In the past, succession was clearly defined. Even in the 1980s, it was an unwritten rule that the eldest son would take over his father’s company and carry on the family business. Of course, this didn’t always go smoothly; sometimes the son would walk away, or the father would show him the door. But, unlike today, the transition of leadership took place within the family. However, a lot has changed in recent decades, and this traditional model no longer works. Certainly, thanks to gender equality, daughters are also asserting their right to succeed their fathers. But more and more often, there is no one in the family who wants to follow in their father’s footsteps.
This is because many members of Generation Y question the family business and want to pursue their own paths without being mentally constrained. They view instructions as a nuisance. This is not surprising: after all, that’s how they were raised. As a result, more and more family business owners who cannot find a successor within their own ranks are looking outside the family. They often tap into their network, making more or less professional inquiries among their acquaintances.
Nevertheless, every year around 80,000 companies are unable to find a successor. This is also due to the fact that candidates from outside the family often lack the necessary equity capital, as securing financing from banks or investors has become more difficult. All in all, only about 60 percent of companies currently find the right candidate when the senior owner retires due to age, is unexpectedly sidelined by illness, or dies. The trend continues to decline.
In terms of professionalism, family-owned businesses still lag behind publicly traded companies. Looking at the 2,500 largest companies in German-speaking countries, 33 percent of candidates appointed to leadership positions in 2015 were external hires. This is according to a study by the management consulting firm Strategy& (formerly Booz & Company).
Whether family-owned or publicly traded with a broad investor base, external candidates are particularly urgently needed in industries where business models are being challenged or even disrupted by rapidly advancing innovation. According to Peter Gassmann, spokesperson for the management board of the consulting firm, this trend is particularly evident in telecommunications and healthcare companies, as well as energy utilities. Between 2012 and 2015, 38 percent of all new CEOs at telecommunications companies were external candidates; the figure was 32 percent for utilities, 29 percent for healthcare companies, and 26 percent for financial firms.
As another study shows, publicly traded companies tend to favor candidates with experience in this sector. The same applies to privately held companies. Only five of today’s DAX CEOs have previously worked at a privately held, unlisted company. Conversely, of the 30 largest family-owned, unlisted companies, only seven CEOs had previously worked for a large corporation. These are the findings of a study by the executive search firm Korn Ferry.
The consulting firm attributes these results to the fact that managers usually subconsciously decide very early on which type of company they want to build their careers in. “This decision is often made as early as their first professional position,” says Hubertus Graf Douglas, managing director of Korn Ferry in Germany.
