Fonterra shareholder watchdog to self-review after performance backlash

Fonterra shareholders are concerned about their council's independence from the company.

After narrowly seeing off an attempt to have its effectiveness put under an independent microscope, the $3 million-plus Fonterra Shareholders' Council is staying mum about its plans for a self-review.

New council chairman James Barron has declined to be specific about when the review will start, what shape it will take and the level of independent or outside analysis that will be brought in.

This is despite the council effectively torpedoing a Southland shareholder's call to Fonterra's annual meeting for an independent review of the council.

The council announced it would do its own review shortly after Lumsden shareholder Tony Paterson tabled his resolution. Then it recommended shareholders vote against his proposal.

However, Paterson's call for an immediate and independent review of the council, whose job involves monitoring Fonterra's financial performance for shareholders, still received close to 45 per cent shareholder support - despite the council and the Fonterra board recommending they vote against it.

Paterson said he submitted his resolution on September 23, and less than a week later, the council told shareholders there would be a full review of the council. Fonterra's annual meeting was earlier this month.

In September Fonterra announced a net loss of $605m for FY19 on the back of asset writedowns of $826m. Fonterra's farmer-owners have experienced about $4 billion of wealth destruction in the past two financial years, according to the council.

Peterson wanted a professional assessment of the council's role as a cornerstone shareholder, its fitness for purpose and if a better model was available, in acknowledgement "the current model is not working for (Fonterra's farmer) owners".

In a supporting statement, he cited "the inaction by the Fonterra Shareholders' Council given the evident non-performance of Fonterra" and said the resolution sought to ensure the shareholder representative structure was independent of the company.

The 25-farmer council had a 2020 financial year budget of $3.2m approved at the annual meeting. In 2018 it spent $3.1m.

New Fonterra Shareholders' Council chairman James Barron, a Matamata dairy farmer.

A second resolution, by shareholder Trevor Simpson, proposing an independent committee to report on Fonterra's financial performance, received 28 per cent support.

Paterson said the 44 per cent support for his resolution was "a fairly strong voice" given it was presented by "someone no-one really knows" and was opposed by the council and directors.

He said the council's review must be conducted by "someone outside the council, not associated with the council or the board". He and his supporters were talking to professionals happy to step up.

The council in annual meeting papers said Fonterra's recent financial performance had prompted the council "to reflect on its role". It was important to review the council's purpose and functions before assessing whether it was fit for purpose or needed structural change.

New chairman Barron said he was happy for some independent contribution to the review "and it needs to be at oversight level".

"We need to be able to trust each other to have these conversations. It's our co-operative, it's our shareholders' council, it's our board. We all desire the same thing - a strong co-operative for generations to come.

"In my personal view, there are two options. One is an absolute assurance everything is done transparently and thoroughly. The other is some assurance that conclusions drawn from the process are the right conclusions. It may be we need to involve different skills to bring about those outcomes."
He promised a full consultation with shareholders.

On shareholders wanting assurance the council was independent from the Fonterra company, the Matamata farmer said that was addressed every year in the council's annual report.

"And my experience is that shareholders who take the time to read and digest that annual report recognise the fact that the council views are quite separate from the (Fonterra) board's."

Barron did not want to comment on the timing of the council's decision to hold its own review, saying it wasn't relevant.

"When we were informed of (his) resolution we approached Tony and tried to engage with him. We were of the view it'd be fantastic if there was a shareholder resolution we could support - we encouraged him to broaden the scope of this resolution so we could support it."

He wouldn't be drawn on when the review would start.

"I guess the starting point was when we announced the decision to do it."

Barron said he'd told the annual meeting he was committed to the review being finished by the 2020 annual meeting.