Corporate Governance: Milking the X-factor – Fonterra’s school for directors and leaders

Criticism of the quality of Fonterra’s board membership has dogged the dairy giant since the day its composition was announced.

Some drastic, or inspired, action was necessary to silence the critics. It was always going to be tricky. The company is, after all, co-operative with large shareholder base of frequently hard to muster dairy farmers. But where to find the talent for an increasingly difficult job?

Enter Fonterra’s Shareholders’ Council (FSC). It came up with first of its kind.

Together with global consultancy Deloitte Human Capital and executive recruitment company Sheffield, FSC has embarked on programme designed specifically to bring the cream of Fonterra’s shareholder talent to the top. Having been screened, vetted and scrutinised, an elite seven are now being groomed for organisational leadership through individually tailored training programmes.

It’s been difficult for shareholders to make informed decisions about individuals putting themselves forward for Fonterra directorship. This reality, combined with the historically political nature of former board appointments, meant the old selection process was flawed, concedes FSC chairman and one of the programme’s architects, Tony O’Boyle.

With greater objectivity and transparency, the new selection process should eliminate favouritism. By inviting the entire shareholder base to participate in introductory training programmes the FSC believes it has created level playing field.

Even if final board composition doesn’t mirror the shareholder base geographically, O’Boyle thinks it’s critical that all shareholders start off on an equal footing. “The FSC-initiated programme recognises that Fonterra is complex international business. It’s designed to spark interest in the co-operative and to improve selection intensity by creating pool of available talented people.”

O’Boyle doesn’t see the FSC’s new leadership training programme is an indictment of the existing board lineup. But it does recognise that the transition from collection of smaller manufacturing co-operatives plus the Dairy Board, has left void in the incubation of upcoming talent. “The aim is to mimic what happened within our former structure,” he explains. “In the old days there were 40 regional directors, many of whom were filtered off to directorships within the manufacturing companies and to the marketing arm, which was the NZ Dairy Board.”

All of Fonterra’s 13,000 shareholders can still put themselves up for the nine (farmer) directorships on the co-op’s board. Advanced training doesn’t come with any guarantees. But O’Boyle expects those who have been through personalised development programme to have the competencies required to “hit the board table running”.

The selection
From pool of 214 shareholders (and suppliers) who either chose to attend the FSC’s “free-to-all” two-day introductory training programme last year or who were existing/former councillors/directors from the legacy companies, 62 put their names in the hat to attend the inaugural advanced training programme.

After that:
* Based on formal evaluation (against specially developed Fonterra leadership competencies) by Deloitte Human Capital, including written application, background, referees, relevant qualifications, evidence of external industry activity, and one-to-one phone discussions, the initial 62 were reduced to 35.
* Following structured interviews and psychometric testing, Deloitte chose two women and 10 men to proceed to an assessment centre.
* After day testing competencies — seven men were invited to attend the advanced training programme.

“While we identified x-factor qualities, final assessment became matter of intuitive judgement. The FSC was looking for six people to go forward, but we recommended seven,” says Graham Hart, director with Deloitte Human Capital.

The chosen seven (all of whom are North Island-based) are:
* Malcolm Bailey, Feilding
* Graeme Edwards, Leigh
• Colin Holmes, Murupara
• George Moss, Tokoroa
• Kingi Smiler, Wellington
• Michael Spaans, Te Aroha
• John Wilson, Te Awamutu.

Advanced training
After the selection process Deloitte handed all relevant evaluation material to Sheffield, which is charged with running the programme. After reviewing the Deloitte brief, Sheffield will appoint an individual coach for each person to develop individually tailored training programmes. Each coach will be senior Sheffield executive experienced in selecting and evaluating directors and personal development activities.

Each participant will also be assigned mentor chosen for their expertise and knowledge.

FSC is chipping $480,000 into the programme, including personal development programme for all Fonterra suppliers on, but that won’t cover all costs. The participants will jointly sign off on their individual programmes and jointly fund the costs associated with their training.

Every individual has unique requirements. Some will no doubt finish the programme sooner than the anticipated two years. “The programme is really about rounding-out and improving the skill-base of already outstanding people,” says Sheffield partner Mike Stenhouse.

Sheffield has drawn on its own intellectual property to develop template for this pilot. It is also working with US-based Development Dimension International, specialists in competency identification and leadership development.

Participants will undergo quarterly and annual reviews to ensure the programme achieves both short and longer-term benchmarks. “In addition to appropriate study tours and post-graduate study, including extensive reading, MBA or other courses around behaviour and interpersonal skills, participants will also be encouraged to take up leadership roles within the dairy industry at board or representational level,” says Stenhouse.

End game
The FSC ran its first 2003 introductory course last month. Assuming another six or seven stars are selected each year from now on, clearly only few will go on to become Fonterra directors. So what is O’Boyle & Co’s end game?

From O’Boyle’s perspective, building deeper pool of potential candidates for Fonterra directorship or other corporate representation is only half the expected outcome. The first test will come when participants submit themselves to shareholders for seat on the board. The FSC’s broader objective is to develop leadership skills within the dairy industry. They expect spin-offs for the broader business community as programme participants find their way onto other boards. “These programmes are deliberate attempt to get the best people (working for the industry) regardless of gender and location. There’s also scope to improve the skill-set of existing directors and experience is the key,” he says.

Continuous improvement
One of the chosen seven, Tokoroa dairy farmer and FSC councillor, George Moss, 44, sees Fonterra directorship as just one of many possible outcomes. Even if Moss hadn’t made the final cut, the feedback so far has been invaluable, he says. But if Fonterra directorship isn’t the end game, what’s behind the decision to invest his own time, one day week, and money on the programme?

The return on Moss’ investment will be wider skill-set and knowledge base. He’s more fixated on this co-op than becoming director per se. “It’s my passion for dairy farming that’s driving me. At the end of the day, Fonterra is marketing company, and this programme will increase the bank of people qualified for office-bearing positions. I don’t believe there’s governance issue at Fonterra. This programme is about making things [work] better.”

Farmer Director Competencies
• Strategic vision including strategic thinking, business knowledge and judgement.
• Interpersonal skills – including giving leadership.
• Cooperative structure and teamwork.
• Governance including managing performance and interpreting information.
• Exp

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