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Consulting Services • Published 11/19/2019
Choosing a Successor
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.
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Pros |
Cons |
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Reassures employees and customers that the business is intended to continue under family ownership |
Eliminates talented children from consideration too early |
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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 |
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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.
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Pros |
Cons |
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Reduces the risk of the wrong decision |
Process can become an excuse not to decide |
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Allows time for the strategic needs of the business to be evaluated |
Making a choice can become more difficult as children grow older |
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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.
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Pros |
Cons |
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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 |
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The board is an objective source of reason and cohesiveness |
Business may not have an active outside board or executive team |
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The board can prepare and counsel family members involved in the process |
It may be difficult to accommodate schedules |
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Increases credibility in the selection process |
May encourage politicking between family members |
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Siblings may learn or decide to lead the business as a team |
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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.
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Pros |
Cons |
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Alleviates the burden of a decision from the parents |
Parents may not agree with the non-family CEO’s decision |
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Considers strategic needs of the business |
Non-family CEO may lack full understanding of the family’s values |
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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 |
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Brings outside perspective and can increase credibility in the process |
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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.
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Pros |
Cons |
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Leading candidate typically emerges with less conflict |
Process can be difficult to administer for smaller companies |
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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 |
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Increases credibility in the process |
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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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