The newborn heir will have plenty of time to soak up all that attention.  His great grandmother Elizabeth II is still in power and is shouldering all the responsibilities. Indeed, in most European countries, being a king or a queen is a job for life; seldom is the throne turned over to children or grandchildren while the reigning monarch is still alive. Even less common are transfers of power from the living monarch to his or her siblings.  Abdications, such as Edward VIII of Great Britain or Nicolas II of Russia, both in favor of their younger brothers, are almost invariably associated with, or create, a crisis.

But in the real world of family business, succession is more complex than it is for royal families. For example, the role of the family business CEO is not – and should not be – lifelong. While the average CEO of a family-owned company holds on to the reins of power substantially longer than his counterpart at a publicly traded company, his or her tenure still should not span an entire generation. When that happens, it is usually to the detriment of both the family and the business.

Further differentiating royal families from ordinary business families: the best candidate to take over during a change in leadership is often not the son or daughter of the CEO, but rather a sibling. This power is derived from the share of ownership in the company, which tends to favor older siblings - and not always wisely so.

Normally when we think of succession, we think father to children, first generation to second generation.  What is seldom discussed, however, are the realities and challenges of intra-generational succession - in other words, the transfer of ownership and control among siblings. Succession across generations becomes critical as the siblings’ ability to lead changes over time.

Case study

Consider a (disguised) client family we worked with. Three brothers – George, Alexander, and Louis - were working together as a senior management team in a furniture business that their father had started and they turned into a multimillion enterprise. The father did everything “right” to turn a successful business over to the next generation. Yet by overlooking the need for intra-generational transitions, he planted seeds that led to the company’s (and the family’s) demise. Let’s see how that happened.

George, the oldest son, joined the family company barely out of high school. He had great business intuition and successfully opened several very important markets for the company’s products. Impressed by George’s business acumen, the father made his son a partner, awarding him 10 per cent of the company’s shares. 

Seven years later, Alexander, a hard-working, bright engineer, joined the business. The second son worked day and night on the factory floor and found ingenious ways to dramatically improve quality while keeping costs down. In recognition of his contributions, the father decided to give Alexander 10 per cent of the company shares, too.

Then things got complicated.  The founder felt that giving Alexander the same level of ownership in the company as George had, was not fair. George had worked longer and had done more. So the father gave George another 10 per cent stake. Both brothers felt that the father had made a fair and equitable decision, and they worked well together. The company flourished.

For his part, Louis, the youngest son, went to an Ivy League business school and then joined a prestigious consulting firm. Soon his father lured him, too, to the family business, which was growing rapidly. Upon entry, Louis got 10 per cent of the equity, and his brothers got the same. Louis began to work in the finance department, then established a strategy group before returning to finance, rapidly developing into a senior manager.

With his three sons working as a team in key executive roles, and with the majority ownership already transferred to them, the father was confident that the company was well prepared to meet the challenge of generational succession. The four owners signed a shareholder agreement providing that most decisions would be made by simple majority, while the “critical” ones would require a two-thirds majority. Thus, with 40 per cent of the company’s shares still in his hands, the patriarch had veto power – an arrangement seen by everybody as fair and effective.     

At age 75, the father retired, as planned, and transferred his remaining 40 per cent stake to his sons in equal shares.  As expected, George, 50, with a 25-year successful career as Chief Commercial Officer became the CEO.  Alexander, 45, remained the COO, and Louis, 40, was promoted to the CFO role. The three comprised the Executive Committee.

The father was proud – and satisfied.  He had built a successful company, and had managed to turn it over to his sons in a fair and equitable way. The mother was delighted that her sons were getting along well, both as executives and in their personal lives. The brothers themselves were generally happy and felt that the ownership distribution was fair given their contributions to the company: George had 43 per cent, Alexander 33 per cent, and Louis 23 per cent.

Over the next ten years, the company continued to develop, both organically and by acquisitions, with interests now in appliances, electric equipment, business services, construction, and real estate, in addition to furniture. Four of the eight cousins worked in the business, showing promise. The company and the family were often quoted in the press as an example of a successful family company. 

Then George had a heart attack and was forced to cut back; Alexander and Louis stepped up to assume more leadership responsibilities. Privately, Alexander and Louis began to resent George having more say and receiving more dividends than they did when they (Louis in particular) carried the weight of the company on their shoulders. 

As it became clear, even to George, that he was no longer fit to be chief executive, all eyes turned to Louis to lead the company.  But George believed he should stay in place as CEO until his son, a junior executive, was ready to take over for him. As holder of 43 per cent of company shares, George could – and did – block his brothers’ attempts to force him to step down. 

The result was calamitous: Louis reduced his involvement with the company. He also encouraged his daughter, arguably the most talented of the cousins in the next generation, to leave the family firm and start her own business. In a private meeting, Louis and Alexander agreed that if George’s son became CEO, it would effectively foreclose opportunities for their children. They decided to block future promotions for that son. 

George became enraged.  For almost a year, the brothers did not speak to one another directly, despite having offices on the same floor. Without leadership, the business began to decline. Eventually, the three brothers, acting through lawyers, agreed to split the company. Everyone lost.

Tragically, the founder had done everything he could to build the company and to ensure healthy generational succession.  He had aptly transferred ownership more or less in step with his sons’ executive abilities. Yet what he had not foreseen was that the role of CEO is not a job for life. He had not put in place a mechanism for power - and equity - transfer between the siblings. The unequal shareholding locked in place the balance of power, which, though once fair and effective, had gradually became counterproductive and oppressive.  

The English have had a thousand years to evolve and perfect the succession process.  Most business families must accomplish the same thing in only one or two generations.  That’s possible, but it is a tall order.  Meeting the challenge requires great foresight and awareness of the fact that alignment of power and leadership - the essence of successful succession – must be treated as seriously within generations as it is across generations.  That’s how fairy tale endings come true.