The saying “The first generation builds, the second carries on, the third destroys” resonates in many cultures. But in family-owned businesses in particular, business succession—that is, the transfer of leadership positions and ownership stakes within or outside the family—presents a complex challenge. Succession has a decisive impact on the company’s long-term success. A key element of successful succession is the successor’s identification with the company. This, in turn, influences her satisfaction and motivation and can create a positive dynamic throughout the entire company. Based on our study of 60 successors from family businesses, we have identified four key factors that significantly influence the success of succession processes:
1. Defined transition phase: Setting a date for the leadership transition
The duration of the transition phase, during which the outgoing owner and the successor work together, varies greatly from company to company. In cases of succession within the family, it tends to be longer than in cases of external succession. A clearly defined exit date helps protect the process from unnecessary delays. Especially in times of crisis, there is often a reason why people believe they cannot do without the outgoing owner right now. A fixed date can also serve as a test to determine whether the outgoing owner is truly ready to let go. In some of the succession cases studied, the leadership transition began shortly before or during the COVID-19 crisis, which the successors found particularly challenging but also valuable for their personal development and that of the company.
Of course, when the relationship is harmonious, both the transferor and the successor may consider extending the transferor’s involvement. Many successors report a successful collaboration with the transferor over several years, during which the transferor’s role evolves.
2. The Role of the Transferring Generation After the Handover: Does It Really Have to Be the End?
Traditionally, the transferring owner moves to the supervisory board or advisory board after the handover. However, this practice is viewed critically, particularly in the literature on non-family-owned companies, as the influence of the transferring generation often persists. But even the transferor’s complete withdrawal is not a panacea for successful succession. Many transferors remain active and engaged even after reaching retirement age. Our study shows that they can continue to play an important role even after the handover by advocating for their successors’ vision and taking on responsibility in their “favorite area.” Strategic responsibility, however, should lie with the succeeding generation.
At the same time, our study shows that if the founder continues to exert influence over corporate management, the successor may, over the years, become accustomed to standing in the shadow of the outgoing generation. He or she then faces the challenge of stepping out of the successor role and taking the lead. This, however, requires the successor to demonstrate leadership qualities in order to establish his or her legitimacy.
3. Strategic Onboarding: Building Competencies
Successors from within the company do not always meet the same requirements as external candidates. However, through strategic onboarding—in which key areas of responsibility are assigned to them early on—they can acquire important leadership competencies. Even business owners seeking external successors should consider strategic onboarding to bridge any potential skill gaps. However, candidates should already possess a fundamental understanding of business and a structured way of thinking.
4. Appropriate Compensation: Based on External Benchmarks
An important aspect of successful succession processes is fair compensation. Neither setting one’s own salary nor making vague promises about future equity stakes is recommended. Instead, the salary should be based on external benchmarks, such as the salaries of female CEOs with similar responsibilities for personnel or revenue. A quick online search can often provide insight into a realistic salary range. Especially in smaller companies, it is important to take the company’s liquidity into account. In some cases, the outgoing owner has reduced her salary, or the successor has foregone an appropriate salary—particularly if she saw future growth potential and the associated salary increases.
Conclusion
A successful succession in family-owned businesses requires a clearly defined timeline for the leadership transition to avoid unnecessary delays. The outgoing owner can continue to play a valuable, albeit secondary, role in the company even after the official handover. It is also important to provide strategic onboarding for the successor to effectively develop their leadership skills. Finally, fair and market-based compensation, aligned with external standards, plays a crucial role in the successor’s satisfaction and motivation.
