Too much risk in remit to downsize

Mark Townshend, Ngatea, says a strong vote this week for the remit by former directors Colin Armer and Greg Gent could destabilise the co-op.

"It could also reignite the whole political stuff around the co-op," he told Dairy News.

Armer, a corporate farmer, and Gent, a company director, have put a remit to this week's annual meeting in Waitoa, asking shareholders to vote to reduce the size of the board, currently 13 directors -- nine elected and four appointed.

Fonterra's board and the Shareholders Council have rejected the motion.

Gent, who chaired Kiwi Co-op before it merged with NZ Dairy Group to form Fonterra, served as deputy chairman for the co-op under Henry van der Heyden. Gent retired from the board in 2011.

When van der Heyden retired in 2012 John Wilson became chairman, beating Armer in a close contest; Armer subsequently resigned from the board.

Townshend says while the old Kiwi Co-op/Dairy Group politics has "pretty much broken down", the Armer/Gent resolution could re-open political divides on different lines.

Townshend is voting against the remit but he's worried it might get sufficient support from farmer shareholders to make a more balanced and communicated governance review proposal over the next months, led by the board and council, difficult to attract the required 75% support. Townshend says he does not think the Armer/Gent resolution has "a hope in hell" of getting 75% support, but even at 40-50%, when proposed at an opportunistic time when farmers are financially hurting, just makes a more thorough and thought through governance review proposal a little harder.

"I'm worried they will get more support because people are angry with the company; they would vote for it because they could put one up the company."

Armer and Gent are unhappy with the performance of the co-op and want a leaner board to change its fortunes.

Townshend agrees Fonterra's financial performance and shareholder relations leave much to be desired. He also agrees that whatever Fonterra comes back with in its governance review, it is likely to have some elements of overlap with the Armer/Gent proposal.

"Fonterra looks in a bit of a bind in several ways; it does not have forever to sort it out," he says.

"They are actually spending a lot on pie-day Fridays and putting extra people in jobs to try to communicate, rather than solving the core root of the problem of having a real group of people running supplier relations – both governance and management."

Townshend says the resolution smells of politics despite what Armer and Gent are saying.

Current board is farmers' doing

Mark Townshend says farmers have only themselves to blame for the current makeup of the Fonterra board.

"It's a bit rich blaming the directors when shareholders themselves voted in the board. Over the last six years shareholders have voted in a new director each year; only one of those had a really good candidate assessment score (under the candidate assessment panel process). If farmers had supported the CAP process recommendation over recent years, only 4 or 5 of the current 9 shareholder Directors would be sitting around the Fonterra board table today.

"We need to look at how we get the right people onto the board; using a beauty contest to reduce the current board from nine to six elected directors is fraught with risk."

"There is no doubt that a board of nine in a perfect world would be better than 13. But what will happen if, of the proposed six shareholder directors, one is so inexperienced they add little value, one is there by past reputation and is just warming a seat, and one is some firebrand voted in by shareholders who will have zero impact around the table if they cannot work as part of a team?"