Family business continuance: A global perspective.

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Executive Summary

The term ‘succession’ is usually used in the narrowest sense of asset transfer between generations with little attention paid to management succession in the case of a (family) farm business or succession of board members at a board and governance level.

With agriculture contributing approximately 15% of GDP, New Zealand’s aging agricultural population is of concern, not only in terms of food production but in agricultural leadership as well.  The majority of agricultural leaders are derived from a practical-farmer base which has an estimated average of 65 years. These farmers have developed skills through their active involvement in Federated Farmers and other industry organisations.

Traditionally, New Zealand has had a relatively self-replacing dairy industry through sharemilking which allowed new entrants the opportunity to build up a herd of cows and develop crucial business skills before purchasing their first farm. Whilst this has allowed a readymarket of first farm buyers, most dairy farmers still aim to pass the family farm on to family members.

The sheep and beef industry has a more traditional approach to succession, with family members taking over the family farm or the property sold and assets divided equally between the family.

Changes to the entry cost of farming (increase in land value; introduction of Fair Value Shares[1] etc) relative to income has altered the perception of farming as a ‘easy’ option for those who saw themselves as academically-challenged to that of a business with increasing regulations and decreasing profit-margins.

The opportunity to work with Sydney-based accounting firm Grant Thornton Pty to assist in the development and implementation of family farm succession programs coupled with my personal situation of being ‘the farmer in the family’ with four non-farming siblings has impressed upon me  that succession is not the primary domain of lawyers, accountants and/or financial planners.

Family are complex beasts consisting of individuals linked through a common lineage, sometimes with little more in common than the blood that binds them. It is these individuals that form the heart and soul of a family-farm, ensuring it’s ultimate success or failure, yet it is these same people that are forgotten about in a traditional succession planning model, which is developed around tax-effective mechanisms for reallocation of assets when the matriarch and or patriarch are deceased.

Aims

Business Continuance and Succession Planning –the primary aim is to provide a readable document that highlights the issues and provides some commentary and suggestions as to how these might be handled. It is very much intended that the primary beneficiaries of this report are family farmers and their advisers.

To create a heightened awareness and understanding of the gaps that currently exists in our collective knowledge base around the continuation of family farming businesses via transfer of knowledge, skills and experiences from one generation to the next.

On a personal front, I would like to develop pragmatic models and tools for achieving efficient, harmonious and successful transitions between generations of agricultural and farming leaders; family farm businesses and individual family members.

Smooth and timely leadership succession is vitally important to the financial success and longevity of any business whether it be the family farm, corporate farm enterprises, Maori Trust farms or multi-million dollar co-operatives such as Fonterra, Ravensdown Fertiliser Coop, Ballance Fertiliser Co-op etc The Alliance Group Co-op is a particularly good example of a poor process for succession of their Chair as shareholders vented their spleen over the industry politics surrounding this decision.

Continuation of family farm businesses is vital for the continuation of agriculture and food production locally, nationally and globally and for industries to recognise the importance of this for their own survival.

Method

The approach I have taken was to study those who have managed this aspect of the succession process well and who have developed models for success and/or best practise guidelines for family farm businesses.

The countries I visited during my scholarship were:

UK, Belgium (Brussels), France – Contemporary Scholars Conference

Australia, Philippines, Hong Kong, China, US, Canada, Ireland, Northern Ireland – Global Focus Program

Canada, Australia, US, Northern Ireland, England[2], Wales, Scotland, India – Study Specific

The countries chosen specifically for the purposes of my study were based on a desk-top research of those individuals, organisations and conferences/seminars that I deemed to be of relevance. In many instances, as a result of my visit I was referred on to other experts in a form of an intellectual snow-ball waltz.

A semi-structured interview and/or active participation in conferences and seminars were used to gather information.

Family Business Continuance: A Global Perspective – Mandi McLeod

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