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Are you ready and equipped to lead business succession?

Bob Milligan for Progressive Cattleman Published on 24 September 2018
Out to gather the herd

This article is the first in a two-part series.

I meet ranchers and farmers who are in the fifth or even sixth generation. I have met a few with double-digit generations.

My wife and I both have brothers on Century Farms that are transitioning to our nephews. How does this happen? When should it happen? What does ranch or farm family generational transition look like in the 21st century?

To me, there is nothing more wonderful in all of business than multiple generations working collaboratively and synergistically together in a ranch, farm or other family business. There are, however, many challenges and multiple decision points to address.

In this article, the first of a two-part series, I focus on the leadership, parenting and mentoring required by parents from birth of their children to the time they do or do not return to the beef production business. The second article will address building the partnership with those who return. This article addresses the financial feasibility requirement, setting expectations for the next generation and the requirement for returning to the family business.

The financial feasibility requirement

If the senior generation wishes to provide an opportunity for their children to become partners, they must manage, lead and grow a beef production business where transfer is financially feasible. This requires that the business is profitable.

Often, ranches or farms that have provided a satisfactory living to the senior generation, due to low debt and/or minimal withdrawals from the business, cannot provide for the retirement of the senior generation and also support the transition to the junior generation.

Beef production with a son or daughter may be the senior generation’s long-standing dream. Yet one of the most important responsibilities of the senior generation is to conduct an honest, careful and timely assessment of the financial feasibility of continued operation into the next generation.

A long-standing emotional commitment to intergenerational transfer may have to give way to the difficult question: “Do we have a business to transfer to the next generation or just some readily marketable land, livestock and machinery assets?”

The senior generation, then, has two responsibilities: lead a profitable business and make certain that transfer is financially feasible before bringing a son or daughter into the ranch or farm business.

Setting expectations for the next generation

Today, ranching, farming and agriculture are very different compared to when my father or my brother started on our family farm. Farming is much more complex and competitive; alternative careers are readily available. Parenting as well is complex when it comes to succession. It is not just about genes and legacy, it is about relationships, parenting and mentoring.

I suggest parents, as mentors, convey three messages to their children throughout their childhood and as they emerge into adulthood:

  1. Their children should choose a career that best fits their passion and skills. Conveying an expectation that children must or should ranch or farm has great emotional and financial risks.

  2. There are wonderful career opportunities at the agricultural production level, including at this beef production business and throughout agriculture.

  3. A position and a career on the ranch or farm will be available only if the son or daughter shows passion for the ranch or farm and has the skills and experience to succeed.

Children are very perceptive. Especially as children get older, parents should explicitly convey the above three messages. That, however, will be only a small part of the messages children receive. Children’s understanding on these issues will come primarily from the comments, actions, attitudes and cues they hear and see from their parents.

Too often, parents consciously or subconsciously downplay the third point because they are afraid that exploring alternative careers or gaining off-farm experiences will decrease the likelihood of their children becoming a partner on the ranch.

Although sometimes it is hard, parents must recognize that becoming a partner in the beef production business is not always the best fit for their son’s or daughter’s passion and skills.

Requirements for returning

The third point is critical in mentoring for eventual inclusion in the beef production business. Whether the son or daughter stays on the ranch out of high school, returns after college or returns after some off-ranch work experience, both generations must be convinced that the son or daughter has the passion and the skills to make valuable contributions to the beef production business so it will thrive for the next several decades.

I believe success in implementing the third message is best achieved by requiring that sons and daughters have significant work experience away from the ranch prior to returning. In most cases, this should include full-time work experience.

One of my Cornell advisees is now a managing partner in the home operation after meeting the mandatory five-year work experience by working for Farm Credit. I know another farm that will welcome sons and daughters after they have gotten a job, earned a pay increase and received a promotion.

My reasons for making this suggestion include:

  • How else will both generations know that joining the family ranch is the best career choice?

  • Experience as an employee is crucial to gaining the skills and the empathy to be a great supervisor.

  • Broadening sons’ and daughters’ understanding of ranch management, agriculture, business, leadership and our global world will enable them to become the leader the beef production business will require.

A concluding comment

Parenting is a difficult and wonderful challenge and opportunity in every family. In a family business – a ranch or farm – it comes with the additional responsibility and challenge of mentoring sons and daughters in preparation for the decision to join or not join the family business.

Varying from the late teens to early or mid-20s, a critical transition occurs as parents and our kids transition from an adult-child relationship to an adult-adult relationship. I know from observation, and with my own adult sons, this is usually a difficult transition.

That transition requires moving from advice-providing and guidance-based communication from parent to child to a more mutually respectful, knowledge-based, collaborative adult-to-adult communication.

It is important that parents recognize that at least part of this transition will likely occur at the same time parents and the next generation are entering into a business partnership. Letting that transition progress prior to also becoming business partners greatly increases the likelihood of success as business partners and in the adult-adult family relationship.  end mark

PHOTO: Staff photo.

Bob Milligan is also professor emeritus, Dyson School of Applied Economics and Management, Cornell University.

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