The independent inquiry into Fonterra’s contaminated whey protein concentrate has made 33 recommendations.
In a detailed report, the inquiry found that a number of factors, including a lack of senior oversight of crucial decisions, problems with tracing potentially affected product and belated escalation of the issue, contributed to the event in August this year.
Speaking at the tabling of the inquiry report in Auckland today, Jack Hodder QC, who led the inquiry team, said: “Fonterra is a high quality organisation with talented and dedicated people. The WPC80 Precautionary Recall let them down.
“There were shortcomings in a number of areas, which, compounded by a number of events and co-incidences, converged to create this significant issue.
“Our findings and recommendations do not indicate any fundamental problems within Fonterra. That is not our conclusion.
“They do point to a range of improvements Fonterra can make to become an even better company.“
The Chairman of the special oversight committee for the inquiry, also an independent Fonterra director, Sir Ralph Norris, said his committee “endorsed the key recommendations and themes identified by the inquiry team… It has undertaken a thorough, consultative, independent and incisive analysis.”
The inquiry team was led by a legal team from Chapman Tripp, co-ordinated by senior partner Jack Hodder, QC, and independent experts Gabrielle Trainor, a Sydney-based specialist in crisis management and communication, and international dairy consultant, Jacob Heida of the Netherlands.
“The inquiry team recognises that Fonterra is well advanced on a journey from being a cost-focused dairy ingredients producer to being a customer-focused global foods products supplier that is second to none in its aspirations, standards and people.
“Some areas of weakness have been highlighted, and this has created the opportunity for Fonterra to further strengthen it processes, culture and governance.
“Acting on the recommendations made will lead to Fonterra becoming even more responsive to the global expectations of excellence in food safety and quality, and engaging more comprehensively with stakeholders.
“The findings and recommendations are important foundations for Fonterra’s continued success.”
The Chairman of Fonterra, John Wilson, told the media briefing that the board of Fonterra was fully committed to implementing the recommendations made.
“What directors found encouraging is that this Independent report to the Directors has a significant degree of overlap with management’s Operational Review, which was made public last month.
“There are no contradictions between the two sets of recommendations.
“Much of the recommended change is already underway, or has already been identified as needing to be changed.
“We are committed to adopting a ‘best of class’ philosophy around food safety and incorporating the latest, world class methods into every facet of our operations.”
He said the board had also committed to the reconvening of the Independent Inquiry Committee in 9 months, and again in 18 months, to assist the board in reviewing the progress that has been made against the recommendations.
In an email to shareholders, Fonterra chair John Wilson said:
- There are 33 recommendations, 24 relating to operational issues and many of them overlap with management’s operational review findings.
- We asked the inquiry team to challenge every aspect of the business to find out what happened and why, to reduce the chance of this ever happening again and to make our Co-operative stronger.
- It finds Fonterra does most things extremely well and the report says we are “already operating at a high quality level in almost all respects”.
- The crisis was complex involving many customers, many countries, languages and cultures. It was on a scale most companies never face.
- Problems escalated because senior management and the Board were left out of the loop too long and we lost time needed to get an effective plan in place.
- A change in computer systems compounded difficulty in obtaining accurate information.
- The report is thorough and the Board accepts its findings and recommendations.
Here is the summary of the findings and recommendations from the report:-
Primary findings of what happened
- Fonterra did not include any sulphite reducing clostridia (SRC) tests for any of its production of WPC, even though it had accepted SRC tests under at least one contract with a major customer.
- Some errors of judgement were made in preparation for the reworking process applied to the relevant WPC80 batches.
- The standard pre-start up automatic cleaning regimes used by Fonterra plants required improvement.
- There was insufficient senior oversight of the crucial decision to engage AgResearch to test for C. botulinum.
- The commissioning, design and limits of the C. botulinum testing were inadequate.
- Fonterra was unable to promptly and definitively track the destinations of the affected WPC80.
- There was only belated recognition (and delayed escalation to senior management and the Board) of the explosive reputational risk involved – a failure to “join the dots” between a) C. botulinum b) infant food products c) consumer sensitivities and d) Fonterra’s global reputation.
- Fonterra’s crisis management planning, including the external communications aspects, was inadequate for a crisis of this kind and scale.
- Fonterra management of the crisis in the critical early period, including the external communications aspects, was not well executed.
- There was some lack of alignment and confidence between Fonterra and the New Zealand Government in the critical fortnight after the contamination concerns were advised to the Government and made public.
Principal operational recommendations
- Fonterra’s food quality and safety specifications and testing be reviewed to ensure they are “best in class” standard: consistent with the most rigorous requirements of customers, and with international best practice.
- Risk management and crisis management processes be strengthened, including by establishment of a specially trained and multi-disciplinary (but not full-time) Incident Management Team and regular relevant training, global best practice product tracing systems, and a new Risk Committee of the Board.
- Reputational risk assessment form part of the criteria for escalation and assessment of non-standard external scientific tests.
- Plant cleaning programmes be amended.
- There be continued building of a directly-employed strong, specialist and experienced communications team, including in key global markets, supplemented with contracted high calibre local expertise where appropriate.
- There be enhanced and sustained efforts to address a “Fortress Fonterra” perception held by a material proportion of key stakeholders, by Fonterra redefining the style and substance of its engagement with them.
- The Inquiry be reconvened after 9 months and again after 18 months to review Fonterra’s progress on those recommendations.
- The report notes that the recommendations are “essentially in the nature of incremental improvements and consistent with Fonterra’s pre-existing commitments to both food quality and safety and to continuous improvement.”
- On the operational side, we will have a specific focus in relation to the re-working process, risk management, testing for contaminants, cleaning processes at our plants, escalation of problems, operational planning, and communications.
- The Board will split out a specific Risk Committee from the current Audit, Finance and Risk Committee to provide a separate emphasis on managing risk across Fonterra, providing an overview to ensure our management team continues to improve our processes, monitoring and risk escalation right through our Co-operative.
- Our priorities are to ensure the operational review is completed, the independent inquiry team’s recommendations are acted on, and that future crisis management is “best in class”.
- Most importantly, we must take all stakeholders with us and make those relationships stronger.
- I have huge confidence we will build on our world class reputation for food safety and quality.
The executive summary starts by pointing out:
. . . any major inquiry will tend to accentuate a few negative considerations. This tendency requires a balancing reminder about the many positive considerations – here including the impressive quality of Fonterra’s people and plants, and its pre-existing commitments to food safety and quality and continuous improvement across the organisation.
This is a reminder that although lots of things went wrong and the subsequent reaction was handled badly, the company itself gets most things right.
The report’s brief was to determine what went wrong and what needs to be done to avoid it happening again.
It has done that and it is up to Fonterra to act on the recommendations to do everything it can to prevent any further food safety issues and to ensure it is prepared to respond if, or when, there is a problem in the future.
The full report is here.
The government is undertaking a ministerial inquiry and the Ministry of Primary Industries is doing a compliance investigation, both of which are expected to be completed by the end of the year.