Board of advisers can help enhance farm performance

Would new insights, ideas and viewpoints, which enhance the performance of your farm be valuable to you?

Many farmers would answer “yes” to this question. A board of advisers could offer producers a method to tap into this source of information.

A board of advisers is a group of individuals engaged by the farm to provide a fresh, independent perspective on the business and its operations. The board can provide counsel and advice on management decisions, economic trends and issues facing the farm.

The idea of an independent board is not new. Larger corporations have long used formal boards of directors to represent and protect the interests of shareholders.

However, most farms do not have a formal board of directors, mainly because in most farms, the shareholders, directors, and managers are the same people and they guard their personal authority carefully.

The general consensus is that businesses with revenues of less than $5 million should form an advisory board instead of a formal board of directors. An advisory board lacks the legal status of a board of directors, its members do not face liability issues like the directors of corporations, it does not represent shareholders, its decisions are not binding, and it is less costly to maintain. Thus, farms will find more value in creating a board of advisers.

To create a board of advisers, it is imperative that the right people be selected. Your accountant or lawyer could be a valuable referral source for potential advisory members.

In general, you want your advisory board to include people experienced in agriculture and family business. Although the input of accountants and lawyers would be valuable, their services can be paid for directly and therefore they do not make the most ideal candidates for your advisory board (there may also be some conflict of interest issues that arise if these professionals sit on your board).

The selection criteria for your advisory board is extremely important. Each adviser should:

  • Be successful and respected in his or her business or industry.
  • Be well-informed on agricultural issues.
  • Have a good general business sense and feel for trends.
  • Demonstrate an interest and understanding about your farm.

During the board’s initial meetings, management should spend a significant amount of time informing the advisers about the farm and its issues.

However, after this familiarization process is complete, it is important to resist the tendency for management to report to the advisers on operating decisions. If an advisory board meets more often than a quarterly basis, it will tend to focus on the day-to-day operating details of the business instead of the big picture. To preserve the authority of the owners, the advisers should not become involved in operating decisions or vote on proposals.

Although individuals usually accept positions as advisers to pass on their knowledge to someone who is interested in learning from them, they will still expect compensation. The two main costs for maintaining an advisory board are travel expenses for quarterly meetings and a monthly honorarium for each member. These costs can be reduced significantly by employing fewer members (a minimum of two) and by using teleconferencing to reduce travel expenses. The investment in an advisory board can repay itself many times if the board is carefully selected and well run.

A board of advisers can be a valuable tool for many farms. If your enterprise needs fresh ideas, up-to-date economic and industry information, or an effective sounding board, consider forming one. The results may significantly enhance your farm’s performance.

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