CEO succession planning is the most critical activity that the board of a
family-owned business will ever undertake. Few decisions are more critical
to the long-term success of the business and the security and welfare of
those who depend on it. Some family businesses have exemplary CEO
succession processes in place; others are less sophisticated. The purpose
of this paper is to describe the most common approaches to succession
planning and offer some best practice recommendations.
In conjunction with FBN (the Family Business Network) in Belgium,
Spencer Stuart conducted extensive research to identify some of the best
practices (and common pitfalls) in CEO succession planning acrossr
Europe. We interviewed 25 chairmen and CEOs of major family-owned
businesses ranging from third to seventh generation ownership.
Our research reveals a surprising variety of attitudes and approaches
among FBN members as they face the challenge of choosing their next
leader. Some of these differences are accounted for by the size and
complexity of the family, the involvement of the family council, what the
family charter may or may not say about succession planning, and the
extent of leadership talent among family members and within the business
as a whole. Other differences relate to the board’s capacity and
readiness to handle a process which requires significant time, effort,
knowledge and experience to get right.
CEO succession — the board’s most critical task
Appointing a new CEO is rarely an easy task. It can be traumatic as well as challenging for
all concerned. A robust succession process featuring thoughtful and continual preparation
is vital. It is the chairman’s responsibility to achieve consensus among family
members and this will inevitably involve some degree of compromise. Decisions must be
shared and everything should be done to avoid board or family council members from
blaming each other in the event of a bad outcome.
Successful CEOs of family businesses are a particular breed and not easy to find; they are
highly competent business leaders skilled in navigating all the usual external market pressures,
but equally deft in dealing with the expectations of family members, whether they
be on the management team, the board, or the family council.
While many of the most successful CEOs are family members, companies have to
prepare for the eventuality, or at least the possibility, that the person best suited to be
their next CEO will not be a family member. The appointment of a non-family CEO
becomes more likely as the business passes into the hands of successive generations.
That said, the likelihood of developing family members with the requisite qualities of a
CEO may well increase over time.
In considering whether to recruit an external professional to lead the business, much
rests on how well the outsider will be able to cope with the dynamics and culture of the
family. Indeed, when things go wrong for family business CEOs it is not usually their business
competence which is responsible, but rather their failure to manage the expectations
and aspirations of the family.
The five golden rules of CEO succession planning
- There must be close alignment between the family, the board and management with
open communication throughout the process.
There is more than one successful model for CEO succession. The situation facing each
family business is unique, so transferring a solution from another business is not necessarily
CEO succession cannot be viewed in isolation; it must be seen in the context of the
succession of the board as a whole and that of its chairman.
A transparent governance model should ensure a clear separation of roles between the
family council, the board and management.
A family charter should set out guidance, if not rules, for CEO succession planning. It
should also address the development of members of the next generation who will represent
the family’s interests in the business.
The link between governance and CEO succession
Governance structures and decision-making mechanisms have a significant bearing on
how family businesses approach the question of CEO succession. Our research revealed
several factors that tend to be present among boards overseeing the most successful
A transparent governance model with a clear
separation of roles between the board, the
family council and the CEO.
- A family charter which sets out guidance, if not
rules, for CEO succession planning.
Independent directors on the board who can
bring an outside perspective. The best independent
directors identify with the business,
bring an objectivity to the board’s deliberations
and act as a useful counterweight when
the CEO is a family member. Some boards
prefer to retain independent outside advisors
who can play devil’s advocate and raise difficult
issues that others may avoid.
A chairman who leads the succession planning
process and who is rigorous about involving
different stakeholders in the selection process
at the appropriate time.
A nomination or selection committee with a
remit to continuously review options and plan
for eventualities, rather than tackle succession
issues on an ad hoc basis.
Rigorous assessment which evaluates, inter
alia, relevant experience, past performance,
future potential, development needs and
cultural fit. This assessment is conducted by
third-party assessors using state-of-the-art
Tenure limits for CEOs in recognition of the
need to have leaders whose competence is
aligned with the changing nature of the business,
to “keep the CEO sharp”, and to send a
clear signal to upcoming talent that their route
to the top is not forever blocked.
CEO succession as a continuous process
One of the characteristics of a smooth succession process is that it begins several years
before the anticipated retirement or departure of the CEO. The earlier succession planning
starts, the more options that will be available when the time comes. The company’s
strategy should provide the basis for creating the specification of the next CEO and for
identifying potential successors. In an era of disruption and sector convergence, the risk
for some family companies is that they will remain in one business alone. The question of
leadership succession can trigger a timely strategic debate about whether to ‘keep your
eggs in one basket’ or broaden the business portfolio or, even further, whether to transform
completely the company’s DNA.
Some companies address the question of CEO succession on an ad hoc basis and only
when the need for a successor comes into focus. Several of these companies acknowledged
that they had to put a more structured process in place in future to avoid making
hasty decisions, having too few options or losing key executives. This is a time when the
presence of independent directors on the board can make all the difference, since they
can offer much-needed experience and objectivity when it comes to planning and the
assessment of candidates.
The majority of boards see CEO succession planning as a continuous process. It appears
on the board agenda as a regular item and is closely linked to the issue of management
development. “We pay constant attention to CEO succession,” says one chairman. “We
do not want to be facing time pressure, but instead we want to master the process at all
times.” Another board member noted that the board “formally discusses the succession
strategies for the CEO and executive committee members twice a year. It is a continuous
process: the moment a new CEO is appointed, we start thinking about their successor.”
This point was echoed by another chairman who involves the new CEO in preparing for
his successor from the outset: “As soon as the new CEO has taken office, the reflection
on the next one starts. This also becomes a task for the newly elected CEO and is one of
the elements on which he or she will be evaluated.”
Where to look for the next CEO?
The most fundamental question facing a family business is how wide it is prepared to
cast the net in its search for the next CEO. During our conversations with chairmen and
CEOs we heard the full spectrum of responses to this question.
The nature of the CEO search will be dictated by whatever strategic decision the business
may have taken to combine or separate the ownership and management of the company.
Our research found that companies that have survived into the third generation or
beyond fall into one of four categories, listed opposite.
What qualities are required of the new CEO?
There was consensus among the chairmen we spoke to that the future CEO should have
vision, leadership skills, drive and dynamism, regardless of whether the CEO is a family
member, a company insider or an outsider. For a non-family member, a high degree of
cultural fit and sensitivity to family issues is essential: the CEO must subscribe to the
purpose, objectives and values set out in the family charter or made somehow explicit.
One chairman was more specific about the desired criteria: the future CEO should have
senior leadership experience in a mid-sized or large company, bring management skills
from a structured environment (best practices), have international experience, and understand
the dynamics of a family business.
Competence to lead the business into the future is a sine qua non, along with strategic
skills and a flexible mindset. The CEO successor needs to possess considerable intellectual
fire power, the ability to understand and anticipate market trends, and a strong chemistry
with other members of the management team. The CEO needs to be able to earn the
respect from the workforce, have an affinity with the board and, most importantly, with the
chairman — this relationship will be critical to the success of the entire enterprise.
APPROACHES TO CEO SUCCESSION
The CEO must be a family member
This approach values continuity and the closest possible ties between ownership and management. It
is born of a desire to “preserve the family business and character of the company”. It puts the onus on
the company to ensure that high-potential family members are identified early and given enough time
to develop their skills and experience (often through stretch assignments) to ensure that the successor
CEO is ready at the right time. This approach can create difficulties, for example not having a
suitable family member ready to take over when needed, or having to balance the interests and expectations
of different branches of the family. As one advisor put it: “You need to be purely
performance-based. The most talented person gets the job, regardless of which family he or she
The CEO cannot be a
In these companies, a deliberate decision has been taken to separate ownership from management.
Among other things, this gets around the highly divisive situation of the family member CEO who
fails. The new CEO could be a company insider, but could equally be brought in from outside the business.
Some companies have gone even further, barring family members from holding any senior
executive positions “in order to avoid conflicts inside the family branches and to be sure that the
company will attract the most qualified candidates.” (There is also a recognition that it can be
extremely difficult to fire a member of the management team who is also a family member.) In companies
that fall into this category, the charter will often state that the chairman of the board should be a
family member, providing reassurance to family shareholders that the agency model is operating in
their best long-term interests and that of the business. However, it is becoming more common for
neither the board chairman nor the CEO to be a family member.
The CEO must be
promoted from within
the business, whether
or not they are a family
This is the most common approach to CEO succession among the companies we studied. It prioritises
stability, continuity and a deep understanding of the business, its culture and heritage. It
assumes that enough talent exists within the business to provide the board with sufficient options
when the time comes to appoint the new CEO. As with the first category above, this approach makes
the early identification and development of potential successors essential, since the option of looking
outside the business is not available.
The CEO can be a
family member, a
company insider or
an external hire
In this scenario, the overriding consideration is the competence of the individual and their readiness
and suitability to lead the business. Every option is on the table and the candidate pool is potentially
unlimited. In almost every company we spoke to there is a clear preference for grooming an internal
candidate wherever possible. However, the board needs to have a process in place for benchmarking
internal talent against the external market and assessing the different strengths and weaknesses of
family, internal and external candidates. We came across companies in this category who had switched
from an outsider to an insider as their CEO and vice versa.
The role of the chairman and the nomination committee
In each of these scenarios, the chairman normally plays a crucial role orchestrating the
succession planning process. Some chairmen are more hands-on than others. One has
regular interactions with the CEO and head of HR to ensure that the most talented people
are kept motivated and challenged. “As chairman, I make myself known in the businesses,”
he says. “I visit international operations and speak regularly to managers at the N-1 and N-2
level, in order to identify the pipeline of most talented and suited people. I spend time with
many key people, getting to know them personally and also their families when possible.”
The chairman cannot possibly manage CEO succession alone and so much of the heavy
lifting will fall to the nomination committee (or its equivalent) to drive the process, albeit
under close guidance from the chairman. There are many factors to consider and as the
market changes so must the board’s thinking about what kind of CEO the business needs.
When planning CEO succession over the long term, it may not possible to create a
precise specification for the CEO role, given uncertainties over the future state of the
market. What matters is that the nomination committee constantly re-evaluates the skills
and attributes of the next CEO in terms of the changing market environment and the strategic
direction that the business is due to take over the next 5–10-years. This might mean
looking for someone with deep knowledge of an adjacent industry, for example, or someone
familiar with new, untapped geographies.
In addition to determining selection criteria, the nomination committee must get to know
high-potential executives throughout the organisation and ensure that they are given the
right opportunities to develop into CEO material.
The nomination committee must always consider the broader picture. It may happen that
both the chairman and the CEO are due to change at around the same time, in which
case careful thought needs to be given to how these two crucial leadership transitions
should be synchronised.
Succession planning does not always go to plan, of course. If the CEO departs unexpectedly,
the board has to be prepared to ensure management continuity. The board and the
CEO should together establish a strategy in advance and define the procedures which will
take effect if an emergency occurs. The chairman of the board and the nomination
committee should know the potential candidates who are willing to take on management
responsibility in an emergency or which board member may be able to step in.
The role of HR
In most businesses we surveyed, the human resources (HR) leader plays an important
role partnering with the board and managing learning and development programmes for
executives in the business, while keeping an eye on talent outside the business that may
be of value in the future.
A number of chairmen felt their businesses lacked a well-structured programme for
developing talent inside the organisation. “Today it is more of a ‘gut feeling’,” said one.
“Implementing more professional HR systems and policies will probably help in achieving
At a time of market uncertainty and growing complexity, family businesses can no longer
afford half measures when it comes to conducting succession planning and talent development,
which are flip sides of the same coin. The absence of an experienced and
high-performing HR function is increasingly seen as a handicap; several chairmen we
spoke to signalled a commitment to introduce more structured processes to support
talent management and CEO succession planning. HR leaders of family businesses
therefore should play a key role in advising the chairman, the CEO and the nomination
committee on the following items:
How to structure the succession plan
- How to define the candidate’s profile
- How to capture the cultural values expressed by the shareholders
- How to prepare the expectations of the
- How to prepare the board to discuss succession
- How to appraise the incumbent CEO
- How to help the board and the next generation
develop better capabilities
This is not an exhaustive list, but it gives a sense of the strategic agenda for top HR leaders
of family businesses. As the execution of all these activities necessarily requires the
intervention of external consultants, HR leaders should also be prepared to advise the
Preparing the next generation of leaders
Family businesses need to address the broader question of next generation succession
alongside the specific issue of who will be the next leader for the business. Identifying
potential leaders from within the business is just the start of the succession planning
process. The most crucial next step is for HR to assess each candidate’s strengths and
weaknesses and create a structured career path, providing tailored development
Rotating high-potential executives through a series of roles that will expose them to
different business units, functional areas and regions is commonplace, particularly for
family members with the aspiration and drive to progress.
Some chairmen take the view that only family members who have the potential to reach
the top of the organisation should be hired to work in the business. Managing expectations
is important for maintaining family cohesion and helps avoid difficult decisions
further down the line.
When family members with the requisite talent and potential are identified, they should
be given roles within portfolio companies and even at board level if they are ready. “The
idea way to prepare them for the CEO role is to slowly let them grow and mature in operational
roles and with increased responsibility,” says one chairman.
A number of companies put their high potentials through executive education
programmes offered by business schools. Some insist that younger family members
aspiring to senior executive positions gain experience and perspective outside the organisation,
preferably in a multinational and not necessarily in a family business.
Some companies have strict criteria for family members being considered for senior management
positions. They go to considerable lengths to ensure that they have to jump through all
the same hoops that would be expected of a non-family member. “In the family charter it was
decided that family members must have a university degree and have gained relevant experience
outside the family business for at least 10 years. In terms of salary, they can only earn
the market rate and no more than a non-family member would be paid in the same role.”
Whether the family branches are capable of providing the company with its next CEO or
chairman, it is extremely important to secure the next generation’s interest and attachment
to the business. As the family branches expand and spread across different
geographies, it is increasingly challenging for the family members to stay connected, to
know each other and to share a common value, purpose and business interest. Thus,
current family leaders, and the chairman more than anyone else, should make it a specific
task to promote opportunities to get together. Family happenings, family clubs and celebrations
are used by our interviewees to create, develop and syndicate the family’s values.
The CEO and the board
Almost all the chairmen that we surveyed consider that the CEO should be an active
member of the board (with the exception of those countries in which the prevailing
corporate governance model does not allow it). Not only is a seat on the board a key
incentive for aspiring CEOs, but a clear demonstration to the CEO that he or she belongs
and is expected to participate fully in decision making at the highest level. It also ensures
transparency and a unity between governance and operational execution.
As a board member, the CEO has direct and regular contact with other directors, and as a
result is more engaged, aligned and accountable. One chairman was adamant that the
CEO must be on the board because he or she will have “a much better sense of what is
strategically important, what is sensitive, what is top of mind for the other directors. The
head of the family council is also a board member so the CEO can hear first-hand what
keeps the family shareholders awake at night.”
Are we making the right decision?
The power of formal assessment
When it comes to choosing the next leader for
your organisation the stakes are extremely high.
A high-quality assessment of finalist candidates,
tailored to the specific family business context,
will provide insight and objectivity to the board as
well as reassurance when they come to make
their decision. Even where the preferred candidate
is a family member there is always more to
be learned about their capacity to step into the
Nomination committees need to work closely
with HR to track candidates closely and continually
evaluate their progress. Several chairmen we
interviewed stressed the importance of evaluating
family members with the same rigour as they
would any other contender for the CEO role. This
helps prevent a loss of motivation among nonfamily
executives ambitious to fulfil their
Retaining an external consultant to conduct an
assessment of potential CEO successors can be
extremely powerful, especially when using a
scientifically proven methodology that offers a
high level of objectivity. At the same time, special
attention to the emotional aspects embodied in
family business is fundamental; performing CEOsuccession
activities such as a board review and
individual assessments without keeping in mind
that many stakeholders are “there to stay”, would
be a big mistake.
Most traditional assessment approaches weren’t
designed to predict whether an individual has the
ability to stretch beyond his or her current capabilities
to grow successfully into a new job and
change along with it and the organisation.
So how can family businesses improve their ability
to make the most critical senior leadership
An assessment should provide insight into an
individual’s capacity to develop new capabilities
and respond to changing leadership demands
and evolving business conditions and priorities.
For example, the potential successor needs to be
someone capable of scanning the external environment
to see what could affect the business,
and driving results over the long-term through
people — i.e. the senior team and the broader
An effective assessment employs a range of
methodologies to evaluate an executive from
multiple angles and perspectives, going deep to
illuminate aspects of the person such as their
motivation, values and personality in addition to
capabilities and knowledge.
Combining executive-tailored, experience- based
interviews, interpersonal style questionnaires, livecase-based
demonstrations, 360-degree referencing and/or surveys improves the overall
accuracy of an assessment and provides the
inputs for rich, comprehensive and powerful
insight into the person.
Not all boards of family businesses have independent directors yet, but we think this situation
will soon change. There is now an almost universal recognition that independent
directors are an essential feature of a high-functioning board and more than enough that
highly reputable, proven business leaders are willing to join the boards of family companies and that their contributions are highly valued. Importantly, CEOs welcome the presence of independent directors at the boardroom table, finding their contributions both
challenging and stimulating. More than one non-family CEO expressed the desire to have a
highly qualified board with at least one senior director bringing a proven track record as CEO.
Family businesses are in the unique position to build a well-balanced and highly competent
board, with an optimal mix of long-term committed shareholders’ representatives
(the family), the representative of the management team (the CEO and, more rarely, the
CFO or another senior executive) and top-class independent directors who bring complementary
Interaction between the family and management
Most businesses we surveyed, and all of the larger, more established ones, maintain an
arms-length relationship between the CEO and the family. “This needs to be organized in
a strict and controlled way,” says one chairman. Shareholders cannot interfere directly in
the operational aspects of the business or in the CEO succession planning process.
Tips for effective CEO succession
- Incorporate the principles and procedures for CEO succession into the family charter.
- Start the succession process early, preferably as soon as a new CEO is appointed.
- Make CEO succession planning a constant focus of attention for the board.
- The chairman should lead the process, supported by a fully engaged nomination committee.
- Consider the broader picture: how will the chairman and CEO changes be synchronised? Any
long-term plan should take into account succession for both roles.
- Independent directors are essential to carry out an objective, impartial, merit-based CEO succession
- The company’s strategy should provide the basis for creating the CEO specification and identifying
- Establish early on whether an external appointment is an option.
- Even if the preference is to appoint a company insider, conduct external benchmarking.
- Be as disciplined as you can in planning ahead. Have clear rules of engagement for identifying,
assessing and developing the next generation.
- Potential successors should be given stretch assignments, rotated around the business, and
encouraged to take advantage of executive education opportunities.
- Consider appointing the preferred internal candidate to the board, thereby providing further
training and additional exposure to company matters.
Some companies specify that the CEO should never be a member of the family council
(or shareholder committee, as it is sometimes called). Others put formal restrictions on
individual family members contacting the CEO and vice versa. Instead, any contact
between the board and the family is channelled primarily through the chairman.
There are typically two occasions a year when management and the family meet. One of
these is always the equivalent of an annual general meeting at which the results are
disclosed. The CEO, often accompanied by the senior management team, provides family
members with a detailed update on the state of the business, setting out the key strategic,
financial and operational issues.
In addition to these twice yearly meetings designed to keep family members informed
about the business, some companies have formed ‘clubs’ for the younger generation so
that they can gain a sense of belonging to the broader family and its enterprise.
This has two particular benefits: first, to inculcate the aims and ethos of the business in
all family members (regardless of whether they will participate in the running of the business);
second, to provide inspiration for young people with an affinity for the business
and give them opportunities to show their potential.
Few tasks are more critical to a family enterprise
than securing its leadership succession. Yet many
family businesses are giving the matter far too
little attention and do not have a coherent plan.
The chairman plays a pivotal role in making sure
that the optimal process is followed, obtaining
consensus among family members along the
way and ensuring that progress is communicated
in a timely manner, usually through family
Conducting a successful CEO succession
programme takes time and includes a complex
list of activities. The board must be prepared to
make the necessary commitment to secure the
best possible outcome. This often means ensuring
the right governance model is in place and
enshrining a more formal approach to CEO
succession in the family charter. Aligning the
family shareholders with the board is a golden
rule for successful CEO succession.
Even if all these things are in place, there is still
no guarantee of success in appointing the right
person. However, much of the risk can be mitigated
by approaching the CEO succession
holistically and by employing the most sophisticated
assessment tools. Such tools provide a
thorough analysis of the functioning of the
board, helping define the company’s culture and
the shareholders’ values, while indicating how
the capabilities of board members might be
developed (especially the less experienced next
generation family representatives). At the same
time, they identify CEO succession candidates’
strengths and weaknesses, as well as their
potential to grow and succeed in the job.
CEO succession is far too important to be left