Psychological aspects of succession in family business management
description
Transcript of Psychological aspects of succession in family business management
Psychological aspects ofsuccession in family business
managementMatthias Filser
Montpellier Business School, Montpellier, France
Sascha KrausInstitute for Entrepreneurship, University of Liechtenstein,
Vaduz, Liechtenstein, and
Stefan MarkCatholic University of Eichstatt-Ingolstadt, Eichstatt, Germany
Abstract
Purpose – Family firms appear to be an attractive topic in a number of research areas. Probably themost important topic is still the succession process combined with possible hurdles and gaps. Thispaper aims to focus on the special variable of the psychological dimension. It attempts to summarizefindings and implications as well as suggestions for where potential research gaps are.
Design/methodology/approach – The paper is based on a two-stage research design. The first step isa literature review. All articles published in the Family Business Review (FBR) between 1997 and 2011 werecollected and analysed regarding their topics, findings, and implications. As a second step, this knowledgehas been applied to conduct a thorough literature analysis on psychological aspects of succession.
Findings – Psychological aspects are often used together with other constructs. The authors stronglyrecommend handling them as an individualized, highly complex topic, even if social, political, andother aspects are often mixed with psychological aspects and therefore difficult to discuss andseparate. A separation of these factors will help researchers present findings in a much clearer way.
Research limitations/implications – The main limitation of the article lies in the methodology itself,as the literature review solely concentrates on empirical papers that exclusively investigate psychologicalaspects with regard to succession. Nevertheless, the aim was to elaborate a focused psychological fieldmodel in terms of succession. Likewise, critical aspects considering the family business system have beentaken into consideration. Finally, a literature review is commonly seen as a post-work “dead body”. However,the implications show a clear, directed focus within family business research. The authors recommendan increase in the number of concisely formulated research questions instead of generic approaches.
Practical implications – Businesses should closely heed three imperative problem areas (individual,interpersonal and organizational) as well as the stage in which conflicts arise (preparation,transfer/takeover, and continuation), if they want to be successful in the succession process.
Originality/value – The paper offers an overview of the limited number of existing articles and theirimplications that address the psychological aspects of the succession process. Furthermore, thepsychological issues identified that cause conflicts during succession are consolidated and categorized.
Keywords Family business, Succession process, Psychological aspects, Family firms,Succession planning
Paper type Literature review
IntroductionFamily businesses are a prevalent and prominent company form within the economicand social landscape (Alcorn, 1982; Beckhard and Dyer, 1983; Dyer, 1986; Stern, 1986;
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Management Research ReviewVol. 36 No. 3, 2013pp. 256-277q Emerald Group Publishing Limited2040-8269DOI 10.1108/01409171311306409
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Lee, 2006; Kraus et al., 2011). The economical relevance of these family businessesis enormous: Ward and Aronoff (1990) have shown in their study that approximately50 per cent of America’s gross national product is generated by family businesses.Furthermore, there are an estimated 10.8 million family businesses that create 58 per centof the workforce (Poutziouris et al., 2006). Similarly, the proportion of family businesses inthe UK and European Union is estimated to be 75 and 85 per cent, respectively (Harveyand Evans, 1994, 1995; Dunn, 1995).
However, a number of studies have highlighted that the failure rate in the successionprocess is very high. Only one-third of family businesses survive into the secondgeneration, and only about 10-15 per cent make it into the third (Beckhard and Dyer, 1983;Bierly and Chakrabarti, 1996; Solomon et al., 2011; Ward, 1987). These figures make clearthe importance of a successful company succession and how relevant the topic is fortoday’s business world. Therefore, it is not surprising that over the years, much has beenwritten about family business successions (Chittoor and Das, 2007; De Massis et al., 2008;Royer et al., 2008; Venter et al., 2005). Sharma et al. (2003b) argue that research mustfocus not only on the willingness of the incumbents who transfer company control butalso on the willingness of successors who take over the family business. Willingness isconnected closely with familiness, which refers to the “resources and capabilities relatedto family involvement and interactions” (Chrisman et al., 2003, p. 468) and allows atrans-generational transmission of the vision and purpose of the family business(Chrisman et al., 2005b). Authors like Dyer (1986), Lansberg (1999) and Miller et al. (2003)also stress the issues of emotional factors in incumbent-successor relationships, as wellas the complex social ties within the family.
Succession in family enterprises needs to be achieved with a high level of awarenessand diligence to ensure long-lasting firm survival. This involves a number of components.Careful planning in advance and a conviction about the significance of a long-termorientation is a key factor for a successful succession (Lumpkin and Brighman, 2011).Of particular note is that financial, tax, and legal aspects are often of primary focus withinthe process of succession planning, while psychological aspects are often neglected.Both the previous and future owners underestimate the emotions and conflicts thatmight arise. And the origin of these can be of a multifaceted nature (von Schlippe andKellermanns, 2009).
As Frey et al. (2004, p. 35) state, although the emotional components of successionin family enterprises are widely discussed “on a frequent basis, there are only a fewinvestigations found within research that specifically look at this aspect. There is a clearresearch gap within this topic”. The following will therefore apply a literature review ofthe current state of research to summarize and structure implications regarding thepsychological aspects of succession in family business management. This will in turnshow possibilities for future research.
The succession processThe family business is probably one of the most predominant enterprise forms in theworld (Bird et al., 2002; Corbetta, 1995; Davis et al., 2000; Davis and Stern, 1988; Gallo,1995; Klein, 2000; Zahra and Sharma, 2004). Compared to non-family businesses, familybusinesses are a distinct form of enterprise, with the most notable difference being theunique overlap between the four areas of family, ownership, management, and individualrelationships within the enterprise (Lansberg, 1999; Maerk et al., 2010; Pearsonetal., 2008).
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This creates a situation where the family acts not just as a social unit but also as aneconomic one (Basu, 2004). Since the beginning of family business research, authorswriting on it have agreed that family businesses have two different faces. On the onehand, they are able to create resources that are very difficult to imitate. On the other hand,they face the threat of not being able to transfer these resources to the next generation(Hughes, 1997; Ibrahim et al., 2001; Kets de Vries, 1993; Olson et al., 2003).
The succession process arguably represents the most critical issue familybusinesses are faced with. After all, succession constitutes the central issue that needsto be addressed in order to ensure a family business’ survival from generation togeneration (Applegate, 1994; Harveston et al., 1997; Ibrahim et al., 2001). The success ofa succession can be determined by the subsequent positive performance of the firm andultimate viability of the business, or by the satisfaction of stakeholders with thesuccession process (Cabrera-Suarez et al., 2001; Dyer, 1986; Handler, 1990; Morris et al.,1997; Sharma et al., 2001).
Succession is a multidimensional process influenced by an enormous palette ofvariables. The factors that are the most studied in the family business literature areincumbent related factors which refer mostly to the founder’s reluctance to plan forsuccession due to a number of issues, including the founder’s strong sense of attachment tothe business, fear of retirement and death, and lack of other interests (Cabrera-Suarez et al.,2001; Handler, 1990; Lansberg and Astrachan, 1994; Levinson, 1971). Other related factorsfocus on the successor’s business skills, managerial capabilities, knowledge of companyoperations, and attitudinal predispositions towards running the business (Barach andGanitsky, 1995). The literature regarding process factors addresses the extent to whichsuccession depends on aspects such as the successor selection process, the nurturing anddevelopment of successors, corporate governance structures, and shared visions(Dyck et al., 2002; Lansberg, 1999; Sharma et al., 2001). Financial factors relate to externalfinancing as well as taxes, which both influence the succession process. Succession isstrongly related to financial risks and investments (Chittoor and Das, 2007; Davis andHarveston, 1998). There are of course a number of external variables (contextual factors)that also influence successions such as market demand conditions, the state of theeconomy, buy-out offers from potential investors, and financial pressure from lenders andother resource suppliers (Morris et al., 1997). An additional category is concerned withpersonal relationships within the family between its members and non-family employees(relationships factors). The principal issue here concerns trust, cohesiveness, andcommunication among family members (Chrisman et al., 2005a; Kets de Vries, 1993; Wardand Aronoff, 1990). Refusal of the head of the family business to let go or to share powerwith other family members, as well as resentment on his/her part are important topicsrequiring further investigation (Handler, 1990; Keogh and Forbes, 1991). The importanceof shared values and agreements regarding loyalty and/or common traditions areemphasizedwithinthistopic (DavisandHarveston,1998;Dyer,1986;LeBreton-Milleretal.,2004; Nelton, 1991), along with factors such as commitment, loyalty, and family turnover(Handler, 1990; Morris et al., 1997).
Methodology and research designThe state of current research and the concomitant model outlining psychologicalaspects of succession in family businesses is determined based on a two-stage researchdesign.
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First, by conducting a thematic analysis of all the articles that have been publishedin the Family Business Review (FBR) between 1997 and 2011, the previouslyinvestigated research topics and implications were collected, evaluated andcategorized. 1997 was chosen as a conceptual starting point of the thematic analysis.In this year, a concise milestone was set by Gersick et al. (1997) with the introduction ofthe family business system, which clearly illustrates its complexity and prevailinginterrelations. The family business system was used for our model, and elucidatespsychological aspects regarding succession in family businesses. A major findingwhich supports the study conducted here is that the importance of research on thesuccession process is indisputable. In spite of this, the examination of psychologicalaspects has so far not been extensively considered in empirical studies.
In a second step, a literature review was conducted on the empirical investigationson psychological aspects of company succession in family enterprises that werepublished in all scientific publication channels before 2012. Here, databases includingABI Inform/ProQuerst, EBSCO, Emerald, ScienceDirect, and Google Scholar werebrowsed in February of 2012 to identify the foundation of our literature review. For thesearch, publications needed to feature keywords such as family firm/business,succession, psychology, emotions, and conflicts in their titles or abstracts. Additionalsources were incorporated into the analysis using, e.g. the references found in thearticles from the database search.
Finally, the research design was constituted to focus the investigation solely onpsychological aspects with regard to succession in family enterprises. Exclusiveinvestigations that elaborate empirical insights were considered as a means to gainsubstantive implications.
Current state of research314 papers were examined for the thematic analysis, of which 181 featured a theoreticalbackground. Around 8 per cent (26 papers) had a connection to the topic of succession(Table I). Having obtained this knowledge, the authors then commenced a deeperliterature exploration on psychological aspects. However, investigations published inFBR that exclusively observe psychological aspects regarding succession in familybusinesses and the emotions that accompany the succession process are relatively rare.Although emotions and conflicts arising within the process are often discussedin theoretical elaborations, only a few empirical studies exist with a specific focus onthis topic.
For the following literature review, only empirical studies examining at least onepsychological aspect that considers company succession in family businesses weretaken into consideration. Table II shows the state of research that prevailed up to thepoint of our study.
Baldegger and Pock (2007) investigated among other issues the reasons for failedtakeovers in Liechtenstein. Here, premature discontinuation of the succession processcan be attributed to the successor’s lack of qualifications. Furthermore, varying ideasabout a business’ future direction, especially when factoring in the varying perceptionsof the predecessor and successor, lead to conflicts. Personal differences are a reason forfailed successions, which means that failure can to some extent be attributed toemotions. A company owner who is not willing to let go of what he’s dedicated hislife to is a major factor for conflict. This is accompanied by the fear of a loss of status
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after succession. These emotional difficulties lead to a less objective perspective of theentire succession process. Furthermore, the time needed for the realization of acooperative leadership style during this transition is a critical factor of success orfailure. The succession process takes an average of three years. So the potential forconflicts increases the longer it takes – particularly when there are varying ideasabout the company’s future direction.
Birley (1986) conducted a study in the USA by surveying students whose parentsown a family firm. They were asked whether their parents pressured them to take overthe family enterprise, and/or influenced their decision about what to study. Here it wasfound that the potential family-internal successors made the decision solely on theirown. The inheritors surveyed described the pressure coming from their parents asgentle, inadvertent, indirect, or just plain non-existent. Therefore, it can be stated thatfrom a psychological perspective, the pressure to ultimately take over the business ismade by the inheritors themselves. If there is a clear communication about successionprior to it becoming an issue of how and who it will be, predecessors experience thisevent with fewer concerns.
According to a Canadian study conducted by Bruce and Picard (2006), there areconflict potentials concerning succession which can be categorized as “soft” factors.Several business owners indicate that their company success is dependent on theirinvolvement. Therefore, a large amount of business owners wish to stay in thecompany even after retirement. They are either willing to serve as a consultant orcontinue occupying a leadership position. It is assumed that the process of letting go isa personal challenge that is attributed to an emotional connection to the business.Nevertheless, family-internal conflicts regarding the company’s orientation are afurther issue, most notably when the perceptions of family members vary. So thelength of time the succession process takes is seen as a critical success factor, becausedifferent perceptions of how to run the company as well as its future direction mightvary to a great extent over time.
Topic Findings Times mentioned
How many papers showed atheoretical background?
314 papers wereanalysed
1st theoretical background included: 1812nd without theoretical background: 133
What kind of theories did we find? 60 differenttheoreticalbackgrounds
1st place: agency theory: 372nd place: stewardship theory: 133rd place: resource based view: 124th place: resource dependence theory/family system theory: 10 ex aequo
In which areas are these theoreticalbackgrounds established?
1st place: business and management2nd place: financing3rd place: psychology4th place: sociology
Which models are the most used? 60 different models 1st place: succession models: 142nd place: three-circle model: 103rd place: development model: 94th place: FIRO model/life cycle model:5 ex aequo
Which topic was discussed most? Succession 1st place: 26 articles
Table I.Issues analysed withinpublications in FBR from1997 to 2011
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Table II.
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Chung and Yuen (2003) present a list of problems that might arise in the successionprocess within Chinese family firms, although they only mention those problems thatare of a psychological nature. A lack of leadership competence of the successor is anissue through which conflicts arise. Competence was in fact identified to be the mostimportant prerequisite regarding the choice of a successor. However, the question ofwhether or not competence exists is closely associated with an objective evaluation ofthe internal successor. Furthermore, gender and age (i.e. the oldest child is the first tobe considered to take over the company) were important issues for the selection of asuccessor. A lack of trust results if the successor does not meet the necessaryrequirements. Here, the potential exists for conflict to be magnified, impeding both thesuccession process and company success.
Davis and Harveston (1999) investigate the effects of company succession withregard to harmony within family firms over three generations. With psychologicalaspects, it is seen that the potential of personal and professional conflicts is significantlygreater when the company founder still exerts influence or remains in the company.Furthermore, conflicts arise due to the dominant generational “shadow” of priorgenerations. This is because after the succession process has been completed, employeeloyalty or important knowledge of “critical routines and operating procedures” might belost, thereby endangering the company’s further existence. An unwillingness to let gomight be due to a lack of trust and the prior generation feeling that they areindispensable.
In addition, Davis and Harveston (2001) conducted a study on intergenerationalconflicts in family enterprises which investigated the influence of family membersregarding the degree and frequency of potential conflicts resulting from familyrelationships. The study shows that a high level of interaction between family membersreinforces the degree of conflict among all generations and/or groups involved.The more family members there were working in the company, the higher the potential forconflicts within all of the generations involved. This might be due to different perceptionsregarding goals and actions. However, family members not actively operating in thedaily business of the family firm may play an important role in promoting peace.Furthermore, it is found that social interaction among family members increases theintensity of conflicts. The reason for this might be a lack of boundaries between the familyand the business, allowing personal disagreements/conflicts to be carried over intoprofessional interaction.
Using a three-phase model, Fattoum and Fayolle (2009) examine changes in therelationship between founders and successors over the course of a family-internalsuccession process. The first phase in which the succession process is initiated sees atense relationship, as there is no ideal way to comfortably handle the interaction betweenpredecessor and successor. In the second phase the establishment of a partnershipaccompanied by harmonized actions appears. Here, the relationship between both actorsis more amicable, and is based upon involvement and trust. Finally, the third phase seesthe retirement of the predecessor. The atmosphere is again tense, as the predecessor isnow expected to step back and hand over responsibility. In this stage, fear can arise,which in turn can cause conflict. This is particularly difficult for successors inArabic and Muslim societies, where patriarchal structures still tend to be part ofthe daily routine in which the father is trusted to make the decision in every area of
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life and business. In this particular case, conflicts arise because of psychological aspectsand cultural factors.
Frey et al. (2005) analyse various aspects that hinder the succession process.Surveying 1,342 Swiss family firms, it is found that emotional and/or psychologicalaspects (future vision, qualification, acceptance among employees, and personaldifferences) constitute the decisive factors causing failed company successions.Different perceptions of the predecessor and successor regarding the future direction ofthe company are the main area of conflict. Furthermore, an early initiation of thesuccession process is linked to emotional problems in most cases, as the predecessor isfaced with the issue of letting go. Here, open communication and a clear notion regardingthe future direction can reduce conflicts. The involvement of an independent, competentconsultant can help reduce conflicts during the succession process. A consultant canserve to mediate and provide support in a conflict-laden relationship between thepredecessor and successor as well as among family members. It should however be keptin mind that this investigation was unable to draw a solid conclusion:
The emotional component is publicly discussed on a frequent basis, yet there are only a fewinvestigations found within research that specifically look at this aspect. There is a clearresearch gap with this topic (Frey et al., 2005, p. 35).
Although psychological aspects are not considered to be a major area of conflict eitherbefore or after succession, the study shows that they can be a main reason for successionprocess failure.
Halter et al. (2009) investigate emotional and financial aspects with regard to thesuccession process. A survey of 931 Swiss firms found that the emotional bond to theenterprise results from the fact that business owners invest a large amount of time andeffort to build up and maintain their firm. In many cases, an entire life is dedicated to thefirm, and identification with it is essential. Furthermore, a certain status is attributedto the position of owner/manager as well as the company’s achievements. As a result,a company succession can cause fear prior to retirement. This perceived loss of status,duties, and challenges is accompanied by hesitation. The emotional conflicts that apredecessor needs to deal with often cause conflict and hinder or extend the successionprocess. Even though the problem of letting go might last throughout the entiresuccession process, letting go of the company has also generated positive feelingsaccording to those respondents who have already completed succession. Although thosewho have not yet retired have in fact experienced positive feelings, it is still not easy topass through the final phase of letting go.
Handler (1990, p. 26) found that mutual respect and understanding are key factorsfor a positive succession process. She formulates the following hypothesis:
H1. The more a next-generation family member achieves mutual respect andunderstanding with the predecessor in the succession, the more likely it is thatthe individual will have a positive succession experience.
Nevertheless, a positive succession process is a subjective phenomenon, and perceivedas such by each individual family member. The success of company succession ishighly dependent on the personal relationship between the parents and the childtaking over the company. Mutual respect plays a central role for an effective transfer.Furthermore, a lack of intergenerational understanding is mentioned as the main
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reason for dissatisfaction, making respect and understanding the critical factors for apositive/negative succession process. Frustration is attributed to a lack of communicationand understanding on the part of the predecessor. So clear and open communication(i.e. proper notions of the future direction, and feedback to the successor) facilitates apositive succession process.
Haubl and Daser (2006) examine success factors in different phases of the successionprocess, indicated as a “passage of status”. Issues that emerge when the company ownerleaves the firm are investigated in this study. For the predecessor, the withdrawal ofall company action is a decisive event and important step. Daughters tend to give thisstep more time than sons do. However, the older the company owner is, the clearer itbecomes to him that the last phase of his life is dawning. The challenge of letting thebusiness go and handing over control is a major source of conflicts. If the predecessorcontinues to influence business decisions, the successor is confronted with the challengeof coping with the predecessor, while at the same time guiding the firm in its futuredirection. Conflicts also arise when attempting to develop a foundation of trust amongthe employees. Here, competence is a key factor through which respect and loyalty areearned. Sibling rivalry is also identified as a factor through which conflicts canpotentially emerge. A clear communication and distribution of power on the basis ofcompetencies is a key to avoiding conflicts among potential successors.
In a multi-country study of one American and one Finnish family firm, Laakkonenand Kansikas (2011) investigate evolutionary changes in family business succession.Interviewing family members (founders, spouses, and children), insights are obtainedregarding succession preparation with two generations. It is assumed that a gradualand steady transfer of the management and ownership to the next generation keepsa business alive. Nevertheless, the interviewed successors were reluctant and notconvinced of their ability to run the business solely on their own from day one ofsuccession. With psychological aspects, Laakkonen and Kansikas (2011) highlight thatthe harmony between the founder and next generation fosters a continuity that isconcomitant with a thriving succession. However, the closeness between these twoparties might prevent evolutionary variation if the next generation does not implement itsown interests and apply an entrepreneurial attitude. Furthermore, the continuinginfluence of the founding generation on a family business can pose a threat forevolutionary variation if the next generation is unable or unwilling to assume fullresponsibility for the decision-making process.
Based on an inductive study, Miller et al. (2003, p. 528) exposes the problems foundwith failing successions. Conducting a pilot study with 16 family firms that havecompleted the succession process, Miller examines three different succession patterns:conservative, wavering, and rebellious. It is assumed that intergenerationalsuccessions “are very much plagued by problems of passage” which suggests an“inappropriate relationship between past and future”. Miller et al. (2003, p. 528)specifically observes that this passage arises from an:
[. . .] excessive attachment to the past, by an overly dependent and conservative successor,a rejection of the past by a rebellious one, or an incongruous blending of past and present byan unsure and wavering new leader.
Morris et al. (1996) conducted a cross-sectional study in the USA to determine thecharacteristics of succession processes in family enterprises. The entrepreneurs surveyed
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were questioned regarding the relationships within the family and the business prior toand during succession. Here it was found that a moderate level of conflict among familymembers exists prior to company succession. In general, the relationship between thefamily members are described as positive and widely based upon trust, respect, a closebond, and cooperation. There are however indications of underlying conflicts. Despitethe positive results, there is still the capability to decrease any tensions that have had anegative impact on business activities, as well as the contradicting interests of familymembers. Tensions between the individual family members that negatively impactbusiness activities could not specifically be confirmed. Family issues and tensions as wellas their detrimental effect on business activities and success should be avoided at allcosts. The study investigates not only the family relationships prior to a companysuccession, but also the characteristics of the succession itself. With regard to thesuccession process, conflicts/problems appear within different emotional spheres.A moderate level of difficulty and frustration, along with pleasant experiences and evenjoy were identified. One cause of frustration can be when the predecessor does not let go orstep down, even though he/she had promised to do so. Nevertheless, the results indicatethat a positive, open, trust-filled, and respectful relationship among family membersfacilitates succession before and during the process.
The study by Ruttimann et al. (2005) shows that collaboration within the successionprocess between father and son as well as mother and daughter tends to take longer.Most family-internal successions last more than two years. Family-external successionsrequired less time than internal ones. Transfers to a family-external person take lessthan two years, and most of this time is spent for the transfer of immaterial property suchas knowledge and existing networks. The cooperative phase of leadership is ofteninformal, as the official delivery of property is determined by a contract having a specificdeadline, even though the predecessor often does not retire on the set date. An extendedperiod of cooperative leadership could be seen as critical, because it provides fertileground for conflicts, particularly when competencies and areas of responsibility are notclearly expressed. The “danger” that the predecessor continues to make decisions iswithout question the most critical issue regarding the succession process. Here, theproblems of letting go and the questioning of competencies arise. Therefore, a cleardistribution of decision-making power reduces the potential for conflicts, facilitates theprocess, and helps to “force” the actual succession.
Sharma et al. (2000) observe the correlation between the desire of the predecessor tostep down and the existence of a competent successor. There are a variety of reasonsthat describe predecessors’ hesitation to retire. Here, both financial and psychologicalfactors play a role. There is the fear of being faced with the last phase in life or theawkwardness of not knowing what to do since there has never been any other interestbesides work. In terms of financial concerns, the successor might be able to reducethese kinds of worries, and therefore speed up the predecessor’s willingness to stepdown. Nevertheless, the second aspect of what to do with the newly acquired time isan issue that can only be addressed by the predecessor him- or herself. The fear ofnot knowing what to do with an abundance of newly acquired time is a major reasonwhy predecessors have difficulties letting go, which brings with it a potential forconflict.
Sharma et al. (2003a) explore predictors of satisfaction in the succession process.Satisfaction is measured from the perspective of both the incumbent and the successor.
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Variables such as the propensity to step aside, the willingness to take over the agreementto maintain family involvement, and the acceptance of the individual roles are discussedregarding their positive effect on the satisfaction with the succession process. Thisstudy provides a profound view of succession with regard to psychological aspects.On the basis of a regression analysis it is stated that “incumbents and successors believethat their satisfaction levels are more strongly influenced by the other party’s attitudethan by their own” (Sharma et al., 2003a, p. 680). As a consequence, the attitude of eachstakeholder involved affects the satisfaction with the succession process. Regardingthe aspect of “letting the business go”, the investigated incumbents in their analysis hada higher willingness to step aside than expected by the successors, which in turn isdirectly linked to the willingness of the successors to take over. Consequently, if thepropensity to let go is given, the willingness to take over is greater. It can therefore beassumed that the attitude of the incumbent/successor affects the incumbent/successor’ssatisfaction with the succession process. Sharma et al. (2003a) on the other hand statethat with regard to this insight, communication is the key to the success or failure ofa succession process.
According to an Australian study by Smyrnios and Dana (2006), the majority of thesurveyed business owners were willing to face the succession process, although onlyhalf were mentally prepared for a transfer or retirement. The uncertainty of whathappens afterwards causes a lack of preparation and a resistance to initiating thesuccession process. Not surprisingly, more than half of the respondents wish to work inthe company after retirement. A strong identification with the company is a majorreason for the inability to let go, which in turn can lead to conflict.
In their investigation, Solomon et al. (2011) interview ten business owners that arefacing succession. In spite of a pending succession, nine out of ten participants werestill active presidents and/or CEOs. Solomon et al. (2011) identify four influences thatconstitute a business owner’s so-called “approach” to succession: “the business within”through which intra-psychic dynamics of differentiation and control are captured;“marriage” through which traditional gender roles that shape succession are described;“adult children” by which the circumstance of having a natural (accidental, organic,passively groomed) successor is examined; and “the vision of retirement” that capturesthe impact of an owners’ life perspectives after succession. With psychological aspects,the fourth influence is the most pertinent aspect for our review. Here, we find that mostof the participants were afraid of stepping down, and did not indicate a high willingnessto let go of the business in their current role as business owner. Consequently,Solomon et al. (2011) state that succession is facilitated when the business owner isopen and curious, in good health, and not fearful about retirement.
The study by Venter et al. (2003) illustrates that an increased amount of trust in theability of the successor has a positive effect on the overall satisfaction with thesuccession process. Furthermore, a positive correlation is identified between familyharmony and satisfaction with the succession process with all of the parties involved.A well-functioning family relationship and harmonious atmosphere increases thechance of a successful generational transition. Owners often have difficultiescommunicating issues that concern succession. Since succession is generally a difficulttopic that requires an open, honest exchange of opinions, conflict within the familywill inject an additional facet of complication into this transitional period.
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Consequently, an open communication as well as a harmonious atmosphere facilitatesa supportive framework to plan and achieve the succession process.
Vera and Dean (2005) study the specific circumstance daughters face regardingsuccession by interviewing ten female business owners. A major finding regarding thismore or less unexplored issue is that there are different relationships between fathersand daughters, and mothers and daughters (this is a prerequisite for providing astructured and detailed answer on this issue). The respondents mentioned good personaland professional relationships between fathers and daughters, while the relationshipsbetween mothers and daughters tended to be more difficult, as mothers were moreperfectionist and feared the loss of control. Vera and Dean (2005, p. 335) state that asuccession is more tedious when daughters succeed mothers than when they take overfor their fathers. While father-owners were willing to pass on control to their daughters,and tended to focus on company well-being and not their own self-identity,mothers-owners were not willing to hand over control, or conceptualized succession interms of a plan instead. However, the “majority of maternal successions were forced bythe mother’s severe illness”.
Psychological field model (PFM) within family business successionresearchWithin the scope of the literature review, various psychological aspects with regard tofamily business succession have been identified. The nature of these identifiedpsychological aspects is multidimensional. As there is no overall model addressing anypsychological aspect elaborated by empirical investigations, the aim here is thereforeto develop a structured model. Using the findings and implications of the publicationsanalysed, we created a model that contains the psychological aspects through whichpotential conflicts arise. This classified the identified aspects into three categories:individual, interpersonal, and organizational issues (Figure 1). Furthermore, the stagesin which the identified conflicts arise are elaborated and assigned to categories withinthe family business system by Gersick et al. (1997).
IndividualAs the literature shows, for business founders and owners, it is quite typical, and alltoo often difficult, to let go of a life’s work (Bruce and Picard, 2006; Davis andHarveston, 1999; Frey et al., 2005; Halter et al., 2009; Ruttimann et al., 2005; Sharma et al.,2003a). The reason for this unwillingness is often attributed to the future perspective ofthe predecessor or a loss of status, the personal fears of not knowing what to doupon retirement, and the lack of challenges once working life is over (Baldegger andPock, 2007; Fattoum and Fayolle, 2009; Halter et al., 2009; Sharma et al., 2000;Solomon et al., 2011).
InterpersonalDoubt might arise about the successor not being able to adequately fill the new leadershipposition. This is accompanied by a lack of trust in the predecessor concerning his/hercompetencies, especially with regard to family-internal succession (Chung and Yuen, 2003;Davis and Harveston, 2001). For instance, this fear can lead the successor to imitate theleadership style of the predecessor, and result in a lack of acceptance and/or authenticity.Because the successor selection should however be objective, believing in the
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competencies of the successor is critical and even inevitable, so encouraging the successorto prevail is advisable. Furthermore, interpersonal differences and perceptions andgenerational gaps often exist between the predecessor and successor (Baldegger and Pock,2007; Frey et al., 2005; Vera and Dean, 2005). Interpersonal differences might arise due tovarying notions which are a major cause of conflicts during the succession process(Baldegger and Pock, 2007; Bruce and Picard, 2006; Frey et al., 2005; Handler, 1990; Haubland Daser, 2006); the key to avoiding them is open communication and consent. In addition,rivalry is an issue that might arise within family-internal successions (Haubl and Daser,2006; Morris et al., 1996). Impartiality is sometimes not given, as a successor might bepredetermined within the family. This might foster conflicts among siblings, sincesomeone “got the nod” over his/her brother/sister. Furthermore, the future owner isconfronted with the situation that he/she has always been regarded as the son or daughterof the business owner and thus enjoyed a certain status. Therefore, the successor has togain recognition and respect among employees. With this in mind, an objective selectionof a successor is imperative. To avoid potential conflicts, this decision should be madebased upon competencies and qualifications to the greatest extent possible.
OrganizationalAn issue that needs to be faced regarding succession are the rudimentary or non-existentboundaries between family and business that can hamper the succession process(Davis and Harveston, 2001). Social interaction among family members increases the
Figure 1.Psychological field model
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intensity of conflicts. Therefore, the set of boundaries might positively impact theoutcome of succession, and facilitate the process of the former business owner lettinggo. Furthermore, eluding potential conflicts requires a clear distribution ofdecision-making power during the succession process (Laakkonen and Kansikas,2011; Ruttimann et al., 2005). If the predecessor still retains decision-making power, alack of trust in the competencies of the successor might arise. Moreover, open and clearcommunication is an issue that affects succession before, during, and after the process.Likewise, discreteness might affect the attitude of a potential internal successor becausehe or she might be perplexed or even intimidated when confronted with the issue ofsuccession. This is why it is necessary to generate a culture of open and clearcommunication (Birley, 1986; Frey et al., 2005; Handler, 1990; Haubl and Daser, 2006;Sharma et al., 2003a; Venter et al., 2003).
PFM summaryThe illustration of the elaborated psychological field model (PFM) has shown thatpsychological aspects are attributed to individual, interpersonal and organizationalconflicts and occur in different stages with regard to the succession process. Whenlooking at the family business system within our model, disagreements mainly prevail inthe overlaps between the dimensions of family, business, and ownership. So byaddressing psychological aspects within family business succession, the fostering ofawareness is inevitable when it comes to the stages in which conflicts might appear.Moreover, the persons/parties concerned need to be taken into consideration to overcomeand avoid various conflict potentials.
The practical side of our model makes it obvious that a permanent flow ofinformation is inevitable, and is optimally accompanied by open communication andconsent. To foster consent, the integration of reflexive processes might be of help toachieve optimal solutions with regard to the subsistence of the business. Finally,prophylactic actions in the preparation phase might be an approach that helpsminimize conflict potentials.
Discussion and conclusionThe majority of empirical research conducted to date has only dealt peripherally withthe topic of psychological aspects in family firms, and has hardly ever had it as a primarypoint of focus. Our study has shown that individual questions and their answers areattributable to emotions that arise or conflicts that emerge before, during, and aftersuccession has been completed. Therefore, the question regarding the point of timebusiness owners complete the withdrawal from the company is not necessarily the resultof a psychological aspect of succession. The investigation by Solomon et al. (2011) ofbusiness owners that face succession is one of the only studies conducted whichanalyses emotional aspects arising before succession. When the phase of letting go takesmore time than expected, it is safe to assume that conflicts and emotions are in play.The vast majority of the empirical studies identified do not deal exclusively withemotions, conflicts, or other psychological aspects of succession in family enterprises.This shows just how little this topic has been empirically investigated with it as the solefocus. Only the studies by Handler (1991), Davis and Harveston (1999, 2001), Miller et al.(2003), Sharma et al. (2003a, b), Vera and Dana (2005) and Solomon et al. (2011)predominantly deal with psychological aspects. As already recognized by Frey et al.
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(2005, p. 35), there is still a research gap both in literature and empirical studies withregard to the psychological aspects of succession.
“Conflict is the greatest destroyer of value in family enterprises” (Hennerkes, 2005,p. 58). It can particularly occur during the succession process when the emotions andchallenges that need to be overcome manage to become a major factor. The spectrum ofpsychological aspects includes the interpersonal relationship between the predecessor andsuccessor, the imaginary line between family and business, and the knowledge-creatingand decision-making hierarchy.
As the implications/results of the studies analysed show, it is important to addressand communicate company succession at the earliest date possible. This allows thepredecessor the time needed to start doing things that allow a life after retirement(i.e. outside the company), which in turn will help the predecessor, when the day finallycomes, to hand over the business to the successor. Early planning of succession alsofacilitates the process of passing over a lifetime of work into the hands of another.Nonetheless, the former owner of a company may need a while to let go. Even still, it isimportant to have a competent and reliable successor. This basically makes an objectivesuccessor selection mandatory. With this in mind, difficulty might arise if severalcandidates, especially internal ones, are an option. Sibling rivalry in particular can causestruggle regarding the question of who the proper successor will/should be. As frequentlymentioned above, the prerequisite should be the demonstration of professional andsocial competencies required for the job. Incompetence leads to a lack of trust, andmight cause a delay regarding the takeover, or even lead to company failure. A lack oftrust on the part of employees might also affect the acceptance of the successor.
To summarize, family firm successions are associated with a range of psychologicalconflict potentials that need to be carefully taken into consideration. It is not alwaysinevitable that the predecessor and successor will have a similar perception and aim topursue the same goal. Emotions and conflicts should never be underestimated whenconsidering the succession process. The keys to a successful family-internal succession arestrong and solid family ties, not to mention clear boundaries between family and business.Furthermore, when conflicts of any nature arise, open communication and commonlyachieved solutions are crucial for overcoming them and ensuring continued success.
As any research, also this article has its limitations. Especially the search terms limitour methodology, as the literature review solely concentrates on empirical contributionsthat exclusively investigate psychological aspects of succession. However, the aim wasto elaborate a focused PFM in terms of succession. Therefore, aspects such as trust,jealousy, suspicion and avarice, which are attributed to both the fields of psychologyand sociology could not be taken into consideration with regard to our literature review.Likewise, the family business system by Gersick et al. (1997), which forms one of themajor foundations of our article, has been the topic of some criticism. For instance the firmage and thereby the generation that currently controls the family business as well astheir personal propensity and education are not considered in this model. In this regard,e.g. Rutherford et al. (2006, p. 329) state that “[. . .] firms that are small are first- orsecond-generation family firms, have significant tension, and are controlled by onefamily member. Firms that are large and old are third-generation firms. Firms that aregrowing and middling in size have educated and growth-oriented owners [. . .]” and “[. . .]high levels of strategic planning [. . .]”.
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Nonetheless, we believe that the assignment of each exposed potential psychologicalconflict aspect to the stakeholder, respectively, category affected fostered theunderstanding and plausibility of our model. Furthermore, it allowed providingprecise implications regarding the stakeholders concerned.
As illustrated, a relatively small amount of empirical analyses exist that exclusivelydeal with the psychological aspects of company succession in family enterprises.Therefore, research is urgently needed in this area to better understand the differentemotions, perceptions, and feelings of the parties involved. Focused investigations ofpsychological aspects with regard to succession in family enterprises would generateprogress and yield important insights. A critical focal point is to constitute steps thatcan help establish the measurability of emotions and feelings. Qualitative empiricalinvestigations might allow a better understanding of the effects of conflicts andemotions within the succession process. Here, the experiences of predecessors andsuccessors concerning emotions and conflicts should also be specifically addressed.
There are further perspectives and issues that need to be taken into consideration.It would certainly be interesting to analyse how sibling rivalries that emerge withincompany succession can bias the process. Another investigation topic could be theemotions felt by employees when a generational succession occurs. From a strategicview, the temporal variable seems to be the most important one. This is based on threeaspects: first, humans have a clear problem concretely determining what a reallong-term orientation looks like in practice. Second, as our model depicts, mostpsychological conflicts appear either in the transfer/takeover or in the continuationphase. It might be of value to dedicate the greatest detail of the investigative scope tothe preparation phase. The exploration of actions that are undertaken in early stages toprevent future conflicts might also be a good idea. Doing this could allow psychologyresearch to provide insight into how predecessors think about the implementation ofprophylactic actions to counteract potential conflicts. Third, there is a huge gap in theliterature when it comes to the post-succession phase in family businesses. There are noexisting and effective models, theories, and psychological assumptions of re-startinga business, even if it is within the own family. Therefore, the authors see an enormousneed to intensify the research in terms of “real” psychological aspects, and highlyrecommend psychological aspects as a single research approach. The existing genericapproaches are often insufficient and, to be blunt, “watered down”. Results in this areacan and should be discussed in a number of varying ways. The authors suggesttesting whether a single research stream is more effective in explaining the behaviourwithin a family firm instead of a broader, more formulated generic approach.
To advance this research topic, the following questions could be addressed to identifysolutions through which psychological conflicts within the succession process can bereduced or prevented: what actions can be undertaken to positively affect the successionprocess from a psychological perspective? Are reflective processes an approach to reduceconflict potentials within the succession process? Does the implementation of prophylacticactions positively bias the succession process and, if so, how can they be constituted?How do successors think about prophylactic actions in the succession preparation phase?
Finally, psychological aspects with regard to succession in family businesses openthe way towards a wide array of issues that offer solid opportunities for future research.The authors hope that the insights elaborated in this paper will contribute to graduallyfilling this academic void.
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About the authorsMatthias Filser, MSc is Research Assistant and Lecturer at the Groupe Sup de Co MontpellierBusiness School, France and PhD student at Utrecht University, The Netherlands.
Prof. Dr Sascha Kraus is Associate Professor of Entrepreneurship at the University ofLiechtenstein, Chairholder/Full Professor at the Utrecht University, The Netherlands, andAdjunct Professor at the Lappeenranta University of Technology, Finland. Sascha Kraus is thecorresponding author and can be contacted at: [email protected]
Dr Stefan Mark is Academic Adviser at the Catholic University of Eichstatt-Ingolstadt, Chairof Tourism/Entrepreneurship, Germany.
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