Shareholders seek board changes for leaner, fitter Fonterra

Two Fonterra shareholders and former Fonterra board members are calling on Fonterra shareholders to reduce the number of directors in a move to improve the company’s performance.

The two, Greg Gent and Colin Armer, have put forward a notice of proposal to the company’s annual meeting in late November seeking shareholder support for a reduction of board members from 13 to nine.

“We all want our cooperative to be more globally competitive and successful with a clear strategy to achieve that. Our farming businesses and livelihoods depend on that,” says Greg Gent who was formerly deputy chairman of the company.

“We believe that a smaller board is essential to improve the governance and performance of the cooperative. Fonterra has performed well below the expectations the farmers who voted to form it had at the time,” Mr Gent said. “Accountability for company performance begins at the top with the Chairman and board of directors.”

The pair say that the large board was never seen as the optimal size when Fonterra was formed. Rather it was a pragmatic number which facilitated the merger required to form the company in 2001.

Mr Gent says a smaller group of directors will ensure that all directors are accountable for performance with no ‘passengers’ on the board.

“Lack of confidence in the company is now causing serious milk erosion to competitors and the commercial performance of the co-op is at an unacceptable level on both the dividend and the share price.

“Continuing along the same path and hoping for a different result is unrealistic. So in our view a fundamental change is needed at the board level. That is also where we as shareholders can exercise our constitutional powers to make the changes we believe will benefit the company.”

Mr Gent said the Armer-Gent proposal would require the number of elected directors to be reduced from 9 to 6 and the number of appointed directors from 4 to 3 to give a total of 9 directors.

“We have discussed this proposal with a good number of our fellow shareholders and it has had overwhelming support,” Mr Armer said.

If it is successful their proposal requires the Shareholders’ Council to conduct an election for all six elected directors in March 2016.

Mr Armer said they did not want the process of reducing the number of elected directors to target any individuals such as those who may either have just been elected or who may be retiring by rotation.

“It is the role of shareholders to elect the best directors available and our key objective in proposing this process was to give every candidate a fair chance.”

Mr Armer said that trying to get the views of thirteen individuals aligned takes time and if every director chooses to express a view on a topic a lot of time is taken for each board decision.

“Our proposal is based on our knowledge and experience of boardroom dynamics,” he said. “It has been carefully considered so as not target any individual directors on the board. Our process has been designed to make sure that shareholders retain the absolute power to elect the candidates they regard as the best candidates for the job.”

The two say that large boards tend to slow down decision-making and point out that other New Zealand-based cooperatives have smaller boards, such as Tatua and Ballance each with eight, yet are high-performing companies.

They say that when Air New Zealand was rescued from collapse it had a board of thirteen; today it is a high-performing company with a board of seven directors. Amongst New Zealand’s top listed companies global transport company Mainfreight has six, Fisher & Paykel Healthcare seven and Fletcher Building has eight directors.

The pair say that, in their experience, top directors want to be part of a high performing, dynamic group in which they are able to make a solid individual contribution which is difficult in a group as big as thirteen.

“In recent times we’ve seen a couple of high calibre appointed directors depart early and we need to ask why,” Mr Gent said.

Mr Armer said the Fonterra board had promised shareholders three years ago that there would be a review of governance and representation but nothing had happened since.

“We think it’s vitally important to have a high functioning board of directors that drive a fitter, leaner company that is globally competitive,” he said. “At the moment we don’t believe that’s possible under the current board structure.”

The former directors say that neither of them would stand for election to the board as a result of this process.

The Armer-Gent proposal requires 50 per cent support from the Shareholders’ Council and at least 75 per cent of shareholder votes in favour.

“It’s a big hurdle but we’ve made sure that there are plenty of mechanisms for shareholders to discuss the proposition and its pros and cons before casting their votes,” Mr Gent said.

ENDS

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