Ranch transition is more than a generational transfer

This article addresses building the partnership with those who return.

Senior Consultant / Dairy Strategies LLC

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

The conclusion of the first article was: The return to the ranch or farm should only occur when both generations are convinced the son or daughter has the passion and the skills to make valuable contributions to the beef production business, and the business is financially sustainable.

This article begins with four issues that must be addressed as the return to the ranch or farm is planned. The question of the role in the operation of the ranch or farm and the role as a partner are then addressed.

Four issues

Before finalizing the decision to offer the son or daughter a position in the ranch business, four issues must be addressed. Strong disagreement over any of these must be interpreted as an indication the son or daughter is not yet ready to return. Further discussion is required.

Complete agreement is not necessary; however, everyone must be willing to discuss the issues openly, honestly, patiently and civilly while respecting each other’s perspectives and opinions. The four issues are:

1. Agreement on ranch business direction. This includes mission, vision, core values and key attributes of the beef production business culture. Since these are at the heart of the beef production family business, irreconcilable differences eventually lead to strained relationships and potentially to business failure or dissolution of the partnership.

2. Beef production business financial status. The financial feasibility of transferring the ranch was discussed in the first article. A final check is required to be certain there is sufficient equity, available cash and profitability to support the retirement of the senior generation and business sustainability (growth) and personal/family needs of the junior generation.

3. Life balance expectations. Research shows millennials have higher life balance expectations. The expectations for working hours, vacations, etc., of the son or daughter and the son’s or daughter’s family must be discussed and respected by the senior generation.

4. Parental versus business relationships. Has the transition of the parent and son or daughter relationship from an adult-child to an adult-adult relationship reached a point where adding a business relationship can successfully occur? Research shows parental affirmation of their children’s growth toward adulthood is crucial to this transition. It is also crucial to the development of a business relationship.

View ranch advancement as a career path

I cringed when one of my advisees said something like: “I am going back to the farm. Dad says I can be the herd manager in three years.” I cringed because advancement to a position with more responsibility should always be based on performance and readiness for the new position.

Senior management has the responsibility to provide opportunities for advancement and rewards for those who have earned a promotion. Promotions should be based on performance and potential, not family status.

Ranches and farms were still small when most senior-generation ranchers and farmers started. Over the years and decades, the senior generation has developed their leadership and other skills as the beef production business has grown.

Most junior members, today, will start in a much larger business; their development will occur as they advance – their career path – within the business.

The junior generation’s advancement, then, should not be that different from what would happen if they had gone to work for a large agribusiness or a major corporation. There, advancement would be based on their performance and potential to succeed in the new position.

Viewing the junior generation’s advancement as career advancement – perhaps feeder to feeding center manager to operations manager to CEO – places great responsibility on the senior generation. They must lay out and guide the career path. The senior generation must be clear and communicate to the junior generation:

1. Clear expectations about what must be accomplished to earn horizontal and vertical promotions. Increases in responsibilities within the same position are considered horizontal promotions, with promotions being considered vertical promotions. Both are necessary for continuing employee or owner engagement and career advancement.

2. Guidance and mentoring in communicating the learning, professional development and personal growth necessary to be prepared to succeed when the move is made to the new position.

Success will require frequent communication. Additionally, I suggest scheduling an annual meeting to more formally assess progress and provide clarity for the coming year. This meeting or series of meetings could start with updating the job description.

I suggest having a section in the job description titled “new and increased responsibilities.” The meetings would also include specifying expectations for the coming year and updating professional improvement plans to reflect the “new and increasing responsibilities” and any changes in career plans going forward.

Becoming a partner – integration into the leadership team

When the junior generation member takes a full-time position at the ranch, an additional owner or potential owner has been added. The junior member should immediately have input into and be included as a decision-maker in ownership issues – vision, strategy, farm culture, planning.

The best way to do this is to have an effective leadership team. An effective leadership team is usually composed of owners and potential owners. Key employees and trusted advisers often attend these meetings to provide input and advice.

Since the issues addressed by leadership teams are often important but not urgent, and the senior generation’s habit is to handle them on their own, some structure for the leadership team is now essential to ensure inclusion of the junior generation.

Meetings should occur regularly, perhaps monthly, with a set agenda. Please email me at Robert Milligan for a leadership team charter template and a leadership team responsibilities worksheet.

A concluding comment

The transfer of a beef production family business to the next generation can be one of the greatest successes there is in business. My friend and colleague Bernie Erven often comments successful farm succession starts at the birth of the next generation. He is correct.

It is, however, also a complex, long-term process. Like everything else that is complex, intergenerational transfer takes planning, dedication, patience, trust, communication and leadership.