The Basics on Family Business Succession

“The time I spent at FBN NextGen gatherings—and the open, honest, enlightening conversations I had with my friends and peers there—helped me to clarify what I want from my career in the family business. I know what I want and I know how to get there.”

We all know the statistic - 70% of family businesses to do not survive the transition to the next generation? There’s a perception of failure when this happens, however……

At Family Business Network (FBN), we know there are three things that significantly impact the success of a transition. They are; Family Meetings, a Board of Directors and Strategic Planning. One responsibility of the board is to secure the long-term success of the business with a sound, strategic succession plan. Yes, succession planning can be complex. And yes, considering who should take over the family business can lead to uncomfortable, yet necessary conversations between family members, Ownership Councils, and Family Councils, and the Board. But when there’s a plan—and the right person—is in place, a sense of calm pervades the entire organization and your family and business can look to the future with confidence.

Should your family business choose a chairman and CEO from within the family or outside?

Whatever is best for your family business. At FBN, we see successful family businesses continue to thrive with family members at the helm and with outside hires leading the way. There are no statistics to guide you or best practices to follow when making this key decision. There is only what is best for your family enterprise.

  • Do you have family members interested in the family business and eager to assume leadership in the future? Or are most members of your family pursuing other careers or callings? If you have no one working within or passionate about the business or if the Board of Directors does not see a likely candidate, it may make more sense to stay on as shareholders, not managers, and look outside the family for new leadership.
  • If you do have family members eager to carry forward the family legacy, have you created opportunities for them to learn the family business, develop critical skills, and grow into their leadership role? This can include working their way up, interning at other, similar businesses, and establishing mentorships with older generations.
  • For shareholders ready to hand the reins to someone outside the family, have you structured your family business and governance system to make this possible? Have you created an Ownership Council or Family Council to help inform and educate shareholders and oversee the family’s mission, vision, and values? By the time a family business grows into the fourth or fifth generation, generally speaking, the family has an established governance process that represents all branches of the family during this process.

When should your family business start succession planning?

The time to start family business succession planning is right now. From the moment current leadership stepped into their roles the rising generation should start stepping up.

For family businesses committed to promoting a chairman and CEO from within their family, identifying likely leaders early and training them to take on this enormous responsibility significantly raises their chances of success. If “keeping it in the family” is a priority for your family business, FBN recommends instituting a leadership training program to cultivate and train your most promising talent. Encouraging your young leaders to build supportive peer networks, like attending NxG Leadership Retreats and attending the FBN Global NxG Summits, can help to strengthen their skills, broaden their perspective, and develop community.

Individual development plans are also ideal tools to cultivate a CEO from within and they, too, take time and preparation. If a member of the family wishes to pursue a leadership role, their individual development plan outlines the competencies they need to develop and the education and training they need, such as family business programs and intensives, observing board operations, and taking on projects within the business and family, like leading a committee or starting a foundation.

And for businesses looking outside the family for candidates, it can take up to ten years to acclimate a new hire to the family and your unique business culture. A CEO coming from the corporate world is conditioned to think of short-term gains while family businesses take a long term view and think in generations. You will also want to have the time to get to know your candidate, set expectations and goals for their tenure, and familiarize them with important aspects of your family business values and culture. One family business CEO held quarterly retreats with his non-family successor over the course of several years for alignment and preparation purposes.

How can the Family Business Network support you and your family during succession planning?

FBN, the world’s largest family business organization, connects you with other family businesses in a safe, supportive, sales-free community where you can share challenges and solutions together. The brand-new FBN Leaders Circle for NextGens will help younger members of your family build their leadership skills and build peer networks as they work toward assuming new roles in family enterprises. Learn more about this NextGen initiative here.

Another great learning opportunity is through FBN’s International Internship program. This allows family members to gain valuable experience in another family business in the US or in other parts of the world. Learn more about the International Internship here.

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