Effective Succession Management in Nuclear Family-Owned Business

Entrepreneurial companies often become family-owned businesses. Unfortunately, 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).
Systems theory is the theoretical approach most often used in the scholarly study of family business. It remains pervasive in the literature today. This system suggests that a family firm is best understood and studied as a complex and dynamic social system in which integration is achieved through reciprocal adjustments among subsystems. The Three-Circle Model of the Family Business System was developed at Harvard Business School by Renato Tagiuri and John Davis in 1978. This framework clarifies, in simple terms, the three interdependent and overlapping groups that comprise the family business system: family, business and ownership. As a result of this overlap, there are seven interest groups present, each with its own legitimate perspectives, goals and dynamics. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.
The integrative model for effective FOB succession (Towards an Integrative Model of Effective FOB Succession, Isabelle Le Breton-Miller, Danny Miller and Lloyd P Steier, Summer 2004) effectively highlights the importance of non-family context , the ownership structure and board composition, the business context , the role of the incumbent CEO and the successor, the quality of the relationship with the successor, the personality of the incumbent, and his or her behaviour in training and nurturing a successor. The integrative model acknowledges the profound challenges in succession planning in FOB as compared to public enterprises and proposes an integrative model for the same. This model is useful in understanding the context and processes involved in large / joint families where there are options available to choose from in the “successor” group.
The Social exchange theory discusses the social structures that define, condition, and constrain succession processes in family firms while retaining the ability to fully incorporate individual motives and agency. (Examining Family Firm Succession from a Social Exchange Perspective: A Multiphase, Multistakeholder Review, Joshua J. Daspit, Daniel T. Holt, James J. Chrisman and Rebecca G. Long, 2015.) Social exchanges occur between incumbents and stakeholders, among family members, and between stakeholders across family boundaries. An exchange perspective provides a ready means to study the mechanics of such relationships and to understand how resources are transferred among family stakeholders and between family and nonfamily stakeholders. The theory provides an overarching mechanism to understand the economic and social factors that govern the allocation and exchange of scarce resources in a social system. The social exchange theory would again be more relevant to large families where the need of such a framework would be imperative to select the ‘most qualified successor’.
Massis, Chua and Chrisman’s work (Factors Effecting Intra Family Succession, by Alfredo De Massis, Jess H Chua, James J Chrisman, June 2008) on identifying the factors preventing succession and classifying them under three exhaustive causes and five factors is very useful to understand what prevents intra-family succession. This model though, would not apply directly for nuclear families where there is only one incumbent and one / limited number of successor(s).
Published research therefore, does not fully address the challenges faced by Nuclear families and businesses owned by them (NFOB) where there might be only one incumbent and one (or more / none) possible successor. Nuclear families where two (or more) siblings work together in one generation with only one (or more / none) possible successors in the next generation also needs special thought and handling. The unique challenges and structure of NFOB is my area of work and I propose to provide a framework for ensuring succession planning in NFOB.
I propose to use the Empirical Qualitative approach and propose to build a theory from case studies. The central notion is to use cases as the basis from which to develop theory inductively. The theory is emergent in the sense that it is situated in and developed by recognizing patterns of relationships among constructs within and across cases and their underlying logical arguments. Its emphasis on developing constructs, measures, and testable theoretical propositions makes inductive case research consistent with the emphasis on testable theory within mainstream deductive research. Building theory from cases is likely to produce theory that is accurate, interesting, and testable.