Robb on Cooperation

Why does Fonterra view the cooperative model as ‘less than ideal’?

Posted by Alan Robb on 29 September 2009 | 0 Comments

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In February 2007 I was invited to address the Dairy Farmers of New Zealand Council on the topic of Fonterra’s then forthcoming capital changes. I warned them that a major weakness in Fonterra was that its managers and directors were not clearly committed to cooperative principles and values. I said:

“Although the chairman [Henry van der Heyden] and CEO [Andrew Ferrier] have commented on the importance of being a cooperative there are other signs that raise doubts about the total commitment to cooperative principles and values.

“For example, I see no evidence of recruitment of outside directors from other successful cooperatives.

“Can directors who have been involved in successful investor-owned companies understand what is ‘the cooperative difference’ or what is meant by ‘cooperative principles and values’?

“I suspect that the tension which has existed between the board and the [shareholders’] council, and is evident in the narrative each has presented, is greatly influenced by differing perceptions of ‘shareholders as investors’ and ‘shareholders as members’.”

I also gave as an example comments made by Fonterra’s General Manager Economics and Strategy.

He said: “A variety of institutional forms co-exist in competitive markets. There is no reason to believe one form is inherently superior to another.” (emphasis added)

The Strategy Manager made the comment that the views expressed were given in a personal capacity and were not necessarily those of Fonterra, “despite the corporate logos”.

I found it disturbing that a senior executive responsible for strategy in an organisation which claims that cooperatives are “the best vehicle for dairy farmers” should hold this contrary view.

Now, in the last few weeks we have heard an even more disturbing view from Henry van der Heyden. In presenting the capital restructuring proposal he said:

“It’s time to choose whether we want to stay in a bubble with a less-than-ideal business model with our profits intact, but with nothing to hand on to our grandchildren or whether we continue on the path to become a multinational in control of our destiny, growing earnings, growing wealth and sharing profits…” (emphasis added)

The lack of commitment to cooperative principles and values has apparently now become a rejection of them.

I cannot seriously view Fonterra, or any other cooperative, as operating “in a bubble”.

History shows that cooperatives were created in the competitive market place without protection.
Cooperatives operate successfully when they are committed to putting the interests of transacting members ahead of the interest of investors.

Far from operating in a bubble, successful cooperatives control their own destiny, grow earnings and wealth and share profits by being committed to a business model that is better than the alternatives.

Former Fonterra director, Harry Baylis, and Taranaki farm consultant Michael Joyce have issued a damning critique of the Fonterra plan.

They say that the board’s preferred option fails to address the claimed weaknesses. I agree with their analysis and conclusions.

Fonterra’s members should heed the comments from Bayliss and Joyce.

This restructuring plan is the child of people who lack commitment to cooperative principles and values.●

— from the December 2007/January 2008 Cooperatives News