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".

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.

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.