Family Characteristics as Determinant of Succession Planning

Abstract

Even though succession planning ensures continuity of the firm, many family firms leave succession planning to chance. In our study, we investigate the potential drivers of the extent of succession planning based on a wide scale survey conducted at private family firms in Belgium. Contrary to previous studies in the field assuming that succession is largely under control of the incumbent leader of the family firm, we focus on family characteristics as potential drivers of succession planning. Our results indicate that these family characteristics matter: family firms which can rely on a competent family member to become the new CEO and intend to pass the firm to the next generation who is willing to take over the lead will be more likely to engage in succession planning. Family cohesion seems to have no direct effect on succession planning but seems to play an important facilitating role. To investigate this facilitating role, we incorporate moderating effects in our study. Our study reveals two important findings with respect to these moderating effects. First, if the family members/children are able to talk openly about their motivations, unwillingness, to lead the firm, it will still be hard and emotional for the incumbent to plan a succession to a nonfamily member. However, results indicate that the negative effect of the potential sale of the firm to a nonfamily member on succession planning is reduced when family cohesion increases. Second, results suggest that the presence of a competent family successor will increase succession planning if family cohesion is very high. The presence of more than one competent successor or the presence of competent as well as incompetent potential successors can create conflicts within the family. However, family cohesion will facilitate succession planning as it will avoid these conflicts among the family members. High cohesion means that the family can maintain boundaries between the family and the business which makes it easier for the incumbent to plan for succession to the child/family member he/she perceives as being (most) competent. The cohesive environment allows the CEO to discuss his/her choice for the successor openly with the other children/family members.