Understanding succession and the choice of successor

Understanding succession - Family business

It can be agreed upon that human capital is one of the most important aspects of a business. As a family business grows, it becomes increasingly important to have the right kind of personnel in key job positions.


Partner, Global Head of Family Business

KPMG in France


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Succession in family business

Family businesses lose direction when focusing solely on financial capital, and may find themselves ignoring another key resource: human capital. All forward thinking businesses should have some form of a succession plan in place; the benefit being that it improves employees’ morale and encourages commitment to the company.

In order to make the succession process a smooth transition, family members involved in the daily activities of the business should be included in the process as much as possible. All parties should be mentally prepared for the succession, and what is expected of them must be stipulated to avoid potentially harmful situations once the new leadership is in control.

Succession strategy

In his article, Succession Strategy: Managing the All-Important Family Component, Grant Walsh looks at what is going wrong with family businesses and the succession process. stating that “communication is key”. Walsh advises that communication channels need to be open throughout the company in order to manage family in the succession process.

In the event of a successor being chosen from outside the firm, it is vital that one takes enough time to acquaint the individual to the family, as well as the rest of the business’ employees.

Values, expectations and involvement

A successor must understand the core values of the business, the family’s expectations and the degree to which the family members are involved in the running of the business. The establishment of governance structures such as family councils or family meetings can aid in providing guidance to new employees, while ensuring that key family values are maintained in the event of an external successor entering the business.

This idea seeks to remove the common myth that once leadership is given to an outsider; it’s as good as giving away the business.

While ideally a family business would strive for succession to take place within the family unit, it’s often the case that the children of the business owner may not be suitably qualified to run a company. It’s important for younger family members to understand that they are not entitled to an automatic succession, and that it’s a role which will fall into the hands of the person who will have the business’ best interests at heart.

Transitioning the family and the successor

Prior to leaving the company, it’s important that the business owner talks the family through this and explains their reasoning for the choice in successor. This should be done to avoid dispute in the event of the owner leaving the business unexpectedly (through death, forced retirement, etc).

As a family business owner, it’s important that one ensures that their successor receives the correct training. Succession should be a process and not a single event; hence career development of the targeted individual must be carefully and slowly implemented.

The ramifications of having an unsuitable and/or less qualified family member running the business are huge for other employees and family members. Confidence in the company may be lost, ultimately resulting in negative consequences for the business.

Understanding succession and the successor

Succession does not always fall in the hands of an individual. Should the control of the business be shared, between an outsider and family member, it’s important to draw up a clear set of guidelines around who will be responsible for what sectors of the family business and to what extent the power will be shared.

One potential flaw in this system may arise in cases where the outsider is more qualified than the family member but has less control and vice versa.

In many cases, not everyone within the family or business will be satisfied with the current owner’s choice of a successor. The drafting of a succession plan and the establishment of a family council will aid in smoothing the process.

Ultimately, it’s up to the family business owner to be honest with all parties involved and to ensure that there is a shared understanding on the choice of successor.

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