Yesterday’s announcement that global food company Fonterra’s owners (New Zealand’s dairy farmers) need more time (years) to consider the company’s listing plan is code for saying that the board doesn’t have the numbers to get the plan approved, but it’s hoping it can still win the day. (Bernard Hickey, as usual, has something trenchant to say on the matter).

Fonterra dominates cross-border trade in dairy products (commodities, branded food, and specialty ingredients), but is still small compared to Nestle and Kraft. I was in favour of the plan, given the political nature of cooperative ownership. It would see the farmers retain majority control, but allow outside investors in, which would fund Fonterra’s global expansion. There is a certain irony in the possibility that a well-funded Fonterra could have teamed up with the Sage of Omaha to take a major stake in Kraft.
Despite the global scale of Fonterra, it illustrates a classic owners’ dilemma seen in owner-operated and other tightly-held businesses. Do you allow outside investment in order to expand and grow the value of your investment, but also give up a degree of freedom?

Many owner-operators are, frankly, terrified by the loss of control while they’re still working in the business. They are prepared to give up substantial long term value just in case they might (repeat, might) lose some short term income (of course, this fear usually disappears when it comes to exit time). In Fonterra’s case, this is even though the farmers would still be the majority owners and in a position to make sure that they aren’t disadvantaged.

I’ll be looking at the pros and cons of external investors in tightly-held versus widely-held businesses sometime soon, but there is one point I’ll make now. Although you might seek and act on advice, you wouldn’t accept anyone telling you what to do with your business (investment, house, car, holiday plans, etc). Neither do most business owners, especially farmers who are by their very nature tough-minded, individual owner-operators. Fonterra is their business - literally. Whatever other people, or indeed they themselves, might see as more rationale alternatives, they can (within the limits of the law and their bank) do whatever they like with it.