Fonterra's change of guard

Sir Henry van der Heyden. File photo / Kenny Rodger

Australasia's highest paid bank executive, Sir Ralph Norris, will become a director of dairy giant Fonterra, while its chairman Sir Henry van der Heyden plans to step down after more than a decade on the board.

New Zealander Norris retires at the end of this month as chief executive of the Commonwealth Bank of Australia - where he was paid A$12.5 million ($16.4 million) during the 2010/11 year - and will join the Fonterra board in May next year.

Chairman Sir Henry van der Heyden said that before his role at the Commonwealth Bank, Norris had led an impressive turnaround of Air New Zealand and had earlier in his career headed ASB Bank.

"Sir Ralph is an outstanding New Zealander with a superb international track record at the highest levels of business," van der Heyden said.

Van der Heyden, who has been on the board of Fonterra since its formation in 2001, said he would stand down as chairman at next year's annual meeting.

Under Fonterra's constitution the new chairman must be a farmer-elected director, which would exclude appointed directors such as Norris.

The board had put a process in place two years ago to appoint a new chief executive and identify the next chairman, van der Heyden said.

"I stood for another term because it was important we had stability through the transition to a new CEO," he said.

"That has gone very smoothly and a year from now our new CEO, Theo Spierings, will be into his second year.

"Then it will be time for a new chairman."

Federated Farmers Dairy chairman Willy Leferink said van der Heyden had been instrumental in creating a forward thinking and world-beating company.

"The simple fact is that Sir Henry has moulded New Zealand's largest company that remains co-operatively Kiwi-owned," Leferink said.

It had been a year of evolution at Fonterra, starting with the arrival of Spierings who replaced Andrew Ferrier.

"It's an evolution now reaching the board table with the exciting news yesterday of the shareholders electing Fonterra's first ever Maori director," he said.

"Taranaki's David MacLeod is a young and gifted dairy farmer who will bring his skills and knowledge to the board table."

Van der Heyden gave the co-operative's farmer shareholders an update on a planned capital structure change yesterday.

The co-operative is planning a change - last year given 89.85 per cent support by farmers - aimed at removing redemption risk and providing permanent share capital, with farmers buying and selling shares among themselves rather than with the company.

The company needed permanent share capital, van der Heyden said.

"We simply can't run Fonterra to its full potential, and achieve the best returns for farmers, with money washing in and out of the balance sheet."

Farmers would be able to place shares with a new Fonterra Shareholders' Fund, which would pay them for the rights to dividends and the change in market value, while the farmer retained voting rights.

Some shareholders were concerned farmers would not hold legal titles of shares they placed with the fund, van der Heyden said. It was proposed that a custodian, which would be a fully owned subsidiary of Fonterra, would hold the legal title to those shares. From the company's perspective ownership remained firmly with farmers because they owned Fonterra, he said.

Amendments to the Dairy Industry Restructuring Act were expected to be introduced into Parliament in the first or second quarter of next year and the changes were expected to take effect in late 2012.

Fonterra's forecast payout before retentions for this season was $6.70-$6.80, down 45c on the opening forecast and down about $1.50 on the previous year.

However, van der Heyden said there had been a strong start to the season with a long stretch of favourable weather leading to record milk flows across the main dairying regions.

Who's next?

Sir Henry van der Heyden
* Fonterra chairman since 2002.
* Stepping down at 2012 annual meeting.
* Directorships include Auckland Airport.

Possible successors include:

Colin Armer
* Elected to the board in 2006.
* Director of Dairy Holdings.
* Dairy farming interests in the North and South Island.

Jim van der Poel
* Elected to board in 2002.
* Chairman of the Spectrum Group of Companies.
* Farming interests in Waikato, Canterbury and United States.

John Wilson
* Elected to the board in 2003.
* Chairman of South Auckland Independent Testing Society.
* Lives on his Te Awamutu dairy farm and manages a South Canterbury farming business.