This week I watched two great debates about what type of company structure is best for local people. The first one was over our biggest and most influential company - the future of New Zealand Inc.

Fonterra's farmer shareholders debated the Trading Among Farmers (TAF) proposal that would see outside investors buy units in a fund that owns the rights to dividends from Fonterra, and any gains or losses in Fonterra's shares. But these units will not give their owners any voting rights or the ability to influence Fonterra's milk price.

Farmers were concerned that outside investors would do the wrong thing for the future of the company. Fonterra's board was at pains to say the TAF ensured that outside investors would have no role in deciding the strategy of Fonterra.

Fonterra's farmers voted more than 66 per cent of their shares in favour of the proposal, and it will go ahead from November. TAF is a testament to the ambivalence many feel about the model of publicly listed companies driven by professional managers working to boost shareholder returns, often in the short term.


The second debate was in Parliament and the result was different. The National-led coalition duly passed the Mixed Ownership Model Bill. It is worshiping at the foot of the theory that companies work best when they are driven to provide the best returns for shareholders. But in the wake of the global financial crisis, many experts are asking whether the shareholder-value model is toxic in the long-term for workers, customers, shareholders and economies.

Cornell University Law Professor Lynn Stout writes: "Shareholder value thinking ... [leads] managers to focus myopically on short-term earnings; discouraging investment and innovation; harming employees, customers, and communities; and causing companies to indulge in reckless, sociopathic, and irresponsible behaviours."

Examples of this sociopathy abound in listed companies, particularly in the United States. Corporates there have built up mountains of cash then sacked workers, outsourced production, cut wages and paid managers enormous bonuses.

So now New Zealand is preparing to introduce four state-owned enterprises to the publicly listed sphere.

Already we hear that directors' salaries are to be doubled. How long before shareholders push for higher prices and lower investment to increase dividends? We can only hope the Government, as 51 per cent shareholder, and the directors do the right thing for the long-term health of the country, not necessarily shareholders.

Fonterra's shareholders were rightly wary of how a public listing could damage their interests. New Zealand's voters should have been just as wary.