Fran O'Sullivan: Why the Monaghan Appointment is a Controversial Choice

COMMENTARY:

"Johnny on the spot" – this remark from a senior Fonterra executive, in response to John Monaghan's surprise appointment as president of the dairy cooperative, is probably already part of the folklore of Fanshawe Street HQ in downtown Auckland

The chief executive is, of course, outgoing CEO Theo Spierings. His Dutch humor brand helped him survive the tough Kiwi dairy industry until March of this year, when he announced his resignation following a mediocre profit growth and a decrease in Fonterra's 18.8% stake in Beingmate. 19659003] Putting Monaghan at the controls is a controversial choice.

In an environment where there has been significant criticism of council skills and a heated debate over the perceived need to inject new blood, Monaghan, who has been a director since 2008, could be seen as a vote for the status quo.

But frankly, the Fonterra board of directors had no choice.

John Wilson, who had chaired the co-op since 2012 and has been a director since 2003, had a major health fear that required ongoing surgery and treatment. While Wilson says that he is on the road to recovery, he made the right choice and stepped away from the Fonterra presidency.

This presidency has been a demanding one.

Along the way, Wilson had to navigate the fallout from major biosecurity issues that forced Fonterra to restore trust with Beijing, the unfortunate Beingmate investment that was "led" by the Chinese government, and a collapse important raw materials that ripped off the profitability of agriculture.

. During difficult times, Fonterra offered its farmers $ 383 million in interest-free loans to help them overcome their difficulties. Three-quarters of the members of the cooperative accepted the offer

but Wilson leaves a positive note with the expected payment of $ 7 per kilogram of milk solids for the 2018-2019 season, one of the best of this decade. [19659003] The Fonterra rules require the presidency to be filled by a farmer shareholder. The four commercial directors of the board can not intervene.

Fonterra is not only a complex multinational corporation to govern, but as a cooperative, it must be NZ's most political enterprise, and potential producers must develop hard skins. through a highly contested electoral process with their egos intact.

Monaghan is not running out of this space.

And on paper he is without a doubt the most qualified of the existing Fonterra farmer shareholder directors. He was chairman of the Fonterra shareholders' council before becoming a member of the board of directors and was not afraid to 'get on his teeth' when he was concerned about the management of the company. undertaking

. with the rest of the board – is jointly responsible for the strategy was a different step. Before being elected to the board, Monaghan had criticized the directors for not making the company more profitable.

Fonterra has grown since 2008, but it is still far from being the $ 30 billion company that was planned at the time. The Labor government crushed two rival cooperatives with the NZ Dairy Board, through a law, to form Fonterra

Will Monaghan survive as president to lead the company in its next phase ?

This is a difficult question. There have been great moves to bring fresh blood to the upcoming elections in Fonterra.

Wilson – who was to retire on a rotating basis – will not recover.

It is unclear whether the other two directors who have retired by rotation "

Rumors that Colin Armer, who is powerful in agricultural policy and holds a significant stake in Fonterra as the l 39; one of NZ's largest dairy farmers may have tipped the scales in his favor. hat in the ring. Zespri's president, Peter McBride, was also the subject of lobbying

[2] These two men will add considerable weight to the board of directors where they are elected and elected.

But dropping Monaghan would be difficult in the short term. Theo Spierings is expected to be announced in the coming weeks

Monaghan now leads this process with the participation of the board of directors and the appointment is essential to the development of Fonterra.

But Monaghan must orchestrate this in an environment where Cabinet Minister Shane Jones is lobbying for a Kiwi to fulfill this role and for high-level pay packages to be limited

This does not mean by no means the extent of the political participation that Monaghan has to go through

. this columnist has already revealed, Minister David Parker was dispatched by the Cabinet to have a face-to-face meeting with members of the Fonterra board on unproven allegations that the company had outgrown his memoir during the General Election of 2017.

But the most pressing problem is the potential change of the Dairy Industry Restructuring Act (DIRA) by the government after the end of the current review process.

In last week's Herald Agribusiness Report, Playground "was to be created." He said the DIRA aimed to encourage competition in the market for the supply of milk through free entry.

This meant that Fonterra had to accept requests for milk processing from new farmers, but with 10 companies in operation, free entry was redundant and could lead to significant excess production capacity.

Monaghan also argued that New Zealand should support New Zealand firms (large or small) and not subsidize foreign companies to supply raw milk at a regulated price, arguing that this makes sense in the domestic market. detail

But Fonterra farmers must supply their milk to new processors "generally supported by foreign capital and international companies who export everything they produce ".

Monaghan did not name the companies, but they include the international leader Danone (a French company) and several Chinese state-owned companies that have stakes in New Zealand companies such as Synlait or carry out operations there. 100%

In the last 17 years, the provisions of the DIRA have changed: the goal posts are constantly being pushed back.

Government ministers like Damien O'Connor oversaw all major portfolios of agribusiness and the primary sector and strived to preserve a veneer of independence while revising continues.

the very structure of Fonterra – not just market analysts who would like the branding industry (value-added) to grow and be on the list to generate more growth capital. But also some of the most market-oriented shareholders.

The appointment of Monaghan will not crush these rumors.