BY: PETER FLANNERY
Back in 2015 I wrote a paper entitled “Four Pillars of Family Succession”.
The four pillars are:
· Build a strong business first
· Fair comes before equal
· Ownership and Control
I could talk at length on all four but I want to focus this discussion on the 4th pillar, Ownership and Control. If you want to read the full paper, Google “Four Pillars of Family Succession.”
So you have undergone a process of discussing succession with the family, everyone has agreed what is fair, and the business is financially sound enough to allow the plan to be put in place. Cool. But you are not out of the woods yet. There is one more hurdle or constraint to overcome – and one, I think, a lot of families do not pay enough attention to – and it is often the cause of failure and bitter resentment. That is “control”.
Passing over ownership, or at least a share of ownership, is often not that difficult. Lawyers and accountants can sort all of that out for you. There can be trusts and companies and shareholders agreements all cleverly drafted by the best minds in the business. But passing over control is a different story altogether. It is not necessarily a legal process but more a state of mind.
If there is a clean break between mum and dad and the successor, there is normally no issue. But if there is shared control, i.e. partnership, then things can go awry very quickly and often through no one’s fault.
Think about it for a bit, and to avoid being sexist I will refer to “owner” and “successor”. The successor comes home to the farm and doesn’t know a lot. They draw on the knowledge and experience of the owner. They learn quickly much to the delight of the owner, who is brimming with pride. They also get their knowledge from other sources and develop ideas and styles of their own. They grow in confidence and soon want to know “the final plan”. They are brought into partnership with shared ownership and control. If there is a 25-year age gap, for example when the owner is 55 years old, the successor is 30 and already a very capable farmer and possibly already has their own successor on the ground.
Meanwhile, the owner, who has had full control for the last 30 years, isn’t ready for sharing control – not because they don’t trust the successor but just because they are not used to doing it. Sadly, the older we get, the less adaptable and more stubborn we can become.
Meanwhile the successor becomes increasingly frustrated. While the owner is becoming less adaptable, the successor grows more and more impatient with age.
With their own successor already starting to show signs of interest, and with the owner still firmly in control, the successor starts to feel like Prince Charles. There will most probably be huge respect for each other and normally enjoy each other’s company because, after all, the apple doesn't fall far from the tree. But they start to butt heads.
Unfortunately, a power struggle can develop and, depending on who you listen to, the owner is a stubborn old bastard and the successor is a spoilt, selfish prat.
More often than not neither is true. In reality, the successor will be very grateful for the opportunity they have been given and the owner will be grateful that someone from the family wants to pick up the baton. It is just that no thought was given to the passing of control and how that will need to change over time.
Where it is done well it can be a roaring success – the owner a proud mentor with a gentle, nudging hand, and the successor a respectful and grateful recipient.
In any succession plan there are significant constraints, but they can be overcome or, at worst if they can’t, at least front up to them. Those that build a strong business will have more options than those who don’t. Work out what fair is through talking, listening and understanding. When you have achieved all of that, there needs to be a transition of not only ownership but also of control. Admittedly it can be challenging.
However, if succession is important to you and your family you need to address it. Apart from death and taxes there are two things in this world that I know for certain – gather round and listen closely.
First, I cannot predict the future. I thought I could, but I was wrong.
Second, I have found that if you ignore a significant problem for long enough it will not go away. So before you enter into a partnership with a family member, understand the dangers of control or lack thereof.
Regardless of whether you are an owner or a successor, do some honest self analysis. How am I going to cope if I don’t have full control? At the outset that will be fine, but what about in five years? It will not resolve itself, so have full and frank discussions at the start and constantly review the situation. If it is becoming an issue it needs to be addressed before the “horse of reason has bolted”. The last thing you want is a family rift. The solution probably lies within.
• Peter Flannery is an agribusiness consultant for Farm Plan, Invercargill.