Plan to reduce Fonterra board of directors to be put to a vote

Fonterra is New Zealand's biggest business, collecting nearly 80 per cent of the country's raw milk. Photo / Michael Craig

Fonterra’s weighty board of 11 directors could be reduced by two next year.

The big dairy co-operative is consulting its farmer-owners on a proposal to have nine directors while maintaining the current balance between farmer-elected directors and appointees, chairman Peter McBride said in an email to shareholders.

“As part of earlier governance and representation reviews, a commitment was made to review our board size and composition in 2024. Since the co-op’s formation, it has been envisaged that the board size would be rationalised over time.

“With the capital structure review, asset divestment programme and long-term strategy work largely behind us, the board believes it is the right time to review its size and composition.

“Top line, we believe the board priorities for the coming years could be more efficiently delivered by a smaller board. Our current thinking is to reduce the number of directors on the board from 11 down to 9. The current balance between farmer-elected and appointed directors would be maintained, with a composition of six farmer-elected directors and three appointed directors.

“As is the case today, the chairman would still be selected from within the pool of farmer-elected directors.”

McBride said the company planned, after consultation with the shareholders’ watchdog, the Fonterra Co-operative Council, and farmers, to put the idea to a vote at the company’s annual meeting later this year.

He noted the Institute of Directors recommended, as a general rule, a board of six to eight directors for medium to large companies.

“Fonterra’s global scale makes us an outlier.”

Fonterra is New Zealand’s biggest business, responsible for the majority of the dairy industry’s $26 billion export earnings, and the world’s ninth-largest dairy company by revenue.

“My personal experience leading or being part of leadership groups is that in smaller groups people are more engaged and able to share their perspectives in a more meaningful way,” McBride said in the email, which was posted on the NZX.

“Smaller groups encourage greater sharing of dissenting ideas and opinions – which is a good thing – and are proven to support faster, robust decision making.

“Having now been part of the co-op’s board for five years, the last three as chair, I’m confident that reducing the size of our board will improve the dynamics within the group, encouraging greater participation from directors, and maintaining access to the necessary skills and experience to govern the co-op into the future.

“When thinking about the right size of the board, that balance is important. We want to increase efficiency and avoid ‘group think’ whilst retaining an appropriate level of skills and capabilities, as defined by our board skills matrix.

“As well as the size of the organisation, optimal board size is also informed by the associated workload requirements. The changes in our governance framework, with changes to our board subcommittees and no requirement for an independent director to chair the Milk Price Panel, also support the concept of a smaller board.

“Through the previous governance and representation reviews, it was clear that a strong farmer-director majority on the board was important to farmers, alongside the other elements of farmer control.”

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.