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Unresolved conflicts are largest barrier to successful farm business transfer

Progressive Dairyman Editor Dave Natzke Published on 09 March 2017

You’ve formed a limited liability corporation (LLC) and taken the initial legal steps toward a dairy farm succession plan. Don’t just put that plan in a filing cabinet or safe.

Succession plans require regular review and update, according to George Twohig, a partner in the law firm of Twohig Rietbrock Schneider & Halbach S.C., Chilton, Wisconsin. Twohig recently presented the second in a two-part “Professional Dairy Producers of Wisconsin World Class Webinar” series on farm and family business transitions.

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George Twohig

“The farm transfer should be a matter of ongoing discussion,” Twohig said. “Planning is navigational by nature. We set our course and have our goals but, over time, circumstances push us in different directions. We find out we have changes in our goals or objectives, and we have to change our plan. We have to recalibrate to get ourselves to keep going in the same direction.”

While a formal review of the plan, including legal documents, should be completed at least every five years, “triggering events” can require more frequent changes. Those events may include changes in farm net worth or cash flow, an expansion or major acquisition, changes in management roles, changes in tax and trust laws, as well as divorce, disability, death or evolving health issues.

However, by far the biggest triggering events leading to a failed management transition are unresolved family conflicts and communication problems.

“Conflicts are normal in families,” Twohig said. “But conflicts over farm management and ownership are even more challenging and can damage both family and business relationships. No matter what you have for a plan, or how ‘pretty’ it was prepared by your legal counsel and other advisers, the simple truth is: It doesn’t work if there are unresolved conflicts or if the family is not communicating well.”

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Successful farms have shared values; a common purpose and vision for the farm’s future; explicit, compatible personal and business expectations; and honest, respectful and proactive communications. Farm generations on the same page are on the fast track to making a transfer work. Those with unresolved differences face ongoing conflict and communications breakdowns.

Intergenerational differences

In his years serving as a legal adviser on farm succession plans, Twohig identifies common intergenerational differences related to work and communications that create natural challenges. If those challenges aren’t recognized and addressed, conflicts arise and multiply.

The older generation may see itself as the “owner” and be unprepared to act as a “partner.” They may cling to historic authority, willing to share the work but not the decision-making. They may demand 100 percent commitment of time and effort. They bring experience to the table.

They want to pass that knowledge to the next generation, confident their experience leads to wise decisions. They may be conservative in making major investments and taking risks. They often live to work and are passionate about their vision.

The successors are often impatient and want to quickly assume greater responsibilities. They’re willing to work hard but often want a better balance in work and personal life. They want real participation in decision-making and to have their ideas incorporated in the farm’s direction.

They recognize the value of experience but want their parents to mentor and guide them, not control them. They may want major investment or expansion and are more open to risk.

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To head off potential conflicts, work on a succession plan should include creation of mission and vision statements to make sure the two generations are aligned.

“Sometimes the parents have one direction they want the farm to go, and the next generation has a substantially different idea for the future,” Twohig said. “They have to make sure they’re heading to the same place.”

Twohig suggests writing down the values held most dear and that will impact on the future of the dairy farm business.

“Shared values are among the greatest strengths a family can bring to the business,” Twohig said. “One of the greatest legacies of farm families is the passing of quality values from one generation to the next.”

Constant communication helps overcome those intergenerational differences. Over-communicating is preferred to insufficient communication, but that communication must occur in a spirit of trust and respect.

“Don’t hide from your concerns,” Twohig said. Conflicts must be recognized, understood and brought to a swift and positive resolution.

Use ‘interest-based’ approach

Twohig describes an “interest-based” approach to conflict resolution, with four specific goals:

1. Topic goal. Your goal should be to find the best solution to the conflict by attacking the problem, not the other person. Focus on the issue, not on the position. Conflict resolution is not convincing others that your position is right, creating conflict winners and losers.

This means listening to others, considering each person’s views and perspectives, and looking for the best answer. It takes courage to listen, to accept that you may be wrong, to be willing to change your position and to seek better alternatives. Each side should be willing to be accountable and open to respectful, constructive criticism.

“Achieving topic goals can lead your family into a culture of group victories rather than individual victories,” Twohig said.

2. Relationship goal. This goal puts emphasis on relationships and limiting the adverse impact the conflict and its resolution may have on relationships. The solution must be the best for the farm, but relationships must be respected, focusing on building a culture of trust among owners, the next generation and throughout the organization.

Damaged relationships result in resentment, eroded trust or a qualified successor leaving the farm.

The “relationship goal is what makes the difference between a family farm and just another commercial business,” Twohig said. “A conflict is today’s issue, but business relationships are long-term, and family relationships are permanent.”

3. Identity goal. You should consider how you want others to think about you when the conflict is resolved. You also should consider how you want to think about yourself as you make demands or yield to others’ demands. How you handle conflict is a statement about your character, principles and values.

When the conflict is over, you should be able to feel that you did the right thing. Others will gain trust in you if you are open, fair and willing to be part of the best solution rather than just getting what you want.

4. Process goal. The goal is for the group to settle on a good method for discussions and decision-making. They need to avoid arguments and heated words. Often, how the conflict is handled causes greater damage to relationships than the conflict itself. Each person must be committed to listening, being introspective and being willing to change his or her position.

“If you effectively focus on those steps: dealing with the topic, dealing with the relationship, dealing with individual identities and the process, successfully resolved conflicts become good for business relationships,” Twohig said. “The discussions expand everyone’s awareness of the situation and how they can achieve their own goals without undermining others.

You and the other involved family members are dedicated to the eventual transfer of management and ownership of your family farm. Willing participation in effective conflict management is proof of that dedication.”

Resolved conflicts can yield benefits

Successfully resolved conflicts are usually good for the business and relationships.

“Often, the most important result is not the resolution of the immediate conflict but the family’s improved skill at managing conflicts,” Twohig said. “The differing communication and management styles of the two generations can lead to a powerful team if managed correctly.”

Not all conflicts can be resolved. If one person is always a problem, maybe they are “the” problem. If conflict cannot be resolved internally, an outside mediator might be beneficial.

“If conflicts aren’t resolved, all the best planning and legal work will not make the succession plan function as it should,” Twohig said.

In the event business conflicts can’t be resolved, it’s important to recognize that early too. While the business transfer may not succeed, the relationship may be able to be salvaged.  end mark

Next issue: Are you helping your successor get ready?

PHOTO: George Twohig is a partner in the law firm of Twohig Rietbrock Schneider & Halbach S.C., Chilton, Wisconsin. Courtesy photo.

Dave Natzke
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