Fonterra shareholders have given a bruising thumbs-down to the performance of a $50 million farmer council guarding their interests in New Zealand's biggest company, according to a report they've been asked to keep secret.
A group doing an in-house review of the performance, relevance and functions of the farmer-elected Fonterra Shareholders' Council has issued its interim report, garnered from just over 1400 responses to a survey of shareholders.
On the issue of representation and the council's function of acting as if it was the $20 billion annual revenue co-operative's cornerstone shareholder, 60 per cent of respondents rated the council's performance to be less than "moderately effective".
On the council's job of monitoring farmer-owned Fonterra's direction, performance and operations against set targets, 55 per cent rated its performance to be "less than average".
An overwhelming message was that the council's monitoring role "must be independent and effective at holding the board to account", said the report, with much more feedback on this issue than on any other.
A key theme was the council needed to be, and be seen to be, independent of the Fonterra board, "be a watchdog, not a lapdog", said the report.
A perception that the council lacks spine and has been an echo-chamber for Fonterra board thinking has been a frequent criticism in recent years. It peaked with Fonterra's disastrous financial results in 2018 and 2019, and at last year's annual meeting the council narrowly saw off a shareholder challenge to put its performance under an independent and professional microscope.
A group of Waikato shareholders has been vocal about wanting the council scrapped saying it is irrelevant in today's business world and costly, but the report said less than 10 per cent of survey respondents agreed with that.
The 25-member council has cost farmers about $50m to operate since it was set up as a shareholder watchdog when Fonterra was created under special enabling legislation 19 years ago.
The report opens with a note it should not be distributed further "eg to the media" as this could undermine trust among respondents. The 22-page report carries no respondent names.
Given Fonterra has 10,000 or so shareholders, who according to the council last year had experienced more than $4 billion of wealth destruction in the past two years, it was a forlorn hope.
The directive also ignores the fact Fonterra has non-farmer, non-voting investors in sharemarket-listed units who are doubtless interested in what farmer-shareholders are thinking, given farmers have long been critical of the council's lack of influence on the Fonterra board.
The steering group comprises independent chairman James Buwalda, a former senior public service executive, four farmers picked by new council chairman James Barron, two councillors and two Fonterra directors.
The group's own report said there was a "huge" amount of survey feedback on the subject of the council's influence with the board, with themes including "criticism of the council's apparent failure to hold the board to account and its lack of influence regarding board strategy and investment decisions that haven't delivered value for them".
"Council needs to get much better standing up for shareholders, informing and influencing the board, and ensuring the board understands shareholders' interests (and stresses)," was the feedback said the report.
"It needs to be more robust, show more courage, and be able to ask the 'hard' questions of the board. Some respondents suggested the council should have the authority to do due diligence on major capital investment proposals.
"To be able to do its job effectively, the council must have better access to board information."
Shareholders were also surveyed on two other council roles - farmer connection, which is representing shareholders' views to the board, and guardianship, acting as guardian of co-operative principles and approving changes to Fonterra's mission statement and values.
The report said 55 per cent of respondents scored the council's effectiveness at farmer connection to be less than average though 80 per cent said it was of some importance to very important. On guardianship, which 81 per cent rated to be of some importance to very important, 41 per cent rated the council's performance as less than average.
Former council chairman Duncan Coull, in the job from 2015 until late last year, said he had been too busy to read the report and would not comment regardless. New chairman Barron has been approached for comment.
The review group will consult with farmers on options for the council from mid-September and make a final report by the end of November.