Friday, March 29, 2024

A boardroom takeover?

Avatar photo
Board structures are becoming increasingly common in larger agribusinesses as their ownership and operational structures become more complex.
Reading Time: 2 minutes

The new governance arrangements are being introduced for several reasons, including family succession. They enable a farm enterprise to involve additional skills and often to bring in the next generation to participate in setting and overseeing business strategy.

The ANZ Bank’s AgriFocus said, “The business is no longer limited to the working lifespan of the founder. No owner-operator business can last longer than a person’s lifespan, but they can survive for hundreds of years with family succession.”

Governance arrangements are about effective decision-making rather than structure and form, and about protecting the business and achieving the owners’ objectives. The main functions of boards established by farm businesses are providing leadership, setting direction and maximising shareholder value.

More than 30% of agribusiness respondents to the ANZ Bank’s latest Business Barometer survey noted the use of a board of directors or similar governing body in their farm operations. This was well up on the previous year.

The readiness to bring in outside expertise in governance was highlighted by an increasing number of independent directors being included on those boards. Among the respondents with boards, 62% had independent directors and nearly 50% had more than one independent director.

In 2010 ANZ hosted 18 workshops throughout the country on “The myths and realities of management, leadership and governance”. Most businesses represented were companies and/or trusts. Very few participants were operating as sole traders or partnerships. The most common model was to have land assets, and sometimes other assets, held by a trust, while operational transactions were conducted by a company.

Many relationships were observed between company and trust, including shareholding and common governance. Trusts were regarded as a good vehicle for protecting assets and minimising taxes while companies were regarded as appropriate to limit risk from potential financial liability.

Not many workshop participants had adopted a business structure for the purpose of business growth. The ANZ believed there was still a lot for the sector to learn about what more formal governance has to offer. Considerable prejudice remained about what directors can and cannot do and the rights and responsibilities of shareholders weren’t well understood.

But the latest ANZ Business Barometer showed the overriding motivation of agribusinesses was to make money.

“The shift in focus toward a more investment-oriented decision-making model and focus on cashflow and profit has been going on for a while now,” AgriFocus said.

In the dairy sector this would be tested by the degree of divergence between credit growth, especially among those who already have high levels of debt, land price appreciation and net capital expenditure in 2013-14.

This would prove whether farmers were taking action on a change to focusing on profitability rather than capital gains, the bank said. But as the shift to a more investment-driven model continued, decision-making would need to be based less on intuition and available cash, and more on the numbers and expected returns on the investment.

Total
0
Shares
People are also reading