When Family Businesses Misjudge CEO Successions. And how to fix it.

This article was first published in the FFI Practitioner, August 19, 2026; https://ffipractitioner.org/when-family-businesses-misjudge-ceo-successions-and-how-to-fix-it/

Every family business reaches a moment when leadership choices determine whether legacy will endure. That inflection point is soon arriving for a large cohort of family businesses globally. According to a  recent survey of 300 family business executives, nearly 8 in 10 expect a CEO transition within the next decade, and 42% foresee this shift within the next three to five years.

While not every family business passes the baton to a family member, the same survey indicates that among firms generating over $1 billion in revenue, 32% expect a family member to become CEO. Additionally, 47% of firms with revenues below $500 million favor a family member. 

Identifying and appointing the right successor from within the family is therefore a critical decision. Mismanaged successions can have far-reaching implications, from erosion of trust among shareholders to damage to the family’s legacy and reputation. Based on my experience, I believe that most family business successions fail because they confuse backward-looking proxies such as birth order, seniority, lineage, or perceived legitimacy, with leadership readiness. Instead, what they need is a lens grounded in judgment, competence, and demonstrated capability in selecting the next CEO from within the family.

Four Mistakes Family Firms Make When Naming a Family CEO

As a researcher on family enterprises and an advisor to multigenerational business families, I have observed four recurring mistakes in succession planning. 

1. Favoring lineage over leadership readiness: Families often elevate successors based on inheritance, assuming bloodline confers legitimacy and that legitimacy precedes competence. While that can give successors positional authority, a lack of capability can lead to strategic missteps, internal fragmentation, and loss of control. 

The Gucci family drama is a classic illustration of this mistake. Aldo Gucci, believed that his nephew Maurizio was the most credible option from within the family to lead Gucci. Aldo actively coaxed him into the business. The logic was lineage preservation, not leadership readiness. Once in control, Maurizio pursued an aggressive repositioning toward high-end luxury without sufficient financial discipline. Prolonged internal disputes and mounting debt eventually forced him to sell his stake to external investors, ending the family's ownership of Gucci.

2. Using seniority or implicit hierarchy as a shortcut for leadership selection: In many family firms, the eldest, the most visible, or the longest-involved family member is assumed to be the natural successor, often without a rigorous comparison of alternatives. Seniority and proximity to the business may signal commitment, but they do not guarantee strategic judgment, emotional steadiness, or the ability to lead a complex organization. More importantly, when the basis of selection is not explicitly defined, leadership transitions lose institutional clarity.

The succession dynamics at Reliance Industries illustrate this risk. After Dhirubhai Ambani's death in 2002, the absence of a formally articulated, capability-based succession framework allowed assumptions about authority to harden into conflict between his sons, Mukesh and Anil. It resulted in a negotiated partition of the empire rather than a strategically designed transition. The split fragmented strategic focus and shareholder value for years. 

3. Prioritizing legacy alignment instead of strategic need: What many owners underestimate is how fundamentally the CEO role changes across generations. The capabilities that built the business are rarely the same ones required to scale it. It can also be tempting to select a successor who resembles the founder or incumbent. Familiar temperament feels reassuring. But resemblance is not aptness. 

In an Indian consumer goods company, the founder increasingly aligned with his son-in-law, whose command-driven style and temperament resembled his own. While remaining skeptical of his more professionally oriented son. However, the business had begun to outgrow its founder-led model. As it expanded, it required greater coordination across functions, professionalized governance, and clearer decision rights. 

The son-in-law's leadership style became a constraint in this next phase. Tensions escalated, decision-making fragmented, and parallel power centers emerged. Despite the presence of capable family members, the absence of alignment between leadership style and the firm's evolving needs ultimately led to a structural split of the business 

4. Not laying out the next chapter: Most families begin succession conversations by debating names. The more strategic place to begin is to first gain clarity on what the next chapter of the business will look like. Is the firm entering consolidation or rapid growth? Is it moving toward professionalization and institutional governance? How will digital disruption, global expansion, or new competitors reshape the business? Only once that mandate is defined should candidates be assessed as each phase demands a different kind of leadership. 

The leadership transition at Tata Group illustrates this risk. When Cyrus Mistry was appointed chairman in 2012, he pursued what he read as the firm's need: restructuring underperforming businesses, rationalizing the portfolio, and tightening capital discipline. However, this direction clashed with the expectations of the Tata Trusts, which placed greater weight on legacy continuity and the preservation of the group's institutional identity. The resulting conflict led to Mistry's removal in 2016. Without that shared definition of the next chapter, even a capable leader can be set up to fail. (Mathew, 2024; Jhunjhunwala, 2020).

The question, then, is how can family businesses move beyond comfort and similarity to identify the leader best equipped for the enterprise’s future.

Be Strategic about Choosing the Next CEO

Keeping the mistakes in mind, how should you move ahead and pick the right CEO? How do you assess if they have the qualities the firm needs in the future? 

Leadership assessment frameworks are abundant. Firms such as Korn Ferry offer validated competency architectures and psychometric tools designed to evaluate executive potential. Major advisory firms publish governance-focused succession guides for family enterprises. Academic research has even proposed formal succession scorecards to structure decision criteria across generations. Most of these frameworks do not directly address the distinctive decision biases that operate inside family firms such as familiarity or birth order. 

Based on my work, here are four dimensions that can help firms make the right succession decision. These dimensions cannot be measured through aspiration. They must be observed in behavior. While most succession conversations focus on readiness, these dimensions focus on risk.

1. Institutional Courage: In family firms, the hardest decisions are relational. For that, you need a leader who has institutional courage- the capacity to act in the enterprise’s long-term interest, even when doing so disrupts family comfort. This surfaces on many occasions, when capital must be redirected away from a legacy division run by a relative, when a long-serving executive must be replaced, or when short-term distributions must yield to reinvestment. Without institutional courage, a CEO becomes a mediator of expectations rather than a steward of value.

This dimension is best assessed through the candidate’s track record. Leaders should look back at moments when enterprise interest conflicted with family preference and examine how the candidate responded. For example, if a division led by a family member was consistently underperforming and the company had to decide whether to restructure it or let it continue out of deference to the relative running it, did the candidate defer, delay, or act? As part of the evaluation, the board or an independent advisor could ask senior non-family executives: “When pressure rises, does this individual protect organizational performance or family relationships? Can you recall a time when this person made a decision that was right for the company but difficult for the people who lead it?”

2. Strategic Fit: A leader’s competence isn’t static. It is context dependent. A successor who excelled in an era of opportunistic expansion may not thrive in a period requiring disciplined integration. A leader skilled at operational optimization may struggle when reinvention becomes imperative. So, the choice cannot be based on who has excelled so far but who is best equipped to lead the firm into its next chapter. 

Businesses should start by defining their most critical strategic priorities for the coming phase. And evaluate whether the candidate has demonstrated depth in those areas. For example, “The company is undergoing pivotal digital transformation. Your internal capabilities are weak, and senior leaders are resisting the changes. What would be your first move? How would you decide what shouldn’t be digitized?”

What matters is pattern recognition, not polish.

3. Judgment Maturity: Founder intuition often dominates first-generation enterprises. That intuition cannot be inherited. But what you can assess in a potential successor is their decision-making and judgment architecture. Strong candidates demonstrate the ability to integrate dissent, weigh imperfect data, and move with conviction without becoming impulsive. 

The evaluation should focus on reasoning rather than outcomes. Look at how they handled decisions when stakes were high or when information was incomplete. What were the trade-offs? Did they lean into family expectations or the enterprise’s needs? Examine the logic they deployed at the time. Were they willing to revise their decision when evidence changed or when they had new information? Past episodes involving capital allocation trade-offs, market downturns, or operational crises are especially revealing, because they expose how judgment functions when the pressure is real rather than hypothetical. 

4. Boundary Authority: An internal CEO needs to clearly distinguish between family forum and board forum, engage independent directors without defensiveness, and lead professional executives without feeling threatened by their expertise. In many family firms, successors who lack confidence in their own authority tend to centralize decisions, sideline capable non-family leaders, or blur the line between family sentiment and business governance. It also means preventing family disagreements from leaking into organizational processes.

This dimension is best evaluated by examining how the candidate has navigated governance boundaries in practice. Some questions to assess them include: How have they handled situations where a family member's preferences conflicted with a board decision? How do senior non-family executives describe the experience of working with them? Can the candidate clearly define where family input ends and management authority begins? 

A successor who cannot draw these boundaries before appointment is unlikely to hold them under pressure. 

Choose the Future- Not the Familiar

Internal succession is one of the few moments when a family can consciously redesign its leadership logic. It is also one of the most emotionally charged. The candidates are not strangers on a shortlist. They are sons, daughters, siblings, in-laws. The weight of relationships, history, and obligation is real, and no framework can eliminate it entirely. 

But that is precisely why rigor matters. When selection criteria remain implicit, emotion fills the gap, and the resulting choices tend to reflect the family's past rather than the enterprise's future. The shift required is not from affection to detachment. It is from assumption to deliberation: clearly defining what the next chapter demands, assessing candidates against those demands, and making the basis of selection transparent to the family and the institution alike.

The families that endure across generations make difficult choices well, with clarity, with courage, and with the enterprise's future as the anchor.

Tata Group’s next chairman: The next chapter must come before the next leader

This article was first published in Forbes India on August 12, 2026; https://www.forbesindia.com/article/upfront/column/tata-groups-next-chairman-the-next-chapter-must-come-before-the-next-leader/2997016/1

Succession is often treated as a question of finding the next person. In large family businesses and business groups, the more important question is what the institution will need from its next leader. That answer changes with time. A leader who is right for one phase may not necessarily be the person best equipped to lead the next.

N. Chandrasekaran’s decision not to seek another term as chairman of Tata Sons offers an opportunity to ask that question of one of India’s most important business groups. This article is not about assessing the circumstances of Chandra’s decision or speculating about the individuals who may succeed him. It is about what Tata should look for in its next chairman, why alignment among its key stakeholders will be critical, and why the succession process should begin immediately if the Group wants a smooth transfer of leadership. 

Chandra was the right leader for his chapter

It is important to judge a leader in the context in which he takes charge. When Chandrasekaran became chairman of Tata Sons in 2017, the Group was emerging from a deeply difficult leadership episode following the removal of Cyrus Mistry. Tata Group needed stability, credibility, institutional continuity, and transparency in governance. Chandra brought decades of experience from within the Tata ecosystem, particularly through his leadership of TCS. He was a professional manager immersed in the Tata way. 

The Tata Group that Chandra leads today is very different from the Group of 2017. Its ambitions now extend across semiconductors, electronics manufacturing, aviation, electric mobility and other new businesses, alongside established businesses in technology, automobiles, steel and consumer products. Its global footprint is larger and its investments are increasingly capital intensive. Technology, geopolitics, global supply chains and changing regulations are becoming central to the Group’s strategic choices. The leadership requirements of the next phase are therefore likely to be different.

First decide what the next Tata should look like

This is where succession processes often go wrong. We begin by asking who should lead. Who is available? Who is trusted? Who knows the organisation? Those questions matter, but they should come later.

The first question should be: What does Tata need to accomplish in its next chapter?

Where should the Group place its largest bets? How much capital should go into new businesses? Which businesses need acceleration and which need greater discipline? How should Tata Sons balance the autonomy of its operating companies with the need for strategic coherence? What should the relationship between Tata Sons, the Tata Trusts and the operating companies look like in the years ahead?

These are not simply questions for the incoming chairman. They are questions for the institution and its stakeholders.

The events surrounding Chandra’s reappointment make this especially important. His statement indicates that the Tata Trusts and the Tata Sons Nomination and Remuneration Committee and Board had recommended his extension. The proposal nevertheless did not receive unanimous Board support and remained unresolved for six months. Chandra has now chosen not to offer himself for reappointment. The larger lesson is not about one individual or one disagreement. It is about alignment.

A capable chairman can find it difficult to lead when the key stakeholders do not have a shared understanding of the institution’s direction. The next chairman should therefore not inherit an unresolved debate about the future. 

What will the next chairman need?

The next chairman will need strong strategic judgement. Tata is too large and diverse for growth to mean pursuing every opportunity. Someone will have to make choices about where capital and management attention can create enduring value.

Capital allocation will be equally important. Tata’s ambitions in new industries require patience and significant investment. The next chairman will have to balance the desire to build businesses of the future with financial discipline and a clear understanding of the returns such investments can eventually generate.

The Group will also need a genuinely global leader. Tata today operates in businesses shaped by technology, geopolitics, global supply chains and cross-border regulation. Understanding one industry will not be enough. The chairman will need to understand how different businesses fit into the larger portfolio and when the Group should act as a group rather than as a collection of companies.

There is another quality that may be even more important: knowing when to intervene and when to step back. Tata’s operating companies have strong professional leaders. The chairman should provide direction without centralising every decision. The ability to empower leaders while maintaining Group-level coherence is a significant leadership challenge.

And then there is continuity. The Tata Group has survived for more than 150 years because it has evolved without losing the values that give the institution its identity. In my earlier writing on Tata, I have argued that institutional memory is a strategic asset. It is not simply a record of what happened in the past. It shapes how people behave when there is no rulebook and when decisions have to be made under pressure.

The next chairman should understand that memory without becoming imprisoned by it. Continuity should provide the foundation for change, not become an argument against it.

The search should begin now

The Group has roughly six months before Chandra’s current term ends. That is useful transition time. It should not, however, become six more months of uncertainty.

Once the mandate is clear, the search for the successor should begin immediately, at a war footing. So that there is enough time for a meaningful handover. The incoming chairman should have an opportunity to work alongside Chandra, understand the Group’s strategic priorities, build relationships with key stakeholders and absorb the institutional knowledge that cannot be transferred through board papers. It is important for Chandra too to facilitate a smooth transition. One measure of a successful leader is not only what he achieves during his tenure, but how well he prepares the institution for the person who follows. 

The Tata Group now has an opportunity to make this transition a demonstration of good governance. It should use the remaining months not merely to find a person, but to clarify the direction, define the mandate and prepare the institution.

The next chairman should not be chosen simply to succeed Chandra. The person should be chosen to lead the Tata Group that comes after Chandra.