Proper farm transition planning, including timing, protects the viability of the business going forward
Agriculture, with its continuous cycle of planting and harvest rooted in valley soil, becomes a way of life. Leaving that rhythm behind to retire from the farm can be difficult. Farm leadership brings prominence and identity in an important profession, often in a cherished rural community.
The financial requirements are challenging if separate retirement income sources have not been set aside. Running a complex enterprise provides satisfaction in building business relationships to execute smart deals.
When someone uses the expression “die with my boots on,” it may be seen as warning to others that they don’t want to retire anytime soon — if ever. This sentiment may suggest fortitude — but in reality, it puts the future of the farm at great risk.
The big picture
Oregon’s farm owners are older than at any time in history. At an average age of 60 years, they are two years older than national figures. Over the last decade, each edition of the State of Oregon Agriculture issued by the Oregon Board of Agriculture included farmer succession as a top strategic issue.
The 2019 legislative session saw the first request, through the Oregon Agricultural Heritage Program, for funds to target farm succession planning and education.
Prior generations had a straightforward path to retirement described by farm succession planning consultant Dick Wittman as “grunt to assistant manager,” and finally to “boss” —assuming that the previous farm leader was willing to pass the baton.
In this system, the incumbent chief executive made most operational decisions, and finances were shared on a need-to-know basis.
This pattern of a “succession ladder” was measured in John Baker’s work with the International Farm Transition Network (see table 1). Across five U.S. states, farm CEOs were asked to rank the order of decision-making authority retained by the older generation.
In most states, the last tasks shifted to the next generation leaders were key financial controls. This data, when considering Oregon farm owner age, suggests significant risks to farm continuity when retirement is delayed. For the sake of continuity, it is critical that successors have knowledge of the financials and the reasoning behind the decisions that are made.
In addition to financial instability, farms are also at risk of losing human capital. Entrepreneurial next generation “assistant managers,” who have been studying new technologies, and farming methods, may not wait for succession. There is a serious risk of losing talented family employees who do not see a path to career advancement on the family farm.
Alternatively, succession is changing to reduce unplanned retirements that limit business development as new multigenerational business models emerge. Successful family-run operations are shifting from a business to an enterprise structure to be more intentional about stewardship.
Under such a model, long-term strategic planning is often led by the former CEOs. Supported by sound governance with differentiated management and ownership responsibilities, the farm CEO retirement adds tremendous value to the enterprise. The chairman role is the next step after a rewarding career as a farm CEO.
Specifically, the farm CEO retires away from daily operational decision-making to chair the board where family and nonfamily directors or advisors strengthen the farm’s long-term viability.
|Activity or Decision||IA |
|Decides when to pay bills||2||1||1||1||1|
|Identifies sources and negotiates loans and finance||1||2||2||2||2|
|Decides long-term balance and type of enterprises||12||5||7||12||13|
|Decides and plans capital projects||3||7||4||7||8|
|Negotiates purchase of machines and equipment||8||8||5||5||5|
|Decides when to sell crops or livestock||3||5||6||8||9|
|Negotiates sales of crops or livestock||3||4||3||6||6|
|Makes annual crop or livestock plans||7||9||10||11||8|
|Decides level of inputs used||6||3||NI||9||10|
|Plans day-to-day work||10||12||9||9||7|
|Decides timing of operations or activities||11||10||8||7||7|
|Decides type and make of machines and equipment||13||10||12||10||9|
|Decides work method or way jobs are done||9||13||11||12||12|
Table 1. Succession Task Delegation (U.S.-only) ranking which decision-making tasks are retained by the older generation. “1” means the activity most identified as retained by the older generation.
Farm benefits of CEO retirement
The challenge of the next economic cycle is never far away. The lure of continuing to run the operation in good times is strong — and even stronger in tough times.
The business case for installing next-generation leadership, even in the face of trying times, focuses on shared learning. A new successor can experience intensive learning on the job while the farm still has an emergency support system. There is both a knowledgeable next generation CEO running current operations backed, when needed, by a highly experienced chair who is planning for the next 50 years of farm growth.
A board chair disconnects from farm operations to focus on the strategic issues of developing a deep bench of leaders and evaluating long-term acquisitions and investment alternatives for the future of the farm. At the end of a manager’s full workday, these strategic questions would receive less attention or be delayed. The chair’s role is unencumbered by the intensive time requirements of daily decisions.
The founding director of the Austin Family Business Program, Dr. Pat Frishkoff, has retired from private consulting practice. After more than 20 years helping family farms with succession, she noted, “If I had to do it all over again, I would forget everything I read. The success of a transition all comes down to the transparency of the senior generation.”
Planning for the retirement of the CEO to a board chair position is an opportunity for the generations to work together to build executive job descriptions, farm strategic plans and timelines.
Installing a board chair benefits the family as well. Chairs hold a well-defined role in stewardship of the family legacy and in reinforcing the family values that are the foundation of the business.
Sharing family stories and milestones inspire the youngest in the family and strengthen the bond that will unite the future generations as potential business partners.
Four steps to launch retirement
1. The family farm CEO’s first essential step toward retirement requires a workable financial plan. Finding time to collect household and personal expense histories, investment statements and insurance documents as a starting point for estimating future retirement income needs should become a priority. These financial requirements drive the options for the farm sale or gift transactions to younger generations.
2. The retirement funding plan can also be used to generate a time horizon. Identifying a date for retirement will create an urgency to get plans and successors prepared. This is an opportunity to be transparent in planning the future of the farm. The target date should be shared with advisors and family members.
Example: A next generation farm owner first learned of her father’s retirement date during an Austin Family Business Program management succession seminar. Dad’s intended retirement date was two years earlier than she had been assuming. She was committed to taking over the family farm, but it meant moving her family back to her hometown sooner than she had been planning. Thankfully they had a shared target to work toward.
In that same workshop we asked family members in each farming operation to review Baker’s Succession Task Delegation (Table 1) list for their own farm and for each task identify:
A. The person currently responsible for the task, and
B. The person who would be responsible for the task in five years and
C. The person who would be responsible for the task in 10 years.
Individuals in the family farm then compared answers to see if they were similar in their perceptions of the CEO’s transition. The responses always prompted productive discussion in setting timelines for succession.
3. Create ongoing opportunities for private discussions of the farm business with the successors. The most frequent request reported by next generation farm leaders is the need for more time set aside to talk with their parents about the farm leadership experience. Include successors in meetings with farm business advisors, suppliers, bankers, accountants and attorneys. Schedule uninterruptable sessions for detailing the decision-making that has become intuitive to the seasoned CEO.
4. Build or reactivate an advisory board if it does not currently exist. Review the 2017 Digger article, “Starting a board of directors for your family business,” for more information (tinyurl.com/v27jvo4). The chair’s job description should define responsibilities that keep a retired CEO out of the daily affairs.
All generations have a responsibility to the farm and the family. Young cousins learn the values and meaning of being part of an enterprising family. Middle generations commit to education and professional development to extend their entrepreneurial success. However, the oldest generation, with the deepest knowledge and experience, has much to share to ensure the farm’s future and continue the cycle.
In: Journal of Agriculture, Food Systems and Community Development.Lobley, M., Baker, J. R., & Whitehead, I. (2010). Farm succession and retirement: Some international comparisons. Journal of Agriculture, Food Systems, and Community Development, 1(1), 49-64. Retrieved from https://www.foodsystemsjournal.org/index.php/fsj/article/view/10/3