Fonterra directors Leonie Guiney and Clinton Dines would be called on to leave the dairy giant’s board if a proposal to trim the top table from 11 to nine seats is approved by its farmer-owners.
Fonterra proposal to cut directors to counter risk of ‘two-tier’ board - but could it open old wounds?
Andrea Fox
Fonterra is New Zealand's biggest business, collecting nearly 80 per cent of the country's raw milk. Photo / Michael Craig
![Leonie Guiney. Photo / Sarah Ivey](https://www.nzherald.co.nz/resizer/v2/LBJEQGA4HIXY7ASD3PVUQQ45YU.jpg?auth=3fa29edb2a405ff0f994f8ffd7231172dd179b07c58f9410590ed8f34494c306&width=16&height=10&quality=70&smart=true)
The outspoken South Canterbury farmer claimed she was being “gagged” after the then-board sought a High Court injunction restraining Guiney from “breaching her duties of confidentiality” to Fonterra and prevented media from using information received from her.
In turn, Guiney filed defamation proceedings against the Fonterra board of directors.
The legal spat was settled in August 2018, with Fonterra agreeing to meet Guiney’s costs. She did not seek damages. Guiney was elected back onto the board later that year, along with former Zespri chair Peter McBride, who would soon become Fonterra chairman.
While the prospect of Guiney’s departure next year might open old wounds in the 8000-strong shareholder base, McBride told the Herald the “whole board was 100 per cent” behind the proposal to reduce the size of the board. The world’s ninth biggest dairy company, created from an industry mega-merger 22 years ago, has in the past had up to 14 directors.
The board hopes, after consultation with farmer-shareholders and their watchdog, the Fonterra Cooperative Council, to put the director reduction to a vote at this year’s annual meeting in November.
![Fonterra chairman Peter McBride. Photo / George Novak](https://www.nzherald.co.nz/resizer/v2/4RN6ZLXE65GVXEKDRNTJM7EJF4.jpg?auth=61517b313685732aad8334600fe3705aec7657af13f4d48f67cce59355398adb&width=16&height=11&quality=70&smart=true)
But McBride, who is due for re-election next year “so will be putting myself on the block with the board reductions” said if farmers strongly opposed the idea, the board may consider withdrawing the resolution. He had no thoughts “at this stage” of stepping down next year.
The proposal calls for the current balance between farmer-elected and appointed directors to be maintained, with a composition of six farmer-elected directors and three appointed directors.
“This isn’t cost saving, the key for me is the group dynamics and the size of the board. I felt that before I came to the board and I’ve noticed quite a difference with a larger board. It’s in the relationships you have to maintain and the debate,” McBride said.
“I think with larger boards, particularly cooperative boards, you run the risk of a two-tier board. What you find is a greater tendency for some to be dominant and some to stay silent. But if you go to a sub-committee of say five directors, you get much more interactive engagement.
“It’s like senior management teams. CEOs can have too many direct reports and it affects how they function as a group. I’m pretty hot on that as well.”
McBride didn’t believe a smaller board would make Fonterra more attractive to high quality independent, appointed directors.
“I don’t think it would change too much. Some wouldn’t be attracted to cooperative governance (anyway), they’d rather be with listed or private companies. Ultimately independent directors have to empathy. They’re dealing with people’s livelihoods, not just governance.”
Fonterra’s farmer-shareholders have been historically quick to fire up if they feel farmer ownership and control of the company is at risk of dilution. But McBride noted the proposal was about “governance, not representation”. Farmers were represented by the farmer-elected council.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.