Whether a business handover succeeds is often decided long before the contracts are signed. Asking three fundamental questions early in the process can greatly improve the odds of a successful transition.
Why is it so difficult to let go? In "The Hero's Farewell", Jeffrey Sonnenfeld, a leadership scholar at the Yale School of Management, examined that deceptively simple question. To answer it, he interviewed 50 former CEOs and surveyed another 300 senior executives, and found that many had come to identify so closely with their position, status and life's work that stepping down threatened their very sense of self.
Sonnenfeld identified four distinct leadership exit styles:
Sonnenfeld found that only ambassadors and governors typically leave without drama. The rest struggle to leave at all - because letting go may be the greatest test of leadership.
Succession is difficult in any organisation. But in a family business, it often becomes deeply personal. The business can be seen as an embodiment of the family's rise, its identity, its financial security and its legacy. Leadership, ownership and family authority frequently sit with one person, so questioning a business decision can feel like questioning the founder, the parent or even the family's shared history.
That is why succession planning should begin long before the contracts are drawn up, namely with three questions:
This is the first of three articles in our "Ready for succession" series tracing the path from holding on to letting go. Part one explores three questions that families should answer before a handover. Part two examines four common mistakes. Part three sets out ten steps that successors and outgoing leaders can take to prepare for the transition.
Elke Willi is well acquainted with the cautious, circling conversations that are characteristic of the start of a handover. As Head of Wealth Planning at LGT in Austria, she helps families plan the transfer of businesses, assets and responsibilities. "Most handover processes fail because of a lack of communication, not because of poorly drafted articles of association," she says. Her first task is therefore to understand the family: who is involved, who wants a role, who has the necessary capabilities and how responsibilities might be divided.
But understanding the family is only part of the picture; the business has to be ready too - and a healthy balance sheet alone doesn't make it so. The real test is whether the company can continue to run without the founder - or any single senior figure. If one person still holds most of the knowledge, the customer relationships and the decision-making authority, the business isn't ready.
Of everything that tends to sit with that one person, knowledge is the hardest thing to pass on - above all the kind that can't be written down. The Hungarian-British chemist and philosopher Michael Polanyi wrote in 1966 that "We can know more than we can tell." He called this tacit knowledge: knowledge that is embedded in experience, judgement and practical know-how, and something that no manual or memo can capture. Nearly three decades later, Ikujiro Nonaka and Hirotaka Takeuchi built on this idea in their book "The Knowledge-Creating Company", showing how organisations can create, share and pass on tacit knowledge.
One of their best-known examples comes from former electronics company Matsushita, now known as Panasonic. When engineers couldn't get a bread-making machine to knead dough properly, software developer Ikuko Tanaka apprenticed with the head baker at the Osaka International Hotel. By watching him and copying his techniques, she realised that he stretched and twisted the dough at the same time. The engineers were then able to build that motion into the machine.
The lesson: tacit knowledge is passed on through observation, imitation and repeated practice. Succession works the same way, which is why it takes time.
A successor doesn't grow into the role on the day ownership or management formally changes hands. They need time to meet customers, lead projects, make decisions - and, every now and then, make mistakes. Responsibility shouldn't be transferred all at once; it should be handed over gradually.
Sometimes it turns out that no one in the family can or wants to take over. "People often forget that an external solution can also be an option," says Willi. This allows the family to maintain ownership while bringing in professional management. Members of the next generation can work in the business, remain shareholders or sit on an advisory or supervisory board without having to run the company. Not every child needs to become CEO - and a well-considered plan B is still a plan.
For many owners, a business is far more than a financial asset. It stands for financial security, status, a retirement nest egg - proof that they built something of lasting value. This is a habit of mind that people often apply to money. Behavioural economist Richard H. Thaler called it "mental accounting": people tend to split money into separate mental pots - money for holidays, money for the rainy-day fund and money for their children's inheritance - and treat each by its own rules, even though a euro is a euro regardless of how you label it.
Business owners take much the same approach to their company. They attribute all sorts of meaning to it: it is their source of income and status, their daily routine and their legacy. Handing it over means giving up all of that - far more than just a line item on a balance sheet.
Which is why succession planning must include the owner too. Elke Willi recalls one business owner who had carefully prepared every aspect of the transition before realising: "I haven't thought about myself." But because the family was close, they were ultimately able to find a solution.
This story is a reminder to take stock before a handover - to be clear about which assets belong to the business and which to the family, how much wealth is tied up in the company, and how much is freely available, how children who don't join the business are treated, and how the person stepping down can stay financially independent without becoming a long-term burden.
Family businesses sit at the intersection of three worlds: the family, the business and ownership. One person can simultaneously be a parent, a CEO and a shareholder. Yet each role comes with different rules; family relationships are unconditional, business roles should be based on competence and performance, and ownership brings voting rights, financial risk and the right to dividends.
This tension isn't new. In the late 1970s, Harvard Business School researchers Renato Tagiuri and John Davis mapped it using three overlapping circles representing family, ownership and the business. That overlap can be a source of strength: trust, shared history and swift decision-making. But it can also blur roles, turn business disagreements into personal conflicts and carry old family tensions into the workplace.
In practice, this means that different rules apply around the dinner table than in the boardroom. A position in the business should depend on ability and performance, not family ties. And inheritance shouldn't hinge on who spent the most weekends at work. Fairness doesn't always mean treating everyone the same.
An inheritance passes on more than assets. It comes with expectations, responsibilities and opportunities. In a letter published in November 2024, Warren Buffett wrote that "Hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing," echoing a principle he and his first wife had long shared.
Not every child has to receive the same inheritance or take on the same role. But differences should be explained early, before feelings get hurt and resentment settles in. Elke Willi advises getting everyone together in the same room and talking openly. Honest conversations can help clarify who inherits what, who takes on which responsibilities and which issues still need to be resolved.
A family constitution can be a good way to settle sensitive issues before they turn into disputes. Who is allowed to work in the business? Which qualifications are required? How are family members paid? How are shares transferred? What role do spouses play? And who has the final say when the family can't agree?
But while formal structures can define rights, responsibilities and decision-making processes, a document alone doesn't hold a family together. What does is the habit of talking to one another - especially when the conversations are difficult.
Ultimately, succession demands something that no constitution or contract can enforce: the person who has led a company must be willing to let go. Only then does it become clear whether the business can thrive without them.
