Is Succession Planning Taboo in Your Family Business?

Are you in denial?

Are you and your family delaying the decision to plan for succession in order not to create potential friction among family members as several potential CEOs are available within the family? Are you and your family delaying the decision because no current family member or outsider is deemed capable of replacing the current CEO? Are you and your family avoiding addressing this issue because it involves the eventual loss of a family leader (your current CEO)?  Does the current CEO of your family business refuse to admit that the company can survive without him/her and/or is afraid of retirement and refusing to address succession issues?

If you have answered yes to any of those questions, no doubt your family and yourself are ignoring the necessity of planning for the succession of your CEO, as pointed out by Ivan Lanberg in ‘The succession conspiracy’ (Family Business Review).

It is no wonder that CEO and senior management succession is probably the most important issue that confronts companies, including family-owned ones. This is because a company’s top managers are usually the drivers of its performance, growth, and survival. The issue of management succession is even more important for family businesses as it becomes particularly thorny as the family grows larger and several potential senior management candidates from different branches of the family become available.

Avoiding or delaying succession planning can be fatal to your family business. Putting off the succession planning of senior managers until the last minute can lead to crises that sometimes can lead to the failure of the family business. Poor senior management succession planning could be one of the reasons most family businesses disappear before they reach their third generation, as highlighted by Fred Neubauer and Alden G.Lank in their article ‘The Family Business: its Governance for Sustainability’ (Routledge New York).

How to develop your Formal Senior Management Succession Plan ahead of time

A formal succession plan ensures business continuity and thus increases the chances of survival of your family business as it is handed over from one generation to the next. As you develop your company’s success plan, keep in mind that the CEO succession planning process usually differs from one family business to another depending on the complexity of the business, the degree of involvement of the family in it, and the availability of competent CEO candidates from within the family.

According to Fred Neubauer and Alden G.Lank in ‘The Family Business: Its Governance for Sustainability (Routledge New York, 1998)’ the following five steps could help family businesses get better prepared for their CEO succession:

  • Starting Early: In most family businesses, it is the current CEO who initiates the succession planning process. An active board can also play an important role by insisting on the establishment of a succession plan in case the current CEO is not taking this on early enough.
  • Creating Career Development Systems: The objective is to select the best possible candidate for the job, regardless of whether this candidate is related to the family or not. Whether the next CEO will be chosen from the family or its current employees or another person, a rigorous career development system should be developed to prepare the potential CEO(s).
  • Seeking Advice: Particularly while narrowing the list of potential successors, the CEO should get advice from the external independent directors of the board. If these don’t exist, trusted senior non-family managers should be consulted. Some families also find it useful to get the opinion of the family council in the selection process, especially if the CEO candidate is from the family.
  • Building Consensus: The success of the future CEO is largely dependent on his/her acceptance by the key stakeholders involved in the company. It becomes then mandatory to involve all key stakeholders in the CEO selection process including the board of directors, senior non-family managers, and family members.
  • Clarifying the Transition Process: Once an adequate succeeding CEO has been selected, a clear transition process for both the current CEO and the successor should be developed. This transition process would specify the transition date and also define the levels of involvement of the current CEO after retirement (advice to the successor, board membership, additional activities, etc.).

For more information

Explore more resources about IFC Family Business Governance

  1. How strong is your governance? Try out the Sample Listed Family Business Governance Self-Assessment Tool
  2. Why it is important to start planning the governance of your family business
  3. What governance is adapted to your family business growth
  4. Roles and conflict resolution in your family business
  5. Communication and conflict resolution in your family business
  6. Family managers versus outside managers in your family business 
  7. Setting up the shareholder policy of your family business
  8. How to set up an effective board in your family business