CEO succession is a major inflection point for family-owned businesses (FOBs). FOBs generate more than 70 percent of global GDP and employ approximately 60 percent of the worldwide workforce (p.2). McKinsey research shows FOBs consistently outperformed non-family-owned counterparts, with returns to shareholders that were twice as high as those of non-FOBs from 2012 to 2022 (p.2). The research analysed 200 publicly traded FOBs and surveyed 170 primarily private FOBs, alongside discussions with 15 key decision-makers globally (p.2).

Family business CEO transitions, on average, erode shareholder value

On average, TSR declined 5.7 percentage points in the five years after a CEO transition, compared with the five years immediately before (p.4). Revenue growth and EBITDA margin growth also declined following CEO changes. No transition archetype — whether to a family or nonfamily executive — was immune to this risk (p.5).

Some family businesses get CEO succession right

Slightly over one-third of family businesses in the dataset bucked the trend of post-transition value erosion (p.5). Transitions to nonfamily executives succeeded more often — 39 percent created value — compared with 29 percent for transitions to family executives (p.5). However, when family-to-family transitions succeed, they generate outsize returns: a 23-percentage-point increase in average TSR for value-creating transitions to family CEOs, compared with 14 percentage points for value-creating nonfamily transitions (p.6).

How the top-performing FOBs design effective CEO transitions

Among the 170 surveyed FOBs, 43 emerged as top performers — the top quartile based on business performance and transition experience ratings. These companies increased revenue and EBITDA margin by approximately four percentage points over the five years following succession (p.6). The research identified 11 critical practices: five foundational and six distinctive.

The universal foundational practices

Five foundational practices were identified as essential regardless of transition archetype: evaluating multiple successor candidates by maintaining an open pool of family, internal, and external talent; enabling successors to build well-rounded capabilities through rotational programmes, mentorship, and hands-on project experience; managing the transition like a project with measurable goals and stakeholder involvement; creating and following a clear transition-out plan with a phased transfer of responsibilities and a defined next chapter for the incumbent; and establishing and upholding neutral governance mechanisms, including family constitutions, councils, and independent boards (pp.8–12).

The distinctive practices of top performers

Six distinctive practices separated top performers: aligning family successors’ roles to their capabilities and aspirations through bottom-up, cocreated role design; anchoring nonfamily successors in family legacy, values, and vision through formal documentation and transfer; enabling nonfamily executives to think and act like owners through real decision-making authority and visible advocacy; clearly demarcating roles, responsibilities, and swim lanes via governance mechanisms and external advisers; creating a complementary team of leaders — viewing succession as a strategic shift involving the successor and the broader executive team; and putting the house in order, with outgoing CEOs streamlining reporting lines and addressing legacy inefficiencies before the handover (pp.13–18).

When it comes to CEO succession, top-performing FOBs focus on six areas

These six areas are: defining roles and aspirations; developing next-generation leaders; establishing family governance; building the transition road map; aligning top team, key talent, and organisational culture; and engaging the board for readiness and support (p.18).

Preparing for succession — At all stages of leadership

CEO succession is described as an eight-to-15-year journey, comprising five to ten years to identify, prepare, and evaluate successor candidates, followed by three to five years to equip the selected successor for an effective transition (p.20). To identify and address critical gaps, FOBs are recommended to implement a transition-readiness index, which assesses readiness at an individual level and compared with top performers and peers (p.19).