Succession Planning: Types of Leadership

15 Jan Succession Planning: Types of Leadership

According to recent data, more than 7 out of 10 family businesses have no succession plan at all.[1]

That may sound surprising, but it’s a common story. A family business may hope that one day a child will take over the business, but that hope may be more of a dream for some period of time. The child may have to grow up or have different kinds of outside experiences first. The child may have to decide that he or she wants to take over the business. There may be sibling rivalry or a complete rejection of the business by the second generation.

If you’re considering retiring soon and haven’t created a succession plan yet, it’s best to consider a wide range of options to ensure the continuity of the business and what’s best for your family.

Businesses can be run in a variety of ways, but the four main models of family business ownership are:

1. Controlling owner

This is the model many fall back on. It’s easier to understand because of its simplicity. When there’s a single controlling owner, one person is in charge of everything related to the business. This person has the final say in any business decisions and can take the business in any direction he or she desires.

On the family side, entrusting the entire business to one child may require you to consider transferring non-business assets to any others who expect an inheritance. There are a variety of ways to ensure every child feels as though they were considered and cared for.

2. First among equals

In the “first among equals” model, several family members share ownership and each has a voice, but one family member has a higher status than the others. This family member might have a more impressive job title, more shares of the business or enhanced control rights, such as the right to veto certain decisions.

The family member with higher status does not have complete ownership. This person still has to take the other owners into account, but is also expected to take the lead. The benefits and limits of such an arrangement must be spelled out carefully in the documentation to avoid unnecessary conflict.

3. Team leadership

When you have several family members who are each invested and qualified, it may be a good idea to consider team leadership. This works best when the team members trust one another and respect each other’s boundaries. In addition, there must be a shared purpose and vision for the business, and a circumstance in which there is collective responsibility for the success of the business.

It also helps if the team members have complementary skills that the business can benefit from. When everyone is working together for the benefit of the business and the family, a team approach can work well.

4. Silos

If that kind of team approach is impossible for some reason, the family business could be divided into separate segments or silos. Each silo could be a division of the same business (i.e., sales, finance, manufacturing) or separate businesses that fall under the “family business” umbrella. When a business is managed this way, each silo can be run independently, headed by a family member who has autonomy. Family members don’t interfere in their relatives’ silo. When family members have difficulty working together, the silo approach is an effective way to maintain the family business as a single entity.

Many business owners automatically fall back on the model they are currently using, but there’s no reason to get stuck on that. If there’s no clear successor, it’s time to consider another option – for the health of the business and of the family.

To learn more about succession planning for your family business, contact us.

[1]     PRNewswire, “70% of Global Family Businesses Do Not Have A Formal Succession Plan,” November 5, 2019.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.