Family Farms Should Consider a Family Business Governance Plan
Updated: Jul 1, 2020
This post is not legal advice or advice on how to deal with family members, in-laws, or other relatives.
I want a show of hands: How many of you have a family business governance model for your family farm? For those of you who raised your hand, you can stop reading now, but if you did not raise your hand, you might want to consider such a model for your farm. Although you might not think they are a good fit for family farms, a governance plan can be a useful tool to facilitate bringing the next generation into the operation and ensuring the future success of the farm. With a governance plan, you can include family members into key business decisions, enabling future generations to learn how to make business decisions. Key components of a family governance plan will be annual family assemblies, possibly family council meetings, and a family constitution (Davis, 2001).
Family Assemblies and Family Councils
When dealing with a family business, such as a family farm, the business will often have members heavily involved in the farm and those who have taken other career paths in life. An annual family assembly is a way to keep all adult family members and spouses aware of what is going on in the business. Families should set policies on the appropriate age for children to start attending the meetings.
At these meetings, family members involved in operating the farm should present information on the farm’s status. What is the financial status of the farm? Does the family need to discuss the direction the farm should be heading in, like a new niche market? Important events? Key changes in the farm? Does the family need to bring in the farm’s accountant to discuss tax law changes impacting the farm? Are there key estate/farm succession plan changes? This type of assembly allows both on-farm and off-farm family members to discuss the family farm.
Does the family have problems with communicating? If so, the family may want to consider bringing in a facilitator to handle discussions among the family members. Many farm families often do not want to discuss these issues, but if the goal is to allow the next generation to take over the farm and keep it successful, then the family needs to consider how to keep those family members aware of the farm’s current situation.
One final note on the family meetings the governance plan require.
Do not hold those meetings on major holidays.
Yes, the family is together during Thanksgiving or Christmas, but that is not the time to discuss these issues. Holidays are stressful enough. Set the assemblies or council meetings on dates that give family members enough time to prevent scheduling conflicts. If travel is an issue, consider ways to allow family members to Skype in or call in to participate.
Once the family grows beyond a manageable size for assemblies (this could be over 12), the family should consider setting up a family council. This family council will develop the agendas for the family assembly and help inform all family members of business decisions and keep those family members involved in the business aware of non-participating family members’ views. An article, The Three Components of Family Governance, discusses more ideas on what business the family council would handle.
The family council should have equal representation of family members working on the farm and those off the farm, and include family members of all ages. This will help to ensure that the council has fair representation.
Finally, the farm will need to have a constitution or a document to guide the family’s business decisions and family decisions. How will the family employ the next generation? What career development opportunities will exist for those family members in the business? How are family members to be compensated? These are all important considerations for the family to review.
What Does This Mean for You?
As you develop a farm succession plan, you need to consider how you will make the next generation aware of the decisions made on the farm. It is also important to consider that even though a family member might not be a part of the farm business, that member may still have key input. A family governance plan will allow you to get input from all family members and keep them aware of what is going on with the farm. The plan will also help ensure that the family and the farm are successful down the road.
Davis, John A., Three Components of Family Governance (Nov. 12, 2001, Harvard University) http://hbswk.hbs.edu/item/the-three-components-of-family-governance