The Founder’s Final Act

Idea in Brief The Problem Many company founders postpone or avoid succession planning, leaving their businesses—and legacies—vulnerable to family conflict, mismanagement, and even collapse after they step away. The Solution Founders should start planning early, defining their legacy goals and deciding how best to align future ownership with their values. The Way Forward The next step is committing to a clear ownership-succession plan that includes milestones, accountability, and room to adapt as conditions change. Succession planning has been called “the last act of a great CEO.” That act is infinitely more complex if the CEO is also the owner and founder of the company. When that’s the case, the decision about who will own the business next is a profound one. It will reverberate for years, affecting not only the founder and the founder’s family but also all the people whose lives are touched by the company, including employees, customers, and the community. The choice can cement—or undo—a successful entrepreneur’s legacy. Yet many founders make the decision very late in life—or not at all. Some hold on to power until the very end, limiting their options. Or they passively turn the business over to their children, leaving them to sort out what to do with it. Many founders are so paralyzed that they simply do nothing. But when a business is passed down to the next generation without proper planning, it can lead to enormous tax consequences, not to mention family tensions, managerial conflict, and instability that could disrupt the business, forcing its sale or liquidation. The same problems also confront companies run by founderlike leaders, such as second-generation owners who’ve built a business into what it is today (for example, Rupert Murdoch) or those who joined the firm early in its existence and have become synonymous with it. Addressing entrepreneurial succession is particularly relevant these days, given the massive wave of ownership turnover currently hitting founder-led businesses—part of the “silver tsunami” of retirement. More than half of all privately held businesses with employees in the United States have owners over age 55, representing an estimated 2.9 million businesses, 32.1 million employees, $1.3 trillion in payroll, and $6.5 trillion in revenue. These figures may be even higher outside the United States, where family-owned businesses make up a larger portion of the economy. This is not just an issue faced by mom-and-pop businesses. During the past two decades some of the world’s most high-profile companies have been founder-led, including private firms like Chick-fil-A, Menards, Enterprise, and Love’s and public companies like Meta and Nike. An entire generation of founders is now facing the key question: Who will own my business after me? Despite the long-term consequences of this decision, up to 70% of family-business CEOs across the globe have no succession plan, according to the 2019 STEP Global Family Business Survey. In this article we’ll offer a clear explanation of the possible succession choices for founders and outline the steps they should work through to make the right calls. No single solution will be appropriate for them all, so it’s crucial that founders go through the process of defining what success means to them, understanding and exploring the potential pathways for achieving it, and then, ultimately, deciding on a plan. By starting this journey early, founders can make the most of their final act. The Challenge of Choice It may seem obvious that founders who care deeply about their businesses and everyone affected by them should start the ownership-transition process well before it’s necessary rather than leave so much to chance. Beyond the problem that company owners are always busy, making transition plans can be difficult for two main reasons. First, very human emotions are triggered by the process. Letting go of ownership means contemplating mortality. Planning a transition also challenges a founder’s sense of identity. For people who have defined themselves as leaders of companies, letting go can be painful. Second, ownership decisions have major consequences for families, which have follow-on implications. A founder may want to pass the company on to her children, but that can be more complicated than it initially appears. For example, if one child is involved in the company as the “heir apparent” CEO while the others are off pursuing their own passions, how should that affect the ownership decision? If the founder chooses to give a greater share of the company to the future CEO, will her other children think she has picked a favorite and resent her? If she doesn’t give the obvious successor a larger share, will that person feel insufficiently rewarded? What if professional managers and other employees are waiting around to see if they have a chance at ownership? Will they leave after the choice is made? While we’re empathetic about the difficulties of deciding, we believe it’s vital for founders to actively engage in succession planning. In our work advising family businesses, we’ve found that the best outcomes come from a structured, intentional approach that moves through four key phases: Define your legacy, explore your options, experiment and learn, and execute your plan. Start the ownership transition by thinking about what you value most and how you want to prioritize the outcomes for five main categories of stakeholders: you, your family, your employees, your business partners (customers and suppliers), and society (both locally and globally). Of course, figuring that out isn’t necessarily straightforward. But by identifying your specific goals for each group, you can begin to evaluate the trade-offs of various paths forward. Some goals are relatively complementary. For example, ensuring that your employees have stable working conditions can also provide benefits to the community. Other goals are more zero-sum. You may maximize your family’s long-term financial security by selling the business, but doing so may diminish your own stature as the business’s founder. If you turn the business over to a charity, you can’t use the funds from a sale to support your retirement. And selling the business to your workers will limit your children’s ability to be involved in it. To clarify your priorities, we suggest you work through the following list of questions that we’ve developed in our work advising founder-led businesses. We find that it’s particularly helpful to first identify what is not essential for your legacy and cross out the outcomes that are not important to you. Then you can take your refined list and divide the stakeholder outcomes into three categories: must have, nice to have, and less important. 1. What do I want for myself? To maximize my personal wealth To be recognized for my achievements To keep information about my business private To maintain control or influence over the future of the business To have an easy transition To be able to change the plan 2. What do I want for my family? To keep control of the business in my family’s hands To ensure wealth and financial security across generations To enable my family or heirs to participate in and shape the business To treat my heirs equitably 3. What do I want for my employees? To ensure job security and continuity for them over the long term To transfer wealth and financial benefits to them To preserve the company’s culture and traditions To give loyal employees their chance to lead 4. What do I want for my business relationships? To maintain strong long-term relationships with key business partners To sustain the company’s reputation and brand with customers To protect the company’s ability to adapt and evolve To leave a lasting mark on the industry through thought leadership, influence, and innovation 5. What do I want for the community and society? To ensure the continued presence of the business in the local community To contribute to the long-term economic, social, or cultural strength of the region To position the business as a lasting pillar of the community To give a large, onetime financial windfall to a social or community cause To advance social causes through ongoing operations or continued financial support Owning a company allows you to define your legacy on your own terms, but you need to be intentional when determining and prioritizing your values so that you don’t drift away from them. Once you’ve determined your goals, you need to decide whether the best way to achieve them is by transferring the company to another long-term owner or through a liquidation or sale. Although it may seem counterintuitive, for some founders the company’s continued existence will be an obstacle to realizing their legacy. They may lack confidence that the business can thrive without the specific skills they bring to it. They may not want to burden their family with the demands of the business. Perhaps they fear that without their guidance the business will become something very different that they wouldn’t want their name associated with. If any of this is true for you, your objective should probably be to shut the business down or liquidate it. More frequently, though, founders instead see the business as a lever for achieving goals that don’t depend on their continued connection to the business. They may view the business as a source of value that can be unlocked to fund their retirement, set up their family for the long term, or support charitable causes. If you see your company this way, your succession plan should be focused on how to maximize its sale value. Nash Weerasekera The booming growth of the private equity (PE) market has made selling to a PE firm a common solution for those who want to cash out. But you’ll need to understand that the PE firm won’t be the final owner of the business. In order to return capital to its investors, it will take the company public or sell it to a strategic or financial investor. To maximize its return on investment, a PE firm will often make major changes to a company, including to its strategy and operations. Once founders sell, they have little to no influence over those decisions or whose hands the company ultimately ends up in. If your goal is to find a long-term owner for your company that will carry on its mission and operations, we recommend looking for another option. Finally, many founders see the continuation of their business as a vehicle for accomplishing their legacy goals. They may consider their companies to be monuments to their hard work or a means of creating opportunity for future generations. They may see their firms as being integral to the community, as critical sources of jobs, or as examples of how to do business the right way. If you view your company as a vehicle, your priority should be to find a long-term owner for it. For this group of founders, there are five primary options, listed here in rough order of frequency: Pass the business down to family members. Many well-known companies around the world—including Mars, Chanel, Enterprise, and Aldi—are fully owned by the founder’s descendants. A family succession is the default setting for many owners who want to see their company continue beyond them or to provide for future generations. Bequeathing a business, rather than the proceeds of a sale, can be a way to address one major concern that we hear business founders voice, which is that wealth will infect their children with “affluenza” and sap their work ethic. Giving your heirs an operating company where the value is invested in factories, salaries, and assets—rather than available to spend—will make them rich on paper without giving them the liquid funds that may create idleness. The main risk with this option is that conflict among your successors can destroy both the company and family relationships. Take the company public or sell an interest in it to investors. Reporting requirements and corporate governance regulations ensure that there is oversight of public companies’ performance. Public ownership also helps businesses access the capital they need to keep growing and allows them to incentivize employees with stock. On the flip side, public companies face pressure to focus on the short term and may not continue the business’s mission if conditions change or the winds of public opinion shift. Selling to private investors, such as a family office, is also an option. But one danger to consider is that private investors’ interests may diverge from the objectives of the founders, just as the interests of more-traditional PE firms could. Turn ownership over to your employees. That may mean senior leaders assume ownership, as typically happens in professional service firms. Or it may be that a broader group, such as all the company’s employees, does. John Spedan Lewis, son of the founder of the UK department store John Lewis, established a trust for the benefit of all current and future employees and transitioned 100% of company ownership to it. As of 2024 the John Lewis Partnership—operating in the United Kingdom under the brands John Lewis and Waitrose—had more than 70,000 employee owners and over £12 billion in revenue. In the United States there are nearly 11 million employee owners across more than 6,000 companies, according to joint research by the Aspen Institute and the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing. The main reason to pursue employee ownership is that the business can remain private and stay true to its purpose while allowing the founder to share the value created with the staff. There can also be tax benefits with certain types of structures. The main risks are that the company will have to take on debt if it’s buying out the founder’s shares, that it may face additional regulatory requirements, and that tension could arise between employees who are looking to cash out their shares at retirement and those who are investing for the future. Place ownership in the hands of the company’s customers. John Bogle created Vanguard, a pioneer in the field of passive investing, as a mutual company owned by the individuals who invest in its funds. The outdoor gear and clothing business REI is a consumer cooperative, owned by its members. A large number of companies are also cooperatives, including one of the oldest companies in the United States, the Philadelphia Contributionship, a home-insurance company that was founded by Ben Franklin in 1752. Cooperatives and mutual companies (like State Farm and Northwestern Mutual) can align the interests of the executives and customers, allowing for a value-driven approach to decision-making. However, the number of sectors where ownership by customers is practical is relatively small. Businesses owned by customers can also struggle to get capital and stagnate because of lower financial pressure to perform. Donate ownership to charity. The founder of Rolex, Hans Wilsdorf, gave all his shares to a foundation that owns 100% of the company. Each year, the foundation distributes an estimated 300 million Swiss francs (about $360 million) to charitable causes. Paul Newman donated 100% of the company he’d founded, Newman’s Own, to a foundation that supports children in need. While charitable ownership is challenging in the United States, the “Newman’s Own exception” allows founders to give an entire company to a charity. In other countries, company ownership by charitable entities is much easier and more common. Charitable ownership can create a permanent home for a business that is driven by creating value for stakeholders rather than by maximizing profits. Profits that aren’t reinvested can be directed to causes important to the founder. Beyond the limited options available in the United States, the main downside to this approach is that a charity may not be motivated enough by financial performance to provide effective stewardship in a dynamic business environment. Each of these choices has strengths and weaknesses. Some founders will find that none align perfectly with their desired legacy, so they’ll need to tap a mixture of them. For example, 80% of Publix, a large supermarket chain, is owned by its employees through an employee stock ownership plan (ESOP) while about 20% remains in the hands of the founder’s family. The Hershey Company is publicly traded, but 80% of its controlling interest is held by the Hershey Trust, which was established by its founder, Milton Hershey, to support a school he created. A controlling interest in Novo Nordisk, the publicly traded maker of the blockbuster drugs Ozempic and Wegovy, is also held by a foundation. Charitable ownership can create a permanent home for a business that is driven by creating value for stakeholders rather than by maximizing profits. Yvon Chouinard, the founder of Patagonia—whose mission statement is “We’re in business to save our home planet”—felt that Patagonia needed to continue operating independently to demonstrate that companies can be profitable while protecting the environment and to model a better way of doing business. Yet his greatest asset, the company stock, wasn’t liquid, so it couldn’t easily be put to work. He seriously considered selling Patagonia to another owner or taking it public with a controlling-share class in order to cash out and use the proceeds to fight environmental crises. But as a letter he posted explains, he decided against that path because “we couldn’t be sure a new owner would maintain our values or keep our team of people around the world employed.” As for the option of an IPO, he said, “even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility.” And he concluded early on that he didn’t want to burden his adult children with owning the company, in part because they in turn didn’t want to burden their own children one day. With those options eliminated, Chouinard needed to figure out how the company could continue under the stewardship of owners who shared his values. He ultimately chose to create a perpetual purpose trust (PPT), a new business-ownership structure that’s growing in popularity. It involves putting the voting shares of the company in a trust, which in Patagonia’s case is overseen by the family with the sole objective of ensuring that Patagonia continue its mission. The family transferred the nonvoting shares to a 501(c)(4) nonprofit, which allows for donations to charities and political causes but did not provide a tax deduction to the family. Patagonia’s profits, net of those held for reinvestment in growth, will flow from the foundation toward environmental causes. After you’ve defined what success will look like, you can test your hypothesis about how a future ownership model will help you realize it. There is no one-size-fits-all solution. Two founders who want the same kind of legacy could choose very different models. Doug Tompkins, the founder of the North Face, shared Chouinard’s desire to help save the environment when he was exiting the apparel company Esprit, but he chose to sell his shares of it to an investor group. That allowed him to immediately put the full proceeds of the sale toward land conservation. To this day much of the Patagonia region in South America is protected by Tompkins’s conservation easements. With a clearer vision of the potential ownership structures, you can explore strategic options, assessing different pathways against your priorities. This phase is iterative: It can take years to fully investigate viable options while ensuring the business remains strong. It entails two distinct efforts: first, scenario testing, in which you analyze the different options’ potential to achieve the financial, operational, and ownership outcomes you desire; and second, a feasibility assessment, in which you consider real-world constraints such as taxes, valuations, deal structures, governance, and legal risks. The best-laid plans can be derailed by external factors, so you must balance strategic ambition with the realities of execution. As David Weekley, the founder of one of the largest private home builders in the United States, approached retirement, he began to step back from the company in phases. First he handed over day-to-day leadership to a team he had built while retaining a “kill switch”—the ability to override major decisions he felt were counter to the company’s essence. At the same time, Weekley began carefully studying other family businesses, attending family-business conferences, and learning what worked and what didn’t. He encountered transition models that felt misaligned with his values—such as families that gave a single heir full control of the business, leaving no role for the other children, or that suffered from “dividend sprawl,” where dozens of passive owners collected checks without contributing to the business. Instead, he made a plan that would balance family involvement, employee ownership, and community impact. For David Seaton, the founder of LiveOak, which runs residential communities for adults with cognitive disabilities in Texas, the process of creating his succession plan solidified what he wanted his legacy to be. “The more the attorneys I met with talked about how much money I could make, the more progressively depressed I became with that outcome because it just did not fit my values and my goals,” he says. “I was going to end up with a fat wallet and a broken heart.” Seaton began exploring options that would ensure that his employees were rewarded for their hard work and dedication to residents. He ended up creating a trust that ensured the company’s profits would always benefit its employees. At some point exploration must give way to decisions and action. Different transition paths demand different timelines. For instance, it can take founders 12 to 24 months to optimize performance, secure advisers, and find a buyer. And things don’t always work out: Less than a third of small businesses find a buyer, according to research from Project Equity. Passing ownership on to heirs, employees, or charitable trusts often takes even longer because of the need for estate and leadership-succession planning. To ensure a smooth transition, you should draft a detailed plan that outlines key milestones, responsibilities, potential risks, and metrics for tracking progress. A good plan will prevent critical elements from slipping through the cracks and allow for necessary adjustments along the way. Next set up regular checkpoints. Are your milestones being met? Have external conditions changed? Is the company responding well to leadership shifts? If the plan isn’t delivering the expected results, adjustments—whether in ownership structure, governance, or financial strategy—must be made before the actual transition of ownership. Weekley eventually divided ownership into thirds: One-third went to employees, one-third to the community through a charitable trust that he had set up, and one-third to his family, which retains voting control. He moved into a newly created “founder’s office” next door to headquarters, and as of the writing of this article, he’s still easing himself out of meetings. A decade into this process, how does he know he’s made the right decision about the long-term fate of the company? “It’s reaffirmed on a daily basis,” he says. “We are not a sexy company, but our purpose is ‘building dreams and enhancing lives’ for our team, our customers, and our community. I think we’ve done just that.” It’s never too early to start thinking about your legacy. Choices about a founder’s final act should be just as intentional as those made during a company’s launch and growth phases. They should be made strategically, with research and thought. By defining success early, exploring your options, learning and experimenting, and finally, executing a plan with built-in flexibility, you, as a founder, can be the chief architect of your legacy. After many years of hard work building your business, you owe it not only to others but to yourself to get it right.

The Founder’s Final Act

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