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From the Boardroom, part three in a series: The primary role of the farm board

Clear policies can help avoid potential land mines in your farm business.

Editor’s note: This is the third in a series labeled ‘From the boardroom’ that focuses on the role of a farm board – policies, planning, and leadership. Watch for more in this series in upcoming weeks.

Setting policy is a primary duty of all boards of directors. In family farm businesses handling this responsibility in a professional manner is a key ingredient for promoting a professional business culture among stakeholders. That may include employees, owners, and/or family.

For decades, I’ve referred to policies as potential land mines in a family business.  If policies are unclear, illegal, or are inconsistently applied across the organization, there will be conflict and loss of business productivity.  These are the areas where you need to clarify policy for the farm business:

  • Compensation – How salaries, wages, bonuses, and profit sharing plans are set; provisions for valuing and providing room and board and meal allowances
  • Ownership investment policy – who can invest/withdraw capital, and conditions for payment of dividends
  • Family employment policy – considerations that must be met to be considered for employment in the family business
  • Policies on limits for operational and capital purchases without board approval
  • Personnel policy on expectations for official work days, hours, and holidays
  • Employee benefit policies - medical insurance; uncovered medical expense reimbursement; retirement or pension plan eligibility; leave policy for vacation, sickness, and professional meeting attendance
  • Provisions for providing on farm housing to employees and owners (conditions for residency, maintenance, and utilities)
  • Company vehicles—ownership, maintenance, and usage
  • Continuation of compensation and benefits in the event of death, disability or termination
  • Reimbursement for personal expenditures of business items
  • Business buyout understandings
  • Conflict of interest policy related to extra-curricular activities outside the business
  • Policy for pricing and handling financial transactions between related business entities or among insiders in the business
  • Quality of life polices such as employee safety, alcohol consumption and smoking on business premises, and environmental practices

If someone asked you, “What is our policy on (any of the above),” how would you answer?  My guidebook contains sample templates for articulating many of these policies in print. These templates have been used successfully by many over the years to take the mystery out of process and to start the conversation. 

Family businesses functioning at a high level of professional governance adhere to the following best practices in policy administration:

All policies are in writing and accessible in hard copy or in the cloud to appropriate audiences (owners may need different policies than employees).

Define policies before the need.  According to family business expert John Ward of the Kellogg Institute, if you wait until you have a problem to define a policy, logic and emotions get muddled in attempting a solution.

Responsibility is clearly fixed in job duty statements for who initiates policy drafts for discussion and board approval, as well as who performs audit and compliance.

A set timetable is established for periodic review of existing policies.  If a board meets on a quarterly or monthly basis, policy review can be a part of each meeting agenda.  Ideally, over a yearly schedule, all key policies are reviewed.  That review may be as simple as, “Policy is clear, it’s working, let’s move on.”

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