Transition leadership is germane to the continuance of any family-owned enterprises. A well-mapped transition plan ensures a hitch-free transition in ownership as well as management (Nwuke, 2017). The absence of a well-developed transition has resulted in the closure of many family-owned businesses in Nigeria, and this has adverse consequence on the growth of the economy. The contributions of family-owned businesses in the areas of economic growth, promotion of sustainable development, creation of wealth and provision of employment opportunities cannot be overemphasized. Poza and Daugherty (2014) stated that more than 72% of registered enterprises in advanced and less-developed countries are family-owned businesses, and accounted for more than 65% of the economically active population. Given the imperativeness of family-business in the Nigerian economy, focus should be given to their sustenance and continuity. Learn how to write a thesis
Leadership transition or succession planning is a critical issue for family-owned enterprises. A large fraction of family-owned businesses transfer ownership and control to family members (or relatives), but most times, family members put in charge of the business lack requisite skills for running the business (Bewajo, 2009). A good example of this scenario is the closure of Chief Moshood Abiola’s businesses after his demise. This supports the assertion of Merwe (2009) that only few family-owned businesses succeed after leadership transition. The failure of family-owned businesses could be attributed to various factors but the most important factor is the lack of leadership transition plan. Leadership transition in family-owned businesses could be complex because of the involvement of affection, affinity, love, emotions and feelings. In addition, most founders of family-owned businesses do not find it good to talk about death, ageing, retirement, etc (Adedayo, Olanipekun & Ojo, 2016). Some empirical studies have linked the unwillingness of founder’s of family-owned businesses to plan for leadership transition to factors such as founder’s sense of endearment to the business, fear about retiring, death, belief that other family member’s are incompetent to handle the business, etc (Miller, 2014; Ezimma & Okoli, 2017). As pointed out by Ogundele (2012), most founders’ fail to retire from their business or transit leadership to another person in the family till they pass away. Family businesses are instrumental in an economy; however, very few continue operations after the demise of the founders.
Family business remains the oldest and most common type of business enterprises in developed and developing economies. According to Ibrahim (2012), approximately 93% of businesses in Canada, Mexico, United States of America, Europe, Asia and Latin America are family-managed business. The dominance of family businesses in these countries and continents is as a result of the culture of clan system (Ogundele, 2012).Despite the importance of family-business to the growth of an economy, the rate of survival of this kind of business structure after the demise of the founder is very low. This syndrome is pervasive in Nigeria, like any developing nation. It is disheartening to see family-owned businesses that are enterprising crumbling after the death of the founder. The mortality of family-owned businesses after transiting control to the next generation is strongly associated with the lack of appropriate leadership transition plan (Ugoani, 2015).
The major problem bedeviling family business in Nigeria is lack of adequate preparation of successor(s) and other members of the family that would manage the business after the demise of the founder. Adedayo, etal, (2016) added that even when leadership transition planning is done; family-members and relatives are not duly carried along. Also, some owners of family businesses lack the competence similar to that of the founder to handle the business after leadership transition (Nwuke, 2017).
Objective of the Study
The major objective of the study is to investigate the tactics used by owners of family-businesses to run the business after the transition of leadership from the founders.
Family business is a form of business organization where individuals who are associated by blood and marriage possess control of ownership and management in an enterprise (Adedayo, etal, 2016). According to Hatak (2015), family business is the kind of business in which family members own majority of the firm’s shareholdings and occupy top management positions, and also depend heavily on the business as a means of livelihood. Family members have the right to manage, control and run the business usually after acquiring ownership control from the founder. There seems to be no universally acceptable definition of family business in literature, however, majority of researchers classify the family business based on the size of their workforce. Based on this, Mihic and Arsic (2015) averred that small family businesses have a workforce size between one and 49 employees; medium-sized family businesses’ workforce size ranges between 50 to 300 employees, while the workforce capacity of large-sized family business is at least 300 employees. Family business play significant role in the process of economic development with respect to creation of jobs and enhancement of national output. This supported the assertion of Miller (2014) that a large fraction of registered family business contributes immensely to economic growth and employment generation in both developed and developing countries.
Although the importance of family-owned businesses cannot be undermined in Nigerian economy, but very few of them remain active after transiting leadership to the next generations (Miller, 2014). The woeful performance of most family-owned businesses by myriad of factors, the major ones include (a) lack of common vision among family members (b) lack of adequate managerial skills of successor(s) (c) unwillingness of founders to disclose the modus operandi of the business to the successor(s) and (d) family members relationship (Nwuke, 2017). The lack of common vision results in communication gap, consequently leading to the inept preparation of succeeding generations for leadership position.
The performance of family-owned businesses can be attributed to business and non-business related factors. Naldi (2015) opined that family business tends to fail as a majority of them finds it uninteresting to invite business experts and consultants to assess the business. Even during the lifetime of the founders, the importance of advisory and consultancy services are not well appreciated. It has been proven that family business that are balanced both in family relationships and business interests tend to perform better than the ones driven by familial feelings. Considering the effect of intra-family relationship and other factors on the continuity of family businesses, the sustenance of common vision and purpose by among family members is critical to the survival of family businesses.
Leadership transition in the parlance of organizational management is the transfer of ownership and management control from the leader to successor(s). Sharma (2001) viewed leadership transition as the actions that results in transferring leadership responsibility from the founder to the succeeding family members. Similarly, leadership transition or succession is the process in which ownership and control of a family business are transferred from one generation to another still within in the family setting. The successor(s) of family business could be spouse(s), children and relatives.
Leadership transition is equally the process where businesses make plans about future ownership transfer. Leadership transition involves the incumbent owner of the business to make plans about the future of the business and then execute such plans (Adedayo, etal, 2016). The purpose of leadership transition is to ensure the business continues operation during the absence of the founder. Leadership transition ought to be a process that focuses on the required leadership competencies needed to enable the business achieves its goals. A detailed leadership transition plan prepares a business against possible unforeseen contingencies. It should consider the occurrences where the founder would be incapable of discharging his duties, dwindling physical strength, retirement and death. A comprehensive transition plan provides information on the future management structure of the business and how such business would be operated by the new successor(s).
Transition plan has to be formalized in a written document. Transition plan should be subjected to periodical review to capture changes in the business, industry, markets, tax structure and external business environmental factors (Miller, 2014). Annual review is also appropriate in cases where the changes are unimportant. The failure to plan for transition makes a business highly vulnerable to imminent crises.
Family business and Leadership Transition
Majority of family businesses in developing countries face challenges on leadership transition between different generations of family members (Nwuke, 2017). In a study carried out by Buang, Sidek and Sidek (2013) to investigate the reason behind the poor performance of most family businesses after transition discovered a significant correlation between the preparation of successors, which is influenced by the relationship between family and business and the effectiveness of transition plan. The consideration of the factors that affect the capacity of transition plan to engender better performance after transition is basically determined by the personal relationship between the founder and possible successor(s) (Chaimahawong, 2013).
There have been variances in the submissions of scholars on the impact of leadership transition on the performance of family businesses after transition. Chaimahawong (2013) found that the smoothness of transition process is significantly associated with the family business performance during post-transition period. In a study conducted by Van der and Garnett (2014) to assess the relationship between leadership practices of founders and family business performance, discovered that family business tend to perform better during the period of first-generation founders. However, the lack of managerial skill of subsequent generations to continue running the business is the main cause of high rate of failure amongst family businesses. To Van der and Garnett (2014), family businesses would continue to fail as long as subsequent generations lacks the managerial competencies similar to that of the first-generation founders to manage the business. On the contrary, Buang, Sidek and Sidek (2013) submitted that preparation of successors and smoothness of transition plan is not a determinant of family business performance in the post-transition period.
Resistance to Family Business Succession
Resistance to succession of family business could possibly reflect at four interrelated levels namely individual – founder, interpersonal group – family members, organization – non-family members and environmental factors (Yan & Sorenson, 2008). Most times, the resistance to succession emanates from the reluctance of founders to transfer the leadership position to potential successors. Majority of family business founders view transfer of business ownership as an indication of losing their powers in the business. Moreover, the reluctance of founders makes family members to lose interest in the business (Adedayo, etal, 2016). To transit control of family business, founders should believe in the capabilities of potential successors. However, the belief depends heavily on the skills of potential successors, work experience and personal disposition of successors to the business. Yan and Sorenson (2008) recommended that retaining the founder as a consultant after transition is a good approach to avoid founders giving up control while sustaining the reputation of the business.
Impact of Founders/First-Generation Founders
The role of founders in transition process of family business cannot be undermined. In a study conducted by Christiano (2014) on the transition experience of family businesses in various countries, discovered the factors affecting transition process in European nations. The study discovered that the objectives of the founders who prepared the transition process, training of potential successors and work experience of potential successors in other organizations are key determinants of transition process outcomes.
It is possible for external factors to affect the growth and development of family business. Carney and Strike (2014) stressed the possibility of factors exogenous to the business to determine the success and survival of family business. An investigation carried out by Carney and Strike (2014) on the influence of inheritance laws on family business transitions in different countries, discovered that the structure of inheritance tax affect the growth and development of family business. Their results revealed that family business in countries with high inheritance tax system performed poorly, and the ones in countries with flexible inheritance tax system performed remarkably.
There are still controversies on the choice of internal or external successors in family businesses. Bird (2013) assessed the factors that determine the desirability of either internal or external successors by founders. Bird (2013) discovered that there could be some advantages on the diversity from multi-ownership of family businesses. Multiple ownership of family business de-strengthens social closeness and effectiveness of decision-making. According to Bird (2013), at the initial stage, multiple-ownership increased the likelihood of internal transition of ownership, but consequently increased the likelihood of divestment and external transition. The chances of internal ownership transfer increase when ownership of family business is across various generations of family members and that a greater likelihood of transfer of external ownership in the business with external chief executive officers in the business with family members as chief executive officers. Nwuke (2017) stressed the occupancy of family members in top management positions in the business, intensifies their commitment to the business. The choice of successors and the pattern of transition process in majority of family business are determined by founders (Nwuke, 2017).
Considering the impact of style of leadership on the outcome of transition process, three factors come to play namely lack of shared unity of purpose; lack of leadership competencies of succeeding generations and the nature of relationship among family members influence the result of transition process (Nwuke, 2017). The presence of common unity of purpose between founders and potential successors contributes to the success of transition plan. Miller (2014) pointed that effective leadership which involves the share of common objectives between founders and family members helps develop effective leaders that would be capable of running the business in the post-transition period.
Effect of Intra-Family Relationship
The family member relationships have been found to impact on family business performance. In an empirical investigation carried out Dalpaiz (2014) to determine the historical relationship between family members in the business, found that majority of family businesses are influenced based on the relationship between family members and hidden quest for power by family members. The results of Dalpaiz (2014) revealed that potential successors emphasize family relationships by stating their closeness with founders, advocating for harmony in the family and obtaining the approval of key employees in the business, who are non-family members. Nordqvist (2013) maintained that close relationship between founders and potential successors fosters leadership transition of family businesses.
There is conception of favoritism by non-family members’ employees and other parties towards succession in family business, which further affect the performance of the firm in the post-transition period (Nwuke, 2017). Non-family members do not contest for top management positions with family members; non-family employees perceive favoritism in the process of leadership position in family businesses. Chung and Luo (2013) carried out a study on the comparative advantages of internal and external succession, and found that family business succeeded by external candidates performed better after transition than the ones managed by internal candidates, as the former tends to bring new ideas and evoke changes that could be of help to the business.
There is consensus among scholars on the involvement of non-family members in key positions and performance of family businesses. Gill and Kaur (2015) contended that the inclusion of family members in the business affects the performance of the business positively and generated higher returns than non-family owned businesses. However, Gill and Kaur (2015) found that family business with boards constituted majorly by non-family members performed creditably well than the ones constituted majorly by family members. There should be a balance between family members and competent family members in the senior management positions of family businesses to minimize the impact of negative family trends on the business. Mihic and Arsic (2015) found a negative relationship between the size of family members’ staff and the performance of family business due to incomprehensibly defined duties of such family members. Mihic and Arsic(2015) submitted that family businesses tend to perform better when the proportion of family member and non-family member staff are balanced.
The theory of transformational leadership is the most appropriate theory related to the subject matter. Transformational leadership concentrates on raising and nurturing followers (potential leaders) towards having uniform goals and objectives. Transformational leadership focuses on training potential successors on the acquisition of relevant skills and competencies needed to achieve the goals of the business. McCleskey (2014) pointed four elements of transformational leadership namely
- Keenness of followers/successors to imitate their leader
- Demonstration of appropriate behavior by the leader to the followers.
- Mental stimulation that enables leaders questions the rationale of followers’ decisions.
- Leaders coach and acts as role models to their followers.
Most family businesses find difficulty in surviving in post-transition period and thus need effective leadership style that motivates employees to get committed into the future goals of the business (Nwuke, 2017). Transformational leadership makes an organization overcome turbulent situations through their ability to disseminate the goals of the business appropriately, sharing authority with employees, inspiring employees/subordinates to achieve the company’s goals and swiftly responding to possible changes that act as threat to the company (McCleskey, 2014). Transformational leadership theory provides the kind of leadership that would enable family businesses survive after transition from founding generations.
Quite a number of studies have been carried out to determine the performance of family businesses after leadership transition. Adedayo, Olanipekun and Ojo (2016) carried out a study on the factors responsible for ensuring succession planning and sustenance of family businesses in Lagos and Ogun states in Nigeria. The results showed that there is a strong positive relationship between succession planning and sustenance of family businesses. The study submitted that succession plan should be prepared at the toddling period the business, and potential successors should be involved in the business very early to get familiarize with the mode of operations of the business. Ugoani (2015) investigated the challenges of successions among family business in Aba, Abia State in Nigeria. The findings revealed that the lack of succession plan is strongly associated with failure of family businesses in Nigeria. Tan and Fock (2008) examined coping with growth transitions using a case study of five Chinese family businesses in Singapore. Findings revealed that selected family businesses grew after transiting leadership to next generations. Moreso, a professional management consultant was appointed to instill effective management practices in the business while retaining the values of the family. Ezimma and Okoli (2017) examined the role of succession planning in the sustainability of family owned businesses in Anambra State, Nigeria. The study sampled 45 incorporated and 195 unincorporated family businesses in Anambra state. The results showed that mentorship is significantly correlated with sustainability of family businesses. Also, there is no tangible difference in the perceptions of owners of incorporated and unincorporated family business on succession planning. The study submitted that adequate mentoring of potential successors is pertinent to ensure the continuity of family business after succession.
The study adopted the qualitative research method. The population of the study comprised medium-sized family businesses that are thriving after transition of leadership from founders in Oyo State. The purposive sampling technique was used to select three family businesses that are operationally active after leadership transition. The choice of the purposive sampling technique was informed on the need to obtain sample that accurately fit the study. The respondents were successors to the founders of their respective family businesses in Oyo State. Personal interviews with respondents were used to generate information. Interview questions were broadly categorized into four dimensions namely founder’s active support for transition, preparation of successors and capability and credibility of successors.
Results and Discussion
Table 1: Personal and business characteristics of respondents
Family business 1
Family business 2
Family business 3
Age of successor to founders
Industry of operation
Net-worth of business
Size of work force
Location of business
Educational qualification of successor
Number of years spent in the business before transition
Years after transition
Founders’ active support for transition
The three respondents emphasized the importance of founders to willingly retire from the business and transit to it a successor. The active support and readiness of founders to retire enhances smoothness of succession plan. The three respondents in their words opined that the commitment of founders to the succession process sets the pace for successful transitions in their businesses.
Successor of family business 1:” My father started planning for succession while he was still in charge”.
Successor of family business 2: “My father saw the importance for future transition of the business and actively supported to the transition process”.
Successor of family business 3: “The transition plan was developed my father, who founded the business.”
Going through the participants, the mere desire or willingness of founders to retire is not sufficient, for leadership transition to be successful, it is imperative for founders to fully show commitment to transition process. Transition plans have higher chances of being effectual to when transition plans are mapped out by founders.
Successor of family business 1: “My father delegated a large fraction of his authority to me when I joined the business. My father had confident in me that I am able to run his business in his absence”
Successor of family business 2: “My father had been planning the process of transition very early enough, but he could not implement it fully due to illness”
Successor of family business 3: “My father was serious about the transition process. He strategically planned for it. When he retired, he handed the management control to me and allowed me to take key decisions.
In essence, the opinions of respondents indicated that the success of transition plans require active support and commitment of founders to transition to process.
Preparation of successors
The respondents agreed that the training they received enabled them to successfully handle the business after transition. The respondents stated that the form of training they received ranged from formal education, formation of character, soft skills, work experience in other organizations and mentorship. The respondents acknowledged the importance of formal education and mentorship in their ascension to leadership position in their various offices.
Successor of family business 1: “Formation education is the major aspect of my preparation. My father was very concerned about my performance in school”.
Successor of family business 2: “My father attached huge importance to education. His belief was that a leader must be well educated to successfully handle the business”.
Successor of family business 3: “My father prepared me for this position through academic education and business education”.
The opinions of the respondents support the submission of Ogundele (2012) that educational status of leaders positively correlates with the performance of their business.
Furthermore, according to the respondents, apart from formal education, informal education and mentorship process assisted them tremendously.
Successor of family business 1:”My parents trained me on the acquisition of generic skills such as wisdom, discernment, tact and maturity, needed to handle a business. I was taught how to be independent and make strategic decisions.”
Successor of family business 2: “My parents, especially my mother, mentored me in the aspect of commitment, diligence, focus and sense of responsibility. My parents gave me freedom to implement the ideas I have about the business. Although, I made some mistakes but I am glad I learnt from them.”
Successor of family business 3: “My father was a great disciplinarian. He treated me and his staff equally. There was no preferential treatment. He reprimanded me openly anytime he saw I was improperly dressed”.
The responses are consistent with the postulation of transformational leadership theory that adequate mentorship enables followers to be like their leaders. Preparation of successor through formal education and learning of soft skills assist potential successors to successfully manage family business after transition from founders.
Capability and credibility of successors
The respondents agreed that the credibility they earned from the founders helped produce positive outcome on transition process. The respondents shared similar sentiments that the close relationship between them and the founders boosted their credibility and spurred their approval as the next leader by employees.
Successor of family business 1: The business was not just handed over to me because it is belongs to my father. I possess relevant skills needed to run a business.”
Successor of family business 2: My father provided the opportunity for me to head a department in the company. My good performance made my father had so much confidence in me that I can run the company in his absence.”
Successor of family 3: “The positive outcomes of my suggestions about the business boosted my credibleness”,
It is imperative for founders to motivate potential successors by delegating some responsibilities to them. This would enable potential successors demonstrate their competencies that they can actually deliver when given bigger responsibilities. The respondents agree that founders of family businesses need to have confidence in their successors and give them the opportunity to take decisions. The respondents further agreed that they made mistake when initially given the opportunity to make decisions, but they learnt from it, and it spurred their leadership capacity.
Conclusion and Recommendations
It has been established from the review of extant literature that most family businesses collapse after transiting leadership to next generation. Founders of family business should know that their business might wind up if serious commitment is not placed on leadership transition. The study concluded that the success of family business in the post-transition period largely depends on the level of preparedness of transition plan. Based on the findings, the following suggestions are put forward:
- Founders of family businesses should show willingness to retire from the business. Founders are encouraged to communicate their retirement intention and pass the message to their intended successors.
- Founders should train and adequately prepare potential successors for the future leadership of the business. Potential successors can acquire training either through formal education or mentoring. Founders must ensure that potential successors possess soft skills such as prudence, sense of responsibility, maturity, logical reasoning, tact, diplomacy and endurance, etc, needed to run the business.
- Founders of family businesses should provide their successors the opportunities to have experience about business leadership by permitting them to take decisions, implement their business ideas or get experience in another organization.
- Founders of family should make sure that there is unity of purpose between them and their potential successors. Both founders and potential successors need to have common vision about the business. This would go a long way to deepen the emotional attachment and commitment of potential successors to the business.
Suggestions for Further Research
The study drew empirical evidence from medium-sized family-owned businesses in Oyo State, Nigeria. Further studies are needed to extend the coverage of the study to other metropolises in Nigeria. Further studies can equally cover geo-political zone(s) in the country.
The study focused on medium-sized family-owned businesses. It is suggested that further studies should examine micro-sized, small-sized and large-sized family-owned businesses. In addition, it is recommended that future studies should adopt quantitative research techniques or mixed-method for collection of data in order to have broadened results.
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