Farmers seek to lock in control of Fonterra
Farmers are calling Fonterra directors' bluff in promising 100 per cent continued farmer control under TAF, by proposing two key constitution changes that would cement it at the dairy giant's upcoming annual meeting.
The board has been advised of a two-part shareholder resolution to be put to the December 17 meeting - one to ensure the number of farmer directors on the Fonterra board never falls below nine, and another requiring only farmer directors to elect the chairman.
The current constitution says only that the chairman must be a farmer.
On the number of farmer directors, it says there cannot be more than nine. The proposal is to change that to read "not less than nine".
The resolution will be put to the meeting at Waikato's Mystery Creek Events Centre by Rotorua shareholder and former Federated Farmers dairy chairman Lachlan McKenzie, and seconded by South Island shareholder Ann Jones.
McKenzie said a group of farmers is behind the move.
The changes would each require 75 per cent shareholder support.
The move comes after news that one of the options being considered by Fonterra leaders in a governance and representation review is reducing the number of farmer directors from nine to eight and increasing independent non-farmer appointed directors from four to five. Terms of reference for the review working group of Fonterra directors and shareholder councillors were drawn up a year ago.
The news drew farmer calls for Fonterra leaders to give them "some peace" after the bruising two-year debate over the introduction of share trading among farmers (TAF) which deeply divided the farmer-owned co-operative because it involves offering NZX-listed units in Fonterra shares to the public.
TAF, launched on Friday, was narrowly voted in by farmers earlier this year after they were promised by chairman Sir Henry van der Heyden and the board that farmers would retain 100 per cent ownership and control of the company under TAF.
McKenzie said there was no provision in forms A and B of the constitution protecting against a reduction or dilution in the number of farmer directors on the board.
"Neither is it stated in our constitution that only the farmer-elected directors shall elect the chairperson," McKenzie said.
Fonterra's exposure under TAF to the sharemarket risks the company ending up with a majority of governing directors whose main income has never been, and never will be, dependent on profitability from dairy farming, he said.
The purpose of the co-operative was to maximise the profit of its members' dairy businesses.
"It is essential that a clear majority on the Fonterra board, are people who are incentivised to drive strategy that delivers this purpose. Notwithstanding the skill gaps filled by independent director recruitment, our constitution should protect us from independent directors ever being in a majority, to chair our co-operative, or determining who should chair our co-operative."
The independence brought by outside directors was "invaluable" but must not be at the expense of farmer members' livelihoods, McKenzie said.
"In a co-operative where outside investors may seek to exert greater influence, the risk of a divided board could be exacerbated where there is not a clear majority of farmer directors who support the elected chair."
The resolution would for the first time enshrine in the constitution 100 per cent farmer control, he said.
"It is very difficult to see any reason the . . . board would not support this means of delivering the promised control."