CEO Succession: Handing Over to a Family Member Is Not a Given

The selection of a new chief executive officer (CEO) is a crucial step for all businesses. It can either create or destroy economic and social value and may lead to an unsatisfactory economic cycle that results in traumatic decisions, such as selling or closing the business.

In the case of family businesses, the choice becomes even more complex, as it is not just a matter of identifying a suitable and motivated candidate capable of leading the organisation on a profitable growth path but also of selecting a talent who can interpret and truly embody the family’s values, legacy, and identity and can effectively reflect the owner’s vision and reward/risk expectations in the strategic decision-making of the business.

To a less experienced observer, this process may seem simple, as it is a predictable and recurring event. When a CEO’s term comes to an end—whether due to retirement, poor performance, or a mismatch with the ownership—the owner's family, in coordination with the board, is expected to manage the succession within a relatively short timeframe. This process would begin with an analysis of the current situation to identify the leadership and management needs to steer the business into the future, followed by an assessment of the candidates and selection of the best fit. In the case of small- and medium-sized businesses or second- and third-generation family businesses, one might also expect a clear preference for a family candidate. Essentially, non-family candidates are considered only when no one from the family’s talent pool applies for the position or when those who do apply are unsuitable for the job.

In long-standing or highly successful family businesses, this approach does not reflect the  complex reality.

Not an Event but a Bespoke Process

There is wide agreement in family business practice and research that succession is a process, not an event. This process is neither rigid nor bureaucratic, but dynamic and flexible, as the outcome is unpredictable due to multiple contextual factors that emerge and interact over time. The nature of the business, the life cycle of the industry, and the organisational structure and its evolution are factors that influence the process and, in turn, the selection of future leaders. At the same time, the structure and evolution of ownership, the quality of family relationships, the family culture, and the nature of the succession orientation are other variables to consider. For example, in terms of succession orientation, some owners strongly favour a family candidate over a non-family candidate, while others are more inclined to promote a leadership team (co-CEOs) rather than rely on a CEO. In other circumstances, a non-family CEO is the preferred option, as the owner does not want to instil a culture of competition within the next generation.

It is worth noting that the ideal process does not end with a discontinuous handover, but is preceded by a period of co-leadership between the senior and next generations to transfer skills, authority, power, and relationships. One well-known family business leader described the three years preceding the formal handover to his grandson as a period of “co-pilot and soft landing.”

Of course, there are circumstances that require sudden acceleration or drastic decisions because it is deemed more important to appoint a leader quickly than to follow a rigorous but time-inefficient process. For example, if the leading CEO passes away unexpectedly, a choice must be made, sometimes appointing someone who is not yet ready but has the potential for the position.

Finally, one must be prepared to deal with situations in the final stages of the succession process where the potential candidate is deemed unsuitable for the role and future challenges. This is a very delicate situation that needs to be carefully planned to avoid raising false hopes. If this occurs, it is clear that if the non-selected person is an outsider, placement in another work context could be an option to address dissatisfaction. However, if the person is a family member, this dissatisfaction needs to be managed proactively, as family ties cannot be severed and it is possible that they may become an influential shareholder in the future.

Process Checks

If leadership succession is to be a dynamic, flexible, and collaborative process, there are three checks to be made at the outset and periodically thereafter.

Check 1 – Do not rule out selling the business

Many enterprising families and their leaders operate under the assumption or preconception that the business must be transferred to the next generation regardless.

This is wrong. An enterprising family, with the professional and independent support of its board of directors, should periodically ask itself whether it is the best owner of the business in which it invests or, if not, whether it would be better to sell it and reinvest the proceeds in other economic activities. It is possible to maintain the entrepreneurial spirit across generations while changing the business in which the family invests. This consideration has profound implications for succession planning. For example, one might consider the appropriateness of promoting a family member to run a business that might be sold in the medium term. Alternatively, one might consider the most appropriate profile if the task  is to rethink the business mix to create more value, rather than to manage the legacy businesses without questioning whether they are still worthwhile.

Finding the “fit” between the ownership structure and the characteristics of the business is good management. Otherwise, there is a risk of investing in businesses to celebrate a bygone past or to provide employment for one or more family members, rather than pursuing sustainable strategies for future generations.

Check 2 – Assume the Next Generation Wants to Lead

It is not uncommon to encounter family businesses where the senior generation approaches succession without listening to and understanding the deepest aspirations of the next generation.

Assuming that the next generation will always be interested in the role of CEO is a mistake. Similarly, relying on respect, gratitude, or a sense of duty to drag them into a career path that does not excite them are behaviours to avoid.

On the contrary, the next generation, who are not interested in joining the business or taking on leadership roles, even if they have the talent, must learn to speak up and make their intentions clear. This requires them to develop a mature relationship with their parents and to take control of their future rather than being mere spectators. Affection, respect, and gratitude should not mean giving up on their own dreams.

Check 3 – Involve the Next Generation in the Strategic Process

The closer the succession process gets to its final stages, the more the successor(s) must be integrated into the strategic process to shape the future of the business. Here, the term integrate has a double meaning: involve them in decision-making and make them more accountable for results through good practices of empowerment.

The strategic process is a valuable training ground for developing and testing the successor’s strategic thinking skills. Moreover, this approach mitigates the risk of the transition from one CEO to the next being perceived by the organisation as a break between tradition and innovation or between the older generation and the next. It also removes some of the resistance to change by legitimising the younger person in the eyes of all stakeholders. This attitude also prevents the next generation from remaining in the shadow cast by the authority and credibility of the senior members, which can also serve as an excuse for not taking on responsibilities.

Learning from Practice

If the owners are able to add value to the business across generations, if someone in the family talent pool shows a genuine intention to succeed and has the potential to do so, and if the senior generation is willing to involve their successors in strategic thinking, then a smooth handover is more likely to bear good fruit.

Managing this process requires experience, not improvisation. If the senior generation feels it lacks sufficient experience in this domain, it should engage the board of directors in planning and managing the process—especially if this body is open to professional external input—or bring in experts to make effective and forward-looking decisions, free from bias, prejudice, or the influences of family dynamics, which are often overly emotional.

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