As the agricultural sector grapples with high levels of dairy debt and increased volatility, Findex’s managing partner, Neil McAra, says farmers need to look at getting sound governance support.
McAra is a strong advocate for advisory boards which can assist farmers with the ability to make better decisions and can help improve business governance.
The value, scale and complexity of New Zealand farming operations have increased significantly over the last two decades. McAra reports that this, coupled with an increase in borrowing particularly in the dairy sector, has in many cases left mum dad farming units managing multimillion dollar businesses carrying high levels of debt.
Unlike a board of directors, advisory boards are non-binding and have no legal definition. This allows value to be added to the company through forming an appropriate mix of people who can be open and have free-flowing discussions. The structure can be flexible and adaptable to the surrounding environment.
“Advisory boards are sounding platforms that can help mollify the pressure business owners are faced with”, McAra comments. “As farming operations expand from small family operations, into a larger scale we need to ensure their governance develops with them.”
Ensuring good governance of farms is becoming more important especially since it was reported earlier this year that dairy farm debt in New Zealand is sitting at $38 billion. “The volatility of the market has business owners in the rural sector looking for help. Good advisory boards can give fresh insights and high-quality objective advice to issues and problems that arise,” McAra said.
Introducing an advisory board at the very least ensures the farmer or business owner spends time on their business rather than in their business. “With mounting pressure and heavy workloads sometimes it’s hard for farmers to get their head out of the grass and into the office. A good advisory board ensures farmers can take time to focus on key issues affecting their farming business,” McAra said.
Advisers for the board can be selected for a number of reasons. Often they are trusted advisers that have assisted in the success of the business to date. Many advisers are selected because of their industry contacts and experience.
An obstacle for farmers and/or business owners is the lack of advisers available for these roles. “There does need to be a focus put on developing these advisers to ensure they understand the role they are undertaking, whether it is as part of the advisory board or board of directors.” McAra said.
The Institute of Directors and Dairy NZ have collaborated to form A Due Diligence Guide for advisers. This educates the advisers and farm owners on what to bear in mind when undertaking these roles. In conjunction, the Institute of Directors has also rolled out an Advisory Board Toolkit. Both are strong platforms from which to begin looking into advisory boards for businesses or farms.
McAra urges farmers to explore what support is available to them and to not be afraid to engage their business advisers or rural accountants around setting up increased governance structures to safeguard their assets and drive future growth.