FONTERRA GOVERNANCE HAS FAILED TAF

When farmers voted to investigate the possibility of a TAF market in 2010, the vote was underpinned by the conviction that farmer members held for the cooperative’s capital structure that ownership and control are non-negotiable.  What was never investigated by the governance team within Fonterra developing the TAF model was the principle behind this conviction.  The principle is that ownership and control allows members to work collectively towards a common good, a way in which all Fonterra members will thrive now and in the future.
The final model of TAF is of a share trading market that promotes individual rights and encourages consumer-like behaviours.  It is not clear how this model supports the principle of enhancing the collective unity of the cooperative or the common good. The final TAF model supports the conviction but confounds the principle. This is why there is increasing uncertainty recently from the general shareholding on the validity of TAF as a capital structure model that is well served for a strong cooperative.
The TAF model itself is very clever and does, in my opinion, exactly what has been asked of it.  However, what has been asked is inconsistent with normal, modern cooperative governance practices.  The TAF model was developed to reduce redemption risk for the cooperative.  In 2008/9 the cooperative suffered heavily from redemption and the governors saw this as a market failure, rather than the constitutional failure which it was. The current governors of Fonterra view their role as being neutral in matters of the common good, allowing individual members the freedoms to pursue their own interests through the cooperative. As a result, they see themselves as fixes of market failures, with a market-mimicking style of governance. This is where the real risk of demutualisation lies.
Demutualisation will happen when TAF market fails, or falters, in the future. Using this market-mimicking style of governance, our leaders will look to fix the problem with a larger, deeper, more liquid market.  We know this for sure as this is how the issue of redemption has been dealt with, how the decision for the 2nd vote was arrived at, and is behaviour that is consistent with current internal Board policies based on the spurious science of cost/benefit analysis.
Governors using market-mimicking governance struggle with working through the sometimes emotive and controversial opinions and convictions that come from encouraging democratic dialogue within a diverse shareholder base.  In an attempt to remove the subjective nature of these emotions, governors strive to reach decisions from a more scientific basis and use cost/benefit analysis to this end.
Cost/benefit analysis involves weighting the benefit of implementing a new policy or project against the costs of implementing it or not, and a decision is made based on the results. The problem with this kind of analysis is in assigning value to those things that we struggle to value in the first place, things such as goodwill, solidarity, succession, loyalty and sustainability.  How these things are valued will alter the results of cost/benefit analysis and renders it insufficient as a complete instrument for governance.  This is why modern governance methods that include member consultation and engagement yield far more consistent and enduring results. This is because it allows governors to arrive at a multi-dimensional understanding of member expectations based on the three strands of just governance; Welfare, Rights and Virtues.
It will be premature for members to enable TAF to proceed without stronger constitutional safeguards around enhancing democratic self-rule and the collective common good of the cooperative. TAF, although a cleaver concept, has not demonstrated how it strengthens or even supports the cooperative and the collective nature of the business for reasons beyond permanency of capital.  Members are becoming increasingly aware that TAF, without a stronger constitutional foundation, will critically and irreversibly weaken the collective strength of the cooperative nature of the business, despite offering increased financial strength to the capital structure in the short term.
Our governors have failed to recognise that right of individuals should not come before the common good, rather the right should be a consequence of the good. It is unfortunate that the cooperative has failed to demonstrate the qualities of leadership required to circumvent this politically delicate situation earlier.  This painful situation must now be born by whole the cooperative, putting members in a very difficult predicament that they are yet to have genuine dialogue on.