The issue of intra-family succession and the best prac6ces to manage it.

Transcription

1 The issue of intra-family succession and the best prac6ces to manage it. Alfredo De Massis Full Professor of Entrepreneurship & Family Business Free University of Bozen-Bolzano (Italy) and Lancaster University (UK) Director of the Unibz PlaIorm on Family Business Management and Co-Director of the LUMS Centre for Family Business

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3 Agenda The problem of succession Best practices for successful succession management Factors preventing intra-family succession and incumbents attitude

4 Succession in numbers

5 Succession process: Defini6on The succession process is defined as the ac6ons, events, and developments that affect the transfer of power and managerial control across genera6ons. (De Massis, Chua & Chrisman, 2008) Succession process T o Dominant coali6on forms the Inten6on for succession T 1 The incumbent relinquishes managerial control!me

6 The human life cycle When the!me comes, it usually comes because the "old man" has died or is too ill to ac!vely take part in management, even though s!ll holding!ghtly to the reins of the family business. O?en this means years of tension and conflict as older and younger genera!ons pretend to coexist in top management (Barnes & Hershon, 1976) Activity 30 Time 60 Churchill & HaKen, 1997

7 Lifecycles of genera6ons Influence on the fate of the firm Incumbent Successor STAGE I STAGE II STAGE III STAGE IV 6me Owner-managed business Training & Development Partnership Power transfer Churchill, HaKen, 1997

8 The problem of succession management Firms survival through genera6onal transi6ons 100% 30% Only 12% of firms succeeds over the 3 rd genera6on 12% 4% 1 Genera6on 3 Genera6on 2 Genera6on 4 Genera6on Companies with a succession plan For all Senior Execu6ve roles For the most Senior Execu6ve roles For a small number of Senior Execu6ve roles 16% 16% 16% Many firms do not have a succession plan Don t have succession plan 49% N.d. 3% Source: Family Firm Insitute, 2004; Ward, 2004 and PWC Family Business Survey, 2007/2008

9 Cri6cal aspects of succession management! Management of the rela3onships with stakeholders! Proper communica3on of the process of transfer of power! Resist to the desire of having a clone and strengthen the managerial team! Top Management Team s emo3onal detachment from the firm! Management of the cultural and mo3va3onal gaps between successor and incumbent! Irreversibility of the decision to abandon the leadership Streamline the process of transfer of power: Define and disseminate the principles and guidelines for the involvement of the new genera6on Plan and manage the succession process Coach and mentor the new genera6on

10 The importance of succession planning and succession management One of the most agonizing experiences that any business faces is the moving from one genera6on of top management to the next (Barnes & Simon, 1976)

11 Agenda The problem of succession Best practices for successful succession management Factors preventing intra-family succession and incumbents attitude

12 Successful succession What is a successful succession?

13 Change in business profitability and in stakeholders sa6sfac6on represents a proxy of success in firm succession The dimensions of success in succession Indicators of successful succession Success in succession " market share Change in business profitability Profitability Revenues Costs " price " " opera6onal costs " efficiency " Initial satisfaction of stakeholders with the succession process Final satisfaction of stakeholders with the succession process Stakeholders sa6sfac6on Family sa6sfac6on Shareholders sa6sfac6on Other Stakeholders sa6sfac6on Source: De Massis et al. (2012) " Occurrence of conflicts among family members " Reac6on of successor(s) "... " ownership shares " distributed dividends " " turnover rate among employees " Decline of rela6onships with suppliers "

14 OUTCOME OF THE LAST SUCCESSION IN TWO ANALYSED FIRMS EXAMPLE Indicators of successful succession Change in business profitability Firm A " Annual increase of 7% and 5% respec6vely for ROE and ROI Firm B " Reduc6on in the market share and in the annual earnings Family sa6sfac6on " Collabora6ve rela6onships among family members: company roles defined according to predefined guidelines in the family council, without any sort of conflicts " Legal debates due to tensions among family members and among ac6ve-partners and family members excluded from property and management Change in stakeholders sa6sfac6on Shareholders sa6sfac6on " Increase of distributed dividends " Non-distribu6on of dividends Other Stakeholders sa6sfac6on " Decrease of the turnover from 25% to 20% as a consequence of the redefini6on of HR management policies " Higher customer sa6sfac6on " Loss of the main clients and suppliers Success Failure

15 A best prac6ce framework for successful succession management has been defined based on case-study analysis Succession planning Develop the ownership par66on plan Plan the successor s entry Define the guidelines for selec6ng and training successor(s) Introduce feedback mechanisms to control the succession process Ensure communica6on and sharing of the plan with family members and key stakeholders Training & development of poten3al successor Structure a formal educa6on/ training program Clearly fix the entry requirements Start the training ac6vi6es of poten6al successor(s) before she/ he joins the business Selec3on of successor Management of the rela3onships within the family Formalize objec6ve criteria for selec6on Communicate the criteria to both poten6al successor and the other parts involved Involve outsiders in the appraisal and selec6on of poten6al successor Schedule frequent and regular moments of assessment of poten6al successor Management of the rela3onships with non-family members Closure of the process Formalize the new roles of the incumbent and successor and define a period of collabora6on in the top Con6nue the assessment of successor Exploit succession as an opportunity for organiza6onal renewal Accomplish the transfer of ownership in parallel with transfer of leadership Introduce Family Councils in the family governance system as a means for transferring family values to younger genera6ons, improving rela6onships between family members, media6ng poten6al conflicts Design a comprehensive governance system, in which the family issues are discussed in the Family Council, while the business issues are discussed in the Board of Directors and in the Top Mgmt Commioee Adopt an open aptude toward the entry of non-family members in the family business Involve non-family managers in the reorganiza6on of the firm driven by succession Source: De Massis et al. (2012)

16 Succession as an opportunity for organiza6onal renewal Studied Firms by Stage of Succession Source: Kotlar & De Massis (2013)

17 Agenda The problem of succession Best practices for successful succession management Factors preventing intra-family succession and incumbents attitude

18 Factors preven6ng intra-family succession Individual Factors All poten6al family successors decline appointment Process Factors Rela6on Factors Dominant coali6on rejects all poten6al family successors Succession does not take place Context Factors Financial Factors Dominant coali6on decides against intra-family succession although acceptable and willing family successors exist Source: De Massis, Chua & Chrisman (2008)

19 Incumbents aptude towards intrafamily succession Source: De Massis, Sieger, Chua & Vismara (2016)

20 Ques6ons and contacts Thanks for your attention!!! Skype: alfredo_demassis Facebook: hhps:// Linkedin: hhps://

21 References De Massis, A., Chua, J., Chrisman, J.J. (2008). "Factors preventing intra-family succession." Family Business Review 21(2): De Massis, A., Sieger, P., Chua, J.H., Vismara, S. (2016). Incumbents attitude toward intrafamily succession: An investigation of its antecedents. Family Business Review, Vol. 29, No. 3, Le Breton-Miller, Miller, D., and Steier, L. (2004). Toward an integrative model of effective FOB succession. Entrepreneurship Theory and Practice, 28 (4). Marler, L., Botero I., De Massis, A. (2017). Succession-related role transitions in family firms: The impact of proactive personality. Journal of Managerial Issues, 24(1), Marshall, J. P., Sorenson, R., Brigham, K., Wieling, E., Reifman, A., & Wampler, R. S. (2006). The paradox for the family firm CEO: Owner age relationship to succession-related processes and plans. Journal of Business Venturing, 21(3), Miller, D., L. Steier, et al. (2003). "Lost in time: intergenerational succession, change, and failure in family business." Journal of Business Venturing 18(4): Morris, M. H., Williams, R. W., and Nell, D. (1996). Factors influencing family business succession. International Journal of Entrepreneurial Behaviour & Research, 2 (3), Salvato C, Corbetta G. (2013). Transitional Leadership of Advisors as a Facilitator of Successors Leadership Construction. Family Business Review, 26(3), Sharma, P., Chrisman, J. J. et al. (2003). "Predictors of satisfaction with the succession process in family firms." Journal of Business Venturing 18(5): Vera, C. F., & Dean, M. A. (2005). An Examination of the Challenges Daughters Face in Family Business Succession. Family Business Review, 18(4), Westhead, P. (2003). "Succession Decision-making Outcomes Reported by Private Family Companies." International Small Business Journal 21(4):