Friday, March 24, 2006

Limited Liability Comapnies for Alternative Farmers

One goal of all niche producers of agricultural, value added products is to successfully tackle the issue of building a model of governance that is fair, flexible in the modern environment and one that retains the original reasons for existence of the marketing group. Many niche producer groups start out as informal associations of like minded producers, where mutual support and shared expertise form much of the "soft capital" of the group. As the business prospers, the objective of keeping the original rationale for existence alive assumes greater significance, particularly when it is time to set a dollar value to each person's contribution.

How this objective is approached can mean the difference between success and failure for the project in terms of the original vision of the founders, but in a larger sense it can serve to promote social goals and put into practice things that we usually only get to think about in the abstract.

Some of these factors are,

treating people equitably and respectfully
acknowledging important contributions regardless of size
respecting each member's unique knowledge
preserving the communication and mutual support that was a basis for the project in the first place
providing a fair and equitable means of adding new people to the group
providing a reasonable method of achieving a valuation of the enterprise that everyone can live with.
Within this construct, providing a flexible means of management that can adapt to changing market conditions.

In many cases the response has been to form a traditional cooperative, but that form of business entity has some disadvantages when it comes to flexibility and acquiring investor and non-producer support.

One group I worked with faced the challenge squarely and did the work necessary to address these challenges. The group did have one major advantage, and that was that it was entirely self capitalizing-it did not need startup funds, premises, professional employees, or market development, as the market was there waiting for someone to come along and grab hold of it.
It was determined that the group would be operated by a consensus model. Although it was something of a surprise to me, the largest members (going by production allotted to the enterprise) were most in favor of this model.

The initial goals were to define the management structure, define the model of governance, and create the most efficient vehicle for attaining these goals.

Some of the major features of governance for a small enterprise of this nature that are somewhat unique are

Limiting non producer voting members on the Board of Directors-producers shall always hold a 2/3 majority of voting seats
Limiting members ability to withdraw their support from the enterprise in its formative period
Any producer regardless of size can sit on the Board of Directors, and each has but one vote.
A semi independent marketing and operations arm
A producer's bargaining agent with real power
An informal "curbstone" dispute resolution mechanism
A defined set of quality standards for live animals
A shared vision of what the business can accomplish and a mandate to return maximum income to the membership through production and marketing of a superior product

All this can be done through the vehicle of the operating agreement. Although it is not easy to do, the process of discussing and creating an operating agreement that can do these things provides ample opportunity for sharing knowledge, mutual respect, and community education by discussion and advocacy of different points of view. At the end of the drafting process, the finished product represents a real consensus, and each member that was part of that process not only has an ownership stake in it, he or she understands exactly what it means in real terms.


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