Fonterra farmer council gave concerned shareholders 'the party line': chairman

Fonterra shareholders' guardian group to rebuild relationship with farmers. Photo / File

Fonterra directors and management aren't the only ones striving to recover the confidence of shareholders - the dairy giant's farmer "watchdog" is eating humble pie over its past treatment of shareholder concerns.

After another farmer-shareholder protest vote about the costly council's performance at Fonterra's recent annual meeting, and a simultaneous independent report urging changes, the tone of messaging from the Fonterra Shareholders' Council has sharply changed.

Council chairman James Barron told the Herald that over time, when Fonterra's farmer-owners have come to the 25-member council with a concern, "council has almost rebutted them with the party line".

"We are tasked with helping develop farmer understanding of the (company) strategy and board decisions.

"You're a farmer and you've come to me with a concern, I, or previous councillors, have said 'this is what the board and management is telling us and this is why everything is right and good'.

"That has created a bit of confrontation between shareholders and council and it's how I think farmers have come to feel their voice hasn't been heard."

Barron's frankness extended to the council's annual report where he said: "In my opinion, at times your council has been to focused on listening to the board and management, and has been guilty of speaking 'at' farmers. Now we must turn that around so that council spends more time facing and listening to farmers, to better understand your views and expectations."

Criticism that the council, which since Fonterra's 2001 creation has cost farmers more than $50 million to run, has been more of a board lapdog than a shareholder watchdog peaked with the big cooperative's disastrous 2018 and 2019 financial results.

At last year's annual meeting, the council narrowly saw off a remit bid by grumpy shareholders to have its performance measured by professionals. The council's response was to hold a review. One year on, the report has landed.

Fonterra Shareholders' Council chairman James Barron. Photo / Supplied

Undertaken by a group comprising shareholders, councillors and directors, led by former public service chief executive James Buwalda, the review made 27 recommendations for change.

They include:surrendering the council's access to confidential and material company information, changing its name to the Fonterra Cooperative Council, and reviewing its operating budget. It's recommended the council stop calling itself "a cornerstone shareholder" and to avoid blurring the line between representation and governance, it should stop communicating board strategy and company operations to farmers.

However, it also urged the council "to more effectively hold the board to account".

While the report landed too late to be formally voted on at this month's annual meeting, it had the effect of diluting support for three resolutions by South Island shareholder Tony Paterson and supporters to radically shakeup the council and cut its annual budget by at least $1m. Paterson also challenged the council at last year's annual meeting. His remits this year received 39.7, 37.6 and 35.6 per cent support, clearly a protest vote but short of the 50 per cent each required.

The council's bid for a 2021 operating budget of $3.15m was voted in by 74.7 per cent.

While Barron is conceding council handling errors, he's not off the hook yet with Paterson and supporters.

Barron's confirmation to the Herald that the council does not plan to formally consult with shareholders before implementing the review recommendations will not sit well.

Barron said the report would be discussed at farmer meetings later this month, along with other matters. Shareholders had been well-consulted during the review.

As for the cost to farmers of implementing the changes, Barron could not be specific.
When asked if the project would be done within the approved operating budget said "yes, by and large".

He was "not sure" if the annual operating costs of the council - between $2m and $3m for many years - would reduce with the changes.

But he was confident that, when implemented, the recommendations would address a lot of shareholders' concerns.

Instead of being a two-way conduit between shareholders and the board, as intended when Fonterra was created, the council would become "a one-way conduit of information, clearly articulating concerns and providing that in a thorough, methodical and scientific way to the board, to give them resources to consider when making decisions".

The two-way role meant the council was a cheerleader for Fonterra as well as a watchdog. That had been confusing.

"We are not governors ... we will never have as much information about the business as the board does, so it's right for them to explain the board's strategy and decision-making to farmers."

A priority for the council would be meeting directors and management to nut out implementation of recommendations that involved Fonterra's business.

New Fonterra chairman Peter McBride declined to comment, saying the review was a matter for shareholders.

Barron said another priority was to get farmers as Fonterra's owners thinking and talking about what success looked like for the cooperative and their expectations of it.