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Talking 'The Talk'

Talking 'The Talk'
A sample of the things you may need to say when it's time to talk with your kids about passing on the farm.

Here's a draft I've come up with in case you are ready to talk to your children about the next generation of management on the farm. No two situations are alike, so this "speech" should be adapted appropriately to the unique mix of players and circumstances in your situation.

"We (mom and I) have gathered you here to share our views on transitioning management and ownership of the farm. Some of you already work on the farm. Others have future interest in this business as owners, laborers or both. All of you could be impacted in different ways by our retirement intentions as well as our intentions to transfer by gift, sale or inheritance what we have accumulated.

"Family considerations have historically dictated how we've operated this family business.

"Our dream was to involve as many of you in this vocation as possible and to build up a business capable of supporting that dream. It's now time to pass the batons of management and ownership of the business. (insert reason: …just had 1st heart attack;… was scared by my estate planning attorney; heir apparent threatened to quit if we didn't commit soon;...wife threatened to bean me if we don't get going on this!)

"First let's address management transition. Previous generations in our family did not handle transitions well. In hindsight, those transitions failed because we didn't make business-like agreements, we didn't write down what we agreed upon, and standard operating procedures and policies yielded to family considerations rather than business approaches.

"These approaches have caused us to lose business opportunities. And we suffer today from fractured family relationships in both previous and current generations.

"With the help of outside advisers we have examined our past history and studied alternative strategies for transition. Looking backwards it is now clear that many of the business decisions we followed were not based on generally accepted business practices. For example, we tried to bring everybody back to the farm without looking at how many families this business can support, or whether those working here share a common mission, vision or values.

"Pay has been based on what people needed to support their families, or everybody got equal pay - not what the market would pay for different jobs performed. Job roles have not been clearly defined, and we struggle with accountability due to excessive management by committee.

"We focused on growing and diversifying into new ventures, but didn't use good financial analysis to determine if what we were doing made economic sense.

"Your mother and I have been blessed, despite our business approaches, with a beautiful loving family. With hard work, good margins in past business ventures, and favorable appreciation in real estate, we now have a comfortable financial estate. We don't feel guilty nor will we apologize for what has been done in the past. As the primary decision makers and owners, we did what we thought was best for family - that has always been our first priority. But, the way we approached managing this business in the past won't work if we are to be sustainable in the future.

"We are in a serious global recession. Margins have plummeted, costs are up, and prices are volatile. Competition is getting tougher. Excellence in every phase of our business - from production, marketing, financial, personnel and strategic management - is critical if we are to survive as a closely held family business. To compete we will need to excel in managing a business model where multiple family and non-related members with unique talents work cohesively as team.

"In preparing for this meeting each of you has been consulted to explore ideas and assess interests in future management and/or ownership of our business. As CEO of the business, I've decided on a plan for passing on my management role and what role I will continue to play in the future. I intend to change my role from CEO to Chairman of the Board (or Transition Coach, if you prefer) on xx/xx/20xx, and Person Y will become the new CEO.

"The successor/manager/CEO for this business will likely operate in a much different way than we did. As transition coach and board chair, I intend to be a sounding board to focus on strategic planning, coaching and advising, approving major decisions, and reviewing financial progress.

"With a new CEO taking over day-to-day managerial duties, this will free up mom and me to refine our estate and retirement plans. As we look at these areas, our intent is to look at what we need to retire with financial security. Then we will look at alternatives for shifting ownership of the business to members of the next generation.

"Our intent is to use a blend of methods to share our blessings and wealth with our children on a timely and tax efficient basis. What we choose to do with each of you will likely vary based on continuing communication concerning your individual goals, needs and vocational paths.

"As transition coach I will support my successor in implementing the transition of our management process to a more businesslike approach. And we will begin working on ownership transfer. Some of the changes that warrant implementation in the near future are:

  • We must agree on a shared mission, vision and values.
  • Our organizational structure must show lines of accountability from employees to enterprise or mid-level managers to the CEO and ultimately to the chairman of the board.
  • A new focus must exist on what the business NEEDS for talent and how we staff the business with the right talent, passion, and experience to do the jobs needed.
  • We will have to agree on a strategy for growth and insure business size and number of families supported is in balance.
  • Individual accountability must be more transparent - this means key employees will have to work within written job descriptions and be willing to undergo periodic performance reviews.
  • We will need to operate with more standardized policies and operating procedures.

"While we firmly believe these changes are needed, we don't have the energy, experience, or comfort level with business jargon to do this well. We've been parents, first, and bosses second - that has been our management approach. We've had our turn at the helm. It's time for others to have their turns at the wheel.

"My successor will be responsible for implementing many changes, using a style that is compatible with different labor, management and ownership combinations. I've chosen a successor based on his (her) attributes such as persuasion, leadership and empowering skills rather than ability to use parental authority to get things done.

"A transition to a more business like model will present opportunities for some and negative consequences for others. The opportunities you can expect are:

  • People will be operating in roles that match their capabilities and allow them to excel - making it personally gratifying to contribute to a more successful business.
  • Pay will reward responsibility and performance - providing an incentive to excel.
  • Opportunities for investing in this business will be open and flexible encouraging capital in varying levels with commensurate return on capital after labor is fairly and competitively rewarded.
  • Our business will be able to pursue strategic improvements more efficiently.

"If the business succeeds and we follow good practices, family relationships will be enhanced, not damaged. This gives added incentive for members of the family to stay engaged in the business to further our family business heritage rather than looking elsewhere for career challenges.

"Some of you may see negatives from committing to a more business-like approach. You may decide you don't concur with the majority views on our mission, vision, values or business approach and choose to pursue a different vocational path. While some may see enhanced pay, others may see adjustments downward. There may not be room in this business for everyone who wants to work here.

"As parents we are sensitive to these negative consequences and will look for ways to be supportive both financially and emotionally through this transition. We fully realize that no matter what your role is in this business, its affairs have a direct or indirect impact on each of you.

"Mom and I called this meeting to make it clear that we love you, we care about you and your families, and we are going to pursue a transition process that places new balance between family considerations and good business practices. It is our belief that instilling this balance will help our family and business relationships prosper, not suffer.

"Are there any questions?"

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