1. Succession in Family Firms James J. Chrisman Mississippi State University A presentation based on my research and various other findings

2. A. Preliminary Remarks Family firms are distinct from non-family firms by their pursuit of a vision that contributes to the economic and non- economic goals of the family. The sustainability of family control is perhaps the most important non-economic goal of family firms. Succession: most important issue to family firm owners/managers.

3. B. Definitions and Scope Succession is the transfer of management and/or ownership from one party to another. This presentation focuses on management succession amongst members of the same family. –Incumbents to successors – Ownership succession usually follows management succession.

4. C. Family Succession: 4 Essential points 1. The incumbent must initiate the succession process. 2. Family members’ perceptions of succession and the succession process often differ. 3. For succession planning to occur: –Incumbents must be willing to let go. –Successors must be committed and competent. 4. Incumbents and successors influence each other’s perceptions and satisfaction.

5. D. Satisfaction with Succession Process Propensity of incumbent to let go (successors only). Willingness of successor to take over (incumbent only). Acceptance of individual roles. Extent of succession planning. –interesting facts: 30% plan for succession; 30% survive into next generation.

6. E. Successful Successions 1. Competent decision making by successor. 2. Effective firm strategy in light of resources and opportunities 3. Support of top management team. 4. Support and/or lack of interference by other family stakeholders. (achieving #3 and #4 depends on satisfaction)

7. F. Steps in Succession Planning 1.Define Ownership, Management, and Governance Goals. - shares and voting. - involvement in management. - control systems. - business strategy.

8. F. Steps in Succession Process (2) 2. Organize Succession Task Group (Incumbent must initiate). - what is appropriate mix of outsiders, family members? - should task be left to incumbent?

9. F. Steps in Succession Process (3) 3. Set criteria for successor selection based on family firm goals. - Leaders’ most important criteria. a. integrity. b. commitment. c. decision making skills. d. interpersonal skills.

10. F. Steps in Succession Process (4,5) 4. Develop and train successor. - must be given authority and responsibility. 5. Timing the succession. - when successor has self-confidence AND competence. - when incumbent is ready and comfortable.

11. F. Steps in Succession Process (6) 6. Re-orient Retiring Incumbent. - future position in firm? - financial arrangements. - reinforcement of role in family.

12. G. Factors Preventing Succession: Direct Causes 1.Potential Successor(s) turns down appointment. 2.Family owners decide not to appoint potential successor(s). 3.Family owners decide against intra-family succession although acceptable and willing successor(s) exists.

13. H. Factors Preventing Succession: Antecedent Conditions (1-3) 1.Successor factors (death, inability, lack of commitment). 2.Incumbent factors (death, illness, refusal to let go). 3. Family factors: conflict, lack of trust in successor.

14. H. Factors Preventing Succession: Antecedent Conditions (4-6) 4. Process factors (affect 1-3): poor family communication, successor development, succession planning process. 5. Environmental factors: business potential does not justify keeping it in family. 6. Financial factors: estate taxes, inability to fund firm’s strategic or managerial needs.

15. I. Conclusion Succession is a process that involves people with different perceptions and goals. Succession is important for a firm’s future success. Therefore, the political and planning aspects of succession are as important as picking the right person to lead the firm.

16. J. Selected References Chrisman, J.J., Chua, J.H., Sharma, P. (1998). Important attributes of successors in family businesses: An exploratory study. Family Business Review, 11, 19-34. Chrisman, J.J., Chua, J.H., Sharma, P. (1998). Managing succession in family firms. Financial Post, April 8, 6ff. Chua, J.H., Chrisman, J.J., Sharma, P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23 (4), 19-39. Chua, J.H., Chrisman, J.J., Sharma, P. (2003). Succession and non-succession concerns of family firms and agency relationship with non-family managers. Family Business Review, 16, 89-107. De Massis, A., Chua, J.H., Chrisman, J.J. (forthcoming). Factors preventing intra- family succession. Family Business Review. Sharma, P., Chrisman, J.J., Chua, J.H. (2003). Predictors of satisfaction with the succession process in family firms. Journal of Business Venturing, 18, 667- 687. Sharma, P., Chua, J.H., Chrisman, J.J. (2000). Perceptions about the extent of succession planning in Canadian family firms: Some preliminary evidence. Canadian Journal of Administrative Sciences, 17 (3), 233-243.