Family Business and
Succession Planning
Dr. Yong Wang
Reader in Family Business
& Entrepreneurship
Wolverhampton University
Proportion of OECD Firms That are Family-Run in Percentage
Italy
99
US
90
Sweden
90
EU
Over 85% of
EU/US
businesses are
family run
85
Spain
80
UK
75
0
50
100
150
- Upton and Petty (2000)
Family Business Dynasty
TOYOTA, FORD, HONDA, FIAT
MORISSONS, WAL MART, SAINSBURYS, WOOLWORTH
L’OREAL, ESTEE LAUDER
IKEA
AMAZON
MARS, REMY COINTREAU
HOSHI HOTELS OF Japan: 718AD, 46th Generation
®
What is family business?

degree of ownership and management by family members
e.g. ‘A company in which more than 50 percent of the voting shares are
controlled by one family, and/or a single family group effectively controls the
firm, and/or a significant proportion of the firm’s senior management is
members from the same family’
- Leach et al. (1990)

inter-dependent subsystems
e.g. ‘The sub-systems in the family firm system include (i) the business as an
entity, (ii) the family as an entity, (iii) the founder as an entity, and (iv) such
linking organisations as the board of directors’
- Beckhard and Dyer (1983)
What is family business?

generational transfer
e.g. ‘A business that will be passed on for the family’s next generation to manage
and control’.
- Ward (1987)

multiple conditions (a combination of three former dimensions)
e.g. ‘Family ownership of more than 50% of the business in private firms or more
than 10% of the stock in public companies; more than one family member works
in the business or the owner anticipates passing the business to the next
generation of family members or the owner identifies the firm as a family business
…’
- Astrachan and Kolenko (1994)
Failure rate from 1st to 2nd generation
30%
Continuation
70% Failure
Failure rate from 2nd to 3rd generation
20% Lost 2nd
Gen
10% Continued
Initial 70%
Failure
•Manufacturers
•200
•1924-1984
80% failures
•33%: 0-29 years
•35% 30-59 years
•32% 60+ years
Survival 20%
•5% sold-out
•2% flotation
•13% familiar
•7% -declining
•3% - stable
•3% - growing
Business Survival –Ward (1987)
Why failure to transfer to the young generation?
• Lack of a clear, well-defined succession plan
• Failure to address the issue of who will run the
business
• Owner-manager unwilling to relinquish
• Reluctance of offspring to take over
• Non-family managers unwilling to assist successors
• ……………………
Appoint a family
member
Sell part of the
business
Do nothing
Succession
Options
Liquidate the
business
Sell the entire
business
Family Business Strategy – the likely routes
To pass on to the next generation within
the family
To partially exit, realise wealth and
become less active
To sell the business (trade sale)
To float the business and realise wealth
51.5%
To liquidate the business
3.8%
SandAire 2001 Survey - MBS
44.9%
44.1%
15.3%
Succession Planning
• Business plan
• Family plan
• Tax plan
• Financial plan
……………….
Picking the Successor
•
•
•
•
The rules
– The oldest son principle
– The best candidate principle
Sifting process
– Leadership traits
– Start-up venturing
– Organise assignments
– Offer platforms
Interim leadership
Declaration ASAP
Mentoring the Successor
•
•
Mentor
– Senior manager
– Offer offspring principles of management
– Offer offspring different working opportunities
Offspring
– New ventures boosting multi-managerial talent
– Playing leading not shadowing roles
– Leadership and entrepreneurial spirit development
– A project per sibling to avoid rivalry
Succession viewed as a process
Predecessor
Sole Operator
Monarch
No Role
Helper
Overseer/Delegator
Manager
Consultant
Leader/Chief
Decision Maker
Next-Generation Family Member
The Succession Process: Mutual Role Adjustment between Predecessor and Next Generation
Family Member(s)
Departure style of founders or CEOs in family businesses

Monarchs:
- do not leave until they are forced out or die.

Generals:
- leave passively while planning a comeback to
rescue the company from an incapable successor.

Governors:
- rule for a term and then pursue other organisations.

Ambassadors:
- leave willingly and serve as advisors.
-Sonnenfeld and Spence (1989)
Tips for Succession Planning
• Commence to plan at an early stage
• Offer opportunities for capability development
• Seek professional advice
• Build consensus within the family and the business
• Clarify the transition process
-International Finance Corporation
Thank You!
Any questions?