This past summer I conducted numerous strategic planning sessions for bank, business and cooperative boards and management teams. Many of the engagements are repeat sessions where my opportunity to establish relationships with participants grows each year.
In one board planning session, a younger board member and I engaged in discussion. I asked him how things were going. He stated that it was a good year on the farm, which comprised both crops and livestock. However, he indicated that an unusual Black Swan event hit his business when his brother, who was of similar age, who managed the crop operation, passed away suddenly in his sleep. This young man then proceeded to discuss the following.
A farm estate plan had been established and it worked very well concerning the necessary insurances and division of assets and equity. A shortcoming of the estate plan was that they had only worked through the scenario of his 70+-year-old parents dying first. He recommended that I write an article focusing on the importance of succession planning for each of the business partners, regardless of age, in the case of possible of death or disability.
The young man indicated the biggest issue he had faced was lack of succession and transition plans concerning loss of a partner. While he managed the livestock operation, his brother was responsible for crops. He was able to manage the 14 employees on the livestock side. Now he not only had to manage those employees, but also the production and marketing of crops as well as seven employees on the crop side. He had established a system of management protocols for employees on the livestock side, but none had been established by his brother for the cropping enterprise.
Luck was on his side. A former medical worker has decided to come on as a manager to oversee the cropping operation, which will reduce pressure on this young board member. My suggestion was to get input from each employee concerning what his brother had done well to make a successful cropping operation. This input will provide buy-in from the employees and assist the owners and the new manager in developing a system of change.
He stated that more time in strategic planning needs to be prioritized towards succession and transition management rather than just estate planning. Working through “but what if” scenarios proactively can reduce stress in the event of a tragic Black Swan event.
P.S. That evening at dinner, his wife stated that he was quite stressed out about all the additional responsibilities. She stated that he wanted to pay the new crop manager a salary and bonus. His 70-year-old dad objected, saying he needs to be paid on an hourly basis because all the other employees are on an hourly basis. The bottom line is that this decision to pay on an hourly basis will cost them significantly more money in the long run. The son is frustrated. This is just another example of some of the issues that come up in farm transition management.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org.