With geopolitical uncertainty, changing talent models, shifting market preferences and the transformative power of emerging and evolving technologies all competing for the attention of a family business, priorities surrounding succession planning can get lost in the shuffle. A recent survey from Deloitte Private, titled, “Preparing the table: Laying the groundwork for a smooth succession process,” calls this phenomenon a “succession paradox”: Family enterprises fundamentally understand how succession planning is essential, but the sheer pace and intensity of business continuously pushes it down the to-do list.
But there is another factor at play: emotions. Nearly a third of family businesses (30%) surveyed responded that succession planning is behind schedule. Laura Pearson, Deloitte Private’s U.S. Family Enterprise Leader, says the emotional component is one of the three main barriers she sees as standing in the way of succession planning. “From an emotional perspective, within a family organization, there’s always that tendency to have what we call ‘legacy hope’ — the hope that things will work out as long as time passes, even if no formal documentation is in place. And so, that emotional component can really slow down organizations that need to focus on succession planning.”
Navigating the emotions surrounding succession requires a change to the family enterprise’s culture, which Pearson says is another barrier many family businesses face. However, strong governance and an outside perspective can help them overcome that hurdle. “They’ve been operating in a particular way, and the idea of navigating to a new CEO — whether that’s a family member or non-family member, in either case — can put a lot of pressure on the way the company has historically been doing things and how they’ve been operating. Navigating that change process can be uncomfortable from a culture point of view,” Pearson says. Many families don’t make succession planning a standing item on their governance agenda, which limits how effectively their committees can drive it forward she explains. They may also be missing an opportunity by not engaging external advisors. A third party can bring an objective perspective, fresh insights and experience from other family businesses, helping move both governance and succession planning ahead.
Succession from scratch
Pearson says the first critical step in establishing a successful transition plan is spending time on a family charter or a family mission statement. “I think it can go hand-in-hand to really allow the family to have a voice and very clearly communicate and put pen to paper on what their vision is, what are their values and what do they want their legacy to be. And that’s important not only for the family, but also for external advisors and future management members who need to understand what the family is all about, what the culture is, and what they want their legacy to be. So, those guiding principles can be critical to making sure the professional leaders are acting and operating in a way that aligns with the family goals.”
Pearson also says this charter or mission statement should be crystal clear on expectations surrounding roles and responsibilities for family members and on merit-based leadership roles. Pearson says it’s critical that leadership understands the values of the family and the organization.
Another mechanism for success in succession planning is the concept of a family forum or a family council, according to Pearson. “So again, the theme here being, ‘How do you make sure that the ideas and the priorities of the family and the legacy that they want to carry on is communicated?’” Pearson says. “The mission statement might be your first step, but from an ongoing perspective, having a family council and a way for the family to be able to continue to share their point of view and have a voice at the table — maybe at the board meetings — is a really great way for the family to stay connected without avoiding disrupting the business itself. That is key to making sure the professional leadership team and professional management team feel like they have the autonomy and the authority to lead the organization without being micromanaged by the family or the family’s needs.”
Succession Signals
Seventy-eight percent of survey respondents said they expect a CEO transition in the next decade and 42% expect one within three to five years. What signals should families watch for that indicate it’s time to actively accelerate succession planning rather than postpone it? “You shouldn’t only focus on succession planning when the CEO is really close to retirement, or when the CEO no longer has the ability to operate at 100% capacity,” she says.
Here are some factors Pearson says family businesses should look at when considering whether or not accelerating succession planning is the right move:
- Is there growth?
- Is the growth of the organization starting to slow or taper?
- Do you need external management or new professional leadership to help the organization expand?
- Is there tension, discord or frustration among the family members?
- Are NextGens ready to take the reigns, but current gens still occupying many senior and executive posts?
- What will leadership under the next candidate look like moving forward, both for them and for current leadership?
- Do we have a talent pipeline in place, or can we identify one, for NextGens who are interested in working for the company?
- If the interest and capacity are there, adding the infrastructure is just a matter of investment in the future of the organization.
- Most organizations stumble here when taking a long view on succession planning. Nurture talent early and have a plan in place for turning family members into family business members.
Keeping Succession Planning in the Conversation
Boards and councils can make succession planning more regular and structured to support cross-generational alignment and readiness for leadership transitions. Pearson says one strategy for keeping succession planning top of mind is utilizing a committee structure within the board of directors and tasking individuals responsible for succession planning with providing regular updates. This will keep succession planning current and encourage movement on any actionable objectives.
“I’ve also seen, and worked with organizations that asked their board members to formally mentor a family member who was interested or already working in the business in an effort to provide them with professional coaching,” Pearson says. “They might be assigned to a family member for a year or two-year period of time to develop a one-on-one relationship which can help integrate the board into the succession planning process while also providing some professional development for the NextGen family members.”
Pearson says a family council and a family mission statement can also be important tools in developing NextGens, allowing them to feel like they have a say in and clarity about what the company’s succession plan looks like.