The most important strategies for effective succession planning

Family office executives must be prepared to navigate the double matrix of succession planning within the family office and within the family. And these two entitles may approach similar issues differently—not surprisingly, they may have differing objectives, priorities, “rules of engagement” and human dynamics.

While the family office works to ensure continuity and the effective management of the family’s financial and business interests—identifying and preparing leaders to manage investments, operations and governance—the family’s primary focus is quite different. Those goals include preserving harmony, living out shared values and cementing a legacy as well as readying family members to assume leadership roles and steward shared family assets.

Their common succession challenges differ, too. Family offices’ may encounter lean staffing and the lack of a talent pipeline. For families’, on the other hand, involves a typical complication is the generations’ competing priorities, especially at a time of increasing longevity of elders … who may not be ready to let go.

We think these six considerations—legal, structural and emotional—hold the keys to success. Let them be your guide through this essential, and sometimes fraught, passage.

All succession planning begins with a solid financial and legal framework. To review the frameworks in place, examine these aspects of the family and the family enterprise:

• Estate plan: Ideally, individual family members will have a well-drafted estate plan in place. Identify the fiduciary and advisory roles in their estate planning documents. Are the right people in the right roles? Is there a mechanism for naming successors? What core competencies must future fiduciaries develop—including to manage special assets? Are the documents up-to-date?
• Title and valuation: Review the family balance sheet to determine if assets are properly titled. Are valuations current?
• Agreements: For families with shared assets—businesses, a family office, investment partnerships, shared real estate or others—review all operating and shareholder/buy-sell agreements. Are there any restrictions on transfer, valuation provisions and/or requirements to change the current structure?
• The human element: Not least, yet often overlooked: Can the family live in the plan being that is created? Consider the plan’s human implications. Pay particular attention to wills, trusts and shareholder agreements.

For multigenerational families, succession is not a transaction or one-off but a constant state. Succession planning may happen in cycles, yet also be prepared for it to be unpredictable. Succession may be a complex, multigenerational event that skips a generation or generations may be intermixed.

It’s never too early or too late. Family offices must mull over successors for senior roles and build in enough time for new leadership to cultivate trusted relationships with the family. Even if transitions lie years in the future, they may require taking steps now to give the successors a sufficient runway.

For the family and the family office, think in three time frames:

• Short term: Prepare for unexpected changes in family leadership, as well as possible staff departures
• Medium term: For the family office, review core services and evaluate service providers’ performance. Are you using technology (such as AI-enabled tools) and if so, are prudent policies in place? (Assess the need for tech training.)
  
  For the family, identify future leaders and educate them on various roles they might play within the larger family enterprise (family office leader, investment committee member, foundation manager, involved shareholder?).
  
• Long-term: For the family office, prepare for key executives’ retirement. It may be important to reimagine the family office’s core services: Will dedicated teams (even separate offices) evolve for different family branches?
  
  For the family, work to cultivate a shared family identity, particularly among younger family members and those who are geographically dispersed.
  
  Actionable tip: We recommend bringing in support to establish a code of conduct and a collective decision-making system to empower families through what may be sensitive changes.

The skills that future leaders will need may be very different from the founders’. Beyond technical skills, emotional intelligence is an essential. Bear in mind these future-facing skills and approaches:

• Family office: Collaboration. Accountability. The ability to listen and build consensus to manage family dynamics. Knowing the pain points and areas of poor communication. We recommend developing a matrix of desired competencies like these for family executives and directors.
  
  Actionable tip: Seek leadership coaching for independent, honest feedback.
• Family: As the family expands, members will need to develop skills to work across the family tree. Second and third generations may need different decision-making approaches than the first generation used (a sibling partnership may transition into a cousins’ consortium; an owner-operator into a board member).
  
  Actionable tip: Identify, create (or just raise the possibility of) new roles for family members beyond executive: board, family council, committee or task force member or, for leaders stepping away, emeritus positions.

Building a portfolio of future leaders involves developing family members’ (and potentially outsiders’) capacity to serve.

• Family: Consider gaps in experience; could future leaders benefit from education on finance, investment, philanthropy and/or the use of money and shared resources?
  
  Actionable tip: Potentially develop a family education plan covering the family enterprise, board responsibilities and core financial concepts.¹
• Family office: Consider identifying future leaders within and possibly also beyond the family. Which family members have the capability and interest? Beyond the family, look at existing family office staff and external advisors. Will you need recruiting assistance?
• Both: We recommend creating a development plan for future leaders’ development—with a real budget, resources and time, after assessing the desired competencies. Consider naming a Chief Learning Officer (internal or outsourced) to help.
  
  Actionable tip: Seek out learning opportunities for future leaders, which might be sourced from a university or third party, a coach and/or through hands-on experience.

Having a clear vision and concrete plans—while being transparent about what will happen and when—are critical before the anticipated turnover of responsibility. Those values and practices will help to manage all stakeholders’ expectations (including family members not rising to leadership, non-family executives and others).

Actionable tip: Set out timeline for gradual transition, setting milestones with dates. And it’s never too early to begin a mentorship period (“training wheels”).

Carefully approach these difficult conversations about leadership transitions and readiness. This often means tapping an advisor or consultant for support, especially about delicate topics—even simply voicing the notion of the current leadership’s eventual transition.

Other sensitive issues? The rising generation’s readiness and/or competence. Less senior family office staff’s readiness for promotion. And, of course, the need for elders to move on—not only triggered by age or infirmity but, perhaps, by the need for greater, more active engagement.