Why Family Businesses Must Prioritise Governance and Succession Planning

Family businesses bolster economies, drive growth, create jobs, and shape communities. Family businesses are responsible for over 70% of global GDP and provide 60% of the world’s employment, according to McKinsey. This shows that they play a substantial role in innovation and economic development.

But despite their economic weight, these businesses often struggle with longevity. Globally, only 30% of family businesses make it to the second generation, 12% to the third, according to Cuthbert’s Business Advisory. This is mainly due to the lack of effective governance and succession planning.

Succession planning is a critical strategy for businesses of all sizes. Without it, even the most successful family-run ventures risk crumbling under the weight of internal conflicts, leadership vacuums and legal disputes.

Family dynamics can be both the strength and the weakness of a business. Emotional ties, unspoken expectations, and generational divides often complicate decision-making. And when a founder steps down – whether by choice or circumstance – the absence of a clear plan can spark power struggles, mismanagement, or worse, total business collapse.

“When we talk about governance and succession, from the context of family businesses and families, we refer to the structures, processes, and systems that guide decision-making, ensure accountability, and balance the interests of the business, the family and other stakeholders” Faizal Bhana, Director of Jersey Finance – Middle East, Africa and India, said during a webinar with the Kenyan Wall Street.

Without a documented succession plan, family members clash over who should take the helm. Operations stall, key employees leave and within months, the business is in decline. It’s a cautionary tale repeated across continents and industries.

Good governance is more than a buzzword. It’s a framework that guides decision-making, defines roles and ensures accountability. In family businesses, it also acts as a buffer between personal relationships and professional responsibilities.

Setting up governance structures such as family councils, advisory boards, or shareholder agreements helps formalise how decisions are made and who gets a say. It minimises the risk of emotional decision-making and provides a roadmap for conflict resolution.

“The first step in succession planning is ensuring families have a will that clearly sets out their wishes. Without it, statutory law takes over, often leading to disputes and unintended outcomes” said Katherine Muldoon.

Governance isn’t just for the big players. Small and medium-sized family businesses can also benefit from clear rules and transparent structures. In fact, for growing businesses, governance is often the key to scaling sustainably.

Many family businesses delay or avoid succession planning altogether. Conversations about leadership transitions can be fraught with emotion – founders may struggle to let go, while the next generation may be hesitant to step up.

Yet, delaying the inevitable is a risky gamble. Succession planning isn’t about naming an heir overnight; it’s a gradual process of identifying future leaders, equipping them with the right skills and establishing legal and financial safeguards.

And it’s not always about passing the baton to family. Increasingly, businesses are blending family leadership with professional management to balance legacy with fresh expertise.

In many jurisdictions, inheritance laws, tax regulations and corporate governance rules can complicate succession planning. Legal disputes over ownership shares, inheritance rights or shareholder agreements often emerge when succession is poorly structured.

That’s where jurisdictions like Jersey come into play. Known for their robust legal frameworks, Jersey offers flexible solutions – such as trusts and foundations—that help families manage wealth, mitigate tax burdens, and streamline transitions across generations.

For family businesses, it is clear that governance and succession planning are necessities. The global economy is on the brink of an unprecedented wealth transfer, with trillions of pounds expected to pass from one generation to the next over the coming decades.

Jersey’s expertise in professional management provides a solid foundation that family businesses can leverage. According to Global Value Chains research, capital intermediated in Jersey supported £6 billion of Africa’s GDP each year and 916,000 jobs on the continent between 2017 and 2020.

Family business owners are advised to seek professional advice from succession lawyers, mediators, and financial experts. They are also required to involve all family members, revisit wills, trusts and governance structures periodically to reflect family and business changes. Jersey Trusts allow families to place assets under the management of a trustee, ensuring wealth is preserved and distributed as per the family’s wishes.

Jersey also enables businesses and individuals to navigate legal and regulatory requirements such as tax compliance, regulatory standards, and corporate governance.