Succession planning in a family business is a crucial step to ensure the continuity of the business across generations. A well-structured succession plan not only maintains business continuity but also preserves family harmony and ensures a smooth leadership transition.
A “family business” here refers to any company in which a family is the principal shareholder and/or exerts a decisive influence on the company’s strategy and/or operations due to its position within management or the board of directors1.
Ensuring Business Continuity
A formal succession plan is essential to guarantee the continuity of the family business when it is passed from one generation to the next. It ensures that the necessary skills and leadership capabilities are available to replace any outgoing executive. Additionally, it increases the business’s chances of survival during transitions.
Business continuity is often threatened in the absence of adequate planning. For example, without a succession plan, a business might be caught off guard by the sudden or unexpected departure of a key leader, leading to major operational disruptions and jeopardizing the company’s stability.
Starting the Planning Process Early
Succession should be regulated as a priority and early enough, in agreement with the family and the board of directors. It is recommended to begin the process of selecting the next CEO as soon as the current one is appointed, especially if the next CEO is to be chosen from among family members, as the selection and training of a new generation CEO can take a long time. This anticipation ensures business continuity and allows the selection of a well-prepared successor.
A successful succession can take five years, from the decision-making to the final handover of the business to the successor.
Training and Talent Development
The succession plan should include training and development initiatives for family members and other potential future leaders. This includes setting up mentoring programs, training opportunities, and a diversity of work experiences within the company.
Training and talent development are crucial to ensure that future leaders possess the necessary skills to lead the business. It also helps identify the strengths and weaknesses of potential successors and fill skill gaps before they assume leadership roles. If the successor is to be chosen from the next generation, they should be introduced to the business early on, without pressure, to acquire the skills needed to take the helm.
It is important to allow the successor to propose their own ideas in due time, while quickly delegating responsibilities so that they can prove their ability to take on a leadership role.
Choosing the Best Candidate for Leadership
One of the main objectives of a succession plan is to allow for the selection of the most competent person to lead the business, whether they are a family member or not. Detailed selection criteria help identify the best candidate for the role. The selection should be based on skills, experience, and leadership capability rather than purely familial ties. If multiple candidates are equally qualified, the family member will take precedence over others.
The company’s future largely depends on its leader. Therefore, it is vital to involve all family members, the board of directors, key executives, and other important external stakeholders in the selection process—avoiding, as much as possible, any compromise in favour of a family member—to ensure that the choice of the next CEO is accepted and trusted by all, thereby ensuring the company’s future stability. This collective involvement helps prevent conflicts and strengthens support for the new leader.
Managing Family Dynamics
Family dynamics can complicate succession planning. Tensions may arise when multiple family members vie for leadership positions. A formal succession plan helps manage these dynamics by establishing clear criteria for successor selection and involving all stakeholders in the process.
It is important to address these issues proactively to avoid conflicts that could harm the business. Open and transparent communication is essential to ensure that all family members understand and accept the succession process.
Preventing Risks and Uncertainties
Without a succession plan, a family business is exposed to numerous risks and uncertainties. For example, the sudden death of a leader without a clear successor can lead to power struggles, business disruptions, and a loss of confidence among employees and business partners.
A succession plan helps prevent these risks by ensuring that measures are in place to address various unforeseen situations. It provides a clear roadmap for the transition, minimising disruptions and ensuring the business’s stability. It specifies who will take over in the short and medium term and how the succession process should be practically organised.
Maintaining the Company’s Reputation
The reputation of a family business is often linked to its leaders. A well-managed transition can enhance the company’s reputation by demonstrating that it is well-prepared and has competent leaders to guide its future. Conversely, a poorly managed transition can damage the company’s reputation and affect its relationships with customers, suppliers, and other stakeholders.
An effective succession plan shows stakeholders that the company is serious about its longevity and professional management. This can improve trust and loyalty towards the company, contributing to its long-term success.
Conclusion
Succession planning is thus an essential component of family business governance. It ensures business continuity, the selection of the best candidates for leadership roles, the management of family dynamics, the prevention of risks, and the maintenance of the company’s reputation. By proactively and structurally addressing these aspects, family businesses can successfully navigate generational transitions and ensure their longevity for years to come.
The information presented in this article is based on specialised documents and manuals on family business governance.
- Guide de gouvernance pour les entreprises familiales ↩︎