Responsible Governance: Fonterra's Hard Muster; Responsible Governance at New Zealand's Giant Dairy Industry Cooperative Fonterra Is Delivered through Effective and Constant Communication. It's All about 17,000 Employees and 10,000 Plus Farmer Shareholders Being Sufficiently Informed to Keep Them Moving in the Same Successful Direction, Chief Executive Andrew Ferrier Tells Reg Birchfield

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Fonterra CEO Andrew Ferrier meets groups of about 40 information-hungry supplier farmers half a dozen times a year. He uses these "understanding the cooperative" sessions to explain the company's strategy, provide global market insights and "engage" these shareholders in discussions about where the company is headed.

"We are really training future governors of the business," he says. "A continuum like ours starts by getting shareholders to understand the business better. We also have governance development programmes for those interested in moving on to the Shareholders' Council and perhaps the board.

"As a cooperative we must over-communicate so that somewhere in excess of 30,000 very interested people know where we are going and why. We have to keep everyone on the team," he adds. "You can never make every individual happy but you must take the stakeholders with you. That always comes down to communication. It's not rocket science. A good strategy well executed and properly communicated keeps everyone focused."

Andrew Ferrier's eight years at the helm of New Zealand's largest single enterprise have, by most performance measures, been very successful. Farmers are notoriously hard cattle to muster. But the work Ferrier and his board have put into governing Fonterra responsibly has, he believes, delivered a broad spectrum of positive results.

Responsible governance at Fonterra is about "sustainability of the cooperative for generations to come". Everything done in the oversight and management of the business is designed to ensure the cooperative thrives into the future for its dairy farmer suppliers.

Cultural alignment

"To achieve that we must align our policies, practices, procedures and culture," says Ferrier. "And as a co-op, it grounds first and foremost in culture. We have cooperative principles which dictate the key things about what the cooperative is -- things like farmers must be suppliers and investors and must control the cooperative. It sets the basic ownership and governance guidelines.

"At the top end, at board level, we are governed no differently from any other major, global listed enterprise. We follow the same governance procedures and policies with the exception that we can never have a fully independent board. We have nine farmer directors and four appointed [independent] directors."

The board doesn't fit the classic definition of "independent", but it is totally relevant to the cooperative, says Ferrier. "In some ways we have stronger governance because of the hands-on approach to electing our farmer directors."

Ferrier accepts that being a cooperative has its pros and cons. "But on balance, it is enormously beneficial for Fonterra. I wouldn't want to see New Zealand's largest company being anything but a cooperative. The model fits the industry and the nation very well. The only real negative is that we don't have unlimited access to capital. On the other hand, we are becoming more creative about how we run the business and tweak our capital structure -- so even that is less of a negative.

"We are fundamentally better at what we do because the business is linked right back to the farmer. We focus therefore on being around for future generations. We are not a business that constantly looks to meet the next quarter's target.

"Having the link back to the farmer we have our brand and our credibility lined up, not just to ensure that we run the business through appropriate governance but that our farmers do too. We have a say in environmental compliance, animal welfare and all aspects of the organisation. This ensures Fonterra is seen in the best possible light by customers and consumers around the world. A co-op can do that because it manages the entire supply chain and not just part of it."

Values set

According to Ferrier, the company's culture is defined by it being a cooperative. …