Selecting a Successor

Selecting a successor is often a decision by default. Most family businesses will have one member of the next generation who is more active, qualified, and interested in the business than his or her siblings. Frequently, the founder has already likely spent a great deal of time grooming the successor-apparent or the successor has soaked up much of the necessary knowledge on his or her own over the years. The challenges in this scenario come in the form of finding ways to assure equitable treatment for the non-participating family members, be they spouse or siblings.

If succession has not already been determined by interest, proximity, or birth order, a group effort in choosing and grooming an individual is one way to proceed. Key employees who are not family members can often be recruited for a transition team. If your valued, long-time key employees can participate in the selection and initiation of a successor, the entire team will benefit over the long run. Involving key employees is a good way to retain them, and retaining them is essential for continuity and credibility in dealing with outside sources such as banks and suppliers.

If there is competition between your children for the position, a decision to divide the power between them is not likely to be successful. Ownership may be divided but management should be clearly delineated. Often ownership can be split into passive and active shares, giving the active successor the necessary control over the business but providing an equal economic benefit to the inactive shareholders. In some cases the business can be divided along functional lines, so that different family members can assume control over well-defined functions or business units.