Farm owners should make legal provisions and plans for transitioning their business to the next generation. But what about the “soft” side of farm transition? Will vendors, customers, clients and employees accept the next generation of leadership, or keep looking over junior’s shoulder for the “real” leader? Beyond reducing the chances of hurt feelings, a smooth transition can enable the business to continue thriving, instead of suffering setbacks during and after transition.
Melanie Palmer, business specialist and Extension agent for Cornell Cooperative Extension in Onondaga County, New York, said the “soft” side represents an aspect of farm transition often overlooked.
“Personalities are so different,” she said. “Everything is on an individual basis. All the farms will be different largely because of the personalities of the farmers involved.”
For any operation, openly communicating will help keep everyone knowledgeable about what’s happening.
“If need be, you need to reach out and get a mediator, for lack of a better word,” Palmer said. “You need advice. Don’t be afraid to reach out to an expert on how to handle the personalities and people.”
If they want to stay somewhat part of the business, keeping the older generation involved to a lesser degree can keep them nearby for advice and to reassure employees, customers and vendors.
“The father may do some field work, tile drainage and hedgerow clearing,” Palmer offered as examples. “He’s still involved, but not in the day-to-day operations.”
Though the older generation can offer good advice, transitioning should rely more and more heavily upon the next generation, the closer the older generation gets to retirement.
“It is a team effort when you take it upon yourself to develop a transition plan,” said Tim Moag, managing director and lead ag director of the Batavia, New York, branch of FreedMaxick, an accounting firm. “The older generation needs to reduce their management responsibility over a period of time.”
Out of respect, it’s natural for the younger generation to defer to the older generation; however, once they know what they’re doing, the younger generation needs to step up and start making decisions, which will win the respect of employees, vendors and clients.
“You need to distinguish ownership from management,” Moag said. “You can have ownership, but that doesn’t necessarily mean that you’re running things. People connect the two and it doesn’t have to be that way.”
He said that building credibility with the banker and vendor is key to a smooth transition. By allowing the next generation to make decisions in increasing complexity and impact, the older generation can help their children gain experience and build more trust with bankers and vendors.
It may feel tempting for the older generation to step in and “do it right,” but making a few minor mistakes provides a learning experience for the next generation. For example, not pushing a vendor for a better price may cost the farm more in overhead; however, the younger generation needs practice to learn how and when to insist on a bargain. Undermining that process by “butting in” can also erode the youngster’s confidence.
Employees also need to turn to the new leadership for direction, instead of referring to Mom and Dad.
“It needs to be clear to the employees that the next generation, through their actions, is taking hold,” Moag said. “When there are meetings, it’s the older generation’s responsibility to make it clear that the next generation is being empowered to make decisions. It’s important that they seek opinion from them and not go around them. If it’s ever going to work, there has to be confidence in the next generation.”
For some farms, the older generation may need to still provide some ongoing guidance during the transition, but they should be careful how they do so.
“The physical presence of the older generation can undermine the transition of control and authority,” said Richard “Rick” E. Scrimale, counsel with Hancock Estabrook in Ithaca and Syracuse, New York. “There has to be a conscious effort to direct employees to the son or daughter in charge. They have to redirect questions and issues. They may talk about it behind closed doors to come up with decisions.”
It’s especially important to portray unity in leadership when the next generation wants to make changes. Otherwise, long-term employees may resent the differences on the farm.
“Reasonable people can disagree and there can be more than one way to accomplish a goal,” Scrimale said. “It may have been done this way 50 years, but there can be a newer, better way that’s more costly, but more efficient. You have to work with open lines of communication. The worse thing is to throw your hands up and say, ‘Okay, do it your way.’”
As the transition progresses, either or both parties may desire to change their transition plan. Tweaks may be important to continue an effective transition. As long as both parties agree on changes, altering the transition plan can be beneficial.
Scrimale said it may help to start planning with a general phase-out timeline, such as for the first two years, mom and dad are present all the time. Perhaps for years three through five, junior will serve as president with the parents as vice presidents. In years six through 10, the parents could serve on the board, but not be as involved with daily decisions, until they finally, fully retire.