UPDATED: Fonterra shareholders evenly split on shrinking board

See also: Fonterra focuses on opportunities in tough times

UPDATED: Fonterra [NZX: FCG] shareholder support for a proposal to reduce the board size was evenly split and has led to the company acknowledging change is needed sooner rather than later in its governance and representation.

A total of 53.8% of shareholders voted in favour of the resolution put forward by former directors Colin Armer and Greg Gent to cut the board from13 to nine directors but it required 75% support to get it across the line under the cooperative's constitution. It also needed support from 50% of shareholder councillors.

The resolution was opposed by the board and Shareholders' Council, who both say a governance review already under way is a better option.

Shareholders have been supplied an information booklet, that will be sent to them early next year, there will be farmer consultations in February, and a May/June vote at a special extraordinary meeting.

Mr Armer says the Shareholders' Council had been "found wanting and totally misread farmers' views" on Fonterra's governance. "Their criticism of our proposal was absurd."

Mr Gent says he is still happy with the outcome of the vote and the big turnout showed that a clear majority of shareholders wanted the board to do something now.

There had been hot debate on the issue, which the two former directors were pushing because they want to see a "fitter, leaner, more agile Fonterra", saying the move would improve board efficiency and decision-making.

"I haven't heard anyone say they don't support a smaller board but they didn't support the process we put forward," he says.

Many shareholders expressed concern the move could affect continuity and be disruptive at the top level of the business.

Mr Armer questioned why the governance review, first promised at an annual meeting three years ago and then sidelined, had been so hastily resumed once the resolution was put forward.

He also says the board had misrepresented the resolution in the board papers by saying it would involve all directors standing down at once when, in fact, independent directors would remain in place to ensure continuity.

Director Malcolm Bailey says external advice and a lot of work has been done on the governance review and had been ready to take it to farmers for consultation, but the botulism scare occurred and the decision was made to shelve it for a while.

"We felt there was no burning platform but it is clear from this that there is a roughly 50:50 split from shareholders on this and we now have to find a way to bring you all back together and find a proposal that can get wider support," he says.

Chairman John Wilson says the board had started work on the governance review in 2012/2013 and he was "passionate" about the issue.

He says it had been good to see the shareholder enthusiasm in the room over governance and he hoped that would lead to a good quality conversation continuing during the review process next year.

While a lot of work had already been done, including advice from outside consultants, Mr Wilson says the review will be refreshed, given the changes in the global dairy market including the supply and demand imbalance and lower dairy prices.

(BusinessDesk)