Most New Zealand farm businesses are governed and managed by the same one or two people, which works while the business is a single unit and becomes a constraint beyond that. Separating the two functions is what allows scale, succession and external capital.
Governance and management are different jobs
Governance sets direction, approves strategy and major investment, monitors performance, manages risk, and appoints and holds management accountable.
Management runs the operation day to day within that framework.
On most farms one person does both, and the governance work loses to the operational work because the operational work is urgent. Strategy, succession, risk and capital decisions get made reactively.
Why farms in particular benefit
- Capital intensity. Decisions involve large sums and long horizons, and they are difficult to reverse.
- Family involvement. Governance provides a structure for decisions that would otherwise happen around a kitchen table with the associated dynamics.
- Volatility. Commodity price, weather and interest rate exposure require deliberate risk management rather than hope.
- Succession. An intergenerational transfer is a governance decision, and farms with governance structures manage it substantially better.
- External capital. Equity partners and investors require reporting and decision-making they can rely on.
Advisory board or governance board
An advisory board has no legal authority. It provides advice, challenge and accountability, and the owner retains all decision rights. It is lower commitment, easier to establish, and the right starting point for most farm businesses.
A governance board with formally appointed directors carries legal duties under the Companies Act and makes binding decisions. It suits larger operations, equity partnerships and Māori land entities where multiple owners require formal governance.
The practical difference is accountability. An advisory board that the owner ignores achieves nothing, so its value depends on the owner genuinely wanting challenge.
Who to have on it
Three or four people is usually enough. Useful mix:
- Financial capability — someone who reads financial statements properly and asks about the balance sheet, not just the payout.
- Farming or sector expertise from outside your own operation.
- Commercial or governance experience from another industry, which brings different questions.
- An independent chair, which matters most where family dynamics are involved.
Avoid appointing only your existing advisers. Your accountant and banker have valuable input and also have their own interests; a board of people you already pay does not provide independent challenge.
Pay them. Unpaid advisory boards attract less commitment and make it harder to hold people to expectations.
What the board should actually look at
Meetings that review last month’s production and finish are a waste of everyone’s time. A useful agenda covers:
- Financial position — cashflow forecast, debt position, covenant compliance, break-even against current price.
- Physical performance against budget, with variances explained.
- Health and safety, with leading indicators. Agriculture has among the highest fatality rates of any sector, and if you have a company structure, directors hold personal due diligence duties.
- Environmental compliance — consent conditions, farm plan actions, any regulatory contact.
- People — staffing, retention, and the manager’s own workload.
- Strategy and capital — the items that never get attention otherwise.
- Risk — what would hurt us, and what are we doing about it.
Reporting is the hard part
Governance requires information, and many farm businesses do not currently produce it. A board cannot govern on annual accounts arriving five months after balance date.
What is needed: monthly or quarterly financial reporting, a current cashflow forecast, physical performance against budget, and a short written report from management.
Building that reporting capability is frequently the most valuable thing establishing a board produces, independent of the advice.
Making it work
- Meet quarterly, with papers circulated a week ahead. Meetings where papers are handed out at the table are not governance.
- Keep minutes recording decisions and who does what by when.
- Follow up on actions from the last meeting, first item. This is what separates governance from conversation.
- Be honest. A board given selective information gives useless advice.
- Review the board itself periodically.
Industry bodies including DairyNZ and Beef + Lamb New Zealand publish governance material and run programmes, and the Institute of Directors publishes governance guidance and training.
General information only, not legal advice.
