Why many first-generation family agribusinesses don’t survive their founders

Lack of succession planning is one of the key reasons why so many family agribusinesses fail to last, writes Trevor Dickinson. Very few businesses that are simply ‘handed over’ in an informal manner will survive.

Why many first-generation family agribusinesses don’t survive their founders
Some farmers who won‘t ’let go‘ undermine their sons or daughters by not giving them enough guidance to run the operation. fw archive
Photo: FW Archive
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Approximately 70% of all family businesses are either sold or liquidated after the death or retirement of their founders. The failure of these businesses beyond the tenure of their founders has serious social and economic consequences.

The liquidation of a family agribusiness constitutes a loss not only to the proprietary family, which often has most of its assets tied up in the farm, but also to the employees and surrounding community, whose economic well-being depends on the survival of the business.

One of the most significant factors determining the continuity of the family agribusiness from one generation to the next is whether the succession process is planned.

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Succession planning means making the preparations necessary to ensure the harmony of the family and the continuity of the family agribusiness through to the next generation. These preparations must be thought of in terms of the future needs of both the business and the family.

First-generation family agribusinesses are heavily dependent on the founders, not only for their leadership and drive but also for their connections and technical know-how. Failure to plan for succession needlessly deprives the business of these crucial managerial assets.

In addition, if succession planning is avoided, the founder’s unexpected death can force a major upheaval in the pattern of authority and ownership distribution. In this situation, conflict among the founder’s heirs often becomes so intense that they are unable to make the strategic decisions needed to ensure the future of the family agribusiness.

Failure to plan for succession will also threaten the family’s financial well-being by leaving many thorny estate issues unanswered, and a distressed sale of the family farm is often the result. Yet in spite of all the rational reasons for planning the founder’s succession, leadership succession is seldom planned in family businesses.

While much has been said about the high incidence and detrimental effects of the failure to plan succession, little attention is given to the issue of why planning is often avoided.

This three-part series of articles will provide insights into the critical forces that interfere with succession planning in first-generation family businesses:

  • Ambivalence toward succession planning;
  • Different perspectives on succession: the attitudes of the founder, family, managers and owners;
  • Mobilising the succession planning process.

This first article’s main argument is that each of the constituencies that make up the family business experiences ambivalent feelings about the inevitable succession transition.

This ambivalence prevents key decision-makers from engaging constructively in planning the exit of the founder. One of the underlying premises is that gaining awareness of the reasons for resistance among the various constituencies is an important first step toward mobilising the planning process.

Ambivalence toward succession planning
The succession transition imposes a wide variety of significant changes on the family agribusiness: family relationships need to be realigned, traditional patterns of influence have to be redistributed, and longstanding management and ownership structures must give way to new structures.

To further complicate matters, the timing of the succession transition tends to coincide with life-cycle changes in the family as well as changes in the family business’s markets and products.

People in family agribusiness adopt different ways of coping with their ambivalence toward succession planning. One common response is to compromise opposing feelings by enacting a number of self-defeating behaviours.

For example, consider the case of a first-generation family agribusiness owner who chooses his oldest child to be his successor but undermines his or her authority by refusing to give the child the training and guidance needed to perform competently in the top position.

Nominating his child as the successor addresses the founder’s desire to ‘do something about the continuity problem’. But passively sabotaging the child’s professional development placates the founder’s need to remain in control of the family agribusiness.

These behaviours prevent any real movement toward the design of a feasible succession plan. Another way in which people attempt to cope with their ambivalent feelings toward succession is by projecting the side of ambivalence that they feel least comfortable with onto others.

In succession planning, such splitting tends to occur across generational lines, with the older generation becoming the sole advocate of change. In these situations, each group enacts an opposing side of the ambivalence; together, they prevent the system as a whole from making any progress in planning for the future.

Consider the case of a founder who is repeatedly badgered by his oldest child about the absence of a succession plan. With every attack, the founder becomes increasingly defensive and moves to reassert his control over the family agribusiness by procrastinating further.

As the conflict escalates, the child becomes increasingly unaware of some of his or her own misgivings about the future (for instance, any doubts that the child might have about his or her ability to perform competently in the top position or fear of the father’s death).

Likewise, the founder loses sight of his reservations about preserving the status quo; for example, his secret yearning to retire from the day-to-day operational management. The result of the struggle is that the two cancel each other out. Unless each of the critical actors comes to terms with the side of the ambivalence that is being denied, it will be difficult to reach the level of co-operation needed for planning to take place.

The next article in this series will focus on understanding the different perspectives of the various stakeholders in the family agribusiness system and how these affect the succession process. The final article in the series suggests a number of interventions that can help to loosen the resistance toward succession planning.

Trevor Dickinson is CEO of Family Legacies, a family business consulting company.

Visit family-legacies.com.