Fonterra inquiry group accused of being 'tribal'

A Fonterra board committee was yesterday accused of a "tribal" mentality and a bias in its handling of the "Powdergate" affair.

Commercial lawyer Richard Mehrtens, who managed Fonterra's 2001 internal "Powdergate" inquiry, told the depositions hearing in the Auckland District court that members of the committee overseeing the inquiry had a "just get the Kiwi [Dairy Cooperative] guys" mentality.

Mehrtens also said the committee steered investigations away from rival New Zealand Dairy Group.

Fonterra was formed after a hard-fought merger of the Taranaki-based Kiwi and the Hamilton-based New Zealand Dairy Group.

That committee included chairman Henry van der Heyden, and sitting directors Greg Gent and Graeme Hawkins. It also included former dairy industry executive Mike Smith and former Auckland University vice-chancellor John Hood.

"There were people within the committee that wanted us to focus on just the Kiwi supply chain," Mehrtens said. "Presumably out of self interest." There was a mindset of "just get the Kiwi guys".

Mehrtens was appearing as a witness for the Serious Fraud Office - which is prosecuting four former Kiwi employees and three associates for the alleged illegal export of milk powder.

He told the court how he and his team of lawyers were brought on board to manage any strategic risk to Fonterra and to ensure the process was fair and legally sound.

He told the court how the investigation had uncovered eight specific examples of dairy company supply chains working outside the statutory Dairy Board regime.

He said a draft report clearly implicated Kiwi Co-operative, New Zealand Dairy Group and the Dairy Board itself.

But when those findings were presented to the committee of Fonterra directors assigned to oversee the process, it attracted an "incredulous" response.

"It seemed patently unfair when there was others involved."

The issue seemed to be that some of those on the committee would have been implicated if other unauthorised supply chains were investigated.

Mehrtens described how it was made explicitly clear - through committee chairman Graeme Hawkins - that only the Kiwi supply chains should be investigated further. He recalled one specific case of a supply chain involving Bay Milk which Hawkins told him not to pursue.

"I don't know if there were instructions written down but we clearly understood we were not to go any further down that path." He believed Hawkins had generally been fair in his handling of the process.

When pressed by defence lawyer Paul Davison QC as to who had been driving the policy not to investigate Dairy Group cases, Mehrtens said he could not say because instructions had generally been channelled to the investigation team through Hawkins.

"My feeling was that there was a lot of pressure coming back through Graeme [Hawkins]."

When pressed further, Mehrtens gave his impressions of each committee member from the group meetings he had attended.

Van der Heyden had generally not said much. But based on body language and comments he appeared to be disapproving of what was presented.

Mehrtens said his view was defendants Paul Marra and Malcolm McCowan were viewed as expendable by the newly formed Fonterra as it sought to reach to find an expedient solution to a politically difficult problem.

"They were flambeed, if you like."

Marra and McCowan were people "who in good faith tried to do their best they could for their team at the time".

"I see these people as victims of a change process and a political process."

In context of standard industry practice at the time, what they did was "Tom Jones", he said.

"That is to say: not unusual."

The defendants

Paul Henry Marra
Malcolm Alexander McCowan
Terence David Walter
William Ross Cottee
William Geoffrey Winchester
Stephen Ross Wackrow
Sean Robert Miller

The allegation

* $45 million of premium milk powder was illegally exported by Kiwi Co-operative Dairies' employees and subcontractors on 210 occasions between January 1997 and October 2001.
* The hearing will finish on May 27.