Its booklet for farmers asks them to consider whether the board has the right focus and scale, whether the ratio of farmer directors to independents – 13 to nine – is appropriate and how the performance and tenure of board members can be better assessed.
Of 14 skill sets identified to make up an effective board, only one relates to onfarm experience and a second relates to knowledge of what drives the farmgate milk price and earnings.
Most of the skills relate to business acumen, specifically in overseeing a multinational corporation, knowledge of manufacturing and consumer products, specialised skills in audit, finance and risk management, and knowledge of the commercial application of science and IT.
The review would consider processes for finding the highest-quality directors and members of its Shareholders’ Council and ensure it can nurture new talent.
Former directors Colin Armer and Greg Gent last year called for the board to be shrunk to nine and efforts made to lift its calibre following the departure of experienced independent Ralph Norris, former chief executive of Commonwealth Bank of Australia.
Fonterra aims to put recommendations to its farmers in May. It conducted a review in 2013 and said those findings would inform this new process.
But governance and oversight have also attracted criticism, given the company’s handling of the whey protein scare, its response to price volatility and the product mix of its manufacturing plants.
The review was also driven by Fonterra’s target of lifting the volume of milk it collects to 30 billion litres of milk a year from five to six pools – both in New Zealand and in overseas markets – from 22b litres now, driving revenue to $35b over the next decade from $18.8b.
The company aims to become the world's number one ingredients supplier, and to become the number one or number two consumer and foodservice business in NZ, Australia, Sri Lanka, Malaysia, Chile, China, Brazil and Indonesia.
The targets would require Fonterra to double the pool of milk sourced outside NZ to about 10b litres, with milk overall sourced from “five or six geographies by 2025”.
Ensuring certainty of milk supply in other countries will also require some soul searching by Fonterra’s NZ farmers because the company needs to ensure it has the loyalty of farmers offshore.
While the booklet released today stops short of proposing shares be available to farmers in other geographies it does ask how it should “help farmers in key milk pools feel part of our co-op – making it less likely for them to switch their supply”.
