How succession can make or break a family business

The transfer of trillions of dollars of wealth to the next generation — at hundreds of millions of family businesses around the world — has the potential to put trade deals, revenues and jobs at risk if it is not properly managed, according to industry figures. 

“While some families have been preparing their next generation for decades to assume leadership roles, others lack adequate plans for succession,” warns Rebecca Gooch, global head of insights at Deloitte Private, a division of the Big Four consultancy group. “Given that 90 per cent of businesses, globally, are family-owned, it could cause disruptions in the financial system if succession planning is not adequately addressed.” 

Gooch suggests companies could underperform or go bust without proper succession planning — with wider repercussions for the economies and industries that depend on these family groups for job creation, innovation and trade. 

Jason Hollands, managing director of corporate affairs at wealth manager Evelyn Partners, says: “You need the best people to step up and take over. That means you need to plan carefully rather than scrabble around for successors. It can make the difference between success or failure.” 

Hannes Hofmann, global head of the family office group at Citi Private Bank, also points out that “wealth has become more complex, which means there could be disruption if planning is not carried out properly.”

An estimated $18.3tn of collective wealth will be transferred to the next generation by 2030, a report by data provider Wealth-X has calculated — a result of the last of the baby boomers, which the US Census Bureau defines as those born between 1946 and 1964, retiring and passing on their assets.

There’s a well-known proverb: ‘shirtsleeves to shirtsleeves in three generations’

That report — Preservation and Succession: Family Wealth Transfer 2021 — focused on individuals with a net worth of more than $5mn, which totalled about 3mn individuals, holding assets worth more than $62tn worldwide. 

But even the wealthiest families get this transfer process wrong, and end up losing what they had built up. “There’s a well-known proverb: ‘shirtsleeves to shirtsleeves in three generations’, also known as ‘the third-generation curse’,” says Gooch. “This underscores concerns about potential erosion of family wealth over time. Consequently, there’s a growing focus among families to plan for succession.” 

The importance of successful transfers to the wider financial system is highlighted by research from media and data company Visual Capitalist in December which showed 90 per cent of all enterprises, globally, are controlled by families. They run to the hundreds of millions, judging by data from Statista, which estimated the total number of companies worldwide at 333mn in 2021, slightly up on the 328mn in the previous two years.

Euan West, who leads KPMG’s private enterprise business in the UK, says: “The most successful family businesses are those who commit a reasonable amount of time to succession planning. We often find the most difficult step is between the second and third generation as the family is that bit further removed from the founder at that point.” 

One business approaching a transfer from the second to the third generation is the Rigby Group, a technology and real estate company based in Stratford-upon-Avon in the UK. It is headed by co-chief executives Steve and James Rigby, having been founded in 1975 by father Peter, who now chairs the group. 

Steve, aged 51, has no doubts the company, which employs 8,500 people in Europe and has an annual turnover of £4bn, can make the transition to the next generation. “The business has been professionalised in the past two decades and we are confident that a handover can be smooth,” he says. 

“It’s not like the television series Succession [which starred Brian Cox as the patriarch of a family media group likened to the Murdoch empire] where there are squabbles and infighting. That was good television, but very over dramatised.”

Even so, he admits the next generation is likely to take a different approach to life and business. “My brother and I have six children between us. Some of them may wish to come through and take part in the business, but others might not. My generation often followed in the footsteps of the father or parent. But the next generation wants more work-life balance. That may mean the business is taken over by an external manager rather than the children.” 

Another second-generation family business is Nurole, a London-based online board-level recruitment platform with 30 employees. Oliver Cummings, aged 39, runs the company as chief executive, having taken over from his mother Susie, who founded the business in 2014. 

“I think there is a saying, if you have one family member succeeding another family member as chief executive, you get a less good outcome,” says Cummings, who started his career at US investment bank Goldman Sachs before joining the family business. 

“Appointing the right people is critical for a business, but there are two types of succession: an executive or management succession; and a shareholder succession. As far as management is concerned, I have a very good senior leadership team that could take over.” 

Nicholas Bewes, aged 57, chief executive of a small third-generation family-owned property investment company, Howard Group, which is based in Cambridge in the UK, agrees that there is a distinction between handing over management and ownership. 

“It is not an assumption that family members will end up in senior positions or run the business, but all families are different. I know one family business where the son took over at 21. We would not do that.” 

Neil Davy, chief executive of Family Business UK (FBUK), a not-for-profit organisation set up in 2001 to bring companies together, says the group’s more than 200 members are largely prepared for succession, as well as technological change — another vital requirement for success and profitability. 

He adds that FBUK’s members — which have annual revenues of between £4mn and £5.5bn and include the 12th generation C Hoare & Co, the UK’s oldest bank, founded in 1672 by Sir Richard Hoare — would not survive if they failed to plan for the next generation and adapt to new technology.

Patricia Milner, who advises family businesses on succession and tax at London law firm Withers, agrees with Davy. “Some of the best businesses have been successful for generations. Sometimes they are fifth or sixth generation. They’ve had to be ready for succession and embrace technology to be competitive. A business does not last for hundreds of years unless it is well run and prepared for change.”