Understanding Initiation, Outcome, and Succession Roles in Family Business

Last month, we saw that the process of succession in family business is different from the process observed in non-family business. This month, we are going to go beyond the process, by investigating the initiation, the outcome and roles played in family succession, as they compare to "Corporate America".

Initiation and Outcome
Corporate Succession Family Business Succession
Overall Strategy Outcome Individual Strategy (Obligation)
Acceptance / Expectation Resistance from the Incumbent
Company Driven Individually Resisted

Corporate succession is reported to be part and parcel of an overall strategic plan. It is both accepted and expected as an element of the "corporate game". It is company driven in that it is the organization as an entity that manages and foresees the eventuality of its leadership change. Even though there are (many) political aspects to the process which influence the process to varying extents, it nonetheless originates from the organizational entity and exists without question and contestation from its members or CEO. Their existence is not questioned, but the modalities can and often are the pawns of the corporate political game.

Family business research reveals that succession for the most part is within the founder's task and responsibilities. The high centrality and power of the founder may overwhelm the organizational culture and hence the identity of an entity void without the entrepreneur. Consequently, the "organizational" culture, intuitively apparent in large organizations, is less evident in smaller businesses. As a result succession is not born out of the collective psyche of the firm and thus often originates from the founder.

With the founder's reluctance to retire from the business as a result of denying his/her own mortality, the process suffers greatly. The greater the CEO's resistance, the worse the potential impact on the business. Since the ultimate objective of succession planning is the founder's exclusion from the business, detrimental effects of not planning and implementing a succession plan appear inconsequential to him. He will be excluded if succession is successful—hence the alternative can't be much worse. In his mind, he has nothing to gain and everything to lose by participating proactively in the process, thus often opts to simply ignore the inevitable, more often than not with predictably disastrous results.

Level of Analysis
Corporate Succession Family Business Succession
Behavior is Role Dependent Behavior is Person Dependent
Individual Event Family / Group Event
Discrete Process Gradual Process

As a planned process, corporate succession is usually a continuous yet discrete process, anticipated and executed systematically.

Behavior in corporate organizations is largely role dependent. Roles are assigned to each position and the incumbent is made to adhere to them, within certain prescriptive limits—succession is no exception. An incumbent is placed in a position and is expected to fulfill certain requirements and in turn a certain level of compensation and the opportunity to further personal development by "climbing the corporate ladder", is expected. Climbing the corporate ladder is permitted and facilitated by the succession process.

As a participant, the incumbent will be a potential benefactor or victim of the process. As a willing player, the incumbent agrees to play by the rules set forth and enforced by the organization. A similarity between family and non-family businesses is the intuitively obvious centrality (entrenchment) of the incumbent. The more roles played by the incumbent (President, CEO, Chair, member of the Board of Directors/Family Counsel), the more powerful he/she is, and hence the more important the succession outcome.

The succession process within the corporate environment is discrete in that it is generally clearly defined by an explicitly detailed procedural protocol. It is designed to be fair, objective, methodical, and uneventful. If successful, it is a minor issue in the activities of the business, crisis situations notwithstanding. This is reflected in the lack of significant stock market fluctuations when the process is well managed.

As previously mentioned, family business succession is often person rather than role dependent. Family businesses are often run according to the owner/manager's decisions whereby he/she assigns and delegates tasks, responsibilities and authority as he or she sees fit. This autocratic and adhocratic style is supported by an equivalent organizational structure.

The founder/entrepreneur's high centrality and dominance often overwhelms the process. Moreover, due to the presence of the family within the process, succession is more of a group event than an individual event. In a family business, immediate family members become active participants whereas in a corporate firm, the incumbent faces the process alone with his/her management team.

Family business succession, in contrast with its corporate counterpart, is a gradual process, associated with life cycle stages of the participants rather than a discretely defined process. These life cycle stages (leaving home for college, marriage, birth of a child, first home) are, again, person rather than role dependent.

If you followed the recommendations made last week, to get the people within your business to talk about succession, you now have a basis for understanding the framework of initiating it, as a systematic process that is independent of the founder/owner, while recognizing that this will be hard to accept since the founder's identity and roles are so closely intertwined with the business'.

What's important for a service business, like a printing or digital imaging operation, is to create a job description of the CEO's job and to begin delegation of as many of those tasks to ensure a transition that is as seamless as possible. A highly involved CEO may have to be given the task and responsibility to spearhead the succession initiative if he/she is capable, or otherwise "prevented" from doing so—diplomacy and tact are paramount!

If you are a family business CEO who is about to step down, consider these aspects and your reaction and acceptance of them. Communicate your thoughts and feelings to your family and management team members so they know where you stand. Knowing where the friction points are can go a long way to smoothing things over.

Next month, we'll look into ownership issues and how they affect succession.