Abstract:
Family- Owned Businesses (FOBs) dominate the current world economy in particular eras in the past but also at present (Morck and Yeung, 2004). The current degree of business performance, though, is somewhat different. Current FOBs have problems sustaining their business. The reality is of course that FOBs are currently struggling in the worldwide crisis, with their problem of inheriting their business. In other words, they are struggling for long-term survival after a new Chief Executive Officer (CEO) succeeded the business (Chung and Liu, 2007).
According to research findings, FOBs give foremost preference to hand over the business to family members because their ambition is to preserve family company ownership. To achieve this, they transfer management and control to the next generation (Morris, Williams, Allen and Avila., 1997; Lansberg, 1999), without considering the level of competence of the successor. The leading argument for this generational succession is the belief that family members can gather social capital, resources and specific knowledge on running the firm in a more efficient and profitable manner (Bjuggren and Sund, 2001). According to Davis, Schoorman and Donaldson (1997) “the family successor could perform better than other managers because they are exposed to higher non-monetary rewards associated with the firms’ success that other successors do not share.” They further argue “to get solid, specific knowledge and high levels of trust from key stakeholders is very difficult to outsiders.”
However, FOBs face one extremely vital issue with their generational business succession. According to Ward (1987); Davis and Harveston (1998); and Kets de Vries (1993) “only 30% of FOBs survive into the second generation, and 15% survive into the third generation.” Miller, Steier and Breton-Miner (2003) explain that poor Business Succession Process (BSP) is the central reason for this. This scenario has not only affected particular organizations, but has also directly affected the national economy due to lack of contribution.
Regarding the American Family Business Survey (1997) (citied in Sharma, et al., 2003a) BSPs define as “the transfer of leadership, ownership or control from one family member to another - a goal shared by a majority of family firms” and as "a transfer the leadership one family member to another.”
Conducting the business as a FOB , “each generation takes over the business from the previous generation, and this is the vital managerial challenge for the incumbent, owners, successors and family members” (Miller et al., 2003), but they have failed to do this in a successful manner. BSPs have gone beyond that stage by considering alternative succession modes, not for family control but for the survival of the organization as a FOB. Nelton (1997) expressed that "families are now starting to recognize that it is not the end of the family enterprise if you bring in a non-family executive to lead the firm". In other words, at present there is a trend to be a FOB as a “family owned - non-family managed” model, not as a “family owned -family managed" model. Therefore, the business succession process of FOBs is better defined as “the passing of the leadership baton from the founder/owner or incumbent owner to a competent successor, who will be either a family member successor or a non-family unrelated manager successor (De Alwis, 2011).”
Further, Lauterbach, Vu and Weisberg (1999), and also Smith and Amoako-Adu (1999), and Lin and Hu (2007), all conducted research in comparing the financial performances of family member successors and non-family unrelated manager successors in public companies to identify the most appropriate successor. Chittoor and Das (2007) discussed making management more professional with three Indian companies using case study methods. Boeker and Goodstein (1993) discussed the impact of organizational performances and the composition of the board of directors for the selection of a future successor. Those studies have contributed to the knowledge base of the field, but there is still an enormous knowledge gap to fill. No empirical research has been done on post succession performances of medium-size FOBs by comparing family member successors and unrelated manager successors. Therefore major objective of this study was to compare post succession performances of a family member successor with that of an unrelated manager successor in medium-sized FOBs through an empirically developed research base.
