Is the listing of "co-op shares" on the stock exchange, the "thin end of the wedge" or the start of a journey on the "slippery slopes"? Well, perhaps neither of those options, suggests Ian Reid, Executive Director, New Zealand Co-operative Association

Earlier this year the first NZ co-operative to list shares did so on the NZ Alternative Exchange (NZAX). The co-operative was the Livestock Improvement Corporation Ltd (LIC), which became self-controlling in 2002 following the passing of the Dairy Industry Restructuring Act in 2001. Prior to this, LIC had been wholly owned by the NZ Dairy Board and operated as an adjunct to the Board. With the deregulation of the dairy industry, one of the last to receive that attention from Government, there was a range of changes that took place that included the removal of monopoly rights held by dairy co-operatives.

From March 2002, LIC became an independent co-operative owned by its farmer-user shareholders with its own structure. The co-operative registered under the Co-operative Companies Act 1996 (as well as the Companies Act 1993 – as is necessary because the Co-operative Companies Act is dependent upon the Companies Act for all the elements of business that every business needs to observe) which requires co-operatives to have no less than 60% of its voting power with its transacting shareholders, to be classified as a co-operative.

As part of its plans for the longer-term structure of the corporation, LIC decided that it would have two types of shares – Co-operatives Shares and Investor Shares. "Co-operative Shares" are linked to the level of services between the shareholder and LIC and carry the voting rights, while they also require the holding of some "Investor Shares". A shareholder is also required to own no less than a minimum level or more than a maximum of Investor shares – all linked to the level of transacting with LIC.

LIC wanted a transparent way of pricing investor shares and finally agreed that listing on the NZAX was the most suitable option. The appeal of the NZAX listing meant that apart from defining the requirements of the ownership of LIC shares in accordance with the LIC constitution, the corporation would have no involvement in the price of the investor shares. The buyer and seller, in a thoroughly transparent market, would determine the price. This hands-off situation for LIC, meant transacting shareholders would buy and sell investor shares, within the required parameters of the constitution, whilst retaining all entitlement, a highly desirable situation in the eyes of most people.

"Does this mean that the co-operative status of LIC, or any co-operative with the same arrangements, is under threat" asks Ian Reid? Arguably, the answer is 'no', provided the transacting shareholders who hold the voting shares do not collectively decide to change the constitution and alter the co-operative status. The basic requirement to protect the co-operative status lies in having a constitution with a threshold for change at a minimum 75% of the transacting shareholders voting power. Maintaining active communication with transacting shareholders so they continue to value their dealings with the co-operative is also critical. In the case of LIC, there is added protection, as the Dairy Industry Restructuring Act requires the approval of the Minister for Agriculture.

Often, when co-operatives are under strain from people wanting to exit or change the co-operative status, the inclination from co-operative enthusiasts is to find ways of stopping the dissection of the co-operative. In many instances, the situation could have been avoided, had a strong, ongoing communications strategy been in place during the life of the co-operative. "In a co-operative, a positive and aggressive communications strategy is a vital ingredient to long-term success. Without such a strategy, co-operatives would invariably sink to self-interest and greed and the bankruptcy of the co-operative principles," says Ian Reid.

Ian Reid is the Executive Director of the New Zealand Co-operatives Association