New Zealand Co-operatives: Showing the Way Ahead

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Coming from New Delhi, Auckland was breath of fresh air. The clean air, clear blue sky, the serene streets were a welcome change. The International Cooperative Alliance (Alliance) team led by Monique Leroux, President; Charles Gould, Director General; Zhang Wangshu, representing President Li, ICA-AP Regional Board and I were in Auckland to interact with business leaders from Co-operative Business New Zealand (CBNZ), the representative body of co-operatives and mutually-owned enterprises. The whirlwind one-day interaction, set up by Ian Macintosh, CEO of CBNZ gave us a flavor of how cooperative businesses in New Zealand were dealing with some of the core issues affecting cooperatives world wide in the areas of governance and representation, capital infusion, research and attracting young to the movement.

 

New Zealand ranks as one of the most cooperative economies in the world[1]. New Zealand’s cooperative enterprises generate three percent of GDP, employ 43,000 people, and have a combined turnover of $41 billion. They are responsible for around 95 percent of the dairy market, 90 percent of the export meat market, 50 percent of livestock; over 90 percent of the fertilizer market; 40 percent of the whole sale pharmaceuticals and 62 percent of the grocery market. No discussion about cooperatives in New Zealand is complete without Fonterra. A walk across the road from our hotel took us to Fonterra’s headquarters where Nicola Shadbolt, Blue Read, and Philip Turner gave us a guided tour of the Shareholders Wall and the timeline that traced Fonterra’s history from 400 cooperatives in 1930 to 9 in 1998 to a mega company in 2000. It is worth quoting lines from Fonterra’s Annual Report, “Fonterra is a global, co-operatively-owned company with its roots firmly planted in New Zealand’s rich land, working to unlock every drop of goodness from the 22 billion litres of milk we collect each year and sharing it with the world. Our ambition is to build a globally relevant Co-op which makes a difference in the lives of 2 billion people by 2025.”

 

The meeting with the heads of CBNZ’s leading co-operatives, banks and mutuals[2] zeroed down to the issue of governance in co-operatives. The central questions were around member interest and representation on one side with running of the business on the other. The dual challenge in member-owned cooperatives are those of ensuring expertise on the Board (does a representative represent his/ her constituents interest or the organizations interest?) and costs to the business in relation to participative model of governance. Experts in co-operative governance have theorized that good leadership and management, conformity to co-operative principles, supportive local culture, and lack of government interference are all results and not causes or co-operative’s success[3]. Success of a co-operative depends upon on how effectively it is designed to serve the purposes central to its user members.

 

Co-operative in New Zealand like the counterparts elsewhere have been trying to address the issue of governance design in a complex organization.  These revolve around appropriate purpose central to members (board choose); the right operating system (roots it to its character as a co-operative); patronage cohesive governance (board hear the voice of members, or expect them to exercise their right of exit); and secure, retain and continually nurture member allegiance[4]. Fonterra has a co-operative structure that adds layers of farmer bodies and processes to protect the interests of its farmer shareholders. It cut its board size from 13 members to nine and added four outside board members to make itself more efficient and quicker to respond to market conditions. The Fonterra Shareholders’ Council is an elected national body of farmer shareholders whose role is to represent the views of all Fonterra shareholders as suppliers, owners and investors. The Council consults frequently with farmers, and meets regularly with the Board to ensure Shareholders’ voices are heard and considered. Succession planning is a major issue when it comes to in the dairy cooperatives and cooperatives in general. The Governance Development Program was established by the Fonterra Shareholders’ Council and Board of Directors in 2006 to help address dairy industry and rural sector succession needs. The primary objective of the Program is to create a pool of future farmer leaders by equipping participants with the skills and capabilities required to govern rural organizations and potentially Fonterra.

 

The issue of capital is particularly important for co-operatives in New Zealand that desire to grow and compete on a global scale. Co-operatives face challenges in attracting long-term funding on account of their cooperative structure. These relate to the withdrawable nature of co-operative membership shares and co-operatives do not maximize returns in proportion to capital contributed, but give benefits to members in proportion to transactions done with the co-operative. The ICA Blueprint for a Co-operative Decade calls for financial propositions which provides a return, but without compromising on member control. Fonterra has again addressed the issue of capitalization with the development of Trading Among Farmers. The Fonterra Shareholders Fund forms part of the broader Trading Among Farmers structure and enables investors to buy units in the Fund that benefit from the Economic Rights of a Fonterra Co-operative Group Share (Economic Rights). The Economic Rights are the rights to receive dividends and other economic benefits derived from a share. These rights do not include the right to hold legal title to the share (i.e. to become registered as the holder of the share), or to exercise voting rights in the Fonterra Co-operative Group. The latest ICA publication, The Capital Conundrum for Co-operatives is timely. There is a whole chapter, Perspective from the Ground: Fonterra Co-operative Case Study by Professor Nicola Shadbolt and Alex Duncan that introduces the innovative capital instruments created by Fonterra Dairy Co-operative in 2012.

 

Chuck, Zhang and I took part in a panel discussion at the University of Auckland to introduce the Alliance and work carried out. The discussion was well attended by faculty, students, those with interest in cooperatives and curious about cooperatives. The panel was moderated by Dr. Lisa Gallagher from the management department whose interest lies in exploring the role of learning and knowledge processes for innovation for cooperative and collaborative business models and ownership structures. We were able to cover a broad canvas, Chuck speaking about ICA at a global level, me about ICA at the Asia Pacific region and Zhang about the All China Federation of Supply and Marketing Cooperatives. The question and answer session was interesting with questions posed about relevance of open membership as outlined in Principle 1 – One voluntary and Open Membership to the role played by cooperatives in strengthening the triple-bottom-line of economic, social and environmental responsibility.

 

An exciting research collaboration underway is between the University of Auckland, Massey University (the only NZ university to provide a postgraduate course in co-operative) and CBNZ.   According to the lead researcher Dr. Elena Garnevska, the study will provide an accurate picture of New Zealand’s co-operative economy landscape. The project will comprehensively list the top 30-40 co-operatives in New Zealand, and analyze their contribution to the New Zealand economy based on objective data. It will also provide the basis for a longitudinal study of the industry, which will be able to map long-term trends and cycles.

 

Roopa and I decided to stay back a few days to explore the North Island. I wanted to see if I could visit some co-operative along our drive from Wellington to Auckland and asked Ian Macintosh and Ramsey Margolis, the founder of Huia Cooperatives. Both went out-of-their way and arranged a few meetings. Thank you! Ramsey and I had been in touch by email but had never met in person. It was wonderful meeting him and hearing about the exciting initiatives that were underway with cooperatives in New Zealand.

 

Loomio was suggested by my colleague Santosh who said the ICA-AP Youth Committee was using it to make group decisions. What excited me was that Loomio was in the technology space, started by a group young people and managed as a cooperative. I could not pass the opportunity to meet this group when we were in Wellington. Richard Bartlett, one of the co-founders of Loomio could pass off as a geek from Silicon Valley – t-shirt and shorts, a beard, and sipping coffee in a hip coffee shop; which by the way was selling coffee from cooperatives. I started off by asking Rich about the origins of Loomio. “Well our roots were in the 2011 Worldwide Occupy movement. We had our own Occupy Wellington where we would debate issues, have voices heard, and reach a consensus. Loomio was born out of the felt need to have a tool that gave everyone in the group a voice and where decisions were reached by consensus.” Was forming a cooperative a direct outcome? Nah! “We didn’t have any such thought when we started. Benjamin Knight and a group of us approached Enspiral, for support and we got our start there. The idea of a cooperative came much later when we were looking at how our shared purpose to give a voice and achieve positive social impact together could be translated into form where decisions are not centralized with a few. We felt the co-operative model gave each of us a voice, say and ownership.” How’s it working so far? “It’s been exhilarating! Loomio as a tool is gaining traction and we are also adding, those who start off as employees, as owners! The look on the face of the person who has just been told that he/she is an owner is priceless! As with any growing entity, we are trying to raise money. Our investors don’t care too much that we are structured as a cooperative, that’s good; but we care and want to see this work!” For Roopa, who is based in Silicon Valley, this was all new and very exciting! There may be a potential convert here who could carry the message to the Valley!

 

 

 

Accuro which is Latin for ‘taking care’ is a 45 year old health insurance provider. As a cooperative they are focused on keeping premiums low while maintaining comprehensive health insurance plans that truly benefit their members. Geoff Annals, Chief Executive Officer, who we met at his office talked about Accuro’s focus on members and how they were constantly looking to connect with members and seeking ways to give back.  He narrated the case of an elderly woman who was continuing to pay premium for both herself and her husband. Her husband had died a few months back and she had not made any claims. Geoff was concerned and called her to make sure she knew details of the policy and about the claim. She said she knew the policy well and also about the claim; but was well-off did not need the money, was happy as a member of the cooperative and wanted to continue paying!  

 

Farmers Mutual Group or FMG as they are better known, is the older co-operative in New Zealand (1905). In 2007, the Farmers Mutual Group Act was passed by Parliament to help FMG preserve its mutual structure, where policy holders are actually members rather than just customers, and to modernize its powers and authorities. According to Lisa Murray, General Counsel, this was done to ensure FMG was better able to account to its members. I asked Lisa about how FMG was upholding its co-operative nature. According to Lisa, “from a business perspective, at FMG we do what’s right, we are proud of what we do, we are in it together, and we make it happen. From a community perspective, we know farming is tough and can be isolating. Our Farmstrong initiative helps shift the focus from illness and depression to one of living well and staying well. Farmstrong is designed to help farmers connect with others, stay active and enjoy life.”

 

Tony O’Boyle, Director at Farmlands showed us around the store in Masterton. Farmlands Co-operative Society Limited was born more than 50 years ago from the desire of farmers to work together to get themselves a better deal. Today more than 1,000 staff service 56,000 shareholders through a network of 83 stores that results in a turnover in excess of $2 billion annually.  Tony started as a dairy farmer and these days is mainly into sheep and beef farming. He believes that the the success of the dairy co-operative can be replicated with wool. As a dairy farmer, he was chairman of the Fonterra Shareholders Council. He spoke glowingly about his experience serving on the board of Fonterra and the process (aptitude tests, personal interviews) followed to determine suitability to serve on the board. “Effort is made to ensure that the most competent pool is placed in front of members to choose from!” Laudable, indeed!

 

The visit to New Zealand and seeing cooperatives in action was exhilarating! There is much to learn from the thriving co-operatives, their constant focus on members, the innovations being put in place to address governance and capital, and the research to analyze contribution of co-operatives. One visit is not enough!

 

 

[1] Measuring the Size and Scope of the Cooperative Economy; http://www.davegraceassociates.com/News___Events.html

[2] http://nz.coop/membership/

[3] Shah, Tushar: Catalyzing Cooperation: Design of Self-governing Organizations

[4] The Governance of Large Co-operative Businesses; http://www.uk.coop/newsroom/governance-large-co-operative-businesses

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