The governance and representation review team has suggested a board of 11 directors in future rather than the current 13.
Six would have to be farmers, including the chairman, and five appointed for their appropriate commercial skills, three of whom would have to qualify as independents under sharemarket regulations.
Eligibility would be widened to include investors in corporate dairy farming balanced by an onfarm knowledge and skill requirement.
The number one co-operative principle of farmer ownership and control would be retained and strengthened, the review team insisted.
The majority of directors would need an “owner’s interest” in a Fonterra-supplying dairy farm, but not necessarily be active farmers.
The review team acknowledged the “general body of research” suggested smaller groups tended to create conditions for efficient decision-making.
But the needs of the company were just as important in determining the board size.
"Overall, we think that a reduction of two directors strikes the right balance between our continuing drive for diversity, the ability for the board to responsibly manage its workload, and efficiency."
The proposal needed to be carefully considered as a whole, review team member Ian Brown said.
“I hope farmers will really take the time to read everything and come to the consultation meetings next week, because this is a complex and inter-linked proposal.”
Brown said he could not point to an existing model of governance elsewhere in agriculture around the world and that once again Fonterra was pioneering a co-operative model.
The proposal should not be read as implying that existing farmer-directors lacked competency.
"Overall, we think that a reduction of two directors strikes the right balance between our continuing drive for diversity, the ability for the board to responsibly manage its workload, and efficiency."
Fonterra’s governance and representation review team
“Over the years we have had very good directors who happen to have farming as their businesses.
“This new process is about getting the right people in the right roles doing the right things,” Brown, a former Fonterra Shareholders’ Council chairman, said.
Many farmers had identified issues with the current appointment process because they lacked information about a candidate’s skill set and suitability.
The proposal extended the skills matrix to be suitable for Fonterra – “a complex, international co-operative, operating in multiple industries, answering to diverse stakeholders and delivering value to its owners”.
The new assessment and selection process contained formalised input from the board, Shareholders’ Council, an independent selection panel, and, ultimately the shareholders by way of an annual meeting vote.
However, that vote would be a simple 50% yes or no for the preferred candidate.
Rejection of a candidate at the final stage would require the whole assessment and selection process to be repeated.
The three-year term would remain, with optional board endorsement for re-election of a sitting director, up to a maximum of three terms, possibly four.
The governance and representation review team deliberately rejected an electoral college model for the Shareholders’ Council, saying that type of model had been heavily politicised in the past.
Although not specifically referenced, it also rejected Garry Reymer’s proposal for the council as a cornerstone shareholder exercising the default votes.
The Shareholders’ Council itself would be strengthened with formal attributes and capabilities for councillors, a maximum of two three-year terms plus a special extension – for example, for the chairman – and more transparency for the interface document between board and council.
Its own structure would be formally reviewed within the next year.
Fonterra also wants to improve its channels of communication to farmers and do a better job of growing its future leaders.
It has also approached four outsiders to provide a peer review of the governance and representation recommendations. They are New Zealanders Chris Moller and Dame Therese Walsh, Arie Zwanenburg from the Netherlands and Professor Michael Cook from the United States.
The peer review would be published for the benefit of shareholders before the special meeting, Brown said.
