Succession Planning in Family Businesses: A Study from East Anglia, U.K

Article excerpt

There are many similarities in the succession problems of chief executive officers, whether their businesses are large or small, whether private or publicly-held. However, the chief executive of a family business has additional problems which arise simply because it is a family business. For example, the problem of finding a successor is not limited to the person with the most suitable track record and abilities, but has the added complications of family membership and expectations.

Much of the literature covers the reasons why founders and chief executives should plan for their succession. The benefits of planning are well explored and clearly support the idea that most founders who do not sell the business when they retire wish their businesses to continue and probably wish it to stay in the family. The literature (Daft 1992; Francis 1993; Morgan 1986) provides reasons to plan for succession, including minimizing taxation, continuation of the lousiness, development of expertise, employee relations, and strategic goals.

In many cases, small firms are negligent in succession planning. The literature (Leach 1991; Lynn 1974; Kets de Vries 1988; Scase and Goffee 1987) provides a number of reasons why succession planning does not happen, even when the owner/manager knows that it should. These include feelings of immortality, lack of a suitable successor, a surfeit of suitable successors, and fear of retirement.

The aims of this article were to answer the following questions regarding succession issues in family businesses:

(1) Do the owner/managers of local family-owned businesses have a succession plan, however informal?

(2) Does the formulation of a succession plan depend upon the age of the owner/manager?

(3) Does the formulation of a succession plan depend upon which generation of the family is currently manger of the business?

(4) Does the gender of the owner/manager have any influence on the formulation of a succession plan?

(5) Does succession planning vary according to the business sector in which the company operates?

(6) Does succession planning depend on the extent to which the manager owns the business?

(7) Does succession planning depend upon the size of the business?

(8) What factors do existing managers consider to be important in preparing their successor for office? and

(9) If owner/managers do have a succession plan, what is it?

Research Design

The sample consists of small firms in East Anglia, U.K. The area is rural and, until relatively recently, has not had the benefit of convenient access to England's highway system. Major highways have recently been constructed, and the development of adjoining port cities has given the area an important economic boost; unemployment has been at least two percent below the national average since 1981. People in the area are relatively close-knit, which required that attention be paid to anonymity and privacy issues in the research design.

Table 1

Comparison of Planners and Non-Planners
(n = 21; rounded to the nearest percent)

                                    Planning for   Not planning for
                                     succession        succession

Breakdown of total respondents           38                 62

Intending to retire

not in foreseeable future                38                 77
within 2 years                           12                  8
within 5 years                           12                  -
within 10 years                          38                 15

By age of owner/manager

under 44                                  -                 31
45-54                                    50                 38
55-65                                    50                 31

By generation of current incumbent

founders of business                     38                 39
2nd generation                           62                 22
3rd generation                            -                 39

By business sector

manufacturing                            38                 23
retail                                   25                 31
wholesale                                25                  8
service                                  12                 38

By ownership

owners/majority shareholders             62                 53
minority shareholders                    38                 47

A questionnaire was designed, pilot-tested, and sent out with a covering letter. …