Up to three more Fonterra directors may resign because of concerns over how NZ's biggest company is run. PHILIPPA STEVENSON reports.
A second Fonterra director is considering quitting over his concerns about governance issues within the dairy giant's boardroom.
Dairy farmer director Mark Townshend said yesterday that he could resign if there was no change to key governance factors, including the size of the board, its composition and the range of skills among directors.
Industry sources suggest that at least two other directors have doubts about remaining on the board.
Mr Townshend's threat follows the shock departure of experienced independent director Mike Smith, who cited worries over governance matters at the barely four-month-old, $12 billion company.
Mr Smith said yesterday that without boardroom changes he feared Fonterra would be unable to fulfil its potential.
"I fear simply that Fonterra won't be the company that dairy farmers want it to be and voted for - or, indeed, that New Zealand hoped it would be," he said.
Fonterra chairman John Roadley said Mr Smith's resignation was "not a complete bombshell".
Mr Townshend said he was pinning his faint hopes for a turnaround on a review of the company's governance.
The Business Herald understands the review is being done by McKinsey consultants.
"I have concerns and if the review of governance doesn't deliver some changes then I'll be reviewing my position," Mr Townshend said.
If the majority of the board did not acknowledge there were problems the only way to deal with it might be "people power, or the shareholders council taking a leading role".
Industry sources yesterday suggested the board's problems went beyond the three factors identified by Mr Townshend and included leadership, the number of independent commercial directors, and the "scars" or legacy of animosity between Fonterra merger partners Kiwi and Dairy Group.
The board's handling of the $50 million "Powdergate" exporting scandal was another problem.
Former Federated Farmers leader and Waikato dairy farmer Malcolm Lumsden said it was vital farmers came to grips with what was going on in their company.
"This is the most serious situation that could have eventuated out of the merger.
"There is a crisis of confidence in the board among thinking dairy farmers at this stage and, frankly, if the matter is not straightened out shortly, I believe there will be a call for all board members to put themselves up for re-election."
The resignation of Mr Smith, one of the company's most able directors, was a disaster, he said.
"Short of [an election] we've got to see some strong leadership and governance from now on.
"The point is that the board has to run the company, not the chief executive and senior staff. I think that is the issue."
Most farmers believed the company's investigation of Powdergate was a whitewash, he said.
"The attitude still exists among suppliers that if the chief executive [Craig Norgate] did not know about it, he should have."
He said a "sullen disquiet" with the board emerged among farmers before Christmas.
Fonterra's success was dependent on strong governance "and we don't think we've been seeing it".
Farmers' faith had been shaken by a perception that some directors and senior executives did not want to work with the shareholders council. Some councillors felt they were wasting their time and were not prepared to carry on.
Council chairman John Wilson said he had discussed governance with Mr Roadley and Mr Smith's resignation would firm the council's resolve to act proactively.
A Fonterra insider said Mr Smith's resignation was "absolutely serious" but it alone would not be enough to stir the board.
Alan Frampton, chairman of independent dairy company Tatua, said difficulties were to be expected during Fonterra's establishment phase but quite a lot of issues remained unresolved between Kiwi, Dairy Group and the Dairy Board.
"It just makes it so much more difficult to get Fonterra operating efficiently when they have these kind of issues to divert them from the main issue, and that is to process and sell farmers' milk."