“You can never start succession planning too early.”
Most boards and leadership teams have heard these words from advisors multiple times.
However, acknowledging this advice is much easier than acting on it – especially in family-owned businesses where personal and professional ties are deeply intertwined. Despite the challenges, creating effective succession plans offers major benefits, including business continuity, a healthy culture, and ongoing leadership development opportunities.
Our work with family businesses of all sizes and industries has shown that understanding the common elements of effective CEO succession plans, addressing unique cultural factors, and preparing for emergencies can ensure smoother transitions and long-term sustainability.
In this article, we cover what family business succession planning is, why it’s important, and how you can build a successful succession plan for your family business.
What is Family Business Succession Planning?
Family business succession planning is the process of preparing for the seamless transition of leadership and ownership within a family-owned business. Unlike traditional succession planning, it involves navigating family dynamics, generational differences, and unique family business governance structures to ensure long-term business sustainability.
This process often includes identifying potential successors, establishing clear decision-making criteria, and creating transparent communication channels to balance the needs of the business with those of the family.
Why is Family Business Succession Planning Important?
Family business succession planning is crucial for ensuring the long-term success and sustainability of your business. It minimizes risks associated with leadership transitions, preserves the company’s culture and legacy, and fosters continuity across generations.
Effective succession planning helps to mitigate challenges such as family conflicts, lack of preparedness, and unclear decision-making processes, ensuring the business can adapt to future opportunities and challenges while maintaining trust among stakeholders.
Poor succession planning can be a major cause of problems in family companies, leading to:
- Lack of alignment among stakeholders
- Procrastination on emergency planning, leaving your business vulnerable to long- and short-term crises
- Unaddressed emotional dynamics
- Costly turnover
- Cultural trust and misalignment
- And much more
Who is Responsible for Family Business Succession Planning?
Before we discuss how to build your family business succession plan, it’s important to understand who needs to be involved. Responsibility for succession planning is a shared effort among the family, the board of directors, and other key stakeholders, with each party having distinct priorities.
While each family business is unique, here’s a snapshot of how each party can be involved in succession planning:
The Family’s Role in Succession Planning
The family is the foundation of succession planning.
It’s up to the family to ensure the process reflects the business's legacy, culture, and long-term vision. The goal of the family’s involvement should be to foster an environment where future generations feel connected and prepared to contribute.
That’s why it’s important for the family to proactively educate younger family members about the business, even as early as high school. This lays the groundwork for their potential involvement and ensures a continuity of values and knowledge.
Establishing clear criteria for successor eligibility is essential to avoid misunderstandings and conflicts. By setting defined rules and expectations, the family can create a fair and consistent framework that aligns with both business needs and family values.
Managing dynamics is another critical priority for the family. Succession planning should avoid placing undue pressure on any individual or relying on assumptions about who will take over. Instead, the focus should be on identifying the best-fit leader, whether that person comes from within the family or is an external candidate.
A thoughtful and transparent process ensures that decisions are based on merit and readiness, safeguarding the business's future while preserving family harmony.
Read about the benefits of keeping your family in the family business here.
The Board of Directors’ Role in Succession Planning
The board of directors ensures that succession planning aligns with the business's strategic direction and long-term objectives. The board should help to guide the family toward decisions that prioritize the company’s sustainability over personal preferences.
In many cases, the board helps to balance emotional considerations with the practical needs of the business. This perspective is especially critical in family businesses, where strong ties and traditions can sometimes overshadow strategic imperatives.
And one of the board’s key responsibilities is to advocate for early planning.
Starting the succession process well in advance allows for thoughtful, informed decision-making and prevents the risks associated with rushed or poorly prepared transitions. This proactive approach ensures that the company is well-positioned for future challenges and opportunities.
Board members also play an essential role in evaluating and mentoring potential successors. Independent members, in particular, provide impartial guidance and can help develop leadership potential through structured mentoring and assessments.
External tools, such as third-party evaluations or leadership coaching, can further prepare candidates for the complexities of the CEO role. This rigorous development ensures that successors can navigate the unique challenges of leading a family-owned business.
Finally, the board must ensure that the company has a robust emergency succession plan in place.
This written plan should outline clear steps for leadership continuity in the event of unexpected departures, whether temporary or permanent. By addressing these contingencies, the board safeguards the business's stability and protects its legacy during times of uncertainty.
Family businesses often delay involving the board in the succession planning process, which can result in misaligned or ineffective decisions. Engaging the board earlier ensures that family-driven decisions are scrutinized through a strategic lens, allowing for better alignment with business goals. Moreover, the board’s impartial guidance becomes crucial when navigating the complexities of family dynamics, particularly in situations where strong personalities or competing interests threaten to derail the process. Early involvement and diverse input ultimately create a more balanced and effective succession strategy.
Phyllis Campbell, Consultant, Egon Zehnder’s Board Advisory and Chief Executive Officers practices
Key Stakeholders’ Role in Succession Planning
While often overlooked, stakeholders, including employees, independent advisors, and external experts, are essential in ensuring fairness and transparency throughout the succession planning process. Their perspectives help balance the complexities of family dynamics with the practical needs of the business, creating a more inclusive framework for decision-making.
These stakeholders also foster trust by contributing objective insights that align with the company’s strategic goals, ensuring that the process is guided by merit and not solely by family interests.
Independent advisors and board members are particularly valuable for bringing fresh, diverse viewpoints to the table. They challenge groupthink and encourage the business to think beyond traditional practices, helping to prevent stagnation and maintain a competitive edge.
Now that we’ve covered how each party should be involved, let’s review how you can build a successful succession plan for your family business.
How to Make a Family Business Succession Plan
Creating a succession plan for a family-owned business is a complex but critical process that ensures leadership continuity, preserves the company’s legacy, and positions the business for long-term success.
Here's a step-by-step guide to building an effective family business succession plan:
1. Start Early and Make Succession an Ongoing Process
Succession planning should begin long before a transition is imminent. Starting early allows families to carefully evaluate potential successors, create development opportunities, and address any gaps in readiness.
Early planning also reduces the risk of rushed decisions that could destabilize the business.
While it can be uncomfortable to plan for the eventual transition of current leaders, early preparation allows the family and business to adapt and avoid rushed decisions. Planning for future generations, not just the immediate successor, sets the stage for long-term continuity.
You can never start succession planning too early. Boards need to ask tough questions about emergency plans and long-term successors early. Assuming things will work themselves out often leads to preventable crises.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
2. Establish Clear Governance and Decision-Making Processes
Establishing clear, human-centric governance is the foundation of an effective succession plan. By outlining how decisions will be made, who will make them, and the criteria for evaluating candidates, families can minimize misunderstandings and reduce the potential for conflicts.
These guidelines also provide transparency for all stakeholders, including potential candidates, ensuring everyone understands the expectations and procedures.
Family dynamics often complicate governance, especially when multiple generations or branches of the family are involved. Early involvement of the board to enforce governance can help balance family influence with business priorities.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
Each family business is different which means governance will need to be different.
Here are some examples you might adapt to streamline your candidate selection and decision-making process when the time comes:
- Formalize a selection committee: Establish a dedicated group, including family members, independent board members, and advisors, to oversee the succession process and ensure objectivity.
- Define leadership competencies: Identify the skills, experience, and qualities required for the CEO role, such as strategic vision, emotional intelligence, and industry expertise.
- Set educational and professional benchmarks: Require candidates to achieve specific educational qualifications or demonstrate leadership experience outside the family business before being considered.
- Clarify family vs. non-family eligibility: Determine whether the candidate pool will include only family members or if non-family executives will be considered.
- Use third-party assessments: Engage external consultants or psychologists to evaluate candidates' leadership potential, decision-making skills, and readiness for the role.
- Enforce a clear succession timeline: Establish deadlines for key steps in the process, such as identifying candidates, completing evaluations, and transitioning leadership.
- Rotate leadership roles for development: Allow potential successors to gain experience in various leadership roles within the company to broaden their skill set and business understanding.
- Set term limits for leadership: Limit the tenure of family leaders to ensure periodic leadership renewal and avoid stagnation.
- Develop a family constitution: Create a document outlining the family’s shared values, mission, and rules for succession, which serves as a guiding framework for governance.
- Plan for non-selected family members: Define roles for family members who aren’t chosen as successors, such as positions on the board, within the family council, or in philanthropic initiatives.
3. Address Family Dynamics Early
Family dynamics are often the most significant challenge in succession planning. Open and transparent communication is essential to manage emotions, conflicting agendas, and expectations. That’s why it’s important to involve all relevant family members in the process early, even younger generations who may not yet be active in the business.
This proactive inclusivity fosters trust and avoids misunderstandings.
It’s also important to manage expectations. Families should avoid placing undue pressure on individuals or assuming that the loudest voices are the best successors.
Instead, focus on identifying the right candidate based on merit and readiness.
Foster Healthy Tension
A productive level of tension among decision-makers is necessary to avoid groupthink or appeasement. Healthy tension encourages robust debate, ensuring that all perspectives are considered and the best decisions are made. Without this, succession plans may lack rigor or fail to account for diverse viewpoints.
Include the Incumbent in Your Succession Strategy
Involving the current CEO is crucial for future-focused development and recruitment. They are the best-positioned leader to advise and give input about the company’s trajectory and how the industry is evolving. In addition, they can help shape the requirements of the role and help develop the next bench of CEO candidates. Setting the expectation from day one that the CEO will be involved in planning their own succession enables open conversations about the future and removes the taboo around discussing the leader’s tenure.
Balancing the current CEO’s influence with the successor’s independence is key. Establishing a separate CEO selection committee that doesn’t include the sitting CEO is one measure. The second is continuous conversations that start early and focus on development. For example, some companies believe it’s important for the CEO to be a family member, but they also want that family member to have work experience outside of the company.
This means you need to start identifying and developing these candidates much earlier in their careers.
This brings us to our next step.
4. Develop Potential Leaders
When selecting candidates, the focus should shift from deciding on the next CEO to developing them. We have seen many boards fall into the trap of focusing too much on horizontal development and not enough on vertical development.
While a track record of success is important, there are other critical talent aspects to assess, including a candidate’s capacity to be self-aware, relational, and adaptive.
This development isn’t something that happens overnight or through a single leadership program. It’s an intense period of self-reflection that often begins 1.5-2 years before a leadership transition. This vertical development inspires future CEOs to think about how they want to contribute, how their preferences will help or hinder the organization, and the impact becoming CEO will have on their personal life.
Having the bandwidth for this development is yet another reason family businesses truly cannot start succession planning too early. Time will not always be on your side, but implementing these elements of effective planning and ensuring an emergency plan is in place puts the company in a much more stable position, helping to ensure all the value that the family has built stays in place and continues to grow.
Many families assume that one kid will naturally step up over time, but leaning into the process early and deliberately evaluating all options prevents unwanted surprises.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
Remember that independent board members can play a mentoring role, providing unbiased coaching and helping successors develop the emotional intelligence needed to navigate family and business dynamics.
The independent board members who mentor candidates can bridge the gap between family expectations and business realities, providing candidates with the skills and confidence to lead.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
5. Create Emergency Succession Plans
Emergencies happen, even in family businesses. Your family business succession plan should include provisions for unexpected events, such as the sudden departure of the CEO.
Emergency succession plans encompass both permanent and short-term departures of the CEO, such as minor surgeries or illnesses. Acknowledging the possibility of unexpected events is the first step in protecting the CEO’s legacy and ensuring business continuity. While most companies have longer-term plans, many don’t account for short-term incidents. A simple written plan should identify someone who can step in temporarily, whether that’s a board member, executive, or spouse.
A simple, written emergency plan should identify who will step into leadership temporarily and outline a process for maintaining business continuity.
Emergency planning protects the business’s stability during uncertain times.
6. Incorporate Independent Perspectives
Bringing in independent board members or advisors can provide fresh insights and challenge groupthink. These external voices help the business avoid stagnation and align its succession plan with evolving market conditions and strategic goals.
Independent perspectives are invaluable. They bring objectivity and ensure decisions are based on what’s best for the business, not just the family.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
7. Align Your Succession Plan with the Business Strategy
Your succession plan must be grounded in the long-term strategic direction of the business. What does that mean? Your chosen leader needs to have the skills, vision, and adaptability to guide the company toward its goals while preserving its legacy.
It might help to consider what your family's “why” is. For more expert advice on building continuity in the family enterprise, check out this article.
One mistake you can avoid is allowing personal biases to override business considerations.
The process tests criteria and objectivity—succession isn’t about who you like most but who’s best equipped to lead.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
Hiring an independent third-party leadership coach is a great way to ensure that the leader of your business has all the skills they need to have an ongoing impact on your business growth.
8. Prioritize Transparency and Communication
We really can’t say it enough: transparent processes should aim to build trust among family members, employees, and other stakeholders.
Share the criteria, timeline, and decisions openly to avoid misunderstandings and ensure everyone feels included in the process.
Transparency also helps successors gain clarity about their future roles and responsibilities.
Family dynamics become significantly more manageable when there’s clarity and communication. Assumptions often lead to hurt feelings or mistrust, which can be avoided with clear, open discussions.
Phyllis Campbell, Senior Advisor, Egon Zehnder’s Board Advisory and CEO practice
9. Evaluate and Refresh the Plan Regularly
Succession planning isn’t a one-time event. Regularly review and update the plan to reflect changes in the business, family dynamics, or market conditions. Reassess candidates and development needs to ensure the plan remains relevant and effective.
10. Collaborate with the Board for a Seamless Transition
Your board of directors is critical in guiding the family and ensuring the process stays on track. By providing strategic oversight, mentoring successors, and maintaining objectivity, the board helps create a seamless and successful leadership transition.
Family Business Succession Planning Best Practices
Even with a strong succession plan, boards must consider the unique culture of family businesses and the impact it will have on planning. At the core of family business culture is inclusivity. Family members, even if they are not on the board or part of a CEO selection committee, will want to have a say in who the next leader of the company will be.
The selection committee must balance how to include these perspectives in the process without giving non-voting members too much sway or power.
This is where clear governance and decision-making processes matter—when there is a grounding in a process, it gives the committee some leeway to be flexible and adjust its approaches to ensure all voices are heard.
Family Business Succession Planning Mistakes to Avoid
Succession planning in family businesses is often fraught with challenges, many of which stem from avoidable mistakes. By recognizing these pitfalls, families can build a more effective and harmonious process.
1. Letting the Process Emerge on Its Own
One of the most common mistakes is assuming that the right successor will naturally reveal themselves over time. This “we’ll know them when we see them” approach leads to ambiguity, delays, and missed opportunities. Succession requires deliberate planning, not chance.
Succession planning is a key part of building your family business charter.
2. Delaying Engagement with Family Members
Family members should be involved in the succession process early—ideally starting as young as high school. (Yes, high school.) Early exposure to the business, board meetings, and leadership discussions fosters preparedness and ensures that potential successors understand their responsibilities.
3. Making Assumptions About the Right Candidate
Families often assume that one individual will naturally take over, leading to either prematurely naming a successor or failing to evaluate all viable options. This can cause resentment, family conflicts, or the selection of a candidate who may not be the best fit for the role. Instead, establish clear criteria to identify and evaluate candidates objectively.
Example: One family implemented criteria requiring the next generation to work in the business for two summers, complete a college degree, gain two years of external work experience, and observe at least three board meetings. This approach helped the family confidently select a qualified 32-year-old CEO who met all the requirements.
4. Failing to Define Clear Eligibility Rules
Disagreements about eligibility—such as whether in-laws can be considered for the CEO role—can derail the process. Establishing clear rules of engagement upfront ensures that everyone understands the “rules of the road” and reduces conflicts.
Example: In one case, a founder’s son-in-law was eventually chosen as CEO, but only after significant debates about the inclusion of in-laws in the succession pool. Clear criteria could have minimized these tensions.
5. Overlooking the Importance of Communication
A lack of communication with the broader family about the succession process can lead to misunderstandings and erode trust. Many boards only communicate with assumed successors, leaving others feeling excluded. Transparent communication about the process and decision-making criteria helps foster alignment and buy-in.
6. Placing Excessive Pressure on an Individual
Putting too much pressure on one family member to take over—especially without their full interest or readiness—can create undue stress and harm family relationships. Instead, communicate that participation in the succession process is an opportunity, not an obligation.
7. Failing to Prepare for Non-Viable Timelines
Sometimes the ideal candidate is not ready within the necessary timeline, forcing families to turn to external searches. While external candidates can bring fresh perspectives, this outcome often reflects a lack of preparation or development planning.
8. Lack of Rigorous Processes
Succession planning is not a one-time decision. It requires thoughtful, ongoing evaluation of potential leaders and a structured framework for decision-making. By creating clear processes, families can avoid rushed or emotional decisions that jeopardize the business’s future.
Avoiding these mistakes ensures a smoother transition and sets the foundation for long-term success in family business leadership.
Why Partner With a Family Business Advisory?
Navigating family business succession planning can be complex, but you don’t have to do it alone. An independent consultant brings objectivity, proven strategies, and expertise to guide your family through every step of the process. From establishing clear governance and resolving family dynamics to identifying and developing the right leaders, their impartial perspective ensures your business is positioned for long-term success.
Ready to secure the future of your family business?
Contact Egon Zehnder today to start building a succession plan that protects your legacy and drives sustainable growth.
