Will I stay or will I go?Influences on the decision of the heir apparent to join or leave the family business

Rowena BarrettProfessor of HRM and Small BusinessDepartment of HRMDe Montfort University, Leicester

Succession…the issues

An ageing population raises questions about what’s going to happen to firms (& local economies/communities) when business owners retire.

Succession or intergenerational transfer (of management and/or ownership) is one option.

But succession (or the lack of communication and planning around succession) is a key source of conflict in family businesses and few survive intergenerational transfer – ‘riches to rags in three generations’.

It is estimated that more than 1.5 million small businesses across Europe run the risk of ‘failure’ due to succession problems.

What’s the ‘answer’…

Succession planning which is a process not an event. i.e The relay race analogy - sequence, timing,

baton-passing technique and communication (Dyck, Mauws, Starke & Miscke, 2002) – suggests all need to be addressed.

A range of stage models in existence. BUT, the motivation of potential

successor to continue in the FoB is often ignored.

What is successful succession? Successful succession is a continuous process where

leadership and power is transferred from one family member to the next (usually from one generation to the next), whilst maintaining positive family relationships, and enabling the business to continue to expand and prosper financially.

Two key issues Continuity of family leadership Succession is a process

Failed intergenerational transfer is therefore conceptually similar to voluntary employee turnover

Voluntary turnover and family business Voluntary turnover = a motivated and conscious decision to leave an

organization which, for the most part, wants them to remain especially if performing acceptably.

How is failed intergenerational succession like this? Desire for the heir apparent to remain, they have options of staying or

leaving. The decision to leave is motivated by numerous work and non-work related

factors. Heirs apparent are in an exchange relationship with the FOB as they

receive some sorts of inducements in exchange for their participation and contributions (March & Simon, 1958). Early on these payments may take the form of food, clothing, shelter, etc., and if the heir apparent remains in the business, then monetary payments become the norm.

Individuals consider the balance between their received inducements and expected contributions in determining the perceived desire to leave or stay with an organization. This perceived desirability of movement is combined with perceptions of how easy or difficult it would be to leave the organization to determine motivation to continue participation with the organization.

FOB heirs apparent follow a similar evaluative process, even if their evaluations and comparisons often occur over a longer time frame, perhaps even beginning in early childhood.

The parent-successor relationship dimensionRelationships play as key a role in the turnover literature as they do in the

succession literature. Positive relationships are important in tying individuals to organizations.

1A. Conflict As a result of power struggles between incumbent and heir apparent

Negative: not letting go, coming out of retirement, not letting son/daughter prove themselves; feeling inferior to parent; wanting to be independent of parent

Positive: challenging assignments, transferring knowledge, good communication, agreed mode of succession

Between business and parental roles. Positive: parent’s ability to separate their business and parental roles; parental

enthusiasm for the business; transmitting business values at early socialization stage Arising from generational differences.

Negative: Differences in approaches to business risk, management style, values, goals Positive: trust

1B. Childhood Experiences. Experience of work experience in the FOB; Time and attitude of parents to the

business

The family relationship dimension Wider set of relationships are also important

in the context of turnover Positive: successor and spouse share the dream of

continuing the FOB; include spouse in FOB decision making; Transparent merit-based selection criteria to accommodate multiple successors, birth order, and age gaps; Loyalty to the family, family pride, commitment to family, family harmony; preservation of family culture, heritage, and tradition; shared vision for the business

Negative: intrafamily hostility or rivalry, particularly toward the spouse, may spoil succession efforts;

The business characteristics dimension Job and organization characteristics have a direct

impact on attitudes such as satisfaction and commitment that drive the withdrawal process, and that considerations of industry and occupational employment opportunities are important for understanding the search for and comparison of alternatives (Hom & Griffeth, 1995). Extrinsic rewards: self-employment, job security,

accommodation of lifestyle and life goals; offer a lifestyle that is competitive with peers and alternative sources of employment

Intrinsic: interested in the industry; shared vision for the business; committed to business values; acceptance by long-term employees

The successor characteristics dimension The turnover literature identifies some

characteristics of the individual that may be related to turnover decisions, such as personality, self-efficacy, and gender (Hom & Griffeth, 1995). Negative: position of being a FOB successor can

sometimes cause self-doubt, guilt, and a lack of credibility with other employees; demotivating effect of inherited wealth

Positive: positive and rewarding experiences within (sometimes outside) the business; training; mentoring

Career stages

Stage 1: Anticipatory socialization. This stage encompasses the learning that occurs prior to joining an organization. Here, the individual anticipates realities about the organization, the organization’s needs for one’s skills and abilities, and the organization’s sensitivity to one’s needs and values.

Stage 2: Encounter. Values, skills, and attitudes shift in this Stage as the individual discovers what the organization is truly like. It is a time for surprise and sense making as the individual enters unfamiliar territory. Reality shock can occur during this phase. They learn to manage lifestyle versus work conflicts and inter-group conflicts. They begin to seek role definition and clarity, and become familiar with task and group dynamics.

Stage 3: Change and acquisition. Here, the individual masters important tasks and resolves conflicting roles. Organizational norms and values are internalized.

The successor retention model

Research implications

Do different characteristics and/or dimensions take on different degrees of relative importance during the stages of the successor retention model? If so what and when?

What about heirs apparent who leave the business only to return later. Do they remain? How do they adapt? Do they eventually assume a leadership role?

Does the stage of the business in its lifecyle, its industry, geographic location, organizational structure or legal form affect the success or otherwise of generational transfer?

Will gender continue to be an issue? What of ethnicity? Are there differences between the generation of the FOB leader/CEO (1st vs second or later generation) regarding “letting go”, conflict or desire for the business to go to an offspring?

Need to refine dimensions, link to ‘job’ satisfaction & control for causality.

Quantitative methodology preferred in turnover studies but rich descriptive cases could help in refining the dimensions.

Research project

Case study built from interviews with family. Road haulage industry. Established by 1st generation in 1954. Currently majority owned by 2nd generation

(Fred – chairman, wife May is Company Secretary).

Currently managed by 3rd generation (2 joint MDs – Matt and Sam - sons of owner).

Business has 30 vehicles, 45 staff, £3m turnover; many longstanding customers in north and west Midlands.

Progress to date

Interviews with Fred, May, Matt and Sam Two successors

Sam started in 1984 as apprentice in the workshop (“our playground was the business”).

Matt joined in 1996 after degree in transport management and working for large firm (“felt he was in dead man’s shoes” – Fred’s reason why Matt joined).

Currently analysing how experiences at each stage affected their decision to stay or join