If the farm is being transitioned to the next generation of the family, the owner and successor know each other pretty well. You also know yourselves really well. It’s time to put that knowledge and experience to work.
There will likely be at least a couple of things on the Labour-Management-Ownership transition table that may cause a conflict between the owner and successor. You know that saying that ‘Good fences make good neighbours’? It’s the same for agreements between family members. You need to figure out the areas where conflict might occur and put something in place to help avoid it.
Owners and successors need to honestly identify the items or timeframes in the Labour-Management-Ownership transition table where things might go wrong.
Perhaps an owner knows that his daughter is not a fan of school and worries she might neglect the extra training she has to acquire over the next two years. Or maybe a successor knows his mother well enough to know there is a big difference between promising to hand over the budget control and actually doing it.
Sit down and share your concerns respectfully and tactfully with the other. Be open to the other’s comments and try not to take their worries personally. This is business and they need to protect their interests and manage risk, just like you do. Once you identify the potential issues, figure out what to do about it.
What can we do to avoid issues?
Every potential issue will have more than one way to address it but there will likely be a best way to address each issue given your own unique circumstances. But here are some general ideas for how to address issues:
Avoid the issue. Is there a way to avoid the potential conflict altogether? For instance, if a successor worries the owner won’t be able to teach them effectively about budgeting, they could add another item to the table that avoids the issue altogether – like specifying that the formal training on budgeting for the farm be delivered by a specialist, perhaps the family’s accountant.
Choose a mediator. You might consider bringing in an unbiased third party – like a business advisor, or a trusted family friend – who can help resolve conflicts as they come up. It’s important that the person have the full trust of both the owner and successor.
Put controls in place. There’s nothing like being accountable to help people meet their responsibilities. Bringing in a third party to monitor progress and address any missed deadlines is one way to do this. Another is to program tasks and deliverables into a shared calendar, along with reminders of looming deadlines. An alternative would be to post all deliverables on a wall and check the items as they’re completed. Or you might want to establish a monitoring method and template where action items and deadlines for the quarter are listed, the tasks completed on time are listed, and the tasks delivered late or not at all are listed specifically. You can combine control methods too. Maybe there is an agreed upon sanction for the party who isn’t fulfilling their responsibilities on time.
Put an agreement in place. It might be as simple as including an ‘agreement’ section at the bottom of the Labour-Management-Ownership table and having both owners and successors sign and date it. Or you might feel you need a more in-depth agreement to govern the transfer of equity over time. Either way, consult your lawyer. They typically can do that very quickly and cost-effectively for you.
Accept the risk. To some extent, the risk of another person not acting as you hope they will in part of the everyday business reality. For small things, it’s likely best to simply ensure the other person knows you’re concerned about their willingness or ability to follow through. You can remind them as needed but you also need to just accept that it could happen but likely won’t. Then, move on.
Using the information and tips above, sit down together and map out the potential for issues.
Connect with your advisors and others to put in place any agreement or controls that will help you avoid conflict through the implementation of the transition table. Document the owner’s and successor’s agreement with the Conflict Potential and Risk Mitigation Plan