Governance in agribusiness organizations: challenges in the management of rural family firms

Machado, Cláudio Pinheiro; Caleman, Silvia Morales de Queiroz; Cunha, Christiano França da

doi:10.1016/j.rausp.2016.09.004

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Sumário

Corporate Governance • Rev. Adm. (São Paulo) 52 (1) • Jan-Mar 2017 • https://doi.org/10.1016/j.rausp.2016.09.004 copy

Governance in agribusiness organizations: challenges in the management of rural family firms

Governança em organizações do agronegócio: desafios para a gestão de empresas rurais familiares

Gobernancia en las organizaciones agroindustriales: retos en la gestión de las empresas familiares rurales

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

The rural production in Brazil has experienced a significant competitive impact with the stabilization of the economy promoted by the Real Plan in 1994. Indeed, the Brazilian agriculture has achieved efficiency gains in terms of technology, economies of scale and general modernization of the activity in the field. In this context, the professional management of rural production evolved. However, the governance process does not evolve in the same dimension, and the “governance risk” is still poorly addressed in the rural environment, which often limits the potential of operations. In this study, we sought to deepen the understanding of the factors that impact the implementation of governance practices in rural properties in Brazil. Based on a convenience and non-probability sample, this study seeks to understand the evolution of the governance process on farms and its correlation with the management practices. This study found a correlation between the existence of some formal management processes (for example, strategic planning and more robust accounting systems) and advances in the governance mechanisms and processes, such as the establishment of a board of directors, clearer rules regarding the separation between corporate and family assets and more transparency in income statements. This study also found a lack of clarity in the separation of return on capital (dividend) and compensation for work (compensation for services provided) for partners, heirs and other family members. In summary, we concluded that there is the adoption of some governance mechanisms in the rural sector, but they are still poorly developed among rural producers, hence the need to stimulate them.

Keywords
Governance; Family firms; Rural producers

Hypothesis	Description	Status
H1	There is a relationship between the organization having an advisory board and its strategic decisions being approved by this board, thus showing a better organization of the rural company and a more structured and better refined strategic decision-making process.	Not rejected^* ***** Significance at 1% level.
H2	There is a relationship between the practice of profit-sharing among the members and this sharing for all family members, as this profit results from a family firm, which is an asset of all family members and not only of its managers belonging to the family.	Not rejected^* ***** Significance at 1% level.
H3	The higher the number of business units the rural company has the higher the probability of its accounting being done externally, as the volume of financial and management information to be collected and interpreted is higher and more complex.	Not rejected^ Significance at 5% level.
H4	The younger the main manager of the enterprise (decision maker) the higher the probability of having production cost control, as this manager may have more access to modern cost and cost management techniques.	Not rejected^ Significance at 5% level.
H5	The higher the company's income, the greater the likelihood of this rural company to use balance sheets and income statements, as this shows a larger accounting and management organization, which is necessary and expected in a larger rural enterprise

Departamento de Administração da Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo Avenida Professor Luciano Gualberto, 908, sala F184, 05508-900 São Paulo / SP Brasil, Tel./Fax 55 11 3818-4002 - São Paulo - SP - Brazil
E-mail: rausp@usp.br

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[1] * Corresponding author. E-mail:capfilho@usp.br (C.P. Machado Filho).

Activities developed			Tradition in the rural activity
	Qty	%		Qty	%
Grains	26	74%	1st generation	5	14%
Cotton	3	9%	2nd generation	11	31%
Cattle raising	26	74%	3rd generation	7	20%
Tourism	0	0%	>3rd generation	12	34%
Others	4	11%	Total	35	100%
Grains and cattle raising	17	49%
Time in the rural activity			Average turnover (R$)
	Qty	%		Qty	%
Up to 25 years	9	26%	Up to R$500,000/year	3	9%
From 25 to 50 years	23	68%	R$500,000 to R$1 million/year	1	3%
>50 years	2	6%	R$1 to R$5 million/year	15	44%
Total	34	100%	>R$5,000,000/year	15	44%
			Total	34	100%
Respondent's age			Parents’ education
	Qty	%
Up to 25 years	0	0%	Elementary and middle school	7	21%
From 25 to 50 years	5	15%	High school	8	24%
>50 years	28	85%	Undergraduate school	12	35%
Total	33	100%	Graduate school	7	21%
			Total	34	100%
Children's education
Elementary and middle school			0		0%
High school			1		3%
Undergraduate school			13		45%
Graduate school			15		52%
Total			29		100%

Importance of the subject “Governance”			Members’ agreement?
	Qty	%		Qty	%
Extremely important	27	79%	Yes	5	14%
Important	6	18%	No	30	86%
Relatively important	1	3%	Total	35	100%
Less important	0	0%
Irrelevant	0	0%
Total	34	100%
Intention to enter into a members’ agreement?			Is the family members’ role clear?
	Qty	%		Qty	%
Yes	17	59%	Yes	19	56%
No	2	7%	No	15	44%
Maybe	10	34%	Total	34	100%
Total	29	100%
Separation of accounts?			Compensation for services provided?
	Qty	%		Qty	%
Yes	23	66%	Yes	23	68%
No	12	34%	No	11	32%
Total	35	100%	Total	34	100%
Profit sharing?			Board of directors?
	Qty	%		Qty	%
Yes	13	37%	Yes	6	17%
No	22	63%	No	29	83%
Total	35	100%	Total	35	100%

Legal nature			How is the accounting done?
	Qty	%		Qty	%
Individual entity (IE)	31	89%	No accounting	1	3%
Legal entity (LE)	2	6%	Tax accounting only	16	47%
IE and LE	2	6%	Management and tax accounting	17	50%
Total	35	100%	Total	34	100%
Where is the accounting done?			What are the existing formal controls?
	Qty	%		Qty	%
Specialized firm	22	65%	Production costs	26	74%
At the company, with an employed accountant.	2	6%	Cash flows	25	71%
At the company, with an outsourced accountant.	10	29%	Balance sheet and income statement	13	37%
Total	34	100%	No formal controls	5	14%
Separation between treasury and controllership?
	Qty		%
Yes	3		9%
No	31		91%
Total	34		100%

Structured strategic planning?			Who participates in the decision-making process?
	Qty	%		Qty	%
Yes	9	26%	Managing members	21	62%
No	25	74%	Managing and non-managing members	7	21%
Total	34	100%	Managing members and selected employees	4	12%
			Managing and non-managing members and employees	2	6%
			Total	34	100%
Are the decisions approved by the board?			Importance of strategic planning
	Qty	%		Qty	%
Yes	6	20%	Extremely important	14	41%
No, because there is no Board	24	80%	Important	18	53%
No, despite the existence of a Board	0	0%	Relatively important	1	3%
Total	30	100%	Less important	1	3%
			Irrelevant	0	0%
			Total	34	100%