Unlocking the maximum benefit from business mergers can be frustratingly difficult. No matter how seemingly foolproof the theory behind a union, it may come unstuck when confronted by everyday practicalities such as differing company cultures or a history of intense rivalry. Normally, shareholders suffer the unfortunate consequences. But in the
case of a company such as Fonterra, a malfunctioning merger bodes ill for the whole country.
The world's fourth-biggest dairy company has had a difficult beginning. Hard on the heels of an investigation into illegal exporting has come the sudden resignation of Mike Smith, Fonterra's most experienced director and a key figure in its formation. So far, Mr Smith has not detailed the reasons for his departure, pointing only to governance concerns. But he clearly believes that Fonterra will never rise above the mediocre unless changes are made.
Tension and teething troubles were probably inevitable. There is a tradition of strong competition and antipathy between Taranaki's Kiwi and the Waikato-based Dairy Group. While Kiwi set its store by a cooperative culture, Dairy Group embraced a more corporate approach. Craig Norgate brought the Kiwi culture to the Fonterra chief executive's desk. The Fonterra chairman, John Roadley, shares a similar view. Mr Smith, given his background as a Dairy Group director, might have been keen to emphasise corporate ambitions.
The two strands are not inimical. Many cooperatives take a strongly corporate approach while providing satisfactory returns to their stakeholders. In the case of Fonterra, a balance must be found quickly. Goodwill is a perishable commodity. When mergers between traditional rivals strike trouble, it dissolves rapidly. Fonterra's importance - it contributes more than 20 per cent of New Zealand's export earnings - means it simply must realise its potential. Those at loggerheads within the dairying giant could put their differences into perspective by revisiting the sound reasoning behind its creation - for their sake, the sake of farmer shareholders and the sake of the country.
nzherald.co.nz/dairy
