Friday, March 29, 2024

Big push for smaller board

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A review of Fonterra’s governance and representation will be more effectively done if the board size has already been reduced, Colin Armer and Greg Gent say.
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The pair have no plans to withdraw their resolution seeking a cut in the number of directors on Fonterra’s board from 13 to nine, despite the Fonterra Shareholders’ Council advising farmers to vote against the move.

Colin Armer – time to get on with it.

A cut in board size requires constitutional changes, which in turn require significant support from the general shareholder group – more than 75% of farmers, and the Fonterra Shareholders’ Council – more than 50% of councillors.

It made more sense to provide shareholders with the findings of the earlier review and take the vote on downsizing the board to the annual meeting than it did to wait more than another six months and go to a special meeting, Armer said.

“Having a special meeting will cost serious dollars,” Gent said.

The pair were disappointed the council hadn’t supported their resolution and said they were on the back foot compared with the council and the board when it came to communicating with shareholders.

“We don’t have access to everyone’s email addresses or postal addresses. The only way we had of communicating with all shareholders was through the supporting statement that goes with the resolution in the voting pack,” Armer said.

That information had been prepared nearly two months ago and the rules limited its length.

They’ve held meetings with shareholders who wanted a better understanding of the proposal and have been humbled by the level of support they’ve received from farmer shareholders. 

While they were trying to keep the issue simple, at a high level they’d been taken aback by Fonterra chairman John Wilson’s initial response to the proposal.

They said his comment that it wasn’t the co-operative way to bring such an important issue to an annual meeting rather than go through a consultative process was incorrect and his statement they’d come up with the idea on the
back of an envelope had also stunned them.

It also brought a response from fellow shareholders who were disappointed in the reaction – some have offered stacks of envelopes for further workings.

Regardless of the council’s view on the proposal, it was important shareholders had their say and their chance to put their views on clear display, and that’s why the pair would not be withdrawing the resolution.

As for the “refreshed” joint board-council review, both Armer and Gent weren’t prepared to bank on it being completed or its findings being communicated back to farmers given the last one wasn’t.

“We don’t know why the last review fell over but there was a public commitment to do it so therefore it would have been nice to have publicly been told why it didn’t proceed and why it fell over. We don’t know any of that so our confidence in this review is very low,” Gent said.

The process

The process to shift from 13 to nine Fonterra directors requires all the farmer-elected positions on the board to come up for re-election early next year.

That’s created a big stumbling block for the Fonterra Shareholders’ Council, which has said it can’t support the resolution.

In a letter to shareholders the council chairman, Duncan Coull, said the process to achieve the reduction constituted a significant and unnecessary risk to the co-operative.

Having all farmer-elected directors stand down at one time so six, not nine, directors could then be voted into the reduced number of seats created a risk in terms of potential for confidence in the board to be undermined.

The letter didn’t say the council was opposed to a smaller board but focused on the process to get there and told farmers a wide-ranging review on governance and representation was under way, which included board size.

Gent said based on the legal advice they’d received they were required to describe the process within the resolution that would enable the downsize, and the process they put forward was the fairest and most expedient way.

Other ways would have required the board to downsize itself or have the next group of farmer directors who came up for re-election by rotation leave the board.

That wouldn’t necessarily see the most valuable directors remain.

“The fairer way is to leave control where it has been and always should be and that’s with farmers,” Gent said.

The perceived risk, that farmers, could vote all sitting farmer directors off the board, showed the council didn’t trust farmers to exercise their vote responsibly – a view he and Armer didn’t share.

They said in its letter to farmers the council had misrepresented the proposal because it hadn’t made it clear just the farmer directors would be required to stand down before a vote for the reduced number of positions.

The independent directors would remain through the process although the number would later be reduced to three.

The council was also concerned there was insufficient time for comprehensive consultation with shareholders before the annual meeting

In the letter Coull gave a commitment the council would jointly lead the process with the board and deliver outcomes in the proposed timeframe that included having consultation papers with farmers by the end of January.

Fonterra chairman John Wilson told shareholders it was essential there was a constructive and inclusive discussion with all its farmers and that it needed to cover not just board size but all elements of governance and representation.

Proposals such as Gent and Armer’s should form part of that discussion. 

Creating any perception the shareholder base was split destroyed value in the co-operative and damaged its reputation, he said.

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