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D21 Partners, LLC. 

50 Fountain Plaza, Suite 1700

Buffalo, NY 14202

(716) 853-5100

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Critical Plans and Succession Planning

By Scott E. Friedman, Andrea H. Vossler, and Eliza P. Friedman 

An additional Stage Three Planning strategy that is consistently helpful for family businesses and organizations in general: succession planning.

Succession planning is a formal process for selecting and developing new leaders to replace current leaders upon their retirement, disability, or death in order to help insure a smooth transition of leadership. [1] Without planning, family businesses can be put at great risk because of survivors competing to fill the resulting vacuum in leadership without sufficient support and/or capable successors. For that reason, perhaps no subject has received more attention in family business literature than succession planning. Notwithstanding all of this attention, succession planning remains imperfect and most families follow an informal process and rely on a senior family member’s judgment and intuition.[2]

Succession planning in a family business can be very difficult because of the variety of issues, concerns and complexities that are implicated. Unlike traditional (Stage 1) estate planning that focuses on considering to whom ownership should be transferred to, effective succession planning involves addressing such issues as:

  • What should the family do if no one in the family is interested in leading the business? 

  • What happens if there is more than one family member who would like to lead the business?

  • What should the family do if no one in the family is capable of leading the business?What, if anything, can be done if the current leader is unwilling to relinquish authority in spite of deteriorating health and age?

  • If continued ownership of business by the family doesn’t make sense, who should the business be sold to?

  • Who should be included in the planning process?

Creating an effective succession plan generally requires involving an appropriately wide team of participants to enhance the prospect that the results from the planning efforts are widely accepted. Without such acceptance, affected parties are more likely to reject the plan and its implementation, which is likely to lead to family feuding. Because working through issues such as those identified above can be complex and time consuming, succession planning is generally considered a “process,” not an “event,” [3] that ideally takes place over years and includes ongoing education, training, and development. As management consultant Peter Druckers notes, “[t]he final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.”[4]

While there is no single “right way” to plan for succession, there are a number of helpful guidelines to consider, including:

  1. Establishing relevant and appropriate selection criteria in advance

  2. Communicating the criteria to the entire family well in advance of selecting a successor to help ensure process fairness

  3. Assessing the competence of potential successors against that criteria, and

  4. Using independent advisors to provide objectivity (as well as the appearance of objectivity). [5]

Perhaps as important as anything, families are generally well served by selecting a successor who not only has an appropriate level of education and relevant experience but the emotional intellect to handle the authority that is to be conferred with a sense of responsibility and graciousness that helps prevent the individual from succumbing to, and being corrupted by, power.

Does your business need help we succession planning? D21 Partners specialize in developing and implementing succession and continuity plans. Get in touch with us to learn more about our processes and if working with us is the right fit for you.


[1] Unlike estate planning, the principle concern of which is the allocation and distribution of wealth, succession planning is principally concerned with the transition of control. Succession planning must, therefore, not only integrate business, financial, tax, wealth (and liquidity) considerations, but family dynamics as well, in order to achieve an overall plan that is workable both for current operational needs, as well as for the long range planning goals of a family and its business. See generally, e.g., Craig E. Aranoff et al., Family Business Succession: The Final Test of Greatness 1 (2010); Edward F. Koren, Non-Tax Considerations in Family Business Succession Planning (2011), http://www.americanbar.org/content/dam/aba/events/taxation/taxiq-fall11-koren-non-tax-paper.authcheckdam.pdf.

[2] In spite of its importance, research suggests that only approximately sixteen percent of family firms have a discussed and documented succession plan in place. Key Findings, PwC, http://www.pwc.com/gx/en/services/family-business/family-business-survey/key-findings.html (last visited Mar. 31, 2017).

[3] See Wendy C. Handler, Succession in Family Business: A Review of the Research, Fam. Bus. Rev., Summer 1994, at 133, 134 (“Succession is not simply a single step of handing the baton; it is a multistaged process that exists over time, beginning before heirs even enter the business.”); see also Aranoff et al., supra note 64, at 3 (“[A] great succession is one hardly anybody notices. It is a non-event, an evolutionary process arising from careful planning and artful management of expectations over a period of years. By the time the baton is finally passed, the word around the business should be, ‘Oh, that’s what everybody expected.’”).

[4] Aranoff et al., supra note 64, at 3. Much work remains to be done to better understand how to motivate families with business interests to engage in succession planning. Some families are fortunate to have founder/successor CEOs that drive the succession process; other families may move forward as a result of being “pushed” by a potential successor; other families simply wait until a founder/CEO is unable to serve due to disability or death and, so, are forced to address this subject in “crisis” mode. See, e.g., Alexandra Burns, Succession Planning in Family-owned Businesses 10–12 (May 2014) (unpublished M.A. thesis, University of Southern Maine).

[5] Research suggests that “firms that are family-owned but not managed by family members [e.g., Wal-Mart] are typically well managed.” The London Sch. Econ. & Political Sci., Inherited Family Firms and Management Practices: The Case for Modernizing the UK’s Inheritance Tax 1, http://cep.lse.ac.uk/briefings/pa_inherited_family_firms.pdf (last visited Mar. 31, 2017). By contrast, families that also manage their business tend to experience more challenges as a result of (1) selecting a CEO from among the small pool of family members that has the effect of restricting access to the right talent and (2) letting family members know too early that they will get to run the business can lead them to work sub-optimally at school, safe in the knowledge of a guaranteed family job. Id. at 2. As a result, families might be well served by not only communicating relevant qualifications (e.g. a good education, good experience, the right temperament, etc.) but by advising family members that they aren’t “guaranteed” a leadership role. See Alex Stewart & Michael A. Hitt, Why Can’t a Family Business Be More Like a Nonfamily Business? Modes of Professionalization in Family Firms, 25 Fam. Bus. Rev. 58, 59 (2012) (finding that family-owned businesses should professionalize and function more like non-family businesses to succeed).