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Fran O'Sullivan: Fonterra departee delivers final offering

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Maury Leyland disclosed a personal relationship with Synlait Milk chief John Penno.
Maury Leyland disclosed a personal relationship with Synlait Milk chief John Penno.

Next Wednesday will be another major milestone in the NZ dairy industry.

Dairy giant Fonterra will unveil its latest results - which will be in better shape than some in the market predict - and the extent of any new support package for its farmer shareholders.

But Fonterra will also be in the full glare at the High Court in Auckland as 1080 blackmailer Jeremy Kerr is sentenced and a victim statement, prepared by departing managing director of people, culture and strategy Maury Leyland, will be considered.

It's inevitable that at Fonterra HQ, chairman John Wilson and chief executive Theo Spierings will face questions on the high-profile departure of Leyland who resigned from the executive team last week, setting off a new wave of speculation.

Not only was Leyland the first executive in Spierings' current top tier to step down since last August's "Black Friday" when Fonterra lowered its forecast payout to its farmer shareholders to $3.85kg/milk solids amidst a wave of layoffs, but she was also seen as Spierings' "right hand" when it came to forming strategy and taking the lead on some major issues that have affected the company in the past 18 months.

The pair were also at the forefront of the "3Vs" strategy that has defined Spierings' leadership: Volume, Value, Velocity.

A strategy which is now being criticised as having too much focus on the volume of product - particularly whole milk powder - in a world where stockpiles have steadily accumulated in warehouses (including New Zealand) because of an over-supply of product. But paradoxically one which has also resulted in the focus on value - a strategy which was underplayed during the period when Andrew Ferrier led the company.

Leyland is a credible executive of eleven years' standing.

There is a sound personal reason underpinning her decision to leave on March 31. She is now in a new relationship with Synlait Milk chief executive John Penno - a fact which she herself disclosed - and would have been fully considered.

The company's strategy will be probed at Fonterra HQ - the last time the dairy giant will unveil a financial result at its Princes St office before relocating to its sophisticated new HQ at the Viaduct Harbour. But the action across town will also be of much intrigue to the dairy industry.

One of Leyland's final tasks at Fonterra will have been a surprisingly difficult one.

As the executive who headed the company's response to the 1080 blackmail threat in November 2014, she was also tasked with preparing a three-page victim statement that Crown Law will present as part of its justification as to why Kerr's sentence should be a lengthy one.

It is just over a year since the full horror of the blackmail attempt was made public. Threats were made to Fonterra and Federated Farmers to contaminate infant formula with 1080 unless the use of the poison in pest control was stopped.

Leyland is understood to have taken considerable care formulating the victim statement.

At the time it was seen as a major public health threat posed by a deranged individual. Prime Minister John Key said then the Government would not negotiate with the "eco-terrorist".

As it turned out the blackmailer's motives were not only a menace to public health (what threat could be worse than putting 1080 in infant formula) but a venal attempt to get a rival poison off the market.

Kerr pleaded guilty last December to two counts of blackmail but did not accept the assertion his actions were motivated by money.

The Herald reported that Chief High Court judge Geoffrey Venning said financial gain from increased sales of his own rival pest control product was a factor, even though Kerr didn't know how much he would gain.

Justice Venning said Kerr was under financial pressure at the time he sent letters threatening to release 1080-laced baby formula in the Chinese market and one other market unless the poison was banned.

Leyland is understood to have taken considerable care formulating the victim statement.

For Fonterra - as with other bio-security scares such as DCD and the false botulism alarm - it simply puts more focus on areas that the company would rather leave behind.

It is fair to say that Fonterra handled the blackmail attempt well.

As a result of earlier bio-security scares - and work implemented by Leyland - Fonterra had good procedures in place to deal with the threat. In mid-January 2015, Fonterra began its own testing regime to provide its customers with further assurances as to the safety of its products, and took other measures to ensure the security of its supply chains going into markets.

The threat had an immediate effect when the listed securities in Fonterra, Synlait and the A2 Milk Company were placed in a trading halt on the NZX ahead of the police unveiling the blackmail attempt.

Because Leyland had worked closely on the WPC80 (false botulism) precautionary recall, she was in a good position to led the response to the 1080 contamination threat.

At the time, Forsyth Barr analysts released a research note saying they view the criminal threat of milk powder contamination as largely "white noise".

"With 40,000 raw milk and finished product samples having been tested for 1080 since the threat was received, as well as already secure processing site and testing regulations being further strengthened, we don't expect any significant value affect for the co-operative or dairy industry in the long term."

The key risk was the potential for a short-term temporary ban on dairy imports from trading partners.

That this did not occur is in part due to Leyland's leadership.

Fonterra may not want to resurrect this issue again - but it's worth ramming home just how much stress Kerr caused the company, its customers - and others in the infant formula industry.

It's a risk that the New Zealand dairy industry does not need in a very competitive global industry.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

Read more by Fran O'Sullivan

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