Fonterra's first governance review suggests cutting board members by two, single election process for directors

Thursday 14th April 2016

Fonterra Cooperative Group is proposing cutting its board numbers by two to 11 and having a single process for electing farmer appointed and independent directors as part of the first governance overhaul since it was established 15 years ago.

A booklet on the first draft proposal from the long-awaited review of the farmer-owned dairy cooperative is being sent out to farmers today and a final recommendation is to go to shareholder vote in late May or early June after feedback.

A majority of Fonterra’s farmer shareholders supported a proposal to reduce the board to nine from 13 at the annual meeting last October but the vote fell short of the 75 percent needed, including a requirement for 50 percent support of the shareholders’ council. It backed the board’s view that a better option was to make any changes through the governance review that first started in 2013 and was then stalled until shareholders started agitating for change last year.

Fonterra chair John Wilson said he’s hoping farmers will support the draft proposal which stops short of cutting the board as much as some wanted but is aimed at ensuring it has people of the best capability and quality. There had been criticism some board and council members were simply “passengers”.

Wilson said farmer feedback was that the 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.

Under the draft proposal farmers will still comprise the majority of the board with six representatives compared to the current nine, and the chair will continue to be a farmer representative.

Three independent directors are required by law and the remaining two director spots could be either farmer or independent representatives depending on the skills required. The new process for electing all directors would include a skills matrix on what skills the board needed in those being elected, given that could change over time, and a certain number of directors would have to have “on-farm experience”.

The selection process would involve a nominations committee putting forward candidates and the short list would go through a new independent expert panel comprised of Chris Moller and Therese Walsh from New Zealand, Michael Cook from the US and Adrie Zwanenberg from the Netherlands.

They’ll make an independent assessment of the candidates before the board makes a final decision on names which would then require the support of 50 percent of shareholders at the annual meeting. One of the major differences from the current system is that if there were three spots open, only three candidates will be put forward to vote on.

Wilson wouldn’t be drawn on what’s likely to happen to the incumbent board if the changes are approved and then implemented at the next annual meeting. “We’ll consider that once we make a final recommendation,” he said, including whether all 13 directors would need to stand for re-election.

Under the conservative governance changes, the role of the shareholders council and the board would be more clearly defined, and an interface document published to make it clear to farmers the level of regular interaction between the two.

The review feedback, which involved around 2,000 farmers, was that they wanted to maintain 100 per cent farmer control of the cooperative and a separate council and board.

Former Fonterra director Greg Gent said, prior to the draft being released, that the more urgent step was a massive change to the Fonterra council which was set up to provide a constructive challenge to the board but “that’s not what they do”.

However a review of the shareholders’ council structure has been delayed until after the vote is taken on the board rejig and the cooperative wouldn’t say how long that subsequent review might take.

Farmer feedback has been it could be time to reconsider the size of the council and whether to elect some people with a national role rather than the current one representative from each of the 35 wards. The constitution allows for between 25 and 45 council representatives.

There was a desire expressed to get more younger farmers involved in the future of the cooperative and the review includes developing better pathways for election to both the council and the board.

It’s also been suggested to change the eligibility criteria for standing as a director to reflect new farming ownership structures as those in limited partnership or family trusts currently can’t stand.

BusinessDesk.co.nz

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