Agriculture is traditionally a family business in the United States. Farms and ranches pass from generation to generation, but only 10% reach the third generation. This is mainly caused by farmers and ranchers failing to plan for succession. “Most kids just come back [to the farm or ranch],” says Cole Ehmke, University of Wyoming Extension specialist in ag entrepreneurship and personal finance, “and hope it works out. Hope, unfortunately, is not a plan.”
The first step to a plan is to identify a successor, either from within the family, a non-family employee, or a person seeking entry into agriculture. “There's been a lack of interest from young people raised in agriculture to return to the farm because of other opportunities,” says John Hewlett, University of Wyoming Extension educator. “It might be because people in agriculture haven't made it appealing. Kids look elsewhere for careers, because Mom or Dad makes it sound like a hard life.
“Communication is critical. Most farmers and ranchers are introverts. We don't tend to talk readily. We prefer doing things on our own, out in the field away from other people,” Hewlett says.
It's all about communication
Without clearly talking about roles and responsibilities of family members, assumptions — often incorrect — reign. “Say a son or a daughter comes back,” Ehmke says. “They've got a spouse as well. They grew up on the operation, but were never part of actual decision-making. Is it OK to ask questions? Or does curiosity get shut down, because parents don't talk about how decisions are made, or how things operate? Everyone needs to communicate.”
Families need to talk about two broad categories: personal and business. Personal topics include the parents’ will, estate plan, power of attorney, and who inherits Grandpa’s spurs and Dad’s rifle. What are the goals for farm or ranch land: remain under family ownership, as a viable ag operation, or both? On the business side, will the farm or ranch stay as one operation? Who will manage it? how will ownership be transferred?
It’s useful to separate discussion into two types: family council meetings and family business meetings. Jeff Tranel, a Colorado State University Extension agricultural and business management economist, serves as a meeting facilitator for succession planning. Tranel prefers to host these meetings somewhere besides the family's home, such as at the Extension office or a hotel meeting room.
“This minimizes familial roles,” Tranel explains. “If you do it in the house, Dad always sits at the head of the table, or in the recliner in the living room. Mom runs around to make sure everyone is comfortable.”
Likewise, Tranel suggests that both council meetings and business meetings are not held with a deadline. Many people want to meet when the whole family is home for a few days over a holiday; but if it’s the afternoon of Christmas Eve, people are antsy and focused on other things.
Meet like a business
It’s helpful for family to develop an agenda and identify what information needs brought to the meeting, and which person will do so. The presence of an outside facilitator directs conversation to accomplish the meeting’s intent.
“Every family has a more dominant person and a quiet, meek person,” Tranel observes. “As a facilitator, my job is to ask the dominant person to stop talking and listen. At the same time, my role is to provide a safe environment for the submissive person to share his or her thoughts. The intent is to avoid a family member that walks away angry because something didn't happen according to his or her wishes.”
After the council meeting(s), the business meeting decides how to do the plan set by the entire family (for instance, parents and their five children plus spouses). The family business meeting is among current owners the parents, and successor generation(s), perhaps a daughter and her spouse. While all 12 people do not need to be at the business meeting, it is important to apprise the entire family of what went on — this could mean emailing out meeting minutes.
“Family business meetings should be strategic,” Tranel says. “It’s not, ‘Should we run white-faced bulls or black bulls? Or plant what corn variety?’ The meetings outline goals and objectives for the operation. And business meetings need to continue even after the succession plan is set. Depending on the family and operation that could be quarterly, every six months, or annually.”
One decision-making rule that Tranel learned from a ranch family is that no decisions made outside the business meeting count. “Here's what typically happened,” Tranel recounts, “Dad and son are working down at the corral, and they make decisions and never tell anyone. Mom finally said, ‘Enough of that. We may fully agree with your decision, but it doesn't count until you share it with all of us.’”
Engaging in this approach to meetings can help build a professional tone into the business part of the future relationship as others return to the farm. To learn more about some key tactics, check out the related stories.
Resolve conflict with respect
To foster communication, professional decorum builds clarity and respect. Hewlett helped create the university's Ag Legacy online succession course, which includes a section on how to develop a formal conflict resolution plan. “Many corporate businesses have these,” he explains. “People working together have conflicts and need to resolve them. In general, family businesses don’t have such plans; and, in particular, ag businesses rarely do.”
Families need to handle communication failures and poor work performance as a business. Done correctly, family relationships do not sever. “It's tough,” Ehmke adds, “because you may criticize your son because he's not doing a good job managing the cattle, for instance. Then he might take that as being criticized as a son."
Ehmke noted that both father and son need to get to the root of the criticism. Is it the son’s management decisions, the dad’s vague job description for him, or the son’s understanding of the assigned job? Is it something father and son can work through, or is the son just not an animal guy?
Included in conflict resolution is evaluation of family members as employees. Ehmke recommends a trial phase of six to 12 months clearly outlined for family members to join the operation. “Then, there is the more unfortunate element of, How do you fire someone?” Ehmke says of the conflict resolution process. “It's tougher in families, because of personal relationship. But if someone is just not doing the job, and doesn't have any future with the family business, you've got to make that decision.”
It’s beneficial for families to establish professional development plans to gain new skills. Pay increases, ownership shares, and/or other incentives to build and maintain committed employees should also be considered for the younger generation as they prove their aptitude about the operation.
Tapping the power of mentoring
Mentoring the younger generation to manage the ag operation is often forgotten until current owners see retirement on the horizon. “Mom and Dad can begin to prepare, even if the children are younger,” says Tranel. “Parents need to talk to their kids to gauge interest in agriculture in grade school and high school. When a son or daughter graduates from high school and is interested in joining the operation, he or she needs to know if that is even a possibility.”
It is hard to gauge what skills a farmer and rancher will need 10 years from now, so parents should teach, and their children learn, all aspects of the family’s operation. “I suspect there's going to be a lot of learning as agriculture evolves,” says Ehmke. “I would recommend learning how to learn. I think it’s very beneficial for the younger generation to leave the operation to attend college, or work on another farm or ranch, to gain a diversity of perspectives. Because if I ask 10 ranchers how to do a particular thing on the ranch, I'll get 11 answers.”
The next step is to honestly evaluate the skills, ability and temperament of the junior generation, and how those qualities fit into the operation. “Then, we're building talent here,” Ehmke reminds, “so seniors can teach juniors, or utilize outside training over time, to grow skills needed to take responsibility and ownership. This process needs to include the goals of what the family wants the operation to be in the future.”
There is a lot to learn to manage a farm or ranch, and it can easily take the incoming generation five years to fully do so. Also, the transition will be more successful if the son or daughter has opportunity to assume responsibility step by step.
“It's hard to watch someone make a mistake,” Ehmke admits. “We, the seniors, know how it works, what to avoid. But probably the most powerful learning experiences we had were because of mistakes. Now we hope our son or daughter makes small mistakes that don't put the operation at risk. But if we protect our kids from making mistakes, then they don't get the learning lesson that we ourselves got.”
Ehmke recommends building the opportunity to make mistakes. “For instance, this could be allowing junior to have responsibility that might turn into a $10,000 mistake,” Ehmke explains. “Something that's painful, but doesn't put the operation at risk — unlike a $200,000 mistake from which the operation may not recover.”
It is worrisome for many parents to pass on control of an operation that took a lifetime of effort to assemble. “The other day, someone said that his son just wasn't ready to take over the operation,” Ehmke relates. “This guy was 96, and his son, 72. When are they going to be ready?”
The operation also contains the life savings of the seniors, and they cannot afford simply to retire.
Tools for transition
The University of Wyoming Extension’s Ag Legacy program, aglegacy.org, contains online courses and in-person training opportunities for families to learn about succession planning.
Do an internet search for “evaluation of farm management strengths and weaknesses” for a helpful worksheet to identify issues. The worksheet also can be used to evaluate employee performance.
On the internet, search for “farm succession planning guide” for workbooks to help in succession planning.
Here are the best practices for transition:
• Be transparent, patient, open-minded, forward-thinking, proactive, curious and accountable.
• Establish regular and formal meetings; written operational, marketing, compensation, budgeting and borrowing plans; successor selection and training plans; a transition plan and timeline; shared vision and mission, with appropriate goals and objectives; a culture to continuously evaluate values, structures, and outcomes; written job descriptions; a retirement plan for the senior generation; and appropriate business policies.
• Ensure business relationships are transferred intact, such as marketing and finance; a loss in sales or a reduced line of credit, for example, would be detrimental to a new farmer.
• Build soft skills such as communication, team building, resilience, problem-solving, critical observation, conflict resolution and adaptability.
• Transfer an understanding of the past management responses to industry circumstances.
Hemken writes from Lander, Wyo.