Realities of passing on the reins

EQUAL PARTNERS: Ton Ham and son Paul are directors of Alpha Domus winery in Bridge Pa.PHOTO/PAUL TAYLOR

Working in the family business was a lonely experience for Gordon Vogtherr.

"I couldn't get away from my father because I lived and worked with him 24 hours a day," he said.

"I didn't really have any friends but I have a lot to be thankful for. All I have, I have to thank my father for."

The Holly Bacon Company was founded in Hastings in 1914 and the transition from the second to third generation was smooth because Gordon's father took ill in 1961.

Today the fourth and fifth generation work in the business, making sugar-cured ham and a range of speciality meats.

In Hawke's Bay 80 per cent of businesses are family businesses, which Maison Therese manager Monique Bradshaw said adds a depth non-family businesses lack.

"In other businesses you are dealing with people who have no connection to the past, no idea of sacrifices or the efforts that has brought the business to where it is today by past generations," she said.

"I think it is sad to lose that. We have always tried very hard to maintain the quality and therefore it is a trusted brand."

The "artistic preserves" company was founded by her mother Therese Mooren in 1965, making pickled onions and gherkins.

Today, the range of preserves is extensive and Monique's daughters Kate and Emma work in the business.

Monique said there is no friction in the company, which succession, future planning and business expert Barry Rosenberg said was often not the case in family businesses, especially when one generation passed the reins to the next - or often wrestled out their hands.

"You get situations everyday where families do not speak to each other because of the way the assets are being dealt with from one generation to another, particularly when someone feels as if someone else has got something they feel they are are entitled to."

He said parents often did not want to address the issue.

"Potential for conflict can be defused by making it quite clear what the pathways forward are. There are untold cases out there where a lack of planning and a lack of agreement or lack of communication leads to terrible bitterness in the family."

Crowe Horwath Hawke's Bay chief executive Rick Cranswick said deciding what to do when a business operator left the business was vital.

"I can't stress enough the importance of succession planning for a family business. If you're a business owner, the one thing you can count on, along with death and taxes, is that your turn running the operation will come to an end," he said.

"The uncertainty lies in how the transition will unfold - at a profit or a loss, in an ordered sequence or mad scramble, according to your wishes or against them."

He said there were four types of succession: sale of business, generational succession, employee/management buyout and structured realisation, but the most common was generational succession.

Retirement income needed to be inflation proof and guaranteed.

"When times get tough, families don't pay. You need to know how much you'll need in your retirement and where it will come from."

He said it was best to sell the business and assets to the younger generation.

"Don't involve all the family until Mum and Dad have formulated a plan. The younger generation tend to have the energy and ideas, while the older generation have experience and wisdom. The family needs to remember that it's Mum and Dad's business, they can do what they like with it."

Mr Rosenburg says buying and selling the same business several times through the generations "can cost family big time".

"The only solution to that, as I see it, is early in life the existing farming generation take out a large life insurance policy, contributing quite a lot to it annually.

"When their time comes to go, say at 60 or 65, the policy is cashed in and they have enough to live on for the rest of their life and hand the property over."

Central Hawke's Bay farmer David Humphries is determined the succession of his business to his three sons will be better than the one from his parents.

"A succession plan was put in place in front of me that wasn't really structured well," he said.

"When you thought you were getting ahead you would get bombed with another request for money."

He said he didn't want his three sons to suffer similar problems.

Mr Humphries' solution was to grow the business, buying an irrigated farm to be used as for stock trading.

South Island farm consultants report the number one reason for farms converting to dairy production was so to support the next generation.

"In 32 years I've been able to pay siblings out and we have expanded the business - basically doubled it - and brought the third son home.

Thomas was working for Brownrigg Agriculture, buying and selling stock. "He'd had enough of the telephone and working weekends."

His father's role today was primarily maintenance and oversight. With succession structures in place they got along well.

"They are my best mates for going fishing. We do things after work together and probably talk about work, but we try and switch off and have our own time and family time," David said.

His wife enjoyed the surety of the future.

He said for his sons "the world's their oyster". "They have a bit of debt but there's nothing wrong with that - it's a challenge."

Alpha Domus winery is a business two generations started together.

Its name is the first initial of each of the father and sons' names: Anthonius, Leonarda, Paulus, Henrikus and Anthonius. Domus is Latin for house.

Parents Anthonius (Ton) and Leonarda (Lea) emigrated from Holland in the early 1960s and established Awapuni Nurseries in Palmerston North, specialising in vegetable and flower seedlings for the home gardener.

Sons Paul, Henri and Anthony worked with their parents to grow its success.

In the 1980s the family diversified, buying 20ha of land in Maraekakaho Rd, before the district was world-renowned for wine.

Managing Director Paul Ham said a family successfully working together was satisfying, but the industry could be tough.

"There are some interesting times which include frosts, hailstorms, changes in fashion in the wine industry - what people are drinking. So we have had to go through all of those things and it is still 100 per cent family-owned, which I think is quite an achievement."

The majority of wineries are family owned and Craggy range founder Terry Peabody has made sure his will remain so for 1000 years, scouring the world for a place where such a long-lived trust was permitted. Ironically it was wine-soaked South Australia, where a template for countless transitions was registered.

Daughter Mary-Jeanne Hutchinson is in charge of Craggy's Australian PR and sales and marketing. Her brother David is a director and brother Terry Junior was involved but left for the Australian hospitality industry.

It's no gravy train for the family. Terry Junior's son, David Junior, said he was only given a job after repeated requests.

"I had to force my way in," the marketing graduate said.

"When I was pretty young I saw what was going on and I fell in love with everything they were doing. I said I'd like to be involved and they said no. I had to prove that I really wanted to be in the wine business - that was probably just to make sure I wasn't just going in willy-nilly."

Mr Rosenburg said land-based businesses needed explicit transitional structures because they were more likely to have emotionally-charged changeovers.

For an academic study he surveyed 45 family businesses, of which five were land-based.

"The others exited pretty successfully - they really didn't have any emotion attached or any concern about leaving the business, but there was definitely emotion involved with the landowning people. Farming is a way of life rather than a business. We know it's both.

"It is interesting that not one of my participants considered the process of exiting seriously until the last five years of their careers. So rather than a mid-career commencement, it was always an end of career one.

"You really want to start thinking about your exit from the day you start the business. Because research has also shown if you do that you can be 20 per cent more profitable, throughout the life of your business, than if you don't. So you've always got that end in mind - you are always keeping the assets in a good state - always working at the business to maximise its value."

He said the next generation should not be older than 35 when intimately involved in management.

"There are 10 years of high-level energy for that person to give before their children get older and want to be away a lot, on things like sport and holidays."

He said every business and family was different and there was no one template to suit them all, but the earlier the transition plan was put in place and advertised to family, the better.

"People tend to leave it too late to talk about. The process involves subjects that human beings don't like talking about - mortality and change.

"People can keep these subjects very close to their chest, particularly the outgoing generation. The incoming generation starts to get a bit agitated about the lack of clarity and the whole thing can implode, so communication is the key word.

"You need someone with an independent voice to facilitate these conversations and to make people aware that they must address the issue, because it has been identified as one of the world's largest constraints against business growth."