Succession Planning Depends on Communication

Succession Planning Depends on Communication by Jeff Gaye

A lot of things about agriculture are hard: the physical work, the long hours, and dealing with uncertain markets, unpredictable weather, and uncooperative livestock.

But Patti Durand says the hardest thing for many farmers and ranchers is just sitting down and talking with their families about the operation’s future.

Durand is an agriculture transition specialist with Farm Credit Canada. She says, she sees it all the time: a family gathers to discuss the succession plan, and there’s hurt feelings all around because nobody told anybody else what they were thinking—or what they had been assuming.

There is some truth, she says, to the cartoonish stereotype of a rancher who speaks in one-word sentences: “yep” or “nope.”

But when your family’s future and your operation’s future are on the line, Durand says “silence is not okay.”

“When our team members are sitting down with farm families, often the various parties on the farm assume they’re aiming for the same place,” she said. “So they have not actually discussed what their future vision is, or their goal, or what they personally care about the most.

“And as a result, we encounter some of the friction and hard feelings that happen when you’re actually aiming in different directions, and each thinking the other person is just being difficult.”

Though she deals with families, Durand puts things on a businesslike footing right away—we’re not talking about parents and kids, but senior partners and junior partners. And while family dynamics invariably come into play, succession planning works when everyone is working on the same path to the same goal, with clear expectations. So she will often ask a question like “where do you see this business in five years, or 20 years?”.

And then she’ll wait for an answer.

“If you’re not going to say much, we’re just going to sit there. And that’s not to be cruel, but it has to be shared. People are notoriously bad mind readers,” she said.

“One of the lines I quite like is ‘you expect a lot, but you don’t tell me what you expect.’ You really need to be clear.”

It goes both ways. Durand says many younger people are looking for some certainty. But their parents’ generation, the senior partners, never experienced certainty in their own lives, and are hardpressed to promise it.

Just say so, Durand advises. “Just say ‘you know what? I really want you to have this farm. I really want this farm to continue. I don’t have a clue how to do it.’”

“The land values have gone up, people are living longer, there’s a lot of risk, and they just aren’t sure how to crack that.” One of the keys, she says, comes from Steven Covey’s Seven Habits of Highly Effective People: start with the end in mind. If you don’t know where you want to go, it doesn’t much matter which road you’re on.

Do any, or all, of the junior partners want to take over the operation? On what terms? What skills will set them up to succeed? What do they lack? Does the farm earn enough to support the senior partners’ retirement?

Once you have a clear picture in mind, even if it remains flexible, you can take stock of where you stand and determine your course.

There’s always risk associated with moving an operation forward, and deciding on a goal together can reduce some family friction—most of the time. Durand says her team’s role at FCC is to grease the wheels, to reduce the friction, and set the operation on the right track.

“If you’re deep in friction it’s hard to get out without some help,” she said. “Sometimes you need a third-party adviser, whether it’s a facilitator or a mediator or a lawyer. But it’s best when you can avoid those pitfalls in the first place.”

The first thing you can do, she says, is drop the adversarial approach—even when you disagree.

“Number one, you guys are on the same team. Get on the same side of the table,” she said.

“That shift is a really strong visual for me. Get on the same side of the table, get shoulder to shoulder. Let’s get this done.”

And even when you don’t see eye to eye, she said it’s important to trust that your partners have good intentions—“most people aren’t going out trying to piss someone else off, they’re not going out there with that intention,” she said.

Families obviously have different dynamics from one to another, and a family business will operate differently than other workplaces. Most of the time, that’s a good thing—people are more inclined to put the enterprise ahead of themselves when it’s a family venture.

But it’s possible to put yourself out too much if the effort isn’t seen in its proper business context.

“There are sacrifices that will be made, because it’s family, that you wouldn’t do in any other situation. And there are things you won’t say because it’s family,” Durand said. “A good business structure is what can preserve that family.” continued on page 32

Succession cont. from pg. 30 It’s not always easy. Sometimes the best business decisions are not what one partner would want. It’s said you can choose your friends, but you can’t choose your family. The same can be said about your business associates.

How can family members stick together when they aren’t cut out to be in business together?

Sometimes the junior partners don’t want to carry on the business. Sometimes the operation won’t be able to support the senior partners’ retirement. In these cases, the ranch might end up being sold.

And sometimes one or more junior partners—a son or a daughter—just doesn’t have what it takes to run the ranch, even though they may want to.

It’s a tough spot to be in. Durand says it’s all the more important to be upfront and communicate every step of the way. She quotes one of her colleagues on this: “It isn’t like wine. It doesn’t get better with time.”

There may be solutions, like training and education to develop the partner’s skills. It may be possible to define their role to suit their strengths. Or maybe not. “There’s no such thing as starting this conversation too early because the sooner you start, the more lanes you have to pick from,” Durand said. “I’ve sat with people at the eleventh hour when the senior partner, who still owned everything, is in their eighties. The choices get made for you.” Durand works with livestock operations as well as grain and crop farms, and there are obvious similarities. But she says there are some key differences that affect the way owners look at succession planning. “Probably the biggest challenge of livestock is the constant demand,” she said. “A grain producer has much more distinct seasonality of ‘on’ and ‘off.’ My cattle guys just have ‘on,’” she said. She tends to hear from cattle producers around March. “It seems to be the leastworst time” in a normal, non-pandemic year, she says.

“Actually a purebred cattle producer contacted me a few weeks ago and she said, ‘you know what, Patti? We just had a bunch of found time. We would normally be on the road with cattle shows this whole winter, and it’s gone.’

“She said, ‘this is our time. We can talk about transition, we’ve got to take advantage of this window.’ And I just was so excited that was her instinct. And I would propose that if you have found time this winter, don’t waste it.”

A cattle operation also gives young people a chance to see for themselves if they have the aptitude, ability, and desire to make a life of it. Durand says livestock can provide some ownership to the junior partner at a more metered scale than trying to get into large land or equipment purchases.

“You really can start with a cow and have your name on it. That’s your cow. It can permit a piece of ownership growth over time. That is not a possibility in a pure grain farm, so it’s an opportunity,” she said.

Whether you’re starting out on your succession plan or dealing with the inevitable bumps in the road, you will want professional advice. To that end, Durand says, what you know depends on who you know—specifically your accountant or financial planner.

A transition specialist like Durand or one of her FCC teammates can be very helpful too.

“I would say start with your existing relationships. I’m referring to your accountant or your financial planner, even your marketing advisor or your lender.” In case of family friction, she says, “There’s a few different third-party advisors that people would have on their team to provide that coaching and facilitation of some of those conversations or giving some direction.

“Our team at FCC Advisory Services, I would say we coach and we connect.

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continued on page 46 fcc.ca