Incumbents’ Attitude Toward Intrafamily Succession: An Investigation of Its Antecedents

(Authors: Alfredo De Massis, Philipp Sieger, Jess H. Chua, and Silvio Vismara)

Research Applied précis prepared by Navneet Bhatnagar, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, Hyderabad, India

The incumbent leader’s intention to pass on the leadership control to a family successor is a crucial distinguishing factor between a family and non-family firm. Despite the importance of intrafamily succession intention, the knowledge about how it is formed is quite fragmented and mostly limited to issues such as the incumbent’s aim to relinquish the top position and next generation member’s intention to lead. Drawing on the theory of planned behavior and attitude literature, the authors hypothesize that the incumbent’s attitude toward intrafamily succession is one of the most important determinants of such succession intention.

Examining the intrafamily succession intention of incumbent leaders of 274 Italian firms, this survey investigated the factors that shaped the incumbent leader’s attitude towards intrafamily succession. The authors hypothesized that a mix of situational and individual factors that included family traits, firm characteristics and incumbent leader’s attributes, influenced this attitude. The study specifically probed the influence of the following on the incumbent’s attitude formation:

(I) Situational Factors:

• Number of children incumbent has
• Number of family shareholders of the firm
• Duration of family ownership of the business
• Perceived positive economic performance of the firm

(II) Individual Factor:

• Incumbent’s emotional attachment with the firm

The authors further hypothesized that the perceived positive economic performance of the firm was also likely to generate multiplicative effects in interaction with:

(1) The incumbent’s emotional attachment to the firm, and

(2) The duration of family ownership of the firm.

The key findings of the study were as following:

• The number of children the incumbent had was found to have a significant positive effect on the incumbent’s attitude to intrafamily succession. This pointed towards the possibility of the incumbent developing a more positive attitude toward the succession as growing number of children might have led to rising concerns for providing them with career options and financial security.
• The incumbent’s attitude toward intrafamily succession was found to be negatively associated with the number of family shareholders. This finding pointed towards the dynamics of family firm ownership and its negative fallouts. Dispersed ownership might lead to conflicts and family disharmony due to which the incumbent leader may develop a negative attitude towards intrafamily succession.
• The incumbent leader’s emotional attachment to the business was found to be positively associated with his/her attitude towards intrafamily succession. Statistically, this finding was the most significant in the study. It reinforced the knowledge that emotional factors play an important role in family business succession.
• Neither the duration of family ownership nor the positive economic performance of the firm were found to have any significant effect on the incumbent leader’s attitude towards intrafamily succession.
• Similarly, the interaction effect between the perceived positive economic performance of the firm and the incumbent’s emotional attachment to the firm was not found to be a significant influence on the incumbent’s attitude towards intrafamily succession.
• However, the multiplicative (i.e., interaction) effect of the duration of family ownership and positive economic performance of the firm was found to be a significant negative influence on the incumbent’s attitude towards intrafamily succession. This finding was contrary to the authors’ belief. They construed that this may be because of a dual effect: (1) the longer duration of family ownership might have led to the professionalization of the firm thus making it less reliant on family leadership, and (2) better financial performance would have increased the firm’s valuation, thus making it lucrative for the incumbent to sell the business as opposed to the option of intrafamily succession.

It is strongly recommended that practitioners read the ‘Discussion’ section of this paper for a more complete understanding of the study’s findings and the researchers’ perspectives on the same.

Practitioners and family business owners should be cautioned that this is one of the first studies to look at intrafamily succession attitudes and needs much more research. However, the study still has practical implications for practitioners and family business leaders, specifically in matters of planning family business succession:

• Understanding the factors that positively or negatively shape the incumbent leader’s attitude towards intrafamily succession will help practitioners and family business leaders in assessing the specific family, firm or incumbent-related issues that facilitate or hinder succession planning. This will help family businesses promote those facilitators and curtail hindrances.
• Using the findings from this research can help practitioners identify the attitudinal or motivational resistance encountered by the incumbent in managing succession issues. They can help the incumbent manage the succession process more effectively by eliminating or minimizing such resistance.
• Practitioners can also use the findings to help business families in developing a positive attitude towards intrafamily succession or alert them about the negative factors and conditions where intrafamily succession may not be the most suitable way forward. They can help the incumbent gain better cognizance of the succession option that is more likely to succeed in his/her family business.
• This study also highlights the important role emotions play in shaping the incumbent’s attitudes toward intrafamily succession. Both practitioners and family business members need to be aware of these emotions. They can help the incumbents make more balanced succession choices that are not over-influenced either by emotional or financial goals.

About the contributor

Navneet Bhatnagar is a research associate at the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, in Hyderabad, India. He can be reached at [email protected].