$50m questions: Fonterra council survey pulls no punches

After costing Fonterra farmers $50 million with little to show for it, the Fonterra Shareholders’ Council may finally have got the message its time is up, say critics.

Waikato shareholder Trevor Simpson is among the fiercest critics of the performance of the 20-year-old Fonterra shareholder watchdog, but is comforted by the tone of the council’s selfreview so far.

“They’ve asked some very hard questions of themselves” in a survey of farmers, he said. “I was impressed. If ever a list said it was time for a change, this is the list.”

The survey of 10,000 or so shareholders and sharemilkers received 1400 responses.

Questions asked them to respond on a scale of 1 to 10, and allowed unlimited additional comment.

No questions were asked about the cost of the council, said its chairman James Barron. The council’s budget for this year is $3.2m.

Its annual budget, which farmers are asked to approve at every Fonterra AGM, has rarely dipped below this level, but until Fonterra’s financial performance started to fray, shareholders batted away journalist questions about the cost of the council, saying it was a tiny percentage of their milk payout.

The council was created in 2001 when farmer-owned Fonterra was formed under special legislation from an industry mega-merger. The council was to be a watchdog for the co-operative’s 10,000-odd shareholders but gripes that it is more a lapdog for the Fonterra board have grown in recent years.

Fonterra’s FY19 net loss of $605m on asset writedowns of $826m brought the dissatisfaction to a head, inflamed by the council noting shareholders had experienced around $4 billion in wealth destruction in the past two financial years.

The council narrowly beat off two shareholder remit efforts to put it under a microscope at Fonterra’s annual meeting in November with a pre-emptive strike announcing it would conduct an independent review of itself. Simpson was among the challengers who want the council scrapped.

The upshot has been the formation of a review group. It comprises four farmershareholders selected by Barron from 22 nominations, two Fonterra directors and two councillors. These eight appointed James Buwalda, a former scientist and senior public service executive as independent chairman.

The review is due to report to shareholders in August — providing Covid-19 doesn’t slow it down.

Regardless, it will have to be finished in time for any shareholder vote that may be required at November’s AGM.

While the tone of the survey has won applause, the review process has been criticised by some shareholders for not allowing former Fonterra farmer-directors to be nominated for the review group.

Former councillors were also blocked, Barron said.

“One of the reasons we landed on the makeup of the steering group was to balance knowledge of the organisation with some objectivity. Two current board and two current council members would bring that knowledge.

“What we were after from the four farmer members was some objectivity . . . to balance the group.”

The review group is Buwalda, shareholders Judy Garshaw, Andrew Hoggard who is Federated Farmers vice-president, Paul Quinn and John Small, Fonterra directors John Nicholls and Donna Smit and councillors Emma Hammond and Mike Montgomerie.

On calls for the council to be scrapped, Barron told the Herald “the rationale for a farmer representative organisation is very strong”.

Simpson said when Fonterra was formed 20 years ago, shareholders “probably wanted a backup system”. But the world had changed, the council had done its dash and he didn’t like wasting money.

“It’s time to look at it and see if there’s a better way. The whole communications thing has changed with social media. The (survey) questions will clearly draw out the need for change. There’s a mood for change within the council too.”

Waikato shareholder Jim Cotman, among those who in November called for the council’s effectiveness and performance to be reviewed by professionals, said the council was “a feel good factor”.

“It’s not relevant to today’s business.

“Now we are saying it’s past its use-by date. We want value for money.

“We already pay Fonterra to have field reps who run around and do the same job (as councillors). We don’t need two sets of accounts going out to shareholders.”

Cotman believed the council got in the way of the relationship between Fonterra directors and shareholders.

The once-close relationship between directors and farmers had been lost,” he said.

“We have to be given quality information (about the company). At the moment we get our information from the Herald.”

One of the reasons we landed on the makeup of the steering group was to balance knowledge of the organisation with some objectivity.

James Barron (left), chairman, Fonterra Shareholders’ Council