Monday, 27 July 2015

Monitoring Leviathan

Dairy farmers in New Zealand are coming to terms with a second year of poor milk prices. Those who are full members of Fonterra are accustomed to the idea that when milk prices increase, profits in the firms value-added (e.g. branded) products fall, because the input price or raw milk has increased, and vice-versa. However in this particular slump, there has been no real offset from higher value-added profits.

Some farmers are grumpy.

There are not many ways this grumpiness can be expressed. Fonterra is so big that it's impractical for Directors to interact personally with the 10,000 shareholding farmers. So the main channel is through the Shareholders Council (SHC) which represents the interests of farmers through councillors elected in 35 wards around the country.

This system makes a clear distinction between representation (which occurs through the SHC) and governance (the role of the Board). It should allow us to elect the best directors and keep an eye on their performance. It also creates a clear channel for grumpiness: call your local councillor and get him/her to represent your views further up the food chain.

The main job of the SHC is pretty clear on its webpage:
The Council’s key responsibilities include monitoring the performance of the Board on behalf of and representing the views of all Fonterra Shareholders as suppliers, owners and investors. (emphasis added)
Contrast that with the view of the new Chairman of the SHC, Duncan Coull, as part of (otherwise sensible) comments on the forthcoming Board elections.
Coull said he was uncomfortable with the council being described as a "watchdog" for the interests of Fonterra's 10,000-or so farmer-owners.
I really hope Duncan reconsiders this view, because it makes him sound in awe of the Board and management rather than someone dedicated to representing farmer interests by holding them to account.

No comments:

Post a Comment