Co-op’s review plan ‘underwhelms’ critics

The first director meetings start on Tuesday; Fonterra chairman John Wilson and other board members will attend meetings around the country.

This month Fonterra released a discussion booklet titled 'Let's have the Conversation', outlining the board and Fonterra Shareholders Council views on governance.

Two former Fonterra directors – Greg Gent and Colin Armer - last year led a campaign to revamp the 13-member board.

A motion calling for the board to be reduced to nine elected directors was supported by 54% of farmer votes, but it failed to get the 75% support needed to force a constitutional change.

When approached for comment last week, Armer told Dairy News he had just returned from holiday and didn't have time to read the booklet. He says the initial reaction from his colleagues was that the proposal was "underwhelming".

In the booklet, the governance and representation review committee notes that it has spent more than a year benchmarking the co-op's governance and representation against what was considered world-class at the time and made a series of recommendations to the board.

"Their good work provides a strong platform from which to have a quality conversation about how best to evolve our structure, fine-tune our systems and adapt our skill set to meet the future demands of our cooperative," it says.

The committee is asking farmers to decide the right model to take Fonterra into the future.

"How do we provide for the roles and responsibilities of our directors, the skills we want to have at the board table, the balance between farmer and independent directors and the processes for bringing them onto the board?

"With representation we need to talk about the role of the Shareholders Council as the cornerstone shareholder, how we can improve farmers' sense of ownership and pride in our cooperative, and how farmers' interests can best be communicated back to our board?"

The committee notes that Fonterra has had the same governance and representation structures since it was established nearly 15 years ago.

"A lot has changed since then. Our revenue, assets and shareholders' equity have all increased considerably. Our international presence has increased with milk pools in Europe and China. Trading Among Farmers provides farmers with financial flexibility and improved information on our cooperative's strategy and performance.

"Fonterra's business strategy has also evolved, and was refreshed in 2013 with updated priorities."

Aiming for top spot

Fonterra's governance and representation review committee says the co-op wants to be the number one global ingredients supplier.

It is already the largest but wants to be number one among key customers.

Ingredients is the cash engine of our business, underpinning the farmgate milk price and contributing to the dividend, so success here is important for our farmers' success, it says.

"We are also aiming to be the number one or number two consumer and foodservice business in eight strategic markets – New Zealand, Australia, Sri Lanka, Malaysia, Chile, China, Brazil and Indonesia. Success with these goals means we can grow our value returns which will flow through into the dividend.

"We are an $18.8 billion business today and we are aiming to become a $35 billion business by 2025. As we grow, we need to consider how we keep secure access to milk in other countries, at competitive prices. It is important to have stronger governance and representation to support these goals."