support our resolution then we understand that the council can reverse its decision," says Gent.
Coull's email says the council does not support the proposal as it represents a risk to the cooperative in the way directors are elected. Coull says this is because there was insufficient time for consultation with shareholders and because a governance and representation review is in progress.
Armer says, "We are disappointed council has misrepresented our proposal since it's clear only the nine farmer directors would be required to stand for re-election, not the whole board. The transition we propose would be seamless, fair and, most importantly, quick.
"We believe the council has misread the mood of the people they represent.
"Farmers want to see their board accountable and we continue to be humbled by the level of support we are getting from our fellow farmers."
Armer says a number of farmer shareholders have told him they believe the council has confused the proposal by combining both representation and governance.
"Even with a board with reduced numbers the issue of representation will still need to be dealt with by that board and our view is that it is better to reduce the board numbers first."
Gent says the new governance review would almost certainly recommend a single digit number of directors, so Fonterra should get on with it instead of paying international consultants to tell them what they already know.
"The truth is we have never been told why the 2012 governance review sank without a trace," says Gent. "There is no reason why this new and hastily constituted one won't do the same.
"Anyway it would be better to have the review after the downsize because then the directors won't be conflicted as they are now in doing a review – turkeys don't vote for an early Christmas and with three positions to go directors will be reluctant to put their positions at risk even although they know it is in the best interests of the cooperative."
Gent says any mechanism which did not elect all the new number of elected directors at the same time would be unfair.
"Either it is going to be unfair or it is going to take at least three years – or most likely both."
"Fonterra has three mantra's it pushes very hard - Value, Volume and Velocity," says Gent. "For those principles to succeed they need to be led from the top but the three-year old governance review is hardly an example of velocity!
"When the board looks at its own functions it takes over three years while a review of staff positions takes six months and results in over 700 redundancies. We have to ask what kind of messages staff are getting from the board's behaviour."
The pair say that the council is scare-mongering in relation to a very simple change.
"It seems the council doesn't trust the owners to make considered decisions about their own constitution so we'll get more consultation, more reviews, more delays and more costs while the most important change of all gets put off again."
