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Fonterra farmers told to consider more independent directors

Monday 11th November 2019

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Departing Fonterra Cooperative Group director Simon Israel told shareholders in his farewell address that it might be time for them to consider beefing up the number of independents on the board.

The Singapore-based director ended a six-year stint on the board, offering his impressions on how the dairy cooperative’s future stacked up.

Fonterra chair John Monaghan came in for some stern criticism at last week’s annual meeting, given his tenure through the now-dumped drive to collect 30 billion litres of milk in five or six different pools worldwide by 2025.

However, Israel – a veteran director who currently chairs Singtel and Singapore Post – told shareholders that Fonterra’s governance frameworks and processes were comparable to any world-class listed company.

“Where I see the challenge, in terms of understanding the role of boards, is that too often governance is confused with judgement,” he said.

Because management will always know a business more intimately than directors, the executive team’s judgement was the first port of call, whereas the board’s role is secondary in testing management and deciding to either accept their recommendations or say no, he said.

That sounded basic, but experience across a variety of companies was mixed, he said.

For Fonterra, Israel said independent directors, such as himself, bring skills and experiences to complement those of the farmer directors.

“Perhaps a point of reflection for the future is whether Fonterra would benefit by having a greater number of independent directors around the table,” he said.

However, the most important decision a board ever makes is appointing the chief executive, and Israel said he was a strong advocate for Miles Hurrell, who he said moved quickly and directly to make significant progress in a very short period of time.

“I’m not going to comment on the past, but do want to strongly endorse Miles’ importance and the pivotal role he plays,” he said.

Israel also backed the current strategy to ditch a grandiose plan of building global milk pools in pursuit of volume, and instead focusing on extracting value from the domestic collection.

That was because it was grounded in reality and not overly aspirational, played to Fonterra’s strengths in creating value from its shareholders’ milk, and didn’t need as much capital.

“The strategy has significantly lower risks and will suggest lower volatility,” he said.

“Importantly, I have confidence in management’s ability to execute on it.”

Fellow independent director Scott St John, whose reappointment was ratified with almost 90 percent support, told shareholders that he was enormously energised by what the cooperative was doing and had “enormous conviction” that it was on the right path.

“I would not be here if I did not.”


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