Harmonious Transitions

February 12, 2016 01:12 PM
Harmonious Transitions

Keeping your farm and your family intact from generation to generation is challenging. Successors need to grow into new roles, parents need to balance what’s fair to on-farm and off-farm heirs and the next generations need clarity. In our transition work with farm families, we examine the financial, legal and emotional hurdles they face as they transition leadership and ownership. 

The success rate for transitioning an operation might catch some farm families off guard. Ninety percent of family businesses fold by the third generation when they fail to develop solid communication and trust. No amount of planning strategies can make up for a lack of harmony among the generations. 

The path to losing both the business and family harmony for the 90% isn’t complicated. It starts with controlling leaders. In the next generation, you have sibling rivalry. By the third generation, you end up with cousins who don’t know or trust each other.

On the other hand, 10% of successful families start with “enlightened leaders” in the first generation who help grow “sibling teams” in the second generation. These families end up with a solid “cousin consortium” in the third generation made up of cousins who have bonded through the years and know and trust each other.

We strongly recommend following these 12 principles developed by The Heritage Institute in Portland, Ore., to help your family businesses sustain your wealth and unity through generational transfer:

1. Build trust between generations. Passing on family stories and shared history builds a foundation that 
teaches individuals they are part of something bigger than themselves.

2. Develop, maintain and regularly re-visit your vision for the present and the future. This is especially important as farms morph from sole proprietors to multiple managers and owners.

3. Schedule regular family meetings.  These revolve around three major activities: family fun, family development (guest speakers) and the “business of being a family.” 

4. Promote a balanced definition of the meaning of “wealth.” Wealth is not only financial. It is also wisdom, community and intellect (family health, talents and attitudes).

5. Keep the family business separate from the business of being a family.  Everyone should understand you’re a family who owns a business, not a business that owns a family. 

6. Identify the roles necessary for the family to be successful. A host of business, financial and legal issues directly affect the family about which many children have no clue.

7. Inspire individual family members to participate in the business for their own reasons, not because of 
parental pressure or the chance to win a loved one’s approval.  

8. Train and mentor the generations. Pre-inheritance experiences prepare them for real responsibilities later. 

9. Facilitate the genuine transfer of leadership from generation to generation. Effective leadership transfer takes place intentionally. It does not happen by accident or by chance.

10. Require collaboration between your professional advisers—not just by email and brief meetings.  

11. Create mechanisms for ongoing family governance. This means having a process by which a family makes decisions as a group. 

12. What if someone in your family is not ready? Invite everyone to be part of the process. To be successful, the entire family does not have to be on board at the beginning.  

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