Fonterra board should take heed

The ODT reports:

A proposal to slash the size of the board from 13 to nine came in for hot debate by shareholders at the co-operative’s annual meeting yesterday in the small Waikato town of Waitoa.

Former directors Colin Armer and Greg Gent put forward the suggestion for a smaller board in order to make a ”fitter, leaner, more agile Fonterra”, saying the move would improve board efficiency and decision-making. The pair said boards with double-digit numbers were rare and having six elected board members and three appointed would ensure there were ”no passengers on board”.

The resolution received 54% support from postal and electronic voting and a resounding applause from shareholders at the meeting but to succeed, it needs to achieve 75% support from voting shareholders along with 50% support from shareholder councillors.

The proposal may not have met the constitutional threshold, but the fact a majority of farmers backed it should not be ignored by the board.

There is much research that shows the best size for a board is from five to nine members. Fewer than five means you may not get a strong enough exchange of views. More than nine and it gets fragmented, and the risk is a sub-set of the board start making the real decisions.

The resolution was opposed by the board and Shareholders’ Council, which both said a governance review already under way was a better option. Shareholders have been told the review means an information booklet is sent to them early next year, farmer consultations in February, and a May-June vote at a special meeting.

A smaller board won’t life the international price of dairy. But it is worth doing.

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