Farmers are facing increasing regulation around aspects such as health and safety, human resources and the environment and as such the skill levels required in their business is expanding.
Establishing a good governance structure is a good step to ensure those regulations are met. It provides a structure for accountability to get things done on time and allows farmers to recognise what external skills their business might need to meet those regulations.
Governance has always been in place to some extent in traditional dairy farming businesses, but typically it’s been in a very informal capacity around the family table, ASB rural banking general manager Mark Heer says.
There has been a definite increase in conversation across the dairy industry. A lot of key stakeholders are talking about formalising governance for both the family farm and the larger multi-farm corporate operations, he said.
The uptake at a corporate farm level has been significant, but the traditional familyowned farms have been slower to establish formal governance structures.
A family-owned business might think they’re not big enough to warrant a formal governance structure because they don’t have other stakeholders to answer to.
A family business might not need a formal board, with paid independent directors, but there is significant value in having a structure in place for regular governance discussions, Heer said.
There is value in appointing independent directors to bring needed skills to advise the family-owned business.
There are a lot of experienced people willing to help farmers from an industry-good perspective and getting independent advice or an independent director on a board doesn’t need to be a costly exercise, he said.
There needs to be a mindset change that governance is an investment not a cost, he said. A good governance structure is something that works for all stakeholders and achieves value creation.
Having a structure in place where farmers have a helicopter view of the business can improve their business performance.
This can help farmers set key performance indicators to ensure they meet their goals, develop a growth or an exit strategy, and develop a risk management policy for the business including investigating diversity options.
From a bank’s point of view, they like governance as a general rule because of the value it can add to a business, Heer said.
Identifying and managing risk, and having accountability especially around compliance, is critical and provides further protection for the farming business and ultimately the bank’s investment, he said.
Governance also helps with planning for various scenarios and making informed decisions.
“The big difference I see between good farmers and really good farmers is the timing of their decisions,” Heer said.
‘For a lot of family businesses it never seems a good time to sit down and talk about what each of you want to achieve out of the business.’
“The really outstanding farmers make the right decisions at the right time.”
For a family-owned farming business, having good governance also creates a forum for planning the future direction for the business and everyone in the family can have their say, Heer said.
Dairy farmers are facing the complexity of succession planning and having a regular forum where the family can talk about the future plans for the business is a key part of making that run more smoothly.
“For a lot of family businesses it never seems a good time to sit down and talk about what each of you want to achieve out of the business.
“But this forum will give everyone a voice. It’s important to create that time and place and environment where everyone can have a discussion about what it is they want to do and achieve.”
Having governance in place can also help to share the emotional load that comes from being in business, Heer said.
In family-owned operations where parents, siblings and their partners can be working in the same business, sitting on a board and developing a business plan together and regularly talking about the future can help to remove emotional tension.
It’s important to have a clear and unified vision and purpose for the business and ensure everybody has clarity about their individual roles.
It’s a cultural change to set aside time regularly to discuss the bigger picture for the business rather than just the daily operation, Heer said.
Particularly when it’s family sitting down together, it’s easy to be distracted by other conversations.
It’s a good idea to set a structure and have discipline around having regular meetings, including setting an agenda and having accountability for people to deliver on agreed actions, he said.
What are the benefits?
The values of setting up a governance structure for a dairy farm business – either corporate or family-owned – include:
- Diversity of skills and experience to focus discussion, challenge and lift the quality and robustness of decision making
- An environment in which all shareholder-governance stakeholders can have a voice
- An environment to gain clarity of purpose, values and strategic planning
- An environment to identify and manage business risk
- Lift the quality and consistency of business execution through an accountability framework
- Improved business performance, including financial performance.
