Choosing a successor: Why making the right choice matters more than fairness.

How fairness can undermine a business transition

You may be tempted to divide leadership among several children so everyone feels included. But this can create confusion and slow down decision-making. Business leadership rarely works well as a shared arrangement.

“If five people are running the business, it effectively has no leader,” says Dwivedi. “Employees receive conflicting direction, and strategy becomes diluted.”

For example, Dwivedi once worked with business owners who had five children, all of whom were interested in becoming CEO. The parents initially leaned toward giving each child equal authority. But after considering how this might affect the business’s ability to communicate a clear vision and rally employees behind it, they took a step back. They evaluated each sibling’s skills, experience and interests, then selected a single leader.

Overemphasizing fairness can also affect your own financial future. For many entrepreneurs, the business represents most of their wealth and retirement savings when they step down. If the company struggles under weak leadership, the impact can extend beyond the transition itself and cast a shadow over your retirement income.

How to choose the right successor

Look beyond simple interest in the business. A child may be keen to run the company, but not yet have the skills or experience to succeed. Consider:

• leadership and management experience
• industry knowledge and operational understanding
• strategic and financial skills
• credibility with employees
• emotional readiness to lead

In some cases, a promising successor simply needs more preparation. Development plans, mentorship or structured assessments can help determine whether someone is ready and what steps they need to take if not.

What if multiple children want to run the business?

When several children express interest in leadership, evaluate each person’s strengths and roles within the company.

Interest is a good sign, but is not enough on its own. You should assess whether each candidate has the skills, experience and temperament required to lead.

One solution could be to assign different executive roles rather than sharing the CEO position. For example, one sibling might lead operations while another focuses on finance or marketing.

“Sometimes everyone wants the CEO role because they associate it with control,” says Dwivedi. “But when you dig deeper, each person may be better suited to a different leadership function.”

A clear leadership structure allows multiple family members to contribute while maintaining effective governance.

What if none of the children are interested?

Some owners assume their children will eventually take over the business. But it’s not uncommon for family members to prefer other careers. When this happens, the first step is understanding why.

For example, some children may have negative feelings toward the business after watching their parents make so many personal sacrifices to build it. In other cases, children may simply have different interests or ambitions.

Dwivedi once worked with a family that had built a successful oilfield services company in Alberta. When the parents asked their adult children if they wanted to take it over, all of them declined.

But later, those same parents developed a new business based on some commercial real estate they had accumulated. When they asked their children about that venture, several were interested. The upshot: It was never about wanting to stay out of the family business. It was the nature of the business itself.

If no family successor is willing or suitable, owners may need to consider alternatives like organizing a management buyout, selling to a third-party investor, or bringing in external leadership.

What if the “wrong” child wants to take over?

Situations can arise where the child most interested in the business is not the one most ready to lead it.

In some of these cases, the issue may not be the person, but the timing. A development plan can help prepare an enthusiastic potential successor.

For example, if you have a child who is a recent university graduate, consider having them work through multiple roles in the company before they take on leadership responsibilities. By rotating through departments and working alongside frontline employees at first, they can gain credibility and a deeper understanding of the business.

This type of preparation helps future leaders develop the experience and relationships they need to succeed.

Balancing fairness among siblings

A common concern among business owners is how to treat all children fairly when only one of them takes over the business.

It’s often assumed that owners simply gift their company to the chosen successor. But in reality, the next generation usually buys the business, sometimes for millions of dollars. This may involve taking on significant debt, but the purchase is what allows the owner to fund their retirement.

Understanding this distinction can help clarify discussions about fairness among siblings. For example, you can address fairness through broader estate planning, allocating other assets to the children who are not involved in the business. These might include:

• investments (e.g., stocks, bonds, mutual funds)
• insurance policies
• real estate

During another succession project, Dwivedi discovered that one sibling had been excluded from the early planning discussions because the family sincerely believed she had no involvement or interest in the business.

When he called her during a family meeting to confirm that assumption, she surprised the room by strongly disagreeing. “She explained that while her parents were building the company, she had helped raise her younger siblings, which allowed the owners to devote long hours to the business,” he says.

The conversation was a turning point for the family, who suddenly recognized her indirect contribution. They were then able to take that into consideration when looking to be fair.

The takeaway: When it comes to assessing who helped build the business, make sure you look at the full picture.

Estate planning considerations when children are involved

Although business succession and inheritance are separate issues, both can help owners treat children equitably overall. Owners should work with legal and financial advisors to design appropriate structures. Key considerations include:

• separating ownership from management roles
• determining whether shares should carry voting or non-voting rights
• deciding how any inheritance will be distributed through the estate plan
• establishing governance structures to manage disagreements

Clear communication with all family members is essential.

Owners should also discuss how conflicts will be handled before disagreements arise.

“Agree on the rules before the play starts,” says Dwivedi. “If you wait until conflict happens, any rule will seem unfair to someone.”

Common mistakes to avoid

Business owners sometimes make succession decisions based on emotion or outdated assumptions. Others may get the timing wrong or be unsure how to assess readiness. Common pitfalls include:

• choosing a successor based on birth order or gender
• assuming education alone qualifies someone to lead
• avoiding difficult conversations with family members
• confusing interest in the business with readiness to run it
• delaying succession planning until it becomes urgent

Ultimately, because every family and business situation is unique, succession planning should never follow a one-size-fits-all approach.

“Every family has its own dynamics,” says Dwivedi. “The process needs to be tailored to the people involved and the goals of the business.”

Next step

To learn more about transferring your business, download BDC’s free guide, Preparing your Exit Plan.

In addition, BDC Advisory Services can help you develop a succession plan that protects both the future of the business and family harmony.