Most family business leaders plan to keep their business in the family, but relatively few are taking the necessary steps to transition the business.

The vast majority of family business leaders surveyed are extremely confident their business will continue to be owned by their family. That confidence has not always transferred over to the succession planning process, however. While 88 percent of those surveyed said they strongly agree the business will be controlled by the family in five years, a quarter of those surveyed said they had spent almost no time on succession planning. Only 26 percent of those surveyed said they spent a lot of time on succession planning issues. The survey also indicated that only about half of the senior generation of business owners has written an estate plan.

“Lack of succession planning is all too common. Either entrepreneurs can’t let go of their ‘babies,’ parent-owners don’t like to give up control since the next generation is never quite ready, or owners don’t take the time to develop an asset diversification plan. Truthfully, it is often unpleasant and hard, so they avoid doing it.” – Tom Markl, CEO, Nelson Real Estate Mgmt LLC

Succession planning is likely being delayed because families have much of their personal wealth tied up in the family business. Those surveyed said an average of half their personal net worth is in their business. Without a separate pool of capital the senior generation can rely on for retirement, they may be hesitant to fully let go of the business even if they are ready to relinquish day-to-day management responsibilities.

Another potential reason succession planning is being delayed is that senior generation family members are enjoying longer, healthier lives than previous generations, pushing thoughts of retirement further back. The current CEOs of family businesses in this survey believe they will continue to lead the firm for an average of nine more years. This means time is still in their favor in terms of developing an effective succession plan.

"Retiring leaders that seek out new careers and avocations can eliminate the common but unfortunate signal that transferring control means there’s really nothing meaningful left for them." – Bruce Pym, Family Business Consultant

While many family business leaders have done very little to plan their own exit strategy, they are frequently targeting a family member to take over the business when they do retire. Fifty-six percent of those surveyed said they strongly believe the next CEO of their business would be someone in their family.

While the majority of business leaders said they believe the next CEO will come from the family, they also indicated that providing employment for the family is not as high of a priority for the family business as other factors such as profitability. They want their family to stay involved in the business, but don’t necessarily view their company as an employment ground for family members who may not possess the skills or experience needed. This suggests that these businesses are planning on maintaining family control in the future, but they also want to make sure the next generation of business leaders has the necessary skills to maintain the company’s success.

Laird Norton Tyee Family Business Survey 2008
© 2008 Laird Norton Tyee