Bid to trim Fonterra board size spurs hot shareholder debate

Bid to trim Fonterra board size spurs hot shareholder debate

By Fiona Rotherham

Nov. 25 (BusinessDesk) - A proposal to slash the size of the Fonterra Cooperative Group board from 13 to nine came in for hot debate by shareholders at the cooperative’s annual meeting in Waitoa today.

Former directors Colin Armer and Greg Gent put forward the suggestion for a smaller board in order to make a “fitter, leaner, more agile Fonterra”, saying the move would improve board efficiency and decision-making. The pair said boards with double-digit numbers were rare and having six elected board members and three appointed would ensure there were “no passengers on board”.

The resolution received 54 percent support from postal and electronic voting and a resounding applause from shareholders at the meeting but to succeed, it needs to achieve 75 percent support from voting shareholders along with 50 percent support from shareholder councillors.

One shareholder Phil Guest said the proposal was unlikely to get the required number of votes but he urged shareholders to give the 54 percent already voted in favour “a nudge up a bit” so board and management get the message that change is sought at a time “when suppliers were going broke.”

The resolution was opposed by the board and Shareholders' Council, which both said a governance review underway was a better option. Shareholders have been told the review will see an information booklet sent to them early next year, farmer consultations in February, and a May/June vote at a special meeting.

Armer questioned why the governance review, first promised at an annual meeting three years ago and then sidelined, had been so hastily resumed once the resolution was put forward. He also said the board had misrepresented the resolution in the board papers by saying it would involve all directors standing down at once, when in fact independent directors would remain in place to ensure continuity of business.

Director Malcolm Bailey said external advice and a lot of work had been done on the governance review and it had been ready to take it to farmers for consultation, but the botulism scare occurred and the decision was made to shelve it for a while.

“We felt there was no burning platform, but it is clear from this that there is a roughly 50:50 split from shareholders on this and we now have to find a way to bring you all back together and find a proposal that can get wider support,” he said.

Gent said the current structure deterred many good quality and experienced directors from seeking appointment when other dairy companies and cooperatives had been able to attract high calibre people. While 75 percent support was a huge ask, Gent said he was "more confident that this issue will now be finally addressed.”

Fonterra chairman John Wilson said shareholders had to “take the time to get it right” and it was important any review be comprehensive and that representation is looked at in its entirety rather than focusing on just one aspect such as board size.

The Shareholders’ Council said the resolution involved a “significant and unnecessary risk” to the cooperative and didn’t allow sufficient time for shareholder consultation.

Shareholders were also asked to vote on a resolution keeping directors’ remuneration at the same level as last year though one shareholder questioned whether the board had considered dropping it given the depressed global dairy prices and lower farmgate payout.

The chairman receives $405,000 annually while each director is paid $165,000 per annum. At the board’s discretion, the chairs of board committees are paid an additional $31,000.

Earlier, council chairman Duncan Coull said when times were tough it was easy to start questioning the purpose of the cooperative but they had to “stay united” and work collectively to overcome any challenges. However, the council was looking for a significant uplift in the returns paid to shareholder farmers.

Fonterra aims to add more value to the milk collected and the first quarter returns for the 2016 financial year showed that strategy was now starting to pay off after substantial investment funded by shareholders, he said.

Coull said the 50 cents per kilogram of share-backed milk solids loan being offered to farmers until the end of December was important, using Fonterra’s balance sheet strength to “help out farmers when they need it most”.

But one shareholder said she would rather have an extra 50 cents in the farmgate payout than a 50 cent loan, and she questioned why in 2015 farmers received one of the worst payouts in Fonterra’s history when other New Zealand dairy companies, faced with the same challenging market conditions and global volatility, had managed to pay more.

(BusinessDesk)

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