additional day y for r the e family council meeting included discussion of a draft t of a
shareholder buy–sell l agreement, , discussion n of the newdividend-distribution policy,
anddiscussionofadraftofafamilyconstitution.Thefamilyconstitutionincludedan
emergencycontingencyplannamingTere,theonesisteractiveinmanagement,asthe
successorifsomethingshouldhappentoFrancisco.
THEPRUNEDFAMILYTREEGROWS
Allthisupheavalandanimositydid haveseveralpositivesideeffects.Francisco dedi-
catedhimselffullytothebusiness.Hefiredseveralmembersofthetop-management
teamwhowerehurtinghiseffortstoprofessionalizethebusiness,replacingthemwith
competentkey managers.Concurrently,he began to successfully executea growth
strategythathadbeenintheplanningstagesforseveralyears.In1998,revenuesand
netprofitroseto$112.6and$6.2million,respectively.Then,in1999,whenrevenues
wentdownslightly,to$109.7million,netprofitroseto$6.5million(seeTableB).
Starting in 1998, , dividends s increased significantly, , which h gained d Francisco o much
respectwithshareholders.
FranciscoretainedafinancialconsultantastheCFOand,tohisdelight,foundthat
thisCFOknewasmuchaboutbusinessashedidaboutfinanceandwasagreatgeneral
manager. Francisco o now w had d key y nonfamily y managers whose skills s complemented
those that t he e and d Tere broughtto o the corporation. . Together, they turned d things
arounddramaticallyandincreasedcompanyprofitability.
While Mari i achieved her goal of f liquidity and d personal l oversightover r her own
inheritance,the otherfamily members recommitted themselvestothe businessand
stayed involved.Theworkofthefamily foundationcontinued.Thefoundationwas
successfulingettingahighwaynamedinmemoryofFranciscoSr.,andallthefamily
membersgottogethertohonorandcelebratethefamily’sproudpast.Theincreased
participationbytheVallesistersincommittees,taskforces,thefamilycouncil,share-
holders’meetings,andthefamilyfoundationledtoagreatersenseoftransparencyand
ownership.As they walked to o a a shareholders’meeting in n the spring of2000,Ana
reflectedonthechanges:
A long time ago, , my father r gave one e of my siblings s $650,000 to buy y a a house.
Franciscohasbeenadjustingdistributionstoequalizeusallwith thatgift.After
that, we will l receive ourdividends based on our ownership p stake and company
profitability.Dividendshaveincreased.Wereceivecompanyinformation.Weexert
agreatefforttobefair.We’vecomealongway.
ThiscasewaspreparedbyProfessorErnestoJ.Pozaasthebasisforclassdiscussionratherthantoillustratetheeffectiveorineffective
handlingofafamily-businessmanagementsituation.Forpermissiontopublishthiscase,gratefulacknowledgmentismadetothe
chairmanandtheexecutivevicepresidentofthecompany.Notethatwhilethecaseisfactuallyandhistoricallyaccurate,thenames
havebeenchangedtoprotecttheprivacyofthefamily.
table
B
DividendsforIndustriasLaVega,1995–1999
1995
$181,000
1996
$322,000
1997
$639,000
1998
$1,256,000
1999
$1,488,000
84
FAMILY BUSINESS
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CHAPTER
4
S
UCCESSION
:
C
ONTINUING
E
NTREPRENEURSHIP
AND THE
N
EXT
G
ENERATION
PresidentToshitakaKongoisthe50th-generationfamilybusinessleaderofKongo
Gumi,whilehis51-year-oldson,MasakzuKongo,waitsinthewingsforhisturnat
thehelmoftheworld’soldestOsaka-basedfamilyfirmthatspecializesinbuilding
andrepairingreligioustemples.
MarkBrookeandhisbrotherMassimoBrooke,whorepresentthe15th-generation
familymembers,jointlyheadJohnBrooke&Sons,aUnitedKingdom–basedfirm
establishedin1541.Originallyamanufactureroffabricsformilitarypersonnel,
underMark’sleadershipthecompanyhaschangeditsfocustodevelopmentofan
entrepreneurialpark.
CraigieZildjianandhersisterDebbieZildjian,whorepresentthe14th-generation
family members, jointly y head the Zildjian Cymbal Company, , the e well-known
cymbalsmithsofMassachusetts,U.S.A.
AsindicatedbytheseexamplesculledfromtheFamilyBusinessMagazine’s
1
listof
the100oldestfamilyfirmsoftheworld,despitethedoomandgloomrepresentedby
the often-quotedstatisticsthatathirdoffamilyfirmsdo notmake ittothesecond
generation,
2
therearemanyexamplesofsuccessfulmultigenerationalfirms.
InItaly,third-generationAgnellisnowcontrolFiat.In France,thePeugeotheirs
work atthe company,serve on its board,and control l the company. . In Germany,
second-generationQuandtfamilymembersown46percentofBMWshares.InJapan,
theToyodafamilystillhasmuchinfluenceonToyotathroughpotentialsuccessorAkio
Toyoda,theyoungestmemberofitsboard.AndintheUnitedStates,fourth-gener-
ation Ford chairman William Clay Ford serves alongside e a a nonfamily CEO, , Alan
Mulally.Notethatalloftheseexamplescomefromahighlycapital-intensiveindustry,
1
N.B.ThischapterwaswrittenincollaborationwithProfessorPramoditaSharma,JohnMolsonSchoolof
Business,ConcordiaUniversity,Canada.Seehttp://www.familybusinessmagazine.com/oldworld.html.
2
SeeWard,J.,KeepingtheFamilyBusinessHealthy.SanFrancisco:Jossey-Bass,1987.
85
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requiringmultiplesourcesofexternalcapital.Duringthepastdecade,theautoindustry
hasalsohadtodealwithintensecompetitionandglobalconsolidation.
Inotherindustries,too,familysuccessorsaretakingoverinrecordnumbers.Third-
generation Blake Nordstrom m became e president of f the e elegant retail l chain and James
Hagedorn,whosefamilycontrolsmuchofScotts,becamethelawn-carecompany’schief
executive.AtFidelityInvestments,thelargestmutualfundcompany,AbigailJohnsonwas
named president t of investment management operations and d may succeed her r father,
EdwardC.JohnsonIII,aschairperson.Inthefoodindustry,JimPerdue,amemberofthe
thirdgeneration,hasbecomechairmanofPerdueFarms,succeedingFrankPerdue,and
JohnTysonhastakenovertherunningofTysonFoodsfromthelargestshareholder,his
father Don. Still, no o trend is s a trend d if it t does not have e exceptions. Leon n Gorman,
grandsonofthefounderofL.L.Bean,hassteppeddownaspresidentandchiefexecutive
officerandfoundasuccessoroutsidethefamily,forthefirsttimeinthecompany’shistory.
Gorman’sthreesonschosenottoworkatL.L.Bean,butthefamilyiscarefultopointout
thatthenewCEOworkedatthecompanyfor18yearsbeforethispromotionandshares
thecompany’score valuesandtraditions,which presumablycame fromfounderLeon
Beanandhisdescendants.Perhaps,asFordMotorCompanyhasdoneinpreviousgen-
erations, L.L. Bean will skip this s generation n but t remain on n the lookout t for capable
membersofthenextgenerationwhowantthechallengeofrunningthefamilybusiness.At
Anheuser-Busch,AugustBuschIVledthe$12billioncorporationforthepast2years.
Thecompanyagreedto beacquiredbyInBevin2008.AugustA.BuschIIIhadfirst
turnedovertherolesofpresidentandchiefexecutiveofficertoPatrickStokes,a59-year-old
loyalemployee,afewyearsago.AsaninterimCEO,Stokes,Anheuser-Busch’sfirst
nonfamilychiefexecutivein140years,wasexpectedtoprovidethenext-generation
memberwithbothmentoringandadditionalpreparationtime.
Thefounderand hisorherspouse clearly playa a significantfoundational l role in
buildingafamily firm thatisworthy ofand abletotransferto thenextgeneration.
However,theroleofthenextgenerationisatleastascriticalinensuringthelongevity
of family firms.
3
Without interested d and able e next-generation n family y members s in
owner-managerorresponsibleshareholderroles,thesefirmswillnotsurviveasfamily
firms beyond d the founding generation.Whileitiscertainly notimperative thatthe
leadershipoffamilyfirmsbepassedontothenextgenerationoffamilymembers,as
successionshouldnotbeconfusedwithsuccess,
4
researchhasconvincinglyshownthat
inthepresenceofableandtrustworthysuccessors,familyfirmsarewellpositionedto
outperformtheirnonfamilycounterparts.
5
Indecidingwhetherornotnext-generationfamilymembersshouldbeinvolvedinthe
familyfirms,keepin mindthatthere needsto beagood fitbetweentheabilitiesand
interestsofthesefamilymembersandtheneedsofthebusinessatitscurrentstageof
development.Itcannotbeassumedthattheinterests,strengths,andabilitiesofthenext
generationareidenticaltothoseofthecurrentgenerationofleaders,orthattheattributes
requiredtolaunchabusinessarethesameasthoserequiredtogrowormanageit.Thus,it
isimperativetoconductacarefulevaluationofthebusinessneedsandthefamilymembers’
3
SeeHandler,W.C.,TheSuccessionExperienceoftheNextGeneration.FamilyBusinessReview,5(3),1992,
pp.283–307.
4
Kaye,K.,WhentheFamilyBusinessIsaSickness.FamilyBusinessReview,9(4),1996,pp.347–368.
5
Anderson,R.C.,&Reeb,D.M.,Founding-FamilyOwnershipandFirmPerformance:Evidencefromthe
S&P500.JournalofFinance,58(3),2003,pp.1301–1328.
86
FAMILY BUSINESS
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abilitiesandintereststoensuresimultaneoussuccessofthebusinessandcareersatisfaction
offamilymembersinthisbusiness.
Given the e long tenures of careersin family firms and the significant t influence e a
leader has s on all aspects of a firm, it is imperative e to clearly understand: : (1) ) the
fundamentalnatureofthetaskofnext-generationleadersinfamilyfirms—therewards
andchallenges,andhowtheirtaskisdifferentfromthefounders’;(2)thefitbetween
the needs s of the e firm and the attributes s and interests of next-generation n family
members;and(3)strategiesthatcanbeusedtopreparethenext-generationleadersfor
aneffectivestintatthehelmofafamilyfirm.Thischapterprovidesanup-to-datestate
ofknowledgeon eachoftheseimportanttopicstoenableyoutomakeaninformed
decisionaboutwhethertojoinyourfamilybusiness,andifyoudo,howtobestprepare
foracareerinitthatwillsimultaneouslyprovideforlong-termcareersatisfactionand
highperformanceonbothfamilyandbusinessdimensions.
6
ISTHENEXTGENERATIONGOOD
ENOUGHTORUNTHEBUSINESS?
Before herdeath,Katharine Grahamproclaimed that,notwithstandingthe factthat
manyofthelargenewspapershadbecomemanagement-controlled,familycontrolwas
stillthenameofthegameformostofthehigh-qualitynewspapers,liketheWashington
Post,theNewYorkTimes,andtheWallStreetJournal.Herson,DonGraham,whom
shechoseto succeed herasCEOand publisher,had had alengthydevelopmental
journey.DonservedhiscountryinVietnamandthenreturnedtotheUnitedStatesto
workabeatinWashington,D.C.,asapoliceman,notareporter.Acoupleofyears
later,hejoinedtheWashingtonPostandbeganto amassexperienceinthenewsand
mediaindustrieswithavarietyofassignmentsatthePostandabusinesseducationfrom
HarvardBusinessSchool.
Empiricaldeductionfromasystematicreviewofsuccessionexperienceshasledme
tothefollowingconclusions:
1. Manynext-generationmembersofbusiness-owningfamilieswanttoleadand
are ready y to work k hard and make the e sacrifices s necessary to be e responsible
leaders.Determiningwhetherthisistrueofthe nextgeneration in yourown
family is key. Evidence can be found d in work hours, flexibility, adaptability,
willingnesstoserve,commitmenttoamissionlargerthanthemselves,education,
respectforwhathasmadethebusinesssuccessfulsofar,andoveralldisciplinein
boththoughtandaction.
2. The e multiyear succession n process of many next-generation executives has
included a a number r of challenging g assignments, , particularly y those for r which
outcomesaremeasuredinprofitorlossandareclearlyattributabletothesuc-
cessor. Early y in n their r development, these e next-generation executives usually
worked outside the family business, where results s are more objectively and
exclusivelyattributabletoperformance,unbiasedbyfamilyinfluences.Afterthey
joined thefamily enterprise, , assignmentsgenerally included d profit-centerand
general-management responsibilities that replicate the often-conflicting
demandsonthechiefexecutive,whoisultimatelyresponsibleforprofitorloss
6
SeeSharma,P.,AnOverviewoftheFieldofFamilyBusinessStudies:CurrentStatusandDirectionsforthe
Future.FamilyBusinessReview,17(1),2004,pp.1–36.
CHAPTER SUCCESSION
:
CONTINUING ENTREPRENEURSHIP AND D THENEXTGENERATION
87
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and the creation of shareholder r value. . Given n the flexibility y of the financial
software now available, , even small, single-unit family businesses can n create
successoraccountabilityforprofitorloss.Information onresults—thebottom
line—and thedisciplinecreatedbythisaccountabilitydeterminereadinessand
capabilityfarmoreeffectivelythanbloodlinedoes.
In largercompanies,these earlyassignmentswereoften farfrom company
headquarters.In the case of multinational businesses, , many early experiences
happenedabroad.Forexample,afterrunning hisownFortWorthreal estate
empire,RossPerot,Jr.,worked intheLondonofficeofPerotSystemsbefore
succeedinghisfatherasPerotSystemschiefexecutive.
7
3. Throughsolid d performanceand interpersonal skills,next-generationmembers
haveearnedtherespectofnonfamilyemployees,suppliers,customers,andother
familymembers,oftenshareholders,whomtheywillserveandlead.
4. In n mostcases,thesuccessor-developmentprocessincluded mucheducation—
college,industry-sponsoredprograms,andbusinessschools.MBAshelpedmany
successors gain both the skills and the confidence e they y needed d to steer r a
responsible professional l or middle-management career r into o top management
echelons.Unfortunately,MBAprogramsdonotusuallyaddressownershipand
theuniquerolethatitplaysintheleadershipoffamily-ledcompanies.Programs
acknowledge trading g and d perhaps investment, but seldom m patient t long-term
ownership.GraduatingstudentsoftenheadtoWallStreetandconsultingfirms,
which seldom m advise e on n the e owner-manager relationship from a long-term
perspective.However,ownershipeducationisincreasinglybecomingavailableat
leadingbusinessschoolsthroughentrepreneurialandfamily-businesscurricula.
5. Coaches s and d mentors, , both h inside e and d outside the family, , have been n an
importantfeature of thedevelopmental journey.GinaGallo,ofGallo Wines,
creditsboth Julio Gallo,hergrandfather,and Marcello Monticelli, , a35-year
Galloveteran,withbeinghermentors.Athird-generationfamilymember,she
hasassumedprimaryresponsibilityaswinemakerandmarketerfortheGalloof
Sonomalineofpremiumwines.Sheisattemptingtodooneofthehardestthings
in business—reposition abrand identified with lowprice andfairqualityto a
muchhigher-valuepricepoint.MarketershadsuggestedthatGallolaunchthe
winesunderadifferentnamepreciselybecauseoftheimageproblem,butasense
ofprideinthefamilyandthenamedecidedtheissueforGina.
8
6. Theprocessofdecidingwhetherthepotentialsuccessorwasrightforthejob,for
thecompany,andforthecompany’sstrategicneedstookmanyyears.Sometimes,it
included an n assessmentby y an n outside e professional, such as a psychologist, who
coached the successor through evaluations s by peers, supervisors, , subordinates,
customers, suppliers s at work, , and relatives s at t home. . The Goleman–Boyatzis
EmotionalCompetenciesInventory,a360-degreeassessmenttool,focuseson52
behaviors linked d to executive success. (See http://www.hayresourcesdirect.hay-
group.com.)Aftertakingthisinventory,participantsreceivefeedbackandcoaching
as appropriate. Successor candidates who o have experienced this s process s and
been accountable e for r profitand loss know themselves and their strengths s and
7
Ward,L.,PassingthePerotTorch.DallasMorningNews,March29,2000,p.1H.
8
McLean,B.,GrowingUpGallo.FortuneMagazine,August14,2000,p.211.
88
FAMILY BUSINESS
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weaknesseswell(seeFigure4.1).Suchadegreeofself-awarenessisoftenhardfor
next-generation members s to o achieve because of the large shadow w cast by y their
familypredecessors.
7. A board ofdirectors—oracommitteeofthatboard madeupprimarilyof
independent outsiders—performed d the final l review w of f successor perfor-
mance and d the fit t between n the e candidate and d company strategy. These
directorsalsoofferedadviceonthetimingofthesuccession.Incompanies
that created d advisory y (nonstatutory) boards composed of independent
outsiders,in lieuofhavingindependentoutsidersontheirboardofdirec-
tors,theseboardsprovided a a forum formany discussions aboutselecting
andanointingtheCEOsuccessor.Throughouttheseveralyearsoverwhich
the succession process occurred, board members,individually and collec-
tively,were veryactive in n the e assessment, the facilitation of difficultcon-
versations, the e review of f pertinent information, and d the e ultimate
appointmentofthesuccessor.
Includingacommitteeofoutsidedirectorsoranadvisoryboardnotonlyensures
morethoroughandobjectivedatagathering,analysis,anddecisionmaking,butalso
suggests to o othercandidates, , nonfamily executives, and d both family and nonfamily
shareholderstheindependentandobjectivenatureofthedecision.Shareholdersup-
portofthedecisionisalwaysimportant,butitisespeciallysoinpubliclytradedfamily-
controlledfirms.
figure
4.1
AProfileofSuccessfulSuccessors
SuccessfulNext-GenerationLeadersShareTheseCharacteristics:
l
Theyknowthebusinesswell;ideally,theylikeorevenlovethenatureofthebusiness.
l
Theyknowthemselvesandtheirstrengthsandweaknesses,havinghadthenecessary
outsideexperienceandeducation.
l
Theywanttoleadandserve.
l
Theyareguidedresponsiblybythepreviousgeneration,byadvisors,andbyaboardof
outsidedirectors.
l
Theyhavegoodrelationshipsandtheabilitytoaccommodateothers,especiallyifpartof
asuccessorteam(siblings,in-laws,orcousins).
l
Theycancountoncompetentnonfamilymanagersinthetop-managementteamto
complementtheirownskills.
l
Theyhavecontrollingownershiporcanlead,throughallies,asiftheydo.
l
Theyhaveearnedtherespectofnonfamilyemployees,suppliers,customers,andother
familymembers.
l
Theirskillsandabilitiesfitthestrategicneedsofthebusiness.
l
Theyrespectthepast,andfocustheirenergiesonthefutureofthebusinessandthe
family.
SOURCE:AdaptedfromDavis,J.,SuccessorDevelopment.PresentedattheInternationalFamilyEnterpriseInstitutemeetingin
Montreal,1998.
CHAPTER SUCCESSION
:
CONTINUING ENTREPRENEURSHIP AND D THENEXTGENERATION
89
REWARDSANDCHALLENGESFOR
LATTER-GENERATIONFAMILYMEMBERS
Workinginabusinesswithone’sfamilynameonthedoorpresentswonderfulrewardsand
inherentchallenges.Oneindexofsuccessforafamilyfirmiswhetheritcanattractand
retain high-caliberfamilymembersandnonfamilyemployeeswhocommittoachieving
organizationalobjectives.Giventhelimitedlaborpooloffamilymembersandtheircritical
roleinfamilyfirmsshould theychoosetopursuetheircareerswithin it,itisextremely
importanttoachieveagoodfitbetweentheirtalentsandinterestsandtheopportunitiesin
thefirm.Toassesswhetherafamilyfirmprovidescareersforjuniormembersofthefamily
thatwillaffordsustainablebenefittothefirmandtheindividual,agoodstartingpointisto
understandtherewardsandchallengesthesefirmsprovideforthemembersofafamily.
R
EWARDS
Businesshasoftenbeenapartofthedevelopmentalenvironmentforjunior-generation
familymembers.Thisisanoutcomeoftheoftenblurredboundariesbetweenfamilyand
businessinfamilyfirms.Researchonoccupationalchoices
9
providesampleevidenceofthe
significantinfluence ofparents’ occupationson theirchildren.Juniorsoftenengagein
occupationscloselyrelatedtothoseoftheirparents,astheseliewithintheircomfortzones.
Unknowntothemortheseniorgeneration,childrenabsorbalotofbusiness-related
informationduringtheirformativeyears.Theirformalfirstworkdayatthefamilyfirm
isreallynottheirfirstatall.Theirlearningcurveisnotsteepbecauseknowledgehas
beentransferredtothemwithoutformalefforts,endowingthemwithpreciousstocks
of accumulated d knowledge about the business, its s employees, , and external stake-
holders.Overatleastseveralyears,thesuccessfulbusinesshasdevelopedprocessesand
strategiestoovercometheliabilitiesofnewnessthataffectentrepreneurialcompanies;
ithasretainedastablesetofcustomers,andcreatedareputationthathasenableditto
surviveandgrow.ProfessorsDierickxandCool
10
havebestillustratedtheimportance
ofthis phenomenon,whatthey referto o as s timecompression n diseconomies,by the
followingdialoguebetweenaBritishLordandhisAmericanvisitor:
A
MERICAN VISITOR
:“Howcomeyougotsuchagorgeouslawn?”
B
RITISH
L
ORD
:“Well,thequalityofsoilis,Idaresay,oftheutmostimportance.”
A
MERICAN VISITOR
:“Noproblem.”
B
RITISH
L
ORD
:“Furthermore,onedoesneedthefinestqualityseedandfertilizers.”
A
MERICAN VISITOR
:“Bigdeal.”
B
RITISH
L
ORD
:“Ofcourse,dailywateringandweeklymowingarejollyimportant.”
A
MERICAN VISITOR
:“Nosweat,justleaveittome!That’sit?Nokidding?!”
B
RITISH
L
ORD
:“Thereisnothingtoitoldboy;justkeepitupforfivecenturies.”
Researchhasshownthecriticalroleofreputationinbuildingandsustainingabusiness
aspeoplearemuchmorelikelytobuyproductsfromcompaniestheyknowandtrust.
11
9
Forexample,Barling,J.,Employment,Stress,andFamilyFunctioning,NewYork:Wiley,1990.
10
Dierickx,I.,&Cool,K.AssetStockAccumulationandSustainabilityofCompetitiveAdvantage.Man-
agementScience,35(12),1989,pp.1504–1514.
11
Aldrich,H.OrganizationsEvolving.London:Sage,1999.
90
FAMILY BUSINESS
Supplierspreferlong-establishedrelationships,andotherserviceproviders,suchasbank-
ers,knowthe company well. Anyone e starting g acareer afresh h can n easily y relate e to the
significantadvantageofthosewhoarestartingoutinanestablishedfirmthathasbeenin
theirfamilyforafewgenerationsorevenafewyears.Addtothisthecomfortofknowing
thattheprobabilityofbeingfiredfromthisfirmismuchlowerthanfortheircompatriots
seeking jobsin companiesunknownto them,ofreportingto bosseswhom theyhave
nevermetbefore,orofstartingaventurefromscratchand the“advantaged”startthe
juniorgenerationgetsintheirfamilyfirmsbeginstocrystallize,tosaynothingaboutthe
socialandeconomicbenefitsthatarepartandparcelofpursuingacareerinfamilyfirms.
C
HALLENGES
Butnotallisrosyforthejunior-generationleaders.Careersarelongandobligations
deep-rootedinmanyfamilyfirms.Andprimogeniture(wheretheeldestsonisexpected
to take overthe business) or r coparcenary (equal l division ofthe CEO’s s job b among
siblings)mayprevail.
12
Bothposedifficultchallengesfortheenteringgeneration,the
family,andthebusiness.Evenifnext-generationmembersarecapableandinterestedin
pursuingcareersin their r family firms,normslike these may setincapable or unin-
terested juniorson theroad to along,unsatisfactoryorplateaued
13
career in n their
firms.Alternativelythesenormscanexcludethemorecapablefamilymembersbecause
offearsofengaginginincongruenthierarchies,
14
inwhichthereisamismatchintheir
positionswithinthebusinessandtheirperceivedsenioritylevelsinthefamily.
Ifthebusinessisunderthetutelageofthefoundinggeneration,thecharacteristics
of the e entrepreneur, , such as the high need for autonomy, independence, and
achievement,
15
thatenabledthebusinesstobesuccessfulinthefirstplacecanprove
challengingwhenthejuniorgenerationtriestobuildacareerinthefamilyfirm.The
shadowofthefounder
16
generallylooms large on n thesefirms s as hisorher success
projectsalarger-than-lifeaura.Whereas the founderwasinstrumentalinlaying the
groundrulesforthefirmandestablishingitsculture,thejuniorsarepositionedtoplay
thegamewith preestablishedrules,whilefindingwaystomaketheirmarkandreju-
venateandgainlegitimacyinthebusiness.
Questionslingeraboutwhetherthekidsaregoodenough torun thebusinessor
possessthepassionandtalentsofthefoundinggeneration.Unlikeinnonfamilyfirms,
thosein chargehaveextensive information on those entering the firm, , which h may
preventthemfromviewingtheyoungergenerationascapableprofessionals.Behaviors
inthechildren’syoungeryearsmayhindertheparent’sabilityto viewthemaspro-
fessionals.Whenfollowingalegend,thejuniorgenerationneedstoeffectivelymanage
variousstakeholderswhiledrivingfromthe backseatorbeingunderconstantwatch
wheninthedriver’sseat.Inthefirstfewyears,thereisacontinuoustensiontoprove
12
Chau,T.T.,ApproachestoSuccessioninEastAsianBusinessOrganizations.FamilyBusinessReview,5(2),
1991,pp.24–30.
13
Malone,S.C.,&Jenster,P.V.,TheProblemofPlateauedOwnerManager.FamilyBusinessReview,5(1),
1992,pp.21–41.
14
Barnes,L.B.,IncongruentHierarchies:DaughtersandYoungerSonsAsCompanyCEOs.FamilyBusiness
Review,1(1),1988,pp.9–21.
15
Forexample,Hornaday,J.,&Aboud,J.,CharacteristicsofSuccessfulEntrepreneurs.PersonnelPsychology,
Summer1971,pp.141–153.
16
Forexample,Davis,P.S.,&Harveston,P.D.,IntheFounder’sShadow:ConflictintheFamilyFirm.
FamilyBusinessReview,12(4),1999,pp.311–324.
CHAPTER SUCCESSION
:
CONTINUING ENTREPRENEURSHIP AND D THENEXTGENERATION
91
that their claim m to o their r position n in the business s is s legitimate e and based on n their
interestsandabilities,ratherthanbeingarewardforbeingbornwiththerightfamily
name.
Asindustries,businesses,andhumans
17
gothroughtheirlifecycles,thetalentsand
structuresneededforsustainedcompetitiveadvantagechangeovertime.Herethe4-
by-100relayraceisanaptanalogy.
18
Thesuccessfulrunningofarelayracerequires
carefulplanningofthesequencingoftherunnersandtheirtimingandbaton-passing
technique.Whilethebeststartershould runthefirstleg,poorbatonpassersshould
occupythefirstorlastpositions.Thefinalrunnerneedsthemostcompetitivedispo-
sition.Thus,strategicsequencingmayhelptowintherace,asdifferentcharacteristics
andstrengthsofthefirst,second,third,andlastrunnercanbeusedeffectively.
Evenwhenthejuniorgenerationpossessesthetalentsandideasthatcanlaunchthe
firmtonewlevelsofsuccess,thecombinedinfluenceofthenaturalhumantendencyto
resistchangeandthesuccessbroughtforth bythepreviousgenerationmakesitdif-
ficulttoappreciatetheneedforchangeandtheuniquetalentsofthejuniors.More-
over,the human tendencytovaluecurrentpossessionsmore dearlythanthosethat
mightbeacquiredinthefuture
19
furtherescalatesthecommitmenttothestatusquo.
Labeledasthe“endowmenteffect,”thispropensityforpossessivenessforanobjectand
theperceptionofitsvaluehasbeenfoundtoincreasewiththedurationofownership
andthecostsincurredovertime.
20
Eagertomaintainthestatusquo,thoseintheinner
circleofthecurrentleader,whoaregenerallyofthesameagegroup,consciouslyor
subconsciously resistattemptsto change,as a generational l conspiracy
21
of sortsis
experiencedbythejuniorgenerationeagertomakeitsmarkonthebusiness.
Thus,aconcertedeffortneedstobemadetoensurethatthereisafitbetweenthe
interests and abilities s of f the e next generation n and the opportunities in the family
business.Amechanismforthedevelopmentandtrainingofthesefamilymembersfor
leadershippositionsneedstobeprovided.Andanobjectiveevaluationsystemneedsto
beestablishedasabasefromwhichtolauncharewardingcareerandthecontinued
successofthefamilyfirm.
NEXT-GENERATIONATTRIBUTES,
INTERESTS,ANDABILITIES:INGREDIENTS
FORRESPONSIBLELEADERSHIP
Given the impactofthe familyonbusinessandviceversa,responsibleleadershipof
familyfirmsrequiresskillsandtalentsthatwouldenablebuildingaprofitablefirmwhile
simultaneouslyensuringgoodfamilyrelationships.AsdepictedinFigure4.2,positive
performance on familydimensionsensureshigh cumulative emotionalcapital,while
17
Examples,Greiner,L.E.,EvolutionandRevolutionasOrganizationsGrow.HarvardBusinessReview,
May-June1998,pp.55–67;andLevinson,D.,SeasonsofaMan’sLife.NewYork:Knopf,1978.
18
Dyck,B.,Mauws,M.,Starke,F.A.,&Miske,G.A.PassingtheBaton:TheImportanceofSequence,
Timing,Technique,andCommunicationinExecutiveSuccession.JournalofBusinessVenturing,17,2002,
pp.143–162.
19
Kahneman,D.,Knetsch,J.L.,&Thaler,R.H.,ExperimentalTestsoftheEndowmentEffectandthe
CoaseTheorem.JournalofPoliticalEconomy,98(6),1990,pp.1325–1348.
20
Knetsch,J.L.,TheEndowmentEffectandEvidenceofNonreversibleIndifferenceCurves.American
EconomicReview79,1989,pp.1277–1284.
21
SeeLansberg,I.S.,TheSuccessionConspiracy.FamilyBusinessReview,1(2),1988,pp.119–143.
92
FAMILY BUSINESS
good businessperformanceenablesbuilding ofafirm’sfinancial capital.Sustainable
familyfirmsenjoyhighcumulativestocksofboth emotionalandfinancialcapital.As
firmsgothroughdifferentstagesinfamilyandbusinesslife,fromtimetotimetheymay
slipintocellIIorIII.Basedontheaccumulatedstocksandstrategiesused,thosethat
lastforalongtimereboundbacktocellI,butamovetowardcellIVforetellsfailurefor
thefamilyfirm.
D
ESIRABLE
N
EXT
-G
ENERATION
A
TTRIBUTES
Research directed tounderstandingthedesirableattributesforsuccessors
22
suggests
thatintegrityandcommitmenttobusinessarethetwoconsideredmostimportantby
the senior r generation of leaders offamily firms.The ability y of f those in the junior
generation to garner the e respectof employees is ranked d a close third. Of f course,
competenceisanimportantfactorinselectingasuccessor,asevidencedbythefactthat
decision-making and d interpersonal l skills s were e ranked fourth and d fifth. . However, it
seemsthatitismoreimportantthatfamily-businesssuccessorsbecapableofmaking
decisionsthatareinthebestinterestoftheirfamilyandthebusiness,whilegainingthe
respectandtrustoffamilymembersandemployees.Competencewithoutintegrityor
commitmentdoesnotmakethe senior generation confidentabouttransferring the
leadershipofthebusinesstojuniors.Nomatterhowqualifiedthejuniorsareinother
respects,iftheycannotbetrustedtomakedecisionsthatareinthebestinterestofthe
businessandthefamily,theyarenotconsideredreadytoleadfamilyfirms.
figure
4.2
PerformanceofFamilyFirms
FamilyDimension
Positive
Negative
Positive
I
II
Business
Dimension
WarmHearts
PainedHearts
DeepPockets
DeepPockets
HighEmotional
and
FinancialCapital
HighFinancial
but
LowEmotional
Capital
Negative
III
IV
WarmHearts
PainedHearts
EmptyPockets
EmptyPockets
HighEmotional
but
LowFinancial
Capital
LowFinancialand
EmotionalCapital
SOURCE:Sharma,P.,AnOverviewoftheFieldofFamilyBusinessStudies:CurrentStatusandDirectionsfortheFuture.Family
BusinessReview,17(1),2004,pp.1–36.
22
Chrisman,J.H.,Chua,J.J.,&Sharma,P.,ImportantAttributesofSuccessorsinFamilyBusinesses:An
ExploratoryStudy.FamilyBusinessReview,11(1),1998,pp.19–34.
CHAPTER SUCCESSION
:
CONTINUING ENTREPRENEURSHIP AND D THENEXTGENERATION
93
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