Corporate Governance and Leadership: Case Studies of Fonterra, Synlait Milk, and Ngai Tahu Holdings Limited

AM906001 Corporate Governance and Leadership
Assessment 2
Individual Assessment
Study block Study Block 1 (January 2018)
Date issued 28/11/2017
Due date 09/3/2018 Time 29th/Jan/2019
Delivery: Email/ submit to Turnitin via Moodle before deadline
Weighting 50%
Marks out of 50
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Student Name Yue Qiu
Student ID No 1000035873 Cohort
number
Cohort 1
Lecturer Dr. Dennis Griffin Class time 8:30 Monday
Student declaration: I confirm that:
This is an original assessment and is entirely my own work.
Where ideas, tables, diagrams etc. of other writers have been
used, I have acknowledged the source in every case.
This assignment has not been, nor will be, submitted as assessed
work for any other academic course.

Signature of
student:
Date 26th/Jan/2019
1. Introduction
This report discusses corporate governance and leadership through case studies. Three
New Zealand companies were selected as examples of case studies, namely Fonterra,
Synlait Milk, and Ngai Tahu Holdings Limited. Founded in October 2001, Fonterra is
now among the world's largest dairy exporters and processors, providing high-quality
dairy products(Fonterra, 2019). Synlait Milk is one of New Zealand's five largest
independent milk processors, mainly engaged in the production and processing of
milk powder (Synlait, 2019). NgaiTahu Holdings Limited is an investment company
with a focus on seafood, tourism, capital, farming and property. These three
companies have completely different ownership structures, and Ngai Tahu Holdings
Limited's owner is Maori (NgaiTahu, 2019). This report analyzes them from the
following aspects. The first is the ownership structure, followed by governance and
leadership models, the boards’ legal and social responsibilities to legislation and
compliance, Treaty of Waitangi, ethical lessons/corporate social responsibility,
ecological sustainability, and financial sustainability. Finally, this report makes
corresponding recommendations.
2. Ownership Structure
Fonterra uses a cooperative model and its shareholders are very fragmented. The
considerable number of shareholders are with only a small number of shares
(Carroll&Buchholtz, 2012). At heart of Fonterra is an exclusive co-operative
structure, in which all shareholders are required to be farmer. The company is partly
listed on NZX. As per this, the public depositors may purchase only financial rights
related to the financial performance of company by the stakeholder’s fund of
Fonterra(Wilson, 2017).Fonterra is owned by approximately ten thousand five
hundred New Zealand dairy farmers and the shareholding ratio of each dairy farmer’s

shareholder is less than one per cent (Farrar, 2001).In this way, the farmers have
hundred per cent control and ownership over the company. In the case, where any
other person or company wants to purchase the milk, then it is only possible after the
negotiation with company, not with farmers. It decreases the negotiating powers of the
purchaser and increases the control of company over the supply and price of dairy
products internationally. The structure also permits for the company to attain
operational scale, owning over fifteen billion dollar of the assets and certain biggest
dairy plants of the world(Barry, Lepetit&Tarazi, 2011).Since the individual farmer is a
shareholder of Fonterra and there is the perfect quality traceability mechanism, it
ensures that the fundamental interests of the individual farmer and company are
consistent(Painter, 2010). In addition, Fonterra faces the challenge of finding suitable
and/or innovative structures to capture external capital (Hanson, Dowling, Hitt,
Ireland &Hoskisson, 2014).
However, ownership structure of SynlaitMilkis different that of Fonterra, which is
sole proprietorship. In year 2018, Synlait Milk’s top three shareholders were Bright
Dairy, A2 Milk Company and Mitsui & Co. Ltd., with the share percentage of
39.04%, 9.11%, and 8.38%, respectively. It has a unique owner, Bright Dairy. Bright
Dairy became the owner of Synlait Milk on October 26, 2010 with a 51% stake
inSynlait Milk Limited (Synlait,2019). Bright Dairy had made payment of eighty two
million dollars for having the fifty one per cent stakes in the marketing and processing
assets of private Canterbury processor that means top three biggest dairy entities of
the nation, will be majorly and expressively foreign owned. These three domestically-
owned co-operatives are Tatua, Fonterra and Westland Milk. It is different from the
cooperative model of Fonterra that shows the interests of various shareholders, Synlait
Milk is only for the interest of Bright Dairy.
As according this, by considering the interest of farmers, the government of New
Zealand required that the shares of Synlait Milk acquired by Bright Dairy did not
include the farmland assets (Pooch, 2008). The investment of Bright Dairy is very
beneficial for Synlait Ltd and country. The company will increase the manufacturing

of great description baby formula powder and use of selling specialty of Bright Dairy
to sell at great level in China.Because Bright Dairy is third biggest dairy entity by
volume. It has two hundred ten farms in China. Synlait takes approximately twenty
per cent of the milk from Fonterra, the regulatory requirement of Dairy Industry
Restructuring Act, and new ranchers had already come up to this entity that must
decrease the dependence on Fonterra milk to approximately ten per cent while the
new drier was constructed. In fact, the New Zealand government is more supportive
of overseas investments that do not harm their basic interests. Although, the
acquisition is only the factory, the farm is 100% owned by the previous shareholder of
Synlait Milk (Lee, 2004), so the milk source of the farm will still be 100% supplied to
SynlaitMilk.
Ngai Tahu yearly gives contribution in excess of two hundred million dollars to an
economy of South Island. Ngai Tahu has involved in present day trading activities
since year 1950, while the Ngai Tahu Maori Trust Board had per annum income of
approximately twenty thousand dollar to put to asset and distribution by the iwi. Ngai
Tahu used the earning to invest again and raise the base of assets. From the starting,
the financial policy of Ngai Tahu included reinvesting unevenly two third of earning
and upholding the firmly made focus on distribution policy to render help to tribal
members with the help ofscholarship and educational grant. Ownership structure of
NgaiTahu Holdings Limited is unlike the above two companies, and it is controlled
and operated by the NgaiTahu Charitable Trust. According to the characteristics of the
trust, NgaiTahu Charitable Trust can invest in both the capital market and the
industrial sector, while Synlait Milk and Fonterra may face difficulties in doing the
same thing because of industry restrictions. In order to maximize the return of
investors, NgaiTahu Holdings Limited achieves the diversification of investment
fields so that it can, to a certain extent, effectively reduce investment risks (NgaiTahu,
2019). However, some rules of trust may block the way out of the beneficiary dispute
(Cant, 2010). When the beneficiaries have an equity dispute, Synlait Milk and
Fonterra can solve it through transfer of equity (Ugwu, Onyishi&Rodríguezsánchez,

2014), but for NgaiTahu Holdings Limited, the regulations of trust often prohibit the
transfer of equity, blocking the solution of the dispute (Ngo, 2004).
In October 2001, it is stated that the stake of Ngai Tahu in Ryman had reduced to
twenty per cent. Further, in June 2003, the stake of Ngai Tahu was weakened down to
sixteen per cent on the issuance of new stakes. In year 2007, NgaiTahu traded six per
cent of the stakes of Ryman to international asset firm, Babcock & Brown, for two
dollar per stake, receiving the residual shareholding down to 6.5 per cent.
Furthermore, in year 2008, shareholding of the company had increased to eight per
cent. It was also stated in October 2013, that Ngai Tahu had the six per cent
shareholding. As per the Companies Office Ngai Tahu Capital openly have 4.84 per
cent of Ryman Healthcare on or after year 2016.
3. Governance and leadership models
Corporate governance, which Fonterra defines as the “operation between
shareholders, directors and management of the company, as set out in the constitution,
formal policies of the company and the general law”, takes pride of place,
organizationally speaking. Fonterra is devoted to the high norms of leadership and
corporate governance. The high standard of leadership is central to the governance of
company. The company focuses on the manner which motivates the stakeholder’s
interest, great balance between role of management and BOD, communication
between significant shareholders and proper risk management to achieve the
determined goals. Fonterra renders the working atmosphere to reward and support the
people in fair way. Fonterra also develops the governance development programs to
provide assistance to the stakeholders of company. Fonterra's governance and
leadership model is the UK/Commonwealth model (Tricker, 2015). Fonterra currently
has 13 directors, 9 of whom are elected by dairy farmers and 4 by existing directors
and approved by dairy farmers. In the proposed framework, there will be six directors
elected by the dairy farmers to ensure that the dairy farmers have control over the
board and that there will be five independent directors. The director’s role will be to
take important decisions for the organizations in accordance with their essential levels

of working. According to the regulations of the Fonterra Group, the appointment or
resignation of all personnel of the board of directors is decided by the dairy farmers'
share by postal ballot. The governance model used in this case is related to some
extent to the Japanese model of corporate governance. In this the number of people
that are present at the various levels are increased to enhance the interactive unity
between the various departments (Ugwu, Onyishi & Rodríguezsánchez, 2014). The
unity ensures that a proper coordinated behavior is maintained between all the people
in the organization. Hence, a smooth flow of information can be seen ultimately
resulting in the successful running of operations. The shareholder committee has the
right to participate in day-to-day business management matters, such as negotiating
with the board of directors on important operational decisions like dairy product sales
pricing. In such the governance and leadership model, Fonterra Group's shareholding
structure and the characteristics of its group decision-making process decide the
position of no real regulator. Consequently, the cost of applying governance rights is
very high. So, the only factor of meeting of shareholders of company cannot be
effective for perpetual set up of the company (Grant, Butler, Orr&Murray, 2014).
Synlait Milk’s governance and leadership model is also the UK/Commonwealth
model, but the way of management is totally different from Fonterra. Synlait Milk’s
Board has eight members, including one member appointed by the board, three
independent directors such as the Chairman and four members appointed by Bright
Dairy. In the UK model of corporate governance, it is the common law that guides the
functional aspects of the organizations. However, corporate governance in the UK
tend to be based more on principles. The responsibilities of the leader and the
directors are based on the code of ethical standards or the best practices. In this the
law does not play much part. The governance principles help the company to tackle
most of the issues they tend to face. Hence when this governance is applied a strong
set of good practice and code of conduct need to be formed. The board structure is as
follows-
1 Chairman, Independent Director;