Corporate Governance

The Board and management of Fonterra are committed to achieving the highest standard of corporate governance and leadership.

Introduction

To support our role as a Board, we have developed governance systems that reflect Fonterra's unique characteristics and requirements as a significant New Zealand based co-operative competing in the global dairy market.

We focus on Governance in a way that promotes:

• The interests of our supplying Shareholders.
• Transparency, giving our supplying Shareholders and other stakeholders the information they need to assess our performance.
• Effective risk management to ensure that Fonterra meets its business objectives and all legal requirements.
• A good balance between the roles and functions of the Board and management.
• Communication with important stakeholder groups, including employees, customers, farmers, governments and the communities within which Fonterra works.

Our Board

The Board has 13 members - nine elected from the Shareholder base and four appointed by the Board and ratified at the Annual Meeting by Shareholders.

The Appointed Directors are selected to ensure that the Board has the full complement of skills and competencies needed to lead an enterprise of Fonterra's size, sophistication and complexity. They bring to the Board perspectives and experience to augment the direct industry knowledge and other expertise provided by the Elected Directors.

As the Elected Directors must be Shareholders, they will have a supplier relationship with Fonterra and generally will not be classified as independent under best practice definitions.

The Appointed Directors, however, do generally meet the NZX criteria for independence and are expected by Fonterra to maintain independence for the length of their term. All Directors comply with the legislative requirements for disclosing interests and with Fonterra's in-house Securities Code of Conduct which regulates both Directors and management in their personal dealings with Fonterra securities and those of related companies. Fonterra does not have executive Directors.

Find out more about Fonterra's Board.

Board Effectiveness

It is important that all members of the Board are appropriately informed of the Group's activities and have access to operations and management.

Directors are supplied with detailed monthly performance reports and analysis in advance of all Board meetings, together with papers on any significant commercial initiatives, and information on the Group's competitive position and general economic indicators.

The Board also makes a point of meeting regularly at one of our Fonterra sites so that they can broaden their understanding of the business through direct contact with managers and customers. Directors also regularly visit key markets to gain a better understanding of the global dairy market.

Following appointment to the Board, Directors undertake an induction programme to familiarise themselves with the Group. Areas covered include:

• The Fonterra Constitution.
• Business strategy and planning.
• An overview of key financial metrics to monitor business performance.
• An overview of material areas of the Fonterra business, through meetings with key executives.

All Directors have access to Fonterra's General Counsel, who is responsible for advising the Board on all governance matters. The Board can also seek external advice as required.

Board Role and Charter

Our Board is responsible for leadership, direction and oversight of the Group and is accountable to Shareholders for overall performance of the Co-operative. Specific functions in the discharge of this responsibility are:

• Review of the dividend policy and declaration of the interim and final dividend.
• Declaration of the Farmgate Milk Price and Distributable Profit.
• Declaration of the actual Co-operative share price from the commencement of each season (the Fair Value Share price).
• Reviewing and approving the Group strategy and business plans.
• Appointing the CEO and reviewing the CEO's performance.
• Delegating authority to management, and monitoring the exercise of that authority.
• Engaging in the development of the strategic plan and setting the strategy for the Group and for the major business units within the Group.
• Approving significant acquisitions and disposals outside management's delegated authorities.
• Overseeing the Board Committees and the areas covered by each of those Committees.

The Board Charter outlines the key values and practices of Fonterra and provides a reference point for the Board as a whole, and for individual Directors, in the execution of their duties. The Charter is reviewed regularly, as are the Committee Charters.

Find out more about Fonterra's Board Charter.

For more information on our Corporate Governance, please refer to our latest annual report.