Searching for the Fonterra Way

By PHILIPPA STEVENSON

Fonterra chairman John Roadley says the mega co-op is searching for a unique boardroom style and balance dubbed the "Fonterra Way".

The concept, Mr Roadley told shareholders by letter, was his "immediate, number one project".

His message went to the company's around 14,000 shareholders amid mounting concern over how the board was functioning, sparked by the sudden resignation of independent Fonterra director Mike Smith. Mr Smith feared the company would be be hindered without boardroom changes. He stands down today after barely four months.

Yesterday, after a meeting with Agriculture Minister Jim Sutton, Mr Roadley dismissed the criticism of the company's governance as "a storm in teacup".

"There's no reason to suggest that the Government is in any way concerned about [governance] apart from the fact that we're obviously in a glass house and a fair target for people who like to chuck rocks at us," Mr Roadley said.

He had given Mr Sutton no reassurances because it was not the subject of the meeting. He said exchanges between the two would become increasingly regular.

But a company insider said yesterday that being in the spotlight would force Fonterra's board to deal with issues, including factional fighting, that would otherwise have been left to fester. Mr Sutton declined to comment on the meeting.

In last week's letter and again yesterday, Mr Roadley said Mr Smith's departure had created a "frenzy".

"From where I sit, it is unjustified and most of it is overplayed hype with a good dose of classic, tall poppy syndrome," he told shareholders.

He defined governance as "control processes" and for commentators and critics to suggest the company had control problems was a gross overstatement.

"Through all the alleged governance problems, not a beat has been missed, not a ball has been dropped. To me this does not look like mediocrity," Mr Roadley said.

After 10 months preparing for the merger of Fonterra's constituent manufacturing companies and statutory monopoly marketer - New Zealand Dairy Group, Kiwi Dairies and the Dairy Board - and four months establishing the new company, discussion about the "Fonterra Way" for the future was now due, he said.

Directors would establish a "boardroom style and balance" appropriate to lead the new company.

"Every board is unique; board styles are shaped by complex interactions of company traditions, personalities and the pressure of events of the time.

"While most of our views are based on our experiences, what has apparently worked for any of us in the boardrooms ... in the past may not be best for Fonterra now and in the future," Mr Roadley said.

Directors are to meet for a two-day workshop on governance next week and shareholders would be able to discuss the same matters at meetings the following week.

Meanwhile, Peter Jensen, chairman of big fertiliser co-operative, Balance AgriNutrients, and rural community-owned insurer Farmers' Mutual, has disputed that large, farmer stacked boards lead to inefficient companies.

Critics have suggested that Fonterra's 13-member board, including no less than 10 farmers, should be cut to around nine and have a larger ratio of non-farmer directors.

In a guest editorial in Co-operatives News this week, Mr Jensen, a former deputy chairman of the Dairy Board, said that co-operative companies had particular challenges to ensure their governance matched best practice standards.

"We must acknowledge, however, that in the agricultural sector we have a range of co-operatives operating over a wide spectrum of activity that continue to deliver outstandingly to their respective shareholders," he said.

The skill and dedication of directors and managers had created co-ops which were market leaders in processing and marketing, fertiliser manufacture and merchandising.

The election, rather than selection, of co-op directors created challenges for continuity of tenure and skill range, Mr Jensen said.

"For this reason it is sensible, and in my view desirable, for a cooperative board to be somewhat larger than is normally considered desirable to ensure that a sufficiently wide skill and experience base is present."

A large co-op should have up to 12 directors, not the accepted seven or eight of a corporate board, he said.

New co-op directors needed training and mentoring but "when added to the experience and down-to-earth common sense that most cooperative directors bring with them ... you have the ingredients for a first class contributor".