Dialogue: Time needed for single company culture to grow

By WARWICK THOMPSON*

As an early and long-time advocate - since the early 80s - of a single, large dairy company, I often addressed meetings of farmers promoting that concept.

Those addresses always included a firm warning that the longer it took the dairy industry to achieve such a consolidation, the more entrenched and disparate would the separate cultures of the constituent companies become.

Then it would be increasingly difficult to mesh those separate cultures into a single entity.

The long delay in resolving the issues that kept Kiwi and NZ Dairy Group (and the Dairy Board) from merging into Fonterra allowed those different cultures to develop further.

They became increasingly disparate and entrenched within each company.

That there is now some difficulty in meshing these two cultures (or three including the former Dairy Board) into Fonterra, although regrettable, was inevitable.

That the Fonterra chief executive should previously have been the chief executive of one of the constituent companies and responsible for driving Kiwi's own culture was also bound to make resolution of the tripartite cultural issues even more difficult.

An independent chief executive drawn from outside any of the constituent companies would have reduced the cultural tension.

In 1991, BP appointed me as a "non-European independent Kiwi" to deal with an acute cross-cultural business issue in Europe that had previously defied resolution.

My primary task was to merge nine separate business entities, each with its own ethnic and business culture, into a single pan-European marketing and manufacturing company.

These nine included two separate large companies in England and Germany which had long been fierce competitors.

It helped immensely that I was not personally labelled with any specific culture from within Europe.

One key factor in resolving the culture-issue was the creation of strategies, objectives, procedures, practices and even rituals.

The employees rapidly identified with these, quickly adopted them as their new culture and soon abandoned their previous local and national cultures in favour of the new European philosophy.

It took time to put this in place - lots of time. So the farmer shareholders of Fonterra should understand that the new culture of Fonterra will not be forged overnight, particularly with the background and circumstances of its gestation and birth.

They must exercise some patience during the time it takes to happen. It will be worth the wait.

Fonterra's farmer-shareholders should instead be much more concerned and activist about another company issue - an issue of substance.

When I returned to New Zealand from Europe in 1994, I had a discussion with Sir Dryden Spring, then chairman of the NZ Dairy Board, about composition of the board.

Sir Dryden admitted that on his board - the largest international marketing organisation in New Zealand - not one director had experience or qualifications in international marketing.

There were two economist and lots of capable farmers, but no experienced international-business or international-marketing directors.

How then, I asked, did the directors fulfil their key governance responsibility of developing or contributing to the board's international marketing strategy, let alone assess the performance of its many foreign subsidiaries.

With difficulty. The directors could only accept whatever the executive dished up to them.

That this sorry situation has been perpetuated in the structure of the current Fonterra board was probably one of the issues concerning Mike Smith, who resigned his directorship this year.

It needs to be rectified immediately by the appointment of commercial directors experienced in international marketing.

Marketing strategy is, or should be, the driving force of the whole company.

Sending Fonterra farmer-directors off to director school to learn about governance is of itself a commentary on the level of experience of the company's present directors. It is probably not giving Nestle, Unilever, Kraft, Danone and the others too many concerns.

* Warwick Thompson has held senior executive positions in multinational companies and the Dairy Board in Asia, the Americas and Europe. Simultaneously for many years he also owned a dairy farm near Morrinsville.