Family-owned businesses account for more than 70 per cent of global GDP, yet as wealth moves from founders to their children, tensions often arise around strategy, sustainability and shared leadership. According to an EY survey, just 40 per cent of family-run companies have a formal succession plan in place, and even fewer have addressed how that plan should evolve as the business and family grow.

“A classic source of tension within families is tradition versus innovation,” says Peter Vogel, Professor of Family Business and Entrepreneurship at IMD Business School. “‘Do we continue running this product, even though it’s not profitable?’. There might be a reluctance to change, especially when the legacy of earlier generations is involved.”

María Eugenia Mosquera, Head of Wealth Planning, Key Clients and Family Office Services at Julius Baer, agrees that generational differences in vision and values can cause family conflict if not addressed. “If there’s also a lack of a formal governance structure, then this becomes exacerbated,” she says. “Often it means there is no effective conflict resolution mechanism and a non-transparent process in succession planning.”

Understanding the psychology of succession

Power shifts are rarely just about capital or control. As Vogel notes, “leadership succession and ownership succession are sometimes misaligned: while operational control moves to the next generation, financial power (and final veto) remains with the senior generation, which can lead to long-term tensions in the system”.

This can cause problems if governance structures aren’t properly established, Vogel says. “We’ve seen situations where the next generation runs the business for years, only for the founder to say, ‘Actually, I disagree with your decisions. It’s still my company and I will do it my way – the way we have always done it.’ That uncertainty of time frame – and uncertainty of what’s next for the senior generation – can cause real damage,” he adds.

Multigenerational family boards face further complexity when trying to balance meritocracy with perceived nepotism. “Why her, not me? Why him, not me? These are real tensions – within and across generations, especially if decisions are made without open, transparent exchange and without the proper backing of governance principles,” Vogel says.

For Mosquera, leadership succession and ownership succession do not need to be aligned all at the same time. “In a highly successful family we’ve advised, the owner entrusted the business to professional managers, excluded the next generation from operational roles and achieved both strong performance and family satisfaction with this model,” she adds.

How to include all generations in succession plans

When handled well, however, generational diversity can be a strength. A PWC Next Gen survey reveals that ESG initiatives can be accelerated by younger voices who are less beholden to legacy models. An IMD paper, written by Vogel, supports this, suggesting that family offices are uniquely positioned to lead the charge in responsible investing – if empowered to act decisively.

For Mosquera, creating space for different voices is essential. “Multigenerational boards are incredibly rich in terms of diversity of thought,” she says. “But that only works if we create environments where everyone is heard and valued.” 

That includes women. In regions with strong patriarchal cultures, female successors often face additional barriers. “In Asia or the Middle East,” says Vogel, “even the sons can struggle to challenge elders, let alone the daughters.” Yet family businesses that take what a KPMG study calls a “dynamic” approach to legacy report stronger business performance compared to competitors.

How to avoid mistakes with succession

So how can families avoid the common pitfalls? For example, Mosquera recalls working with a business where the founder retained ultimate veto rights, even though his children – who were in their late forties – were running key parts of the business. “It wasn’t because of doubts about their capabilities. It was about emotion – the pride he had in creating that business – and there were also unresolved tensions between him and his siblings,” she says. “This is not unusual: I’ve seen founders in their eighties who still want to keep maximum control until the very end.”

Julius Baer helped the family design a constitution, a family council, a shareholders’ agreement and a dividend and reinvestment policy, helping to give more structure to the business as well as reassurance to the founder. Preparing your children properly and early is also key, says Mosquera. “Educating your children to take over is a lifelong process, and if you haven’t done it properly then succession becomes challenging. If you don’t believe they can run it better than you then, frankly, you might be better off selling your business to someone who can. A sale should never be viewed as a failure. On the contrary, it can often be the most beneficial decision for everyone involved and it can help preserve what matters most: family unity.”

Open communication and accountability are critical to developing next-generation leadership competence, according to a Frontiers in Psychology report that found that when families encourage open dialogue, and hold emerging leaders responsible for their decisions, it strengthens their effectiveness and emotional engagement.

“One large family we work with has a dedicated internal seed fund and mentorship programme to train next-generation entrepreneurs,” says Vogel. “You can inherit shares, but dividends are tightly controlled. While you’re wealthy on paper, you still need a meaningful career. That creates a strong social contract and grooms active successors.”

Ultimately, strong family governance is less about preserving hierarchy than enabling continuity. This includes setting clear timelines for founders to step back and creating purposeful roles for them beyond the business. “Instead of asking ‘what are you retiring from’, we ask ‘what are you retiring to?’,” says Vogel. “If there’s no answer to that question, it becomes very hard to let go.”

For Mosquera, the most effective transitions are those that embrace change while honouring legacy. “Younger generations wish to honour the legacy they’ve inherited and are usually inspired to transform it for the future,” she says. “If we can create bridges between generations, rather than walls, family businesses can continue thriving for decades to come.”

This content was paid for by Julius Baer and produced in partnership with the Financial Times Commercial department.