Call for Synlait independent directors

16:00, Dec 03 2013

The New Zealand Shareholders Association has called on Chinese-controlled Synlait Milk to appoint independent directors to chair its subcommittees.

Max Smith, on behalf of the association, told the annual meeting in Christchurch yesterday that it was good practice to have independent directors on board subcommittees and particularly the remuneration and governance subcommittee of Synlait Milk, a Canterbury milk processor and exporter.

It was Synlait Milk's first annual meeting since it listed on the NZX mid year.

Investors bought its shares in an IPO (initial public offering) for $2.20. They closed yesterday at $3.79, down 4 cents.

The chair of the remuneration and governance subcommittee is Ruth Richardson, who is not now an independent since she was appointed by Bright Dairy, which owns 39 per cent, as its New Zealand representative.

"Although we have no doubts about the current chair, integrity is not in question, we do believe that it should be so and we leave you with that thought that perhaps in the due course of time you might like to look at that one because it is considered to be good practice," Smith said.


Chairman Graeme Milne replied; "The board believes that Ruth is the most capable director on the board to chair that committee and so we want to use the best skills we have not only in the board but throughout the whole company to the best advantage."

If the NZX ruled there must be an independent chair Synlait would make changes but that was not the case, he said.

Richardson said good shareholder interaction was healthy but it was not a matter of one individual dominating. The board had fresh talent all making a contribution to developing human resources and governance.

She said she welcomed the contestability of views and the board being challenged over what was regarded as best practice.

She had been in Shanghai recently visiting Bright Dairy.

"As I left Shanghai three weeks ago the message given to me, and it's the one that I treasure the most, is ‘Ruth, while you may be Bright-appointed you are independently active'."

She said it was all directors' responsibility to advance shareholder interests and that was the standard at Synlait they adhered to.

Another shareholder asked for clarification on Bright Dairy being permitted to appoint four of the eight directors when its shareholding was now less than 50 per cent after the initial public offering of shares in May.

Milne said the NZX had granted Synlait a waiver to allow Bright Dairy to have four directors and the key reason was so that Bright Dairy could consolidate Synlait into its accounts. He said Synlait had an independent chair who had a casting vote.

Synlait repeated its message that new Chinese regulations may lower infant formula sales in the first half of the 2014 financial year.

"It is true that at the moment the infant formula business is being slowed a little by some of the changes that are happening in the Chinese market and also the food quality issues that we all know about . . ." managing director John Penno said.

"So we are saying that it could be that infant formula sales are slightly below target in the first six months. However, we remain very confident that over the year we will meet the targets that we set ourselves in the financial forecasts," Penno said.

Synlait's prospectus commented on impending Chinese regulations designed to make it tough for the proliferation of small players selling infant formula in China and to force rationalisation leaving largely big players. Synlait considers itself well positioned to handle the changes with Bright Dairy one of China's largest dairy companies.