A relatively new term in the Brazilian corporate vocabulary, Corporate Governance has been more and more present in the routines of executives, managers, and shareholders of both large and small groups. Even startups, focused on innovation and resorting to more adaptive processes, have used Corporate Governance tools as a means to devise processes, and establish mechanisms to ensure business security.
In agribusiness, although still in its early stages, many agriculture companies and rural properties have been looking to Governance, mainly to meet outside demands to raise credit facilities, conduct trade, and fulfill legal and regulatory requirements and standards.
Against this background, some characteristics of this industry should be borne in mind, especially tradition, which plays a pivotal role in Brazil’s agriculture and livestock farming, with family management of many properties representing a challenge for professionalization efforts.
Although family management of companies and farms is still mainstream, agribusiness shows a trend of less reluctance to professionalize their firms, aiming to keep high productivity and competitiveness against the foreign market.
At first sight one may find it hard to view a farm as a company, especially when accustomed to the same management process introduced by earlier generations, but for those who wish to make their businesses sustainable in the long run, even surviving succession processes, the need to go through a structuring and governance process is unquestionable.
Therefore, it is important to note that the word Governance refers to the duty of governing by using techniques, following practices, and applying structured procedures that set guidelines for the relationship between partners, board of directors, shareholders, supervisory bodies, suppliers, among others, warranting the company with an attribute of reliability that allows the Market and those with whom it may do business to assess the risk of their investments.
Thus, as far as Agribusiness is concerned, it is very important to keep in mind that governance has an even more important role than that seen in the corporate world in general, because, for the most part, the consultant responsible for structuring practices and procedures will have to build and strengthen a process starting from a family business, therefore often matching varied interests through emotional disputes within a context with little or no established management process.
To clarify these issues, measuring challenges and outcomes already achieved by agribusiness companies that applied governance to their companies and properties, IBGC (Brazilian Institute of Corporate Governance) and KPMG conducted the Agribusiness Governance Survey[1].
The study was carried out with 367 respondents from all Brazilian regions and draws a profile of domestic agribusiness, revealing important particularities regarding the size of properties, management schooling, and issues pertaining to governance, compliance, and succession of business corporations, among other industry needs.
As concerns the topic, the survey raised relevant data that evidences lack of information specifically related to agribusiness, although a substantial sample of producers knew and acknowledged the importance of governance applied to agribusiness, mainly for large companies in the industry.
When reviewing figures, it was found that most interviewees are rural landowners (49%) who have high education, 65% with graduate degrees, and 29% with undergraduate degrees. Overall, those mostly acquainted with the topic Corporate Governance were in advisory or board of directors positions (100%), and very high rates of knowledge on the subject were found in all revenue ranges of rural properties, in proportion to the growth of knowledge rates on Governance
Regarding the opinion on the main aspects of the business, succession plan, and the guarantee of the company’s survival were pointed out as the main drives for implementing Corporate Governance in agribusiness, for 54% of respondents, while 50% believe that the formal establishment of company roles is the most important need.
As an example of a problem within this context, attention is drawn to the case of a company that makes available to its partners and managers, all members of the same family unit, the use of an airplane owned by the legal entity. How can it be ensured that the vehicle will be used responsibly and equitably by those concerned?
For this reason, the establishment of standards, procedures, and parameters, within a Corporate Governance process, ensures that the company’s assets and belongings are used rationally by its stakeholders. The emotional component is removed, replacing it with the rational one, with clear rules regarding incurring expenses, dividing profits and responsibilities of all those involved.
This process of Corporate structuring is even more necessary when, according to the figures obtained in the surveyed sample, it appears that almost half of the , which added to the enterprises managed in a shared way (between individuals and legal entities), leads to a percentage of almost ¾ of all establishments in the country, a relevant portion of an extremely competitive industry, which accounts for a substantial portion of the country’s Gross Domestic Product, which cannot and should not be taken for granted.
As a consequence, combining tradition with excellence in the management of agribusiness enterprise is a great challenge, on par with the relevance of the role this industry plays in the Brazilian economy, requiring, for this purpose, a conjunction of efforts of professionals to structure agribusiness corporate governance processes, as well as the dissemination of values pertaining to management and governance processes already applied in various sectors and companies around the world, with special attention to the development of solutions and techniques applicable to the reality of rural enterprise.
[1]https://conhecimento.ibgc.org.br/Paginas/Publicacao.aspx?PubId=24539
Available at: https://exame.com/bussola/governanca-no-agro-para-unir-excelencia-a-tradicao/
Autor: Pedro Batistoti Boller • email: pedro.boller@ernestoborges.com.br
