Bill Winter,

Bill Winter Advisory.

Take home messages

• Is opening the farming family board or establishing an advisory panel to non family members going to improve your performance?   Yes – definitely!
• In any family enterprise, agricultural or non-agricultural, you should take the position that you are custodians for future generations.  Good governance, policies and planning is about building wealth in the long term.

Introduction

Only forty percent of all family owned entities in Australia have a formal board or advisory board. Recent research from KPMG and Family Business, involving 570 family companies in Australia found that many founders of family owned enterprises resist forming a board with non-family members and do not realise the benefits they are missing out on.

In the agribusiness sector, the business environment we operate in today is changing rapidly and we cannot assume that past knowledge will be relevant in 2014 and beyond. Family entities must look and plan beyond the near future as families last for generations. Consequently, planning must be long term. Whereas large corporations are directed only on the short term and key executives are managing to meet this year's budget numbers or a fluctuating share price with a target to earn a bonus. They operate in silos and cannot avoid internal politics and turf wars.

 In addition, family enterprises are facing competition in all market segments from ownership shifts where the big are getting bigger, powerful overseas companies are buying in and the balance of power is skewed. 

Many successful family owned enterprises are multi-generational and this is especially so in the agribusiness sector. Within a family enterprise where you have a generation gap you have different levels of knowledge, skill , business acumen, a variety of emotions and different individual aspirations.

 In family enterprises there is always a blurring of the family and business dynamics. Everyone is too close to the issues to be able to make informed decisions as family outcomes and business outcomes are often different and are difficult to separate.

This is a valid reason for implementing an advisory panel or advisory committee. We do not like to call them advisory boards, given the onerous obligations and responsibilities applicable to being a formal director under the corporations Act 2001.  Advisory panels are set up to advise, and be a key resource to assist with decision making, not ultimately responsible for the decision and its outcome.  The business owner(s) retain that responsibility.

An effective advisory panel includes a non-family member who is there to challenge your assumptions, bring wide industry based experience to the table and to fill a recognised skill gap within your business. A board of directors has a legal requirement and fiduciary duties to ensure proper governance of the company. An advisory panel has no legal liability it is there only to provide advice.

In business today the burden of red tape and compliance are costing time and money and are too numerous for the typical family business to understand. This is a risk as ignorance of any breach of regulations carries financial penalties. Ignorance by a director is not accepted in a court of law.

The skills and knowledge you need in your business in 2014 cover such issues as workplace relations, workplace safety, financial understanding, governance, compliance, risk management, legal, conflict resolution and succession planning. By establishing an advisory panel you can harness the knowledge, experience and wisdom around the table to meet on a regular basis to monitor and advise where applicable.

At an October session attended by some two hundred business people in Geelong, Dan Simmonds, Principal at Harwood Andrews Lawyers, stated  the four issues you must address in your family business are establishing an advisory panel, having a  succession plan, developing a business plan and having a buy and sell agreement between stakeholders.

In my own experience of working with many family business owners, I hear people say “they do not want outsiders telling them how to run their business”. They ask “how can an outsider understand their business?” and “how can an outsider provide advice when they are not prepared to share their financial situation?”  If you think like this, then an advisory board is not for you.

An article published in the Australian Institute of Company Directors magazine by Tony Featherstone stated his ten challenges for family company boards:

1. The line between family and business is often blurred leading to disputes.

2. In-laws and extended family can add another layer of complexity.

3. Meetings can be too informal. The kitchen table can be a problem.

4. Companies owned by different families can find it hard to achieve a shared vision.

5. Family companies may not always know what they want.

6. Succession can be a huge issue.

7. Some founders of family companies resent advice from outsiders.

8. Baby boomers typically have a higher need for control and won't let go.

9. Some business owners struggle with more formal systems and structure that boards bring.

10. The cost of top-notch private company board members can be problem for some.

My experience working with family agribusiness boards shows that an advisory panel will provide knowledgeable, clear and sometimes alternate thinking, reinforcing core competencies and asking the difficult questions when required. They are not bound by traditional farming assumptions and they are not emotionally influenced with internal family issues and emotions.

Contact details

Bill Winter,

PO Box 7010 Geelong West VIC 3218       

billwinter@bigpond.com.au