Co-operative Issues- Mutuality and Demutualisation (original) (raw)

Current Co-operative Issues

ICA addresses a wide range of subjects that have specific relevance to the co-operative development, growth and successfulness.

Demutualisation

The ICA is committed to furthering an understanding of the role and significance of the mutual and co-operative sector and the threat of demutualisation. The Global 300 Project was established by the ICA to further this understanding. What this section of the ICA web site focusses on is the nature of the demutualisation threat and this requires addressing such questions as:

What are the impacts of mutual businesses that are different from other businesses?
What are the factors that influence demutualisation?
Does legislation and regulation contribute to demutualisation?
What have been the lessons of demutualisation?
What have been the costs and benefits of demutualisation?
What strategies are necessary to strengthen mutuality?

Fonterra's Future

New Zealand co-operative Fonterra has changed its proposed capital restructure process. The Fonterra board originally proposed a member vote in May 2008. This has now been set aside for now as not essential and because the Fonterra board says there a need for more consultation and discussion due to misunderstandings and some misinformation. The Fonterra Shareholders Council has welcomed the decision as prudent and that the decision was consistent with farmer and Council feedback.

Article by Jill Galloway on what dairy farmers think about how Fonterra has handled restructuring proposal, Unco-operative: Taking a stand, Stuff.co, 28 February 2008.

Read the Fonterra Chairman's letter about why the capital restructure proposal vote has been delated.

Read the Fonterra Shareholders Council response - praised as a prudent decision.

Read also Kent Atkinson in New Zealand's The National Business Review - Chairman: Fonterra feared kneejerk reaction to sharefloat and the Rural Network's Philippa Stevenson - Fonterra's listing ship sinking

There are six New Zealand co-operatives on the ICA's Global 300 list - headed by Fonterra at 26 with a reported turnover of US$8,702 million in 2005.

Under the proposal a second company would be created with all the assets, liabilities and operations of the current co-operative shifting to this entity. Ultimately shares in the new company would be listed.

A number of special protections for farmers are also being proposed to be built into the listed entity's constitution and these could only be changed through a 75% farmer vote e.g.

On New Zealand's online Rural Network, Philippa Stevenson argues in Fonterra co-op - messing with success? inter alia "Missing from the debate so far on Fonterra's proposed capital restructuring is any mention of how it might proceed by remaining a co-operative - the successful business model that has made the dairy industry into the world beater it already is." In Irish dairy example questionable, Stevenson queries the relevance of the restructuring of the Irish dairy co-operatives to Fonterra. Stevenson also reports in Fonterra proposal dead duck: poll that in an online on the question: Should Fonterra stay a co-operative? 86% have voted yes. Retaining Co-operative Characteristics Amid Globalisation is a 1999 Nuffield Scholarship Report by Catherine Bell. Bell warns against co-operatives being divided into two businesses - a co-operative and a separate listed company - as this will destroy the co-operative.

A New Zealand independent consultant Alan J. Robb has queried the Fonterra proposal. Robb is an independent consultant and commentator on financial accounting, co-operatives, corporate governance and business ethics. He is Adjunct Professor, Saint Mary's University, halifax, Nova Scotia, Canada.

New Zealand business commentators have welcomed the Fonterra plan. In Comment: Fonterra's 'elegant" listing plan (The National Business Review, 15 November 2007), Hugh Stringleman noted: "Fonterra's preferred capital restructure is a logical and persuasive route to world dairy dominance that farmers should grasp. The greatest wealth-making opportunity in New Zealand business history is within their hands."

Radio New Zealand News reported on 17 November 2007 that the "Financial community welcomes Fonterra plan." Milford Asset Management director Bryan Gaynor is quoted as saying that using the share market to raise capital makes a lot of sense for Fonterra - which could overnight become the stock market's biggest company. It also quotes Shareholders Association head Bruce Sheppard as saying that Fonterra has no option but to list if it wants to grow.

The New Zealand Herald "Editorial: A bold step forward for Fonterra" declared on 17 November 2007: "yet, in reality, this plan offers farmers the best of both worlds. Not only will the company be able to raise enough capital to fund a global growth strategy but legal and constitutional safeguards will ensure it does not fall into the arms of external investors....... As it is, the proposal fulfils Fonterra's three ambitions. It will receive the NZ$3 billion to $5 billion in investment that it says is necessary over the next five years to pursue overseas growth opportunities; it will reduce the redemption risk of farmers cashing in their shares; and farmers will gain more investment options. On the other side of the coin, investors get the chance to share in the growth of the dairying sector, and the sharemarket gains the bluest of blue-chip stocks."

A Co-operative Dilemma bookA forthcoming publication on mutuality and demutualisation.

A Co-operative Dilemma: Converting Organizational Form Edited by Jorge Sousa and Roger Herman, Centre for the Study of Co-operatives, University of Saskatchewan, Saskatoon, Canada.

Jorge Sousa is Assistant Professor, Department of Educational Policy Studies, University of Alberta, Canada.

With insights from both academics and practitioners, this book focusses on an issue of paramount importance to co-operatives. The book examines the underlying issues that motivate and inform processes to alter an organisational form.

There are 12 case studies from Canada, Australia, Ireland and the United States which explore and analyse the processes and factors leading to conversions of organisational form, including mutualisation, demutualisation and remutualisation:

Anticipated publication date is December 2007. 6 X 9 paperback, 288 pages

Inquiries: Centre for the Study of Co-operatives. Email Website: http://www.usaskstudies.coop

An initial list of significant publications on demutualisation has been identified. Further publications will be progressively added.

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