In "'Dump share' says report," Peter Hemphill in the Victorian rural newspaper The Weekly Times (12 February 2003) states that a study commissioned by five "independent" GrainCorp Limited directors recommends the abolition of grower control.

GrainCorp employs 850 permanent staff and 3,000 casual.

In 1998 GrainCorp was publicly listed and today it has more than 10,000 shareholders. It was the first grain handler in Australia to list on the Australian stock exchange.

A foundation share in GrainCorp Limited is held by the Grain Grower Association on behalf of NSW and Victorian grain growers - carrying 75% of the votes on special resolutions. The six directors of Grain Growers Association forms a majority of the 11 member GrainCorp Board

A report prepared by Deloitte Corporate Finance has reportedly said that the foundation share prevents GrainCorp from acquiring equity capital at more competitive rates and stops shareholders from realising the full value of their shares.

The report is also quoted in The Weekly Times as stating: "The current ownership of GrainCorp was originally implemented to protect the interests of growers. However, as a listed entity, the primary responsibility of the company is to act in the interests of its shareholders."

The report will be considered at GrainCorp Limited's annual meeting on 28 February 2003.

The constitution of GrainCorp requires that every five years the shareholders must vote to determine if the Foundation share should be retained. The first five year vote is due at this year's annual meeting.

Grower ownership of GrainCorp Limited is an important principle that should not be readily abandoned. It could be preferable that growers directly owned GrainCorp through individual shareholdings based on one vote per member instead of through the Grain Grower Association.

Nonetheless it is grower owned and the Grain Growers Association has 13,000 members throughout Australia. The proposed demutualisation needs to be considered in the context of why grower ownership was initially established for GrainCorp.

The threatened demutualisation of GrainCorp raises three important issues.

• The initial decision to list GrainCorp on the Australian stock exchange created the basis for tensions between grower and/or investor ownership.
• The "independent" directors may well be independent of GrainCorp but they commissioned a report that is, apparently, opposed to grower ownership as a model of ownership.
• The report by Deloitte Corporate Finance either is ignorant of or opposed to grower ownership as a legitimate option and, instead, assumes the desirability of investor-ownership.

In brief, the report's quoted arguments seem to assume the superiority of investor-owned businesses and the inferiority of grower-owned businesses.

The argument that protecting the interests of growers is different from protecting the interests of shareholders denies that the basis of shareholding can differ between investor-shares and member-shares and that ownership of a business can be by investors and/or members.

An issue with GrainCorp, of course, is that there are investor and member shareholders.

Whatever the nature of its purpose, structure and shareholding arrangements a business has a primary responsibility to act in the interests of its shareholders.

David Griffiths

14 February 2003