McKinsey studied 200 family business successions. The biggest problem wasn't the heir — it was the outgoing CEO

The departure of a CEO from a family-owned business often heralds a downturn in performance. Recent research conducted by McKinsey highlights the challenges that arise during leadership transitions by analyzing over 200 family-owned businesses across 50 countries and 10 different sectors. This study reveals that these companies typically experience a decline in revenues, shareholder returns, and earnings for five years post-transition compared to the five years prior. On average, there is a drop of 5.7 percentage points in returns, along with reduced revenue growth and shrinking earnings margins.

What contributes to the challenges of succession in family-owned businesses?

The common narrative points to the heir as the primary source of succession issues, a notion popularized by media portrayals such as the siblings in HBO's Succession. However, the data from McKinsey’s research dispels this stereotype, demonstrating that family-owned businesses face a decline after a CEO transition regardless of whether the successor is a family member or an external executive. In fact, only about one-third of all transitions generate any real value.

If the successor’s capabilities were the sole issue, one would expect non-family professional transitions to perform better; they do not. This indicates a different key factor: the outgoing CEO.

Transitioning control can be a considerable challenge for any sitting CEO, but it may be even more complex in family-owned businesses, where personal and professional lives are often intertwined. This predicament can manifest in two ways. Some CEOs exit prematurely, leaving successors burdened with unresolved conflicts, outdated operational systems, and reporting structures tailored to the former CEO's authority. Conversely, other CEOs may fail to completely detach, attempting to influence operations behind the scenes, which undermines the authority of their successors and breeds confusion within the organization. As a result, new leaders often find themselves managing inherited issues rather than executing their own strategic visions.

Best practices for outgoing CEOs

First, initiate the transition planning well before formal notice is given. Research from McKinsey indicates that CEO succession should be viewed as an 8-to-15-year process, yet many families wait until leadership declines to begin this vital preparatory work. A CEO from a long-established European conglomerate, with a history of five successful leadership transitions, emphasized that identifying and preparing successors is the most crucial decision a business can make. The most effective families do not suppress the outgoing CEO's need for control; instead, they channel it constructively. Establishing a solid succession framework, addressing operational inefficiencies, clarifying reporting lines, and resolving potential conflicts ahead of time are significant final tasks for a retiring CEO that can facilitate smoother transitions.

Next, carefully plan the exit alongside the transition. The process for the exit of an outgoing CEO is as critical as the plan for the incoming CEO’s transition. The highest-performing family businesses in this research treated the exit as a distinct initiative that included structured knowledge handoffs, phased transfers of roles and responsibilities, and well-defined milestones for both the outgoing and incoming leaders. One director from a European telecommunications firm reported that a transition council comprising both family and non-family stakeholders helped to institutionalize the succession process, reducing emotional tension.

Finally, ensure there are meaningful and engaging post-CEO pursuits. Outgoing CEOs who define a compelling next chapter—such as roles on boards, mentorship, philanthropy, or industry leadership—are more effective in relinquishing operational control. For those who choose to maintain involvement, it is critical to establish firm boundaries: a founder of an Asian consumer goods company shared his philosophy after stepping down as CEO was to "keep my nose in, but my fingers out." Additionally, those who continue to engage actively should create a tangible and visible transfer of authority, even relocating their offices as a clear message to the organization that power dynamics have shifted.

The financial imperative for effective transitions

The struggle of seasoned leaders to pass on the reins is understandable, given their dedication to building the organization. However, there exists a compelling financial rationale for managing these transitions proficiently. The top-performing family businesses in the study saw an increase in revenue and earnings margins of about four percentage points in the five years following succession. The stakes are particularly elevated when the successor is a family member; these transitions created value only 29 percent of the time, yet those that succeeded yielded a remarkable 23-percentage-point increase in shareholder returns—nearly double the gain achieved in successful transitions involving external executives.

The consequences of poorly executed CEO transitions are severe, costing an estimated $1 trillion in global market value annually.

As articulated in the 2025 book CEO For All Seasons by McKinsey colleagues, the most effective leaders complement their skillsets with humility. Among the family businesses studied, those that thrived during leadership transitions shared a common trait: an outgoing CEO who approached their exit with the same diligence and discipline that characterized their tenure.

A well-considered and meticulously managed transition is not merely beneficial for the organization; it serves as a critical component of the CEO's enduring legacy. For those who take pride in their accomplishments, learning to let go is paramount.