14 Apr 2016

Board plan could distance Fonterra from farmers

1:40 pm on 14 April 2016

Fonterra has announced its first major governance overhaul in 15 years, with plans to cut the size of its board, but an agribusiness commentator says the plans could distance the company further from its farmers.

Fonterra emailed farmers yesterday saying it wanted to overhaul its governance structure and reduce the number of directors from 13 to 11 - at least six of whom would be farmers.

Professor of agribusiness at Waikato University Jacqueline Rowarth said while farmers would be the majority on the board, the definition of "farmer" had changed to include shareholders in a company that had a shareholding in a farm.

"Its less hands-on people who actually understand what's going on on farms and therefore removing really the suggestion that the majority of the board gets their main income from the farm."

Prof Rowarth who lectures at Waikato University and is a Fonterra shareholder, said the plans also made the voting system more complicated.

Greg Gent, who drove calls for a reduced board, said the plan was a step forward but farmers could wind up with less voting power.

"The issues I think will be around farmer control and the ratio of farmers to appointed directors and how they vote. Farmers, as I read it, are technically giving up their very direct vote on directors. That will need some discussion."

Mr Gent said the new process would replicate what other boards did, where they identified the skills they wanted in board members, got an external consultant to make a shortlist and that shortlist of preferred candidates went to the annual meeting for voting.

He said the old process was failing and needed to change but he needed time to consider the new proposal.

He also said the plan tinkered with the shareholders council but that too needed an overhaul.

"The council back when it was formed was actually quite an aggressive group of people that held the board very strongly to account and a fair bit of that was done under John Wilson when he chaired the council.

"It's now morphed into what I would call a totally compliant body. I couldn't think of the last time it opposed the board on anything."

Fonterra chairman John Wilson said it did a very good job of holding the board to account.

"If they [shareholders council] are not comfortable with that information they can call a special meeting, call for a special report. I can assure you that there is no shortage of challenge from the council."

However, he said the council would be reviewed.

He said the aim was for a more transparent board with the most capable people.

Shareholders will vote next month on the plan, which requires 75 percent approval.

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