Governance applies to all farming businesses – large, medium or small - at any stage of development, from new sharemilkers to well-established farm owners.

What is governance?

Governance is the role of leading an organisation and management in its day-to-day running or operating. Governance is the job of the governing body, such as a committee or board, to provide direction, leadership and control.

Often seen as the domain of corporate businesses, governance applies to all family businesses. In a family farming situation, the family and business are intertwined, and you may play all the roles (governor, manager, staff); you may need to wear a different hat for different roles.

What is effective governance?

Effective governance ensures the organisation remains viable and thrives, improving its results (both social and financial) and making sure its assets are protected and funds are used appropriately.

Governance gives clarity of direction and purpose, and clearer roles and responsibilities, effectively utilising the skills of the family or team around you.

Improved decision making and being on top of your business builds confidence, engagement and satisfaction, while family or team harmony levels rise. Stress, risk and uncertainty levels decrease.

Poor governance risks

Poor governance can result in risk of commercial failure, financial and legal problems for directors or trustees, or may allow an organisation to lose sight of its purpose and responsibilities to members and the people who benefit from its success.

How does governance lead a business?

Governance must be satisfied the management team is doing its job in accordance with policy and resources.

Governance:

• Knows the big picture - why you are in business (purpose), and where the business is headed
• Sets the goals, then monitors and reviews performance – making changes at a strategic level when performance is not aligned with goals – ensuring accountability
• Sets clear boundaries of responsibility and accountability
• Ensures a broad range of skills and experience is brought to the table – a mix of creative and big-picture thinking, good decision making and implementation. Independent and impartial thought is encouraged which provides a good environment for people to flourish
• Understands the broader issues the business has to deal with
• Identifies and manages risk and compliance requirements
• Plans the business succession

Governance or management?

DairyNZ's governance findings in dairy farming businesses

We found many dairy farming businesses were already practicing good governance, but generally informally and in small doses. Businesses were at different stages of development.

Smaller businesses

Often in an early stage of development or businesses with low debt, smaller businesses may have quite formal processes:

• Governors are often a sole operator or a farming couple
• Little formality around written plans, reporting, monitoring and benchmarking.

Larger businesses

As businesses grow and more people become involved, governance needs to address more complex issues:

• Progressing from husband and wife to an annual meeting with key advisors and a regular family meeting, or even further to advisory or formal boards
• Reporting and benchmarking requirements increasd
• Agreements become more formalised.

Where are you on the governance journey?

Six ways to enhance your business governance

These six practical things, easily introduced into a business, will improve your business governance.

1. Act with a purpose in mind - determining purpose

Governors need to spend time determining the business vision, purpose and strategy. What is the purpose of this business? What are you trying to achieve? It is important to have extreme clarity about this and allowing governance decisions and actions  to align with the  purpose, vision and strategy.

Make time to think and plan for the future, to ensures today's actions lead to the outcomes and results you want in the longer term.

2. Hold effective governance meetings - effective governance culture

Many businesses already have an annual calendar of events outlining farming activities that occur throughout the year and hold meetings focusing on mainly management and operational. To hold a sustained pattern for effective governance meetings utilise agendas, meeting calendars, minute taking and discuss expectations and how to run time efficient meetings.

Holding an annual meeting with your key advisors to discuss strategy and performance is an excellent method of harnessing the knowledge and skill set of those who support your business. These meetings should provide insight into possible business improvement while also providing key advisors the opportunity to learn more about the business. They can use this time to think on a strategic rather than management or operational level.

3. Work with other people - effective governance culture

This practice is based around achieving thoughtful challenging and non-personal debate to get consensus without groupthink. Seek a range of skill sets around the table establish the roles and responsibilities members have and the values that describe how the governance group or board behaves.

4. Make right decisions - effective governance culture

Making good governance decisions requires a balance between prudent stewardship, creativity and stable but not static systems of policies and parameters. Examples of areas where policies and parameters are used in decision making include capital expenditure, investment and borrowing policies, checklists and due diligence for investments, processes for getting board approval or areas of delegated authority.

A governing group needs to continually evaluate the skill set of the team to ensure a range of attributes are covered.

Each business needs a:

• Big picture and new opportunities person
• Great decision maker
• People person
• Details

One person may provide one or two of these attributes but is unlikely to provide three or four. Who provides these skills for your business?

5. Know what’s going on and what to do about it - holding to account

Governance has the role of taking responsibility for achieving the predetermined purpose of the business. This is done by knowing what is going on and appropriately holding those responsible to account. Developing a reporting calendar and identify a small number of key performance indicators which allow governors to monitor and evaluate business performance. One example is simply completing an annual budget and cashflow and monitoring this monthly. This is a basic core discipline of business yet so few do this with purpose.

6. Manage risk effectively - effective compliance

This area deals with proactively minimising the likelihood and severity of future events that could negatively affect the business and bringing grounded confidence.

Risk management would include areas such as:

• addressing the new environmental challenges and conditions our industry is facing
• effluent compliance
• health and safety policies
• financial policies, e.g. for debt levels and managing fixed and floating mortgages
• planning for the replacement of the key people in your business – often that is you. Set up A Guide to the Living, a file where you put everything needed for your family should you depart life. This is a really practical idea, and something we each should have.

Content on this page is adapted from and attributed to Community Net Aotearoa, NZ Institute of Directors and Business Torque Systems.