Succeeding with succession planning in family businesses

The ten key principles

©BCG

For many family businesses, succession planning is often considered a critical issue. While they recognize the importance of selecting and preparing a successor, family business leaders often fail to give succession planning the attention it deserves.

In a recent Boston Consulting Group survey, family business leaders ranked succession as the second most important topic, second only to the related issue of aligning family members on critical issues. Despite this, our study found that over 40% of family businesses have not adequately prepared for succession over the past decade.

The consequences of neglecting succession, despite its obvious importance, can be profound; poor leadership and the resulting discord can significantly impair business performance. Indeed, poorly planned successions are among the most value-destroying events for family businesses. The BCG study highlights the extent to which poorly planned successions can negatively impact revenue, market capitalization, and margins. While our study focused on family businesses in India, its findings are a cautionary tale for companies everywhere. We found a 14 percentage point gap in revenue growth over two years when comparing family businesses that planned transitions with those that did not. (See figure.)

We also found a 28 percentage point gap in market capitalization growth between businesses that planned transitions and those that did not. Moreover, unplanned transitions generated EBITDA margins that were more than 4 percentage points lower after two years than those of businesses that successfully planned their succession; these margins remained below the peer group trend for more than four years after these unplanned transitions. Clearly, a huge amount of value is destroyed by these unplanned transitions, with potentially catastrophic consequences for the business.

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BCG Succeeding with Succession Mar 2015.pdf

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