None of the players in the unedifying debate over whether Fonterra should pursue a partial NZX listing have emerged with their reputations enhanced. The farmer-shareholder repudiation of the proposal, which was the cornerstone of the Fonterra board’s plan to expand the company’s capital-raising capability, is also a classic example of how flawed the co-operative model is in this day and age. Federated Farmers did itself no credit when it issued a statement in which its dairy section chairman, Lachlan McKenzie, exulted over farmer rejection of the listing plan saying “in NZ, listing is given some mythical status as almost the only way to raise capital for growth. Listing was an option but the best option is to work with members to achieve the optimum capital structure tailored to our unique business landscape.”

A narrower interpretation of the decision would be hard to find. A partial listing would have given the Fonterra board access to a much more diverse and liquid capital base while at the same time retaining majority farmer ownership. The best of both worlds, in other words. It would have given Mum and Dad investors an opportunity to own a slice of NZ’s biggest company, and as a result, Fonterra’s reputation as a transparent and inclusive corporate citizen would have been enhanced. Farmers are apparently too indebted and milk payouts too meagre for them to re-invest in the company, so how else is Fonterra going to fund a long-term growth strategy?

Short Sighted. Fonterra directors were too quick to buckle to shareholder pressure when the listing plan was first mooted - probably because some of them are elected and thus want security of tenure. They couldn’t afford the luxury of the moral high ground in any case, because their own corporate stewardship hasn’t exactly seen the company performing in stellar fashion, the current recession notwithstanding. The Fonterra board plans to embark on a watered-down, three-step process to decide on a new capital structure. However, the short-sightedness of shareholders means whatever is decided, Fonterra will remain a mediocre performer in the global dairy industry rather than the standout performer some vision and boldness would have made it.

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