Annie’s Project – Education for Farm Women Annie’s Project – Education for Farm Women a 501(c)(3) organization.

Succession Planning Part Four Developing the Action Plan

Key Succession Planning Tasks Planning for the gradual shift in management from one generation to the next Shifting ownership of the assets involved from generation to generation Anticipating events that could disrupt management and ownership succession

Building a Management Team Design a team approach Develop new management skills Cross train Seek a functioning and effective system of routine communications Implement non-threatening evaluation processes

Developing the Next Generation of Managers “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let the successor run the company.” Peter Drucker

Turning Over Control Start early to learn each potential successor’s capacity. Successor may be in-law, grandchild, or neighbor. Ask yourself, “can I live with their decision?” Give control over different sectors of the business so the next generation can master each one independently. Rome was not built in a day – your successor’s transition into control should be gradual (but not so gradual that they lose interest).

Addressing Power Issues Who controls decision making? Decision making control should be secondary to the quality of the decisions. Decision making under alternative scenarios The issue is who controls the decision making process From a fundamental planning perspective, ideally, create an environment in which the decision making power is secondary to the quality of the decision Organizational structure sometimes dictates the decision making structure. The corporation present the most rigid structure. The succession plan should contain an audit procedure that focuses on the quality of the decisions. (evaluation and review of decisions made) Example: In 1968, a farmer died unexpectedly at age 48 leaving a spouse (who received 48 percent of the stock in the family farm corporation) and four sons (each of whom inherited 12 percent of the stock). The sons have generally voted as a block since that time to pursue an aggressive expansion strategy with no dividends declared. The mother is extremely unhappy that her stock, now worth more than $1 million, has produced no income in nearly 30 years. She is confident that her late husband never once thought about who would have the whip hand of control.

Assuring Fair Compensation Address compensation for labor, management and capital contributions Especially younger generation members with little or no decision-making power

Valuing Ownership Interest Ownership interest on a fair and equitable basis Review process for establishing ownership interest

Protecting Minority Owners Minority owners should be protected from the harshness of majority rule

Encouraging Phased Retirement Encourage older individuals to retire Level of compensation Access to retirement benefits Reduced-responsibility positions on the management team

Anticipating Disruptions The 5 D’s review Death, Disability, Disaster, Divorce, Disagreement, Disengagement Legal risk and other liabilities

Remember to Communicate Satisfying succession plans depend heavily on the personal chemistry of the individuals involved. The underlying success of any business agreement depends on healthy family relationships. More two-generation family business arrangements fail because of poor family relations than any other reason.

Barriers Discussion What are some of the barriers you have discovered in reaching a decision to transition the farm or ranch business or pass a set of assets to the next generation?

Transition Plan Road Map Accomplishment Beginning Establishment Commitment Testing End Transfer Stages Transfer Process Child Parent Divide Income Transfer Management Transfer Ownership

Your Action Plan Family Meeting Date: _________ Goal Setting Date: _________ SWOT Analysis Date: _________ Advisory Team Date: _________ Decision point Date: _________ Are you going to transfer a farm business, Or are you going to distribute assets? Transition Plan Date: _________