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.
The Stakes Are High
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.
"A small personal dispute can snowball into something massive if you don't have proper governance or dispute resolution processes in place."
Katherine Muldoon
Specialist Private Client Lawyer, Partner (Of Counsel), Spencer West Kenya
Governance: The Silent Stabiliser
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.
"Governance applies to all types of businesses, not just affluent families. It's about having rules in place from the very beginning to manage growth and avoid future conflicts."
Director – Middle East, Africa and India, Jersey Finance
The Succession Planning Gap
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.
Navigating Legal Complexities
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.
"Trusts are often overlooked, but they're vital for protecting assets, managing wealth, and ensuring vulnerable beneficiaries are cared for—while also offering tax efficiency."
Specialist Private Client Lawyer, Partner (Of Counsel), Spencer West Kenya
The Path Forward with Spencer West
At Spencer West, we regularly advise family businesses navigating succession and governance challenges—often in the context of cross-border wealth and competing legal systems. One consistent observation across our practice is the growing need for forward-thinking governance structures and legally sound succession planning, particularly in light of the unprecedented intergenerational wealth transfer now underway.
We routinely recommend that family business owners review and update their wills, trusts, and governance arrangements to ensure they reflect evolving family and business dynamics. Where appropriate, Jersey trusts can serve as an effective mechanism to manage wealth across generations, offering flexibility and control aligned with the family's long-term vision.
Ultimately, the most effective succession planning combines robust legal structures with open family dialogue and clear strategic intent. Our role is to help families identify the jurisdictions and structures that best support those goals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
