An independent third party specialising in governance recruitment will be chosen to appoint the board.
Whanganui District Council chief executive Kym Fell said the changes to Holdings meant additional experience and expertise was needed and transparency in appointments was important.
"The new Holdings board will need to be made up of directors with relevant and specific experience to add value to the boardroom table across a variety of sectors," he said.
"This is not a reflection on the good governance we currently enjoy, however, it will provide a transparent appointment and accountability framework based on best practice principles for governance."
Mr Fell said he would support current board members expressing interest in the independent appointment process.
Whanganui mayor Hamish McDouall hoped not all of the experience of the current board would be lost and expected some to stay on.
But he backed the idea of independent appointments.
"Council won't be appointing [board members], it'll be approving recommendations," he said.
"It'll be a very rare situation where somebody recommended by an independent body gets reversed.
"It also dismisses the central claim that it's very much a club - and it's perception only - that appointments are all kind of people known to councillors."
Meanwhile, Holdings' quarry and forestry portfolios will move back to the council's property division.
Whanganui District Council Holdings has been operating since 2002.
