Don’t Wait for Dad

1/18/2008

By Linda H. Smith

It is well known that family businesses often fail to make the transition from one generation to the next. At the heart of the problem is that family habits and patterns of communication carry over into the business and result in the older generation retaining control for too long.

“All too often, the younger generation waits for Mom and Dad to call the kids to the table and divulge the succession plan. In most cases, the parents will never hold that meeting,” says Dean Fowler, a family business consultant in Brookfield, Wis., and author of Seven Habits of Highly Successful Successors.

“In many family businesses, the succession plan is done secretly,” he explains. “The elder generation works with accountants and lawyers and never involves or even informs the younger generation what they’ve done.” Furthermore, too much attention is focused on taxes and the death of the parents—rather than the life of the business, he says. “It is the younger generation’s responsibility to be proactive and make the business transition happen.”

Unlike nonfamily businesses, members of a family business have three spheres that overlap and must be distinguished: family, business management and company ownership. The first two habits of highly successful successors fall into the family sphere, says Fowler. Ideally, these begin when the next generation is in their 20s, he says.

1. Establish independence. “Until a young adult is independent, they can’t carry out the next habits,” says Fowler. Of course, parents can foster independence while children are growing up by teaching them to assess facts and allowing them to gradually make more of their own decisions. However, going away to college and working off the farm are often the definitive time that this occurs.

2. Reshape communication. “This may be one of the hardest habits for a young person to initiate,” Fowler acknowledges. “Family habits often teach children to defer to parents and wait for them to make plans or initiate change. But in the business sphere, this pattern needs to be turned upside down.”

He cites one daughter who had to explain to her father that when she talked to him, she didn’t always want his opinion—sometimes she just wanted his acceptance. By telling him “this is an O situation or an A situation,” her father was able to respond in the way she needed.

In some cases, it might mean going to a parent and being up-front about your dreams and feelings about your position in the business.

The next three habits fall into the business management sphere. As management transitions, voting control also should transfer to the next generation, Fowler adds.

3. Demonstrate competency. “Children’s skills and passions may be quite different from those of their parents,” he says. “It is really up to the children to identify their strengths and how they might benefit the business.”

4. Participate in strategic decisions. “Members of the next generation need to transform the business to fit their passion and interests,” says Fowler, using an example of a Wisconsin farm that shifted from dairy to beef cattle.

5. Clarify boundaries. “In one family business, the son was made president, but the father was still calling the shots and employees went to him when there was a problem. The president finally told his father he could not operate effectively under the current situation, and therefore would leave and honor his father’s need to be in control,” says Fowler. “However, this discussion brought the issues to focus, and the president and his siblings ended up buying out their father.”

Company ownership is, perhaps, the sphere most publicized and thought about in farming because it includes estate tax planning. But it is much more than that. It should include plans for family members not involved in the business; it may include nonfamily business managers. Most important, says Fowler, it should provide for the elder generation’s retirement income at the same time it moves ownership and financial risk-taking to the next generation.

“Too much estate planning deals with death, not living. That won’t work today,” Fowler says. “Elders may live into their 90s. By the time of their death, the next generation also may be retired and later generations may be involved in the business.”

6. Plan for liquidity. Perhaps your business has a buyout plan underway. Even then, you need to ask whether the rules will be relevant under a sibling team.

7. Transition financial risk and responsibility. While the older generation is in a coasting mode, the younger one is in growth mode. This may mean taking on debt.

“Keep in mind these are habits,” Fowler notes. “It is not a one-time exercise; it is an ongoing process. But there is a first time. Start identifying and pursuing your dream today.”



Action Plan
It is the younger generation’s responsibility to determine the future, Dean Fowler emphasizes. “It is your 30 years of career. It must meet your wants and needs.”

He suggests that each family member thoughtfully fill out the nine-box grid shown at left: what you want to keep doing, what isn’t working and you want to stop doing, and what you need to create new to reach your dreams, in each of the three spheres.

By doing this, the family begins to communicate and create a shared dream, Fowler says, citing a quote from Ivan Lansberg’s book, Succeeding Generations: Realizing the Dream of Families in Business: “A shared dream is a collective vision of a future that inspires family members. Families are at their best when members help one another realize their dreams.”

As an example, Fowler worked with one family that included a father and three sons involved in the business and one daughter, a doctor. As the family filled out the grid, the brothers realized that their current roles in the business did not fit their talents and interests.

It took about a year for all four siblings to integrate their matrices. They wrote a family constitution and new buy-sell agreements and, at the management level, developed a new vision statement and strategic plan. They refocused the business, reassigned responsibilities and brought in some outside managers.

“The family members are much happier now,” he says. “They are following their passions. They not only have grown the original business almost threefold, they have started some new ventures.”

For more information or to order Fowler’s books, Seven Habits of Highly Successful Successors and Love, Power and Money: Family Business Between Generations, see www.deanfowler.com.

To contact Linda Smith, e-mail lsmith@farmjournal.com.