Policies Again

Nope. Policies Continued.

Can you believe this guy?    

Ummm.  Yeah.  Me Neither!

Last week we began explore another area of your family farm business management system as you begin the succession planning process and plan for a successful generational transfer of responsibility, management and ownership of your family business.

So, let's explore the need for policies a little deeper.

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Let's back up a quick moment.  The idea of creating policies is not for the sake of creating paperwork and dictating every single activity in your family business.  As we explored last week, there are specific reasons for policies -- a quick glance at last week's discussion on family business policies might be a good refresher.  

Areas that you and your team might want to consider developing policies for in your family farm business might include the following:

• Ownership – criteria for eligibility, capital investments/withdrawals, dividends, death/disability, buyouts, selling, etc.
  
• Financial – guidelines for capital investments, payback periods, ROI, minimum working capital levels, profitability measures, etc.
  
• On-Farm Housing
  
• Expense Accounts
  
• Company Vehicles
  
• Employment – vacation, days of operation, hours, compensation, paychecks, salaries, wages, bonus, profit-sharing
  
• Outside Business Activities
  

Clarity on expected outcomes, before the need for a decision is required, benefits your family business.  It’s a lack of clarity that creates chaos and frustration. Those emotions are poison to any organization, family or business.

"It’s a lack of clarity that creates chaos and frustration. Those emotions are poison to any organization, family or business."

A discussion, documentation, communication and consistent adherence to these policies then becomes the next item on your farm management system “to-do” list.  Like all other discussions we have had here, every business is unique and there are no cookie-cutter policies.  Owners and senior management, and anyone else making up your policy making team, will need to consider the unique nature of your family farm business when policy-making suggestion and decisions.

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There are many, many, many areas in your family business that can benefit from clarity in the form of written policies.  A BIG area that often arises in family business teams is that of compensation.  It can be a tough issue and is sometimes avoided.  Imagine that!  It is not very common for family farm business compensation levels to be based on anything that might resemble a non-family business or any other business.  The inherent conflict that exists between the capitalist nature of “business” and the socialist nature of “family” often rears its ugly head in this specific area – compensation.

The practice of paying all family members the same is often rooted in the notion that everyone will be more comfortable with this situation, rather than actually determining compensation levels based on skills or some other criteria.  Why?  It usually involves having awkward conversations with family members about their skill-set, or lack thereof.

Obviously, not every family member in your business has the same skills, talents and experience.  Since everyone is unique, it is generally a wise practice, or policy, to differentiate compensation levels based on something more than having the same last name as the owner(s).  Otherwise, all things being equal, your more talented team members tend to lose their incentive to perform.  When that happens, your business will suffer and you will have also created an environment where jealousy and conflict can flourish.

"The inherent conflict that exists between the capitalist nature of “business” and the socialist nature of “family” often rears its ugly head."

When developing a policy surrounding compensation levels, two key areas are worthy of consideration and by recognizing these distinctions, your family farm business and individual team members can benefit greatly
Skills, responsibility and impact on the business
Market rates for similar roles.  

This might all seem fairly normal for people working outside a family business.  However, our experience suggests that since family businesses are special places, sometimes more business-like practices are not adopted.  The increasing complexity that is created when more and more family members are involved in the business is not always recognized and the need for more clarity, in the form of policies, is not always recognized as well.  

Taking the time and developing all the various policies may seem a daunting task at first, but once they are developed, communicated and put into practice, clarity exists for the future as people enter, work in and exit the business or take on more or delegate responsibility.  Compensation is just one policy for your family farm business to develop.  As we listed above, there are many, many more.

Good luck with this project.  If you are serious about creating a long-lasting foundation for your business to continue onto the next generation…and beyond…continuing to develop and fine-tune your management system will pay off handsomely and your successors will appreciate the time and energy spent to help ensure the future of your family business.

Next week, we will begin by reviewing some common areas that generally benefit from standard operating procedures.