Toward an integrative model of effective FOB succession.

Given that less than 10% of family owned businesses (FOBs) survive into the third generation, the issue of top executive succession has received a good deal of attention. Unfortunately, the literature on the topic is fragmented, as it deals with different parts of the elephant. This synthetic effort tries to put together the pieces to (1) derive a more encompassing model of what it takes for a succession to succeed, (2) determine the trends, consensus findings, as well as the gaps in our conceptual and empirical knowledge, and (3) suggest areas for further research.

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The literature on family-owned enterprise has focused a great deal of attention on the unique challenges confronting this form of organization. One of the most central problems facing FOBs is the ability to ensure competent family leadership across the generations. Only one third of family businesses survive into the second generation, and only about 10-15% make it into the third generation (Birley, 1986; Ward, 1987). Poor successions are often the source of the problem (Miller, Steier, & Le Breton-Miller, 2003). Certainly, profound challenges have been identified in assuring effective successions even in public enterprises (Finkelstein & Hambrick, 1996). But the situation is far more difficult in FOBs, where there is often a smaller pool of talent on which to draw, complicating emotional factors in the incumbent-successor relationship, and complex social ties with the family (Dyer, 1986; Lansberg, 1999; Miller, Steier, & Le Breton-Miller, 2003).

It is not surprising then, that over the years, much has been written about FOB successions--and what it takes for them to succeed. The succession process is often construed to encompass the actions, events, and organizational mechanisms by which leadership at the top of the firm, and often ownership, are transferred. In going through the helpful but disparate literature on succession, we were struck that different studies appeared to be directed toward "different parts of the elephant," each dealing with a potentially important, but relatively small part of the problem. Thus some studies focus on the qualities of the successor, others on the family context, and still others on the incumbent. Even the more encompassing studies, as we will see, omit central dimensions of the succession context and process, and neglect the long term, dynamic and iterative nature of succession.

The aim of this research was to take a more comprehensive integrative approach. We first examined the systematic empirical and theoretical literature on positive successions. Then, by extrapolating, interpolating, and making logical connections among the studies, we derived a preliminary integrative model of the succession process. From that model it was clear that there were empirical and logical gaps in our knowledge and so we broadened our search to include less frequently studied variables--those typically the subject of more anecdotal literature that tracks successions as long-term, evolving, contextualized processes. We incorporated these findings to derive a fuller integrative model, whose scope, dynamics, and links suggest neglected areas that may be highly consequential to the long-term viability of a succession, areas in need of more study. Their neglect represents gaps that can fruitfully guide the research agenda.

Scope and Method

Our concern here is not with all top management successions but those within family businesses that have as a strong preference, although not necessarily an imperative, to keep the leadership in the family. Our model, and some of the literature upon which it is based, admits of multiple family and non-family leadership candidates, and generally assumes the incumbent and favorite candidates are family members, or failing the availability of a competent contender, a bridge manager between family tenures.

To conduct a thorough review of the literature on succession in family-owned businesses, we searched the exhaustive Proquest database of articles, using the keywords family-owned-business and succession. We used the bibliographies of each article identified as a bridge to other potentially relevant literature on the topic, including books. Finally, we scanned the HEC Montreal university library for additional sources.

Defining Success in Succession

The most common definitions of successful succession were

* The subsequent positive performance of the firm and ultimate viability of the business;

* The satisfaction of stakeholders with the succession process (Cabrera-Suarez et al., 2001; Dyer, 1986; Handler, 1990; Morris et al., 1997; Sharma et al., 2001).

Certainly, the drivers of these outcomes may differ. "Political" appointments may satisfy family stakeholders but hurt the bottom line, whereas anointing a technically competent but independent executive may stir anger among some controlling family owners.

The Dominant Focus of the Systematic Research

We examined more than 40 articles and seven books written on the FOB succession over the last 30 years. These represent all the systematically empirical and theoretical articles we could find on positive succession experiences, and the bulk of the anecdotal pieces. We focus below on the subset of data that is systematically empirical--that is based on rigorous methods and multiple subjects, and often connected to formal hypotheses and statistical methods. These have the greatest validity and reliability. Also cited will be theoretical works that refer to such findings. We will then turn to the more anecdotal later, to complete the picture.

Common Predictors of Successful Succession

Table 1 summarizes the relative frequency of the most common findings in all the literature we reviewed (all cited in the references). In the most popular classes (17 to 23 out of the 48 studies), we find the categories of Incumbent attributes--characterized by job motivation and willingness, quality of the relationship with the successor, and personality and needs, sometimes poorly specified. Another equally key category is that of Successor, where again, relationships with incumbent, motivation, interest and commitment, and management ability were found to be important. A somewhat less researched but still focal category (12 to 18 studies) is that of Nurturing and Development of the successor(s). Variables or dimensions such as career development, outside work experience, apprenticeship, formal education, and training program are often mentioned (26% to 38% of the time) as being critical to successful succession. So are the qualities of relationships inside the family--collaboration, accommodation, team approaches, harmony, and sibling relationships. Another often mentioned but thinly characterized category was the establishment of Ground Rules for succession planning. Incumbent phase-out and Successor phase-in are also often discussed, as is Board of directors and its composition. Below we summarize what the systematic empirical and theoretical studies have to say about these most commonly researched variables.

Incumbent

Numerous studies have explored the attributes of the incumbent as predictors of successful succession and as critical variables in succession planning. Ward (1987), in fact, has claimed that the business owner is the most important factor in the success of succession. Three major themes appeared most often:

The Relationship between Incumbent and Successor. Cabrera-Suarez et al. (2001) emphasized the importance of the relationship between the predecessor and the successor, arguing that an effective transfer of knowledge between the generations is vital. Dyer (1986), Goldberg (1996), Handler (1990, 1992), Hugron (1993), Lansberg (1988), and Ward (1987) all found a positive link between the quality of the relationship and the success of the succession process. A relationship based on mutual respect and understanding is said to make individuals feel supported and recognized, and to create a virtuous circle of trust and feedback. Learning can then emerge through an evolutionary process that begins in early life at home and continues in the work relationship. Davis & Taguiri (1989) note that the quality of this work relationship between fathers and sons varies as a function of their life-cycle stages.

Incumbent Motivation. Dyer (1986), Handler (1990), Lansberg (1988), McGivern (1978), and Ward (1987) all suggest the importance of the predecessor's overcoming anxiety about succession, moving beyond the denial stage, and being willing to confront succession and let go. The incumbent must face normal fears such as losing control, power, and even part of his or her identity and stature in the community (Potts, 2001b). There is also the challenge of facing one's mortality. Said one manager: "giving up the company is like signing one's own death warrant" (Barnes & Hershon, 1976, p. 107). There is too the need to make emotionally wrenching choices from among one's children, siblings, and collaborators (Malone, 1989). Although these are psychologically draining issues, Sharma et al. (2001) conclude that the predecessor's inability to let go is the single most cited obstacle to effective succession.