Fonterra shareholders to vote on governance changes next month

Farmers listen in silence to speakers at the Fonterra annual meeting held at Waitoa in the Waikato. Photo / File

Fonterra's farmer shareholders will vote next month on whether to accept governance changes to trim the board by two directors and install a new selection process.

The Auckland-based cooperative will hold a special meeting on June 10 in Hamilton to amend its constitution allowing it to cut the board to 11 from 13, and introduce a new system to elect farmer directors, according to the notice of meeting.

Some farmers have been lobbying for a smaller board, and the proposed changes will see seven farmer directors and four independents, compared to the nine farmers and four independents currently. The chair is elected by the board and will have to be a farmer director.

The new voting process for farmer directors would ditch the single transferable voting system, which has been criticised for politicising elections, in favour of a nominations committee putting forward candidates who would need at least 50 per cent support to join the board.

"If the cooperative is to move forward and stay focused on delivering wealth to its farmers every month of the year, we need to move past the annual distraction of an electioneering process," chairman John Wilson said in his letter to farmers. "The recommendation has unanimous support from the board. It also has strong majority support from your shareholders' council."

A majority of Fonterra's farmer shareholders supported a proposal from fellow shareholders and former directors Colin Armer and Greg Gent to reduce the board to nine at the annual meeting last October but the vote fell short of the 75 per cent needed, including a requirement for 50 per cent support of the shareholders' council.

It backed the board's view that a better option was to make any changes through the governance review that first started in 2013 and was then stalled until shareholders started agitating for change last year.

The recommendations were also backed by an independent expert panel comprised of former Fonterra deputy chief executive Chris Moller, professional director Therese Walsh, US academic Michael Cook and Dutch dairy cooperative specialist Adrie Zwaneenberg.

The panel was divided in some areas, such as the need for the chair to be a farmer director, with two members saying it was best practice for the chair to be elected solely on merit, and that candidate participation in shareholder meetings could deter high quality independent directors from putting themselves forward.

The panel also said the required on-farm dairy experience for farmer directors should be assessed as a collective rather than individual basis, and that the requirement for that experience to have been as a Fonterra shareholder "could unnecessarily reduce the pool of potential candidates."

If the proposals get the 75 per cent support required, the board will be reduced over the next two years, while a review of the shareholders' council will be shared with farmers at the 2016 annual meeting.

Fonterra chairman John Wilson said reaching 75 per cent approval was going to be "a tough hurdle".

After 400 or so farmer meetings, he said the common concerns expressed by farmers were around ownership and control of the co-op.

Wilson said the new structure would take some of the politics out of Fonterra.

"The key is that we need to move away from the electioneering that holds our farmers back for three or four months of the year," he told the Herald.