Family Business: Successors to the Throne

This last article on succession is one that often sparks the most reaction, especially among family business successors. Successors, more often than not, view themselves to be the same as others within the business, discounting their eventual succession as non-important in the overall scheme of things. The reality for non-family members in a family business is quite the opposite. That fact alone differentiates a successor from everyone else and because a person’s perception is his/her reality, it’s real. To think otherwise is clearly an avoidance/denial tactic.

That is not to say that family membership is the only and most important factor, it’s importance and relevance is personal and unique to each individual. If you work in a family business, you know if this is an issue or not.

Once again, I have chosen to compare family and corporate businesses to highlight the distinguishing differences between the two.

Corporate succession research abounds with discussions of insider versus outsider succession outcomes. Corporate literature reveals that insider and outsider categorizations are dependent on the incumbent’s tenure in the business. This tenure is defined as the number of years the incumbent has worked within the organization prior to appointment as CEO. Researchers have only recently begun to investigate corporate culture “ingroups” and “outgroups” which may or may not be tenure independent.

Research findings appear to be slightly more favorable toward the corporate “insider” successors versus “outsider” successors. Furthermore, age and titles held were found to be significant variables for insiders whereas education was found to be more important for outsiders. Some have found that stockholder reactions reflect favoritism for insider appointments in larger organizations. Moreover, if a predecessor’s performance was satisfactory, he was more likely to stay on in some other capacity, be it as an advisor or to serve on the board of directors.

Successors

Corporate Succession Family Business Succession
Insiders Versus Outsiders
The Business
Temporal Dependence
Organizational Culture Dependent
Insiders Favored
Insiders Versus Outsiders
The Family
Dichotomous
Organizational Culture Independent
Insiders Not Favored but Expected
Incumbents Attractive to Other Businesses Incumbents Usually Retire and are Unattractive to Other Businesses
Successors Have Similar Career Specialization Successor Career Specialization Proposed but not Studied

The insider/outsider debate is made possible as outsiders are attracted to join the corporate business, which is less likely with family businesses. Studies indicate that in the past, a successor more often than not resembled the person he/she replaced in educational/and or experiential expertise, knowledge and/or ability. Recent studies show this to be slowly changing. Diversification and globalization are said to be fueling the generalist versus specialist paradigms of management.

In contrast to corporate businesses, the insider versus outsider debate is non-existent in family business research as successors are either family or non-family members. For many researchers, including the author, succession to a non-family member renders the firm, upon successful transfer, to the non-family, corporate category. Hence, this first succession would be a family business succession, whereas the following succession would not.

Since large firms control more resources, the power and privileges of leadership are greater, hence more managers are interested in succeeding to the top position. In addition, since heads of larger organizations have greater visibility, they are more likely to receive offers from other companies.

The unattractiveness of long tenured (small business) family business owners to other companies significantly reduces alternative career paths available to the family business owner. In turn, top management positions in family businesses are less attractive to ambitious managers who aspire to own and control a company.

Since family business succession is by definition, limited to family members, successor specialization has not been largely studied. Studies reveal that personal characteristics can increase a potential heir’s likelihood of success more than his or her educational or experiential knowledge, skills or aptitudes.

The potential heir/successor should:

  • Consider her desire and commitment to join/lead the business
  • Evaluate her alternatives
  • Analyze her relationship with the parent/family member she is succeeding
  • Determine if other family members are in (dis)agreement
  • Make sure she has relevant and useful previous work experience preferably outside the family business
  • Possess leadership ability
  • Ensure she is a credible heir to the throne, otherwise her authority will be undermined and power diminished.
  • Be versatile. Small business management is a complex undertaking
  • Be properly educated/trained to face the technological and managerial challenges

Next month’s article—the last one in this series—will discuss the advantages of family business ownership and how to use it to leverage it in your strategic marketing initiatives.

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