The most important strategies for effective succession planning

Family office executives sit in a unique position vis-à-vis the family and the family office. Accordingly, they must be prepared to navigate the double matrix of succession planning within the family and the family office. And these two entities 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. Families may face the different generations’ competing priorities, long-standing family dynamics, increasing longevity and resistance to change.

Elisa and Mary identified several considerations—legal, structural and emotional— that, when properly navigated, can lead to success. Let them be your guide through this essential, and sometimes fraught, passage.

All succession planning begins with solid financial and legal frameworks. 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 the 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 the ability to manage special assets? Are all 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 that is created? Consider the plan’s human implications on the lived experiences of the family members themselves. Pay particular attention to wills, trusts and shareholder agreements and review provisions related to control, inter-dependencies, distributions, transfers and valuations.

For multigenerational families, succession is not a transaction or one-off, but a constant state. While succession planning may happen in cycles, it is always in some phase that warrants focus of the family office, even if it is to develop bench strength for tomorrow’s leadership. Succession planning is not a straight line – for many families it is a complex, multigenerational event that skips a generation; in other families, the generational transitions 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 timeframes: 

• Short-term (0-3 years): Prepare for unexpected changes in leadership, both family leaders and non-family executives.
• Medium-term (3-5 years): When planning for transitions 3-5 years out, there is more time to be strategic. 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 (e.g., family office leader, investment committee member, foundation manager, involved shareholder). Provide hands-on development opportunities and support family with leadership coaching.
  
• Long-term (5-10 years and beyond): For the family office, prepare for the retirements of key executives. 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’ skills. Beyond technical ability, having emotional intelligence is essential. Bear in mind, these future-facing skills and approaches:

• Family office: Family office leaders, both those from within the family and non-family executives, must focus on collaboration and accountability. One key trait is the ability to listen and build consensus to manage family dynamics. The family office leader should also know the pain points and areas of poor communication. We recommend developing a matrix of desired competencies such as these for family executives and directors and then building a learning journey to build these competencies together, over time.
  
  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 will need heightened communications skills and 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 office executives have a tremendous opportunity (and responsibility) to coach and mentor emerging talent.

• Family: Consider gaps in knowledge and experience. Could future leaders benefit from education on finance, investment, philanthropy and/or the use of money and shared resources? Or possibly learning as a cohort how to undertake shared responsibilities, accountability and decision-making?
  
  Actionable tip: Potentially develop a family education plan covering the family enterprise, board responsibilities and core financial concepts.
• 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.¹

It is critical to have a clear vision and concrete plans—while being transparent about what will happen and when—before the anticipated turnover of responsibility. Those values and practices will help to manage all stakeholders’ expectations and will help to smooth over difficult decisions (such as family members not rising to leadership, hiring and promoting non-family executives and others).

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

The family office leader should 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 leaders’ eventual transition.

Other sensitive issues include the rising generation’s readiness and/or competence., as well as mid-level family office staff readiness for promotion. And, of course, potential roles for retiring senior family leaders, so that they can continue to share their wisdom and knowledge with the new family leaders and build important bridges and provide mentorship for the nascent family leaders of the future.