Fonterra's director election system is diluting farmer influence on the board by selecting directors who don't depend on the monthly milk cheque for their livelihoods, says election candidate John Nicholls.
The Canterbury dairy farmer is one of five contenders for three farmer-director vacancies on the board of New Zealand's biggest company.
Nicholls is self-nominated with the required support of 35 shareholders to stand for election.
Fellow Cantabrian farmer and former director Leonie Guiney is also self-nominated.
The pair chose not to take part in Fonterra's so-called independent nomination process, in which candidates are nominated by the board after being recommended by an independent selection panel.
The other three candidates, Zespri chairman Peter McBride, agribusinessman and Māori Television chairman Jamie Tuuta, and sitting director Ashley Waugh who is seeking re-election by rotation, came through the independent nomination system.
Nicholls, who owns six dairy farms in mid-Canterbury, said he was "really struggling" with Fonterra's farmer-director election system.
Fonterra, a farmer-owned cooperative with dividend-carrying public units on the stock exchange, has up to 11 directors. Seven must be shareholders through dairy farming interests, and four are independent and appointed by the board.
"We are selecting directors whose livelihoods don't depend on the milk cheque on the 20th of each month. The system is effectively diluting farmer influence on the board at a time when we need to win the hearts and minds of shareholders and farmers," Nicholls said.
Fonterra, an exporter formed 17 years ago under special enabling legislation to be a national champion, has sparked a crisis of confidence among its farmer-owners through heavy investment losses in China, weak financial performance and destruction of shareholder value. Its share price has fallen more than 20 per cent since the start of the year.
This month the company posted a historic annual loss of $196 million. Its performance has been under fire from the Beehive.
Former chairman John Wilson and chief executive Theo Spierings recently exited about the same time.
It was left to new chairman, long serving farmer-director John Monaghan, and interim chief executive Miles Hurrell to announce the annual loss.
Seventeen years on and still mostly producing commodity products, Fonterra's balance sheet is showing the strain of conflicting demands on its earnings. As a cooperative it must meet its shareholder-suppliers' expectations of the highest possible milk price, while finding enough capital to fund a promised value-add product strategy.
Trying to resolve its capital issue, along the way it has listed units in farmer-owned shares, effectively becoming a hybrid. Neither farmers or investors appear happy with the results.
Nicholls' concerns reflect the tensions over purpose and delivery that have developed.
"The loyalty and engagement of our fellow farmers and the support of New Zealanders is critical to a strong Fonterra and yet we are losing their trust," he said.
Other candidates also cite the need to restore confidence in Fonterra - and its balance sheet.
McBride, who is a shareholder in a large Tokoroa dairy farm and is chief executive of Trinity Lands, a 19-farm entity in south Waikato, said Fonterra needs to re-establish relationships.
"It has a key challenge to re-establish its relationships with the New Zealand government, the public and indeed to win back the hearts and minds of its own farmers and shareholders."
McBride steps down as Zespri chairman in the New Year and as a director in July. He will have been on the board of the national kiwifruit marketer for 17 years.
"The performance of the company [Fonterra] and some of the decisions that have been made concern us. It's essential for New Zealand farmers that the dairy industry has a successful co-op leading it."
Leonie Guiney, who left the board last year after three years, saying she was prevented from standing for re-election, wants to contribute to "a different direction".
Guiney has recently settled with the Fonterra board after suing it for defamation.
The board took court action earlier this year gagging her from speaking about Fonterra business.
"We need to clarify where our comparative advantage is. The jewel in our crown is the ingredients business. But first we need to protect our balance sheet because we are not in a strong position.
"And we have to stop investing outside our capability which we've been doing a lot," she said.
Jamie Tuuta, who is the Māori Trustee and has held executive and governance positions in the agribusiness, fishing, investment, health and education sectors, said Fonterra was critical to New Zealand's economic and environmental success.
Making Fonterra a global leader required it to maximise the value of farmers' milk and make quality decisions regarding capital allocation, he said.
"We are operating in a very dynamic environment that requires the cooperative to understand our risks and devise means to reduce exposure and build our resilience.
"We have mounting public pressure domestically and need to win the confidence of the government whilst at the same time ensuring that we continue to focus on a consumer-led strategy that is globally competitive and delivers value to our shareholder-farmers."
Sitting director Ashley Waugh is seeking a second term on the board.
The Te Awamutu farmer is chairman of Moa Brewing and a director of Seeka and Colonial Motor Co. He is a former chief executive of Australia's National Foods.