Governance is the key to succession

Tom Phillips, of Massey and Lincoln joint venture OneFarm, says farmers need to separate day to day operating of the farm and take a hard look at governance issues. 

“Governance is important because through the life of a farmer, their roles change,” he told Rural News.

“When they start as a young 20-year-old on a farm they are very much involved learning the day to day business.”

They then progress through the industry, for example in dairy through roles such as herd manager and sharemilker, and hopefully on to senior management, ownership and governance roles.

At such senior levels it’s very important to step back and allow young people to come into the business. That needs to happen in good time, “not on the point of retirement, but well before that,” he stresses.

Phillips says governance skills are generally learned by people’s involvement in sporting clubs, church or school. But he says quite often these skills don’t make it back onto the farm.

Succession has never been easy, and today’s land prices and volatile commodity prices don’t help. Profitability does.

“Even with this, it requires clever team work between the consultant, the solicitor, farm accountant and the facilitator to help the family address the issues in an appropriate manner.”

A keynote speaker at the summit was Mandi Mcleod, a farm business consultant specialising in succession.

She says there is no ‘one size fits all’ solution and one of the biggest problems is the lack of skilled facilitators helping farmers put together a succession plan. Too often farmers go to lawyers or accountants to talk about ‘structures’ and fail to recognise the psychological impact of succession planning.

“In New Zealand we don’t have lot of trained family business facilitators. Succession planning is such an emotionally charged process. The worst thing we can have is people going in there with the best of intentions and failing because they don’t know how to deal with the psycho-social issues.” 

Effective communication is key. “It’s a well known fact that 60% of family businesses fail because of poor or non existent communications,” she points out.

While in general society’s attitudes to women have changed, this is not always the case with farmers. There’s still a leaning towards the eldest male sibling taking over, she notes.

“Farming is still a very physical business and farmers don’t like to see their daughters doing that rough tough job. They see them as ‘destined for better things’.

“At the same time not many women are entering the space that they might be seen as the successor,” she adds.

Issues such as the price of land, and in the case of dairy farming purchase of cooperative shares, pose particular challenges. Part of succession planning is identifying the potential successor and deciding whether they have the requisite skills.

“Not only do they have to have the skills to manage the operational aspect of the farm but also to take the business forward and grow its assets and their share in the business.” 

But important as the business aspect it, the family must come first, says Mcleod.

“You really need to answer the questions of needs, wants, fears and expectations and gain transparency around those with an innovative, legal solution.”

The issue of structure has to be worked through. Many farms are in trusts, a structure perpetuated by the legal profession. They were established to avoid tax and to deal with potential relationship issues but neither are relevant reasons for trusts these days, she says.

“Unfortunately, some people today view succession planning as means of avoiding tax.”

As for where to start the discussion on succession planning, the kitchen table or other home spaces where people have their ‘power seats’ is not the place. 

A neutral territory, possibly an outside venue, is needed to give at least a perception of equality.

McLeod says she’s heard of one couple who held their business meetings in their spa pool, which worked well for them.

“I can understand that because it’s certainly neutral territory, there’s little chance of a walkout, and both parties are sitting there facing each other with nothing to hide.”