Former director queries Fonterra's performance

By PHILIPPA STEVENSON

A year on from his shock resignation, former Fonterra director Mike Smith gives his old firm a mixed report card.

A highly experienced commercial director, Smith created a storm that blew right up to Prime Minister Helen Clark this time last year when he quit the mega dairy co-op barely four months after its launch.

He left questioning the make-up of Fonterra's board and fearing that the company, which provides 20 per cent of the country's exports, was heading for mediocrity.

He hoped his resignation would trigger change.

Asked yesterday if his departure had achieved the desired effect, he said: "It's not over yet. I think the process of change is [still] going on."

A year ago Smith believed Fonterra's 13-member board was too big, had too many farmers and too few members with wider commercial experience.

A subtle change to nine farmer and four external directors - from 10 and three - had been beneficial but an smaller board and a different skill mix would be better, he said yesterday.

But the daunting task of convincing 75 per cent of its 13,000 farmer shareholders of such changes meant the board had done as much as it could, Smith said.

Farmers had the chance to make further changes when a third of the elected directors retired this year.

"In terms of skills, [Fonterra] needs people with broader business experience," Smith said.

It could do better than some of the present incumbents, he said, declining to nominate those he thought were not making the grade.

Up for election this year are directors Marise James, Richard Booth and Harry Bayliss.

Smith rated new chairman Henry van der Heyden highly.

His predecessor John Roadley deserved credit for achieving the merger of New Zealand Dairy Group and Kiwi Dairies with the Dairy Board but van der Heyden was "a better person to take the company forward".

The outperformance of Fonterra by the small Westland and Tatua dairy companies was more worrying.

To succeed, Fonterra had to be world class and critical to that was being top class in its home patch.

"There aren't that many companies around the world that are of real scale and importance in their industry that don't have a very strong home base, however big that home base may be," Smith said.

He dismissed suggestions that comparison with top-paying but much smaller Tatua were no longer valid.

If the much greater volumes of milk Fonterra processed precluded it from following the same high-tech, high-paying path as Tatua "then you should be breaking Fonterra up". "That is the corollary of it and no one believes that. There are very few industries - I can't think of one - where there aren't real significant economies of scale.

"The fact that you've got a niche player there doesn't mean that they should - on a kilogram of milksolids basis - significantly outperform you year after year. There may be years when they do it but not on a sustainable basis."

Fonterra chief executive Craig Norgate's two-year contract ends in June and Fonterra has begun a worldwide search for candidates. Neither the company nor Norgate has said whether he will apply.

Smith supported the search - a condition of the chief executive's position which pre-dated Norgate's appointment - because "the last process was, at best, mediocre".

"You can't have anything but the best and if Craig ends up the best, [then] good."