A board of directors is a vital part of the governance and constitution of most businesses. The boards of family farms and businesses are many times a paper board only. Its purpose is limited to approving the business’s financials and other procedures that are required by law. The board is generally comprised of all family members that meet for a short period of time once or twice a year. It is common for the board to be made up of the same individuals who are family members, managers, and owners of the family farm business. Their roles are mixed, leading to conflict and inefficiencies in overseeing the family business and in setting its strategic direction.
As family farms grow and ownership structure becomes more complex the value of the board becomes more important. It is necessary for the board to play a more active role in setting strategy and reviewing management's performance. This requires the board to meet more often and have the expertise to push and challenge the family farm’s management. This is when the family business board becomes more organized, focused, and open to independent directors. Before making the move to a fully independent board many family businesses function well with an advisory board. The advisory board complements the skills and qualifications of the current board of directors while challenging management to higher achievements for the family and business. The advisory board works closely with management and directors with any key strategic issues facing the family farm business.
The advisory board is made up of respected and experienced individuals that will provide the family and business with the critical independent review required by a growing family business. Advisory boards are most effective when limited in size, 3 to 7 depending on the size of the family business. The board members should have expertise in the family businesses industry and/or other skills that will complement the strengths of the current board. Many times senior management will be a part of the advisory board to aid in coordination and communication for board agendas and meeting arrangements. Advisory boards typically meet 3 to 4 times a year.
In addition to setting strategy and general oversight, the advisory board can add value in: developing a succession plan, ensuring the availability of financial resources, ensuring the adequacy of internal controls and risk management, and reporting to minority owners and other interested parties.
In choosing advisory board members the family farm business needs to choose individuals who will add value and supply any needed skills in the area of strategy and/or operations and management direction. The advisory board provides focus on the potential for the business and the family. Board members should not be suppliers, friends of owners with no relevant expertise, existing providers of service to the family farm business, those who have conflict of interests, or individuals who are overcommitted and not able to provide due diligence. The family business should choose advisory board members with integrity and accountability, industry experience, team work ability, proper business judgment, strong analytical skills, and expertise in relevant areas such as strategy, marketing, finance and accounting, risk management, human resources, or family business governance. Select individuals with useful ties and connections, good communication skills, courage, self confidence, and the ability to challenge other board members, family members, and senior managers.
If your family farm business has grown to a level that it will benefit from outside directors, choosing an advisory board of 3 to 7 members who will challenge and motivate your ownership and management team is a great first step.