Level Up Your Legacy: Identify and Prepare the Next-Gen for Your Family Business

Transitioning leadership within family-owned businesses is a pivotal moment that can determine the future success and longevity of the enterprise. Identifying who among the next generation is ready and willing to take the helm, and adequately preparing them for leadership, are critical challenges many family businesses face today.

The Readiness of Next-Gen Leaders

Recent studies highlight a significant gap in succession planning within family enterprises. According to a 2019 survey by the Successful Transgenerational Entrepreneurship Practices (STEP) Project, a staggering 70% of global family businesses lack a formal succession plan. Moreover, more than half of current family CEOs do not have a formal retirement plan, underscoring a widespread unpreparedness for leadership transition.

Despite this, the next generation appears poised to assume leadership roles. The same STEP survey indicates that Millennial family business leaders are highly educated and plan to retire before their 50th birthday, suggesting a readiness to take over sooner rather than later.

Choosing the Right Successor

Not every family member is suited—or even wants—to take the lead. Selecting the right successor involves more than just birthright; it requires evaluating key factors such as:

• Competence and Skills: Does the candidate have the necessary business acumen, leadership abilities, and industry knowledge?
• Commitment and Passion: Do they genuinely want to lead, or are they feeling obligated? Passionate leaders are more likely to drive innovation and long-term success.
• Respected by Employees and Stakeholders: Strong leadership isn’t just about family ties; it’s about the ability to command respect and foster trust within the organization.
• Adaptability and Vision: The business landscape is constantly evolving. Can the successor adapt to new challenges and lead the company into the future?

If no family member meets these criteria, many successful businesses appoint non-family executives while still maintaining family ownership. This model, seen in companies like Ford and Mars Inc., allows for professional leadership while keeping the business in family hands.

Strategies for Effective Succession Planning

• Early and Transparent Communication: Open dialogues about succession plans can alleviate uncertainties. The Walton family, heirs to the Walmart empire, exemplify this by gradually transferring voting rights to the next generation, ensuring a smooth transition without abrupt changes in leadership roles.
• Structured Development Programs: Providing next-gen members with observer roles or rotational positions across various departments can enhance their understanding and readiness. The Wallenberg family of Sweden offers observer roles on their boards to younger family members, preparing them for future responsibilities.
• Formal Succession Plans: Documented plans detailing the transition process can mitigate risks associated with leadership changes. Despite the evident need, many family businesses still lack such plans, highlighting an area requiring immediate attention.

Conclusion

The transition of leadership in family-owned businesses is a complex process that demands proactive planning and collaboration between current and next-generation leaders. While challenges exist, the willingness and preparedness of next-gen members, coupled with strategic succession planning, can ensure the enduring success of family enterprises.

We will dive deeper into this topic on April 23rd, 2025 from 8-9:30am at our Family Business Exchange Virtual Mastermind. To learn more and to register, reach out to Beth Renga, Director of Consulting Services or REGISTER HERE.