December’s Community Banking column spoke of the challenges of banking a family-owned farm undergoing ownership transition. We followed up by asking prescribers more broadly how their institutions deal with the challenges of banking any farm or nonfarm family business undergoing transition.
Remedy 1
H. McCall Wilson, Jr., president and CEO, The Bank of Fayette County, Moscow, Tenn., $282.9 million-assets
While there is no formal policy here for dealing with “family situations,” community bankers have been dealing with this challenge since we opened our doors for business. Being a community banker is much more than being just a “banker.” It means being part of the community and caring about the well-being of the citizens of the community. It means being trusted advisor to your customer, a sounding board, and not just a “Yes Man.”
Family situations usually involve the next generation being unwilling or unable to assume a leadership role in the business. If the next generation is unwilling, then as community banker you need to counsel the current generation on why it is “okay” for the younger party to choose a different path in life. They may eventually create a more successful business, than had they simply taken over the family business. The family can still own the “family business”; they can simply hire professional management.
A more ticklish situation: Let’s say the banker considers the next generation unable to assume a leadership role. The banker owes it to the current generation to speak his or her mind. Being a trusted advisor means that you are willing to discuss difficult subjects.
This is tricky! While most fathers may criticize the son privately, they always assume they are “a chip off the old block” and are capable of taking over the family business. But a community banker is in the perfect position to discuss both the positive and negative issues with each generation. If the next generation is truly unable to handle the business, the business fails, a family loses its wealth, and a community loses jobs.
All because a trusted advisor chose not to have a difficult conversation with a customer. I would rather potentially lose a customer, than have a customer potentially lose their family business.
Remedy 2
This banker asked to remain anonymous.
I’ve seen firsthand, and have even been involved personally as a farm owner, with family farms being passed on from one generation to the next. Fortunately for me and my siblings, my father did it correctly. Unfortunately, I’ve seen the opposite as well.
Here’s how one well-intentioned plan failed miserably.
A local rancher set what he thought was a well-structured succession plan that ensured that ownership of the family ranch would stay in the family indefinitely. He had worked the ranch with his sons and daughters all his life and was proud of their success building the cow-calf operation.
Unfortunately, he passed away unexpectedly and the trouble began.
In many cases, such problems arise not from the sons or daughters inheriting the operation, but rather from their spouses. Each sibling also had their opinion on how the operation should be run. You can imagine the problems that ensued, with the mother forced into the precarious position of “referee.” One sibling, spurred by a spouse, started a lawsuit, which resulted in most of the ranch being liquidated.
Our bank was in the middle because all of the siblings were customers, and some even shareholders. My strategy through the entire chain of events was to stay neutral. I divulged no privileged information about the many conversations I had with all of the siblings, even though I was asked on a number of occasions what this or that sibling had said or done. It served the bank well during a time when we could have been put in the bad position of taking sides and damaging our reputation as a trustworthy financial institution.
A success story deals directly with my own family.
I’m CEO of a bank, but have deep roots in agriculture as a result of a cow-calf operation in its third generation of ownership. My father very early in life knew the difficulty he would have in passing the operation on to my siblings and me. Early on, he started transferring ownership of the S Corp that owned the ranch.
Dad would have periodic meetings with all of us and ran the meetings as a business. There would be times when differences would arise, but he instilled in us that once a vote is taken and the business at hand was dealt with, we were still a family, and that family comes first. In addition, my grandfather instilled in me the fact that there will be times everyone has to swallow their pride.
Over the years of turning over the operation to the third generation, more and more decisions were made by the siblings, and in time Dad weeded himself out of the business. It’s been ten or so years since then. He doesn’t own a single share today.
Concerning the bank, there are no policies in place that deal directly with family-owned businesses. The cases that we have dealt with over the years have all been so different that it would be hard to boil things down to a policy that would cover all of the bases. In dealing with family businesses, if everyone is treated equally and the bank remains neutral in any conflicts that arise, it will help prevent the bank from being dragged into lawsuits.
Remedy 3
Blair Hillyer, chairman and president, First National Bank of Dennison, Ohio, $163.8 million-assets
Since we’re in an older, more stable area, the bank has been involved in a number of transactions regarding family members. Usually, it is a transfer of a business or farm from parent to child, or a brother or sister is buying the interest of the other party. Not all of these are smooth and easy. We do get involved, not always because we want to. We try and stay out of the negotiations as much as possible, but sometimes we are involved directly because we are providing the funds. We always try to remember that all of the parties have been our customer and we want it to remain that way. The outcome is normally satisfactory for all parties.
The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0210/index.php?startid=20
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