Succession Planning Challenges: Family Pitfalls to Avoid

Succession planning is critical for any business – but for family-owned companies, it brings a unique set of emotional, structural, and governance complexities. Without proactive planning, leadership transitions can trigger internal conflict, business instability, and even ownership disputes. Despite the high stakes, many family companies struggle to confront succession planning challenges head-on, sometimes even waiting for a crisis to force action.

In fact, only 16 percent of family firms have a discussed and documented succession plan. Compared to public companies – where the average CEO tenure is around five years – family CEOs often stay for 20 years or more, leading boards to delay essential conversations about the future until it’s almost too late.

In this article, we’ll explore the key succession planning challenges family companies face, illustrate common pitfalls with real-world examples, and offer actionable strategies to help family businesses build a smoother path to leadership continuity.

Succession planning is often a fraught topic in family-owned businesses because it forces leaders to confront deeply personal issues: mortality, legacy, and shifting power dynamics. The conversation about succession often feels like a conversation about the founder stepping away—and no one wants to start that.

Family CEOs who are also owners can remain in their roles well beyond their peak effectiveness, with boards reluctant to pressure iconic leaders to step down. This emotional inertia delays planning and creates organizational risk, particularly if health events or business downturns force rushed decision-making.

Additionally, assumptions about the natural progression of family members into leadership roles – without objective evaluation – can further complicate successions. These challenges only intensify without clear governance structures or defined decision-making roles between the board, family owners, and the CEO.

To further highlight common pitfalls – and help family business owners avoid them – here’s a checklist of the top five mistakes family businesses make:

1. Waiting too long to start: Hoping that a successor will “naturally emerge” instead of proactively planning for leadership development.
2. Choosing based on family ties alone: Selecting successors based on birth order or sentiment rather than capability and readiness.
3. Failing to define decision-making roles: Allowing confusion about whether the board, the current CEO, or family owners control the succession process.
4. Avoiding honest conversations: Refusing to provide developmental feedback or to address concerns about successor candidates.
5. Neglecting external benchmarking: Making decisions solely based on internal perceptions without assessing successors against external market standards.

When these mistakes are made, it leads to many unforeseen challenges. Let’s dive into those further.

Succession planning in family businesses is often derailed by a combination of emotional, structural, and relational challenges. Families frequently avoid tough conversations, hesitating to evaluate internal candidates objectively for fear of damaging important relationships.

When roles and decision rights are unclear – whether it’s the board, the CEO, or the broader family that holds the authority to select the next leader – succession processes can quickly grind to a halt. Emotional attachment to the business can also complicate matters; founders and long-serving CEOs may view stepping down as a personal failure or a loss of relevance, making it difficult for them to disengage even when it’s in the company's best interest.

Meanwhile, even highly qualified external or non-family leaders can face trust gaps with family owners, especially if onboarding and integration are not managed thoughtfully and deliberately. Finally, the sheer complexity of succession planning often leads families to procrastinate, putting off action until external events – such as a sudden illness, financial crisis, or board pressure – force rushed, reactive decisions that could have been avoided with early, strategic preparation.

Let’s look at these challenges by generation to understand them more clearly.

Each generation of a family business faces different succession planning challenges based on evolving business complexity, family size, and governance maturity.

• Challenge: Founder reluctance to let go.
• Tendency to equate business success with personal identity, delaying succession far past optimal timing.

• Challenge: Power-sharing dynamics between siblings.
• Difficulties in agreeing on leadership structure (co-CEOs, rotating leadership, etc.) and strategy alignment.

• Challenge: Governance gridlock.
• A larger group of stakeholders with diverse perspectives makes decision making slower and more politicized without clear governance rules.

• Challenge: Ownership fragmentation.
• More distant emotional ties to the business, combined with complex ownership structures, can make succession planning feel less urgent or cohesive.

Recognizing where your family business falls on the generational curve can help tailor succession planning efforts – and anticipate common roadblocks before they arise.

In one family-owned business case, a non-family CEO had informally identified a COO as the next leader. However, the board was divided, family members were suspicious, and no formal process had been followed. When the chair suddenly fell ill, the company faced a vacuum of leadership – with no agreed-upon successor and deteriorating financial performance.

Ultimately, despite the COO being highly qualified on paper, trust issues among family shareholders derailed his appointment. After a comprehensive talent assessment, a less obvious internal candidate – who had stronger relational trust – was promoted instead. This case highlights that competence alone isn’t enough in family businesses; trust and cultural fit are just as critical.

In another case, a third-generation CEO unilaterally selected his son as successor without board consultation. However, the broader ownership group lacked confidence in the son's readiness, and the business was struggling financially. Tensions escalated, with the owners threatening to sell their shares rather than accept the imposed decision.

Solo succession planning alienates key stakeholders, fuels resentment, and weakens the business. Succession must be a collaborative, transparent process to be sustainable.

A $1 billion family business waited too long to identify a successor, only acting when the incumbent CEO announced his retirement amid dissatisfaction with compensation. Both an existing VP, who had been seen as the heir apparent, and an incoming COO proved unsuitable under scrutiny, forcing a last-minute external search. 

If the company had engaged in succession planning a few years earlier, they could have had a COO on board with the potential to grow, or they could have invested in leadership development for the VP. Instead, the rushed process led to leadership instability, multiple high-level departures, and major disruption – all of which could have been avoided with proactive planning.

Building a leadership pipeline takes years, not months. Advanced planning provides time to:

• Develop internal candidates through stretch roles and coaching.
• Introduce external leaders who can earn trust gradually.
• Reduce emotional reactions by normalizing leadership transitions as part of governance best practice.

Clarify:

• Who nominates candidates?
• Who evaluates?
• Who makes the final decision?

Documenting these roles early prevents political infighting and increases confidence in the process.

Is continuity of family leadership non-negotiable? Is business growth the priority? Is the CEO expected to embody certain cultural or social values? Clear articulation of family priorities helps guide candidate evaluation and calibrate expectations.

Updating the family ownership group on succession planning timelines and general process (without disclosing confidential candidate evaluations) builds trust and cohesion.

Having multiple opportunities to discuss these aspects of the process will aid family cohesion in the long-run, even if it’s uncomfortable at the time.

To illustrate what success looks like, consider a fourth-generation family-owned industrial company facing the retirement of a beloved CEO. Rather than waiting for a triggering event, the family initiated succession planning five years ahead of the CEO’s planned exit.

Key steps they took:

• Created a family charter outlining leadership qualifications and succession guidelines.
• Identified two promising internal candidates and invested in leadership development and mentoring.
• Engaged independent board members and external advisors to assess the candidates objectively.
• Maintained open communication with the broader family ownership group throughout the process.

When the CEO stepped down, the chosen successor had already been integrated into board discussions, built relationships with key customers, and led several major initiatives. As a result, the transition was smooth, the company’s performance remained strong, and family cohesion was preserved.

Navigating succession planning challenges in a family business requires more than just strategic expertise – it demands objectivity, emotional intelligence, and an ability to balance business needs with deeply personal family dynamics. Engaging an external advisor ensures the process is handled with professionalism, impartiality, and sensitivity. The process creates space for honest conversations, provides unbiased leadership assessments, and fosters alignment across family members, the board, and executive leadership.

At Egon Zehnder, we understand the unique complexities of family businesses because we’ve guided organizations of every size and structure through generational transitions. Our approach combines rigorous talent evaluation with a deep appreciation for family governance, culture, and legacy. We offer structured, transparent processes that build trust among stakeholders and lead to better long-term outcomes – ensuring your next leader is not only capable but fully aligned with the family's vision for the future.

With decades of experience, a global network of experts, and a proven track record in succession planning for family-owned companies, Egon Zehnder is uniquely positioned to help your business thrive for generations to come.

Ready to plan for your family business’s future with confidence?

Contact Egon Zehnder to learn more about our succession planning services.