The Fonterra Shareholder Council is to face a vote at the annual meeting next month.
The Fonterra Shareholder Council is to face a vote at the annual meeting next month.
Fonterra shareholders are to be asked to support a move to sharply narrow the role of their controversial farmer council, shave $1 million off its annual budget, and outlaw any notion it has of meddling in governance of the dairy giant.
The proposals are in the form of three resolutionsfor Fonterra's annual meeting on November 5, penned by two South Island shareholders; Tony Paterson and John Titter, who claim their move has the support of Fonterra farmer-owners throughout New Zealand.
The resolutions, which need just 50 per cent support of shareholders, if passed would restrict the council's role to performing only its constitutional duties, reduce its annual budget to a total $2.27m in line with its constitutional purpose and change the council's funding model to that of a milk price levy, to be voted on by farmers annually and starting at 0.0015c per kilogram of milk solids for the 2021 financial year.
The 25-farmer-member council budgeted $3.27m for the 2020 financial year.
In the 19 years since it was created to represent farmer-owner interests, it has cost shareholders more than $50m to operate.
Dissatisfaction with its performance and value for money peaked with Fonterra's disastrous 2018 and 2019 financial results.
The council itself has said more than $4 billion of shareholder wealth was destroyed in those years. While shareholders see its role as that of a watchdog, it has been labelled by some as more of a board "lapdog". It's also criticised for seeing itself as a nursery for aspiring Fonterra directors.
Council chairman James Barron has been approached for comment. He has written to Paterson advising the council does not support the resolutions.
The remits come as shareholder patience runs out with an internal review of the council's performance, activities and value. This was started nearly a year ago when a resolution, also from Paterson, calling for a professional analysis of the council's performance, won close to 45 per cent support at last year's annual meeting of New Zealand's biggest company - despite the board and council voting against it.
The council instead offered to conduct a review. The final report of the resulting review group is due out within two weeks but too late for formalising into any annual meeting resolutions for change.
"We are incredibly disappointed with the outcome of the ... review. It is a lost opportunity to return our representative body to the effective, respected organisation it has been in the past," said Paterson in a statement supporting the proposals.
"There has been a lot of noise about the shareholders' council being a "cornerstone shareholder" and "holding the board to account".
"None of that is included within our constitution. Over time, council has anointed itself with those titles and expanded its scope - to the detriment of its overall performance.
"A review or self-assessment of the skills and attributes of our councillors was critically left out of the scope of this latest review."
Paterson told the Herald "the simple fact" that Fonterra has units in farmer-shares listed on stock exchanges and must report all financial information to the market makes the council's financial watchdog status "a waste of time".
"And the council's information is always after the fact, so it's limited anyway.
"We've watched and listened and studied (the review) and continued to consult shareholders. The guts of it is the council needs to focus on representation and guardianship."
The Fonterra Shareholders Council needs to stick to its constitutional job, says a shakeup proposal.
Paterson said councillors were "good people", committed, passionate co-operative owners who were well-placed to represent farmer interests to the board and communicate their independent view of the co-operative's direction "farmer to farmer". They were also well-placed to advocate for farmers on issues such as freshwater policy, DIRA or the emissions trading scheme. Some may have skills beyond operating a farming business.
But unlike Fonterra's directors, they were not assessed or elected by farmers against any set criteria of skills and attributes.
"Therefore it (council) cannot guarantee that within its membership, it will have the ability to critically assess the performance of the board or management team when it comes to complex issues such as investment/divestment strategy or overall financial performance.
"Council is setting itself up for failure by anointing itself the cornerstone shareholder and charging itself to hold the board to account - roles that it is neither empowered nor qualified to undertake."
Resolution one is that the council must engage an external expert to produce reports to satisfy two clauses in the constitution relating to commentary on the board's financial reports and achievements compared with the board's statement of intentions for the company, and key performance indicators.
