McKinsey study on family successions shows that the biggest problem is not the heir

When the CEO of a family business hangs up his boots, there’s a good chance bad things will happen. According to recent McKinsey research that analyzed more than 200 family businesses across 50 countries and 10 industries, these companies underperform in revenue, profit and shareholder returns over a five-year period following a leadership transition, compared to the previous five years. On average, returns fall by 5.7 points. Revenue growth and profit margins also decline.

So what makes succession in family businesses so difficult?

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The usual suspect is the heir — the brothers who are always exchanging barbs in the HBO series Succession well represent the popular fascination with families in the business world. But the data does not support the stereotype of the incompetent heir.

McKinsey research shows that family businesses perform worse after a CEO transition regardless of whether the successor is a family member or an outside executive. In fact, only about a third of all transitions generated any value.

If the problem were simply a question of the quality of the heir, we would expect transitions to external professionals to have better results. It does not have. The evidence points to another likely culprit: the outgoing CEO.

It is difficult for any leader to pass the baton. It can be even more difficult for the head of a family business, whose personal and professional lives are perhaps more intertwined than usual. This usually happens in two ways.

Some CEOs leave too soon, handing their successors a job and an inherited to-do list—unresolved conflicts, old systems that have limited performance for years, reporting structures built around the CEO’s own authority.

Others never truly leave, continuing to operate behind the scenes in ways that undermine their successor’s authority and create confusion throughout the organization. In either case, successors often spend the first few years managing what they inherited rather than executing a vision of their own.

How can departing CEOs do better? Here are three practices that research identified as differentiators.

First, start building the structure of the transition long before you announce your departure. McKinsey research suggests that CEO succession is an 8-15 year journey; Most families only begin this process when the leader is already in a declining phase. This is a mistake.

The CEO of a century-old European conglomerate, valued at billions of dollars and managed by a family that has already gone through five previous leadership transitions, says that identifying and preparing successors is the most important decision the company makes.

The families that do this best don’t repress the departing CEO’s instinct to control—they redirect it. Designing the succession structure, correcting operational inefficiencies, simplifying reporting lines, and resolving potential conflicts before they become a problem for the successor: these are final acts worthy of a family business CEO — and tasks that only he has the institutional authority to perform.

Then plan your exit as carefully as your transition. A plan for the CEO’s departure is as important as a transition plan for the incoming CEO.

The best-performing family businesses in the survey treated the exit as their own project, with a structured transfer of institutional knowledge, gradual handover of roles and responsibilities, and clear milestones for both sides.

A director of a European telecommunications company reported that a transition board with family and non-family participation made the succession seem less emotional and more institutional. That’s exactly what she needs to be.

Finally, have a purposeful next step. CEOs who identify an attractive new chapter—board roles, mentoring, philanthropy, or industry leadership—demonstrate a greater ability to transfer operational control.

If you stay involved, be strict with boundaries: The founder of an Asian consumer goods company who rose to the role of chairman described his post-CEO philosophy as “eyes on the business, hands off.”

Others who decide to stay involved make the transfer of power visible and concrete, even moving offices—a discreet but clear signal to the organization that authority has indeed moved.

Leaders who have dedicated a career—sometimes a lifetime—to building an organization understandably have difficulty handing over responsibilities to someone else.

There is, however, a financial argument for doing this well. The top-performing family businesses in the survey increased revenue and profit margins by approximately four percentage points in the five years following succession.

The risks are even greater when the successor is also a family member. These transitions were the least likely to generate value—just 29 percent of the time—but when they worked, they produced a 23 percentage point improvement in shareholder returns, nearly double the gain seen in successful transitions to outside executives.

If the potential for getting it right is enormous, the cost of getting it wrong is also enormous. Poorly managed CEO successions destroy about $1 trillion in global market value every year.

As McKinsey colleagues describe in the book “CEO for All Seasons” (2025), the best executives complete their profile with humility. Among the family businesses studied, those that created value through a leadership transition shared a common characteristic: a CEO who handled his own departure with the same rigor and discipline he dedicated to building the company.

A careful and well-managed transition is not just what’s best for the organization. It’s best for the CEO’s own legacy. If you love what you built, let it go its way.