Wednesday, December 6, 2023

Should Fonterra shrink its board?

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Shareholders to vote on cutting two seats.
Fonterra chair Peter McBride says moving to the new flexible shareholding structure will keep the co-op on track to meet its 2030 strategic goals.
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Fonterra’s shareholders will vote on whether to cut the number of directors on its board by two at this year’s annual meeting.

Since the co-operative’s formation it has been envisaged that the board size would be rationalised over time, chair Peter McBride said in a letter to shareholders.

“With the capital structure review, asset divestment programme and long-term strategy work largely behind us, the board believes it is the right time to review its size and composition.”

McBride said the board’s “current thinking” is to reduce the number of directors from 11 down to nine.

The current ratio of farmer-elected to appointed directors would be roughly maintained, six to three, respectively, instead of seven to four.

The chair would still be selected from the farmer-elected directors.

The proposal comes just a week after chief executive Miles Hurrell signalled that Fonterra wants to cut $1 billion in costs over the next seven years, ultimately leading to staff cuts.

McBride said his personal experience leading or being part of leadership teams is that in smaller groups people are more engaged and able to share their perspectives in a more “meaningful way”.

“Smaller groups encourage greater sharing of dissenting ideas and opinions – which is a good thing – and are proven to support faster, robust decision making,” he said. 

The New Zealand Institute of Directors recommends, “as a general rule”, a board size of between six and eight directors in the case of medium to large companies in New Zealand.

“Fonterra’s global scale makes us an outlier,” McBride said.

The board is consulting with the co-op’s council on the proposal, as well as seeking feedback from farmers.

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