AS KIDS we were always told we had two ears and one mouth for a reason. Eventually we processed this as ‘talk less, listen more’.
It’s not a bad piece of advice and one I’ve come to respect, especially during my time in the cooperative. That’s because experience has taught me that good decisions get made when we listen, and TAF is a case in point.
Right through the process it has been important and invaluable for us to listen to all the views and ideas from shareholders, weigh them up and incorporate them into the way ahead. I’ve no doubt the process has been better for it.
Shareholders will see the latest example for themselves when the TAF voting papers go out, including a special resolution. The effect will be to tighten up conditions relating to the Fonterra Shareholders Fund which is a key part of the whole TAF package.
This comes out of all our discussions with farmers and the very careful and considered due diligence process for TAF. Due diligence is a legal term which basically means picking things apart, asking all the ‘what if’ and ‘yes, but’ questions and not being satisfied until you’ve got the answers.
As we’ve gone through the process, we’ve folded in feedback from shareholders that the size of the Fonterra Shareholders’ Fund needs to be carefully managed. They’ve said if it’s too small it won’t function effectively, but if it’s too big the worry is that a big pool of external investors would potentially have undue influence over the cooperative.
We’ve listened. That’s why the board indicated a $500m fund to launch (equating to about 8% of shares at the current share price) would be enough for the fund to function effectively. We felt the preferred size should be in the range of 7-12% of shares.
It’s clear shareholders want careful management of the fund’s size, particularly to ensure the non-negotiable position of 100% ownership and control of the co-op by farmers. We’ve reflected that in the special resolutions which will tighten up previously agreed thresholds relating to the size of the fund, just to be on the safe side. These thresholds will be locked into our constitution, subject to a 75% farmer shareholder vote.
For me, the special resolution demonstrates the cooperative model at its best – one with two ears and one mouth which takes the time to stop, listen and think.
Ahead of the special meeting at the end of June we’re holding a round of farmer meetings. I’m a big believer in getting in front of farmer shareholders. There’s just no substitute for that opportunity for two-way discussion.
This whole give and take system is one of the strengths of the cooperative philosophy. This leads to consensus and a result we can all acknowledge is the best for the cooperative.
It’s not a one-way street. Shareholders want to listen as well as talk and are always looking for good information as they mull over decisions. We’re meeting that need, signalling to shareholders a qualified view that the first four pre-conditions for the launch of TAF will be met. These conditions are that the TAF market will work, the fund will be in place, DIRA changes will have been passed and regulatory approval achieved. So far, subject mainly to the legislative changes and regulatory consents being secured, we are of the opinion these conditions are met.
A fifth pre-condition is majority support from the Shareholders Council. We will be providing the council with a final report showing how the four pre-conditions have been met.
We have some important weeks ahead of us. Shareholders will be trying to work through payout forecasts which have taken some of the edge off farmer optimism and the market uncertainty that has seen dairy prices fall.
These conditions are a reminder – though not overly welcome – that volatility is always part of our industry. While we consider long-term prospects remain good, ups and downs will need to be weathered. These ups and downs currently come with redemption risk – the risk of money washing in and out of Fonterra as farmers cash up or buy shares as production rises or falls.
We need to keep this in mind as we come to the final vote. After all, the whole point of the work to date is to address redemption risk and protect the future of the co-op. I think we can say as we come into the final vote that listening has been a huge part of the process. Taking the time to do it, and to respond to what’s being said, is a real cooperative strength and long may it stay so. Whatever the final vote result, it’s important we have a unified co-op.
