Discuss about the Corporate Governance Forum Companies an Organization.
In New Zealand, for achieving the long term growth in the capital market and for promoting good corporate governance in companies an organization is working named as New Zealand Corporate Governance Forum (Forum). Financial Market Authorities developed the corporate governance principles and guidelines in its FMA Corporate Governance in New Zealand Handbook for Directors, and such principles and guidelines are supported by forum. These principles and guidelines are applicable on large number of entities such as listed entities, unlisted entities, government entities and not-for-profit organizations. Changes in corporate governance focus on the board composition and board structure (NZ Forum, 2015). In this essay we start the discussion with the role and duties of directors in the context of regulatory, legal and statutory terms. In this we cover four questions related to case law that is issues in the strategy of Fonterra which need to review, how helpful these changes are in helping the directors in discharging their duties, applicability of proposed changes and in last opportunity directors has missed in revising the governance.
Board of directors of the company plays a very important role in conducting the affairs of the company. In other words we can say that board of directors of the company are those tiers which run the company, and they are responsible to create the wealth for shareholders and provide services to the stakeholders of the company. Principles and guidelines set out by FMA will help the board of directors of the New Zealand companies in achieving high standards while complying with their duties and responsibilities (Securities Commission New Zealand, 2004).
Section 131 of the Companies Act 1933 state the duties of directors to act in good faith and in the interest of company. According to this section:
Section 135 of the Companies Act 1933 defines that directors of the company must not conduct the affairs of the company in such a way that create or cause to create any substantial risk to the creditors of the company (Companies Act 1933, n.d.).
Section 135 of the Companies Act 1933 defines that directors of the company must exercise their power with due care, skill, and diligence (Companies Act 1933, n.d.).
Principle of corporate governance described the board performance and composition. This principle ensures an effective board, and make sure that board of the company must consist of independent directors, skilled directors, directors have knowledge, experienced directors and perspective. Following are the guidelines of FMA issued to ensure effective board in the company:
It is necessary that directors ensure the proper structure of the Board for maintaining skills, knowledge, and experience in their board. Size of the board of directors of the company will rely on the factors like need of the company, nature of the company, and maturity. For the effective running of the company it is necessary that board has skill, knowledge and experience. Members of the board take collective decision by thinking and contribute expertise outside of their own areas. Therefore, it is necessary that board of the company comprise the best to attain the company goals, and also ensure the monitoring of the operations of the company.
An individual must join the board only when he has competencies related to business, strategic, analytical and knowledge, and he also has ethical and personal qualities. For the continuous development of the company it is necessary that person must have knowledge competencies and these requirements are changed according to the company to company (Code of Practice for directors, n.d.).
In the present case of Fonterra, company reviews its governance structure for the first time in 2013. After making review on the present structure of the company, and after proposed changes in accordance with corporate governance company asking for the feedback of the farmer owners. Company make following proposals:
Reduced the size of the Board: Company decide to reduce the size of the board from 13 to 11, and proposed to remove 2 independent directors of the board. According to the research of the company there is no right number for the composition of the board. It was concluded from the research that smaller groups are more effective in taking decisions, and they are more efficient in creating the environment in which members make efficient decision, involve personally, and this increases personal accountability.
The main issue in the strategy of the company is removal of independent directors from the board. The proposal of the company was supported by 50%, but board did not get vote from 75% shareholders of the company. According to the principal of corporate governance issued by FMA, Company must have board that has appropriate balance of executive and non executive directors, and board also has independent directors. In this case, if proposal of directors were approved by the shareholders then in such case Board of the company will reduce its independency (Fonterra, 2016).
According to the Board of directors of the company these changes are made to make the board more efficient, and remove the unsuitable candidates from the board. Directors also changed the eligibility criteria for the farmer directors, and also proposed to allowed modern farmer ownership structures. These proposed changes help the directors in discharging their duties effectively and take decisions in the best interest of the company.
These changes mainly focus on increasing the power of board in the company, and also board monitor the performance of the management of the company. Through these changes company wants to introduce skill and experience in their board, and wants to give power in the hands of farmer. Company also introduces new selection process for the board which increased the importance of farmers in the company. For the farmer directors company introduce the single transferable vote system (STV), and for independent directors they introduce pure board appointment process.
Through these changes board strengthening the position of farmers in the company, following proposed changes are there which increase the control of farmers in company:
Through these powers company give control in the hands of the farmers, and also increase the efficiency of the board. the main of these proposed changes are Fonterra wants to strengthen its governance and representation to ensure it can meet goals including lifting the volume it collects to 30 billion liters of milk both in New Zealand and in overseas markets from 22 billion liters now, and driving revenue to $35 billion over the next decade from $18.8 billion.
Fonterra miss the opportunity while focusing on these changes that it does not pay attention to the other aspect of the corporate governance, and other opportunities tto flourish the business of the company.
Conclusion:
In this paper, we discuss about the proposed changes introduced by the Fonterra. Changes proposed by the Fonterra was reduction in board size, increased the control of farmers, change the selection process in the board, and also introduce new eligibility criteria for the board. These changes are reviewed in 2013 and proposed by company in 2016. In this we conclude that these changes are adhered to corporate governance, and company wants to expand the business through these changes.
References:
Securities Commission New Zealand, (2004). Corporate Governance in New Zealand Principles and Guidelines. Retrieved on 11th October 2016 from: file:///C:/Users/Guest/Downloads/SecLaw_SBL-Q_NewZealandSecuritiesCommissionPrinciples.pdf.
NZ Forum, (2015). Guidelines. Retrieved on 11th October 2016 from: https://www.nzcgf.org.nz/assets/Uploads/guidelines/nzcgf-guidelines-july-2015.pdf.
Companies Act 1933-s131
Companies Act 1933-s135
Companies Act 1933-s 137
IOD.Code of Practice for directors. Retrieved on 11th October 2016 from: https://www.iod.org.nz/Portals/0/Publications/Founding%20Docs/Code%20of%20Practice.pdf.
Institute of Directors. Draft Corporate Governance in New Zealand Principles and Guidelines. Retrieved on 11th October 2016 from: https://www.iod.org.nz/Portals/0/Governance%20resources/IoD%20NZ%20-%20Submission%20to%20FMA%20on%20corp%20gov%20principles.pdf.
Fonterra, corporate Governance. Retrieved on 11th October 2016 from: https://www.fonterra.com/au/en/about/our+governance/corporate+governance/corporate+governance.
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