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Start » strategy, how to write a family business succession plan.

Whether your family owned business is a Main Street mom-and-pop or a Wall Street powerhouse, a well-written succession plan can be crucial to the future success of both the company and the family.

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If you don’t have a succession plan in place, you’re not alone. According to PwC , only 18% of America’s family-owned businesses have a documented strategy for handing over the reins.

Of course, this isn’t just any business we’re talking about. It’s your business, and your family’s. ‘Those without a plan’ is not the group you want to be in. Like so many other important tasks, the hardest thing is getting started. Here are some key steps.

Choose the right business structure

Many small businesses begin life as sole proprietorships or partnerships. If you launched that way, it may be time to take another look at your structure. As The Balance points out, forming a corporation will legally separate you from your business—a key step toward a smooth transfer, even if that transfer turns out to be a sale to a non-family entity.

The right business structure can set your successors up for a reduced tax burden. And, if you desire to remain a sole proprietor, you can still make your wishes for the business known by including them in your estate planning.

[Read: Getting Ready to Launch? How to Choose the Right Business Structure ]

Have a mission statement and a set of core values

You’re not just passing along some office chairs and a customer list. The big idea that launched your business is your why, and it’s what separates your family-owned business from the competition. Knowing you have clearly communicated your vision will help others understand their place in the organization and give you confidence to make the difficult decisions ahead.

According to a report from Deloitte , as time passes, the importance of family values increases, and may be the one thing that binds successive generations together. Stated family values can act as a roadmap for decision making, a magnet for like-minded employees and business partners, and a metric by which to measure success.

[Read: Writing a Mission Statement: A Step by Step Guide ]

Succession planning is not the time to make assumptions about what the next generation wants and is capable of.

Choose your successor

Working with family can be complicated and few decisions are as fraught as choosing someone to replace you. Remember the purpose of a succession plan is to do what’s best for the future of the business, its customers, vendors and employees—not any particular family member.

Now is also the time to seek advice from a diverse group of non-family members. Start with your legal and accounting professionals for help with the basics. Job descriptions and skill assessments, for example, may narrow or broaden your list of potential successors. Board members, key customers and trusted vendor partners, whether or not they have specific personnel input, will be happy to know you are planning for succession.

Talk to prospective successors

Succession planning is not the time to make assumptions about what the next generation wants and is capable of. Including them in the process may reveal strengths and weaknesses crucial to your decision making.

According to Michael Klein , author of “ Trapped in the Family Business ,” this is the time for potential successors to ask themselves some honest questions. By reviewing their motivations, qualifications and the emotional weight of carrying on what the previous generation started, the children of business owners can assure themselves, and you, that the corner office is the right future for them.

Talk to non-family employees

You should keep key employees in the loop for several reasons: First, because they have a right to know a succession plan is in the works; and second, because of the valuable insights they may have about people and processes. Long-term employees may already be working alongside family members, giving them insight that you, as the boss, might not have. Asking their opinion is a sign of respect. Finally, your successor is going to need the acceptance and cooperation of non-family employees who may be the ones offering training. This crucial support is gained more easily if the non-family employee is part of the process.

If you’re concerned about losing rising stars, the truth is, it may happen. Those with ambitions to become CEO might look elsewhere when it becomes clear they are not in contention. The risk is necessary, however, and not everyone wants to be the boss. According to the Conway Center for Family Business , working for a family-owned business can have its perks. From the way they measure success (not just profits and growth), to the strategies they embrace (putting employees first, being socially responsible), family businesses can be a great place to work.

Making a plan is the first—and most difficult—step

Announcing your successor, getting them the education and training they’ll need and having an annual review of progress all remain on your to-do list.

Remember, succession planning is a good problem—a best-case scenario. It means your business has a future—one so bright it’s going to outlive your desire, or ability, to run it. You’ve always had a plan for the worst case. You should have one for the best case, too.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

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Succession Planning: How to grow and create lasting family businesses

Succession Planning: How to grow and create lasting family businesses

EY India People Advisory Services Partner and Private Client Services Co-Leader

Partner, People Advisory Services and Co- Leader, Private Client Services. Bibliophile and an avid traveler.

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Roadmap for moving up the ai maturity ladder, a robust succession plan with adequate flexibility, effective communication and transparency should be of high priority for family businesses..

F amily businesses are businesses which are run by members of the family and are passed on by one generation to another. The current generation is not just the owner, but also plays the role of a custodian, guarding and nurturing the business to hand it over to the next generation.

Family Businesses are thus simply put, a combination of two ecosystems; first is the family and second is the business. The key characteristic of a family business is the inherent contradictory nature of its two constituents, i.e. on one hand the business thrives on leadership and competition whereas on the other hand, the prime concern of the family is their welfare and meeting social objectives.

The perspective of the family and the business can be better understood with the following soft factors:

Soft factors of family businesses

Family business owners aspire to achieve a future for their business and a family legacy that will last forever. However, if facts are to be believed, only 3% of family businesses survive beyond the third generation.

In the context of Indian Inc., more than two third of all businesses are family run businesses that have expanded to multiple territories in the era of globalization. There are examples galore however of where lack of succession planning had a fatal impact on the business as well as on the family.

Succession Planning becomes imperative when it comes to family businesses and is one of the most critical issues faced by them. Succession planning is not only important for preserving and passing on the existing family wealth to the next generation, but also a critical area in the context of GDP contribution, given that these businesses are the backbone of the Indian economy.

Historically, succession planning has always taken a backseat in family discussions given the sensitivity of the subject and the consequential hard talks and this has thus typically lead to this issue being put on the backburner.

The lack of or poor succession planning has resulted in family conflicts, boardroom feuds and expensive court cases and consequently, spelled doom for the business. Inter-generational issues amongst the patriarch and the successor family can lead to the failure of family businesses.  We have often read in the news (and very recently as well) and have observed that struggle lies in the fact that founding generations tend to uphold their visionary qualities, family values for the growth of the business while  the later generations struggle with a desire for independence and sometimes internal conflicts.

The typical differences in the perspective of two generations are set out below:

Understand the generation differences

Frequently overlooked in the entire succession plan, is the importance to train, educate and instil appropriate work ethos in the younger generation.

Dimensions in terms of succession of ownership and management play an important role in laying down the roadmap to a robust succession plan. The various dimensions of succession of ownership and management are depicted below:

Succession of ownership and management

Understanding the role of each family member in the overall scheme of succession planning is equally pertinent. Family members may occupy different roles as per the below Venn diagram:

Scheme of succession planning

Succession planning is thus not a one-time event but rather a continuous and an evolving process. It is an art and not a science. There is no playbook to be followed by families while making their succession plans. Family values, business objectives, vision and mission play a vital role in determining the succession plan.

There are various instruments/tools which are used by the families for developing the overall framework of this plan e.g. Trust, Will, Family Charter, etc.

Succession planning through fiduciary structures, i.e. trust structures, has gained importance in the recent times due to the varying degrees of advantages offered by it.

The concept of a trust has been prevalent in India since the 20th century. Trust structures were primarily set up as a tool to plan estate duty / inheritance tax, leviable on the estate of the deceased individual (the rate was as high as 85%). The subsequent abolishment of estate duty / inheritance tax in the year 1985 resulted in trust structures falling out of favor. However, there has been a gradual shift in the landscape wherein the wealthy Indian families have again started preferring more formal, sophisticated trust arrangements to achieve their succession goals especially amidst talks of probable re-introduction of the erstwhile estate duty in some form.

A Trust as per the Indian Trust Act, 1882 is “an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another, or of another and the owner.”

In layman terms, a Trust is a fiscally transparent entity where property of the Trust is vested /placed by the settlor / author of the trust under the control of a person or persons (Trustee) for the benefit of specified individuals or organizations (Beneficiary).

Key benefits offered by the Trust structures include giving the succeeding generation the benefits of family wealth without sacrificing control over key assets, catering to the specific demands of the family such as providing for their recurring lifestyle and maintenance expenses, a better legal framework, charity / philanthropy desires of the families etc.

Additionally, in view of the ongoing pandemic situation caused by Covid-19, High Net Worth Individuals (HNIs) have realized the importance of making a Will to ensure hassle free succession in these uncertain and unprecedented times. Will writing is the legal intention of an individual (Testator) with respect to their properties which they wish to bequeath or devolve, after their lifetime.

The integrities amongst Trust and Wills can be explained with the following comparison:

Related article

Trust and Wills – Family Business

Further, in context of large extended families, a Family Charter also known as Family Constitution becomes important and noteworthy. Family Charter is a formal written document codifying various aspects of the family side as well as the business side. It is a key document used for governing the family in terms of their actions and relations while dealing with situations in their day to day functioning.

The key ingredients of a Family Charter include a preamble detailing the family background, values, ethos, decision making mechanism, economic interest, funding of new business ventures, conflict resolution strategies, fixed allowance to non-working members, exit opportunities to dissenting members etc. Given the ever-changing landscape and continuous evolvements, both from perspective of business as well as family, it may become pertinent to re-visit certain aspects at an appropriate time.

Succession planning sets out to balance the interest of a business with the family members and subsequently passing the baton to successive generations. A robust succession plan with adequate flexibility and with effective channels of communication and transparency should be high on the priority agenda of any family businesses. In the current disruptive scenario, the effort to sustain a family business is an ongoing continuous process and needs active revalidation from time to time.

Puneet Anand, Senior Manager and Karan Arora, Manager, Private Client Services with EY India also contributed to the article. The article was first published on Hubbis.com on 27 July 2020.

Succession planning sets out to balance the interest of a business with the family members. It is not a one-time event but rather a continuous and an evolving process.

The article shares insights on the nature of family businesses, the importance of thorough succession planning, and the various structures and strategies that business owners can utilize to their advantage to ensure the smooth succession when the time comes.

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Family Business Succession Planning: The Definitive Guide & FAQs

Family business succession planning can be tiring and exhausting. Our definitive guide provides answers to all the questions about succession planning, including when to start, who to involve, and the dangers of getting it wrong.

Founder discusses succession plan with next generation.

Succession is an emotional and exhausting time for many family businesses. If handled incorrectly, it can have dire consequences for the reputation and stability of a firm. Statistics bear this out. According to research, roughly 75 percent of all businesses fail to survive past the first generation – and more than 85 percent fail by the third generation.

When succession events take place, the result can go one of two ways: the growth of your family’s business or its slow terminal decline. An ill-prepared plan, or even worse, a non-existent plan, could lead to the decline in value of your family business – and possibly even its collapse.

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There is a huge amount at stake. So, it is important to create a robust plan that can see your business sail smoothly into its next chapter, where it can grow in the careful hands of your successors.

This guide provides an overview of all the key questions that families may ask as they start to think about the succession process – as well as a backgrounder on all the fundamental concepts that underlie a successful succession process.

What is succession planning?

Does a succession event happen all at once, does management and ownership have to be transitioned at the same time, how is succession in a family business different to other businesses, are next generation members part of succession discussions, what is leadership succession planning, do i only need to start thinking about succession planning when i’m ready to retire, are other business families taking succession planning seriously, why is succession planning important, what advisors are usually involved in the succession process, is there any excuse for not preparing for succession amongst business families, why don’t more families start planning early, how can you engage the next generation in the succession process, what should next-generation family members do to ensure smooth transition during succession events, in practical terms, what activities should the next-generation family members be involved in during succession, when should the current generation start to introduce younger members of the family, how early should you start to think about succession planning, how can you ensure that the succession process is staying on track, how can business families avoid the pitfalls of getting succession wrong, how do i ensure we have a strong internal family candidate to take over leadership of the company, how do i pick the right individual to take the business forwards, how do you resolve tensions between next-generation members, after you have decided on the next-generation leader, what needs to be done, how do you ensure you have made the right choice, who is responsible for developing a succession plan who should be involved, how can succession planning help you better articulate your values, what is a family charter, and how can it help with succession, what is the most common mistake when it comes to succession planning, what should you get to paper as part of succession planning, does succession planning only happen at the ceo level, how do succession events impact reputation, how do you control reputation risks during succession, how can you raise the profile of the next generation, is it best to just not say anything to stakeholders at all, what stakeholders should we think about during succession events, can succession events also improve a business’ reputation, can you give me an example of a succession event gone wrong, can you give an example of a smooth succession event, frequently asked questions (faqs).

Succession is the process of handing a business – or a large amount of wealth – down to the next generation. This means not only thinking about the future of business operations but considering the future of management and ownership.

The process can be a daunting and overwhelming task for founders who may find it difficult to hand over control of the day-to-day management of the family business.

No. ‘Succession’ is not simply the moment when the business changes hands – it is the long-term process of slow transition from one generation to the next. There is not a single moment when it happens. It is a gradual process.

No. The handing over of control and management of the business does not necessarily mean the handing over of ownership – both transfers do not have to happen at the same time, and many advisors will recommend separating out those processes. In fact, these two different parts of the succession process could take place years apart.

In most cases, one generation will handover management of the business to the next generation first. Transitioning ownership might not take place until the last member of the current generation passes away.

Family business succession venn

Venn diagram showing the overlap between family, business, and management. Source: KMPG Family Business Succession

Family businesses are noticeably different to other types of businesses. During succession events, complicated internal family dynamics are often at play – and these can lead to difficult, emotional, and challenging discussions amongst the family.

In many cases, the future of the business is not only a commercial decision but, instead, a deeper discussion about the family’s future itself: will they continue to lead the business? Will the family hire in new professional management? Will they sell the business? These are difficult, sometimes painful, questions that families need to ask when starting to think about succession.

Absolutely. Next-generation engagement is crucial to the success of any business’s succession planning programme. The next-generation members of the family – whether the immediate next generation or the generation below that – are the future of the company, and it’s important that their views about the direction of the business are properly represented in the process.

Younger family members may want to take the business in a different direction, prefer hiring professional management, or simply not feel up to taking the business forward. It’s important that the current generation know this because they start making decisions about the future.

‘Succession planning’ can also mean the process of identifying talent to lead a business in the future – this process applies to all businesses, and not just family businesses. For example, a publicly listed company will often undergo a process of identifying a list of candidates to takeover from an CEO when they step down or retire.

When researching succession planning, it is important for families and family businesses to distinguish between these two types of succession planning – it can be easy to confuse the two, which may lead to misunderstandings when talking about succession planning with partners, advisors, and peers.

Absolutely not. Succession events can take place completely unexpectedly, and it’s important that a family knows what to do in these unfortunate (and last-minute) circumstances. It may be that the current head of the family dies suddenly or, alternatively, that they are otherwise unable to run the business. This will be an exceptionally stressful time for the family, even without the added pressure of having to take difficult decisions around succession immediately.

Additionally, the succession process can take up to 20 years to complete successfully, so the earlier families start planning, the better.

Yes. Succession planning is a central focus of energy and anxiety amongst business families – because getting the process wrong can have long-term damaging impacts on the wealth of the family and the performance of their businesses. Research shows that nearly three in five families (57%) have started to draft a succession plan. On top of that, 67% say that succession planning and inheritance is their biggest business concern.

If the succession process isn’t handled well, it can have a hugely damaging impact on the financial affairs of the family and their businesses. A few of the potential implications:

  • Next-generation family members not having the right skills to run the business effectively
  • Banks and financial partners losing faith in the future of the business
  • Employees not respecting the skills and capacity of the next generation to lead the business
  • Lack of clarity amongst the family members about who will lead the business, resulting in interfamily disputes and conflict
  • Weaker relationships between next-generation members and important partners, suppliers, and others

Ultimately, if the succession process is not handled in a professional and smooth way, it can result in a very poor outcome for the business. According to results, 70% of families report failure in intergenerational wealth transfers.

Succession planning family growth

A family business could risk collapse without a strong succession plan. Source: PwC.

Business families may want to engage outside experts to help them prepare for the transition of the business to the next generation. These outside experts include:

  • Lawyers to put in place structures to transition wealth effectively
  • Financial advisors to help mitigate financial risk
  • Family business consultants to help the family understand and navigate the risks of succession
  • Reputation and public relations experts to help with communicating the succession event effectively
  • Wealth managers
  • Accountants

Not at all. Firstly, there is countless research to demonstrate the negative impact that a succession event can have on a family, their businesses, and its collective finances. Secondly, it is already known well ahead of time that the current generation will one day step aside and pass down the business – and the family’s collective wealth – to the next generation.

Maybe families are so ‘trapped’ in the day-to-day business that they forget to find the time to devote to succession. For many families, succession is always a topic that dropped to the bottom of the list – many families do not feel a sense of urgency, so it is always left until tomorrow.

On the other hand, many families know that discussions about succession could lead to difficult discussions about the future of the business and, potentially, even conflict. As a result, they would rather avoid these difficult discussions rather than confront – and resolve – them directly.

The family can encourage next-generation engagement through the following activities:

  • Conducting family-wide meetings to discuss and decide the future of the business
  • Including next-generation members in company Board meetings where succession and the future direction of the business is discussed as an agenda point
  • Starting informal discussions about the future of the business around the dining room table
  • Ensuring the presence of next-generational members in discussions with non-family members of staff about their own thoughts about the future of the business

The next-generation should build a hands-on, practical, and thorough understanding of all parts of the family business – and meet as many important partners as possible.

This will help tackle two potential risks of the succession process: firstly, the next generation not properly understanding all aspects of the business and how it operates, secondly, not having the strong and important relationships with partners and stakeholders that the current generation does.

In order to build a thorough understanding of the business as well as build strong relationships with partners, next-generational members might want to get involved in the following activities:

  • Attend internal business meetings
  • Work for short stints (3-6 months) in different departments of the business
  • Participate in the preparation of financial documents and Annual Reports
  • Attend meetings with important external stakeholders, such as banks, business partners, suppliers, regulators, and others
  • Take a leadership position within a particular division
  • Work for a short stint in partner business or supplier
  • Build experience in another company in the same industry as the family business
  • Take a course or degree that aligns with the family business’ industry

Succession planning family business component

The components of successful family business succession planning. Source: KPMG Family Business Succession Planning.

As soon as possible. Founders can sometimes hold back on introducing younger generations to the business for fear they are not ‘old enough’, yet it is truly never too early to introduce them. Familiarity takes a long time to build, so the earlier that this process starts the earlier stakeholders will build confidence and respect for the next generation.

Within family business, it is important to start thinking about your succession plan up to 20 years in advance – this allows for the correct structures to be put in place. This might include taking steps to introduce the next generation of leaders to customers, shareholders, suppliers, and so on.

Regular meetings and ongoing communication are essential. It is sensible to have a quarterly meeting specifically about succession planning. These meetings might have to become more frequent the closer you get to the actual transition.

At each meeting, it is important to put to paper the next steps that need to be taken to further prepare the family for succession, whether that is getting the next-generation more involved, taking on further professional advice, or otherwise.

The family can also review the steps that were agreed in the last meeting to see if progress is being made – and the business and the family are moving in the right direction.

One of the best ways to avoid mistakes is to talk to other business families who have navigated the succession process effectively. On one hand, this might mean taking the time to talk to people in your existing network who have managed this process successfully. On the other hand, it might mean tapping into pre-existing networks for business families – like the IFB or Family Business United – where people share best practice.

Succession planning family steps

Follow a step-by-step process when carrying out your succession plan. Source: Deloitte.

Firstly, it is important to understand exactly what makes the current leader of the business successful – this will usually be as a result of the skills, experience, commanding presence, and relationships that the current management bring to the business.

Now, sit down and thoughtfully answer the following questions about the current leadership:

  • In precise terms, what are the current leader’s responsibilities?
  • Who does the current leader depend on within the business?
  • What previous experiences makes the current leader successful?
  • What technical skills are essential to the current leader’s success, i.e., accountancy, pricing, supply-chain, marketing, etc?
  • What softer skills are essential to the current leader’s success, i.e., management capacity, communications, etc?
  • What specific relationships are essential to the current leader’s success, i.e., banks, partners, advisers, suppliers, etc?

Secondly, put to paper a ‘plan of action’ to ensure that the appropriate next-generation family member who will be taking over the business can develop those same skills, experiences, and networks that made the current leader successful. This plan of action might be a five-year pathway of technical education, experience, and exposure.

For a family business with multiple next-generation family members, this is a very difficult question, but it’s important to go through a fair and balanced process – and communicate the answer clearly across the family as early as possible.

It is not beneficial to any of the next-generation family members or the business itself for there to be an aggressive, hostile battle for the position. This could lead to a toxic work environment, one-upmanship, and other destructive behaviour.

Families should go through an objective and balanced decision-making process – and work hard to ensure that the process is not clouded by emotion. Families should answer the following questions:

  • Which family members are genuinely interested in leading the business in the future?
  • Which family members have existing technical skills?
  • Which family members have naturally strong soft skills, and enjoy leadership itself?
  • Which family member already commands respect, trust, and confidence of staff members and external partners?

Succession planning family tree

Ask yourself which family members have the genuine interest and skills required to succeed you. Source: Insperity.

When choosing the next-generation leader of the business, there may be a degree of healthy competition between next-generation members. However, it is very easy for this healthy competition to descend into toxic, hostile in-fighting. Resolving these disputes will require emotional sensitivity and effective communication.

Usually, the best way to resolve these disputes is to emphasise that all next-generation members of the family that they each bring their own unique, compelling skillsets to the business – and, ultimately, everyone is pulling in the same direction: to create a growing, sustainable, and successful business that benefits everyone financially.

It is also important to clearly communicate to the next generation why different choices have been made – and show objective criteria for making these decisions.

Communicate the decision sensitively to all next-generation members. At this point, it is also important to stress that there are no guarantees, and the situation may change.

Investment in the professional development of those people who you have selected to lead the company into the future should now be stepped up. This is a good opportunity for your next-generation family members to gain additional knowledge and experience – you may consider connecting them with mentors within (and outside) the business who can boost their skills.

Use any opportunity you might have to ‘trial run’ your plan and reconfirm your choices. This might be having a next-generation member assume some responsibilities of a more senior member who is on leave or taking control of a certain division of the business. The opportunity enables the individual to gain fresh knowledge and experience and, importantly, enables you to assess if that person might need some additional training and support.

The owners and top management of a family business are responsible for developing and implementing a succession plan. It’s essential that the leadership of the business is involved at all stages. The task cannot be outsourced solely to outside advisors or HR – instead, there needs to be buy-in at the very highest levels of the company. Without this commitment, succession will not work effectively.

While strategic decisions will be made at Board level, HR will typically be responsible for carrying out, monitoring, and implementing the process. This will be done with the full involvement of the CEO, other senior leaders, and the Board.

Succession planning also provides families with an important opportunity to articulate the values of the founder (or current generation of leadership), the family, and help to cultivate agreement on these values. These are the values that have enabled the business’ success over recent decades – and the values that the next generation will take forward into the future.

A family charter is a single, collectively agreed document that puts to paper a common understanding of key issues between a family. A family charter may codify the purpose of the family, the family’s values and aims, as well as articulate a very clear plan for the future of the business, including who is expected to take the business forward.

This can be very helpful during succession events because it spells out in crystal clear detail what the future looks like and expectations about the next generation. Getting collective buy-in for the document also mitigates against the risk of dispute, misunderstandings, and strategic drift.

Ultimately, the biggest mistake is the complete absence of a succession plan in the first place. A rushed approach to the succession planning process also has very damaging results. It is like going into a storm without a map, plan, or strategy. You run the serious risk of failure.

Succession planning family mistakes

Be aware of the common mistakes when creating your family succession plan. Source: TRG Talent.

It’s important not to approach the succession planning process informally. It’s better to have a proper formal plan to paper, which will enable you to see problems, challenges, and opportunities.

Your succession plan should align with the strategic goals of your business and should include:

  • A plan to ‘skill up’ the next generation of the family
  • A plan to introduce the next generation to important stakeholders
  • Explicit agreement of what specific roles and responsibilities next-generation family members will take on at the point of succession
  • List of actions that will be undertaken in the case of a sudden transition
  • A list of professional, non-family members and advisers with the knowledge, capacity and know-how to support the next generation when they take on the business

Absolutely not. A successful succession plan will span across all levels of your company. The current generation of the family may hold leadership and technical roles across the whole business, including marketing, HR, and accounting. There must be a clear plan to replace these people, either with next-generation members of the family – or newly recruited professional individuals.

A bumpy handover of a senior leader to a next-generation family member can severely impact the reputation of your organisation. The current leader of the business – especially if they are a first-generation entrepreneur who founded the company – are often the most recognised representative of the firm by employees, suppliers, banks, and other important stakeholders.

In fact, many important stakeholders might associate the business solely with that individual and believe the success of the company depends on them.

If stakeholders believe the business cannot stand on its own two feet once the first-generation member has stepped aside, you might start to see banks pulling in credit, long-standing loyal employees leaving, and suppliers ending their dealings with the company. This could lead to a collective crisis of confidence in the company – and the start of a vicious downwards cycle.

There are many ways to mitigate against the risk of a succession event leading to a crisis of confidence in the family business. These include:

  • Prepare early . It is better to start planning earlier rather than later – sometimes this means beginning the planning process up to 20 years in advance.
  • Prepare a crisis plan . In the event of an unexpected death or another crisis, the future and stability of the company can be thrown up in the air without a plan for how this event will be handled. Putting a plan together that includes prepared statements for all stakeholders is one way to get on the front foot.
  • Raising the profile of the next generation. Start raising the profile of the next-generation and start lowering the profile of the current generation. As early as possible, start to build familiarity around the next generation of leaders of the firm.

The best way to raise the profile of your next-generation members is to proactively include them in more of your communications, public relations, and stakeholder engagement activity. Some examples that have worked for other families include:

  • Including next-generation members in internal employee-focussed newsletters
  • Adding a cover letter from a next-gen member to your Annual Report
  • Allowing next-gen members to address staff in townhall meetings
  • Letting next-gen member deliver investor briefings
  • Including next-gen members as spokespeople in press releases
  • Ensuring next-gen members are interviewed and seen in relevant trade publication
  • Giving next-generation members visibility on the company website

Family business succession planning values graph

How many families have codified their values. Source: PwC Family Business Survey 2021

Absolutely not. Instinctively, some businesses might assume it is best not to say anything at all when it comes to a succession event. This is the wrong approach.

When companies ‘go silent’, they hope that important stakeholders will just not notice the transition – but they always do. Employees will start asking questions. So, will banks, suppliers, and others. It is best to answer those questions before they arise.

You should take the time to proactively list all the groups of people and individuals who you rely on to make your business a success. These will likely include:

  • Banking partners
  • Business partners and co-investors
  • Local communities
  • Policymakers

Absolutely. Succession isn’t all bad news. In fact, succession events are also opportune times to improve the brand and image of the company. Next-generation members of the family will often bring new skills and approaches to a business. For example, they might bring greater understanding of IT, digital, and social media marketing.

During the succession event, there is an opportunity to showcase to important stakeholders that the business is onboarding these important new skills that will help the business continue to grow into the future.

In 2021, the co-founder of cosmetics company Natura Siberica passed away unexpectedly without a clear plan for who was going to takeover the business. Following his death, a hostile, toxic battle broke out between various potential successors, including children from previous marriages and his widow. This led to several significant, high-profile lawsuits between different members of the family.

In August 2021, the media reported that 57 staff members quit and 101 left for a holiday in just 48 hours. This could potentially lead to a wider, broader crisis in confidence in the company – and a downwards vicious cycle that could damage its long-term value.

Usually if a succession event has been handled smoothly, we will not know about it. Instead, the business will have been handled over without attracting any untoward and unnecessary negative attention. Many of the oldest family businesses in the UK have been handed over in such a quiet and smooth way, including Hoare’s Bank, Folkes Holding, Shepherd Neame, Berry Bros & Rudd, Aspall Cyder, and many others.

Further reading

  • Deloitte: Family business succession planning
  • KPMG: Family Business Succession
  • The Family Business Consulting Group: Family Business Succession
  • Forbes: How To Make Family Business Succession Successful
  • Davis Wright Tremaine: Succession Planning in a Family Business
  • HBR: The Key to Successful Succession Planning for Family Businesses

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Family Business Articles Family Business Succession: 15 Guidelines

Family Business Succession: 15 Guidelines

By John L. Ward , Stephen L. McClure

two people passing a key from one person to the other

Succession is the most painful and critical time for family businesses. Less than one-third of family businesses survive into the second generation, and only about 13 percent make it into the third generation.

How do the successful ones make it? After working with hundreds of family businesses, we’d like to offer 15 guidelines that we hope will help you during the succession process.

1. Succession is a process not an event Rather than thinking of succession as an event that happens on a designated day, consider thinking of it as a process that occurs over a long period of time. Parents should begin to lay the groundwork for succession while their children are still small. How? By the way in which they talk about the business at home.

As the classic story goes, the business owner comes home from a typical day at the shop and complains that three key people quit, a customer didn’t pay his bill, the suppliers sent the wrong order again, and the bank is threatening to jerk the loan. Then, he turns to his son or daughter and says, Someday, this will all be yours.

Of course the truth of the matter is that most people who are in business for themselves love it, or they wouldn’t be doing it. However, the tendency is to talk more about the bad events than the good ones. But making a conscious effort to present a balanced perspective on the family business can help the next generation gain a better understanding and appreciation for the business.

2. Present the business as an option not an obligation Many, many parents hope that their children will want to follow in their footsteps and join the family business. But some fall into the trap of overselling the need to follow the family tradition. Others never bring up the subject because they don’t want to pressure their children. The key is to present it as an opportunity, not as an obligation.

How? We encourage parents to tell 15- or 16-year-old children, Whatever you choose to do with your life, we will support and encourage you. It’s probably too soon for you to know now what you want to do. If you should become interested in the family business, you will be very welcome. We have found it to be very rewarding and very fulfilling, but it’s clearly not the easiest way to live or the only way to live. It’s one of your many options and we will support and encourage you no matter what you decide.

That’s a conversation that rarely, if ever, takes place in a family business. But we think it’s very important to extend a non-conditional offer of support during the child’s high school years because it is very healthy for the son or daughter to think in terms of options.

Speaking of sons and daughters, beware of making assumptions on the basis of your children’s gender. In terms of interest and capabilities, both sons and daughters can contribute to your firm’s success.

3. Get outside experience Of the hundreds and hundreds of family business successors we’ve interviewed, all who have had outside experience said that they recommend it highly.

Why should your child work for someone else after finishing school? There are many good reasons why outside work experience is an advantage. Your sons or daughters can build their own identity, get outside knowledge, increase their self-confidence, bring back knowledge to the business, grow up a little bit, make mistakes on someone else’s time, find out what it is like to look for a job, discover what their market value is and learn how to take criticism. But the best reason is that this is how they will learn that the grass isn’t greener on the other side of the fence. They will learn that there is no such thing as a perfect boss or a perfect business.

If we can make only one recommendation to young people, it is to work for someone else for three to five years.

But what if that isn’t possible? What if the daughter is 32 years old and is now vice-president of marketing? Or, what if the business is small and they need a family member on sweat equity just to survive?

Then we try to find out other ways for that son or daughter to get the same sense of reality and outside perspective. Sometimes that means getting involved with their trade association or with other sons or daughters of another family business or with a community service group.

For many parents, however, it’s hard to believe that their children will want to come back, after working somewhere else. But the odds are better than two to one that they will come back, because magnetism to the family business generally increases with age.

4. Hire into an existing job It’s very important to hire your son or daughter into an existing, meaningful, defined job. Why? You will know how much to pay and what to expect. The rest of your staff will know how your child fits into the office hierarchy and how to treat him or her.

Often family businesses hire their children into ill-defined jobs and say, Because you’re family, you can do anything that needs to be done around here. We wear a lot of hats and now you do, too. But then you open the door to resentment on the part of the rest of the staff. Sometimes, employees doubt that the second generation is qualified to lead the company. Don’t set your son or daughter up for failure by giving him or her an overwhelming but undefined job. Instead, create a situation where progress can be measured.

5. Encourage the development of complementary skills After the next generation has entered the business, encourage the development of skills that are complementary to your own. Why? Your own skills are probably well ingrained into the business by now. If the parents are super salespeople, then the children are going to need to bring some operations or information system skills to the business. If the parent generation adhered to the philosophy of make it and invent it, then the next generation is probably going to have to know what the terms market segmentation and break-even analysis mean.

Is it easy to accept the fact that your child can improve or add to your business? No. You have to be a very secure person to be open to this type of action from your own child. But consider the alternative: would your business be better off having a second generation who brings nothing and can only try to duplicate everything you have done?

There is a cartoon that shows a son saying, Dad, sales are up 200 percent, production costs are down, and we’re on the cover of Business Week. The father says, Yes, and your shoelace is untied. It’s hard to recognize and praise our children’s professional achievements.

6. Teach the foundations One of the most valuable things the parent generation can give the next generation is an understanding of the historical, cultural and strategic foundations of the business. It’s very useful for the children to be aware of the firm’s underpinnings of the underlying principles that hold the enterprise together.

Even though you, the business founder, have lived the business, you may not be able to take a step back and identify your strategies. You may be too close to it all. If that is the case, let your child learn from a key employee who is able to explain why you do the things you do, as well as how you do the things you do. For example, instead of just showing your son or daughter how to treat your customers, the key employee will explain how the customer service policy evolved and what advantages the current policy has.

7. Start with mentors We always recommend that when the children enter the business, they should work for a mentor rather than with the parent.

The mentor should be the most valuable, loyal, secure, and long-lasting employee. That person should be your alter ego, the one who does all of the things that you don’t like to do.

When you set this arrangement up, you should have a conversation with the mentor that goes something like this: I would like Karen to work with you because she can learn a lot from you. But I know what will happen in three to five years. You two will clash. It won’t be anybody’s fault it’s just inevitable that she will want to do something on her own. The moment that happens, the mentoring relationship will end, and I will move her into the next step of the plan that I have in mind for her. It’s very important to clarify all of this and set it up right from the start.

We would like to add a word of caution here. Even if you have always made it clear that you intend to keep your business in the family, you may have an employee who believes that he or she is better and more qualified and rightfully deserves the opportunity to lead the company. Could it be that the employee may attempt to undermine your successor’s efforts? Be aware that this possibility exists. Be clear, keep your eyes open, and don’t let an unpleasant situation build up. You may have to offer the employee two options: recognize the successor’s role, or leave the company.

8. Designate an area of responsibility What is the next step of your plan? Give your son or daughter his or her own area of responsibility. It should be well defined. It could be a certain department. It could be handling the advertising. It could be managing personnel. As your child gains in experience and competency, increase the number of areas of responsibility. By giving pieces of the business, you will be working toward a smooth succession.

The model that we encourage you to have in mind when you think about succession is the track relay race. One runner has the baton, and the other runner has to catch up, take the baton, and continue the race. Your business will pass to the next generation much more smoothly if that second generation is running at full speed right next to you. It should be an exchange that is almost imperceptible.

9. Develop a rationale I’ve just described the ideal transfer. But what if somebody breaks stride or stumbles? Lots of things could happen.

As a matter of fact, the transfer zone is usually a very painful period. The parent may go through a grieving period as he or she says goodbye to the business. But the son or daughter has pain also. He or she may have the most pain.

Maybe there is a disagreement over money. Maybe it is over power. Maybe the founder is not entirely convinced that the successor is ready. How do you make it through this period?

You, the founder, and the successor could both benefit from forming a rationale or a statement that says why all this is worth it to you. When things are particularly painful and you are wondering why you are going through this, you can tell yourself, It’s difficult now, but it’s worth it because For example, after thinking things through, you may conclude, It’s worth it because we employ a lot of people, and I’m proud to be part of this business. Sorting out your feelings will help you though this difficult time.

10. Recognize that you are not alone We have found that it often helps families to know that they are not alone. All families face the same difficult issues such as How should we value the business? and Should the founder keep a title like Chairman of the Board? Somehow, it helps to know that these issues are difficult for everyone who tries to settle them.

It can also help to know that the way in which family members respond to the issues is fairly predictable. In many cases, mothers are overprotective, and fathers think they are invincible. Rather than blaming your oldest son for being too hard driving and too achievement oriented, consider the fact that almost all first born children are like that. Rather than blaming your youngest child for not taking the business seriously, consider the fact that the baby of the family almost never takes anything too seriously.

Rather than thinking that your family members have personality problems, recognize that it is very natural for the people involved to feel the way they do.

Because conflicts are universal, you can learn from other people who have gone through them. That’s why we generally recommend joining family-business forums or support groups. Not only will you be able to see how other people resolve their problems, you will also see that you may not be as bad off as you had previously thought. There is almost always someone who is in a worse situation.

11. Have family meetings Of course, good communication among your own family members is essential. Sometimes productive communication occurs spontaneously, and sometimes you need to plan for it.

At a family meeting, the whole family gets together to discuss an important matter. Sometimes it is best to hold these meetings at an outside neutral location, such as a resort or a restaurant; sometimes it is best to sit around the kitchen table.

How do you begin? You may wish to start by selecting a topic and moderator. We usually recommend, however, that you keep things informal and relaxed so that everyone can participate comfortably.

The benefits of these meetings typically include a greater feeling of unity (or team building), a clearer understanding of the issues, and a better understanding of the family’s range of perspectives.

12. Plan, plan, plan Long before the succession should take place, we encourage the founder to write a business plan, an estate plan and a succession plan all at once. We always know that we’re asking for the near-impossible, but we do it anyway because it works. You need to write these plans at the same time because they influence each other.

This is not, however, a do-it-yourself project. Help from your accountant, your attorney, and someone who has knowledge of organizational development is critical. Your job is to bring these experts together and develop the plans that can guide you through the succession period.

We’re not going to tell you that it will be easy. We’re not going to tell you that you will be able to do it quickly. But the long-range benefits of this approach cannot be overstated.

13. Create an advisory board We recommend advisory boards to all small businesses. Why? They are an extremely valuable sustaining resource. The board should include the type of people mentioned above (lawyer, accountant, and organizational specialist) and at least one other person from your industry whom you respect. Often, the business owner will offer the board members an honorarium instead of a salary. If liability issues are a concern, you can call the board a council. In any case, you will benefit from group discussions of important issues.

14. Set a date As you go through the planning process you will be able to determine a realistic and financially advisable termination date. When your plans are concluded, you should know exactly when the leadership evolution process will be complete and you should be ready to hand your business over to the next generation. It is essential that you are fully committed to that date, that your staff is aware of the plan, and that your successor can depend on you to follow through with it.

We have emphasized many times that succession is a process. Choosing a retirement date, preparing your successor, preparing your business for transition, and preparing yourself for a different sort of life are all important components of that process.

15. Let go Why do so many founders at the end of the transition process say, Well, I was wrong. We are not going to be able to complete the transition this year after all? Or, even worse, why do so many decide that they want to come back to the business two or three years after they left if for good?

It is hard to let go of responsibility. It is hard to let go of authority. But it is even harder to let go of control.

A psychiatrist can give you a lot of explanations about why this is true. Letting go is a very complex and difficult process that should not be underestimated. We’re sure you know many business founders who are in their 60s who do not want to leave the business because they are afraid of giving up their identity, they don’t know what they’re going to do with their time, and they know three people who died the day after they retired.

But we would like to offer an additional explanation for why letting go can be difficult for entrepreneurs. If you are tied financially to the business, it will be almost impossible for you to let go of it.

One of the central goals that you should have while writing your business plan, estate plan and succession plan is to create financial security that has no ties to the business. You need to be financially independent. And if you aren’t, you won’t be able to resist the temptation of interfering with the business.

Conclusion Perpetuating a family business is the ultimate management challenge. We’re convinced, however, that you can increase your chances for success if you believe that succession is a process that may take fifteen or twenty years to complete. Fortunately, there has recently been a sharp increase in the number of resources (books, journals, support groups, and conferences) that have been developed to help you. We hope that you will take advantage of the support, plan ahead, be candid with your family and staff, and successfully transfer your business to the next generation. Good luck!

Articles purchased or downloaded from The Family Business Consulting Group® are designed to provide general information and are not intended to provide specific legal, accounting, tax or other professional advice. Since your individual situation may present special circumstances or complexities not addressed in this article and laws and regulations may change, you should consult your professional advisors for assistance with respect to any matter discussed in this article. The Family Business Consulting Group®, its editors and contributors shall have no responsibility for any actions or inactions made in reliance upon information contained in this article. Articles are based on experience on real family businesses. However, names and other identifying characteristics may be changed to protect privacy.

The copyright on this article is held by The Family Business Consulting Group®. All rights reserved. Articles may be available for reprint with permission. To learn more about using articles for your publication, contact [email protected] .

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Family Business Succession Planning: 10 Golden Rules

Family Business Succession Planning: 10 Golden Rules

There is no one-size-fits-all approach to family business succession planning. Every situation is different and every family is uniquely complex. However, some principles appear to transcend culture and other succession variables – and apply to most circumstances.

In this short article, we’ve identified 10 golden principles for family business succession that if applied thoughtfully can smooth out the process and maintain family relations as a bonus.

See our full library of family business succession articles here.

1 | Begin regular conversations  about succession.

Succession in many family businesses tends to be a hot mess of spoken and unspoken expectations. Part of the process inevitably includes objective evaluations of how family members are regarded and valued by other family members. That’s a recipe for a swirl of emotions that can trip up the transition, given parents’ desire not to make the wrong decision or disappoint a family member.

The sooner in the process that a family begins a conversation among its members, the smoother the transition. A conversation means that the topic is raised and discussed over time within the family. Treating succession as a taboo subject rarely advances the succession process. In fact, avoidance tends to keep kicking the proverbial can down the road. Avoiding making a decision becomes a decision – against succession.

Making succession a family conversation rather than a secretive decision by fiat relieves everyone of succession’s existential weight. Parents no longer have to make the decision on their own, and their children do not have to commit to the business on a given day.

For example, one family, whom we will be referencing as a case example throughout this article, started “family business days” for their children at a very young age. The parents met at a fixed date every year together with members of the next generation. The discussion focused on new products and recent developments at the firm. During this day each family member expressed his/her view on the succession situation, their wishes and perceptions of what was needed.

In short, the children heard first-hand their parent’s perspective on the business and its future. In turn, the parents heard their childrens' views about the business directly from the kids themselves. A regular fixed date enabled the family to keep in touch about the issue of succession at least once a year.

2 | Separate ownership (shareholder) succession from leadership (management) succession.

The two should not be conflated, and both are crucial to an efficient process of succession.

When issues of succession arise, families tend to concentrate on the operating business, since it demands management's attention every day.  As a result, people think "succession" means handing over operational management. That is only one rail of succession, however. The other is shareholder succession. This should be a separate process, and families need to pay particular attention to it, since shareholders form the company’s backbone.

Not thinking about shareholder succession can lead to problems -- such as when siblings, family clans, or patriarchs continue to dominate operations long after formally handing over their shares. That’s a predictor for succession failure, and history is littered with such stories.

Our case example family had survived (indeed, thrived) into the seventh generation. In the past, company shares and the CEO position were handed over to the first-born male, an artifact of patriarchal society. The company’s size and value, however, made that impossible for the pattern to continue. Its leadership made the formal decision to separate shareholder succession from succession into top management. For each, a “succession track” was defined. For example, the succeeding generation was given shares at the age of 18 (legal adulthood in Germany) even though the decision of who might enter into management positions was not yet clear.

Family Business Succession Planning: 10 Golden Rules

3 | Pay attention to the financial, tax, and inheritance law implications.

This may seem patently obvious, but the devil, as cliché goes, is in the details. The issues of management succession and transferring controlling shares can create a tsunami of financial, tax, and legal ramifications. The constantly changing regulations and provisions are complex, but here are several questions to start the process:

  • Should there be anticipated succession?
  • Do other siblings have to receive a compulsory portion (compensation) or are compulsory portion waivers required?
  • Should a pension be part of the succession and, if so, how should this be regulated?
  • Which tax-free allowances may be used?
  • What effects will the application of tax exemption provisions have on the business?
  • Do the articles of association have to be adjuste d ?

In our case example family, the succession of shares was adjusted according to inheritance law. Each member of the next generation signed at the age of 18 a waiver of inheritance, so no compulsory part of the shares had to be given. Due to regulations of the family strategy and a charter, it was clear that there was no “right to inherit” but an obligation to serve the transgenerational wealth by the best suitable family member.

4 | Focus on the business (separately from the family).

What makes a family firm unique, of course, is the relationship with its shareholders, the family. Succession processes, however, tend to reveal the downsides of this so-called co-evolution. Family concerns can taint business decisions. An example is when decisions relevant to the survival of the firm are avoided because they might affect individual family members or disrupt family harmony.

One way to make sure that the business stays in focus is to ask a series of hypothetical questions:

  • What would the business look like without the family?
  • Which business decisions would be different in this imagined scenario?
  • Which strategic and operative challenges would arise in this case?

The idea is not to eliminate or ignore the family, of course. The questions serve to scrutinize the current business, probing whether any underlying family-related considerations serve only to maintain family harmony. This assessment may also be useful in planning succession.

Family firms that survive for several generations place the business above family interests – when faced with a choice, which is most important. And they make the right decision without offending and discouraging family members in the process.

In the first principle, we used the example of how a family created “family business days” to help facilitate a conversation among its children about the business. Later in the succession process, the family divided its set-aside days into two parts: the first half of the day was focused on the demands, decisions, and strategic developments of the business only. The second half of the day we’ll describe in the next principle.

5 | Focus on the family (separately from the business).

The previous principle does not eliminate the need to prioritize the family during the succession process. Each owning family faces a two-fold task: it must act for the benefit of the business and, at the same time, not lose sight of the well­-being of its members. Family cohesion is a valuable asset and should not be jeopardized by succession.

Succession decisions often create conflict among members in owner families. It only makes sense: decisions can offend close relatives and remain unforgotten and unforgiven even after decades. It’s critical that the succession process include some thinking on the unique complexity of the family and its members. Here are several questions to help with this reflection:

  • What would the family look like without the business?
  • Which needs of family members become apparent?
  • Which decisions affecting the family would be different without the family firm?
  • Which issues and topics would the family have to prioritize?

A decision on succession requires striking a balance between business necessities and family needs. Every person in leadership should acknowledge and respect the unique internal dynamics of the close ties between business and family.

Back to the example of the family business days: In the second part of the day, the time was devoted to family internal topics, such as onboarding new partners and addressing visible family dynamics.

6 | Prioritize competence over birthright.

This principle is another one that seems patently obvious, but in a family business, it’s not always self-evident. Many families (roughly half in a recent study) still prefer succession within the family (Schwartz, 2018). Some families cling to the hope of appointing a candidate from the family, even when the children are not qualified or show no interest in working in the business.

Here are a series of questions to help families sort through the issue of competency:

  • Which competencies would you expect of a manager who is not a relative?
  • Would I consider my (family-internal) successor to be qualified if he or she were not a family member?
  • Is there any reason not to conduct a special assessment process for interested members of the next generation?
  • Who can act as an external and neutral authority for the decision about satisfying the necessary competency and experience requirements? Are there any qualified advisory council members? Can the family agree on a neutral assessment procedure?
  • What especially characterizes the business family’s current mental model? How can change be initiated?

The rule of thumb for succession is this: competence before birthright. As a corollary principle, the family should never decide on the suitability of family members alone. External experts or a human resource committee can add an objective perspective to the process. For managerial succession, members of the next generation should always exhibit a level of competence comparable to that of a potential external manager.

Through this article, we’ve used the case of a seventh-generation family. Its leadership required the next generation to be evaluated against external benchmarks. When showing interest in a management position, each member of the succeeding generation had to go through an assessment center, which evaluated their skill set according to the business needs defined by the supervisory board.

The results defined a clear development plan with continuous coaching by external familial members of the board. At the end of the process, the coaches were asked about the competence level of each family member, the same vetting process that any external top management hire undergoes.

7 | Allow successors to seek their own path.

Most parents aspire to raise children who will forge their own life path -- until that child becomes a successor. It can be excruciating to let go. Business-owning parents, however, should honor their child’s unique approach to the business. In previous generations the typical development of a successor was in-house training as well as learning the ropes at a friendly company -- perhaps a supplier or customer -- within the same industry.

Newer forms of succession suggest different forms of development for members of the rising generation. Often, next generation members now collect their business experiences far afield from their parents’ business. They may participate in start-up businesses or social entrepreneurship. Experience in technology start-ups or other technology-based businesses will be indispensable later on if the family business embraces digitalization.

In our case example family, younger members of the next generation were required either to act as co-founders of a start-up or work in entrepreneurial environments before working at the family business. A minimum of 18 months in this environment was part of their educational program to become a top management successor.

8 | Actively support and encourage successors (as well as incumbents) during the transition process.

Many successors fret about the expectations placed on them after the transition is complete. They feel the full weight of responsibility as they start to lead the business. While it’s crucial to recognize the individuality and independence of the successor generation, they also need support.

One kind of support is an ongoing dialogue with the outgoing leaders, who know first-hand the emotion and burden of proving their business competence to their parents or third parties. An ongoing dialogue can build solidarity and trust between parents and children and help correct the painful experiences of the past and prevent them from happening in the future. Sons and daughters won’t have to think of the business as a burden and/or a threat, but as a challenge that enables them to form their own learning and life experiences. Within our case family, the next generation had coaches and advisors from the board as well as succession specialists who served as regular sparring partners and “reflectors.”

The relinquishing generation also needs some space for reflection.

They often feel as if others believe they are the problem, an impediment to change. They may feel cheated out of recognition for their life’s work. When participating in discussions about the successor generation, the senior generation often longs to tell their story to the family. It’s important that the successor generation honors the outgoing leaders by creating opportunities to reflect on their leadership journey.

In our case family, the incumbent leaders found support from a small community of senior generation members of other business families.  In short, the group became a kind of peer support group of senior family executives, all of whom were “learning to let go.” Members felt comfortable raising questions, asking for advice, and offering wisdom and counseling.

9 | Consider alternatives to family successors.

Whether children assume executive leadership in a family business is secondary to keeping the business viable. While it’s understandable that families may prefer to keep the business in the family, they have many alternatives to traditional family succession. Apart from appointing external managers, other options include management-buy-out and management-buy-in, selling to another company, an IPO, or establishing a foundation.

Early on in the succession process, our case family installed a family external management team, a hedge in case the next generation lost interest or the younger leaders had not achieved competency. Along with this policy, an HR management practice was installed to identify junior staff members from within the company to fill potential gaps within the top management team in the future.

10 | Put a high value on external advice.

Handing over a family business is incredibly disruptive in the life of a family. Ways of doing things that worked well for decades are questioned. The earlier generation is suddenly no longer in command. Instead, the son, daughter, or another family member hold the reins. The status quo is gone – for employees as well as family members.

Given these wrenching changes, most families would benefit by engaging external advisors and coaches to help them through the transition, whether briefly or over a longer period. This makes obvious sense regarding legal and tax matters, but even more so for the relationship and communication issues surrounding succession.

For example, an external coach could facilitate a regular date and time to discuss potential hot spots between the incumbent and new generations. This can minimize problematic conduct, insults, and other undesirable developments. The senior and junior genera­tions thereby create a kind of platform to reflect on the succession process undisturbed, i.e., to observe each other’s behavior and agree on necessary changes.

Seeking outside help is not an admission of weakness. On the contrary, it demonstrates a responsible approach to the most important decisions in the life of businesses and their families.

Our case family regularly invited experts to their family business days and had additional coaches and advisors with whom they reflected on upcoming questions. They had an entire team of trusted advisors consisting of specialized consultants, experienced family business owners, and members of their supervisory board.

Acknowledgement :  The authors would like to thank Dave Goetz and Melissa Parks of Journey Sixty6 ( www.journeysixty6.com ) for their invaluable help with preparing this article.


Groth, T., Rüsen, T. A., Schlippe, A. v. (2020): Securing succession in a family business across generations – How succession may be organized in businesses and among shareholders Practical Guide of the Witten Institute for Family Business (WIFU). Witten: WIFU ( free fulltext ).

Otten-Pappas, D. (2015 ): Taking over the Family Business – A carreer developmental perspective on male and female succession. Book No. 16 WIFU Publication Series edited by Tom A. Rüsen, Heiko Kleve, Arist von Schlippe. Göttingen: V&R unipress ( free fulltext ).

Pieper, T. M. (2021): The Importance of Family Cohesion for Long-term Family Business Survival. In: Rüsen, T. A. (Eds.) Theory and Practice of Business Families and Family Businesses – Commemorative Publication for Arist von Schlippe . Göttingen: Vandenhoek & Ruprecht (P. 157 – 163) ( free fulltext ).

Rüsen, T. A. (2020): Professional ownership in business families – the success factor for long-lasting family businesses . Practical Guide of the Witten Institute for Family Business (WIFU). Witten: WIFU 

Rüsen, T. A. & Löhde, A.-S. (2021): The Business Family and its Family Strategy – Insights into the lived Practice of Family Governance . Study of the Witten Institute for Family Business (WIFU). Witten: WIFU ( free fulltext ).

Rüsen, T. A.; Schlippe, A. v. & Groth, T., Gimeno. A. (2020): Mental Models of Family Businesses – How Business Families see themselves and their connection to the Family Business. Practical Guide of the Witten Institute for Family Business (WIFU). Witten: WIFU ( free fulltext ).

Schlippe, A. v., Rüsen, T. A., Groth, T. (2021): The Two Sides of the Business Family. Governance and Strategy Across Generations . Cham: Springer International Publishing.

Tom Rüsen


Related Expertise: Leadership Development , Business Strategy , Corporate Strategy

Succeeding with Succession Planning in Family Businesses

The ten key principles.

March 25, 2015  By  Vikram Bhalla and  Nicolas Kachaner

For many family-owned businesses, succession planning is the proverbial “elephant in the room.” Despite recognizing the importance of selecting and preparing a successor, the leaders of a family business often do not give succession planning the attention it deserves.

In a recent survey by The Boston Consulting Group, family business leaders ranked succession as the second-most-important subject on the their minds, topped only by the closely related issue of achieving alignment among family members on critical topics. Even so, our research found that more than 40 percent of family businesses have not adequately prepared for succession during the past decade.

The consequences of not focusing on succession despite its obvious importance can be profound; a leadership void and the resulting discord can significantly undermine the company’s performance. Indeed, poorly planned successions are among the biggest value-destroying events for family-owned businesses.

BCG’s research sheds light on the extent to which poorly planned successions can harm revenues, market capitalization, and margins. Although our study focused on family-owned businesses in India, the findings offer cautionary insights for companies in any country. We found a 14-percentage-point differential in revenue growth over two years when comparing family businesses that had planned transitions with those that had not. (See the exhibit.)

succession planning in a family business

We also found a 28-percentage-point differential in market capitalization growth between companies that had planned transitions and those that had not. Moreover, unplanned transitions yielded EBITDA margins that after two years were more than 4 percentage points lower than those achieved by companies that successfully planned succession; margins remained below the trend line for the peer group for more than four years after unplanned transitions. Clearly, an enormous amount of value is destroyed by unplanned transitions, with potentially catastrophic consequences for the business.

A Difficult Subject to Discuss and Address Head-On

What lies behind the reluctance of many family-business leaders to openly discuss succession planning and tackle the challenges head-on? Succession planning sits at the intersection of family considerations, which typically involve emotions and feelings, and business considerations, which are typically driven by merit and economics. This juxtaposition of sentimental and financial concerns can make succession an especially complex topic.

Moreover, many incumbent leaders are unwilling to talk about relinquishing the helm, because their personal identity is often tightly linked to the family business itself. A charismatic founder having a strong personality, formidable capabilities, and a long record of managing all aspects of the business often casts a lengthy shadow over younger generations. In such cases, succession can be a nearly taboo subject that is difficult to broach.

Even when succession is high on the leadership agenda, family businesses face significant challenges to getting it right. First, they need to decide whether to select a successor from within or outside the family. Several family members may each aspire to take the reins, and talented nonfamily executives may also be interested in leading the company. Then, if the business designates a young family member as the successor, it must define a plan for how he or she will prepare for the role and gain acceptance as the leader by other family members and executives. Finally, the departing leader must be willing to let the successor emerge from under his or her shadow and take charge as planned.

Succeeding with Succession

Planning for a smooth succession starts with recognizing that it will be one of the most complicated transitions that a family business will experience. The family must also recognize that it is never too early to start discussing succession and that the costs of getting succession wrong will be nothing short of catastrophic for the business. These challenges mean that family members must focus strongly on succession planning, giving it their undivided attention on many occasions. Based on our experience advising family businesses on succession, we have identified ten principles that improve the chances of succeeding with succession.

Start early. Families may hesitate to plan succession because they are uncertain how the interests, choices, and decisions of different family members will play out over years or decades. But succession planning should start as soon as possible despite this uncertainty. Although things may change along the way, leaders can often anticipate the potential scenarios for how the family will evolve. Issues to consider when developing scenarios include the number of children in the next generation and whether those individuals are interested in the family business as a source of full- or part-time employment or purely as an investment. Families should also consider how the scenarios would be affected by marriages or the sudden demise of a family member or potential successor. It is important to plan a succession process and outcome that will work for the different foreseeable scenarios.

Set expectations, philosophy, and values upfront. Although setting expectations, philosophy, and values is central to many family-business issues, we have found that doing so is essential when it comes to succession planning and must be done up front, even if the specific mechanics of succession come later. In our experience, the family businesses that thrive and succeed across generations are those that possess a core philosophy and set of values linked not to wealth creation but to a sense of community and purpose.

Long before decisions will be made about specific potential successors, the family must agree on overarching issues such as whether family unity will take precedence over wealth creation, whether all branches of the family will have an equal ownership right and voice in decisions, and whether decisions will be based purely on merit and the best interests of the business. These guiding principles will provide the framework for more specific decisions.

Understand individual and collective aspirations. Understanding family members’ aspirations, individually and collectively, is critical to defining the right succession process. Leaders of the succession process should meet with family members and discuss their individual aspirations for involvement in the business. For example, does an individual want to work for the business or lead the business, or, alternatively, focus on the family’s philanthropic work? Or does an individual want to chart his or her own course outside of the business? The family’s collective aspirations can emerge from the effort to establish a philosophy and values. Does the family want its business to be the largest company in the industry? Is maintaining the business as a family-owned-and-operated company of paramount importance, or does the family want to relinquish operational responsibility in the coming years? Understanding these aspirations helps in managing expectations and defining priorities in the succession process.

Independently assess what’s right for the business. Although the best interests of the business and the family may seem indistinguishable to some family members, in reality the optimal decisions from the business’s perspective may differ from what family members want for themselves. This distinction makes it essential to consider what is right for the business independent of family preferences when developing a succession plan. It is therefore important to think about succession from a purely business perspective before making any adjustments based on family preferences. This allows leaders to be transparent and deliberate in the trade-offs they may have to make to manage any competing priorities.

Develop the successor’s capabilities broadly. A family business should invest in developing the successor’s capabilities and grooming him or her for leadership. The preparation should occur in phases starting at a young age—even before the successor turns 18.

The challenges of leading a family business are even greater than those faced by leaders of other businesses. In addition to leadership and entrepreneurship, a successor needs to develop values aligned with the family’s aspirations for the business and its role in society—capabilities that constitute stewardship of the company. Given the rapidly increasing complexity of business in the twenty-first century, we often strongly recommend that potential successors gain experience outside the family business in order to broaden their perspective.

Some of the best-managed family businesses have elaborate career-development processes for family members that are the equal of world-class talent-management and capability-building processes.

Define a clear and objective selection process. A company needs to define a selection process to implement its succession model—whether selecting a successor exclusively from the family or considering nonfamily executives as well. The selection process should be based on articulated criteria and delineate clear roles among family governance bodies and business leaders, addressing who will lead the process, propose candidates, and make decisions.

An early start is especially important if several family members are under consideration or the potential exists to divide the business to accommodate leadership aspirations. To obtain an objective perspective on which members of the younger generation have the greatest leadership potential, some families have benefited from the support of external advisors in evaluating talent and running the selection process.

It is important to note that the selection process, while critical, is the sixth point on this list. Points one through five are prerequisites for making the selection process itself more robust and effective.

Find creative ways to balance business needs and family aspirations. Striking the right balance between the business’s needs and family members’ aspirations can be complex. Addressing this complexity often calls for creative approaches—beyond the traditional CEO-and-chairperson model.

For example, the leader of one BCG client split his conglomerate into different companies, each to be led by one of his children; the split occurred without acrimony and in a planned, transparent manner. Beyond helping family members fulfill their aspirations, such a planned split can often greatly enhance value for the business. Another client systematically expanded its business portfolios as the family grew and tapped family members to take over the additions, thus ensuring that several members of the family had a role in the leadership of the businesses.

Stepping into an executive position is not the only way family members can contribute to the business or help the family live its values. As an alternative, family members can serve on the board of directors or take leading roles in the family office or its philanthropic activities.

Build credibility through a phased transition. Successors should build their credibility and authority through well-defined phases of a transition into the leadership role. They can start with a phase of shadowing senior executives to learn about their routines, priorities, and ways of operating. Next, we suggest acting more as a chief operating officer, managing the operations closely but still deferring to the incumbent leaders on strategic decisions. Ultimately, the successor can take over as the CEO and chairperson and drive the family business forward.

It is important to emphasize that the family member who assumes leadership of the business does not necessarily also become the head of the family, with responsibility for vision setting, family governance and alignment, and wealth management. The transition of family leadership can be a distinct process.

Each phase of the transition often takes between two and six months. The transition should be defined by clear milestones and commensurate decision rights. A sudden transition can be disruptive, which is especially harmful if the intent is to maintain continuity in the family business’s direction and strategy.

Ask departing leaders to leave but not disappear. Most leaders bring something distinctive to a family business. Holding onto this distinctiveness in a transition is essential but requires a delicate balance. Although departing leaders should relinquish managerial responsibility for the business, they should remain connected to one or two areas where they bring the truly distinctive value that made the family business successful under their guidance. However, the leaders should be involved in these activities through a formal process, rather than at their own personal preference and discretion. Departing leaders should stay available to guide the new leader if he or she seeks their advice.

To help leaders strike this balance and overcome their reluctance to let go, companies can create a “glide path” plan that sets out how they will turn over control in phases and transition into other activities while the successor assumes control and builds credibility.

Family businesses should also consider the need to adjust aspects of the company’s governance model when the departing leader hands over the reins. Although such adjustments can be made outside the context of succession, they often become particularly relevant after transitions to the second or third generation. A strong leader’s hands-on governance approach is often no longer sustainable for the next generation, creating the need to divide and formalize roles and institutionalize many business processes.

Motivate the best employees and foster their support. Managing the company’s most talented nonfamily executives is especially challenging during the succession process. The company needs to ensure that these executives have opportunities to develop professionally and take on new responsibilities and that morale remains high. Involving executives in the succession process can help to foster their support for the new leader. For example, they can be asked to serve as mentors for the successor or lead special projects relating to the succession. Surrounding the new leader with a strong and supportive senior team is a key ingredient for success, and the departing leader should ensure that such a team is in place.

Assessing the Status of Succession Planning Today

As an initial “health check” to assess the current status of their succession planning, family businesses should consider a number of issues:

  • Has the family clearly articulated its values and the principles that will guide its decisions and succession process?
  • Has the current leader committed to a fixed retirement date?
  • Has the family evaluated the pipeline of leadership talent within its younger generation? Has it looked at potential leaders who come from within the business but not within the family?
  • Has the company defined a succession model and determined the timing for selecting a successor so that he or she has a sufficient opportunity to prepare for the leadership role and build credibility before the current leader retires?
  • Does the family understand how it will accommodate the aspirations of family members not selected for leadership roles, in order to maintain harmony and avoid discord during the transition to new leadership?

In many cases, family businesses will find that the answers to questions like these indicate the need to devote much more time and attention to succession planning. Most important, the current leader, other family members, and the top management team will need to begin having an open and candid discussion about succession-related issues to enable the business to thrive for generations to come. These discussions are never easy, but they are essential. Getting succession wrong can be an irreversible and often fatal mistake for a family business.

Headshot of BCG expert Vikram Bhalla

Managing Director & Senior Partner

Mumbai - Nariman Point

nicolas kachaner.jpg


Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

© Boston Consulting Group 2024. All rights reserved.

For information or permission to reprint, please contact BCG at [email protected] . To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com . Follow Boston Consulting Group on Facebook and X (formerly Twitter) .

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A Beginner's Guide to Business Succession Planning for Small- and Mid-Size Business Owners

David Rodeck

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A younger woman and an older woman sit at a table and talk.

Having a business succession plan in place can minimize fallout if you lose a key employee. While it takes some extra analysis and foresight — and some transparent communication and documentation — it can pay off when a transition to new leadership goes smoothly.

As you run your business, you're likely focused on the day-to-day challenges. But time can go by quickly, and it's crucial to plan the next generation of leaders.

Proper business succession planning — that is, identifying and developing employees to step into future roles — can set you up for success down the road while also improving your employee retention rates and engagement now.

"It's a strategic approach to thinking about scenarios and plans to ensure smooth transitions between current and future incumbents," says Jay Caldwell, chief talent officer at ADP.

Let's explore the basics of business succession planning, including the benefits of doing it, key steps to take to set it up and the challenges you may encounter (and their solutions).

What is business succession planning?

Succession planning primarily focuses on how you'll replace essential leadership roles in your organization, including the owner and CEO. It may also include guidelines for continuity in other positions that are critical for success or difficult to fill. The idea is to start training and nurturing the next round of talent so you aren't left scrambling if a key employee quits, retires, gets sick or passes away.

Your succession plan may also include operational exit planning detailing what you'd like to happen when you or other top stakeholders retire. Documentation can settle decisions ahead of time such as whether you'd like to leave the business to family, sell it to another company or set up a buy-out with your employees.

"Every business owner wants to minimize distractions to their operations and goals," Caldwell notes. "Changes in leaders can be quite disruptive, particularly if there is not a plan in place."

Succession planning keeps your business running smoothly even when key employees leave. This is one just of the reasons to make business succession planning a priority .

Succession planning can help you find candidates and retain them

However, strategic workforce planning is sometimes not on the radar for small and mid-size business owners. Only 35 percent of these businesses have started the process, and of this group, only 8 percent have a complete written plan, according to 2022 research from MassMutual .

"It could be because of the demands of their operations, a lack of development resources or simply overlooking the importance of planning for transitions," Caldwell observes.

One common issue for smaller organizations when it comes to this type of planning is that you usually don't have a broad bench of talent to draw on. However, if you're thinking about the future of your business early on, you're more likely to ensure a viable candidate has been trained, whether internally or outside your organization. It can keep you from having to do a sudden — and possibly costly — hiring search. It also saves you and other leadership from working overtime to handle the role while looking for a replacement.

Your succession plan can prevent the loss of critical knowledge after someone leaves and conflict between employees suddenly vying for the open position. If your family members are part of the business, your succession plan can even guide the next generation of owners.

Finally, a succession plan has the potential to improve your employees' performance today. That's because your top contenders will stay committed to your organization if they know they're lined up for a role and help future-proof your management team .

"Seeing a clear future with the company is a top driver of retention," says Caldwell. "Establishing and following through on development action plans make succession candidates feel challenged and engaged, which can help ensure they are emotionally committed to doing their best work." He adds, "These are your best people and would be very valuable to your competitors, so succession plans can help protect your most important asset!"

Key aspects to have in a business succession plan

Because every business needs a unique plan, there aren't pre-made blueprints. But you can take several common steps to ensure your business succession covers the major points:

  • Identify priority roles. "In a world of finite time and resources, it's unlikely you can have a plan for all roles," says Caldwell. "Pick the ones that have the most significant impact on your business."
  • Define what is needed for each role. Consider the required experiences, knowledge, skills and behaviors to succeed in the short and long term. Clarity is a key part of the succession planning process .
  • Find possible succession candidates for each role. Look for up-and-coming leaders in your organization, external candidates and family members. Consider where they stand right now versus the position's ideal requirements and what training or skills they will need.
  • Discuss career aspirations with your candidates. Ask about their future career goals and if they see themselves in these higher positions. Also, ask what they might need to grow into these roles.
  • Set an action plan for developing future candidates. Think of the training, exposure, relationships or experiences that you can offer for these roles in the near term. For example, you could have the successor candidate fill the role temporarily while the current employee is out for a limited time.
  • Estimate when transitions may occur. Consider when you or other leaders want to start stepping down. Your plan could include a gradual phase-out, where existing leaders adjust their roles to focus more on mentorship/coaching their successors.

Overcoming road bumps with business succession planning

While succession planning may sound straightforward enough as you line up your wants and wishes for your organization, some common challenges can get in your way.

Vague goals and requirements

You must be clear about each role's requirements and the steps needed to develop your employees. You also should be transparent with potential candidates about how you view their future and gauge their interests rather than making assumptions about what they want.

Missing leadership buy-in

"Many leaders don't like thinking about a future where they are no longer with the company," says Caldwell. "It can feel morbid or counterintuitive, and so they'll need to be sold on the value of doing so."

Lack of available talent

Developing future talent is a must because it cannot happen overnight. You and your HR team should also network with external candidates to build the pipeline of those who could be brought into the company. You can cut down on the time an open position goes unfilled. On top of skills, focus on the diversity of future talent pools and develop a broad spectrum of leaders from different backgrounds and experiences.

Conflict between future candidates

Improper or unclear plans can create unhealthy competition between your employees, leading to distrust and a lack of collaboration. That's why fostering open, honest dialogue about your plans is essential rather than leaving everyone guessing what's coming next.

Emergency loss of employees

Unfortunately, life can get in the way of your succession plan with the sudden departure, illness or death of a leader. Your succession plan should consider how your business would react to an emergency departure. You could also cross-train employees across several roles. You develop more people who can step up in a pinch, and you may uncover unknown employee talents and passions for a new position.

Tricky family relationships

Succession planning can have extra challenges for family business owners to navigate. In some cases, making decisions you think are good for the company can lead to hurt feelings.

"This situation can have heightened emotional dynamics given the personal relationships inside and especially outside of the workplace," Caldwell warns.

You may want to try to make sure your personal relationships don't hinder your objectivity in considering successor candidates. Also, it's a good idea to recognize communication breakdowns that create a lack of transparency in how you're making decisions. If you want to hand over your business to the next generation one day, a well-designed and clearly communicated succession plan is critical.

Where to get help with your business succession plan

Building a succession plan is not easy, especially if it's beyond the experience of anyone in your organization. Even if you feel comfortable with your plan, it still could help to reach out to a professional.

"Getting a third party's opinion can help mitigate the challenges, increase perceptions of fairness and lead to a smoother transition when the time comes," Caldwell says.

You can turn to HR professionals with a long history of experience in helping other small and mid-sized businesses. They can guide you about the essential questions to ask yourself and other stakeholders to shape your plans and the documents necessary to lock it down.

Consider the ADP Talent Management and Succession Management programs from an outside perspective. They can guide you through this important process.

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Succession Planning

succession planning in a family business

Ivan Andreev

Demand Generation & Capture Strategist, Valamis

February 23, 2022 · updated April 3, 2024

16 minute read

This article is going to explain what succession planning is and how it can be applied to your business.

After reading this guide, you will have a strong idea of creating or improving your succession planning process and the best practices involved.

What is succession planning?

Business succession planning, benefits of succession planning, succession planning process, succession planning best practices, faq about succession planning, succession planning template.

Succession planning is the process whereby you identify new leaders and develop them to take over the role of the incumbent.

For businesses to thrive, it needs to avoid moments of crisis and lack of leadership.

At some point, succession planning will help with such a situation by preparing a candidate for a planned or emergency replacement. This could be because of retirement, a new opportunity, or in the event of death.

Succession planning is your safety net to ensure that business operations can remain smooth. A robust process will help you identify key individuals who could fill leadership positions.

In the best-case scenario, you will be given advance notice when someone is going to leave. A succession plan prepares you for the worst-case scenario and no notice.

At the same time, an effective succession planning strategy will avoid any questions of succession where leadership positions are concerned.

In the monarchy, this is often resolved through the order of succession. A well-understood model that passes the office to the nearest descendant. This model is also common with family-run businesses that intend to leave the business to their children or next of kin.

succession planning in a family business

It can help you navigate crises and leadership transitions with ease.

In business, succession planning plays a vital role in identifying candidates to take on more challenging roles. When an important postholder departs they leave behind a void that can disrupt the company.

No matter the size of your business, a succession plan is a key to having a smooth transition.

Large companies such as Pepsi , Microsoft , and General Electric have well-known succession plans for executive talent.

For large corporations, it will typically fall to the CEO and the board of directors to oversee the succession plans. They will evaluate employees to identify leadership qualities and provide training for those in consideration.

Often the succession plan will look internally for candidates to take over positions. However, some companies may look to external candidates and may even employ the use of headhunters.

Smaller-scale companies may not need a comprehensive succession plan compared to large businesses. However, there will still be a need to identify someone to take over in the event of an emergency.

Therefore it is wise to train potential successors so they are prepared to step up if the need arises.

Types of succession plans

There are two types of succession plans that should be considered. This will give your business something to fall back on in the case of an emergency.

1. Long-term succession plan

The first type of succession plan you should consider is your long-term succession plan. This is the plan that you will more or less stick to as a standard for key positions.

A succession plan of this nature can be reevaluated and changed as the company grows. For large companies, this would be the plan that outlines the details of succession for all key positions.

2. Emergency succession plan

A secondary emergency succession plan can also be created, where appropriate, to be deployed in the event of an emergency.

This type of plan may involve more temporary measures but is intended to keep operations running smoothly.

This could see other senior members of staff take on extra responsibilities while a replacement is sought.

Many small and medium businesses do not have a succession plan. Of those that do, some of them have only informal plans.

This can be a risk for your business as there could be unforeseen incidents that could occur such as death. It is worth creating a formal, written succession plan that is developed and easily accessible.

Here are some of the benefits for businesses of any size to create a succession plan:

1. Candidates ready to start

When an upcoming promotion, retirement, or departure is approaching you will have the next generation of leaders ready to go.

Thanks to your succession plan the replacement will already have the skills required to take over the role.

2. Encourages managers to develop junior employees

Your succession plan can help your managers to start developing lower-level employees.

The plan helps to define clear progression routes through the company so managers can share appropriate training and information with junior staff.

Managers will also be able to start training their replacement when promotions are approaching.

3. It leads to higher job satisfaction

Employees report higher job satisfaction when there is a succession plan at their company. This is because it helps to define routes to progressions and lowers job insecurity.

A succession plan can help employees understand what they need to do to achieve a promotion. It can help with goal-setting and giving employees a sense of direction at work.

4. Helps to track progress

Succession planning can help your managers to track employee progress through performance reviews.

Internal opportunities can also be quickly filled with knowledgeable employees who have been upskilled and crossed trained.

5. Keeps shareholders confident

Whenever a high-ranking postholder leaves the organization it can leave shareholders feeling uneasy.

In some cases, they may look to sell their shares. A good succession plan can help keep investors on board.

For positions like CEO or CFO, the board may have had some input into the choice of successor. This will give the shareholders confidence in the company and the new postholder.

6. Cultivate and maintain company loyalty

Having a strong culture of promoting from within can lead to increased company loyalty.

You can attract talented employees who will stay with you for a long time. This helps them to have a strong understanding of the businesses, morals, and expectations.

Employees are more likely to stick around for the long term if there are defined advancement opportunities.

Instead of an informal plan, it’s a good idea to make a comprehensive document that outlines how succession should work.

Small and family businesses may only need a limited plan that outlines succession for a single person.

Larger corporations may need a comprehensive document that starts with the hiring process and works its way through the ranks and details different leadership positions.

The fundamentals of your succession plan will remain the same which is what we’re going to look at now.

It’s also worth pointing out that this document can be revised and amended whenever it is necessary.

1. Determine the scope

You will need to figure out how comprehensive you want your succession planning to be.

A small business might only need to find a replacement for ownership. Medium and large businesses may only want to consider the succession plan for their C-suite of employees.

It may also be the case you want a succession plan that covers every eventuality from store manager to distribution to CEO.

Ask yourself the following questions to decide what is best for your business:

  • Do you only need a plan that covers senior management?
  • Do you want a succession plan that covers the entire organization?
  • Are there any vulnerabilities in your business? Such as having a division with a higher amount of employees nearing retirement. Are you prepared for that?
  • Should performance reviews be used to help identify potential candidates?
  • Should the talent acquisition process be a part of your succession plan?

It’s important to understand what your specific needs are as well as the needs of the business.

The size and type of your business can help to inform some of your decisions but ultimately every business will be different.

2. Identify key positions and skills

First, you have to identify the key roles in your organization that will be good to secure.

It could be the CEO, CFO, CCO, CHRO, and different heads of departments.

Second, you might have some specific specialists that are unique to the industry or your business, e.g. it might be some highly skilled engineer, programmer, scientist, etc.

Consider the following questions to identify key positions and the skills needed for that post:

  • How does this position impact the company?
  • If this position became vacant, how would that affect the company?
  • Are there some big risks if this position became vacant?
  • What skills (both hard and soft) are needed for this specific role?

The objective is to figure out how crucial the position is. If the company would be severely affected by a vacated position then this is one that should be considered within your succession plan.

You will also need to understand what specific attributes are needed for the role. That way you can build your training and development around nurturing those key skills.

3. Identify potential candidates

Perhaps the most crucial stage is finding the employees that might be suited to a tougher challenge .

You could ask the current postholder for help determining who could step up in their absence.

It’s also worth considering that the right person for the job isn’t necessarily the next in line. Candidates could be sidestepped in the role or there could be other promising candidates in the business.

You may wish to make hiring a part of the plan and therefore can use interviews to vet potential recruits for career prospects.

Try to answer the next questions:

  • Who are the strongest candidates to step into this role?
  • What skills do they possess that could benefit their new office?
  • What skills are the candidates lacking?
  • Does this person have the appetite for more responsibility?
  • What training will they need to succeed?

It’s important to identify people who want more responsibility. Your top choice maybe someone who is happy in their current role and not looking to change.

This is something that can be gauged during annual reviews or in meetings about their professional goals.

4. Speak to the candidates

It would be wise to speak with the people you are considering.

This will give you a clear answer if they would be interested in the role.

Don’t make any promises but explain that they are being considered for leadership.

Explain that nothing is guaranteed as there are plenty of moving factors to consider. This includes the current postholder, the company, and the candidates.

However, you can gauge their interest and it may help to encourage high-performing individuals to remain loyal to the company.

5. Work on professional development

Leadership development is worth investing in particularly for employees you have identified for succession into key roles.

There are a variety of ways to develop potential successors and help them to develop leadership skills.

You can create a leadership development plan to ensure candidates have the right skills and are a good fit for leading positions. Employees being groomed for leadership roles can be developed in several ways .

You need to test your employees to make sure they can meet the demands of the increased responsibilities.

Some of the ways this can be achieved are through:

Connect the candidates with business leaders in your company. They can help to develop the skills of succession candidates and even share knowledge that might not be immediately obvious.

You can send prospects on courses to help develop their skills. These could be in-house courses or ones run through independent third parties.

Task forces

Task forces and project management is a great way to test your candidates. This will give them the opportunity to lead a team and test how well they cope under pressure.

When you think about development consider the following questions:

  • What is the best way to upskill?
  • What resources are required and available?
  • Are there some additional skills needed?

The focus should be on improving a candidate’s interpersonal abilities and communication skills that are important in a leading position.

You will also want to give them the opportunity to learn and develop the necessary skills required to do the specific job.

6. Trial and error

There should be ample opportunity to give your succession plan a trial run with the candidates you are considering. For example, if the postholder is away on holiday or off sick for an extended period you can use this as an opportunity to try someone in the role.

The benefit here is twofold, the candidate will get a feel for the position and appreciate the opportunity. While you can assess whether they are the right candidate for the position.

Note: Such tests can affect the team so pay close attention to this . This is especially true for external candidates and people from different teams. Not everybody will like it, unless the candidate is a strong leader from the inside of the team.

This is what you need to consider:

  • How does the employee interact with others?
  • Have they kept the department running smoothly?
  • How do they handle issues that arise?
  • How do they react to stressful situations and conflicts?
  • How much help do they need in the role?

You want to see them step up and take control of the position. This will help identify if there is any specific training they need to take the role full-time.

You can gauge whether someone is wrong for the position. This may come down to their interpersonal skills or ability to deal with new challenges.

7. Refine and redefine

Your succession plan is something that can be developed over time.

It may be that what was working years ago isn’t quite the same now.

You may need to adjust the succession plan to adapt to a changing business landscape. As the business grows you may need to redefine what is included in your succession plan.

It would be prudent to start with the most important roles in the business. After all, you can’t totally predict when a key position will become vacant.

Once you have those key positions locked down you can start to expand the scope of your succession plan.

1. Start from key roles

You should start with the most important roles first.

Which of the positions will have the greatest effect on your business if the postholder doesn’t turn up tomorrow?

Roles at an executive level are going to be the most disruptive ones. From there work out the specific skills and knowledge required for the role. This will help you to create your plan and identify potential successors.

Once the most pressing roles are covered you can look at what other roles are important to include.

2. Talk to your employees

Your succession plan will affect people and may make some people feel nervous.

It’s important to explain the scope of the succession plan and why certain roles are included in it.

You may only look to include executive positions or your plan may include managers and supervisory staff as well.

By giving a clearly defined scope you can avoid members of staff second-guessing their position.

3. Collaboration between management and HR

This is a process that should be driven by the business leaders with support from HR where necessary.

It is not strictly an HR process and therefore senior leadership should be communicated with regarding the succession plan.

Gain insights, input, and information from across the senior positions to help the succession plan run smoothly. Interviewing the post holders about the wants and needs of their job can provide crucial information.

4. Forecast your business needs

You should have an emergency succession plan in place that can deal with the untimely vacancy of a position.

Alongside this, you can create a detailed forecast and a longer-term plan. This is necessary to address things like upcoming retirement and promotions.

You will also need to consider how quickly the business can mobilize to fill this position.

A strong succession plan will understand how it will impact the business in 6 months, 1 year, and 5 years.

5. Create a pipeline of talent

Create a pipeline of talent so you have individuals ready to take up new challenges as they arrive.

A pipeline of this kind is essential for finding a talented successor but it’s also a good idea to help fill newly created positions. New recruits can be included in your pipeline of talent.

You can learn about this in our talent acquisition guide.

Even if you don’t have any open positions currently, you can still start cultivating a pool of talented individuals.

6. Annual talent reviews

Your succession plan is something that should be continually developed.

This includes reviewing the candidates on an annual basis or more. People may have moved on or into new positions within your company. Promising candidates may no longer be performing at the standard you would like.

Take a look at your succession plan every year and adapt and change things where it is necessary.

7. Build the learning culture inside your organization

It will help you nurture and grow potential candidates as well as new talents.

When you have identified the individuals that are being considered for senior positions you will need to develop their skills.

You can work with the candidates and they can lead their own individual development plan.

This ensures that their progress is actively monitored and they can take ownership of the process.

Managers should be on hand to provide guidance, resources, and provide timely reviews.

Why is succession planning important?

Succession plans make your business disaster-proof. They provide a concrete plan for filling key roles and help to avoid times of uncertainty. It can be reassuring for investors to know that there is a carefully considered plan in place.

How to do succession planning?

Succession planning should be conducted by business leaders with support from the HR teams. All affected individuals need to be involved in the process. Start with the end goal to identify what you need to achieve. Each business will have different needs so consider which positions will have the biggest effect on operations.

What is business succession planning?

Business succession planning is the process whereby you identify candidates to be groomed for senior positions. Specifically, when the incumbent leaves the role, this could be for a promotion, retirement, or an untimely death. Your business succession plan is in place to facilitate a transfer of power and keep your business sailing smoothly.

What is the correct order of the succession planning process?

  • Identify which positions need to be included
  • What specific skills are required for those roles?
  • Identify people who could be a good fit
  • Start grooming them for succession
  • Review your succession plan and candidates annually

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The Godrej family saga: Business succession should be led by a common vision

At the heart of multigenerational family rifts often lie fundamental tensions between tradition and innovation, legacy and progress.

  • In multigenerational family business groups, succession planning is more than mere transfers of ownership and control. It encompasses nurturing talent, cultivating leadership, fostering a unified family vision and outlining priorities to ensure seamless power transitions across generations.

The recent split in the illustrious Godrej family business group, a behemoth that has been a cornerstone of India’s industrial landscape for over a century, has captivated the business and investor community. With roots stretching back to 1897, the Godrej Group has epitomized resilience, innovation and stewardship across five generations. However, the fissures that have emerged within the family in recent years underscore the intricate challenges of sustaining harmony and continuity in multi-generational family enterprises.

Discords within the Godrej family came to the forefront in the 2010s, primarily revolving around a combination of succession-related issues and differing strategic visions among some family members on the future portfolio and direction of the family business group’s businesses. 

Despite Adi Godrej’s longstanding and remarkable tenure as the group’s patriarch and leader, the absence of a designated successor appears to have led to uncertainty and contention among family members over the future leadership of the family and its complex portfolio of diversified businesses. Moreover, the failure of the current and next-gen leadership of the Godrej family to agree on a unified strategic vision and set of priorities for the business group’s direction is said to have led to disagreements over key business decisions, fuelling tension within the family.

Many observers bemoan the division of businesses built over a century by this iconic business family, a rare exemplar of enduring familial success in India, as it splits its business portfolio into two, each charting its distinct course. In the realm of business, few entities embody tradition, resilience and complexity as profoundly as multi-generation family enterprises. These enterprises often serve as pillars of economic stability, passing down values, expertise and wealth through successive generations, and emerge as an integral part of a nation’s history and heritage.

However, it is important to recognize that the possibility of a carve-up of businesses is intrinsic to enterprises that are exposed to the vagaries of uncertain, intricate and often inexplicable familial relationships that can either fortify or fracture both families and their businesses. Moreover, the topic merits nuanced consideration, as splits in family businesses per se should not be viewed negatively. They can bring about both positive and negative consequences for all stakeholders.

At the heart of multigenerational family rifts often lie fundamental tensions between tradition and innovation, legacy and progress. The continuity of any family-owned business group lies in the owning family’s ability to develop a unified family vision that strikes a delicate balance between preserving the values and ethos of the past while embracing imperatives of the future. 

While family splits can be disruptive and challenging, they are sometimes not only unavoidable, but also welcomed, the reasons for which could range from differing visions and conflicts of interest to the need for a clear transition from one generation to the next. Therefore, every business family should proactively prepare for potential splits in the future, rather than staying oblivious of the possibility or trying to avoid them altogether. By proactively preparing for splits, business families can not only mitigate the adverse impact on their businesses and ensure their continued success, but also avoid splits.

One classic example of proactive preparation for family splits is that of the Merck family, owners of the pharmaceutical giant Merck & Co. In the early 20th century, the family foresaw potential conflicts among descendants and took proactive measures to prevent family disputes from affecting the business. They established a complex ownership structure that separated ownership of the pharmaceutical company from operating control of the business. 

This allowed all family members to retain ownership stakes in the business, while professional managers were appointed to run it for the most part, with only a select few professionally competent family members part of the management. Multi-tier governance mechanisms both within the family and business were put in place, so that the family could play an effective stewardship role. This proactive approach helped prevent family disputes from disrupting the operations of the company and ensured its continued success over many generations.

A multigenerational business family can be seen as a complex social unit that requires meticulous attention to crafting its vision and strategy as much as it needs the same exercise for its enterprises. Succession planning emerges as a pivotal component of this endeavour. In multigenerational family business groups, this process transcends mere transfers of ownership and control; it encompasses nurturing talent, cultivating leadership, fostering a unified family vision and delineating strategic priorities to ensure seamless power transitions across generations within the family and its businesses. 

Transparency and open communication play a paramount role in addressing succession-related challenges within these families. Regular and clear communication within the family, using both formal and informal channels, helps understand and align the aspirations of individual family members with the family’s collective vision for its businesses. Unfortunately, this aspect remains neglected across large parts of India’s family business landscape, impeding the revitalization and growth of many enterprises. 

The division within the Godrej Group of family businesses serves as a poignant reminder of the necessity to periodically revisit and revise the family’s vision, values, strategies and policies. Consensus-building through continuous communication is essential for navigating generational transitions. It plays an important role in preserving and growing the wealth, legacy and identity not only of the family, but also of the businesses under its stewardship.


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Indian family businesses, exemplified by the Godrej division, navigate succession challenges with professionalism and coordination, setting a benchmark for other legacy firms in evolving global business environments.

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Does Your Family Business Have a Succession Plan?

  • Nick Di Loreto
  • Omar Romman

succession planning in a family business

You can’t expect to just step into mom or dad’s shoes.

When a family business assumes that the next generation can simply take over where mom or dad left off without pausing to consider the CEO job description, governance, or the evolving business context, they may be setting themselves up to fail. Families have broken up, reputations have been lost, and businesses have collapsed because the generation in control did not consider how to set the next generation up for success. Just as a business must reinvent itself as markets shift, so must a business family reinvent (or at least thoughtfully revisit and refresh) its ownership and leadership model. Seek to understand the changing players and dynamics so that you have better context for what your business, family, and owners need in the future.

A day before his 35 th birthday, Hampton Berger*, a fourth-generation member of a successful family-owned manufacturing business, stood outside his father’s office, anxiously waiting to discuss his father’s succession plan. Hampton had spent his life “checking the boxes” that he hoped would position him to take over the family business someday: he obtained an MBA and received several promotions in his R&D role at a global car manufacturer before joining the family business.

succession planning in a family business

  • Nick Di Loreto is a partner at BanyanGlobal Family Business Advisors. He advises the owners of some of the world’s largest private family businesses and offices on how to navigate the challenges of generational transition.
  • OR Omar Romman is a partner at BanyanGlobal Family Business Advisors.  He advises the owners of family businesses and family offices from around the world on owner strategy, governance, and generational transition.

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Gulf family businesses need to get everything right in CEO succession plans

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Gulf family businesses need to create an internal process early on to make it work

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A CEO succession planning is one of the most challenging activities the board of a family firm in the Middle East will undertake. The decision will impact business success and influence the family's welfare; it is a high-stakes situation that requires careful planning to avoid unintended consequences and controversy.

One of the primary hurdles in CEO succession within family firms is achieving alignment among the family, the board, and management. Without this alignment, the succession process can quickly devolve into tension and disagreement. CEOs of family businesses need to have the business acumen to succeed while possessing the additional skill of navigating family expectations, whether these family members are on the board, part of the management team, or are large shareholders.

Recent data shows 56 per cent of current CEOs in the Middle East have been promoted internally. The likelihood of appointing a CEO from outside the firm with little experience with the family raises the stakes of selecting someone who seamlessly integrates with the family’s culture and dynamics.

Inter-generational sustainability of family businesses is particularly crucial in countries such as Saudi Arabia and the UAE, where international trade and investment thrive.

Clear lines of succession

To address this challenge effectively, the family, the board, and management must establish clear and agreed-upon roles for each stakeholder group. The board must delineate its responsibilities in overseeing the succession process, whether a full-board process or delegated to a committee for intensive preparation.

The family should be actively involved in identifying potential candidates and representing the family's interests. Management must collaborate closely with the board and the family to ensure a seamless leadership transition.

It is instructive to develop these rules before a succession process becomes imminent, perhaps by revising the family charter to incorporate clear, agreed-upon guidance.

Beyond clarifying roles, long-term succession planning involves preparing the next generation of family members to assume leadership roles when called upon. This necessitates a comprehensive educational strategy tailored to the unique needs of the family business.

Future leaders must possess not only the requisite business acumen by serving in various roles within or outside the firm but also a deep understanding of the company's culture and values. By investing in education and development opportunities specifically designed for family businesses, the family, board, and management can equip the next generation with the skills and knowledge necessary to lead effectively.

Finding that right ‘fit’

Cultural fit is another critical consideration in CEO succession within family firms. The incoming CEO must embody the values and ethos that define the family and the company. This alignment of values ensures that the incoming CEO can seamlessly integrate into the organization, fostering trust and credibility among employees, customers, and other stakeholders.

Cultural fit goes beyond evaluating qualifications on paper; it requires candid conversations to gauge candidates' compatibility with the organization's culture. Additionally, involving key stakeholders, including family members, senior executives, and long-time employees, in the selection process can provide valuable insights into candidates' compatibility with the company’s culture.

Remember–the next generation of family members is not assured of possessing the cultural fit required to take the family business forward. Hence, assessing the cultural fit for all candidates is critical.

Balancing family and business interests is often a delicate endeavor, particularly during CEO succession. Transparency and trust are essential for managing these competing interests and resolving conflicts.

Establishing family councils or advisory boards can provide a platform for open dialogue and decision-making, fostering unity and shared purpose among everyone involved. Regular family meetings that include a range of stakeholders further ensure the alignment of family and business interests for post-succession success.

The CEO succession planning in large family firms in the Middle East demands a comprehensive approach that integrates business strategy, family dynamics, and leadership development. By fostering alignment among stakeholders, preserving the organization's culture, and balancing family and business interests, family firms can navigate succession challenges successfully and ensure continuity and prosperity for future generations.

The writer is Associate Professor at Georgetown University's McDonough School of Business, Dubai EMBA Program.

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    Family business succession is the process of transferring ownership and leadership from one generation to the next. Depending on the size and scale of the business, this may involve just a few immediate family members or extended family. This process consists of delegating roles, mapping out business plans, and communicating between family members.

  14. Succession Planning for Family Businesses: Key Strategies

    Succession planning for family businesses is a critical yet often underappreciated aspect of long-term business strategy. A process that ensures the continuity of leadership roles and helps preserve the legacy and values that define your family enterprise, succession planning should be a discussed aspect of any family business.

  15. A Beginner's Guide to Business Succession Planning for Small- and ...

    Succession planning can have extra challenges for family business owners to navigate. In some cases, making decisions you think are good for the company can lead to hurt feelings. "This situation can have heightened emotional dynamics given the personal relationships inside and especially outside of the workplace," Caldwell warns.

  16. Succession Planning: Template, Process, Best Practices [2023]

    Succession planning is the process whereby you identify new leaders and develop them to take over the role of the incumbent. For businesses to thrive, it needs to avoid moments of crisis and lack of leadership. At some point, succession planning will help with such a situation by preparing a candidate for a planned or emergency replacement.

  17. Family Business Success Planning

    1. Planning. Oftentimes family business succession planning is triggered by death or sickness of the owner, if it's even triggered at all. This is a typical reason why family owned businesses fail to make it to the next generation. Many business advisors would tell budding entrepreneurs to build an exit strategy right into their business plan ...

  18. How To Make Family Business Succession Successful

    "Succession planning is a difficult thing because it's tied up with the hard-to-face fact that the owner is going to retire," said Ritch Sorenson, Opus endowed chair in family business and ...

  19. Keep it in the family: succession planning for franchise owners

    The five steps of succession planning. With clear and open communication established within your family, it's time to begin the process of implementing your succession plan. 1. Build a team of advisors. You might choose to work with just a few family members to help decide on a successor, or you may want to bring in professional advisors ...

  20. Strategies: 3 best practices for succession planning

    Succession planning is a necessary component to business operations, and laying the foundation for the process ahead of time can reduce the risk of new leadership failing.

  21. The Godrej family saga: Business succession should be led by a ...

    In multigenerational family business groups, succession planning is more than mere transfers of ownership and control. It encompasses nurturing talent, cultivating leadership, fostering a unified ...

  22. Entrepreneurship orientation in family business: Decision process

    Family firms play a significant role in economies worldwide, contributing substantially to wealth generation and employment opportunities. Particularly prevalent in rural and remote areas where larger enterprises may struggle to operate effectively, these firms are crucial for both economic growth and social development. Entrepreneurship, characterized by innovation, courage, and strategic ...

  23. Succession Planning: A Simple Blueprint For Smooth Transitions

    Philanthropic Succession Planning. Getty. In philanthropy, just as in business, the strategic foresight to plan for leadership succession is not just wise; it's imperative.Ensuring that a ...

  24. Succession, a sharp India inc OTT show

    Succession planning in Indian family-run businesses is becoming less contentious as professionalism gains ground in running group companies and carving out inheritances. Business groups are now less likely to destroy brand value or shareholder wealth when a new generation of promoters decides to go their separate ways.

  25. Does Your Family Business Have a Succession Plan?

    A day before his 35 th birthday, Hampton Berger*, a fourth-generation member of a successful family-owned manufacturing business, stood outside his father's office, anxiously waiting to discuss ...

  26. Gulf family businesses need to get everything right in CEO succession

    A CEO succession planning is one of the most challenging activities the board of a family firm in the Middle East will undertake. The decision will impact business success and influence the family ...