What is it about?

Would you trust one of your children to take over a business you have been building up for years? Chances are you won’t, and you might be right in thinking this. Family business succession is a lot more complex than simply transferring responsibilities from one generation to another. It can be very difficult for an incumbent to detach psychologically from the family business, find the right successor and hand over the ownership and control over the business. On the other hand, it isn’t easy for the successor either. Some are not interested in the type of work involved in running their parent’s business, others do not have the skills for it. Even if a successor is interested and skilled, they need support to succeed or to give the business a new direction. Not every incumbent supports the successor very well or is open enough to let the successor change the business they spent a lifetime building. Their retirement income may also be at risk. If you have watched the series “Succession”, you will have seen many of these issues at play in quite an entertaining way. We conducted a 12-year longitudinal study of Canadian family businesses where we asked both incumbent leaders and the potential successor (one of their children) to complete surveys in 2004 and 2006. Then in 2016, we looked at what had happened to the business. Out of 89 businesses, 44 had successfully gone through the succession. The rest either had not gone through it yet or had been sold or liquidated. The best predictor of a successful succession was the successor’s intrinsic motivation. Preparing the succession, making a public announcement and setting a date did not make any difference (I’m not saying you shouldn’t plan a succession, but it just won’t get you there on its own). The business’ initial performance also did not matter. In other words, if the successor was not genuinely interested in the running the business and enjoyed this type of work, the transfer was unlikely to happen. What helped the successor build this intrinsic motivation was the parent’s trust in his or her abilities and intentions or integrity. Leaders who trusted their potential successor were more likely to give some decision-making power to their child, which also serves to build the successor’s confidence in their own abilities. If the successor felt they had autonomy and felt confident enough, they were more intrinsically motivated. Of course, the successor must show the leader they can be trusted: They can do this by showing a genuine interest and curiosity in the business and by building the skills needed to run it.

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Why is it important?

Family businesses represent 80% of global business structures. However, less than one out of three family businesses are passed down to the next generation successfully. We need to find out what the most important factors in a successful succession are.

Perspectives

The advice we can get from this research is that… …if you are the potential successor of a family business, it is very important that you have a genuine interest in the work involved in taking over the business and that you prepare for it through education, mentoring, and work experience. …if you are the incumbent leader of a family business and planning a succession, it is very important that you learn to trust the successor, demonstrate your confidence in them, and give them some autonomy in gradually making decisions.

Marylene Gagne
Curtin University

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This page is a summary of: Family Business Succession: What’s Motivation Got to Do With It?, Family Business Review, December 2019, SAGE Publications, DOI: 10.1177/0894486519894759.
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