Family Business Succession in Korean and U.S. Firms

Abstract

Family businesses in the United States account for nearly 50 percent of the gross national product and employ approximately half of the private sector workforce (Ward 1987). While the fact that one generation will succeed the next with biological inevitability is undeniable, one of the most pressing problems in the realm of is planning to pass control of the to the next generation. The topic of has long been a topic of interest in the small literature (Dimsdale 1974, Barnes and Hershon 1976, Beckhard and Dyer 1983, Davis 1983, Holland and Boulton 1984, Peay and Dyer 1989, Ayres 1990, Berenbeim 1990, Handler 1990, Ward 1990). Davis (1983) stated that the concept of smooth succession in a firm was a contradiction of terms. This contradiction is due to the fact that is a highly charged emotional issue that requires not only structural changes but cultural changes as well. The and the business family are two distinct components that must be dealt with and disentangled if progress toward is to be made (Holland and Boulton 1984). Kuratko and Hodgetts (1989) outlined a number of issues to consider in strategies. Among those identified were: understanding the contextual aspects such as time, type of venture, managerial capabilities, and environment; identifying qualities such as technical skills, knowledge, perseverance, etc., and carrying out the plans which includes the grooming and preparation of a successor. The difficulty of decisions is compounded by the complexities of dynamics that are not present in non-family owned businesses. Korean Small Business Environment Korea has made tremendous economic progress in the last 40 years. Between 1960 and 1980 it tripled its per capita income and made the transition from an agricultural to a semi-industrial economy (Kincaid 1983). In the last two decades Korea has achieved a growth rate of over 9 percent (Lee and Yoo 1987). The small sector has been especially important to Korea's growth. In 1986, small businesses accounted for 32 percent of the country's exports, and it is estimated that this sector accounts for 57.3 percent of Korea's workforce (Clifford 1988). There are a number of traditional Korean practices that may have an impact on the development of planning in Korean family-owned businesses. Lee and Yoo (1987) discuss a uniquely Korean approach to managing that they refer to as K-type management. There are 12 features which characterize K-type management. Of particular interest to the goals of this study are those characteristics that relate to control. They are: (1) or clan management, (2) top-down decision making, (3) Confucian work ethic, and (4) paternalistic leadership. The authors suggest that these characteristics have been effective in the past, however, some refinement is needed for Korean small businesses to continue to be effective. From the perspective of planning, these particular characteristics may lead the owners of firms to ignore the critical need for planning. Kinicharo (1990), in fact, recognizes this potential weakness. In a review of current practices of the Association of Southeast Asian Nationals (ASEAN), he suggests that Korean managers of small businesses must shift from decree management to a more balanced approach which focuses on the long-term needs of the firm. A Comparison of U.S. and Korean Owners To what extent do variations in culture between the U.S. and Korea affect the likelihood of planning? This study attempted to identify a number of important concerns and compare the opinions of U.S. and Korean owners. Among the issues examined are the current utilization of members in the business, level of planning for succession, preferences for succession, and expectations for succession. …

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