The Relationship between Managerial Characteristics and

Succession Planning in Family Businesses: A Multinational Analysis1

Matthew C. Sonfield

Hofstra University Matthew.Sonfield@Hofstra.edu

Robert N. Lussier Springfield College

rlussier@spfldcol.edu

ABSTRACT

This study investigates the relationship between managerial characteristics and succession planning in family businesses. Data was obtained from the owner-managers of 883 small and medium-sized family businesses in nine diverse countries, and was statistical tested using hierarchal regression. Regression analysis identified four characteristic variables significantly related to succession planning: 1) a shared decision-making management style, 2) a focus on strategic management, 3) the use of sophisticated financial management, and 4) consideration of going public.

These findings are analyzed, and implications are presented for family business owner/managers, for advisors to such firms, and for researchers in the field. The major contribution of this research study is that it investigates family business succession, in a multinational context, with a focus on planning for succession rather than on the process of the actual succession, which has been the focus of most prior research. Keywords: Entrepreneurship; Family Business; International JEL: D1, F66, L26

1 With data collection from: Mohsen Bagnied, American University of Kuwait Robert J. Barbato, Rochester Institute of Technology, USA Mamdouh Farid, Hofstra University, USA S. Manikutty, Indian Institute of Management, India Silvia Ins Monserrat and Claudia DAnnunzio, Centro de Estudios en Administracin, Argentina Sanja Pfeifer, Univ. of Josip Juraj Strossmayer Osijek, Croatia Nina Radojevich-Kelly, Metro State College of Denver, USA Louis Verdier and Loc Maherault, Ecole de Management, France

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Introduction Family control is the dominant ownership structure globally, and family

businesses account for a significant portion of all publicly traded firms. For example, in

the United States, one-third of Fortune 500 companies are at least partially controlled by

a single family which maintains substantial ownership in the firm (Combs et al., 2010).

The succession of top management is critical to any type of organization, and family-

owned business succession is critical to ensure that competent family leadership

continues across generations. Research has shown that failure to provide for successful

succession is the primary cause for the demise of family businesses (Bocatto et al., 2010).

Succession in family businesses has been identified as a primary issue in the study

and practice of family business management. Over a decade ago, analyzing the first ten

years of the publication of Family Business Review, Dyer and Snchez (1998) developed

a listing of the most frequent topics of that journals articles, and succession was the

second-most researched subject (after interpersonal family dynamics). Subsequent to that

listing, other studies have ranked succession as the most important issue facing family

business top managers (Chua et al.,2003; Handler, 1994), the most important area of

assistance requested of consultants to family firms (Upton et al., 1993), and the topic

most frequently studied by family business researchers (Brockhaus, 2004; Handler, 1992;

Montemerlo, 2000; Ward, 2004). And currently, managerial and generational

succession and succession planning have continued to be one of the most important

family business research focuses (DeMassis et al.,2008; Heck et al., 2008; Menzies &

Lococo, 2011; Steier et al., 2009).

The practitioner-oriented literature also stresses the importance of planning for

succession. A search at Amazon.com will identify more than 800 trade books with a

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specific focus on family business succession, and virtually all books more broadly

covering family business management include substantial discussions of the importance

of planning for successful succession (Poza, 2007).

The need for effective and successful planning for family business managerial

succession has been identified by many researchers in the field, who have concluded that

too often such planning does not take place or is insufficient, resulting in unsuccessful or

less-than-fully-successful succession (Astrachan et al., 2003; Fox et al., 1996; Stavrou,

2003).

The major contribution of this research study is that it investigates family business

succession, in a multinational context, with a focus on planning for succession rather than

on the process of the actual succession, which has been the focus of most prior research

(Handler, 1994). This specific focus has been largely ignored in the literature.

Specifically, this is the first research study investigating a number of managerial

characteristics of the family business and their relationship with succession planning.

Specifically, this study works to begin to answer the question: Do certain factors

increase the likelihood of planning for family business managerial succession? Since

there is general agreement on the importance of successful succession in family

businesses, then it follows that planning for succession is a desirable component of

family business management. Thus an appropriate research objective is to develop a

better understanding of those factors which lead to such planning. Such an understanding

would allow family business owner/managers, and those who consult to them, to increase

the likelihood of succession planning and successful succession implementation. This

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investigation can lead to taking family business research on succession planning in a new

and valuable direction.

This study is not intended to compare succession planning in one country versus

another. A comparative study would certainly be an appropriate objective for future

research by these authors or by others. The nine-country sample (Argentina, Croatia,

Egypt, France, India, Kosovo, Kuwait, Serbia, and the United States) is a combined

sample, intended to represent family firms in a variety of countries, each with differing

business contexts, providing a representation of a generality of family businesses world-

wide.

This article addresses this research focus following the scientific method: first a

review of the succession literature in general, and with regard to a number of managerial

factors that have been determined important in the family business literature, with

resulting hypotheses, thus providing a model of succession planning to be tested. The

following sections include the methodology, the results of the regression analysis testing

of the model, and a section of discussion and conclusions.

Review of the Succession Literature

The literature on family business succession has been reviewed in a large number

of journal articles; thus a brief overview should suffice here. Perusal of the citations in

this section will provide more details on the many studies and analyses which have

focused on this specific issue.

Some of the earliest analyses of family business succession focused on the

frequent unwillingness and/or resistance of founders to yield control of their businesses to

the next generation or to other successors. Many explanations and theories have been

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suggested for this phenomenon, such as psychological loss of role and image, uncertain

feelings about the managerial abilities of the potential family-member successors, or fear

of a possible decline in the business performance and income (Brun de Pontet et al.,

2007).

More recent analyses have attempted to develop models which can identify

variables leading to more effective family business succession. Chittoor and Das (2007)

categorized five broad groups of such variables: (1) predecessor-related, (2) successor-

related, (3) family-specific, (4) business-specific, and (5) succession process-related.

Another categorization of family business succession model development has

been suggested by Cadieux (2007). One approach involves the different groups of actors;

another approach focuses on the steps in the organizations life cycle, while a third

approach is based on the process itself.

A variety of other factors which influence succession in family businesses have

also been suggested, and are worth mentioning. Dyer (1998) investigated culture and

continuity in family firms, and the need for firm founders to understand the effects of a

firms culture and that culture can either constrain or facilitate successful family

succession. Fiegener and Prince (1994) compared successor planning and development

in family and non-family firms, and found that family firms favor more personal

relationship-oriented forms of successor development, while non-family firms utilize

more formal and task-oriented methods. Building upon these and other studies of

succession in family firms, Stavrou (1998) developed a conceptual model to explain how

next-generation family members are chosen for successor management positions. This

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model involves four factors which define the context for succession: family, business,

personal and market.

In still other studies, Royer et al. (2008) developed a contingency model of

succession involving the factor of preferred successors. DeMassis et al. (2008) have

investigated factors that hinder family business succession. Stavrou et al. (2005) have

focused on the relationship between leadership personality and succession. And with still

another focus, Yan and Sorenson (2006) examined family business succession from the

perspective of Confucian values.

Most recently, Bocatto et al. (2010) investigated the relationship between the

level of a family businesss financial performance and the nomination of family members

versus non-family members as managerial successors. Their conclusions were that

positive firm performance will lead to the nomination of a family member as a successor,

while negative firm performance will lead to the nomination of a non-family member.

Managerial Characteristics of Family Business and Hypotheses

A review of the overall literature on family business identifies a variety of

managerial characteristics which are postulated to be important, because they may relate

to different levels of managerial performance and/or overall company performance. Yet

there has been very little investigation with regard to the relationship between these

managerial characteristics and the specific variable of planning for succession. From the

literature, twelve managerial characteristics have been identified as worthy of

investigation for their relationship to such planning. Significant relationships identified

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by such testing can then be used as a foundation for the development of a model to

predict succession planning.

1. Generations

A first-generation family firm is defined as a family-owned and managed firm,

with more than one family member involved, but only of the first and founding

generation of the family. Second- and third-generation family firms are defined as firms

in which the second or third generations of the family are also involved in the ownership

and the management of the company. In a second- or third-generation firm, the original

founder(s) and/or other members of earlier generations may be retired from the firm or

deceased; thus not all (two or three) generations need be currently participating.

Furthermore, the locus of managerial and family primary leadership may be located at

any generational level (Beckhard & Dyer, 1983; Davis & Harveston, 1999; Dyer, 1988;

Handler, 1989; Hershon, 1975; Kelly et al., 2000; Lambrecht, 2005; Schein, 1983).

Recent research has found a relationship between family generations and

perception of leadership effectiveness (Davis et al., 2010), which could influence

succession planning. However, there has been limited empirical research focusing on

whether family firm generational level specifically influences succession planning, and

the results are inconclusive. Multinational studies by Sonfield et al. (2005) indicate that

as family firms move beyond the first generation of family member ownership and

involvement in management (into second- and third-generations), there is more

succession planning in some country family business samples but not in all countries.

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Similarly, research conducted by Brun de Pontet et al. (2007) also produced mixed and

inconclusive findings with regard to this relationship.

In a USA study, Sonfield and Lussier (2004), found a significant difference in the

formulation of specific succession plans between first and combined second and third

generations, but not between second and third generations. Thus, younger firms tend to

do less succession planning than mid-age and older firms, but mid-age firms do not do

any more planning than older family firms, and thus there may be a positive linear

relationship that levels off between the 2-3 generations.

For this variable of generations (and for the following eleven variables) there is

insufficient prior research or resulting theory to support a prediction of either a positive

or negative relationship, or a lack of a relationship, between the variable and succession

planning. However, for the purposes of this studys testing, all twelve hypotheses will be

stated to denote a positive relationship. Whether testing supports each of the hypotheses

or not, the results should be of value in expanding our understanding of the nature of

family business and in suggesting paths for future research in the field of family business.

Thus:

H1: There is a positive relationship between the number of generations and

succession planning.

2. Non-Family Managers

While most definitions of a family business include the criterion of the

prevalence of family members in the management team, an extensive review of the

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family business literature has found few academic papers or journal articles that

specifically investigated the relationship between non-family-members in the top

management team and the performance of family firms. Somewhat more frequently

found, but still moderate in number, were papers and articles that compared family

businesses and non-family businesses, an issue quite different in nature.

Agency Theory is perhaps the dominant basis for investigating the relationship

between the owners (principals) and the managers (agents) of a company (Chua et al.,

2003). Agency problems may arise if the interests, values of these two groups, and/or the

information available to them, are divergent. If such divergences exist, then agency

costs arise in the efforts to reduce these divergences (Jensen & Meckling, 1976).

Certainly the presence of non-family-member managers in a family firm raises the issue

of Agency Theory and several prior researchers have investigated this issue.

For example, Chua et al. (2003) emphasized the relevance of Agency Theory in

explaining and understanding the relationship between family-member managers and

non-family-member managers in family firms. They empirically investigated the

percentage of non-family-member managers in the management team of a family firm

and its relationship to the family-member managers concerns about their relationships

with non-family-member managers. Among their conclusions was that past assumptions

of zero or low agency costs in family firms require further thinking, as these costs are

more complex and asymmetric than previously supposed. Recently, Blumentritt et al.

(2008) investigated and compared family-member and non-family-member CEOs of

family firms.

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Although no prior studies have found a relationship between the inclusion of non-

family-member managers and succession planning, some family business researchers

have focused on developmental issues or the stages of evolution of family business

growth. Gersick et al. (1997) present a four-stage model of family firm development, and

Peiser and Wooten (1983) focus on the life-cycle changes in family businesses. Thus, the

body of literature specifically relating to family-member managers and non-family-

member managers in family firms provides limited empirical evidence and little

consensus or clear conclusions with regard to the focus of this study.

H2: There is a positive relationship between the number of non-family

managers and succession planning.

3. Women Family-Members

The proportion of women family-member managers in family businesses is

growing in many countries (Smith, 2007; Wilson et al., 2004). As an example, it is

estimated that women now own more than 33% of all North American family firms

(Astrachan, 2002). Yet there have been few research studies specifically focusing on

women in family business, and those studies which were conducted were more often

conceptual rather than empirical (Bowman-Upton & Heck, 1996; Hisrich & Flp, 1997).

Most of these studies investigated issues of womens roles in family firms, family

relationships, the glass ceiling and other aspects of gender bias, and succession

planning (Barbieri, 1997; Cole 1997; Galiano & Vinturella, 1995; Gundry & Welsch,

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1994; Harveston et al., 1997; Iannarelli, 1992; Nelton, 1998; Rowe & Hong, 2000; Vera

& Dean, 2005).

Other studies have focused on similarities and differences in performance, with

mixed conclusions (Danes et al., 2005; Fasci & Valdez, 1998; Shim & Eastlick, 1998;

Watson, 2002). Still other studies have investigated social capital as a possible

differentiating factor for men and women in family businesses (Renzulli et al., 2000), the

social policy implications with regard to supporting womens participation in family

businesses (Wilson et al., 2004), and gender influences on the succession process in

family firms (Pyromalis et al., 2004). A Spanish study has focused on the traditional

family environment, and how women family members impact family businesses from the

home (Cappuyns, 2007). And a Danish study (Bennedsen et al., 2007) investigated the

impact of the gender of the founders first-born child to succession decisions. Still, a

comprehensive search of the literature indicates that there have been no studies

specifically relating women versus men family business managers to succession

planning.

H3: There is a positive relationship between the proportion of women family

members in the management team and succession planning.

4. Shared Decision-Making

The locus of decision-making in family firms is an important focus of the existing

research. On one hand, family firm founders identify strongly and personally with their

businesses, and often find it difficult to share authority with others, even though these

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others may be their children or other close relatives. Yet on the other hand, the fact

that the entire top management team of a family firm is generally related may lead to

greater team decision-making, due to positive family relationships and dynamics.

Those who study or consult to family businesses see both of these alternative

management characteristics in different groups of the companies they work with, and

they consider this factor an important component of the phenomenon of the family firm

(Aranoff, 1998; Dyer, 1988; Eddleston et al., 2008).

H4: There is a positive relationship between shared decision-making and

succession planning.

5. Level of Conflict and Disagreement

Another aspect of the issue of interpersonal dynamics in family firms, closely

related to the previous variable, involves conflict and disagreement among family

members, and this subject too has been a major focus of family firm research. A

significant cause in the failure of family businesses after one or two generations of

ownership/management is conflict and disagreement among family-member managers

(Beckhard & Dyer, 1983; Davis & Harveston, 1999, 2001; Eddleston et al., 2008). Still,

the literature supports neither a positive nor negative relationship.

H5: There is a positive relationship between the amount of conflict among

family members and succession planning.

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6. Use of Outside Consultants, Advisors and Professional Services

7. Long-Range Strategic Thinking and Planning

8. Formal versus Informal Top Management Style

9. Use of Sophisticated Financial Management Techniques

These four variables relate to the style of management practices chosen by family

business owner-managers. Such variables may significantly impact company

performance (Brettel et al., 2010). Researchers have found that many family business

owner-managers tend to prefer a style of management that avoids the involvement of

outsiders, is less professional in nature, and is more informal, subjective and

paternalistic. This seems to be the result of familiness out-weighing other influences

on management style. Because family firms involve a system of a) the family, b) the

individual family members, and c) the business unit, the first two components of this

system may have greater influence on family-member managers than more traditional

and rational business objectives of methods - component c in the family business system.

On the other hand, researchers have also seen a movement toward more formal

and professional management as family firms grow and move into subsequent

generations. This development of a more objective managerial style may include the use

of outside consultants, advisors and professional services; greater use of sophisticated

financial management techniques; and more strategic management involving long-

range thinking and planning (Aronoff, 1998; Cole & Wolken, 1995; Coleman & Carsky,

1999; Danes et al., 2008; Dyer, 1988; Filbeck & Lee, 2000; McConaughy & Phillips,

1999; Miller et al., 2001; Schein, 1983).

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H6: There is a positive relationship between the use of outside advisors and

succession planning.

H7: There is a positive relationship between long range strategic planning

and succession planning.

H8: There is a positive relationship between the use of a formal management

style and succession planning.

H9: There is a positive relationship between the use of sophisticated

financial management techniques and succession planning.

10. Active Founder

11. Founder Influence

An important factor impacting family firm behavior and performance is the

influence of the founder(s) of the firm. The founder may continue to lead the firm or be

part of the current management team, or he or she may no longer be actively involved,

due to retirement or death. Early research conclusions were mixed with some researchers

arguing that founders have an imprinting effect on their firms, setting them on trajectories

from which it is difficult to depart (Boeker, 1988), while others suggest that founders

have no enduring influence on their firms because organizations are malleable, sensing

and reacting to changes in the environment (Teece et al., 1997).

The founders influence on the subsequent management of family firms has been

given different names by different researchers. Davis and Harveston (1999) call this

influence generational shadow. In a multi-generation family firm a generational

shadow, shed by the founder, may be cast over the organization and the critical processes

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within it. In such a situation, succession is considered incomplete, may constrain

successors, and may have dysfunctional effects on the performance of the firm. Yet this

shadow may also have a positive impact, by providing a clear set of values, direction

and standards for subsequent firm managers. Specifically, analyzing data from a 1994

telephone survey of family-owned businesses, Davis and Harveston concluded that the

strength of the generational shadow of the founder correlated positively and significantly

with organizational conflict in third-generation family firms. Although a similarly

statistically significant correlation was not found for second-generation firms, the authors

did find increases in second-generation family firm conflict when the founder was still

involved in the firms management.

Kelly et al. (2000) similarly proposed that a family firm founders legacy

centrality will influence the strategic behavior of succeeding generations family

member managers, with both positive and negative impact. Looking at three dimensions

of legacy centrality betweenness centrality, closeness centrality and connectivity

centrality these researchers postulated that the founders centrality will impact the

strategic management of a family business with regard to strategic vision, strategic goals,

culture, strategy behavior and inward/outward orientation. Furthermore, family firms

with high legacy centrality may be especially vulnerable to significant changes in the

economic or competitive environment. Kelly, et. al did not conduct an empirical study

but did conclude that family firm founder influence has been underrepresented in the

management literature. They conclude that measures of founder influence can be very

useful in understanding family businesses and recommend further empirical research in

this area.

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More recent investigations of founder influence consider this issue in the light of

stewardship theory and transformational leadership behaviors (Eddleston, 2008; Feltham

et al., 2005; Zara et al., 2008). Thus, founder influence in family firms, denoted as

generational shadow, legacy centrality, or by another label, is a valid component of

the family business system and deserves further study.

Presumably, founder influence will be stronger if the founder is still active in the

management of the firm. Thus both the presence of the founder and his or her influence

are related but separate variables.

H10: There is a positive relationship between the founder being active and

succession planning.

H11: There is a positive relationship between the degree of founder influence

and succession planning.

12. Consideration of Going Public

Family firms need not always be privately owned. As they grow and/or as they

move into subsequent generational involvement, opportunities and needs for going

public may arise. The family may not be able, or may not choose, to provide sufficient

management or financial resources for growth, and added outsider ownership can resolve

this situation. And even publicly owned companies can continue as family businesses,

if management or financial control is maintained by the family. McConaughy (1994)

found that 20% of the Business Week 1000 firms are family-controlled, while Weber and

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Lavelle (2003) report that one-third of S&P 500 companies have founding families

involved in management. .

H12: There is a positive relationship between considering going public and

succession planning.

Thus each of the twelve variables listed and discussed above is an important focus

of family business research. And given the minimal prior research with this current

studys focus to build upon, all twelve factors are therefore worthy of investigation as to

their relationship with succession planning in family firms.

Methodology

Sample

The goal for sampling was to obtain wide and diversified global coverage. Each

country selected in the sample represents a different global geographic area, and the total

group of countries presents a wide variety of economies, cultures, and family business

environments. Furthermore, the objective of this study was not to compare family firms

in each of the nine countries, but rather to combine the data to provide a comprehensive

and large sample of family firms that might in turn lead to more general and universal

findings than a single-country sample can generate. Thus, the nine countries data were

combined into one sample, as suggested by Bruton et al. (2008). Dickson and Weaver

(2011) combined a sample of 8 countries with similar sampling methodology. The

combined sample was also used because of the possibility of obtaining weak and invalid

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results whenever a large sample is broken down into smaller sub-samples (Lussier, 1997).

The sample (n) from each of the nine countries was combined and the weighted average

is reported.

A random sample or a known population of family business was taken in each

country, and in each country the sample size was relatively large, thus reducing the

chances of bias. Identifying family firms from various listings or asking companies if

they are family businesses is consistent with the methodologies of other family business

researchers, who have similarly been constrained by the lack of national databases of

family firms (Chua, et al,. 1999; Sonfield & Lussier, 2004; Teal et al., 2003). Because of

varying difficulties in identifying and contacting family businesses in the various

countries, the data collection in each country was slightly different due to the availability

of family business listings. Like Dickson and Weaver (2011), in countries where mailing

lists were available, mail surveys were utilized (the USA, Argentina, France, Egypt, and

India). In countries where family firm mailing lists were not available, data collection

generally involved personal interviews (Croatia, Kosovo, Kuwait, and Serbia).

In the United States, survey instruments were randomly mailed or hand-delivered

to a variety of family firms which had been identified from listings. A total of 159 usable

questionnaires were returned, providing a response rate of 28.9 percent. In Argentina,

databases provided contact information. Of the 159 family firms contacted, 102

questionnaires were received, providing a response rate of 64 percent. In Egypt, the

survey was sent through a family business network. Six hundred (600) family businesses

received copies of the survey; 172 responded to the survey, but 25 were found to be non-

family businesses. This resulted in 147 usable survey responses, providing a response

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rate of 28.66 percent. In France a random sample of 800 was selected to receive a mail

survey; 116 were returned for a response rate of 14.5 percent. In India a mailing to 312

family businesses resulted in 40 usable responses for a response rate of 12.8 percent.

In Croatia, randomly selected businesses were contacted and asked if they were

family businesses. Seventy family firms were identifiable and intensive contact effort

resulted in 50 completed questionnaires, for a response rate of 71.4 percent. In Kosovo a

similar data collection method was used and 80 questionnaires were returned for a

response rate of 100 percent. In Kuwait, students were asked to identify and personally

interview family business owners, producing an 85 percent response rate with 81

completed questionnaires. The method for data collection in Serbia was a combination of

mail and hand delivered; 145 surveys were distributed and 108 surveys were completed

for a response rate of 75 percent.

The combined weighted average response rate was 50 percent providing a total of

883 respondents from nine countries. This is a large sample size and response rate for

family business research, as it has been reported that 62 percent of prior family business

studies included no sample at all, or a sample with less than 100 family businesses and 66

percent of these were convenience samples (Bird et al., 2002). In three highly-rated small

business and entrepreneurship-oriented journals (Entrepreneurship Theory and Practice,

Journal of Business Venturing, and Journal of Small Business Management) around one-

third of the articles had a response rate of less than 25 percent (Dennis, 2003). The

Dickson and Weaver (2011) eight country combined sample had an overall 23.9 percent

response rate.

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Data Collection

The data was collected using the previously published Sonfield and Lussier

(2004) survey instrument. The survey questions were published in Family Business

Review (2004, 17[3], pp. 201-202). In each country, the survey instrument was

accompanied by a cover letter and/or verbal instructions, so that respondents understood

the studys working definition of a family business, and thus only appropriate business

owner-managers responded to the survey. Analyses of some of these countries data,

using the same survey instrument, were previously published by Sonfield and Lussier

(2004, 2005, 2009) and Lussier and Sonfield (2006, 2012). Thus, the variables and survey

instrument have been tested prior to this current study.

The questionnaire was developed in English. Thus, in Argentina, Croatia, Egypt,

France, India, Kosovo, Kuwait, and Serbia the questions were translated into the

language of the country by business professors and checked for translation by language

experts of each country (Dickson & Weaver, 2011). In addition, the questionnaire was

pilot tested in each country to ensure understanding of the questions. Thus, precautions

were taken to ensure that the data collected was the same in each country.

Note that the measures of the variables reported here are not taken word for word

from the survey instrument. In many cases the questions were more detailed. Measures as

reported in this article are shorter to conserve space and keep the focus on the variables.

The italic words are used as an abbreviation of the variables.

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Variables

The dependent variable was the extent of succession planning. Whether the firm

has formulated specific plans for the future succession of junior family members into top

management positions, and all family members are aware of these plans. It was measured

using a scale of 1-7, with 7 indicating a greater extent of succession planning.

Note that the use of the terms dependent variable and independent variable is

not meant to imply or measure causality, nor is the major focus of the study on

prediction. The statistical hypothesis testing is designed to measure the relationship

between the research variables using regression in order to make multiple relationship

analysis possible while using control variables. This use of regression is common in the

field of entrepreneurship/management (Dickson & Weaver, 2011; Kraimer, et al., 2012).

There were 12 independent variables. 1. Generation was measured on a scale of

1-3 with each number representing the number of generations. 2. Percentage of non-

family managers in the top management team was measured with the actual percentage of

those who were not family managers. 3. Percentage of women family-members involved

in the operations of the firm was measured with the actual percentage of women.

The next seven variables were measured on a 7 point scale 7 describes our firm,

1 does not describe our firm. 4. A shared decision-making style is used, as most or all of

the family members, not just top-level managers are included in decisions. 5. Family

members are often in conflict and disagreement. 6. The firm uses outside advisers,

consultants and professional services. 7. Top management spends much of its time

thinking about and making decisions regarding the long-range strategic thinking and

planning of the firm, rather than only day-to-day operations. 8. The top management

22

style is formal, objective, non-paternalistic versus informal, subjective, paternalistic. 9.

Sophisticated financial management techniques are used. 10. Founder active was a

dummy variable coded 1 for founder is active in the family business and 0 for not active.

11. The original business objectives and methods of the founder(s) continue to strongly

influence current top management styles and decisions. 12. This firm has already or is

seriously thinking about taking the firm public by selling stock.

Control Measures

It is common to control for the effect of the size, age, and industry of the family

business (Foo, 2010; Oswald et al., 2009; Pieper et al., 2008; West & Noel, 2009)

because these variables can affect many aspects of the family business, including

succession planning. Due to the level of analysis measure being organizational, no

controls are used for individual characteristics of the family owners and managers. A.

Age of the firm was measured by the number of years it has been in business. B. Size of

the family business was measured by the number of employees. C. industry was

classified as either product or service.

Results

Descriptive Statistics

See Table 1 for the means, standard deviations, and correlations matrix between

variables in the study. The correlations between succession planning and the control

variables have mixed positive and negative coefficients and none of them were

significant at the .05 level. Age of the business had a negative relationship to succession

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planning, but as stated, age has been shown to have a positive relationship in the earlier

years and then to level off. Size of the firm did have a positive relationship with

succession planning. Industry also has a negative relationship, but being a dummy

variable, essentially this indicates that service firms do more succession planning, but

again none of the control variables coefficients are significant.

Of the 12 independent variables, 11 have a positive correlational relationship with

succession planning. Only the founder being active had a negative coefficient, but being

a dummy variable, this indicates that when the founder is not active, the firm engages in

more succession planning. Two-thirds of the correlations between the independent

variables and succession planning are significant at the .05 level.

When comparing the relationship between the independent variables, due to the

large sample size, statistical power is high, but as is common effect size is low (Combs,

2010; Connelly et al., 2010). However, the correlation coefficients among the

independent variables are low, with the highest being only .28. Thus, the correlations are

low and therefore multicollinearity should not be problematic (Foo, 2010; Oswald et al.,

2009).

Multicollinearity Tests

The correlations coefficients between the independent variables shown in Table 1

are low. Only three (4.5%) are above .30 with the highest being .44. All three

correlations involve financial management. Only six coefficients (9%) are between .20-

.26. Thus, of the 66 correlations, 57 (86%) have coefficients less than .20, the highest

being only .28. Thus, all 66 correlations between the independent variables are well

24

below the problematic coefficients of being equal to or greater than .70. Therefore

multicollinearity should not be problematic (Lussier, 2011).

With the regression, two other tests of multicollinearity were run. All of the

tolerance collinearity statistics were well above the problematic .20; they ranged between

.647 and .960. The collinearity statistic variance inflation factors (VIF) were all below

the problematic 4.00; they ranged between 1.04 and 1.55. Thus, the correlations,

tolerance and VIF are well within acceptable ranges (Lussier, 2011). Therefore,

multicollinearity should not be problematic (Foo, 2010; Oswald et al., 2009).

Hypotheses Testing

Hierarchal regression was used to test the family business variables in the study;

see Table 2 for the results. The first step, Model 1, includes the three control variables. In

step two, Model 2, the 12 independent variables were introduced. Although it is common

to use interaction terms between the independent variables, due to the fact that this is the

first study to directly test the relationship between managerial characteristics and family

business succession planning, there is no theoretical background supporting any

interaction between the variables, so they are not included in the analysis.

25

Table 1 Means, Standard Deviations, and Correlations (N = 883)

Variable Mean SD 0 A B C 1 2 3 4 5 6 7 8 9 10 11 0 Succession 3.64 2.41 A Age 25.70a 25.28 -.12 B Size 297.83b 247.38 .05 .08 C Industry 1.50 .50 -.04 -.02 .01 1 Generation 1.89 .73 .01 .55 .08 -.05 2 Nonfam mgt % 25 .32 .01 .17 .17 -.04 .12 3 Women fam % 26 .27 .01 .02 -.06 .12 .02 -.02 4 Share decisions 4.54 2.25 .24 -.11 -.00 -.04 -.00 -.06 .12 5 Conflict 2.33 1.84 .03 .05 -.04 .10 .04 -.00 .06 .17 6 Outside advice 4.17 2.32 .08 .18 .04 -.07 .17 .21 .05 .05 .08 7 Strategic mgt 3.60 2.00 .28 -.12 .04 .01 .03 .07 .03 .06 .07 .19 8 Mgt style 4.31 2.02 .16 -.09 .08 -.06 -.05 .20 .02 .11 -.02 .11 .18 9 Financial mgt 4.07 2.24 .22 -.04 .12 - .06 .07 .23 .00 .12 -.03 .30 .36 .44 10 Active founder 1.27 .44 -.09 .33 -.02 - .05 .16 .04 .02 -.08 .02 .14 -.08 -.07 -.04 . 11 Foun influence 4.92 2.12 .11 -.20 .02 .03 -.06 -.12 .00 .06 -.08 -.03 .05 .02 -.02 -.22 12 Go Public 1.96 1.96 .16 -.07 .23 -.02 .01 .26 -.05 .03 .09 .10 .17 .21 .25 -.07 .04

a This large mean is due to some older company outliers, the median is 21 and the mode is 20 b This large mean is due to some large company outliers, the median is 25 and the mode is 15. Correlations of .06 or higher are significant at the .05 level of significance Correlations of .08 or higher are significant at the .01 level of significance

26

Table 2

Hierarchical Regression Results

Step 1 2 Control Variables Age (years in business) -.128 -.067 Size (number of employees) .065 .020 Industry (product or service)

-.044* -.028

Independent Variables 1. Generation .041 2. Non-family managers -.039 3. Women family members -.005 4. Shared decisions making .197** 5. Level of conflict and disagreement -.013 6. Use of outside advice .010 7. Long range strategic planning .195** 8. Formal vs. Informal management style .043 9. Use of sophisticated financial management .080* 10. Active founder -.022 11. Founder influence .043 12. Consider going public .089** F 6.226** 10.659** R2 .021 .157 Adj R2 .018 .142 R2 .136**

Standardized coefficients * p .05 ** p .01

In testing the combined variables into models, ANOVA results indicate that both

models do predict succession planning (F 6.226, p = .000; F 10.659, p = .000). The model

summary R2 and adjusted R2 increases from step 1 to step 2, and the change in R2 is

significant (p = .000). Thus, there is support for the combined managerial characteristics

relationship with family business succession planning.

One of the current concerns in business research is increasing sample size to gain

statistical power while effect sizes are decreasing (Combs, 2010; Connelly et al., 2010).

27

In this study, the sample size of 883 is not so large that very low predictions can be

found. Also, effect size at the organizational level of measurement tends to be lower than

at the individual level of analysis (Combs, 2010). The R2 and adjusted R2 effect sizes of

model 2 are within the range of family business effect size of .11 to .31 found by

Connelly et al. (2010).

The second analysis, the major focus of the study, tests the relationship of each

variable with succession planning based on its coefficient. In model 2, none of the three

control variables were significant. Thus, the age of the business, the size (number of

employees), and the industry (product or service) do not have a significant effect on

succession planning.

Of the 12 independent variables, four were significant at the .05 level, and they all

had a positive linear relationship with succession planning. Thus, the data analysis

supports hypotheses H4, H7, H9, and H12.

H4: Family businesses that engage to a greater degree in shared decision-making also are

more likely to develop succession plans (p = .000).

H7: Family businesses that make greater use of sophisticated financial management also

engage in more succession planning (p = .000).

H9: Family business in which the managers spend more time in long-term strategic

planning also are more likely to develop succession plans (p = .040).

H12: Family firms that plan to go public make greater use of succession planning (p =

.010).

28

Discussion

The four managerial characteristics identified above as possible predictors to

family business succession planning are based on statistically significant relationships

identified in a sample of 883 family businesses in nine diverse countries.

Implications

Each of the four positive relationships is supported by prior research. A

commitment to shared decision-making would logically involve subsequent generations

in managerial activities and thus call for succession planning (Aranoff, 1998; Dyer, 1988;

Eddleston et al., 2008; Simon, 1979). Similarly, strategic planning involves thinking

about and preparing for the future of the firm, and a central component of this process in

family businesses is succession planning (Aronoff, 1998; Danes et al., 2008; Dyer, 1988;

Miller et al., 2001; Schein, 1983; Teece, 2009).

Managerial behavior that includes the use of sophisticated financial management

techniques would also understandably show a relationship to succession planning, as both

managerial preferences involve rational and ordered decision-making (Cole & Wolken,

1995; Coleman & Carsky, 1999; Ehrhardt, 2010; Filbeck & Lee, 2000; McConaughy &

Phillips, 1999). And the relationship between the consideration of going public and

planning for succession is also supported by prior research. The consideration of going

public is certainly an indication of professional rather than informal management,

and it need not imply a desire to move managerial control away from family members.

Family firms generally maintain family managerial control after initial public offerings

29

(Lavelle, 2003; McConaughy, 1994; Ritter & Welch, 2002), and the new obligation to

outside shareholders strengthens the need for successful managerial succession.

Since, as previously discussed, there has been minimal prior study of managerial

characteristics and their relationship to succession planning, it cannot be said that this

studys findings either decisively support or refute previous research. Instead, the value

of this research and its findings is that it begins to fill an identified gap in the family

business literature through its quantitative investigation of an important issue, and that it

provides some starting points for further research into family business succession.

From the research perspective, the current research focus is on the process of

succession planning. These findings provide a better understanding of the managerial

characteristics that lead to, and support the use of, succession planning in family

business. If further studies, both quantitative and qualitative, support the identification of

these and/or other managerial characteristics related to family business succession

planning, then family business owner/managers, their advisors, and those who study such

businesses can benefit from these findings. Furthermore, for research purposes, such an

understanding of succession planning might eventually contribute to a model of family

business succession.

Also, from a practitioner point of view, by analyzing the managerial

characteristics of a family business, the likelihood of succession planning would be more

predictable, thus allowing the owner/manager, advisor, or researcher to focus on planning

accordingly. For consultants, in addition to helping family businesses develop their

succession plans, this might include placing greater emphasis on certain managerial

30

characteristics, or prioritizing managerial behavior, so as to foster and support succession

planning.

Limitations and Further Research

A limitation of this study is the lack of a strong and conclusive body of prior and

narrowly focused research as the foundation for the choice of the twelve independent

variables and the hypotheses. But at the same time the results of this study add to the

very limited body of empirical research with this focus on succession planning and to the

broader body of literature on succession in general. Because the 12 hypotheses are not

based on a strong body of research, there is need for further research to support these

findings.

Another limitation is the low effect size. With low r-squares, it is clear that to

develop a theory and a model of managerial characteristics to explain their relationship to

succession planning, there are other variables that need to be added to the model to

increase the variance in succession planning that is explained by the model independent

variable managerial characteristics.

Although the nine-country combined sample provides the benefit of diversity, it is

also a limitation because there are many differences between countries and cultures that

one cannot control for. For example, there are differences in legal systems, economies,

attitudes toward business and family business, GEM TEA, and other factors. Future

researchers may develop cultural control variables and explore how country

characteristics in fact affect family business succession planning.

31

Although the sample size of 883 is large, the sample is drawn from nine countries.

Thus, the sample size, with a mean of around 100 per country, is still relatively small in

relation to the total population in some of the countries. Further research with larger

sample sizes in individual countries may provide more generalizable internal validity

results. Collecting data in other countries that are not included in the sample will also

help to increase the external validity of the results.

As in prior research, the measure of the dependent variable, succession planning,

is a single measure, self-reported by the owner/manager of the family business. Although

not commonly done in entrepreneurial and small business research, including multiple

measures (triangulation) in future research could improve the reliability and validity of

the measurement of succession planning.

Conclusions

Limitations aside, this study is the first study to directly test the relationship

between managerial characteristics and family business succession planning. Data

analysis from 883 small and medium-sized family firms in nine diverse countries found

positive relationships between each of the 12 independent variables and succession

planning, and four variables (shared decision making, use of sophisticated financial

management, strategic planning, and considering going public) were significant. Thus,

this research enters new areas of investigation and should suggest directions for other

family business researchers. Much of the dynamics and the system of the family firm

remain largely unexplored, and certainly planning for succession has been minimally

researched. Hopefully, this study is a starting point.

32

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