The proposal in Fonterra’s governance and representation review to reduce the board from 13 to 11 effectively locked in the status quo, he said.
Board size was a common discussion topic among shareholders and international studies showed it was fundamental to a board’s effective functioning.
“All around the world and in almost every first world market, it says the sweet spot around decision-making in the board room is around seven, eight or nine and it is probably closer to seven than it is to nine.”
Lockhart believed shareholders would reject the proposal because it did not go far enough.
“I would have thought there would be even more discontent among farmers who will say ‘we are not happy with that proposal, go away and do it again’.”
Greg Gent, a former Fonterra director and advocate for board change, was pleased Fonterra was finally addressing governance issues and while the plan reduced the number of directors there was still some way to go.
“At least the direction is right but you don’t always get what you want.”
He had reservations about proposed changes to the election of directors because they meant shareholders would forgo direct voting.
Previously, shareholders ranked director candidates using a single transferrable voting process but under the review proposed the board would recommend a preferred candidate based on skills it required.
The shareholder vote was simply to accept or reject that candidate.
Lockhart said electing directors was an issue for all companies because shareholders had no way of knowing the effectiveness of individual directors.
But in Fonterra’s case it was well known the board had issues.
“We know because of some independent directors who have exercised their opinions artfully, that things are not well.
“Over the 15 years that Fonterra has been established there has been more than one very, very capable independent director who has walked from a position on NZ’s largest company.”
A smaller board was fundamental to operating at best practice but shareholders would also feel let down because process appeared to hinder what the review was trying to achieve.
Lockhart said reducing the board size could have been staged over several years.
“There are any number of ways without the classic turkey-shoot scenario to shrink the number of people on the board.”
He also rejected the need for an odd number of directors to assist voting because requiring a vote to make a decision was a sign the board was dysfunctional.
Gent was also concerned the review did not recommend changes to the Fonterra Shareholder’s Council which had become too compliant in overseeing the co-operative’s performance.
“It has become a talk-fest. It costs us millions and if it costs million’s we want to get something out of it.”
Gent said that was caused by the perceived career path from council membership to the board with candidates careful not to sully their reputation by being too outspoken.
