Fonterra chief breaks silence

John Roadley tells agricultural editor PHILIPPA STEVENSON that he wants overseas experts on a reduced board.

Fonterra chairman John Roadley is keen to cut the size of the mega dairy co-op's board, or at least to increase the number of independent directors.

Mr Roadley has been reluctant to discuss company issues publicly, but he changed tack yesterday to speak out on the performance of the $12 billion company.

Fonterra's performance was catapulted into the limelight last month by the shock resignation of independent director Mike Smith.

Mr Smith's departure after barely four months raised widespread concern when he criticised the company's governance, saying he feared it would not reach its potential.

He favoured a smaller board of nine, with five farmers to four independent directors.

Mr Roadley told the Business Herald yesterday that he too believed a 13-member board was too big to be efficient.

He favoured a board of 10 or 11 members. If shareholders did not approve a reduction, then independent directors should be immediately increased to four from three.

"I think we need some New Zealand-based directors but we also need some international experts, and it is hard to have that with just three slots."

The changes would require 75 per cent shareholder support, which Mr Roadley acknowledged would be difficult to get.

Having the skills to run the company was much more important than having numbers, he said.

"But until they are [skilled], then there is safety in numbers and farmers will gravitate to more rather than less.

"So I don't think there is any point in pushing that barrow too hard."

Fonterra directors will attend a two-day workshop on governance on Thursday and Friday after a review Mr Roadley started last year.

He said the workshop's aim was to develop "a decent board work plan", including its role, functions, the expected quality of board papers and key performance indicators.

Mr Roadley said he was disappointed Mr Smith had not stayed to see the review completed.

"I'm disappointed because I think he reacted too quickly and didn't give us a chance," he said.

"Fonterra has come together so jolly quick. Everybody else is really looking forward to rolling up their sleeves and getting involved."

He alluded to the boardroom quarrels, reportedly between directors from the former rival companies Kiwi Dairies and New Zealand Dairy Group, which prompted Mr Smith's resignation.

"We're a new team," he said. "We've only just come together. We spent the most of last year negotiating with each other."

It had been "a hell of a job" getting the previously warring companies to merge following the farmer vote last June approving the formation of Fonterra.

"Then that damn 'Powdergate' thing came a long and people were still reserving their [merger] position [until mid October]. So we haven't really come together and said, 'Now, what are we going to do?"'

Mr Roadley would say little about the Powdergate illegal exporting scandal, which is still being investigated by the Ministry of Agriculture and Forestry.

But he revealed that a key figure in the saga, Australian Terry Walter, who headed Kiwi subsidiary Cottee Dairy Products and whose New Zealand company, SPD, channelled product out of the country, was not a Fonterra employee. The company had not previously divulged Mr Walter's position.

"He's gone," said Mr Roadley. "We knew who we wanted in the business and who we didn't."

He said Mr Smith would be replaced on the board as soon as possible. The vacancy could be filled by someone "with good connections" in Australia, where Fonterra had major investments.

But equally the deciding factor could be the company's extensive interests and market potential in Asia or Latin America.

Speculation has been rife about Fonterra's next move in Australia, including a suggestion that the company is missing the boat by moving too slowly.

But Mr Roadley said Fonterra had concentrated on pulling together the different Australian investments held by its formation companies.

It had not developed a merger and acquisition strategy but "there is no panic, no value has been destroyed".

Fonterra also had to establish an overall strategy. It needed to marry the twin demands of the co-operative's requirement to take and sell all its shareholders' milk with being market-led.

"We've got to get a real, solid understanding between the board and the management team about what we're going to do in that area."

The result would be the "Fonterra Way", he said.

"Now we have a fully integrated business, the relationship between the board and the senior management is a bit like Team NZ.

"We have to make the boat go faster. We have a shore team that is the board, and the boat deck team, which is the management.

"How are we going to make this work? What levels are we going to interact, what is the board going to lead, what will the management lead, how will we structure the relationship?

"We can only start that now because the full complement of the senior team is here."

nzherald.co.nz/dairy

International Dairy Summit