Nearly three-fourths (72%) of corporate CEOs surveyed in a recent report find it challenging to identify successors capable of steering the ship in turbulent waters (Deloitte Insights 2024 Global Human Capital Trends). For family businesses, the stakes are high and are further complicated by a maze of family dynamics and emotions. The rapid evolution taking place in most industries demands a new blueprint for succession — one that ensures continuity for generations to come amid ceaseless change and uncertainty.
Navigating the emotional seas of succession
Succession planning in family-managed businesses demands a nuanced approach that balances emotional connections with strategic objectives. The reluctance to relinquish control, deeply rooted in the identity and legacy of family business leaders, presents a significant challenge. This hesitation not only endangers the future of the organization but also highlights the necessity for a transition strategy that looks beyond current goals and objectives.
The process involves more than just strategic planning; it also requires a high degree of self-awareness. Recognizing the need to empower others and identifying the right moment to pass the torch are crucial steps in succession.
In this context, the perspective of board members and other advisers becomes invaluable. They provide objective insights, challenge entrenched viewpoints and introduce fresh strategies to ensure a smooth transition. Additionally, advisers can acknowledge the concerns of different family members, offer perspectives that align the succession plan with the company's long-term goals, and honor the business's legacy from subjective biases.
Creating a succession strategy
A comprehensive and intentional strategy for succession planning should incorporate these key elements:
- Prioritizing the needs of the business. Focus on aligning succession planning with the overall interests of the business, ensuring decisions benefit the long-term sustainability and success of the organization. To do so, leaders should meet with board members to discuss strategic imperatives and review the short-term (one- to three-year) business strategy. These discussions will allow the organization to understand any contextual shifts before evaluating the competencies and capabilities of potential successors, to determine if they have the skills to lead the company toward its goals.
- Starting early. Begin succession planning by identifying and training potential leaders early, including those outside the family circle, to ensure readiness for critical roles. Develop a sense of stewardship among family members from an early age, fostering a mindset geared toward the company's long-term success. Encourage talented NextGen members to get experience outside of the family business. Integrate practical experiences that enhance their readiness for leadership positions. Remember, as companies navigate succession planning, the need for diversity and adaptability becomes evident. Successors should not merely mirror their predecessors; they should bring a breadth of experiences and perspectives that align with the company's future.
- Engaging with future generations. Develop programming to educate the next generation about business operations as well as the company's core values and history. Encourage open communication to aid their development as future leaders. Static leadership can have a trickle-down effect, suffocating the aspirations of younger generations within the organization. Without clearly identifiable opportunities for advancement and growth, talented individuals may seek fulfillment elsewhere, depriving the company of potential leaders. It's crucial to establish a clear succession plan that not only addresses leadership transitions but also prepares the organization for continuous evolution.
- Deepening the candidate pool. Instead of focusing on one heir apparent, consider preparing multiple high-potential candidates to strengthen the leadership pipeline and ensure intentional planning. Diversity should extend beyond ethnic and gender considerations to encompass a variety of viewpoints and backgrounds, enriching the leadership ranks.
- Empowering the new leader. Consider instituting a period of collaboration between the outgoing and incoming leaders for mentoring, knowledge transfer and alignment of strategies, facilitating a seamless leadership transition. Overlapping the transition phases can provide strategic opportunities for the new leader to establish their credibility and authority within and outside the organization.
This integrated approach helps form the foundation of a succession plan that is both strategic and adaptable to the ever-changing business environment. However, the succession planning journey in a family business transcends strategic and operational adjustments. Obstacles families must overcome include:
- The struggle to acknowledge and accept the fact the next generation is yet not ready to take the leadership helm.
- The assumption that family members aren't concerned about the company's strategic direction simply because they don't have a seat at the table.
- The prospect that some family members might not be happy about the succession plan.
- The challenge of overcoming errors or missteps during the leadership transition.
Charting the future
In an era of rapid business change, the need for family businesses to undertake strategic and proactive succession planning is more urgent than ever. Intentional succession planning protects the core values, leadership and vision that define a successful family business. This process requires a comprehensive approach, including identifying potential successors and promoting a culture of stewardship, innovation and inclusivity. Family business leaders must take responsibility for their legacies and the future of their companies by engaging in a succession planning process that looks ahead while honoring their past, setting the stage for future generations to succeed.