For family businesses built for longevity, the question, “Who will lead next?” is critical. Yet our survey of 300 family business executives reveals a striking gap between intent and action: While 85% agree succession planning is critical to long-term success, only 57% have a CEO succession plan in place—and just 23% are actively implementing their plan.
To help leaders close that gap, my colleagues and I created a three-part series on Succession planning for family business legacies. The first installment, “Preparing the Table,” outlines five key steps family business leaders can consider as they begin the succession planning process.
Here’s a preview:
Start with a mindset shift
While leaders might understand the importance of succession from an intellectual and organizational standpoint, it can be a difficult and deeply personal topic. It demands trust, self-awareness, and the courage to let go. That’s no small feat for those who have dedicated themselves to building and leading an organization.
An important first step is addressing the inability or unwillingness of the current generation to relinquish control to somebody else. We’ve found that leaders who adopt a ‘stewardship mentality’ may be more successful in moving succession to the top of the to-do list. With this mindset, they’re able to see themselves as temporary caretakers charged with strengthening the organization for the next generation.
Build the plan before you need it
Among survey respondents, 78% anticipate a CEO transition within the next 10 years and 42% expect this change within just three to five years. Because identifying and preparing successors, building stakeholder trust, and executing a smooth transition can take several years, organizations that don’t prioritize and invest in this process risk being unprepared when change inevitably comes.
That’s why we think of succession planning as an insurance policy. Even if an emergency succession never occurs, being prepared for it can mitigate operational risks. For family businesses where ownership and leadership overlap, a plan also helps ensure resources are in place to address succession-related financial considerations, including liquidity for potential tax obligations.
Lean on boards and councils
For growth-oriented family businesses, boards and family councils can bring discipline to the succession planning process. As independent forums, they help address potential family issues and offer unbiased feedback about the suitability of next-generation readiness.
In our survey, 76% of companies with revenues between $100 million and $500 million had a board of directors, rising to 96% among organizations above $500 million in revenue. Larger private companies are also more likely to have a family council: 46% versus 29% for smaller firms.
Survey results suggest governance structures are more common as private companies scale—board adoption is high among mid-to-large businesses, and larger firms are also more likely to establish a family council. Where these bodies exist, succession is addressed more consistently, with 49% of boards and 50% of family councils placing it on the agenda at least once annually. While there’s no “correct” frequency for these conversations, it’s important for boards, councils, and families to treat succession planning as a high-priority, ongoing effort.
Weigh family member vs. outside talent
A pivotal—and often challenging—step in succession planning is determining whether the next CEO must be a family member or outside management. Our survey found that although 61% say at least one family member is interested in the CEO role, just 23% of those surveyed believe the identified family successor is ready for the role today.
Our survey also indicates that the preference for the next CEO shifts as companies grow. Companies with less than $500 million in revenue are evenly split between favoring a family member (47%) and a professional manager (46%). For companies with more than $1 billion, a strong majority (63%) believe the likely successor is a professional manager.
We’ve found that discussing a series of gateway considerations, such as “Why is it important that a family member be in the CEO role?” and “Will an external leader’s vision align with the values and vision of the family?” can guide the succession path forward.
Make trust the cornerstone of succession
As companies evaluate succession options, one factor that consistently determines success is Trust. Leaders must consider trust throughout the succession process and across every dimension of the enterprise—spanning family owners, leadership team members, external stakeholders and partners, and employees.
The common denominator in building trust among these groups is time. That’s why the concept of a “long road to succession” can be valuable. Investing in succession planning 5 to 10 years prior to a transition, and providing consistent visibility and open communication throughout, can build the confidence, support, and loyalty required for a successful handoff.
A few questions for your consideration:
- Does our board agenda include time for both emergency and planned succession?
- Are our family and business strategies explicitly aligned?
- Do we agree on the next CEO profile—family or external?
While navigating the succession process isn’t always easy, we hope the perspectives shared here will smooth the way. In the next two installments of our series, we’ll continue the journey by focusing on preparing family members for leadership and executing the transition when the time comes.
For additional insights, read Setting the table: Succession planning strategies for family business legacies.
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FROM OUR SPONSOR DELOITTE PRIVATE
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