The NextGen dilemma

The question of “family successor or external talent” is often presented as a binary choice. This is rarely the case. In the reality of family businesses, the right answer depends on several factors: the maturity of the next generation, the increasing complexity of the business, the internal culture, the expectations of family shareholders, and the timing of the planned transition.

What is certain, however, is that the decision cannot be made by default. Neither automatic transfer to the eldest child nor reflexive recruitment of an external CEO constitutes a strategy. Both can lead to failure if governance rules are not in place to structure the process.

Preparing the next generation to take over a business cannot be improvised. Yet many founders give in to the temptation to “trust” without building a real development path. As a result, the next generation arrives at the head of the company with contested legitimacy, fragile authority, and real gaps in certain key areas.

Warning signs that should not be ignored:

• the intended successor has never worked anywhere other than the family business;
• The intented successor has never had to report to anyone other than their parents.
• Employees doubt his or her abilities, but no one says so openly.
• The transition is presented as a foregone conclusion, not as a carefully considered choice.

Preparing the next generation is a long-term investment. It requires external professional experience, progressive responsibilities within the company, support from a mentor or external advisor, and an honest assessment of how well the next generation’s aspirations match the company’s real needs.

Recruiting an external CEO may seem like the “rational” solution when the family does not have the right profile. But this option comes with its own risks, which are often underestimated.

An external CEO can bring skills, a fresh perspective, and credibility in certain contexts (fundraising, internationalization, restructuring). But they may also:

• have difficulty integrating into a strong and implicit family culture;
• lack the emotional legitimacy needed to manage intra-family conflicts;
• clash with family shareholders who remain in the background but exert a destabilizing informal influence;
• leave quickly if their expectations in terms of autonomy are not met.

The success of an external CEO in a family business depends largely on the quality of the governance in place: a board of directors with a clear role, family shareholders who have agreed to take a step back from operations, and rules of the game defined before the new CEO arrives.

Whether you choose the family route or the external route, governance is the factor that determines whether the transition succeeds or fails. In concrete terms, this means:

• defining in advance the objective criteria for selecting the future leader and applying them, regardless of the person concerned;
• setting up a board of directors or advisory committee capable of evaluating candidates independently;
• clearly separating roles: who is a shareholder, who is a manager, who is a director, and avoiding overlapping roles that blur responsibilities;
• creating a framework for the successor to grow into the role, with milestones and regular evaluations;
• Anticipate alternative scenarios: what happens if the intended family successor withdraws, or if the external CEO leaves after 18 months?

In many family businesses, the best answer is neither one nor the other, but a smart combination of both. For example,

• the NextGen takes on the presidency or management of the company, surrounded by a management team made up of complementary external profiles;
• an external CEO takes charge of operations during a transition period, while the NextGen acquires the necessary experience and legitimacy;
• the family refocuses on its role as shareholder and guardian of values, while leaving management to recruited professionals.

These hybrid models work well, provided that roles are clearly defined, expectations are aligned, and a robust governance structure is in place to arbitrate the inevitable tensions.

Before making a decision, each family would benefit from asking themselves the following questions, ideally in a structured setting and with the support of an outside perspective:

• What skills are really needed to run the business over the next 5 to 10 years?
• Do we have a member of the next generation who possesses or can develop these skills, and within what timeframe?
• Does this “heir” really want to take over the business?
• Is our governance mature enough to welcome an external leader and provide them with the conditions for success?
• Have we formalized our expectations, criteria, and decision-making rules, or is everything still implicit?

There is no universal answer to the next generation dilemma. What is universal, however, is the need to address it rigorously, proactively, and within a solid governance framework. Family businesses that successfully navigate generational transitions are rarely those that have been “lucky” with their NextGen. They are those that have had the wisdom to structure the process well before the issue becomes urgent.

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At deminor NXT, we support family businesses and SMEs in structuring their governance, including preparing for generational transitions. Because the right decision is, first and foremost, an informed decision. Would you like more information? Please do not hesitate to contact us.