L. Duksaitė. Family business continuity: preparing a successor or hiring a CEO?

How to ensure business continuity – prepare a successor or hire a CEO? Or just sell the business?

There are many options, and not every company has a ready answer to this question. Every year, more and more companies think about their business continuity plans. However, many still leave this issue to fate.

I shared my insights on this topic at the annual TRINITI JUREX Business Litigation Conference for business strategists.

What I notice when I talk to shareholders is that they want their children to get involved in the family business as early as possible, and to prepare when they are children. Business owners pay close attention to their children’s education, often sending them to the best universities abroad and expecting them to return to the company as soon as possible after they finish.

Less common is the pattern where offspring are encouraged to work in other companies before returning to the family business.

What makes successor CEOs special?

• As heirs to their parents’ business, such family members do not have to pass any selection barrier. In other words, they get an instant ticket to the grand-final, without any qualification checks.

• Nor do they have to start from the lowest rungs of their career. Otherwise, fresh out of university and with no work experience, a professional could only dream of becoming a CEO or even the head of a department (finance, marketing, commerce) one day. In the case of a family business, they get a stepping stone to the top.

• Parents give their heirs a great deal of credit.

• They are also very forgiving of their offspring’s mistakes. Naturally, as they often have no other work experience, they learn from their mistakes in the role of successor, and have a coach in the form of a father or mother who founded a successful business.

When a family business has no heir – no daughter or son able or willing to take over the business – you have to hire an external manager (and it doesn’t have to be the offspring who are the heirs – sometimes the business is passed on to a son-in-law or daughter-in-law too).

What happens then?

In family businesses, the shareholder is usually a strong personality. With a rich circle of business contacts. Able to deal with investment, financial planning and sales issues. With a wealth of life experience, who knows what works, who has lived through one crisis after another. Strategist. An orchestra man. Accordingly, rarely with strong heads of departments with expertise in that area (finance, marketing, sales, communications network).

All of this makes it a huge challenge for the person who comes in after the owner to take over without the support of the team. It takes time to build a team. This makes it easier not for the first manager hired, but for the second or third manager.

And what would you choose – handing over to your children or hiring from outside?