CORRELATES OF SUCCESS IN FAMILY BUSINESS TRANSITIONS

Fundamental differences are identified between the nature and function ing of family-owned and -managed business and those that are not famil y-controlled. These difference include the time horizons of management , the implications of business failure, the degree of job security, th e centralization of decision-making, accountability for decision-makin g, and the impact of the family system on the business system, among o thers. It is argued that the most significant of these differences con cerns the way in which executive succession occurs, and specifically, unique aspects of the process of intergenerational transfer within fam ily-owned businesses. Based on an initial round of interviews with sec ond- and third-generation family business owners, and a detailed revie w of the extant literature, a model is proposed consisting of three se ts of determinants of successful family business transitions: the prep aration level of the heirs, the nature of relationships among family m embers, and the types of planning and control activities engaged in by the management of the family business. Successful transitions are fur ther hypothesized to influence subsequent company performance. Much of the research to data on family business transitions has tended to be qualitative, case-oriented, and/or anecdotal in nature. The result has been a number of rich insights into the complexities and dynamics of the family enterprise, but limited in terms of the generalizability of the findings. Considerably less attention has been devoted to quantit ative studies that employ larger samples and provide empirical tests o f relationships between key variables. This lack of attention is trace d to inherent measurement difficulties int he family business field, a nd to the relatively young status of the field itself as a distinct ar ea receiving academic attention. The current study attempts to bridge this gap. The study provides a quantitative assessment of the proposed model using two cross-sectional subsamples consisting of 209 second- and third-generation family-owned business. Both regression and struct ural equations (LISREL) analyses are employed. The results indicate su pport for the proposed model. Family business transitions do occur mor e smoothly when heirs are better prepared, when relationships among fa mily members are more trust-based and affable, and when family busines ses engage in more planning for taxation and wealth-transfer purposes. Of these factors, relationships within the family has the single grea test impact on successful transition. At the same time, smoother trans itions do no necessarily result in better post-transition performance by the enterprise. This linkage to performance appears to be more comp lex. One possibility is that some level of conflict or strife is a pre requisite for the transition to have a significant impact on subsequen t performance. Based on these results, family business owners are enco uraged to devote relatively more attention to relationship issues, nad relatively less to estate and tax planning. It is suggested that a '' relationship charter'' be developed as a vehicle for strategically man aging relationships within the family, much as relationships must be m anaged with suppliers or customers. Suggestions are also made for furt her research, and the study's limitations are denoted. Researchers are encouraged to devote efforts to exploring relationships among the exo genous variables in the research model, such as that between preparati on levels of heirs and family relationships. Further, the issue of suc cess and failure in second- and third-generation businesses warrants g reater attention, including identification of key failure and success factors as well as determination of differences in failure rates for f amily- versus non-family-owned businesses and isolation of the reasons for such differences. (C) 1997 Elsevier Science Inc.