Transitioning a business from one generation to another is complicated. Add the complexity of being family owned and operated, and you have an entirely different set of challenges. The overlap of family and business can create obstacles to the management, growth and even sustainability of an operation.
A reluctance to let go is a primary reason succession fails when one generation reaches a transition point. It’s often difficult for leaders to plan for succession because of emotional attachment to the business, fear of retirement, loss of status or a lack of diversions beyond the farm.
As the transitioning leader steps back from the day-to-day work, they often assume a mentor or consultant role. This can be a win for the operation because of their invaluable experience. The challenge is their continued presence can be perceived as a lack of trust in the competencies of the successor(s). It can also adversely affect decision making, leading to a frustrated successor who’s living in the shadow of the previous leader.
Communication is key to establishing a transition plan everyone agrees on. Family businesses that foster a culture of trust, respect and communication find it easier to transfer knowledge and withstand challenges that stress and emotions play as a leader gets closer to transitioning.
To successfully navigate generational transitions, you must:
- Start communicating about succession and expectations well in advance of a transition. This includes creating a transition timeline for management responsibilities to address the necessary competencies of the incoming leader and when decision-making authority will change hands.
- Use a board or governance structure to help monitor the management transition process. This is particularly helpful if you’re in a position where advanced planning is not possible. A board or governance structure is a critical component for any size operation where a transition, rather than a buyout, is occurring.
- Develop a shared vision that provides stability and family unity as the leadership transitions. This often provides the framework for establishing clear roles, responsibilities and accountability as the new leader(s) emerge. Having clarity regarding roles can also help the family determine compensation guidelines to support a transitioning owner and successor(s). If a leader is going to retain a presence in the operation, clarify what the new role will look like and what aspects of management are off limits to ensure the successor can fully step into their role.
- Spend time working on relationships within the family. This can reduce stress, foster trust, encourage open communication and ensure mutual understanding. If tension creeps in, it could provoke people to take sides causing a breakdown of trust and decreasing productivity.
Taking the time to create clarity, which can include timelines and expectations, will help to ensure owners who wish to remain part of their operation can and will be encouraged to do so by the next generation.
Farm Journal Legacy Project Conference
Jan. 14-15, Hilton Chicago
Are you prepared to pass on your family’s legacy?
Dive deep into the logistics of creating a sound succession plan at the Farm Journal Legacy Project conference. Experts Polly Dobbs, Paul Neiffer, Rena Striegel and Dick Wittman will provide insight and answer questions on how to take inventory of your current situation, resolve conflict and navigate the many legal and tax tools.
To learn more or register, call (877) 482-7203 or visit TPSummit.com.