Consulting Services Choosing a Successor
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No parent wants to tell their children which one is the “favorite.” When it comes to choosing a successor, this can often feel like the situation for family business owners. It should then come to no surprise that one of the biggest barriers to the family business succession process is the reluctance to select a successor. Every family business is different, thus the path for choosing a successor can take on many forms. Let’s take a look at some options.

Early Selection

Naming a successor early is a method that typically works best when there is a noticeable difference in age or capability between potential successors.

Pros

Cons

Reassures employees and customers that the business is intended to continue under family ownership

Eliminates talented children from consideration too early

Provides time for other family members to pursue alternative career paths

Forces the selection of a successor before the future strategic needs of the business can be clearly evaluated

Reduces the risk that unexpected death or disability of the founder will leave the business drifting

Can cause hard feelings among siblings that were passed over

Competition Over Time

Families may decide to allow successors to compete over time. Direct competition is more ideal when there are two potential successors of similar age and capability, as performance can be easier to compare. This process, however, can bring out the best or worst in people – inspiring siblings to perform or pitting them against each other.

Pros

Cons

Reduces the risk of the wrong decision

Process can become an excuse not to decide

Allows time for the strategic needs of the business to be evaluated

Making a choice can become more difficult as children grow older

Provides a process to be evaluated objectively

Candidates may grow resentful towards each other over time

Outside Board or Executive Team

Families can utilize an outside board or executive team to help design or oversee part or all of the succession process. The executive team may include other family members involved in the business and/or trusted non-family key employees. This process can help if there are multiple qualified candidates or multiple leadership roles to transition.

Pros

Cons

Alleviates the burden of making a decision from the parents and encourages consensus among siblings

Efforts can be futile if the owner is not ready to give up control or listen objectively

The board is an objective source of reason and cohesiveness

Business may not have an active outside board or executive team

The board can prepare and counsel family members involved in the process

It may be difficult to accommodate schedules

Increases credibility in the selection process

May encourage politicking between family members

Siblings may learn or decide to lead the business as a team

 

Non-Family CEO

Family business owners may select a non-family CEO to run the business for a period of time and pick the best successor. This process works best when there is a clear gap in experience needs between the current and next generation of family members.

Pros

Cons

Alleviates the burden of a decision from the parents

Parents may not agree with the non-family CEO’s decision

Considers strategic needs of the business

Non-family CEO may lack full understanding of the family’s values

Reduces the risk that unexpected death or disability of the founder will leave the business drifting

Difficulty finding a qualified non-family CEO with a timeline that aligns with the current and next generation’s expectations

Brings outside perspective and can increase credibility in the process

 

Consensus Among Family, Board, and Executives

This method involves the business owner, family members, board, and executive management being involved in some or all of the process. Consensus can be reached on the criteria, process, and timeline for succession.

Pros

Cons

Leading candidate typically emerges with less conflict

Process can be difficult to administer for smaller companies

Alleviates the burden of a decision from the parents

Process can be time-consuming and obtaining a consensus may be challenging, which can delay the ultimate decision

Considers strategic needs of the business

Vulnerable to politicking

Increases credibility in the process

 

Wherever you are in the succession process, these concepts can be used as a guideline to help you choose effective successors. P&N can help discuss what options work best for you. Contact us to start a conversation.

Read Part 1: Developing Effective Successors

*Part of this content was summarized from “Family Business Succession, The Final Test of Greatness” by Craig E. Arnoff, Stephen L. McClure, and John L. Ward.

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