Expert Says Fonterra Backing Current Strategy With New CEO Appointment
The appointment of Richard Allen as Fonterra's new chief executive signals execution, not strategy, according to agribusiness expert Dr Nic Lees.
If you've been following the review of the Fonterra Shareholders’ Council in the media, you will have noticed the coverage of the views of one group of farmers who say that the council delivers no value and should be disbanded completely.
Personally, I disagree, and I know that among the 10,000-odd farmers supplying Fonterra, there will be a range of opinions on the subject. That’s why the review currently underway is asking for all views, without jumping to any foregone conclusions. I’m looking forward to seeing the feedback collected by the Steering Group running the review, and continuing the discussion in stage two of the review process.
I am conscious that before we contemplate change, we must first understand what we currently have. Media coverage on the review to date has presented one side, however a balanced perspective is critical. So here are my thoughts.
As a Fonterra supplier you must also be a shareholder, and the amount of capital you invest is directly tied to the amount of milk you supply. This is defined in the cooperative principles. Because of this dual commitment to supply milk and capital it’s not so easy to withdraw your investment and walk away if you’re unhappy with the direction or performance of the company.
It’s a significant, long term commitment. So you want to know that your interests are being actively promoted when decisions are being made.
Our co-op is made up of a large number of relatively small shareholdings – we don’t have any dominant shareholders with a large enough share to individually exert an owners’ influence. When you’re hands-on running your own business, it’s difficult to devote the time, energy and resource to monitoring your ownership interest in any detail.
My sense is that even council’s annual report – a summary of the key things to know about from the past year – isn’t as widely read as you might expect. Keeping on top of activities being worked on inside the co-op would be a significant ask, and something most farmers would have no interest in doing.
In the council, farmers have an elected group of peers with skin in the game, practical farming knowledge, and the time and enthusiasm for being that set of eyes on their behalf. They are an elected panel of representatives with a mandate to ask questions, and a direct line of communication to the board. Are they using that mandate? Council goes into meetings and conference calls with management and the board having discussed the topic in advance, compared the views of the shareholders in our Wards, and prepared our questions. Requests for information are also made and pursued, and conversations between the two chairs occur frequently.
It’s also worth remembering that Fonterra is a large, complex and diverse business. It employs professionals who are experts in their fields to manage the various manufacturing, logistics and business activities. They know their jobs, but they are not farmers, and we can’t expect them to fully understand the impacts of their decisions on the day-to-day running of a farm.
As farmers, we need to have confidence that people with genuine motivation to see Fonterra succeed are available to provide that practical input. What you don’t see is the ways this happens. This year’s Supply Terms almost included a requirement to bring all existing tanker tracks up to the new Code by 2030 – until council stepped in and asked what kind of capital outlay that could mean for farmers.
The new advance payments schedule has been designed with your cashflow in mind. It was councillors who pushed for their review and pointed out the real issue – that farmers wanted milk payments to line up with their costs throughout the year. These are examples of what the council is doing behind the scenes on behalf of farmers.
“But seven of our 11 Directors are farmers,” you might say. “They should know. And I can phone any of them up myself – why do I need a councillor?” That could be true, if you want your board members to spend their time on the phone to shareholders, rather than doing what we elect them to do, governing the company. The primary duty of directors is to the company itself. By comparison, the council is elected by the shareholders of Fonterra to represent those shareholders.
The way I look at it, when you invest your livelihood in an organisation the size and scale of Fonterra, you need confidence that someone who knows your business is representing your views and your interests. Together, the board and management team are responsible for the performance of our co-op. Council exists to be the link between them and farmer owners of all sizes, around the country. Council’s role or powers may need updating, but it’s critical to understand why we have a Shareholders’ Council in the first place.
• James Barron is chairman Fonterra Shareholders Council
