A reduction in the number of farmer-directors on the board of Fonterra is an option being considered by the dairy giant’s leaders as part of a review of governance and representation.
The option for farmer directors to be reduced from nine to eight and the number of independent appointed commercial directors increased to five has been confirmed by Fonterra Shareholders Council chairman Ian Brown as on the table for scrutiny by a working group of Fonterra board members and councillors.
Terms of reference for the governance and representation working group were drawn up a year ago. Confirmation that the governance ratio is under the microscope has sparked calls for Fonterra leaders to give farmer-shareholders «some peace» after the bruising two-year debate over the introduction of share trading among farmers (TAF) which deeply divided the co-operative.
TAF is on track for introduction before year’s end and Fonterra chairman Sir Henry van der Heyden yesterday said the prospectus would be released next week.
Waikato farmer Martin Bennett said he voted for TAF but the timing of the governance review was «not smart» and could further erode farmer confidence when TAF had yet to be embedded.
Federated Farmers dairy chairman Willy Leferink said it was important that governance be evaluated but farmers needed «some peace in the camp. It’s the time for the new chairman (chairman-elect John Wilson) to get his feet under the table. They keep plugging away at shareholders – it’s time for some peace, some stability.»
Van der Heyden and Brown formally advised the farmer-owned company’s 10,500 shareholders of the working group’s existence in an email on Friday, after Canterbury shareholders challenged van der Heyden on future farmer director representation at a recent meeting held in Ashburton.
Van der Heyden told the Waikato Times the 8:5 ratio was just an option, and that no proposals were on the table.
The email said the working group «will anticipate the types of governance and representation our co-op will need as the business grows over the next five to 10 years».
It suggests van der Heyden is eyeing an additional non-farmer director, explaining Fonterra needed experienced appointed directors to help it achieve strategic priorities.
«A good example at the moment is that we recognise that the board would be well-served with an appointed director who has deep knowledge and experience of the Asian/Chinese market.»
Asked why it might be necessary to cut farmer-director numbers in order to strengthen independent director governance, van der Heyden said it was too early to discuss specifics because «everything is an option» and the working group was «getting all issues on the table».
TAF, narrowly voted in by farmers earlier this year, will involve offering the public sharemarket-listed, dividend-carrying units in farmer-owned shares as a means of giving Fonterra permanent capital.
Currently the company has to trade its farmers’ shares. Two markets will be established – one for farmer share trading, the other for NZX unit trading under a Fonterra Shareholders Fund.
News of the governance review follows Fonterra’s announcement last week of the establishment board to manage the fund company, which re-ignited TAF opponents’ fears TAF is a stalking horse for a full sharemarket listing of Fonterra and loss of farmer control and ownership.
The fund board has just one farmer-director, Waikato’s Jim van der Poel, and in future unit investors will decide its majority composition.
South Canterbury farmer Leonie Guiney, a campaigner against TAF, urged farmers to «wake up» to the control issue.
Guiney said farmers had to enshrine in Fonterra’s constitution that the company would always be chaired by a farmer because only a farmer is dependent on the milk price Fonterra’s performance delivers for the bulk of their income.
Fonterra’s chairperson should be elected by farmer-elected directors only as a means of maintaining the co-operative ethos.
Waikato farmer Dean Bailey said it would be «naive» to assume farmers had all the skills required for the board of a multinational company.
But farmers would be concerned to ensure that farmer-shareholder interests were not eroded. «Proceed with caution I’d say.»
Bennett said he had «expectations of TAF I want to see achieved».
Fonterra needed «to take stock», he said.
«We’ve got to get the pace right, our priorities right. We need to get TAF well and truly embedded, to see this on the table (already) is not smart.»
Source: Stuff
