Family businesses often fail because the family never actually tackles the question: Who s the right person to run this business? Instead the question is, Who s next in line? The second question sounds easier, but on scores of farms across the country, easy is the last word you d use to describe the fallout.
The gap between the two questions is getting wider and wider, says Grant Robinson, partner and director of The Successcare, a consulting company that merged with BDO Dunwoody LLP earlier this year. Robinson is a charismatic chartered accountant, author, speaker and teacher, and he coaches families trying to transition their businesses to the next generation.
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His main point is that identifying a successor for the family farm is a process, not a battle for parental favouritism.
Being born into the family is merely the starting point, Robinson says. Nor is a strong successor always the one who looks most like a clone of Dad and Mom.
Instead, it comes down to thinking clearly about what the farm needs in order to be successful, and it also means openly communicating with the people involved. In other words, it comes down to a strategic, business-minded decision that helps separate seniority, rank, gender, emotions and egos out of the process and the outcome.
Always remember, says Robinson, that if you get the decision wrong, you aren t helping anyone, especially the older sibling that you may have made the boss because he or she would have been hurt if you had made any other choice. Emphasizes Robinson: If you re working outside your natural ability, you re likely not successful or happy.
The traits and skills a farmer needs today and will need in future differ from those that their parents and grandparents needed when they started. The demands are different now, and so is dealing with an established larger business. The next generation will require more marketing, financial and technological skills than our grandparents could ever have dreamed of.
With one individual passing a sole proprietorship on to another single individual, you don t have to do quite as much professionalizing, at least not right away, says Robinson. However, with an expanding business that has enterprise centres and probably multiple locations, you have to find ways to connect people.
Every farm family has different needs and until those needs are defined, it s difficult to choose your leader. In other words, if you don t go through the process, there s an excellent chance you ll get it wrong.
Over the years, Robinson has seen some common threads with successful small business successions. He s worked across Canada on many types of family businesses, including small and large farms, plus some with multiple generations and many family members.
Here is Robinson s top 10 list of characteristics needed for the next generation of farmers.
1. Resilience.A successor must be able to shoulder the responsibility of continuing the business. And they mustn t mess it up. If that isn t enough pressure, here s some more. They get to do this while the family and the world are watching. Robinson says it can feel like having the paparazzi always on your heels. And, for added measure, here s a bit more. Sometimes in a family business, family roles and birth order get in the way of developing leadership skills. Brothers and sisters are often reluctant to grant authority to their siblings and may even sabotage their sibling leader. And that s without even thinking about the weather and markets.
Resilience and the perseverance to carry through on an idea are essential leadership qualities. They need to be near the top of your list. The change that is bombarding farming today is unlikely to slow down.
2. Family Values.The leader of the family business must want to develop leaders for the future. The leader must also care about other family members. Soon the following generation will have to be considered, says Robinson. They have to understand that not only will they be running a business, they ll be leading a legacy.
The spousal influence on making a business succession work well is also huge. It s the meeting after the meeting that kills this stuff, says Robinson. By not letting the spouse stay somehow connected to the business and informed, you could be creating future problems. By marginalizing the spouse, you send a clear message to the next generation that they are not welcome.
3. Knowledgeable and curious.
To be a competent manager of inputs you need to understand how it all works, says Robinson. Then you can cost out decisions, and be on top of innovations. A basic understanding of chemistry helps manage sprays and fertilizers. Farmers are the world s practical biologists, mechanical engineers and computer scientists. Robinson is amazed at how much farmers need to know.
The next generation doesn t need to know all the answers, they just need to know where to get the answers& and know when you can improve things, Robinson says.
4. Financially astute.Future farmers must be able to manage debt and banking relationships. There will be a significant reliance on sound financing, says Robin- son. Farm transitions today usually involve significant businesses, with large asset bases and often large debt. A generation ago many farms transferred with little or no debt, says Robinson. Today, the financing needs are much more significant.
The next generation must have the financial skills to understand and really know the impact on a complex business. Mom and Dad worked hard and grew with it, says Robinson. And they didn t have a lot to lose.
For the successor, it s a lot of sudden responsibility and risk. To survive and thrive, the next generation has to be comfortable working with money on a bigger scale, quickly. They have to be able to handle the extra zeroes.
5. Think global.Some expertise on international markets is becoming more important to the success of farms. Steve Harper said at the G-20 that there s no longer a Canadian economy, only a world economy, says Robinson. If you want to live in a world getting smaller, you have to adapt technology.
To be competitive against global competitors who have low labour and land costs, Canadian farms need to be more automated and to find solutions from around the world. Recruiting labour for the farm is one of the largest problems the next generation is going to face, says Robinson.
Robinson believes we ve become a creative economy. He points out that even some large U.S. accounting firms are having their tax returns filled out in India. Many successful Canadian companies are working at ways of doing better things, instead of trying to do it a lower cost.
6. Communicate well.Robinson sees many problems with communication once the third generation starts working on the farm. No one knows where the next generation fits in, he explains. You need real dialogues about real situations.
Sometimes communication really hits the fan because even though there are more people to deal with, often not with direct descendants, there isn t an organizational structure to clarify authority. Robinson creates what he calls an ARA for his clients, bascially a one-pager identifying the areas of authority, responsibility and accountability for everyone on the farm.
Clearly stating who has the authority to do what instantly sets up communication links. The next generation will have to be able to run team meetings and fam- ily information sessions, and have the ability to stay connected. Conflicts tend to increase with the number of people involved, and the next generation has to be able to manage that.
Many of the transition problems Robinson encounters in small businesses arise because the older generation never shared information, especially financial information. With most of the older generation I work with, their rule is that you don t tell anybody anything, says Robinson. We expect children to make the right decision, but we haven t had any conversations about it.
7. Manage and motivate. The larger businesses, even after the equipment is installed, will still need motivated, skilled people, says Robinson. A few years ago, a survey was conducted on behalf of the Canadian Farm Business Management Council of 153 leading farmers from Western Canada. The idea was to capture the common elements of their success and better understand successful strategies and tactics.
At the centre were skills that are really people management skills, including having a clear vision, the general ability to lead, confidence and motivation, and managing human resources well.
Robinson says that in the family business world, 35 to 40 per cent of the next-generation CEOs are women. Sometimes running the business, team building or the financial side, isn t what you want to be doing, says Robinson. If you only want to run a combine, that s great but it s not team building.
8. Innovative.North American farms are rapidly increasing productivity and reducing reliance on labour by using new technologies. If you want someone to make a career out of working on your farm, the more automated it is, the more likely you can pay them an industrial wage.
People who are natural problem-solvers and who come up with new ways of doing things are likely to be able to lead the family business in new, useful ways, says Robinson. They re always looking for new stuff.
9. Team player.One of the economic advantages of transferring the farm between generations is spreading the risk and capitalizing for a longer time and between family units.
Many farms will need at least 25 years to pay for assets, such as land or quotas, says Robinson. A good relationship between generations and possibly multiple members is needed to continue doing a this.
It s important to realize that a business is a group effort even for farmers who often work alone for long periods. If a person is a loner by nature it may be difficult for him or her to succeed in a expanding business.
You can t just go buy a huge land base to start farming, says Robinson. To accumulate a farm that size is an intergenerational effort, and to manage it you need quite a team. If you re going to be together and want the critical mass, you re going to have to find ways to collaborate, Robinson says. What would it be like to work with your brother or sister?
10. Knows industry.Understanding how the industry works beyond the farm gate is becoming more important. The next generation needs to know how their individual farm business fits into world trade. Knowing marketing board policy can give a farm a competitive advantage, especially with planning.
Robinson suggests being engaged in farm organizations, for example a stint on a marketing board. This will help your future leaders make connections and learn how to work in and build organizations.
The more you know about your industry, says Robinson, the more successful you ll be. CG
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Talent scout:For the good of the farm,think like a headhunter whenlooking at next generation.
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The next generation has to be comfortable working with money on a bigger scale, quickly. They have to be able to handle the extra zeroes.
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Choosing Your Leader
Approach the task as if you re doing a job search, suggests Bruce Ball, a tax partner with BDO Dunwoody in Toronto. First, identify the key skills and characteristics you re seeking in a leader and then evaluate the list of possible successors.
Filling tactical jobs within the organization with trusted family members is quite different from considering them as viable candidates who will someday strategically lead the company or join the senior executive management team.
Dick Wittman, consultant and farmer from Idaho, has helped many farm families sort through the process of succession and role selection. He says it s critically important for members of a management team to first define the key role and duties for the CEO or general manager and then agree on the attributes a candidate should possess to be compatible with the people being managed.
This is particularly critical when the boss isn t Dad, but rather a sibling, maybe a brother, sister, in-law or even a non-related candidate, says Wittman.
Here is an example of how one multi-member family matched the core duties of the CEO with skills required. They were developed by the siblings in a family business who were trying to determine how to elect a manager from their team of owners. Wittman has used this example many times with family businesses trying to decide who should emerge as the successor/manager during a transition process.
Typical duties of the CEO/General Manager:
” Annual operating and strategic planning, consolidate cash-flow planning efforts and report periodically to management team on cash flow and overall financial performance
” Organize work force, assign responsibilities, and co-ordinate efforts of personnel
” Hire, set compensation, train, evaluate and oversee selfimprovement programs for full and part-time help
” Evaluate employees and co-ordinate personnel selfimprovement strategies
” Oversee and ensure integrity of financial reporting and management control system
” Oversee compensation program and adjustments
” Execute contracts and negotiate joint ventures and strategic alliances with other businesses
” Submit policy proposals to board for review and approval
” Manage estate plan implementation (wills preparation, stock sales and payments)
” Schedule meetings of owner and advisory boards as needed Identifying what a manager really does helps ensure that
the final candidate will be qualified to do the technical aspects of managing. In the case of a multi-family member farm, the characteristics are then chosen so the manager would do it in such a manner that the principals didn t feel bossed.
” Facilitator, not boss
” Empowers people. The person doesn t micro-manage workload
” Focuses on people, resources, information and technology
” Promotes teamwork, positive thinking and professionalism
” Willing to be accountable to the board of directors, in this case probably share-owning family members.
