Succession Planning: How do I Train the Next General Manager?

1. Succession Planning: How do I Train the Next General Manager?

2. What is succession planning? …it is a PROCESS that ensures the continuation of a business through the generations. “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.” Peter Drucker, management expert

3. Did you know. . . • 90% of U.S. businesses are categorized as family owned. • 7 of America’s 8 oldest family businesses are farms. • While 78% intend to pass the business on to children, only 34% create a succession plan (for 25% a will is the only element of that plan). • 70% of first generation businesses fail to survive into the second generation. • 15% survive into third generation. • 1% survive into the fourth generation. Source: Small Business Administration

5. Steps in Succession Planning Process • Understand what succession is • Discover expectations • Examine options • Create a plan • Check with experts • Finalize the plan • Implement the plan

6. Succession is: A process About family, people and relationships About ownership, management and estate About what is fair Driven by the family values, wants and concerns Succession is not: An event One person’s problem About minimizing taxes About equity Driven by technical issues that are handled by lawyers, accountants, etc. Step 1. What Succession Is and Is Not

7. Step 2: Discovering Expectations • Should involve all family member (whether in the business or not) • Assumptions at any stage about other’s wants or expectations should not be made • Say no to secrecy!

8. Perry Jr. Kay Perry Rose Say NO to Secrecy!

9. Step 3: Examine Options Key Questions: • What role, if any, will family members play in the succession plan? • What can we do to treat all offspring fairly? • How can I prepare for either a different role in the business or for retirement? • How will the transfer of ownership be handled? • How will the successor(s) be trained? • How will the change in roles be communicated to stakeholders?

10. Carl Family First versus Business First Joe Farm Owner Bob Jan Friend Part-time farmer Key employee Physician

11. Fair versus Equal Robert

12. Step 4: Create a Succession Plan • Plan for transferring management • Plan for transferring property • Contingency plan for managing disruptive events

13. Choosing the Successor • What specific attributes would you look for in a successor? • Education • Experience • Personal characteristics • Skills required • Job responsibilities

14. Grooming the Successor • How do you provide opportunities to make decisions, take risks, and develop management skills? • Initial evaluation • Management training • Career growth • Regular feedback • Timetable (allow 5 years to 15 years)

15. Charles for Charles ü Dad for Charles l Evaluation of Farm Management Skills

16. Step 5: Check with Experts • Use them to comment on your thinking, not to do your thinking for you • Should be visited only after you’ve thought about the process

17. Step 6: Finalize the Plan Write it down!

18. Step 7: Implement Plan • How to announce the plan? • Develop program with action plans • Set target dates • Schedule follow up/review of program • Keep everyone informed • Review the plan periodically

19. Typical Parent-Child Business Arrangements On Family Farms • Spin-off model • Landlord-tenant model • The “super-firm” model

20. Succession Planning Critical Issues: • Transfer of management • Transfer of assets • Anticipating disruptive events

22. Key Questions About Involvement In the Family Business • Who are the participants? • What role(s) will each family member play in the business? • Employee concerns include income and benefits, financial security, recognition • Manager concerns include responsibility and authority, career growth, recognition • Owner financial growth, risk versus reward, rate of return, cash

23. Think About Separating The Roles • No single participant need wear all three hats as manager, employee, and owner • One advantage of business entities (super-firms) is they allow us to separate ownership and management • Provides opportunity to keep non-farm heirs involved as investors

24. Fundamental Tasks When Planning to Accommodate Off-Farm Heirs • Assure a degree of marketability to investments of off-farm heirs, minority interest holders • Provide assurances about current or future returns on their investments • Provide for legitimate forms of involvement in family/farm governance

25. Multiple Entities (Advantage: Flexibility in Numbers) • May be easier to deal equitably with on-farm and off-farm heirs • Using a new operating entity reduces the investment needed by on-farm heirs to gain control of the operating entity

26. Family Governance Structures: Family Council • Includes all adult parties in interest to business or family assets • Deals with questions of the family’s role in the business and the welfare of family members • Purpose is to give all stakeholders a legitimate voice in the family business

27. Strategic Business Planning for Commercial Producers