HRM-FALL 2015

Family Businesses
Succession Planning
Literature Review
Submitted to: Ms Nyla Aleem Ansari

Submitted by:
Omair Khalid
Muhammad Ali Saleem
Maaz Ahmed
Saifullah Tariq

Contents
Summary 1................................................................................................................. 3
Summary 2................................................................................................................. 4
Summary 3................................................................................................................. 5
Summary 4................................................................................................................. 6
Summary 5................................................................................................................. 8
Summary 6................................................................................................................. 9
Summary 7............................................................................................................... 10
Summary 8............................................................................................................... 11
Summary 9:.............................................................................................................. 12
References:............................................................................................................... 13

Summary 1
This article talks about the mistakes owner managers of family businesses make
while doing succession planning. It says the main reasons why people want their
businesses to pass to family on succession are that they want to keep it in the
family and they think this is the best way to provide for their familys future. But
these are the reasons which people give and there are some other reasons which
they dont admit to but usually those are there. Those reasons are that when the
business is in the family, they dont have to retire; they can stay in control for as
long as they want and they get to live through their kids. And usually these are the
reasons which make succession planning go wrong.
The most common mistakes people make while doing succession planning are that
they dont prepare themselves for this; they hang on for too long, are not ready to
give up on the control they enjoy, they dont prepare their businesses to be taken
over by a successor and neither a successor is prepared to take over the business,
and when they make succession plans they dont include successors in it.
These mistakes occur because of parents being control-oriented; they always want
things to go the way they want, theres communication problem within a family;
parents dont listen to the suggestions of their children and children are not always
open to the advices and suggestions of the older generation, sibling rivalry; theres
no mutual trust and understanding between siblings because of which parents cant
make effective succession plans, people usually prefer blood over management
ability; people dont see if their children would be able to run their business they
only want the business to remain in the family, kids are coerced into the business;
some kids dont want to get into family business but parents force them into family
business without realizing that their business would be better off in the hands of
committed and enthusiastic people.
Some suggestions for successful succession planning in family businesses are that
owner mangers must to having an open and transparent succession plan, listen to
everyone in the family and give them a chance to have their say, prepare
themselves for this, prepare their businesses and prepare the successor whos
going to overtake all of that. The must make sure that successor is committed and
enthusiastic about the business and would put in as much effort as they did. They
must have a backup plan in case something unusual happens.
Once you have a proper plan, you would know in which direction you must be
heading and you will end up doing things that will improve the value of your
business in the future.

Summary 2
This article talks about the root causes that prevent intra-family succession. It
develops a model of the factors that prevent intra family succession by
comprehensively reviewing and analyzing the family business structure. This model
facilitates empirical testing of how factors affect the succession planning in familyowned businesses and these factors can be overcome.
The findings in this article are based on extensive review of the literatures in
management, psychology, history, sociology, law, family businesses and some
cases from Harvard business school, Ivey publishing, European Case clearing house,
INSEAD and Case Research Journal. The main factors that affect the succession are
divided into five categories namely individual factors, relation factors, context
factors, financial factors and process factors.
Individual factors include low ability of potential successors, dissatisfaction of
potential successor and unexpected loss of potential successor; these are
successor-related factors. Incumbent-related factors include personal sense of
attachment of the incumbent with the business, unexpected loss of incumbent and
incumbents divorce, new marriage or new children.
Relation factors include conflicts/ rivalries in family relations, lack of trust in the
potential successor, lack of commitment to the potential successor by the members
of the family. Financial factors include inability to sustain the tax burden related to
succession, inability to find the financial resources to liquidate the possible exit of
heirs and inability to absorb the cost of adding professional managers.
Context factors include change in business performance, decreased business scale
and loss of key customers or suppliers whereas process factors include unclearly
defined roles of incumbent and successor, not communicating the succession
decision to other family members, no proper or rational criteria for selection and not
defining the composition of the team in charge of the assessment of potential
successor.
In the end this article talks about the model it created and how that model can be
used in further studies on this topic.

Summary 3
This article investigates the determinants of succession planning in family-owned
businesses. It individually studies the components of succession planning to gain
deep insights into the matter which otherwise would be unavailable if those
components were combined.
It uses the theory of planned behavior to hypothesize the influence of the desire of
the incumbent to keep the business in the family, familys own commitment
towards the business and the chances of a possible successor to take over the
business. Hypothesis was tested using data collections from 118 owner-managers of
family businesses.
The results show that most important factor driving succession planning is chances
of a trusted successor to take over the business. Desirability of an owner-manager
to keep the business in the family has no connection with succession planning.
Study also shows that even though the decision of succession is in the hands of an
incumbent but it depends on some the factors like feasibility of a situation and
availability of a willing successor.

Summary 4
This articles main focus is businesses in Arab societies. The West has a lot of well
documented issues concerning family businesses but as Arab societies continue to
increasingly embrace the Western culture, their issues will be similar to Western
issues, but with a bit of difference due to the Arab influence.
In the Gulf countries, many family businesses have thrived and grown over the
years. However, many issues such as who will succeed who and what happens
when one family member leaves the business are not openly discussed. This can
cause an environment of distrust and confusion. The article says Succession
planning in the family enterprise is the explicit process by which management
control is transferred from one family member to another. This process is very
important in ensuring the business remains intact in the distant future. This process
includes not only selecting the successor but also training him/her.
In Arab societies, the society is dominated by males so they are more likely to be
the ones who succeed. Also, most owners of family businesses do little else but
spend a large amount of time working. Also, the departing member stays involved
for some time after leaving, if only as a family member. Also, the culture and
religion of the region play a big part in determining how these businesses run and
how they decide upon succession.

The articles main finding is that in most businesses in the GCC area, succession
planning is not being performed, even though it has major economic and social
implications, especially in an economy where self employment or being employed in
a family business is very common. The reason for this is that they are afraid of the
future and what it holds for their enterprise, and thus fail to address this issue. They
tend to not make a decision on this issue until the very last minute, when they are
forced to do so. So, to avoid this, a successor should be earmarked and trained very
early on, and all the other family members should be in agreement with the choice.

Summary 5
This article simply provides steps to ensure a smooth and easy succession planning
process. It provides a range of common issues most family businesses face and how
to avoid them by planning ahead.
The article says there are 5 levels to any family business succession plan. The first
level is to decide upon the owners long term goals and objectives for the business.
This means deciding the goals and how and when the owner wants them to be
achieved. This makes it easy to transition when the owner leaves. The second level
is to understand the financial needs of the business, the owner and his family, so as
to ensure their financial well being. The owners plans after he retires need to be
known and understood to achieve this. The third level is that after the current owner
retires, to decide who runs the business and who owns the business. Only one
family member may run the business while all may own it or a CEO may be hired to
run the business and maximize profits. The fourth step is to decide how will the
assets be transferred and divided among the family members. There may be some
members who dont work but still get a share so an effective and quick way of doing
this has to be devised. The fifth and last step is to minimize taxes when transferring
and dividing the wealth. There are many ways to do this, but if not done properly,
can cause a lot of losses.
In conclusion, this article says that succession planning is crucial in ensuring a
business is successful and remains successful, so a proper succession plan is
necessary and can provide freedom of mind to the whole family. It will also bring
new opportunities for the business itself.

Summary 6
This article focuses on the family businesses in India and how they plan for the
future. Succession planning has been around for a very long time and in the past it
used to take place only in small families, but now, it is used in massive
organizations and delicate situations, and thus its importance has increased, and
only recently have people started researching into succession planning in family
businesses.
The article says that a successful succession depends on the performance of the
firm after succession and the attitude of the stakeholders of the business. Although
nowadays, a lot of family owned businesses are hiring employees to work and
maximize profits.
The research in this article shows that family members in India expect businesses to
be succeeded by seniority, meaning the elders will get the chair. The author realized
that although there are some similar aspects, there are still a lot of differences in
succession planning between small and medium or large enterprises. The medium
enterprises are well settled and into the 2 nd or 3rd generations while the small ones
are still new and struggling to balance family and business.
However, most of the family businesses understand and know the importance of
succession planning now and believe there should be some kind of formal planning
in place. But, unfortunately, they fail to take action based upon this belief.

Summary 7
Family businesses have been a significant part of the industry since the start and
now as time goes on the contribution of family businesses in the economy is also
increasing. Today family businesses contribute to more than half of the GDP,
employment and account for a sizeable proportion of market capitalization.
Family businesses have been the center of debate for a long time lately and now
people are researching more on the dynamics of internal organization and
competitive strength with the help of an effective succession planning.
According to the article family business can have multiple definitions the most
common one can be, an organization in which the controlling and decision making
power is in the hands of family members although there may be non-family persons
working in the organization.
The basic aspect of a family owned business is that the family influences the
business and the business environment influences the family. This can lead to many
challenges when running a family business. A family business is a reflection of the
principles and ideals of the owner family and the legacy continues as the business is
passed from one generation to the other. Whether the founder of the business is
present or not the family has to be loyal to the founder. Just like any other property
the ownership of a family business has to be transferred from one generation to the
other. The basic framework of succession lies on top of the idea of leadership. The
article talks about the three stages of transformation of a family business.
The first one is the owner managed. In which the ownership of the whole family
business is vested on one family member.
The second one is sibling partnership, in which the sole owner makes a succession
decision and transfers ownership to each of their off-springs.
The third one is cousin confederation ownership, in which the ownership is not
restricted to a single family and can have multiple owners who are often third or
fourth generation cousins. None have absolute control.
Although succession planning techniques differ in different countries but the basic
challenges that commonly arise are when the successor heir is not competent to
lead or maybe unwilling to lead, or in the case of multiple prospective successors
there may be unanimity in deciding who to choose. Many times it also happens that
the current leader is not willing to step down. Therefore family businesses have to
address several special challenges as succession, business viability, and family
harmony, responsible and unified ownership.

Summary 8
The article conducts a study to prove that not all family owned businesses us
nepotism and their succession planning can be a result of a rational response of the
family.
The word most used in the article is idiosyncratic and this word used for the family
businesses basically means the uniqueness and the distinctive values and principles
of a family that are reflected in their businesses. A family business may be highly
idiosyncratic or may be low idiosyncratic but a high idiosyncratic family business
means that it would need a successor to be in sync with the values and principles of
the family business which in most cases means that the successor would be an off
spring of the owner. However, at times when the succession planning do not go as
smoothly as it was expected there come challenges like, the off spring might not be
competent enough to lead the business or at times the off spring might be so poorly
qualified that the survival of the business might be in jeopardy. A family will appoint
a non family manager to take over the business when the offspring are not
competent and the business is low in idiosyncrasy. Therefore, the study proposes
that when the off springs are not competent it is better to use a seat warmer
strategy or hand over the business to an agent who is later absorbed into the family
as a son-in-law, only if it is mutually acceptable by both the parties.
Countries like Korea, China, Japan etc also use these strategies in the succession
planning of the family owned business. In Korea and China mostly the sons are not
capable of handling the business and the daughters are not preferred to be given
the business so the business is handed over to the son-in-laws. The same practice is
common in Japan also but studies have shown that the family businesses of Japan
survive longer than those of China and the reason for this is that when the sons-inlaw are handed over the business they are expected to change their surnames to inlaws names and also live in his in-laws dwellings. That way the absorption in the
family is the most effective.
Succession of the family business in the case of incapable offspring is also possible
by handing over the business to a non-family manager who has proved his/her
trustworthiness and effectiveness at work with his long serving experiences.

Summary 9:
This paper applies Chandlers insights of enterprise transitions on a family owned
company named Du Pont. In the family business arena most of them tend to follow
a common three stage ownership evaluation; owner managed sibling partnership
and cousin collaborative. Chandler suggests that as time goes by more managers
and money are needed in order to develop the firm therefore the relationship
between management and ownership changes its structure.
As the family business in transferred from the one generation to the other it moves
through a sequence of stages the ownership structure and the business
development opportunities.
The article studies the life of the family business of Du Pont throughout the years by
how the ownership structure changed and to what generations was the business
passed. The ownership status first changed from controlling owner to a sibling
partnership after which it again became controlling owner structure. In 1902 it
shifted to cousin consortium and from then onward it remained a cousin consortium
even though the company has many shareholders now.
The Du Pont case changed the perspectives of Chandler about family owned
business. Chandler realized that firms evolve and become family controlled
businesses by time.

References:
Summary 1: http://www.thompsonlaw.ca/pdf_folder/Succession_Plans_FB_06.pdf
Summary 2: http://fbr.sagepub.com/cgi/content/abstract/21/2/183
Summary 3: http://fbr.sagepub.com/cgi/content/abstract/16/1/1
Summary 4: http://www.sciedu.ca/journal/index.php/ijba/article/viewFile/118/118
Summary 5: http://www.disinheritirs.com/articles/Practical_Succession_Planning_for_the_Family-Owned_Business.pdf
Summary 6: http://www.voiceofresearch.org/doc/Jun-2014/Jun-2014_13.pdf
Summary 7: http://www.jstor.org/stable/27768196
Summary 8: http://www.jstor.org/stable/30040754
Summary 9: http://dx.doi.org/10.1108/17511340910964144