Distinctive Features of Family Businesses
Key success factors for family-owned businesses include a combination of tradition, strategic vision, and a sustainable leadership culture, coupled with a spirit of innovation and the courage to embrace change. When it comes to business succession, it is therefore essential to guide companies into the future by blending traditional values with innovative ideas. It is also important to recognize that structures within family businesses can vary greatly. Careful preparation is crucial to avoiding conflicts and setting the course for future, sustainable success. A clearly structured succession plan and process, the selection of a successor based on objective criteria, and effective communication with all relevant stakeholders play a key role in this process. Although every succession requires individualized solutions, there are key success factors for avoiding typical problems associated with business succession.
Clarify fundamental questions regarding the business, family, and shareholder structure
Every succession process should begin with a comprehensive analysis that gets to the bottom of the following key questions: What do the family ownership structures look like? Which generations need to be taken into account? Should the business be continued by family members or by an outside manager? How much will be distributed? What should happen if shareholders sell their shares?
Some of this information is already contained in partnership agreements, while other details often still need to be clarified. In addition, however, all these points should be documented in a family charter that is supported by all key stakeholders and that defines not only important values but also the fundamental strategy and family governance.
Developing a Succession Plan
The first concrete step toward a successful generational transition is to create a succession plan that clearly defines all procedures and processes for both the company and the family. Key elements include the selection of potential candidates, the preparation phase, the actual handover, and the follow-up to the leadership transition at the top of the company. It is crucial to set the course for an orderly business succession early on. In addition, a contingency plan should be drawn up that outlines the next steps in the event of an unexpected succession.
Establishing the Decision-Making Bodies for Business Succession
To successfully pass the business on to the next generation, it is important to take into account the specific interests of the family, the company, and all shareholders from the very beginning and to involve representatives of the respective stakeholder groups. In doing so, it must also be determined who bears primary responsibility and who ultimately makes the decisions.
Defining Selection Criteria for Potential Successors
The key question in generational succession is, of course, who is a potential candidate for the role of managing director. Ideally, there will be one or more candidates from within the family who can take over. If that is not the case, a successor from outside the family must be sought—either from within the company itself or from another organization. In any case, a candidate profile must be created that aligns with the company’s strategic direction as well as its corporate and family philosophy.
Establish Clear Rules for the Transition Phase
The handover phase represents the final, decisive hurdle in business succession. This involves training the successor and the gradual withdrawal of the current managing director according to clear rules within a defined timeframe. The areas of responsibility and tasks for the successor to the current CEO must be clearly defined and communicated both internally and externally. There must be no uncertainty regarding the new distribution of roles—neither within the family, among employees, nor among customers. Often, the previous business owner or managing director steps back to join the company’s advisory board or supervisory board and assumes an advisory role.
Opportunities for the Next Generation: Driving Forward Future-Oriented Initiatives
In addition to continuity and tradition, innovative future trends are also important for the leadership of family businesses. After all, nearly one in two successors expects to face disruption in their own markets in the coming years. For this reason, the next generation should tackle and drive forward key issues such as the ongoing digital transformation to ensure the company’s future viability. Further developing the corporate culture is also important to make the company attractive to young talent. Sustainability requirements certainly play a significant role here as well. In this area, successors have the opportunity to distinguish themselves and bring new ideas to the company.
The Family Office as a Cornerstone of Business Succession
An important component of wealth succession can be the development of a family office. This bridges the gap between the personal sphere of the individual shareholder and the corporate sphere—a gap that opens up or widens with the arrival of a new generation. In addition to handling administrative matters and compliance tasks, this also includes the management and investment of assets that exist outside the corporate sphere. In practice, the responsibilities of the family office can be diverse and are determined on a case-by-case basis by the entrepreneurial family. Furthermore, the family office itself can serve as a platform for addressing family governance issues, supporting the development of successors, and continuously refining family structures.
This trend is also evident in the recent Deloitte study “Family Offices—Resilient and Future-Proof.” In addition to traditional wealth and investment management, 95 percent of the family offices surveyed cited advising shareholders and the family on succession issues as a key service provided by the family office.
Conclusion: Successfully Planning Business Succession
Succession is one of the critical challenges facing family businesses. To avoid conflicts between family members and the management of family businesses, a clearly defined process based on unambiguous rules is essential. External experts, such as succession planning specialists, should also be consulted. The goal is to ensure a consensus based on trust among all parties involved and to make decisions according to objectively verifiable criteria. Successful succession is a key milestone for every family business to ensure its continued success in the future.
