F o n t e r r a

Governance38Fonterra is New Zealand’s largest co-operative as wellas being a significant company in the context of theNew Zealand economy and the global dairy industry.The Company has approximately 11,000 New Zealanddairy farmer suppliers who are shareholders, andhas issued Capital Notes which are listed on theNew Zealand Debt Market of New Zealand ExchangeLimited (“NZX”).The Board and Management are committed to asystem of corporate governance that meets theunique requirements of Fonterra’s shareholders andbest practice appropriate to a co-operative and, asNew Zealand’s biggest company, also takes into accountrecommendations by the New Zealand SecuritiesCommission and NZX.The Board of FonterraCOMPOSITIONThe composition of the Fonterra Board is a significantelement in the governance of the co-operative. TheBoard is comprised of up to 13 directors. Under theFonterra Constitution, nine of the directors are electedfrom the shareholder base (“Elected Directors”), andfour are appointed by the Board and approved byshareholders at the Annual Meeting (“AppointedDirectors”). There are no executive directors.During the financial year two of the Appointed Directorsretired. They were replaced by Mr John Ballard andMr Ralph Waters.Appointed Directors have a significant role to playin providing a balance of independence, skills andexperience to the Board, complementing the deepunderstanding of the dairy industry provided by theElected Directors. Consequently, appointments are onlymade after a process involving an extensive searchbased on detailed criteria. Appointed Directors areappointed for a term specified by the Board, subject toshareholder approval. Elected Directors are appointedfor a three-year period through a postal ballot.During the year the director election process for ElectedDirectors was reviewed and the timing of electionswas changed so that at the time of the elections themost up-to-date financial results are available. Thischange also ensures that the Director elections coincidewith the Annual Meeting. The structure of the Boardwill continue to be reviewed in consultation withshareholders to ensure that it best meets the demandsof the co-operative.“INDEPENDENT DIRECTORS”The Fonterra Constitution specifies the compositionof the Board and does not distinguish between“independent” and “non-independent” directors. TheAppointed Directors are “independent” and free ofany supplier relationship with the Company. However,the co-operative nature of the Company means thatElected Directors, who must be shareholders, will havea supplier relationship with the Company. While noneof the Elected Directors are material shareholders, theyare not classified as “independent” under the NZXdefinitions because their supplier relationship withFonterra is material to their business activity.The Board considers that the mix of Elected andAppointed Directors, as mandated in the Constitution,provides an appropriate balance so that the Boardoperates in the best interests of the Co-operative’sshareholders.All Directors comply with the legislative requirements fordisclosing interests, and Fonterra has a Securities Codeof Conduct, which guides and regulates both Directorsand Management in their personal dealings withFonterra securities and those of related companies.BOARD ROLE & CHARTERThe Board has the responsibility to direct and supervisethe management of the business and affairs of theCo-operative. Key activities in discharging thisresponsibility are: determination of payout; setting ofthe Fair Value Share price after determination of theFair Value range by the Valuer; review and approval ofthe budget and corporate plan; the appointment andreview of the performance of the CEO; engagement