Succession in the Family Firm: The Inheritor's View

Abstract

SUCCESSION IN THE FAMILY FIRM: THE INHERITOR'S VIEW In recent years, the small firm has enjoyed much public prominence; it has been seen as a hope for the future, the source of new jobs, new wealth, new products and services. Indeed, a healthy small firm sector is seen by many as a prerequisite for economic growth.1 1 U.S. Small Business Administration, A Report of the President (Washington D.C.: Small Business Administration, 1984). Despite this, the small firm is essentially short-lived--many cease to exist within the first two years, and only a few survive beyond five years.2 Moreover, although more than 98 percent of corporations in the U.S. are family owned, it is estimated that only 30 percent continue into the second generation, and only 15 percent into the third.3 2 D. Birch, Job Generation Process,' in MIT Program on Neighborhood and Regional Change (Cambridge, Mass., MIT, 1979); S.J. Birley, New Firms and Job Generation,' Entrepreneurship Research (Babson Park, Mass: Babson College, 1984). 3. B. Benson, Enigma of the Family-Owned Business,' Perspective, vol. 10, no. 1 (1984). While this decline is due in part to the inherent viability of the firm, another cause is found in the desires and attitudes of each generation. Does the owner wish to pass the firm to his children? If so, when? Are the children interested in the firm? Do they wish to pledge their futures to it? At what point in his or her career does a child wish to join the firm? The answers given to questions such as these can be crucial to the long-run survival of the family firm. Much has been written about the issue of succession in the family firm, and about the heartaches and feuds which often follow. Most writers, however, have taken the perspective of the incumbent--the current owner. In this paper the issue will be examined from the viewpoint of the children who inherit the business. RELATED LITERATURE In reviewing the literature on succession in family firms,4 two main streams emerge. The first concentrates on the issues associated with the choice of a successor, and the second with the period of transition after the retirement of death of the founder. 4 See, for example: D.M. Ambrose, Transfer of the Family-Owned Business,' Journal of Small Business Management (January 1983). Choosing a Successor Succession in the family business refers to the replacement of the owner/ manager of the firm--the CEO or president. However, despite the CEO's obvious pre-eminence, almost all general literature on leadership and succession deals with a lower level in the firm, often the supervisory level.5 Moreover, there is very little which looks at the particular problems of the family firm. Nevertheless, a number of small business studies point to the fact that one of the major issues faced by the firm is the question of choosing a successor,6 a problem magnified by the presence of potential successors within the owner's family.7 Many writers conclude that this issue is so difficult for owners to deal with that they abdicate responsibility, leaving the decision to the last moment without planning for succession or training the successor.8 5 D. Norburn, Gogos, Yoyos and Dodos: Company Directors and Industry Performance,' Strategic Management Journal (winter 1985). 6 J. Dewhurst and P. Burns, Starting and Succeeding in Business,' Rydges (February 1984). 7 L. B. Barnes and S. A. Hershon, Transferring Power in the Family Business,' Harvard Business Review (July/August 1976). 8 R. Poe, SOBs,' Across the Board (May 1980). Annumber of reasons for this reaction are suggested. Beckhard and Dyer explain that managing change in a family-owned company is often complicated by such factors as resistance to change by the leader.9 Lopata concludes that such decisions are complicated by the degree to which social life, leisure life, and business life are intertwined. …

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