Fonterra considers executive overhaul

  • 01/02/2016
Fonterra considers executive overhaul

Fonterra has kicked off a review of governance by posing the question of whether a board stacked with farmers has the right skills to drive a global business and whether overseas milk suppliers should be able to hold shares.

New Zealand's biggest exporter has released a 13-page conversation-starter ahead of farmer meetings this month, with the aim of having any changes to its structure put before shareholders for a vote in May.

The review follows calls last year by shareholders and former directors Colin Armer and Greg Gent to shrink the board and increase its calibre following the departure of experienced independent Ralph Norris.

Fonterra hasn't changed its governance and representation arrangements since being set up 15 years ago.

Like overseas counterparts Arla Foods and FrieslandCampina, Fonterra has a cooperative structure that adds layers of farmer bodies and processes to its board.

By contrast, executives at rival Nestle, the world's biggest food company by revenue, answer only to its 14-member board.

"The review work to date has confirmed that our governance and representation structures have served us well, but there is a real opportunity to further strengthen them," Fonterra said.

Fonterra wants to increase its milk collection from 22 billion litres to 30 billion litres - both here and overseas - and lift revenue from $18.8 billion to $35 billion over the next decade.

Among "thought starters" in the document, Fonterra asks whether the role, focus and size of its board is appropriate for a modern cooperative, whether there is the right ratio of farmers to independent directors, and whether the company is attracting the best candidates.

Of the 14 skill sets it has identified for its board, only one relates to on-farm experience and a second relates to knowledge of what drives the farmgate milk price and earnings.

It poses similar questions for the Shareholders' Council.

Fonterra said its goal of lifting milk supply will require it to double the pool of milk sourced outside New Zealand to about 10 billion litres -- one third of its total.

International competitors have access to year-round milk supply and it "makes good business sense to integrate our global milk pools with local production and domestic consumer or food-service markets".

It said having 100 percent cooperative ownership was non-negotiable.