Leadership transition in family business can create new opportunities

When a senior leader retires, it puts the business and the family at a crossroads — and requires a family conversation to determine the way forward.

It’s often assumed their children will easily step in and keep the family business running as it always has. Reality is often much different. I have found that when a senior family leader transitions out, it upends the dynamics of the family business to a point where a clean transition from parent to child can often become  difficult to achieve. For instance, one or more members of the next generation may decide they don’t want to remain in an active role in the business. This happens all the time.  It is both normal and expected. And founders can navigate around it — if you see it coming ahead of time. If you’re thinking about succession, and if any of the above rings true, it might be time to shift your thinking.  

As a family business, you have options — including selling this business outright, if it makes sense financially. But you also might want to consider turning your family business into a family enterprise, allowing you to focus on ownership, not leadership. 

Family business vs. family enterprise: what’s the difference?

Put simply, a family business is a single operating company with decision-making concentrated at the founder and active family member level, while a family enterprise is a system of assets — the family business, investments, real estate holdings, etc. 

A family enterprise removes part or all of the family members from direct management of the business. In these types of organizations, ownership and management are intentionally separated, replaced by governance.

The distinction between these two forms of business is important to think about when planning your succession and your family’s future. The family enterprise can be a great financial decision for you and your family, as your assets can diversify and grow over time. But perhaps the most compelling reason to choose a family enterprise is that it will help you avoid the pitfalls I often see family businesses encounter. 

Here’s an example of a family business I consulted with:

The family had multiple children, however only one sibling was running the business. The others were not involved in the business from a management standpoint yet were financial beneficiaries. This created an awkward situation where the sibling running the business felt accountable to the others yet lacked the true authority to make big decisions because of the ownership structure. Conversely, the non-managing family members felt frustrated and financially exposed without true influence in the company. This structure that was intended to be “fair” to the family had become a trap instead. This case is a great example of how a family enterprise is often the “fairest” structural choice. 

In a family enterprise, either a family member or non-family managers can run the core business, while all family owners receive the financial benefit. In most cases, the family members not in the business relinquish an operating role — which allows management to run the business without interference and the family to pursue other interests while still stewarding the enterprise together. 

This shifts the conversation from “who gets a say?” to “what does the enterprise need?” Family involvement in the enterprise might include philanthropy, long-term wealth planning or a focus on the expansion. With a variety of options open to the family, each sibling can ‘get what they want.’ In some cases, a sibling may simply choose to liquidate their inheritance and step away. Each family is different. The key is having options available to satisfy a wide range of desires.

The first step: a family conversation

The shift from a family business to a family enterprise doesn’t mean abandoning your legacy — it means protecting it. But before you decide to go forward with a family enterprise, you must start with a family conversation. An honest one. Ask each other what feels fair and what’s realistic. Ask everyone to say what they really want. Get into the details. What comes out of this (or these) meetings will direct you on how to move forward as a business and a family.

Whether your family ultimately chooses to remain a family business or become a family enterprise, the goal remains the same — to build a structure that supports the business and what matters most: the family.