Fonterra re-jigs governance review allowing direct farmer nominations

Friday 23rd September 2016

Fonterra Cooperative Group has put out a re-jigged governance and representation model to its farmer shareholders, with the key change being farmers can directly nominate their own choice for selection to the board.

Earlier this year a proposed change failed to get the required 75 percent majority vote needed. The reform would have been the first in 15 years for the dairy cooperative’s governance model, though just under 64 percent voted for a long-awaited review.

The new version still proposes reducing the size of the board to 11 directors from the current 13, comprised of four independents and seven farmer directors. It also retains the first-past-the-post aspect of the vote rather than the current single transferable vote model and the independent nomination process, while adding a self-nomination process that requires the support of 35 shareholders.

Shareholders will vote on the revised review at a special general meeting in Palmerston North on Oct. 12.

Chairman John Wilson said the fine-tuning was made to ensure farmers can have on-going confidence and trust that anyone can stand for the board at any time.

“But we will still run the independent selection panel process to look to attract the very best people out of our base to ensure we have the best possible governance going forward,” he said.

Under the independent selection process candidate names are kept confidential until they are nominated as a candidate which it’s hoped will attract top farmers who have avoided putting their names forward in the past.

In the independent selection process farmer candidates are assessed against a skills matrix which includes having on-farm dairy knowledge, or having run or owned a dairy operation as a member of the dairy cooperative. An independent selection panel then puts candidates forward to the nominations committee which consults with the Fonterra Shareholders’ Council.

Wilson earlier said when releasing the first version of the review that the current process for electing farmer representatives, which effectively meant candidates only required 25 percent support under the single transferable vote system, was too politicised and they struggled to get the information on candidates they needed to make good quality decisions on who to vote for.

The proposals still fall short of cutting the board to just nine as suggested by former directors Colin Armer and Greg Gent last year which 54 percent of Fonterra’s farmer shareholders voted in favour of at the last annual meeting in October. That vote also fell short of the required 75 percent needed, and the 50 percent backing needed from the shareholder’s council.

Other changes in the new version include the independent selection panel to recommend an appropriate set of candidates, equal to the number of vacancies to be filled to the nominations committee. Farmer director candidates will need to get support from 75 percent of the shareholders' council to have its endorsement though they can still stand without it.

The board makes final recommendations and those, along with self-nominations, will require the support of 50 percent of shareholders at the annual meeting. Independent directors continue to be chosen as they are today.

Shareholders' Council chairman Duncan Coull said the latest proposal gives farmers more choice by allowing people to sit outside the independent selection process.

Among the nine recommendations being voted on at the Oct. meeting are proposed changes from a working group from the shareholders’ council that recommends deciding by December whether to reduce the number of wards from the current 35 to as low as 25.

Coull said there had been changes in milk production around the country with dairy conversions, particularly in places like Southland, and currently some ward councillors represented a lot more farmers than others. A decision on that will be put to farmers at the annual elections next year, he said.

The recommendations also including a clarification of the role of councillors as cornerstone shareholders and how they can better communicate the “owner’s voice” rather than that of the company.

“It’s about being careful that it’s not just the Fonterra message being communicated but also our view and position and to report back to members on that,” Coull said.

It was also felt that some councillors were straying into the role of operational management rather than governance.

“In any organisation, there is always the risk of some creep over time, he said. “We have to be careful we attract the right people with the time to commit and that they’re willing to do the right thing.”

Wilson said there are a lot of asks and requests of councillors and they need to stick to what’s expected of them as a cornerstone shareholder.

“Otherwise the role becomes ridiculously large. These are farmers and that’s what we need – a cross section of farmers on our council.”

BusinessDesk.co.nz

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