• Succession: Smoothing the Emotional Rollercoaster

Succession: Smoothing the Emotional Rollercoaster

15 November 2016

Farmers are still the backbone of New Zealand's economy but they also still face real problems when it comes to passing the baton to the next generation.

Succession is one of the most confronting transitions for family-owned business – especially in New Zealand’s agribusiness sector – and can be an emotional rollercoaster.

One of the main tasks of my job is helping farmers figure out how they're going to exit the business of farming while leaving the farm in the hands of their children.

Around half of New Zealand’s family farming operations consider this type of succession as a means of exit, versus sale to an external party.

It sounds simple. It isn't. Farmers can face tricky personal/family manoeuvres before the day comes to leave the farm. Because family farms can provide the livelihoods of more than one generation, succession requires careful planning and discussions because of the desire to keep a generation on the farm.

The Succession Jigsaw

Many people perceive succession as a scenario were a couple in their 60s say to an eldest son "you run this farm now" But there’s much, much more to it.

Succession is like a large jigsaw puzzle, involving a huge number of interlinking pieces - retirement planning, successor identification and training, financial planning, legal structures and strategic planning to name a few.

Families need to carefully consider each piece and how each of those will then fit with all the other pieces of the puzzle to build a picture of succession.

As a basis, succession simply means the transfer of something, which could involve transferring money to enable someone to gain a tertiary education; or transferring attributes and values from parents to kids; or transferring wealth via a share in farming assets, or ultimately the whole farm itself.

The reality is there are many, many different definitions and stages to any succession, all families are unique and the solution needs to be tailored for each situation. Templated standard models should be regarded with caution. The uniqueness of families is because they all have different attitudes to risk. They  all have their own lenses that they look through regarding attitudes about life, equality issues and economic matters.

Different Approaches to Succession

We’re seeing a trend towards farming operations getting larger - a reflection of both the growing corporatisation of agribusiness in New Zealand and the desire of families to gain economies of scale with their operations. This has been occurring for some time and is a world-wide trend. Those with large farming businesses have much more options when it comes to succession. Often it is the more able farmers who have got themselves into this position, and who have generated wealth and added wealth through skill and retention of income. Modesty in terms of lifestyle is often a common trait amongst those who have accumulated large scale operations. Obviously it is helpful to have started with scale as well. I don’t think it can be over emphasised that growing skills to generate income and being modest with spending income, can over a lifetime make huge differences to succession. Therefore education and attribute building by families of their children has a huge role to play in succession. You can never start too young in building younger ones' attitudes to hard work, money and lifelong learning. Studies of top performing farmers shows a substantial gap from the  average performer  and over a lifetime this gap by accumulation can make huge differences to the pie that is available for distribution.

The other trend we are seeing is more 'inter-generational partnerships'. We have always had these partnerships but I believe we will see more of this in the next few years. This occurs  where the agribusiness is supporting more than one generation of the family in some form. Mum and dad simply do not have enough wealth to be financially independent of the farm. The harder issues are often around  who has the control of the purse strings and how do the families deal with some stresses that are inevitable when their economic futures are tied together. It involves a lot of empathy and respect to make it work well, something that farming families are often very used to.

For example, mum and dad might have moved off the farm and be living in a house in town, with a son or daughter and their family living on and working the farm - but both will have assets in the business and be drawing income from it.

When it comes to considering different approaches to succession, I like the concept of the three ‘circles’ of a) business ownership, b) family and c) operational involvement. This is something used by leading family-run SME researcher and consultant Dr Deb Shepherd, senior lecturer in management and international business at the University of Auckland.

Business owners don't have to think about being in all three of these circles. You could have a scenario where there is an owner, but they are not operationally involved. Or there are three children and the ownership sits across all three, but one is on the farm and is remunerated for that. Or they might own it as a family and put a manager on to the farm. There's no one right answer, no perspective that's better or worse.

Managing the Process

Managing the process of succession planning is inherently challenging and not always helped by the reticent Kiwi culture. Often the incumbent generation will fear they’re pressuring their children to come back to the farm. Whilst the children feel awkward because they don't want to assume they have a right to something, or are pushing ahead of other members of the family. Parents are more conscious of all their children when making decisions and it would be unusual where no provision is made somewhere in the plans for those children not involved with the farming business directly. Again different families handle these matters differently and there is/should be no one templated way forward for dealing with the matter.

Upfront and transparent communication is essential – and the earlier the better. You don’t want to see succession planning spurred into action when a parent has a health scare – that is not an ideal time to be dealing with the complexities involved in the transition.

Starting conversations early means ideas have time to percolate. It starts with the vision from mum and dad. What do they want? How do they see the business continuing? Then the next step is to have those conversations, and be open with everyone about those.

When I get families all in a room together, what is most evident is that parents and children want to support each other, and the majority work together to achieve the vision. It's quite emotional, but for everyone it's generally a huge relief.


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