Leadership transitions at any company can be fraught with challenges. But for family businesses, there are complications: Which child should take over? Who decides? Will both family and business relationships survive the transition?

The more the business and family grow, the more family owners — and leadership contenders — are involved. These challenges can lead to creative solutions: hiring an outsider to run the business, for example, or creating a shared leadership model.

“There is a continuum of how families approach these transitions,” says Joshua Nacht, senior consultant with the Family Business Consulting Group.

According to PwC’s 10th Family Business Survey, only about one-third of North American family businesses have a documented succession plan. A thoughtful, successful leadership transition in a family business can take time to develop and implement. It’s wise for companies to start preparing early — and they can choose from numerous successful models of succession planning.

ESTABLISHING A FIRM FOUNDATION

A family looking at a leadership transition needs to first do some soul-searching:

•How high a priority is family leadership? Some families are happy to have an outsider take the reins; others place a high value on family leadership.

• Does the family have viable leadership candidates right now? Leaders who grew a small business into a large, sophisticated enterprise may discover that when they are ready to retire, no one in the next generation has the years – or even decades – of leadership experience that would be needed to take over.

“What will be needed to lead the business in the future? Being honest with yourselves about whether you have the skills and expertise in the leadership team to take the business to the next level requires self-awareness and perspective that not all families necessarily have,” says Jennifer Pendergast, executive director of the John L. Ward Center for Family Enterprises at Kellogg School of Management at Northwestern University.

• What happens to family members who do not want to work in the business? Can they still be owners? If not, is there a provision for buying out their share of the business?

• If there are multiple leadership candidates, who will choose the next leader, and how?

“In a family, the rules that govern how we interact are fairness and kindness and allowing everybody a chance,” Pendergast says. “Those aren’t generally the rules in business.”

STARTING A CONVERSATION

Children may be reluctant to talk with their parents about stepping down from the business.

“It’s oftentimes a taboo topic,” Pendergast says. That means the current company leader needs to take the lead in these discussions – though this may be difficult. “The ideal is this person recognizing that a big part of their legacy can be leaving the business in a place that allows it to be successful for generations to come.”

Succession should start with a conversation — perhaps one child sitting down with the parent who runs the business to talk about their plans.

“What I recommend is baby steps,” says Daniel Van Der Vliet, John and Dyan Smith Executive Director of Family Business at the Smith Family Business Initiative at Cornell University. This first conversation could lead to a meeting with all the siblings, and eventually to a full family meeting.

Outside voices — an adviser or board of directors — can be very helpful.

“A nonbiased person, somebody that’s not on anyone’s side, can help navigate the emotions and relationships in the room,” Van Der Vliet says.

The rise of remote meetings has in many respects made these connections easier, both with outside advisers and within families.

“A growing acceptance of technology is really opening up the horizons of expertise, connection and conversations,” Van Der Vliet says.

Once a successor has been identified with the help of the board or other advisers, the current leader needs to gradually step back while the new leader gains responsibility, in “a strategic, thought-out plan that’s not too tight, not too loose,” Nacht says. “You can’t expect somebody to step into a leadership role if whoever is in the current leadership role doesn’t give them real, meaningful leadership opportunities.”

MANAGING FAILURE

In most businesses, if a new leader is named and doesn’t work out, the person is replaced, and the business moves on. This is trickier when the leader is a family member — and the line between success and failure in a family business transition may not always be clear.

For example, some families may view naming an outside leader as a failure, though it may be the best solution for the business, at least until the next generation is ready. In general, if a company sees an exodus of senior leaders, or if the previous leader ends up stepping back in, that’s a sign that the transition is not going smoothly.

And sometimes, an effort to avoid hurting feelings can end up backfiring, as in the case of a father who named his three sons as co-CEOs when he couldn’t choose one to lead the business. It’s true that choosing one over the other two would likely have caused resentment — but putting the three sons into an ambiguous power-sharing situation also had unintended consequences.

“Dad unintentionally set up a really challenging power struggle by not being able to decide,” Nacht says. “They were engaged in this ongoing power struggle and were not clear about their roles and responsibilities.”

Even rocky transitions can eventually stabilize, though, and lead to a healthy company. And there are many models for successful successions.

MANY PATHS TO SUCCESS

Vicks: Choosing a single leader

Dwight Vicks III and his two older sisters all worked at the family business — Yorkville, N.Y.-based Vicks — during summers in high school and college. But when it came time to think about the next generation of leadership for the 104-year-old printing and distribution company, their father was clear: “There can be only one captain of the ship,” Vicks says.

Their parents explained that any of the children could work in the business — after first working elsewhere — but that the business ownership and leadership ultimately would not be split.

“The distribution of the estate was going to be fair but not equal,” he says. The sibling who acquired the company’s stock at a discount would have that as their inheritance, which could ultimately be worth either a lot or very little; the other siblings would get liquid assets.

His sisters weren’t interested, and so, after a stint in banking and going to business school, Vicks joined the family business in 1991. He took over the leadership in 2003.

Although the business has stabilized recently, there were some tough years as the printing business declined, and Vicks says he was grateful not to have had the pressure of paying dividends to other family members.

Looking to the future, Vicks has three adult children, none of whom has expressed an interest in the business.

“I’m healthy, and I’m not ready to go play golf all the time,” Vicks says. “But I’ve got to figure out an effective transition strategy that most likely will not include any of my children.”

ITTDigital: Selling the legacy business to start fresh

Anand Narayan’s father founded IT Trailblazers in 1999 as a staffing company and grew it to have over $50 million in annual revenue and thousands of employees — including, at one point, 21 family members. In 2014, the company expanded its business to include enterprise web content management and e-learning solutions.

In 2019, when Narayan was COO, he and his father explored the idea of having him take over the company and grow it using data-driven decisions and mergers or acquisitions. But this met with resistance from some of the older family members who worked there.

“There was a lot of frustration, and a lot of personalities involved,” he says. “They didn’t want to listen to me. There was no change happening – we couldn’t get anything moving.”

He concluded that continuing with the transition would result in ruined family relationships – not a worthwhile tradeoff. So he told his father to sell the company — and in March 2020, the company was acquired by a group that was merging several staffing firms.

In the sale, they carved out a startup with about $2 million in revenue: ITTDigital, which does cutting-edge tech work such as mixed reality consulting, AR/VR development and e-learning development. Narayan’s parents together own 80% of the smaller company, though they are beginning to transfer some of their shares to Narayan and his sister.

Narayan, who left the company around the time of the sale to get an MBA, became CEO of ITTDigital in October 2021. Today, his sister, his aunt and several other family members work there with him.

The sale of the business has allowed family relationships to be preserved.

“They’re all awesome people – I love all of them,” Narayan says. “Every Christmas we are still all together. There’s no bad blood – everyone loves each other.”

JP Cullen: Shared leadership

Jeannie Cullen Schultz and George Cullen spent two years competing for the top job at JP Cullen, a construction management and general construction firm headquartered in Janesville, Wis. Their great-great grandfather, a carpenter, started the business, which now has more than 700 employees and more than $500 million in annual revenue.

The siblings were the two fifth-generation family members who stepped forward when the company’s non-family president, who had been brought in to steer the company until the fifth generation was ready to lead, said he would be retiring in a few years.

The management succession committee — which consisted of the owners, the president and outside advisers — spent two years evaluating both of them.

Then the committee surprised them: “They said, ‘We’d be doing the business a disservice if we elevated one of you over the other,’” Cullen says. “They challenged us to think about whether we would be open to a shared leadership model.”

It was a bit of a letdown after two years of competition.

“But then we went to our favorite lunch spot, and the conversation quickly turned to, ‘What can we do together to propel our business?’” Cullen says.

They met with three other businesses that have co-presidents and were energized by their success stories.

They created clear areas of responsibility: Cullen oversees the Milwaukee division and the industrial division, and Cullen Schultz oversees healthcare and the Janesville division. They also divided up the support groups.

“If something is in Jeannie’s purview, I won’t, in a public setting, voice a different opinion,” Cullen says.

Through the selection process and now as co-presidents, they have kept family relationships at the forefront.

“We knew that our relationship as brother and sister and with our immediate family needed to never be sacrificed,” Cullen Schultz says. “Going into it and coming out of it, we’re first and foremost brother and sister.”

The siblings are now in their third year as co-presidents.

“Our goal is to perpetuate this business to our children and establish this as a sixth-generation family business,” Cullen says.

Margaret Steen is freelannce writer and frequent contributor to Family Business magazine.