The Complexities of Succession Planning in Family Firms

Discuss about the case study Entrepreneurship for Family Firms and Private Equity.

1. Jason is the one who started the business and has given his 30 years to his business such that managerial decisions are influenced by feelings and responsibilities towards the business. However, nepotism is one issue that tends to exert negative influence when the company is just not a medium of business but also runs to honour family tradition (Musa & Semasinghe, 2014). Nevertheless, Jason’s business is an extension of himself, which makes it as a medium for personal achievement and gratification. Moreover, he is concerned for his business because he needs to pass on as the sign of legacy to a family member or a non-family member.

The father to son successions are often plagued with problems like competition, control and power that result in conflicts (Long & Chrisman, 2014). Since the time, Herbert has been working with Jason; Jason never found that interest in Herbert so that he could transfer his business to his son. Moreover, Herbert has been still in the process of learning but subjectively he lacks qualities of knowing the business sufficiently, followed by stability and maturity. Moreover, according to Jason, his son lacks thoroughness and prospect respect for detail.  On the other hand, if the business is analysed from Jason’s perspective then characteristically he has difficulty in delegating authority and also refuses to retire (Collins, et al., 2016).

Jason thinks Herbert to be a reluctant successor because this succession process can prove to be a challenge for the family business because the leadership transfer to him is generally expected than prepared for. Moreover, for Jason is not only the matter of technicality but it also highlights the emotional matter of generational loss while passing the business for the need of the validation. On the other hand, when analysed from the perspective of Herbert he seems to be eager enough to take over and run the business because he has invested some years in the business hoping to take over. Moreover, he also wants to show his father that he has learned what has been taught so that his parents can appreciate him for what he offers (Neubauer & Lank, 2016).

This behaviour of Jason has led to certain implications. Although, Jason consciously wishes to pass his business to his son but unconsciously he thinks that to lose the business would be losing masculinity. Moreover, Jason unconsciously needs to continue his competence in the business as he himself reassures that he alone is competent enough to succeed. On the other hand, Jason (unconsciously) does not wants his son to win as he will take away the business and will displace Jason from the summit position. All these conflicting emotions makes Jason to behave in a contradictory manner such that on one side, he wants the business to succeed by passing the legacy but on the other he is still not sure whether his son will be determined like him.

Reasons for Jason to Consider Succession Planning

The pertaining differences in father and son also includes the issues like different behaviour styles whether it is communication or decision making style, gap in life stages and the difference approaches applied in the business. The generation timing between father and son has been creating conflicts not only at home but also at workplace (Melin, Nordqvist and Sharma, 2013). Moreover, with these issues in site, Jason’s reluctance grows.

On the other hand, his father Jason keeps Herbert in an infantile role where Herbert is still the little boy who accompanies his father to work and characterizes to be of his father’s attitude where there is resentment as well as condescension. As a result, fathers such behaviour towards his son leads to unpredictability as well as dependency being more unpalatable (Neubauer & Lank, 2016).

However, when analysed Jason’s growing reluctance on current scenario of succession planning it is because of the changing trend in the business. Today, more than 80% of the family business does not have any succession planning because of love and emotion towards family members, complex scenario of business and non-adequacy of the advice as well as tools. When it comes to family business, only 30% of the family-owned business survives the second generation while other 70% fails. Moreover, the statistical disconnect between the optimistic belief and reality leads to lack of family business succession planning (Bailey, 2016).

2. Succession in family business is a result of complex forces that are at work in the family companies. These forces operate in transition process that is within the founder, the business as well as the family. Nevertheless, succession can be organized as a gradual process in which the successor grows under the role of owner’s supervision and guidance (Helin & Jabri, 2016).

However, Jason is in a condition where he needs to think about succession such that there is control that can be kept on his creation. There reasons that Jason is likely to view for succession are given as:

• Fear of Death – This is one issue where entrepreneurs are driven by powerful ego and conviction to control their own destinies.
• Loss of Identity – The entrepreneur sees himself as a personal achievement such that letting go of business can be loss of personal effectiveness and re-waken the old identity issues.
• Bias against Planning – Review formal planning as restrictive and bureaucratic as they are doers than just planners (Gilding, Gregory & Cosson, 2015).
• Inability to choose among children – It is basis of conflict as all the children in the family needs to be treated because choosing of preferential treatment as one child is at the expense of others.
• Fear of Retirement – The entrepreneur is in love with the business and they can review the moving out of the day-to-day operations as life-changing rather life-threatening event. This further could focus on negative considerations like the loss of self-esteem and risks assigning to an untested successor (Filser, Kraus & Märk, 2013).
• Jealousy and Rivalry – These feelings are experienced towards potential successors that are waiting to take control of the beloved organization. Moreover, when it comes to father and son, then this can be highlight an extra psychological dimension of fear.

On the other hand, this multi-dimensional concept constitutes of enormous palette of variables that not only studies the family business but also the reluctance towards planning a succession. However, succession planning depends on many other factors whether it is successor’s business skills, managerial capabilities, attitudinal predispositions, and knowledge of company’s operations of running over the business. Moreover, the financial factors that relate to succession are taxes accompanied by investments and financial risks. However, there is one thing that Jason thinks to be of utmost concern other than external factors of market fluctuations is trust, issue, communication and cohesiveness amongst the family members (Filser, Kraus & Märk, 2013)

The Importance of Trust, Communication, and Cohesiveness

According to the question, Jason should think of succession planning because of basic two reasons. Firstly, because of resultant heart attack and his deteriorating health (fear of death) and secondly, the concern over legacy from passing to generation to generation (loss of identity) and third dimension that can be added is fear of retirement from his beloved organization (Sharma, Chrisman, & Chua, 2012). Moreover, the family also considers death as a taboo and feels Herbert should be given the legacy of the business.

Jason started auto parts supply house business at the age of 33 and now its deteriorating health is creating tensions of transferring its legacy to his son, Herbert. Moreover, succession planning is important as it prepares for the unexpected event, which will not only paralyse the management but may also affect the organization’s ability to execute plan if measures are not taken at the right time. Jason should think of passing its legacy to Herbert so that he could learn work from Jason as a coach, which will not only guide him, but will also help Herbert to function with efficiency.

However, after analysing these concepts whether psychological, external or internal factors the resistance on succession planning is important as it adds continuity and viability to the business. Moreover, Jason should consider succession planning despite all those factors.

3. Jason needs to be convinced of transferring the ownership either to a family member or to non-family member. The recommendations are made so that the business is even at its best and there is no failure in succession planning. A typical succession planning has two components – ‘Transfer of Power’ and ‘Transfer of Assets.’ The former explains the control of the business operations to an individual whereas the latter explains the transfer of wealth to all the designated family members. Therefore, transferring of power helps to avoid pitfalls only when the process requires planning, teamwork as well as constant re-evaluation (Desbois, 2016).

However, the transferring of power can be affected in any type of business by the issues like laws, climate, economic trends, competitors, employees, conflicts as well as employees. Nevertheless, when it comes to family business then it is affected by anything whether it is relative health of the members, skill levels, marital status, various interests or the involvement in the business participation (Carroll & Buchholtz, 2014).

Although, the successor is selected by default if the next generation is more active, qualified, and interested in the business but if not then, then it becomes an issue and leads to certain recommendations that can be given on the event of succession planning (Helin & Jabri, 2016). The three recommendations that Rebecca and Herbert can give to Jason are

• Firstly, Jason is not in a position to work the way he used to work before the heart attack. As a result, Jason can look forward to choose a successor from the inside the organization such that the Jason can train Herbert with other family and non-family members to form an experienced management team capable of producing a successor.
• Secondly, Jason may look for a non-family member to be a successor temporarily so that he can look for an immediate successor inside the company. In a way, the company may hire professional manager who can look after the company on an interim basis until the time Herbert matures in 10-15 years and takes over.
• Thirdly, another form of succession can take place if Jason can hire a non-family member with right talent and bring the person in the venture as an assistant so that he can learn and later can evidently become the owner of the business.

Recommendations for Successful Succession Planning

Conversely, the other recommendations that can be made on the perspective of family succession is the possibility when the family members do not seem inept to handle family business. This can be done by alienation through IPO (Initial Public Offering), secondary buy out by other financial, investor, buy-back through transfer participation of shares based on norms and trade sale depending on private negotiation through mergers (Ahlers, 2014).

Moreover, even if Jason adopts any one of the recommendation then also it is important for Jason that he needs to train the family (Herbert) or the non-family member to succeed in the business succession planning. However, training the successor with controllability followed by gradual transitions made in the business can be effective because “letting go” for any founder or for Jason as in the case, is difficult as it needs proper reassurance and support. Therefore, the transfer of power to the successor who resists trouble and subtle the conflicts with communication skills would be beneficial as the person will understand the outlook of the founder (Leach, 2016).

References

Ahlers, O. (2014). Family Firms and Private Equity: A Collection of Essays on Value Creation, Negotiation, and Soft Factors. Springer.

Bailey, D. (2016). More than 8 out of 10 family businesses have no succession plans.Sponsored.bostonglobe.com. Retrieved 12 August 2016, from https://sponsored.bostonglobe.com/rocklandtrust/more-than-8-out-of-10-family-businesses-have-no-succession-plans/

Carroll, A. B., & Buchholtz, A. K. (2014). Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

Collins, L., Grisoni, L., Tucker, J., Seaman, C., Graham, S., Fakoussa, R., & Otten, D. (2016). The modern family business: Relationships, succession and transition. Springer.

Desbois, J. (2016). Ensuring a successful family business management succession (Doctoral dissertation, NOVA–School of Business and Economics).

Filser, M., Kraus, S., & Märk, S. (2013). Psychological aspects of succession in family business management. Management Research Review,36(3), 256-277.

Gilding, M., Gregory, S., & Cosson, B. (2015). Motives and outcomes in family business succession planning. Entrepreneurship Theory and Practice,39(2), 299-312.

Helin, J., & Jabri, M. (2016). Family business succession in dialogue: The case of differing backgrounds and views. International Small Business Journal, 34(4), 487-505.

Leach, P. (2016). Family Enterprises: The Essentials. Profile Books.

Long, R. G., & Chrisman, J. J. (2014). Management succession in family business (pp. 371-387).

Melin, L., Nordqvist, M. and Sharma, P. eds., 2013. The SAGE handbook of family business. Sage.

Musa, B. M., & Semasinghe, D. M. (2014). Leadership Succession Problem: an Examination of Small Family Businesses.

Neubauer, F., & Lank, A. G. (2016). The family business: Its governance for sustainability. Springer.

Neubauer, F., & Lank, A. G. (2016). The family business: Its governance for sustainability. Springer.

Sharma, P., Chrisman, J. J., & Chua, J. H. (Eds.). (2012). A review and annotated bibliography of family business studies. Springer Science & Business Media.