Kerry and Carol O’Connell, and Sam and Anna O’Reilly, told Anne Lee a governance course was the best thing they could have done for their business.
Completing a governance course together before they officially even became business partners is one of the best things two Canterbury couples say they did for their farming business.
Kerry and Carol O’Connell and Sam and Anna O’Reilly are now in their fourth season together as equity partners in Carrieante, a 780-cow farm near Dunsandel.
The farm has been in Kerry’s family since the 1930s but had been under a long-term lease to a neighbouring farmer who built a 54-bail rotary dairy on it in 2004.
When the lease expired in 2013 Kerry wasn’t ready to put it on the market but nor did he and Carol want to farm it.
Farm facts:
Carrieante
Owners: Kerry and Carol O’Connell, Sam and Anna O’Reilly
Farm manager: Ben Miller
Total area: 200ha
Crop: 12ha fodder beet for winter
Cows: 711 cows
Farm working expenses: $3.80/kg MS
Supplement: 450kg DM
Production: 351,700kg MS
Farm Dairy: 54-bail rotary
Both couples were banking with BNZ and it was through their bankers that each began investigating the options of an equity partnership.
BDO senior business advisory consultant Rod Hansen – at that time Sam and Anna's banker at BNZ – suggested an equity partnership could be a step on the progression pathway.
They interviewed four couples, including Sam and Anna, after Rod had suggested the equity partnership could be a step on the progression pathway for them too.
Kerry and Carol brought in the help of Canterbury dairy consultant John Donkers because, with no dairy experience, the couple wanted his expertise to ensure candidates were capable and good performers onfarm.
It wasn’t great timing for Sam and Anna with their three-year -old daughter seriously ill in Starship Hospital. She recovered but it was a tough time to be going through an interview process for what they hoped would be a significant move in their careers.
The couple were 50-50 sharemilking 1100 cows near Darfield at the time, having worked hard to build their business and equity by climbing the sharemilking ladder.
Farm ownership had been a long-held goal and, while sharemilking had taken them a long way, they knew getting to the point they owned a farm outright by themselves could take a few intermediate steps.
With each couple deciding at a business and personal level they could work together it was Anna and Rod who strongly suggested they do the governance course, developed by DairyNZ with input from business professionals.
Rod says the course helped wrap some appropriate processes and structures around their new business and equity partnership right from the outset.
They’re things that are valuable to any business but are sometimes neglected in a sole trader or owner-operator business.
“In my view, in an equity partnership it is important to provide transparency and establish accountability which in turn helps minimise internal conflict through lack of clarity, communication and understanding of expectations,” Rod says.
The course began in January that year even though they wouldn’t formally begin in business until June 1.
Both couples attended it at the same time, along with Rod.
Kerry says looking back it would have been very difficult to run the business and make the progress they have if they hadn’t done the course.
“Because we all did it together we all know what we’re trying to achieve with good governance,” Anna says.
“It gave us a really solid grounding right at the start – it set the foundation for our business together.”
The couples say they learnt very quickly they really didn’t know a lot about governance even though they’d all had various levels of experience by sitting on committees or school boards.
Their first step in the course was to decide their vision and purpose. It took serious thought and discussion, given they were still relatively new to each other.
They decided on “farming with pride” as their vision and included an acronym for their values and purpose.
P – profit
R – responsibility
I – investment
D – diligence
E – enjoyment
The goal was also for Sam and Anna to eventually buy the farm outright. For Kerry in particular, transitioning out of the farm to people he knows and he and Carol have a relationship with is much more palatable than simply putting the farm on the open market.
At the course they learnt there are four pillars to good governance:
1. Knowing your purpose and working to it.
2. Having an effective governance culture.
3. Holding to account.
4. Managing risks and compliance.
Anna says the course broke those down to bite-sized pieces and the couples then worked on policies for each, determining for instance exactly how often they’d hold meetings and how they’d be as well as what would be expected in terms of reporting – who did it and what needed to be reported on to ensure they had the right information to assess whether they were heading in the right direction or not.
Sam says once they were actually running the business for a while the course made more sense.
“What we learnt became a lot more relevant to us. We understood it then but now we can really see how to put it into action and why it’s so important,” he says.
They’ve also refined some aspects.
All four of them used to meet monthly but now hold specific management meetings and hold governance meetings three times a year.
Factors such as risk management, health and safety, environmental management, big picture financials and how they’re tracking against strategic business targets are all discussed.
All meetings have an agenda that’s pre-circulated and minutes are taken with action points noted along with who is going to complete the task. The minutes and action points are re-visited at the next meeting.
Anna says the key to well-run, effective meetings is the planning.
If all the work has been done before the meeting to gather the necessary information then the board can have an informed discussion and make a better, faster decision.
Rod is now also a member of their advisory board, which Anna says adds an important level of discipline to their group.
The two couples have become great friends and Rod brings an outside, independent view to discussions.
His strong farming knowledge means he can challenge and ask the right questions when it comes to both planning and reporting.
In farm businesses it’s common for owners and operators to also be the governors and Anna says Rod’s ability to challenge strengthens their board and makes decision making more robust.
“He really makes sure the hold to account aspect is carried out,” Anna says.
Carol says she was a long way out of her comfort zone at first – not only because she didn’t know a lot about governance but also because she knew little about dairying.
What she did learn quickly was that it wasn’t just ok to ask questions it was vital.
She knows it’s an important part of good governance that she formulates her own opinion and then speaks up to voice it rather than simply going along with the others.
Just going along with the flow is called group-think, and because it doesn’t add anything to the discussion it weakens the decision-making process.
They don’t vote but keep discussing the issues until they can reach consensus.
Having a clear purpose and goals as part of the farm’s strategy means the issues are discussed and assessed with those in mind.
One of the first times that was tested was deciding whether to be part of stage one of Central Plains Water.
Buying the shares was a big commitment, given they already had sufficient water rights to ground water.
The move to surface water would mean lower electricity costs because the water is delivered under pressure but a change in irrigation infrastructure on the farm was still needed because it wasn’t enough pressure to drive all their Rotorainers.
The farm gets a nutrient loss allocation through its membership of CPW, which is important with new nutrient limits coming into play for the area via Canterbury’s Land and Water Regional Plan.
“There was a community aspect to it in supporting CPW but there was also a future-proofing side to it too – although that all came at a cost,” Sam says.
They didn’t all agree on whether to take up the shares or not at the outset but because of their consensus policy kept talking through the issues point-by-point and sought further information to help them make the decision.
Ultimately they compromised and bought enough shares to water 60% of the farm.
The next major decision came when 80ha of neighbouring land became available for purchase.
It could have allowed the property to be run as a self-contained unit but despite the natural urge the group admits farmers tend to have when the neighbour’s land comes up for sale, they decided not to buy it.
The additional debt the business would have had to take on would have pushed the company’s change of ownership goal further away.
This past season the farming business also took a new tack, with Sam taking on the role of operations manager.
An opportunity came up to apply for an operations manager role on Melrose, a nearby 1500-cow property owned by absentee owners Dave and Matt Peacocke.
The farm is run as two adjoining units and when the board assessed the opportunity found it fitted with their vision and several of their goals.
Sam had already stamped his mark on Carrieante and his 2IC Ben Miller was ready to take on the next challenge in his career.
The board was happy for Ben to step up to manager, keeping him in the team, with Sam overseeing the operation.
Taking on the bigger role at Melrose also gave the energetic Sam a new challenge and working for a salary off-farm ticked the box when it came to speeding up Sam and Anna’s equity growth in Carrieante.
It was a big move but their governance skills in analysing the risks, making decisions, structuring their meetings, reporting and also holding to account have all served to keep them confidently heading in the right direction.
Click here for more information on governance and governance courses.
