Bigger not better for boards

Fonterra has acknowledged change in its governance and representation is needed after more than half its shareholders voted for a smaller board:

. . .A total of 53.8 percent of shareholders voted in favour of the resolution put forward by former directors Colin Armer and Greg Gent to cut the board size from 13 to nine directors but it required 75 percent support to get it across the line under the cooperative’s constitution. It also needed support from 50 percent of shareholder councillors.

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

The board must deliver on the review:

The proposal to reduce the size of the Fonterra board is one the company can no longer ignore say its proponents, Greg Gent and Colin Armer.

The proposal failed to meet the 75 per cent support required to change the constitution but the level of support is a massive message to the board they say.

“The Trading Amongst Farmers proposal got 66 per cent support with millions spent so we are thrilled with the support we have received.

“Something has to happen now,” said Colin Armer. “The whole thing disappeared three years ago but there is nowhere for the board to hide now.”

“This is a huge success for us,” said Greg Gent. “We had little resources and the company worked hard against us.”

Mr Armer said the big loser in this debate was the Shareholders’ Council.

“The shareholders’ council has been found wanting and totally misread farmers’ views on the subject,” he said. “Their criticism of our proposal was absurd.

“The resurrection of the governance review after three years was a last minute jack-up between the Council and the board which had only one purpose – to defeat our proposal,” said Mr Armer.

He said that the governance review is still inadequate.

“This upcoming review needs independence, experience, and farmer input into its Terms of Reference,” he said. “Right now shareholders don’t know the terms of reference and the review is being conducted by a group that lacks the experience or independence needed to make sure we get the right structures into the future.”

Mr Gent said that he and Mr Armer had achieved what they wanted to.

“While we’d love to have got our proposal over the 75 per cent line we always knew that it was a huge mountain to climb,” he said. “The company has far better resources than us to communicate with its 10,000 shareholders.”

In spite of the result the pair are confident that the governance review will not be shelved for another three years. However they are not so sure that the review will result in a smaller board of directors.

“We will need to wait and see about that,” said Mr Armer. . . 

Bigger isn’t usually better for boards.

I am on one with 10 members and meetings always work better when at least a couple are absent.

That isn’t a reflection on the absentees, it’s not who isn’t there but that having fewer round the table almost always results in a more efficient and productive meeting.

Fonterra is a big company but it doesn’t need 13 directors to function well and would work better with fewer.

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