A deal with a relative, a partner, or a company they own counts as fair only when one page names it: who declared the interest, the date, and how the terms were set by someone who does not share it. Write down every deal the farm makes with its own people before someone with a stake to defend asks whether it was fair. A farm that hires a relative, rents ground from a family member, or buys inputs from a company a partner owns, all on trust, has no way to show the deal was handled in the open.
Everyone on the place already knows the arrangements. The leased quarter belongs to an uncle. The fertilizer comes from a company a partner owns. A cousin draws a wage. Each was agreed in good faith, and each holds until the afternoon a co-owner, an heir, a bank or a buyer asks whether the rent, the price or the wage was ever a market one. What the missing register costs is not the deal. It is that when the question lands, nobody can show the deal was declared and set at arm’s length, and the memory of whoever was in the room is the only answer left.
Isn’t dealing with your own family just how a farm runs?
Dealing with your own family is often the efficient thing, and that is exactly why the register does not forbid it. Gordon, Henry and Palia, in a paper that opened finance research on the subject, describe these as deals “between a firm and its own managers, directors, principal owners” or their affiliates, and they set two readings side by side.
Under one, the deal can put the manager’s duty to the owners at risk. Under the other, which they call the efficient-transactions view, the deal serves real needs between parties “who have built up trust and shared private information”. A relative who has worked the leased ground for twenty years can be the better counterpart, not the worse one.
What counts as a related party on a farm?
A related party is anyone tied to the farm before the deal starts, by blood, marriage or a shared stake. The IFC, in its Family Business Governance Handbook, defines one as any person or entity that “controls, is controlled by or is under common control” with the business. On a farm that is the partner and the partner’s supply company, the family member who owns the leased ground, the relative on the payroll, the in-law whose trucks haul the grain.
The test is not whether the person is trusted. It is whether they sit on both sides of a deal the farm makes, so a price that suits them can hurt the farm without anyone choosing to.
What does each line of the register settle?
Two things, both named in the handbook under the duty of loyalty. Those who decide for the business must put “the interests of the company above any personal or other interests”, and immediately “disclose any conflicts of interest to the rest of the board”. A farm rarely has a board, so on a farm that becomes two lines per deal: who declared the interest, and who, without gaining from the deal, agreed the terms. The one with the stake names it; someone without the stake sets the number. That is what at arm’s length means in practice.
When does a written deal still fail the test?
When someone wrote down that the deal was fair but not how the price was reached.
The register earns its keep only when the how is on it: the cash rent set against the going rate for land like it, the input price checked against a second quote, the wage measured against what the job pays a stranger. A line that says the deal was fair proves nothing. A line that shows how fair was found proves the work was done, and it is that work the register is really asking for.
When do you write it, and who declares each interest?
Before the conflict arrives, while the family still agrees on things. Lozano, in the Colombian journal Estudios Gerenciales, argues that a family protocol should be drawn up before serious problems have arisen in the business, because it works to keep conflicts from happening rather than to make them disappear once they have. A register built in the week of the argument is already taking a side. Built in a calm one, it is only a record.
Who declares each interest is the person who holds it, because only they know its full shape. Oliveira and colleagues, studying a Brazilian family firm and not a farm, describe the governance of a family business as the practices that lower the conflicts of interest between the company and the family, and between the members who work in it and those who do not. The register is that governance written small, one line at a time, by the people who would otherwise be the conflict.
What turns the list into a control instead of a wish?
Four things written down: the date, the name of who declared, the line on how the terms were set, and a set place for the page where the next person will look. Knowing who sits on both sides of each deal the farm makes belongs in farm management as much as knowing what the farm owes and when.
This page is one of the records an internal audit checks; how to prepare the first one is covered in what the first internal audit checks. It also underlies the sheet of decisions that take two signatures, where the farm writes who must sign together on each big decision: a second signature assumes the interest behind the decision was already declared, and this is the page where it gets declared.
The register is also different from a code of conduct. A code of conduct holds the rules on behavior that everyone on the farm signs, and how to write one is covered in a signed code of conduct. The register is narrower: it names the interest behind one specific deal. Go back over it on a set date, so a new relationship does not go undeclared.
| Reference | What it speaks to | What it puts on the page |
|---|---|---|
| Gordon, Henry and Palia | why a deal with your own can be fine or harmful | both readings of the same deal, which is why it is declared, not banned |
| IFC Family Business Governance Handbook | the duty behind the page | disclose the interest, and let someone without the stake agree the terms |
| Lozano, Estudios Gerenciales | when to write it | in a calm week, before the conflict, not in the week of the argument |
| Oliveira and colleagues (Brazil) | what the register is | governance that lowers the conflict between the family and the business |
Where to start
Set aside an afternoon to list the deals and declare each interest, then a few minutes whenever a new deal starts. Paper is enough. Each line should be written by the person who holds the interest, in a calm week, long before any partner, heir or bank asks whether the deal was fair.
What catches a family off guard is rarely the deal itself. It is how fast a fair arrangement, once questioned, turns into a fight about whether anyone ever checked that it was fair. A page with a name, a date and the line on how the price was set can end that second fight before it starts, on the day a partner or a bank goes looking.