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Henry van der Heyden: Taking time key to getting TAF issue consensus

Sir Henry van der Heyden, chairman of Fonterra. Photo / Paul Estcourt
Sir Henry van der Heyden, chairman of Fonterra. Photo / Paul Estcourt

The process shows the strength of the co-operative system, writes Sir Henry van der Heyden, chairman of Fonterra.

Sometimes the corporate world looks at the co-operative world and eyebrows get raised about the time it takes to get consensus.

I see taking time as a strength.

For a start, it gives you the ability to listen to all the views, weigh them up and incorporate them into the way ahead.

That's especially been the case with Trading Among Farmers (TAF).

Right throughout, we've listened as much as talked and the process has been better for it. It still is and the proof of that will land in shareholders' letterboxes at the end of the month.

That's when the TAF voting papers go out and with them, a special resolution to make some changes to the constitution.

The effect will be to tighten up conditions relating to the Fonterra Shareholders' Fund which is a key part of the whole trading among farmers package.

The resolution comes out of all our discussions with farmers and the very careful and considered due diligence process for TAF.

This process has pretty much picked apart every aspect of TAF, and asked all the "what if" and "yes, but" questions.

As we've gone through, it has amplified some of the feedback from shareholders that the size of the Fonterra Shareholders' Fund needs to be very carefully managed.

Too small and it won't function effectively. Too large and the fear expressed was that a big pool of external investors would potentially have undue influence over the co-operative.

That's why the board indicated a $500 million fund at launch - equating to about 8 per cent of shares - should be enough for the fund to function effectively and that we felt the preferred size should be in the range of 7-12 per cent of shares going forward.

To address this desire for careful management, particularly to ensure the non-negotiable position of 100 per cent control and ownership of the co-op by farmers, the special resolution will tighten up previously agreed thresholds relating to the size of the fund, just to be on the safe side.

These thresholds will be locked into our constitution, subject to a 75 per cent farmer shareholder vote.

For me, the special resolution demonstrates the co-operative model at its best - a model which takes the time to stop, listen and think.

It may take time, but it gives a better result than the headlong dash which has seen many corporates plunge over cliffs in the past.

The Roman general Augustus was right. It's not a bad idea to make haste slowly. Hence our call to hold the special meeting at the end of June and hold a round of farmer meetings ahead of that special meeting.

Sure it takes time, there just isn't any better substitute for getting in front of your farmer shareholders, listening to what they have to say, making sure you understand their concerns and addressing them.

All the rhetoric in the world can't replace that opportunity for two-way discussion. This whole give and take system is one of the real strengths of co-operative democracy.

It doesn't presuppose directors are automatically right every time and it gives shareholders a genuine opportunity to air their views and have them heard.

This leads to real consensus and a result we can all acknowledge is the best for the co-operative. I can't think of a better use of time.

Making haste slowly has also enabled us to signal to shareholders a qualified view that the first four pre-conditions for the launch of TAF will be met.

These pre-conditions are that the TAF market will work, the fund will be in place, DIRA changes will have been passed and regulatory approval achieved. So far, subject mainly to the legislative changes and regulatory consents being secured, we are of the opinion these conditions are met.

A fifth pre-condition is majority support from the Shareholders' Council. We will be providing Council with a final report showing how the four pre-conditions have been met.

The voter packs will land in shareholders' letterboxes from early next month.

There's a lot to think about and they have until the end of June to do that thinking ahead of the final vote.

As usual, the co-operative way is to have a round of farmers' meetings ahead of the special meeting, so everyone can air their views, ask their questions and eyeball a director.

We have some important weeks ahead of us.

Shareholders will be trying to work through payout forecasts which have taken some of the edge off farmer optimism and the market uncertainty which has seen dairy prices fall.

These conditions are a reminder - though not overly welcome - that volatility is always part of our industry. While long-term prospects remain good, ups and downs will need to be weathered.

These ups and downs come with redemption risk - the risk of money washing in and out of Fonterra as farmers cash up or buy shares as production rises or falls.

We need to keep this in mind as we come up to the final vote.

After all, the whole point of the work to date is to address redemption risk and protect the future of the co-op.

Listening has been a huge part of the process. Taking the time to do it, and to respond to what's being said, is a real co-operative strength and long may it stay so.

Whatever the final vote result, you can't say we haven't thought about it.

- NZ Herald

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