Global Co: Mckinsey Report
12 June 2001
“Why have McKinseys watered-down their 1999 pre-conditions”, asked Mark Masters on behalf of Farmers for a Better Dairy Deal.
“Unless these pre-conditions are satisfied, McKinseys said two competing co-ops would be better than a Mega Co-op by $300 million”.
“In 1999, McKinseys recommended the Mega Co-op – a virtual monopoly – believing it could be made to behave like a competitive business in the absence of effective local competition”, said Mr Masters. “This is the heart of McKinsey’s position in 1999”.
“Was it realistic or practical? The Commerce Commission certainly didn’t think so”, noted Mark Masters.
“But for now, let’s run with McKinseys’ belief. Let’s assume you can stop a monopoly becoming inefficient in the absence of local effective competition. What were McKinseys’ ‘must do’ pre-conditions to deliver this? And what were McKinseys’ essentials to deliver the industry’s growth strategy?”
“In 1999, McKinseys said the strategy required an additional $4 billion of new share capital plus $8 billion of increased borrowings.”
“Now in 2001, McKinseys seem to be agreeing with Warren Larsen and the other leaders that Global Co doesn’t need any outside capital to achieve the strategy. What’s changed?”
“In 1999, McKinseys said the value-added business needed to be put in a separate corporate structure with outside shareholders, a new customer-driven culture, fresh management, ready to list on the stock exchange.
“Now in 2001, McKinseys seem to be agreeing with the industry leaders that this separate structure is not required to achieve the strategy. What’s changed?”
“In 1999, McKinseys said ownership of the value-added business should not be linked to milk supply.
“Now in 2001, McKinseys seems to be agreeing with the industry leaders that this ‘delinking’ is no longer required. Why? What’s changed?”
“In 1999, McKinseys said it was essential to ‘hard wire’ into Mega Co-op an obligation to achieve 4% efficiency gains every year.
“Now in 2001, McKinseys seem to agreeing with the industry leaders that this is no longer necessary. What’s changed?”
“In 1999, McKinseys said it was essential to have a ‘large minority’ of independent directors. McKinseys recommended 45% of directors should be independent. Now in 2001, McKinseys seem to be agreeing with the industry leaders that it’s enough for only 23% of directors to be independent. Why? What has changed?”
“In 1999, Mega Co-op was not going to be supervised by a special regulator. Now in 2001, Global Co will be. And McKinseys seem to be agreeing with the industry leaders that this is OK. What’s changed? How is this removing politics from the industry? (another of McKinseys’ ‘must dos’)
The list goes on – things that in 1999 were absolutely essential to McKinseys – are now no longer ‘must dos’. They’ve been watered-down. McKinseys are agreeing with the Global Co directors.”
“Where’s their analysis for this sudden change? What new information have they got? Where is the written update? Why haven’t farmers been informed?”
“From the information available to farmers, there is no basis whatsoever for concluding that Global Co meets the 1999 ‘must dos’.”
“I wonder if the Government has seen anything from McKinseys to show this? If so, why haven’t farmers?”
“Are our industry leaders reassuring McKinseys behind the scenes that the missing pre-conditions will be added later – after the vote?”
“If so, we need to know now!
“McKinseys said unless their 1999 pre-conditions were met, two competing co-ops would be better than a Mega Co-op by $300 million.”
“And it’s simply not good enough for Warren Larsen to feign that ‘he has no idea in hell’ where our figure of $4 billion in new share capital comes from. It comes from the 1999 McKinsey report – that Warren and his colleagues commissioned for millions and millions of dollars, using our money but not letting us see what they said in full”.
“Not good enough, Mr Larsen!”
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