Fonterra chief executive Miles Hurrell. Photo / Jason Oxenham
Fonterra chief executive Miles Hurrell's staff say they sometimes catch themselves mentally measuring the width of his shoulders for the weight of responsibility he carries.
It's been two years since Hurrell was brought in from No. 4 spot at the management top table by Fonterra's new chairman, in a bid to restore the credibility of New Zealand's biggest company with its farmer-owners and with NZ Inc.
His 2018 appointment as interim chief executive – the job was made permanent in March last year – came just before the company posted its shock first-ever loss, of $196 million.
Even before that, rumblings were getting louder about the co-op's freewheeling spending and loss-making projects and acquisitions under an opaque strategy named Velocity. That strategy aimed to boost global milk volume, but befuddled Fonterra shareholders and most observers.
Theo Spierings, the $8m-a-year CEO from the Netherlands who championed Velocity, was on the way out after seven years, and the late John Wilson had just stepped down as chairman due to ill health.
Enter Hurrell, then 43, with more than 18 years at the dairy exporter under his belt but - as chief operating officer of its global farming strategy - pretty much unknown to anyone but Fonterra's 10,000 farmer-shareholders and his colleagues.
New Zealand had yet to learn the full cost of the Spierings-Wilson legacy – the company went on to post another net loss last year, this time $605m – but by now all eyes were on Fonterra's performance, at the same time as environmental anti-dairying sentiment was growing among Kiwis.
Fonterra isn't just a big cheese to New Zealanders because its annual revenue tops $20 billion, or because it is the world's sixth largest dairy company by revenue (fourth last year).
One of the country's few true multinationals, it is also a creature of statute – created from an industry mega-merger in 2001 under special enabling legislation, against the wish of competition watchdog the Commerce Commission, and promoted as a "national champion".
Thus the weight of expectation on Hurrell's back. (Not so much on the board. New directors at the time were considered too green to do much, and the old hands, including chairman John Monaghan who exits in November, were regarded as part of the problem.)
Today Hurrell, fresh from a round of media and analyst interviews following the company's much-improved 2020 full-year annual result, seems to be wearing that weight lightly.
But it's been a tough year, he says.
The turnaround strategy of getting back to basics, dropping the ideology of building a global milk pool to instead focus on the value of New Zealand-produced milk, and pursuing a customer-led operating model has meant some gnarly decisions have had to be made, affecting many of Fonterra's 20,000-plus staff and their families.
Hurrell shrugs off the weight his staff fret about.
"It's never changed," he says. "Anyone who has been in this role understands the role of Fonterra in the economy. I don't think that's been lost on anyone who's done this role.
"Coming out from where we've come from has maybe added a bit of pressure. But what we've seen with Covid is that for those who may not have been supportive of our industry, it's given them the mandate to maybe say the rural economy is the backbone and it does stand up when New Zealand goes through tough times, like the global financial crisis."
Fonterra's milk price is also robust, thanks to global market returns, which has been a bonus in boosting farmer support for Hurrell's management regime.
For Hurrell, the $1.1b reduction in Fonterra's debt is the highlight of the annual result, and has helped to lighten his load.
In January last year the co-op's debt was $7.1b. Hurrell vowed last year to cut that by $800m. Some Fonterra watchers said it couldn't be done. They've been proven wrong, although $600m of the reduction is due to asset sales. Debt for the 2020 year was $4.7b.
"For me the debt [highlight] is bigger than just a number," says Hurrell. "Come March and we heard of this thing called Covid. To be able to focus on navigating that, not to have to worry about my balance sheet because we had that in check for this year, was so helpful.
"I think of my peers around New Zealand and round the globe that have spent the first three or four months of Covid having to recapitalise their businesses. That is hugely distracting.
"I could focus all my energy, and all my executive team's energy, on looking after our people and make the right products that would give us the best returns. That has paid dividends, literally."
Push past Hurrell's praise for his staff and Monaghan for their support, and the turnaround achievement, to what he thinks he has contributed to the result and the response is "clarity".
"One of the very first decisions we made was to remove our 'volume' ambition from all our dialogue internally. We said we're not here to grow milk for growth's sake, we're here to grow value.
"That was the key milestone for me - removing any confusion. [I said] if you're going to make a sale or a product, if you can't give it some value on the back of that, why do it?
"I think that might have been blurred historically."
Has it been a lonely journey?
"I have a pretty solid home life. My wife and my 7-year-old son keep me honest and grounded. They are also very, very supportive. They've been fantastic through this and even when you have dark days, at home they are very supportive.
"And while in some parts it's lonely, having had coming up 20 years in this industry, I've built some pretty strong relationships and friendships at all levels of the organisation.
"While I can't share too much with them, they will always be there for me for a beer or a coffee should I need a chat."
Staff told the Herald the atmosphere at corporate Fonterra has changed completely under Hurrell's leadership.
"It's a big corporate but people have a sense of pride," says one. "Heads were definitely down with last year's result. They're up now. There's something special about underlining the importance of New Zealand milk again."
Hurrell isn't a charismatic leader, is another staff member's opinion - but he's a hell of a nice guy who commands respect.
"He lets people get on with things but it's a huge job and I look at him sometimes and think that's such a big weight on your shoulders.
"There's two types of CEOs – the ones that say 'c'mon guys, let's smash it' and Miles' sort.
"He's just quietly spoken and understated. He wants you to know you're doing a good job.
"He gets huge respect because he is understated. He just gets on with the business."
For Christchurch-born Hurrell, that support from staff was a highlight of the year.
"It was a tough call not to give executive [pay] increases or bonuses to anyone. While I'd be naive to suggest I had the full support of our staff, that that was the right decision; the vast majority understood the rationale that we are a co-operative, and we are in this together.
"To know that our team said 'yes, that hits my back pocket but I know it's the right thing and we've got your back Miles' was a real highlight for me."
Hurrell also forfeited incentive payments and bonuses himself, though his base salary increased from $1.3m to $1.9m in the 2020 full year. He took home $2m in total.
Spierings was paid $8m in each of 2016 and 2017 and pocketed another $4m in 2018 despite Fonterra's historic first net loss. In total he was paid $43m in his time at the top.
Does Hurrell feel undervalued in comparison?
"That doesn't worry me," he says. "I'm paid what I believe is representative of the role I'm doing. I feel very comfortable with where it's at. Those things don't faze me and quite frankly never have throughout my whole career.
"I know what I'm worth in my own mind and I don't mean in dollar terms and that's what gets me motivated every day."
Fonterra has developed a reputation for fat cat salaries and lack of transparency, earning the moniker "Fortress Fonterra".
Asked if he'd addressed that as CEO, he says he hasn't actively, but hopes his team's approach to business is improving that image.
"If I listened to every critic out there I don't think I'd get anything done. I'm certainly aware of those comments and those tough calls last year [on salaries and bonuses] has hopefully gone some way to recognition that we don't pay for poor performance.
"Look at the annual report – this year we are disclosing more and more and we are out talking to our communities. Our farmers are talking positively on our behalf. That goes some way to addressing Fortress Fonterra. We are an open shop, while we are owned by our farmers, we have nothing to hide."
Hurrell sat at Spierings' top table, so did he see what was going wrong and how does he reconcile the destruction of $4b of farmer wealth?
"The previous management had a strategy of global milk pools and the key rationale behind that was that global consumption was continuing to increase while New Zealand milk was stable or static at best. Previous management had the idea we needed to maintain our relative position on a global scale.
"I don't think the strategy was broken.
"What it proved is that these are very hard strategies to get right and it only takes one or two things to go against you and you end up on the back foot. And when I say one or two, they were one or two that were very expensive: Beingmate and China Farms as a couple of examples. (An 18.8 per cent stake in Chinese infant food company Beingmate cost Fonterra $755m. By August last year the stake's value had been written down by more than $430m. Fonterra is still trying to offload its holding. The $1b-plus China Farms venture has long made losses.)
Hurrell concedes, "in the execution of the strategy we left ourselves very much exposed.
"It was an ambitious strategy. I can't comment on the due diligence on a couple of the assets that were executed, other than to say when I took the reins I felt they needed a good hard look at them. Those decisions were supported by the board."
Hurrell suggests Fonterra's "appetite for risk" may now be different.
"That is something we and the board have addressed quickly ... how we look at that risk profile going forward, setting those boundaries differently to what they may have been in the past."
So, Fonterra's appetite for risk used to be greater?
"You could argue intuitively it might have been. I'm not sure there was a structured risk statement. We are very clear now what risk tolerance we will have across any one dimension. We are very strict on that now. I'm not saying we weren't in the past but maybe it was a more intuitive than a structured approach to risk."
Asked for his personal guiding philosophy, Hurrell says: "I'm a true believer there's good in everyone".
"Putting that in a business context, you walk the floors here and see in the whites of [our people's] eyes and they are all trying to do the right thing.
"Maybe we haven't got it right every time in the past but it wouldn't have been through lack of trying. That gets delivered in spades in this building."
He believes Fonterra has a responsibility to New Zealand.
"How does New Zealand perceive us and what is our position across New Zealand? That's important to me."
• Born: Christchurch
• Age: 46
• Education: IMD Business School; Insead business school; London Business School
• Career: 20 years in global roles with Fonterra
• Family: Married, 7-year-old son
• Last book read: Hope in Hell: A decade to confront the climate emergency. By Jonathan Porritt
• Last movie watched: Philomena with Judi Dench
• Drives: A VW Touareg
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