Farmer bid 'pre-empts Fonterra review'

ANDREA FOX
Last updated 10:32 31/10/2012

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A bid by Fonterra farmer-shareholders to lock in farmer control of the dairy giant in the new Trading Among Farmers environment is pre-empting the work of a governance and representation review, says director Malcolm Bailey.

At Fonterra's upcoming annual meeting, two farmer-shareholders intend to call for two key constitutional changes that would ensure farmer-directors are the majority on Fonterra boards, and that the chairperson, who already must be a farmer, is only elected by farmer directors, not independent appointed governors.

The farmers' proposed resolution is intended to cement the board's promise that farmers will retain 100 per cent control and ownership of New Zealand's biggest company in the new share Taf environment.

The resolution is also a response to confirmation from Fonterra leaders that a cut in the number of farmer directors and an increase in appointed directors is a post-Taf option for consideration under the review.

Bailey, a member of the review group, said there "is no disputing" that farmers will keep control of Fonterra because they alone had voting rights under Taf.

Investors who buy dividend-earning, listed units in shares that farmers have sold the economic rights to through Taf's Fonterra Shareholder Fund will not be able to vote on company matters.

"From our point of view we have a review which is a joint initiative of the board and council [Fonterra Shareholders Council], so anything coming forward now is really pre-empting the work of that group," Bailey said.

"Clearly we have received feedback from shareholders which has helped us with the scope of the review.

"I know there is speculation [about director ratio] but we are not at that point yet.

"We have a lot of work to do yet before we are ready to meet shareholders with proposals."

Bailey said Fonterra was 11 years old and it was time to examine what was the right governance and representation model.

"I know some people [shareholders] have said ‘give us a break' and allow time to get Taf bedded in, but successful organisations, of which we are one, don't sit on their hands," Bailey said.

"They look forward and we are [examining] how we can support the strategy of the business with the right . . . model."

With the introduction of Taf, the role of the shareholder council had to change "to some extent".

"So we are saying, how can we look at this in a holistic way and end up with something stronger for the co-operative?"

Federated Farmers dairy chairman Willy Leferink has called on Fonterra leaders to give farmers "some peace" after the bruising debate over Taf, which deeply divided the farmer-owned co-operative because of the involvement of the sharemarket.

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Asked if directors would oppose the presentation of the farmer resolution to the annual meeting, Bailey said: "We don't want to be talking about opposing something, but we have to question whether it is appropriate to be dealing with something that appears to pre-empt the work of the group. That is the issue for us."

"The board is totally committed to farmer control and ownership of the business. We have worked through that with Taf [debate]. We can tick that box 100 per cent."

- BusinessDay.co.nz

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