It is not so much “Houston we have a problem”, but more like “Fonterra we have a problem”.
A year after endorsing its capital-raising scheme Trading among Farmers (TAF), some of Fonterra’s farmer shareholders are now balking at the concept. They are questioning whether they will keep 100% ownership and control of the co-op.
This dissent is being lead by a South Island shareholder group led by Ashburton farmer Eddie Glass. He voted last year for TAF, but says there is a “hidden agenda” to allow investors a greater say in Fonterra’s governance.
Fonterra chairman Henry van der Heyden will not be happy to see the co-op’s second attempt at capital raising from outside sources bite the dust again.
Van der Heyden will well remember his board’s first attempt at capital raising, four years ago, which led to widespread shareholder dissent and an embarrassing back-down and scrapping of the proposal by Fonterra.
The fallout saw a number of farmer directors’ votes off the board and a much more careful attempt this time.
All was going to plan for Fonterra for TAF until the Government put the kibosh on legislation being fast-tracked and passed before this year’s election. This has given shareholders more time to consider the ramifications of the plan.
This has eventuated in Glass and his fellow southern dissenters fearing investors holding dividend-bearing non-voting units will end up appointing non-farmer directors, favouring higher dividends at the expense of milk price paid to suppliers.
These shareholders believe such investor-friendly directors will lead to tensions between the dividend and milk price. They question how the Fonterra board serve two masters.
The southern dissenters have also taken a swipe at the Fonterra Shareholders Council, saying it isn’t “asking the hard questions” on their behalf. They believe the council is nothing other than Fonterra’s lapdog giving farmer shareholders merely a Clayton’s vote set up as a box-ticking exercise.
Shareholders Council chairman Simon Couper denies this and claims that “a good process” is in place to review TAF before final approval is given.
However, the problem for Couper and van der Heyden is that the growing perception is – as it always has been – that the Shareholders Council is not the watchdog for farmer shareholders it is supposed to be but just a toothless poodle of the Fonterra Board.
Unfortunately, these latest problems have left Fonterra’s latest capital raising efforts in trouble and farmers questioning the real motives of the co-op and its own shareholder watchdog. Both are now looking very shaky.