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Few decisions test a family business quite like succession. Passing leadership to the next generation, or deciding that the time has come to bring in an outsider, is never just about appointing a chief executive. It is about trust, identity and continuity. The future of the enterprise and the family's reputation depends on getting the call right.
Recent figures published by the 25×25 initiative, and reported in the Financial Times, highlight just how fraught the issue has become. More than half of FTSE 100 and 250 companies appointed an outsider as chief executive last year. In the FTSE 250, that number jumped to 62 per cent – a far higher reliance on external hires than in Germany or the United States. The pattern reflects a weakness in succession planning. Put bluntly, too few boards are preparing people from within, so when change comes, they have little choice but to look elsewhere.
For family businesses the lesson is clear. If there is no deliberate planning, the eventual handover can feel rushed, divisive or even destabilising. Yet the options are broader than many realise.
Families can look inward to the next generation or trusted insiders, they can cast the net outward to bring in external leadership, or they can take a different route altogether by embedding succession into a structure of shared ownership through an employee ownership trust (EOT). Each pathway has its strengths. Each brings its own challenges.
Internal continuity
The most natural instinct is to keep leadership in-house. A successor from within the family, or a trusted insider, understands the culture, the workforce, and the values that define the business. Continuity provides reassurance to employees, customers, and suppliers alike.
The most natural path for many family firms is to keep leadership within the family or to appoint a trusted insider. Continuity has obvious strengths. A leader who has grown up in the business brings with them a deep knowledge of its operations, its people and its culture. They instinctively understand the business' underpinning values, and their appointment reassures employees, suppliers and customers that the character of the business will endure.
Yet relying on internal succession can bring difficulties. Without deliberate development, an internal candidate may lack the skills needed to lead through growth or crisis. The board may feel compelled to promote a family member or long-serving manager even where doubts about their readiness exist, fearing that passing them over could create division. There is also the risk of perception – if other senior employees feel they were overlooked in favour of bloodline, loyalty can evaporate and claims of unfairness may well follow.
Here, employment law plays an important protective role. Clearly drafted service agreements, transparent promotion processes and consistent treatment of non-family employees help guard against accusations of discrimination or favouritism. Continuity works best when it is earned and supported by fairness, not assumed as a birthright.
External change
The alternative is to look outside. An external chief executive can provide fresh perspective, new expertise, and the willingness to modernise. They may be better placed to restructure operations, professionalise governance, or take decisions that are difficult for family members to make. For a family that recognises change is necessary, an external appointment can be the catalyst.
The risks are equally real. An outsider may misread the culture or underestimate the symbolic importance of family legacy. Employees may be wary, particularly if internal candidates were passed over. Families themselves may struggle to step back, undermining the new leader with informal influence or conflicting directions.
This is where careful legal structuring matters. Service agreements should leave no doubt about the scope of authority, reporting lines and performance measures. Termination provisions, probationary clauses and confidentiality protections all provide reassurance to both sides. Culturally, families that welcome an outsider into their orbit by allowing them to attend shareholder gatherings, or inviting them to join milestone celebrations, often succeed in creating a relationship of partnership rather than suspicion. The balance lies in showing commitment without smothering, and guidance without micromanagement.
Shared ownership
A third route has been gaining ground in recent years: succession through employee ownership trusts (EOT) . Increasing numbers of family businesses, particularly in the UK, are choosing to transfer a majority of their shares into such trusts, creating a structure in which employees collectively own the company.
For families, an EOT offers a different kind of continuity. Rather than tying succession to the readiness of an individual family member, or the risk of cultural disruption from an external appointment, ownership is broadened to the workforce. The family can step back, either gradually or completely, while embedding the values of stewardship and fairness into the ownership model itself.
From the perspective of leadership, an EOT can ease the tension between "insider" and "outsider". A new chief executive, whether appointed internally or externally, takes on their role within a framework where employees are already enfranchised and invested in the outcome. That can provide legitimacy and cultural buy-in that other models struggle to match. For employees, it is a powerful signal that succession is not about sidelining them but about securing their future.
Legally, EOTs demand careful structuring. Trustees must act in the best interests of the employee beneficiaries, governance arrangements must be transparent, and service agreements for leaders must align with the trust's long-term mission. Done well, this model can blend continuity with renewal, giving families a dignified exit while strengthening the business's resilience.
The wider workforce
Succession decisions reverberate through the entire organisation. Long-serving managers may feel passed over. Employees may worry about disruption or change of culture. From a legal perspective, families must be careful not to expose themselves to claims of discrimination or unfair treatment.
The antidote lies in visible fairness: open communication about why a particular succession path has been chosen; consistent processes for internal competitions; and the alignment of incentives so that staff can see their role in the business's future. By treating the workforce as part of the journey, families reduce legal risk and strengthen loyalty.
Governance and planning
Whichever pathway is chosen, governance is the thread that holds succession together. Under the Companies Act 2006, the board of directors holds responsibility for appointing and overseeing the chief executive. A family council, where one exists, has an important role in articulating long-term vision and values, but it should not run the appointment process. Blurring these roles risks politicising the decision and undermining the authority of the incoming leader.
Employment law underpins all three succession models. Robust contracts, fair procedures, and consistent treatment of employees create certainty in what is often a time of uncertainty. They reassure the family that its legacy is protected, the leader that their authority is clear, and the workforce that change will be managed fairly.
Planning for the inevitable
Chief executives in the UK now serve shorter terms than in many comparable markets. Succession is not a rare event, but a recurring one. For family firms, this reality should serve as a wake-up call – delay is not a strategy.
Internal continuity, external change, and employee ownership are all viable routes, but none succeed by accident. Families who anticipate the transition, embed governance frameworks, and put the right employment law protections in place are far more likely to see succession strengthen rather than unsettle their enterprise.
At Buckles, we work with family businesses to prepare for this inevitability. Our role is to ensure that succession, whatever path it takes, is supported by legal clarity, cultural sensitivity, and governance that preserves both the business and the values on which it was built.
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.
