Dairy King Craig Norgate

Craig Norgate is the nation’s top chief executive outside the political arena. He is accountable for leading global enterprise that generates 20 percent of New Zealand’s exports, seven percent of our GDP, employs 20,000 people here and abroad and buys the output from 14,000 dairy farmers.
His accession was accomplished despite boardroom battles and industry infighting to deny him his title. But he’s now enthroned and determined to prove himself up to the job. Encased in his floor-to-ceiling, glass-walled office near Auckland Airport, he promises transparent management. He will, he says, deliver level of disclosure beyond anything delivered so far by New Zealand public companies.
His own trip to the top was hardly model open process. sub-committee of the establishment board of GlobalCo – the company created by the merger of NZ Dairy Group, Kiwi Dairy and the New Zealand Dairy Board and renamed Fonterra last month – was appointed to choose the CEO when the full board failed to agree on candidate.
The decision in principle to appoint the CEO from within the ranks of the merged enterprises rather than recruit internationally was made soon after the merger agreement was announced in December last year. NZDG had no suitable candidate, its CEO John Spencer was recently appointed and new to the dairy industry. Its directors on the GlobalCo board, however, resisted Norgate’s appointment not because they doubted his personal leadership and management skills, but partly on commercially philosophical and partly on commercially parochial grounds. Waikato-based NZDG always considered itself the big brother of the dairy industry and Kiwi the Flash Harry upstart.
But the Kiwi candidate prevailed and on July 4, five weeks after the sub-committee consisting of Dairy Board chairman John Roadley, Kiwi chairman Greg Gent, and NZDG chairman Henry van der Heyden plus two independent directors, Graeme Hawkins and John Hood was established, the GlobalCo board announced Norgate’s appointment to the $1.1 million job.
Executive consultancy and recruitment firm, Korn/Ferry International, was involved in the selection process to assess the three candidates against the criteria agreed. The other serious contenders were former Dairy Board executives Chris Moller and David Pilkington whom Norgate named as his deputies just two and three weeks later.
He appointed Moller deputy CEO and managing director of NZMP, the production and processing business he previously headed at the Dairy Board and clearly Norgate’s number two. Pilkington was reappointed managing director of New Zealand Milk, the added value, further processing and consumer goods arm of the business. Former Dairy Board CEO Warren Larsen did not contest the job.
Norgate comes equipped with Bachelor of Business Studies from Massey University in accounting and finance and work experience with Lactose New Zealand, Lowe Walker and the Department of Maori Affairs. He joined Kiwi Co-operative Dairies as general manager, administration, in 1991. He was promoted to chief executive shortly afterwards.
He has been director of the Dairy Board since 1998 and is director of the NZ Rugby Football Union. He’s also been on management courses at France’s INSEAD and America’s Harvard University.
Getting the job may prove to be the easy part. Norgate must now foot it with some of the smartest, sharpest and most aggressive chief executives in the world. His management strategies and philosophies will be tested to the limit. He has started with rush and his appetite for work appears insatiable.
Norgate’s early commitment to open management is supplier driven. Forging strong, trusting and mutually profitable relationship with Fonterra’s 14,000 dairy farmer-shareholders is clearly his strategic priority. Farmers will, under his reign, receive details on profitability right along the value chain for milk production, collection, dairy product processing and exporting. Delivery is Moller’s responsibility.
There will, Norgate says, be no place for executives to hide inside New Zealand’s most dynamic multinational enterprise. He wants Fonterra to become centre of excellence, and to benchmark itself against the best businesses in the world.
His first job is to deliver the goods for the world’s most efficient dairy producers. But can he and his team improve the low levels of return on capital employed through the dairy industry? “Yes. Absolutely. I shouldn’t be here if I didn’t believe that,” he replies. Fonterra will have “performance culture”. And while “we won’t please all farmers, I will be disappointed if at least 80 percent didn’t feel they have received the merger benefits, despite the shifts in commodity prices and dollar values”, he says.
Norgate plans to give divisional managers “a high degree of autonomy over their businesses or areas of responsibility” and they will be measured against clear performance objectives, but he’ll have to do more than that to weld world-class management team out of the organisations he inherited.
The general standard of management at former NZDG and at the Dairy Board were, with one or two exceptions, rated as “mediocre” by industry and management commentators. Norgate has been credited with lifting the standard and performance of his team at Kiwi but it will take time for the dust to settle and for him to feel he has the freedom to build new team at Fonterra.
And there are still some very vocal critics of Fonterra who call it an unwieldy monopoly. Critics like former finance minister Ruth Richardson who, now director of the Reserve Bank and Wrightsons, believes industry deregulation is the only positive outcome of the mega merger. “It fails the critical tests of competitiveness, capital structure and governance,” she says flatly.
Fonterra’s chairman, John Roadley, counters by saying that the effects of deregulation on the co-operative and the industry have been underestimated by merger critics. Farmers can, for the first time ever, take industry wealth (by way of conversion of Fonterra shares to capital notes) and supply competitor. The share value setting process, for entry and exit, will be independent and transparent.
Departing Dairy Board chief executive Warren Larsen seems to agree with Norgate’s priority strategy and warns that farmer unity is the key to success. “If they become dissipated – or disaffected – they will lose value. The regulatory glue has to be replaced with some other sort of glue,” he says. In the minds of most market commentators commercial success and high payouts will ensure farmers stick together.
Fonterra and Norgate inherit an already carefully crafted dairy industry strategic plan to grow revenue to $30 billion in decade. Larsen, now an outside observer, knows of no intention to depart from this pre-written script which, international business experts say, includes some sound market principles.
Auckland University professor of strategic management Wayne Cartwright applauds the old Dairy Board approach of joint venturing in developing markets, helping locals expand and grow wealthy while always expecting an eventual New Zealand takeover.
Fonterra’s strategies must now reach behind trade barriers to purchase, process, brand and trade with other countries’ milk. Part-ownership of Bonlac in Australia and control over all its offshore marketing, is one example.
The extended pre-merger debate over the merger and Norgate’s appointment to chief executive, was less about Kiwi Co-operative and NZ Dairy Group valuations and more about philosophical differences and capital structure implications of overseas market penetration and consumer brand ambitions.
Norgate’s appointment indicates that Kiwi’s total immersion (in offshore product and brand ownership) approach prevailed, says Lincoln University agribusiness professor Keith Woodford. His rapid fire reconfirmation of his Dairy Board rivals for CEO, Moller and Pilkington, and the retention of Wellington as the