Shareholder apathy and lack of accountability was evident with Westland but, according to economists and academics, a similar scenario could also be playing out with Fonterra and the financial state it now finds itself in.
They say more decisive action is needed to address Fonterra’s burgeoning debt, plummeting share price and profitability – the consequence of years of rapid expansion. They suggest Fonterra should retain earnings and create an independent mechanism for setting the milk price but those moves have been rejected by co-operative’s management and the Fonterra Shareholder’s Council.
While Fonterra has a new leadership team, shareholders need to question their role in the co-operative getting into this state. It is too late for Westland shareholders to ask how they allowed an overly ambitious board and management to take a proud 150-year-old company down a path far removed from what was a successful formula. More broadly, the question must be asked whether co-operative shareholders are too disengaged, bestowing too much trust and responsibility in the hands of directors and managers, especially when it comes to decisions on big ticket expenditure items or strategic direction. Engagement requires more than turning up for road shows and annual meetings. Co-operatives were formed to, among other things, collectively advance the interests of like-minded producers. That requires input from the owners and accountability from management and governors.
Fonterra says it has a plan to address its financial issues that does not require retaining earnings or changing the way it sets the milk price. We certainly hope it does. Much of what Fonterra’s new managers and governors are doing is to be applauded but surely a more rapid and decisive rebalancing of the books is financially advantageous. Significantly, retaining earnings also sends a message the board wants shareholder involvement. Equally, for shareholders it illustrates they value their investment and are engaged.
Neal Wallace
