Greg Gent and Colin Armer, in a submission to the committee overseeing Fonterra’s governance and representation review, said 54 per cent of shareholders voted last year for a much smaller board than the proposal suggests.
They also claimed the proposal threatened farmer control of the co-operative, effectively giving the reins to the chairman and appointed directors.
«Eleven directors is simply too many. There is much empirical evidence that groups in single digit numbers work better and are way more efficient.
«The rationale for board size is director workload. To accept this rationale, shareholders will need to be convinced that there is in fact a lot to do. Having served on the Fonterra board we reject this premise. Rather we suspect that directors are getting increasingly involved in areas that are the domain of management. Board size should always be driven by the most effective group size, not workload.»
The pair questioned how, if the workload was so heavy, a number of directors could hold down jobs and/or multiple other directorships.
«There is a real disconnect in the paper (proposal) that requires an explanation in this area.»
Gent, a former deputy chairman of Fonterra, and Armer campaigned last year for a review of Fonterra’s leadership structure, citing «serious» milk supply loss to competitors and an unacceptable level of commercial performance.
They called for farmer-elected directors to be cut from nine to six and appointed directors from four to three, claiming a smaller board would ensure all directors were accountable for performance and that there were no «passengers».
At the farmer-owned co-operative’s annual meeting, they got 54 per cent backing, not enough to push through a constitution change, but a clear message to the board. The board and the 35-member Fonterra Shareholders Council voted against the remit, on the grounds that a governance and representation review was already under way in the background, with a report due early this year. This was apparently news to many shareholders at the time.
Council chairman Duncan Coull, who is on the review committee, said he wouldn’t comment on the Gent-Armer submission till later today.
The submission said the review proposal to have a majority of six farmer directors, including the chairman, challenged farmer control. The board now has nine farmer directors and four appointees.
«If we need more appointed directors does that mean the farmer-elected directors are not performing? We believe the current ratio of farmer and independent directors must be maintained if we are to live the mantra of farmer control. Under the proposal the chair and appointed directors effectively have control.»
Gent and Armer said they supported a third-party assessment of candidates by a qualified organisation and the concept of a skills matrix.
«We however reject the suggestion that shareholders give up their direct vote.»
The former directors said the «most predictable but most disappointing» part of the proposal related to the council.
«We are told this review has been going on for close to four years. We are now expected to wait another 18 months for the council to review themselves. Council costs us all millions per year in direct costs and we are sure a comparable sum in indirect costs, management time and focus…»
They said shareholder information could instead be provided to the board by Fonterra’s «very capable» field team.
The role of the council should be firstly and most importantly to monitor the performance of the board, appoint the milk commissioner, run director elections and other housekeeping constitutional requirements.»
Diversity on the council was as much needed as at board level, said the submission.
The council need only meet four times a year.
«Council is not a training ground for governance. It is a representative group, not governors. There should be a compulsory stand down period of five years before a councillor can stand for the board. This will ensure councillors act in the interests of shareholders before they act in the interest of their own governance ambitions.»
Source: Stuff
