Passing on the family business baton: Critical questions every family should ask

13 January, 2014
by: Cripps Pemberton Greenish

Appointing the next managing director of a family business has wide reaching implications and requires care and planning before being implemented. But how best to ensure that happens?

Family Business

The family needs to take a step back and ask a number of questions:

1. What is the timetable going to be for implementing the succession, bearing in mind that succession should be “a process, not an event”?
2. Who are the right persons to decide who should succeed? Parents, for example, can find it difficult to decide which of their offspring should succeed.
3. Who should help in making the decision? For example, what advice can be obtained from other board members and/or outside consultants? Does the board need to appoint an experienced non-executive director to help in making the decision? Should that person come from outside the family? Should the process be delegated to a committee?
4. What are the selection criteria for choosing the successor? Are these genuinely merit-based?
5. What skills are required for the job? Bear in mind the next stage of the development of the business may require the successor to have a different set of skills from that required of the current incumbent. Will the successor be able to add value to the business, as opposed to just preserving what has been achieved to date?
6. Which family members, if any, are candidates to succeed? Are they willing and able to take on the job? Is it the right career choice for them? Do they really want to take on a leadership role or are they just saying that they do, out of a sense of family responsibility or loyalty? Do they feel coerced into taking over from a parent?
7. Is the current role of each family member candidate clear, and how successful has each been in fulfilling that role and in reaching any performance goals?
8. Will each family member candidate be able to establish his or her independence and command the respect of both other family members and non-family managers or employees?
9. What leadership skills and experience of other businesses does the family member have? What leadership and skills development programme is required for any successor?
10. Should external candidates be sought because there are no family members with the requisite skills? If yes, what skills should that person have and does he or she understand how family businesses are different from other businesses?
11. Do one or more family members have the potential to lead but need more time to develop? If so, should a caretaker manager be appointed?
12. Should the role of the managing director be carried out jointly by more than one person, for example by two family members or by a family member and a non-family member?
13. Should the retirement of the current incumbent take place in stages, through a gradual reduction in hours? Correspondingly, should the successor assume his or her new duties in stages?
14. Will the current incumbent find it difficult to let go? If so, can that person be found a “retirement project” connected to the business?
15. How will the appointment of any successor impact on other family employees and, in particular, on their career paths?

This is not necessarily an exhaustive list of questions but it goes some way to helping to ensure the process of selecting the next managing director is carried out as professionally and objectively as possible. Above all, the family should plan well ahead and make sure that the succession is indeed a process, not an event, and that any such process is as fair and transparent as possible. Asking the right questions at the right time is central to this.