Earn loyalty, respect of farmers

Apathy is one of the biggest killers of any organisation and a threat to Fonterra. In fact, it is also probably one of the reasons our councils (local government) perform so badly, but that’s another story.

Fonterra is never going to be able to buy loyalty just by discounting its share price. Loyalty and respect are earned.

If we go back first for a bit of history: it was common to have a dairy co-op in almost every small rural centre. When that was the case, the farmers all knew the board members personally. They saw them at the footy club, church, school or wherever. They all had active discussions and farmers felt involved and connected. As the mergers took place, this was held together by better transport to larger centres and more regional co-ops with ward directors, so someone with a close connection to your region.

Fonterra now has no wards, and 4 of the 11 directors are not even farmers (appointed by the board) and Fonterra want to reduce the size of its board. To make it worse, from a farmer representation point of view, only the definition of ‘farmer director’ is very loose, and if you are a trustee of a farming company you qualify as a farmer director. This can make that director no different from an appointed director. You may never have seen the back end of a cow in your life or have a good connection to the land.

The farmers are feeling more removed all the time. Fonterra has a Co-operative Council which is supposed to bring the representation role back to the land and connect on farm. This, in my opinion, is not working that well and many farmers question the value of the council and call it more of a lapdog than watchdog. I feel now it is just an old dog past its working life.

If we are serious about protecting Fonterra and serious about delivering best-practice governance and serious about farmer representation and engagement, I feel we need to rethink all aspects of our governance representation and capital structure. Rather than look at these things individually as we have been.

A key part of this is the reinvigorate the council. The Co-operative Council needs to be more like the shareholders association or a cornerstone investor. If we can achieve that it should drive farmer engagement.

Here’s how it would work: Many years ago, George Moss came up with a plan to utilise every vote in Fonterra, without taking away any shareholder rights.

Any vote not taken by the farmer shareholder themselves would default to the Co-operative Council.

The council would get this vote for any matter that shareholders get to vote on including the director election.

This would give the council some real power. The results would be many fold:

1. It would empower the council.
2. It would make farmers sit up and take notice of what the council was doing and saying.
3. It would ensnare a better quality of person on the council table. This would happen because of the engagement between farmer and council, and farmers would want to be sure that someone with these newfound powers would have the skills to use it wisely.
4. It would invigorate the engagement between farmers and Fonterra itself because a lot of farmers would not want to forfeit their vote, so will make sure they are abreast of matters concerning the business.
5. It should help Fonterra be more agile in its decision making. Having a powerful cornerstone shareholder that it knows would have the farmers' back and best interest at heart.
6. It should deliver better governance by allowing for a smaller board first but also director candidates would need to get the vote of the council to have any real chance of getting elected. The council should be better placed to access and candidate than individual farmers.

If Fonterra went down this road it could also de-list and once again be a pure co-op with a nominal share price. This is not a guarantee that Fonterra would be protected from a hostile takeover, but it would address the constant chatter about entry, exit strategies and what is fair value. All of which help divide opinion and the co-op.

Depending on how Fonterra used the new DIRA legislation, the share price value would transfer to the Fonterra supply number. The board needs to come out and tell farmers what a strong co-op is. Now their best answer is "large with the majority of NZ milk". I would argue it is a loyal engaged shareholder base who have pride in their company.

Garry Reymer is a Fonterra shareholder and Federated Farmers Waikato executive.