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Family Business Succession: From dream to reality

Rania Labaki , Associate Professor, Family Business Chair Director

“In the name of Gucci”, “Steinberg: The breakup of a family empire” or “Dethroning the King: The hostile takeover of Anheuser-Busch” to cite a few, are documented books about the success and failure…

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28 Sep 2017

In the name of Gucci”, “Steinberg: The breakup of a family empire” or “Dethroning the King: The hostile takeover of Anheuser-Busch” to cite a few, are documented books about the success and failure of emblematic business families. Standalone from the facts, what strikes the reader most is the key role played by emotions in shaping the family and business behavior along the succession process.

A recent study [1] by the EDHEC Family Business Centre shows that the rate of intra-family business succession in France is below 20%. While the tax environment exerts a significant impact on the low rate of family succession, it represents only the tip of the iceberg. For further understanding, we need to deep-dive below the surface to explore the “Emotional Nexus” binding the business and the family. Family businesses represent a unique form of organization characterized by the emotional interaction of the family and business systems, to different extents. Researchers agree that succession is undeniably the most emotionally charged process in the lifecycle of family businesses, turning it into the most critical for the business continuity in the family’s hands.

Traditionally, understanding what processes lead to a specific human behavior has been subject to debate by thought leaders beyond the world of family businesses. The Nobel Prize winner in economics Daniel Kahneman offers an analysis of our “Thinking, Fast and Slow”, revealing that our economic decisions are not made emotionless and that our behavior is governed by two cognitive systems: fast and intuitive on one side, slow and deliberate on the other side. In a similar line of thought, the bestselling author Malcom Gladwell argues that a “Blink” (intuition) is by far more effective than a cautious decision. Added to this, the Professor of psychology and behavioral economics Dan Ariely suggests that positive and negative behavior can be “Predictably Irrational” while the award-winning business reporter Charles Duhigg observes that “The Power of Habit” can derive its sources from emotional rewards and lead to unintended consequences. Moving to the macroeconomic perspective of Gladwell’s “Tipping Point”, we learn that a small change can have unforeseen effects. In the same line, the tipping point of the professor of positivity Barbara Fredrickson’s suggests that an individual’s positive to negative emotions ratio marks the difference between human flourishing and floundering.

The family patterns are one of the key factors triggering or hindering the succession process.

Transposing those insights into family businesses makes us wonder whether the family succession behavior is a product of well-thought of steps allowing to successfully move from the dream to reality or whether the latter is simply a product of imagination or instinct.

My recent study in collaboration with FBN France’s scientific council analyzes the succession process, from the development of the intention for succession by the generation in power to its accomplishment through passing on the baton to the next generation. Building on the perceptions of the senior generation, it shows that the family patterns are one of the key factors triggering or hindering the succession process. Tracing back the family history helps understanding the current generation’s behavior in regards with succession.

According to Bowen’s Family Systems Theory, families are multigenerational units where emotionally charged patterns can be transferred across generations, some of which can be largely dysfunctional. Understanding the origins of certain patterns in the past and present is an important preliminary stage for the family to deal with existing dysfunctional behavior of succession where it might be stuck.

One example of functional patterns could be the traditional rituals shared and passed on over generations, charged with pride and respect. As such, they contribute to triggering early on the intention for succession. As an interviewed family manager puts it, “We all knew it since childhood. Our destiny is sealed in the cradle. “You will be in the family business, my Son!” That’s what my father used to tell me. That’s what I tell my children as well”.

Unspoken thoughts about succession, however, represent a typical example of dysfunctional patterns, which can be charged with frustration, disappointment, anger or envy. As such, they tend to lead to major difficulties in achieving a smooth succession in the family despite the high levels of performance and competitiveness of the business. The bankruptcy of the Steinberg family business in Canada or the loss of business control by the Italian Gucci and the American Anheuser-Busch families allow us to draw lessons on the impact of emotionally charged patterns on leading organizations in their respective industries. A quote from a family business member in our study emphasizes this phenomenon as follows: “I always dreamt to take over the family business. I used to admire my father but he never expressed his intention for succession. Still, I was convinced that I would take over. However when the time has come, he choose someone else as successor. My destiny was contradicted…”.

Connecting the research dots with the “Power of Habit” allows us to reflect on how a family habit, driven by an emotional reward, may inform the family’s self-image. Once the emotional sources of habit are acknowledged, it becomes easier for the family to consider their positive or negative potential and change the habit towards more functional outcomes if needed.

As Lao Tzu inspires us, “If you do not change direction, you may end up where you are heading”. For the change to happen, family members need to learn about their historical emotional baggage before choosing to engage in a new direction. Still, the question of the direction to opt for and the tipping point to consider is rather a challenging one.

Notwithstanding Aristotle’s arguments about “things happening due to chance or luck”, the behavioral patterns inform the business family about the proper timing and direction of change considering its tipping point. The insights of this article are in favor of taking action to break the dysfunctional patterns towards the realization of the succession dream.

[1] https://www.edhec.edu/en/publications/transmission-challenge-what-determines-family-business-transmission  

Cited References:

Ariely, D. (2008). Predictably irrational: HarperCollins New York.

Bowen, M. (1978). Family therapy in clinical practice (2004 ed.). Maryland: Rowman & Littlefield Publishers.

Duhigg, C. (2012). The power of habit: Why we do what we do in life and business, Random House.

Fredrickson, B. L., & Kurtz, L. E. (2011). Cultivating positive emotions to enhance human flourishing. Applied positive psychology: Improving everyday life, health, schools, work, and society, 35-47.

Gibbon, A., & Hadekel, P. (1990). Steinberg: The breakup of a family empire: MacMillan of Canada.

Gladwell, M. (2007). Blink: The Power of Thinking Without Thinking: Little, Brown and Company.

Gladwell, M. (2006). The tipping point: How little things can make a big difference: Little, Brown and Company.

Gucci, P. (2016). In the name of Gucci: A memoir, C. Archetype Ed.

Kahneman, D. (2011). Thinking, fast and slow: Macmillan.

Lopez De Silanez, F., Dufour, C., & Franz, P. (2016). The Transmission Challenge: What Determines Family Business Transmission?, Position Paper, EDHEC Family Business Centre.

MacIntosh, J. (2011). Dethroning the King: The hostile takeover of Anheuser-Busch: John Wiley & Sons

Mair, V. H., & Tzu, L. (2012). Tao te ching: The classic book of integrity and the way: Bantam.

Labaki, R., Michael-Tsabari, N., & Zachary, R. K. (2013). Exploring the Emotional Nexus in Cogent Family Business Archetypes. Entrepreneurship Research Journal, 3(3), 301–330.

Labaki, R., & Conseil Scientifique FBN France. (2017). La transmission intrafamiliale: De l'intention à la réalité, Rapport d’étude, FBN France Ed.


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