The impact of life-stage-fit between the incumbent and the successor in effective intergeneration successions : three case studies

This paper suggests that the success of intergenerational successions in family businesses often depends on the life stages of the generations involved. The premise may be so evident that it is easy to overlook its importance in determining what contributes to successful transitions. Readiness of the senior generation to pass the baton of responsibility and leadership for the family business is influenced by a number of factors including age, health, other interests, the desire to retire or move on, and the availability of a suitable successor. The willingness of successors to accept the baton is similarly influenced by their interest in running the family business, experience, age and other factors. Of course the willing successor requires a senior generation willing to let go. The paper presents three case studies. They focus on successful fits between the lifestages of the incumbent and the successor. In each situation age plays a major role but there are also other variables impacting the successful transfer. The cases are meant to raise awareness that even with differences in cultures, industries, financial conditions, life cycle of the industry in which the firm is participating, how success is measured, as well as other factors life stage is an important variable in successful intergeneration successions. INTRODUCTION The aim of this paper is to focus on the importance of the “fit” between the life stage of the incumbent leader of a family business and the successor’s life stage and how this “fit” impacts on the successful transition of the business as leadership/control moves from one generation to another. In effect this “fit” focuses on the readiness of the leader to hand over the control/direction of the business and the readiness of the successor to accept it. The paper does not deal with the “fit” as a process, but rather as something that happens at a fixed point in time. The paper begins with a brief discussion of the importance and impact of family businesses on their communities and thus why successful transitions are so important. It then outlines research related to successful and unsuccessful transitions from one generation to the next. This is followed by the experiences of three distinct family businesses, in very different industries, and different settings. The authors believe that by emphasizing the idea of “fit” between the life-stage of the incumbent and life-stage of the successor that other variables explored in the literature can be appreciated with new insights. BACKGROUND It is to be expected that much research attention has focused on succession in family businesses. Family business remains a dominant force and key contributor in today’s global economy. Although different research studies use different definitions for what constitutes a family business each concludes that family businesses are major contributors to every economy where private enterprise is permitted. Gersick, Davis, Hampton and Lansberg (1997) estimated that 65—80 percent of all businesses were family businesses. Astrachan and Shanker (2003) using a broader definition of family business concluded that 89 percent of businesses in the United States should be considered family businesses. Astrachan and Shanker (2003) also noted that some studies suggest that family businesses employ almost two-thirds of the United States work www.jyu. fi/econ/ejfbs Electronic Journal of Family Business Studies (EJFBS) Issue 2, Volume 3, 2009 ISSN: 1796-9360 84 force and their output makes up more than two-thirds of the gross domestic product (GDP) of the country. Family firms make major contributions to the world economy. Estimates vary on their contribution to employment and GDP but range from 45—75 percent of each (Cabrara-Suarez, 2004.) Neubauer and Lank (1998) concluded that the majority of new jobs created during the 1990s were within family businesses. Family businesses range in size. Casual observers may think of family businesses as being relatively small however family businesses make up 35—47 percent of the Fortune 500 (Jetha, 1993; Ward, 1987; and Burch, 1972) as well as 32—35 percent of the S&P 500 (Weber, 2003; Anderson and Reeb, 2003.) Some researchers suggest that large family businesses may be even more common in Western Europe, South America and Asia than in the United States and Canada (La Porta, Lopez-de-Silanes and Shleifer, 1999; Faccio and Lang, 2002; and Blondel, Rowell and Van der Heyden, 2002). Miller and LeBreton-Miller (2005) summarized the research on the prevalence of large scale family firms and concluded that they have a major impact throughout the world. Family firms are often well rooted in their immediate communities and are major contributors to them. They often begin life to meet immediate needs in their environments and they build their prosperity on how effectively they continue to be valued by those around them as well as others further afield. Bombardier started as a small firm in Quebec’s Eastern Townships and is now a major employer in that region as well as a supporter of cultural initiatives and charitable organizations within that geographic area. The firm has expanded its operations to other areas of the world but maintains a strong support system in the area where it began. Walmart retains its roots in Arkansas. Many other examples come readily to mind. Successful succession remains as a central concern in most family businesses. There have been high failure rates as reflected in the colloquial saying, “Going from shirtsleeves to shirtsleeves in three generations” (Grote, 2008). It is generally accepted that the success rate for transition from the first to the second generation is about 30 percent and to the third generation is about 10—15 percent (Beckhard and Dyer, 1983; Ward, 1987). As a result, planning for effective transition from one generation of family managers to the next remains a central theme in family business research as this is seen as central to the ongoing success of family firms and indeed of healthy families. This area of research takes on particular importance in North America when one considers that US Census data suggests that a large number of family business leaders will retire within the next decade (Sharma, Chrisman, Chua, 2003.) Much of the research on executive succession has been summarized by Kesner and Sebora (1994) and Giambatista, Rowe, and Riaz (2005.) The most common variables examined include successor origin, organization size, rate of succession, succession and incumbent characteristics, succession and successor characteristics, succession and boards, stock market reaction to top management change, succession planning, succession process and post-succession performance, firm characteristics, and leader characteristics and actions. www.jyu. fi/econ/ejfbs Electronic Journal of Family Business Studies (EJFBS) Issue 2, Volume 3, 2009 ISSN: 1796-9360 85 Family business presents a complex playing field as it encompasses not only the interactions experienced by public companies but it is influenced by the family’s culture and family members. Handler (1994) and Le Breton-Miller, Miller, and Steier (2004) provide a detailed review of family business succession literature. Ibrahim, Angelidis, and Parsa (2008) outline the directions research has taken in relation to family business and effective succession as well as areas that deserve more attention in the future. They differentiate research related to internal factors within the firm and research on external factors of the family business that impact on successful intergenerational succession. Blunden, Chamard, and Fitzgerald (2008) present a conceptual model that combines these influences. OVERVIEW OF CASE-STUDY FIRMS This paper outlines succession experiences in three family businesses. The firms are each healthy, successful enterprises in very distinct industries and environments. Copies of each of these cases are included in the appendix. The Blunden family business evolved from a construction business to one that encompassed both a construction business and a building-materials-retail business and before refocusing on construction. It is located in Nova Scotia, Canada and continues to be a vibrant contributor to that economy. Laer Inc. was a successful family business in the processing, manufacture, and distribution of fish oils originally focused on the animal supplement market that evolved into the more lucrative human supplement market. They were able to gain competitive advantage in this market as they were the first Canadian firm permitted to promote Omega 3 and Omega 6 in their products just as consumers were becoming aware of the benefits of these ingredients. By 1993 Laer was a profitable business with national recognition, strong local government support, and strong research support. It was purchased in 1995 by a firm with much deeper pockets. The new owner invested more than $100 million in the enterprise and the firm has become a leading researcher in fish oil products. The research done in its $50 million laboratory in Dartmouth, Nova Scotia is recognized as preeminent in its field. Gully Wines is located in South Australia. The business began with Dr. Alan Ansell’s migration to Australia from the U.K. in the late nineteenth century. In Australia he missed the ready supply of wine and brandy that he had prescribed to his patients in the U.K. He founded Gully Wines PTY, Ltd. which is recognized as one of the leading wineries in Australia with broad international distribution of its products. The company has been built on research and development in the growing and processing of its grapes as well as on its business acumen. INTERGENERATIONAL SUCCESSION Each of these firms experienced successful intergenerational transitions; that is, the transfer of ownership and management from one generation of the family to the next. Each had its own specialized circumstances but there was a strong simil