A Deloitte survey of 300 family business executives finds that 78% expect a CEO transition within the next decade, and 42% foresee this shift within just three to five years.
Yet the survey highlights a “succession paradox.” While 85% of respondents agree that strategic CEO succession planning is critical to long-term success, only 57% have established a plan and 23% are actively implementing one. As 30% of respondents admit their succession planning is “behind schedule.” The findings point to challenges as well as opportunities for wealth managers, to play a crucial role in guiding families through an important process many continue to hunt for excuses to avoid, the survey reveals.
The nuances between shareholder-CEOs (often family members) and outside professional managers can have significant implications, including potential tax or liquidity considerations for shareholder-CEOs. While such businesses hope and expect never to have to deal with an emergency succession, being prepared for it can mitigate operational risks. For businesses where ownership and leadership overlap, including family businesses, a plan can also help ensure there are resources in place to address succession-related financial considerations, such as liquidity for potential tax obligations.
Key findings include:
- Competing pressures put a pause on planning: Among those surveyed who say their succession planning efforts are behind, 62% attribute their inaction toward succession “not being a critical business priority at the moment,” despite the risk of operational and financial disruption if a transition is needed unexpectedly.
- Family members are no longer the default option for CEO: While 61% of surveyed family businesses report at least one family member interested in the CEO role, 23% believe those individuals are ready to assume the position in the near term. Succession preferences also vary by company size: Only 32% of companies with over $1 billion in revenue expect a family member to become CEO, whereas companies under $500 million are evenly split, with 47% favoring a family member and 46% preferring a professional manager. Once a family business selects professional management, 75% plan for future CEOs to continue being non-family executives.
- Boards and councils are valuable assets in succession planning: Independent oversight and outside perspective are important for family enterprises where business and family dynamics often intertwine. The survey reports that 76% of companies with $100 million to $500 million in revenue have boards of directors, rising to 96% among those over $500 million. Larger private companies are also more likely to have a family council (46% compared to 29% for smaller organizations). When these governance bodies are in place, CEO succession can become a more regular topic, with half of boards and half of family councils including it on the agenda at least once a year.
“A smooth and successful leadership transition is a complex, involved process — one that should be anchored in alignment and trust among family owners, employees, leadership teams and external stakeholders,” said Laura Pearson, Deloitte Private U.S. Family Enterprise leader. “Preserving a culture driven by mission and values may be the difference between continuity and chaos and the key to creating lasting value for generations to come.”
The survey of 300 executives from family businesses with knowledge of CEO succession planning was conducted online by an independent research firm. Respondents included C-level executives, board members and partners/owners of family-owned companies across the United States, each with annual revenues ranging from $100 million to more than $1 billion.
