Cooperative or Corporate Structure for Dairy Companies?Friday, Jun 23, 2000
Shareholders of NZ Dairy Group are busy deciding the future structure of their company following the
failure of the Megamerger proposals.
For the past 125 years the principles of cooperative structure have been followed by most dairy manufacturing
operations in New Zealand. A few corporate companies processing milk survived into the latter
half of last century but generally farmer producers accepted ownership responsibilities for
the processing of their milk through the elected directors of their cooperative boards.
The primary issues that NZDG seem to be facing up to is whether individual farmers now have the qualities
to set the policies for the continued growth of their industry. Corporate experienced outside
directors have been included on many company boards for the past 20 years but not in the proportions
that are now being proposed for NZDG.
If the sole measurement of corporate success is return on investment as promoted by the Harvard Business
School theory is applied to cooperative dairy companies then we are seeing the beginning of the
end of a structure that served NZ well for the past century.
The example of Glaxo should be revisited by those who see the exclusion of farmer directors from the
responsibilities of directing their own companies as being in the best interest of farmer producers.
The danger is clear from the Glaxo model. ROI took Glaxo from a successful producer of retail
packs of milk powder to a pharmaceutical giant with now no connection to its origional base.
Maximising return on raw product supplied by singularly and totallycommitted farmer shareholders is
the success of a cooperative. Punting on share return by spreading investments over a range of risks
is the domain of the stock exchange.
Dairy coop shareholders should know the difference.
Enjoy these clear fine winter days
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