Succession planning is a big part of running a family business. It is important to have an effective plan in place for when the current top leader steps down, so that the company can continue to run smoothly and successfully. However, succession planning is not just about managing the business—it also impacts the family dynamics.
In this blog post, we’ll discuss why succession matters, who should be considered for the role of successor, how they should prepare for their role, and how much time should be allowed for a healthy transition between the incumbent and the new leader. We will also provide examples of well-known family businesses that have had successful transitions during succession and highlight common pitfalls to avoid.
Why Does Succession Matter in Family Business?
Succession matters because it affects many stakeholders: the company, its employees and the family members involved with the business. Within a family business, there are unique interpersonal dynamics that need to be taken into account when selecting someone to take over from the current top leader. If these dynamics are not managed well, it can lead to conflict within the family and among employees. This conflict can ultimately cause harm to both parties. Additionally, if there is no clear plan in place for who will take over when the current leader steps down, then it creates uncertainty. This uncertainty can result in disruption within both the company and family relationships.
Who Should Be Considered for a Family Business Successor?
When considering who should become the successor in a family business, it’s important to look at both internal and external candidates.
Internal candidates include those already working in or connected with the business. This includes children or other relatives of existing leadership. It also includes staff members who have worked their way up through the ranks over time.
External candidates that should be considered include external professionals with industry experience such as consultants or experienced managers from other companies. Both of these options would bring fresh ideas and perspectives.
Another great option is utilizing the expertise of an executive search firm. They have the network to find a range of candidates that you might not have access to. At Centennial, we enjoy walking alongside family businesses going through succession. Having gone through the process ourselves in the early 2000’s, we know the care that is necessary to see that the process goes smoothly.
Ultimately, it’s important to consider all viable options before making a decision on who will become the successor so that you select someone best suited for taking on leadership of your company going forward.
How Should the Successor of a Family Business Prepare?
Once you’ve identified your successor, it’s important that they prepare adequately for their new role by gaining knowledge on key aspects of running a successful business such as finances, operations management, marketing & sales strategies etc., as well as developing strong interpersonal skills such as communication and problem solving so they can effectively lead teams within your organization going forward.
This preparation period should last anywhere from 6 months – 5 years depending on how much experience they already have running a business or managing teams prior to being selected as successor. Some family businesses require a relative to have worked outside of the family business prior to taking leadership in their family’s business. This equips the new leader with a fresh perspective and understanding of how businesses operate outside of what they are familiar with.
Examples of Family Businesses with Excellent Succession Stories
Not all family businesses succeed when passing the business to the next generation. In fact, the statistics show more than 30% of all family-owned businesses make the transition into the second generation. 12% will still be viable into the third generation, with only 3% of all family businesses operating at the fourth-generation level and beyond. (Price Waterhouse Cooper)
A sampling of family businesses that have smashed that record, give hope to family businesses with long-term dreams.
- Ford Motor Company
- Samsung Group
- Mars Incorporated
- Kering Group
- Estée Lauder Companies
Common Pitfalls To Avoid During Succession In A Family Business
Of course, you want your succession process to succeed and lead to a prosperous future for everyone involved. Planning and seeking out good advice is key to that success. Here are 5 pitfalls to avoid.
- Not having an effective succession plan in place prior to choosing your successor.
- Not giving adequate time for your chosen successor to prepare before stepping into their new role.
- Not involving all stakeholders when selecting your chosen successor. For example, a relative may be chosen who is not qualified to lead.
- Not taking into consideration potential conflicts between existing employees and the chosen successor.
- Not allowing enough time for the transition period between existing leadership and the chosen successor.
Succession planning is critical for any family business looking towards long-term success both internally within its own ranks but also externally amongst clients/customers etc. It’s essential that you understand why succession matters; carefully consider all viable options; allow adequate time for preparing your chosen candidate; review good examples from other successful companies; and identify common pitfalls associated with succession planning so you can best equip yourself and your team with knowledge & resources necessary to ensure a smooth transition during this challenging yet exciting period ahead!