Succession Planning for Family-Owned Businesses in the Agricultural and Rural Business Sector

Management succession should be a process that takes place over time and is not a one-off event. The transition process is likely to last a number of years.

Typically, a management succession process might begin by the socialisation of the next generation as they grow up with the family business when they are children. This may also include work experience within the family business, which culminates in a genuine occupational choice.

The next step would be employment/full time work with the family business, including promotion, mentoring and supervision.

Finally, the older generation would pass management responsibilities to the next generation.

Generally speaking, family business survival rates from one generation to the next tend to be low.

Many obstacles to management succession can be identified.

For example, these may include a dependence on the founder or the older generation, no natural successor can be identified, there may be no financial security for the older generation to retire, there may also be an absence of planning for succession, and not uncommonly, there may be a reluctance of the older generation to let go.

The older generation have a responsibility to lead succession planning, but it is important that all family members participate.

Ownership complexities may also create issues for management succession planning. 

The business can be structured, or the arrangements tailored in such a way so as to suit the precise requirements of the business and the individuals involved.

Examples of ownership structures include:

• real estate assets or agricultural land is owned by the wider family and the operating business is owned by members of the family who work in the business;
• voting shares (for family members working in the business) and non-voting shares (for family members not working in the business);
• shareholders relinquish voting powers to an appointed trustee but continue to receive dividends (alternative to voting/non-voting shares);
• the use of “freezer”, “flowering”, or “growth” shares (i.e. where the next generation participate in the value created by the growth of the business);
• all family members hold shares, but members of the family who work in the business also hold additional employee shares or share options;
• wider family members hold preference shares (providing preferential dividend rights), whilst members of the family who work in the business hold ordinary shares; 
• the adoption of a family investment company with separate classes of shares for different family members and/or the use of trusts where economic interests are discretionary; and
• family business buy-out (family members working in the business buy-out the older generation).

The importance of the succession process to the wealth, legacy and happiness of the business owning family cannot be underestimated.

The succession process needs to explore the commitment of the wider business family and viable alternatives before settling on a solution.

In practical terms, the primary responsibility is on the senior generation to drive the succession process, but it is important that the whole family participate.

Families that avoid talking about succession and fail to address succession from an early stage are seriously limiting their prospects of achieving a successful outcome.