'Boy wonder' Norgate put out to pasture

By TIM WATKIN

Craig Norgate can't say he wasn't warned. His mother urged him not to go into the dairy business. His father was general manager of operations for the former Kiwi Co-operative and died in the job in 1990.

Initially, young Norgate veered away from dairying, taking accountancy jobs at Maori Affairs and the meat firm Lowe Walker, but the cows eventually won him back.

"Mum was not a happy person when she heard about me getting into the industry," he said late last year. "But in Taranaki it's either dairy or dairy."

This week, however, Norgate's potential career choices broadened significantly when he was dumped as chief executive of Fonterra, New Zealand's biggest company, after just two years in the job and a $2 million salary. His days in the dairy industry - in this country, at least - seem to be over.

He was a controversial compromise when the Kiwi and Dairy Group co-ops came together with the New Zealand Dairy Board to form Fonterra in 2000.

Only 36 years old, he was the Hawera boy wonder who in less than a decade had turned a small local business with an annual turnover of $300 million into a major player with $3.9 billion turnover.

Hopes were he could do the same for Fonterra on the world stage. When he got the job in July 2001 he said he wanted to "unleash all the energy this industry's got and make sure we realise its full potential".

This week the Fonterra board decided their boy wonder was no longer the man for that job when they announced the appointment of Canadian Andrew Ferrier as the new CEO. Norgate was put out to pasture.

His time in charge has been as up and down as the Taranaki back-country, with a record milk solids payout and a joint venture mega-deal with Nestle in the Americas mixed up with missed milk pick-ups, the Powdergate scandal and a dramatic fall in payouts as commodity prices have slumped.

He won over some farmers and angered others. He was "a CEO at the top of his game" or "not good enough", depending on who you speak to.

Massey University professor of agribusiness Bill Bailey says "Craig was the right person in the right place at the right time and evolved into the wrong person in the wrong place at the wrong time".

He knew New Zealand dairying as well as anyone, was a CEO on a roll and had been a long-time fighter for the merger.

But in taking on what has often been called the toughest job in the country, he had to bring three conflicting cultures together, hire and build a head office team, and convince famously grumpy farmers - his shareholders - their decision to merge was worthwhile.

He had to balance the pressure to expand overseas markets with the pressure to cut costs and restructure at home and, says Bailey, the initial record payout actually proved to be a rod for his back as it raised farmer expectations of what this new super-company could achieve.

"You put all that together and have the bottom fall out of the dairy market and the Kiwi dollar strengthen - that's a tough environment to succeed in."

What made the job even harder was the provincial, often ruthless, tradition of farmer politics bubbling along underneath the new company. Although board chairman Henry van der Heyden insists the political hatchets have been buried and Ferrier chosen without bias, many in the industry - farmers and analysts alike - say the politics of the paddock played a large part in Norgate's downfall.

The creation of Fonterra was something like the Survivor reality TV series. Two warring tribes - the Waikato-based New Zealand Dairy Group and the Taranaki-based Kiwi Dairies - came together and, to prosper, had to find a way through their past differences.

The merger was strenuously debated at fenceposts and in town halls up and down the land. As the pieces started to come together, the question of CEO was a sticking point. The Dairy Group wanted a global search for the best candidate, Kiwi wanted Norgate.

For the Taranaki group it was a deal-breaker, so a compromise was reached. Norgate could have the job for two years, then the global search would proceed.

Norgate would have two years to prove himself and then stand or fall in contest with the best the world could offer.

That contest was co-ordinated by Sydney recruiters Egon Zehnder International, which narrowed it down to two foreign candidates and Norgate. While Norgate has the comfort of $4 million for two years' work and a reported $1.5 million payout, he was still passionate about continuing.

Van der Heyden rang the Weekend Herald yesterday, concerned that it was "getting out there" that the selection process was not fair. He said the board judged candidates against four criteria that didn't change - leadership of a global company, strategy and company performance, stakeholder management, and personal attributes, with the weighting heavily towards the first.

He wouldn't comment on where Norgate missed out, saying only, "Rather than Craig coming up short, I'd say when we measured them Andrew Ferrier came out ahead".

Shareholders' council chairman Tony O'Boyle backed the integrity of the process, saying "you can rest assured that we've looked closely at the process and been briefed all the way through. We've made very, very sure that this is without bias and without capture. You can hang your hat on that one".

Others have a more Survivor-type view of the past two years, saying that while the Kiwi tribe seemed to hold the upper hand at first with Norgate's appointment and the more traditional John Roadley as chairman, the Dairy Group tribe has patiently picked off their opponents and is now in charge.

But to describe the battle lines as Waikato vs Taranaki would be too simplistic.

The divisions still within Fonterra surround the company's future direction, says Nelson dairy analyst Tony Baldwin.

"The underlying issue through the whole process of this merger has been whether Fonterra takes on a more commercial focus, which is to act like a normal company driven by consumer demand as opposed to a co-op driven by supplier demand, where the focus is on maximising the payout," he says.

Dairy Group people tend towards the corporate model, Kiwi folk towards the traditional co-op model.

"Craig losing the job has little to do with Craig," says Baldwin.

Bailey agrees that some have been gunning for him all along. "With the internal problems, with the payout problems, it just made it a hell of a lot easier."

While van der Heyden says he and Norgate worked well together and put any differences behind them, there has been much speculation that the chairman was always keen on a new CEO. Waikato insiders say van der Heyden, who was part of the Dairy Group and the original selection panel, opposed Norgate's appointment to the bitter end. Baldwin says van der Heyden always wanted Fonterra to be more commercially driven.

First, Roadley resigned and van der Heyden became chairman, to widespread industry approval. Then at the last board elections two former Kiwi reps lost their seats to more commercially minded directors. Now, he has a CEO with a strong corporate background.

Two years on, the Dairy Group tribe are the survivors. Stalwart Taranaki farmer Don Harvey, who spent 10 years on the Kiwi board with Norgate, says: "All he did wrong was come from Kiwi. What a waste that we've lost him."

Others reject the claims of political motivation. Charlie Pedersen, chairman of the Dairy Farmers of New Zealand when Fonterra was formed and now vice-president of Federated Farmers, believes Norgate "had already achieved the nailing down process of Fonterra as a single entity and ... it needs some input from someone with a different skillset".

Dairy Farmers chairman Kevin Wooding says if politics were involved they must now be buried. "We can't wallow around in that stuff. Fonterra has to have its own culture and I think this is the big change needed to make sure it happens."

Whatever the role of politics, it doesn't tell the whole story. Farmers feel Fonterra has under-performed. The bottom line for them is the milk solids payout, which fell from $5.30 in its first year to $5 last year and is estimated to be just $3.60 this year.*

To rub it in, independent co-op Westland Milk Products has beaten them by between 10c and 30c each year.

Norgate can hardly be held responsible for the world commodity markets, hurt by war and recession, but the buck stops with the CEO, and if the bucks aren't high enough the CEO looks bad.

As former director Mike Smith says, if Norgate had shown himself to be an executive genius no one on the board would be stupid enough to cast him off out of revenge.

"This day was always coming, when he would be tested again, but this time against international candidates. I just don't think he was experienced enough or good enough. Even with his background, even though he had a lot of industry knowledge, his career with Kiwi was not a perfect platform."

Even some in Taranaki say Norgate could "go like a bull at a gate". At Kiwi he had supportive, wise heads to balance his youthful enthusiasm. Without that support at Fonterra, he sometimes pushed too hard and annoyed people unnecessarily.

One example offered was his decision to remove the anchor from the Dairy Group's Anchor House in Hamilton. The Anchor brand, used by the Dairy Board overseas, was owned locally by the Dairy Group and was part of its heritage.

Its removal came across as petty, a way of saying "gotcha", says one observer. What's more, when Chris Moller left for the Rugby Union, Fonterra lost its best marketing brain, and Norgate was exposed on that front.

Smith says it's not good enough to say he didn't have the right people around him, as he picked his own team. If the people were wrong, the blame was his.

Norgate copped blame, too, for some of the criticism of the company by the shareholder council, which concluded last year that "performance in a number of key areas has been disappointing". The balance sheet was "weaker than projected" and corporate costs too high. Norgate was also dogged by milk collection problems.

Then there was Powdergate, over deals of allegedly exported milk product worth $50 million, still under investigation by the Serious Fraud Office. Many farmers believe either Norgate knew of the deals or should have known. Still, no one questions his dairy savvy.

"He's shown himself to be a quick learner and one of the best industry strategists in Australasia," says Pedersen.

He was praised as a charismatic CEO, who was smart, industrious and could talk the talk with the farmers.

Van der Heyden reflects the consensus: "Craig did a very good job pulling the three companies together. That was a huge task."

"He's showed leadership and put the deal together," says O'Boyle. "He's a clever boy. He's gone a long way in setting us out in the right direction."

But in the end it was neither poor payouts nor questionable milk deals that made the difference. "Even if we had a $5 payout I don't think it would have made a lot of difference," says Wooding. "They wanted different skills".

Norgate wasn't able to comment for contractual reasons, but in an interview with the Weekend Herald last August he gave the impression he wouldn't be surprised if he didn't have his contract renewed.

"We'll have achieved all I set out to by the time my initial two years is up. While there's clearly another journey to follow that, I've also got other goals in life."

Fonterra's new journey begins next week, when Norgate cleans out his desk and moves on.

* CORRECTION: In the original version of this report, we incorrectly stated this year's milk solids payout to be $.360.