Imagine it’s the day after Thanksgiving. Four generations of a farm-owning family sit down to a casual supper of leftovers. Plates are filled, drinks are poured, and everyone digs in. After some lighthearted banter, Dad puts down his fork and clears his throat.
“There’s something I want to discuss,” he says. “I think it’s a good time.”
Everyone turns their attention to the head of the table where Dad sits.
“We need to talk about what to do with the farm after Mom and I are gone,” he says.
Silence.
“It can be a tough subject to talk about, and it can lead to real conflict,” says Angelo Loumbas, senior member of Morgan Stanley’s Family Office Resources team. “Even in a family that gets along well, there are often a number of open issues after the wealth originator is no longer around.”
Succession: Who Wants to Do What?
Like any family-owned business, a farm needs a clear plan for succession if it is to survive the retirement or passing of its leader. Unlike other businesses, however, a farm may have additional emotional baggage. Suppose it’s also the family home, full of childhood memories. Or what if different family members have varying levels of interest, commitment or emotional attachment?
“We see it all the time, where one sibling will want to take over the business, while the brothers and sisters never saw it as part of their future,” says Loumbas. “So that’s the first step: figuring out everyone’s role moving forward. Discussions about this can get intense, which is why we offer our family governance service to ensure a clear outcome.”
The Family Legacy: What Matters Most
Succession is one thing. But questions around the family’s legacy can be challenging, especially when the wealth originator is no longer around.
“It’s important to look at the situation from a variety of perspectives,” says Mike Salisbury, an independent consultant working with families that farm. “I recommend dealing with three issues: mission, vision and culture. Mission identifies a three- to five-year objective. Vision clarifies a long-term plan. Culture is what you stand for. These all need to be aligned.”
“Everyone thinks they know what Dad or Grandma would’ve wanted, but they each remember things differently. It can get bitter, even in close families,” says Loumbas.
Generational Thinking
A common issue is stewardship is how to preserve and grow either the business itself or its assets.
“You have to think really long-term—generations into the future,” says Salisbury. “Suppose the siblings agree on a plan at the outset. Then as years go by, they get married. Are their spouses on board? Maybe not. That’s uncomfortable; do you side with your spouse or your sibling? Then add their children into the mix, each of whom will have their own views. With multi-generational wealth, you’re planning for people who aren’t even born yet.”
Philanthropy is another area where viewpoints may not align.
“People want to make significant gifts to organizations they are passionate about, of course. But passions run both ways,” says Loumbas. “Say I want to give money to the local hospital who took exceptional care of my mother-in-law. But your husband wants to sue them because he thinks a doctor misdiagnosed your child’s illness. Both opinions are understandable and deeply held. It could lead to a relationship-altering argument that cannot be resolved.”
Heading Off Conflicts before They Start
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To avoid this kind of situation, the wealth originator can establish ground rules for making decisions. Should there be a “majority rules” vote? Or should decisions require consensus?
“It’s critical to put a process in place, in writing,” says Salisbury, “and it’s best to do it when the wealth originator is still alive.” Two things he stresses: a specific communications platform, and a system for resolving conflicts. “With these in hand, we are able to deal with issues which are certain to arise.”
Loumbas minces no words: Get it in writing. What does he recommend? A mission statement—a clear, concise document that spells out both the ground rules and the vision for the family legacy. “I call it the North Star,” he says. “It’s always there to provide guidance, to help you figure out the correct direction.”
Mission statements are not inherently hard to create. But having a facilitator can help.
“It’s a sensitive process to begin with,” says Loumbas. “And the wealth originator has zero experience doing it. It’s like asking a novice to climb Mt. Everest.”
The mission statement is the key to ensuring that the wealth originator’s wishes are both understood and honored; when his or her beliefs are memorialized in the mission statement, family unity can be preserved.
“Memory is fickle and often unreliable,” says Loumbas. “The mission statement is organic, intended to be both durable and flexible. Once the wealth originator is gone, figuring out what he or she would’ve wanted is like throwing darts at the wall, and very likely to create conflict. Fortunately, it’s a solvable problem, as long as you’re properly prepared. Once it’s too late, that’s when things can go south.”
Best Advice: Start Early
Like many things with a lot of moving parts, the process can take time.
“On average, I’d say it takes about five years to get a succession plan fully in place,” says Salisbury. “Ideally, the process can be completed while the wealth originator is still alive.”
So, if you and your family will eventually deal with issues around succession and family governance, it’s best to start soon. Later generations will still be thanking you for years to come.