Succession Planning for Family-Owned Companies

Studies conducted by the International Institute for Family-Owned Business indicated that over 80% of all businesses are family owned or controlled[1].  More importantly, the study specified that over 60% of those companies have not implemented any formal succession plan, which raises serious questions as to their continuation as viable businesses. 

As with all strategic business issues, the question of succession planning within a family-owned business requires considerable thought, planning and communication.  Without the involvement of an outside Board of Directors, succession in a family-owned business can be a highly charged emotional transition, as well as a turning point for the business. 

The strength of family-owned businesses is the knowledge, experience and entrepreneurial spirit brought by the owner/managers.  While public companies tend to have more formalized programs, family-owned businesses, in many cases, are without written strategic business plans nor the formality of organizational charts, board meetings, review processes, etc.  Therefore, a deliberate effort must be made to address the issue of succession planning within a family-owned business.

Issues that arise and need to be addressed may include:

·         Identification, selection and training of successor executive(s),
·         Determination as to whether the successor(s) will be family members,
·        Identification of alternative short- and long-term incentives for rewarding and retaining those executives; as well as,
·        determination of the extent to which equity will be made available to other individuals, whether or not they are family.