The Willingness and Commitment of the Relay Generation (3)

Key Finding III: The influence of family culture on succession


Key Finding III
  1. The two generations agree that family members should get along well with each other and strive to bring glory to the family. They have an acute sense of family belonging. In this sense, the family-based values shared by the two generations influence the second generation’s business succession.
  2. There is a considerable divide between first-generation entrepreneurs who intend to pass the baton, and the second generation who have yet to take over the family business, on the subject of family values, particularly regarding the necessity of revitalizing the family.
  3. Between family harmony, family prosperity and a sense of family belonging, family harmony exerts the largest influence on the second generation’s desire to pick up the baton; the sense of family belonging can sharpen the second generation’s sense of responsibility.
  4. The first generation’s authoritarian air has a low impact on the second generation’s aspiration for business succession. However, for members of the second generation that have been well educated or have a science or engineering background, that authoritarian air can have a significantly negative effect on their desire to take over the company.
  5. Both family cohesion and family adaptability exert an impact on aspirations for business succession and commitment to the organization. The latter outweighs the former. Whether a family can deal with issues in an open and flexible manner has a significant influence on the second generation’s aspiration and commitment.
  6. Family cohesion and family conflicts have a bigger impact on the males than the females of the second generation in terms of their aspiration for business succession.
  7. Interestingly, the real equity held by the second generation has nothing to do with their psychological ownership. Psychological ownership refers to a sense of family: family cohesion and sense of family belonging.

Comparison of Two Generations’ Family Values

Our research findings indicate that among the family enterprises that have begun to undertake business succession, the first and second generations hold similarly high family values. They agree that family members should get along well with each other and strive to bring glory to the family; they have an acute sense of family belonging. However, among the family businesses that have not yet planned or begun business succession, the first-generation entrepreneurs hold significantly lower family values than do entrepreneurs who have begun to undertake business succession. In this sense, the family-based values shared by the two generations carry sway over the second generation’s business succession.

Authoritarian Air

The first generation’s authoritarian air has little influence on the second generation’s aspiration for business succession. But when the second generation has been well educated or has a scientific or engineering background, an authoritarian air can have a significantly negative effect on their aspiration to take over the company.

Family Values-Family Harmony and Prosperity, and Sense of Family Belonging

The successor’s family values directly influence his/her aspiration for business succession. The successor shows a stronger aspiration for business succession if he/she places more emphasis on family harmony and prosperity and has a more acute sense of family belonging. Family harmony, in particular, has the greatest impact on the second generation’s aspiration for business succession. This implies that healthy family relationships have a significant effect on the second generation. The sense of family belonging gives the second generation a sharp sense of responsibility. A member of the second generation who regards himself as an indispensable part of the family is more inclined to assume the duties for the family business.

Family Adaptability

As shown in our research, family adaptability can greatly influence successors’ aspiration for business succession. Family adaptability refers to the ability of family members to handle pressure or difficulties in a positive manner. The highly adaptable family freely voices their opinions, dares to try new ways to solve problems, and candidly discusses the issues. Thus, family members feel satisfied with the solutions. The more adaptable the family appears, and the better able family members are to jointly tackle problems, the more inclined the successor will be to take over the business. The intensity of family conflicts may also influence the second generation’s aspiration for succession. The more conflicts there are between family members, the less motivated the second generation will be to take the baton.

Family Cohesion --- Male Successors vs. Female Successors

We also discover that male and female successors set different requirements for family cohesion when considering taking over the family business. For female successors, family cohesion, regardless of whether it is weak or strong, does not have much influence on their aspiration for business succession. Male successors put a premium on family cohesion.

Family Relationship

Compared with family cohesion, family adaptability exerts a larger impact on the successor’s commitment to the organization. A balanced family system should be one that is well regulated, but allows some flexibility at the same time. It is very important for a family business to keep such a balanced family system.

A balanced family system features more open leadership, more candid communication and more clearly defined role sharing, and members’ active participation in decision-making. Such a family system enables the second generation to have a strong commitment to the organization. In contrast, an unbalanced family system is characterized by autocratic control, vaguely defined roles, unpredictable decisions and absence of consensus. As a result, the second generation from such a family system is likely to have a weak commitment to the organization.
 

Psychological Ownership (Sense of Ownership)

The process of succession is like leaping over a series of hurdles. Having the aspiration for succession is leaping over the first hurdle; joining the family business and winning recognition means surpassing the second hurdle.

However, these accomplishments do not necessarily mean that the successor has psychological ownership over the business. In other words, the successor may not develop a sense of ownership. Only when the successor perceives himself/herself as the real “owner” of the business and shoulders the responsibility for all operational activities and outcomes will the succession be completed in a real sense. As shown in our research, the successor’s psychological ownership, which differs from aspiration for business succession and commitment to the organization, mainly depends on factors such as family cohesion, and the first and second generations’ sense of family belonging.

Family cohesion is mainly represented by the emotional closeness between family members, including the emotional attachment and communication they have with each other. The stronger that family cohesion is, the more likely first and second generations will be fully devoted to the family business. The close ties between the first and second generations can increase their commitment to and identification with the organization.

The founders’ sense of family belonging is connected to their inclination to involve family members in the family business. Focused on family continuity and prosperity, the founder is more inclined to encourage family members to run or join the family business. The first generation tends to instill this concept in the second generation early on so that they can identify more with the family.

Similarly, the stronger the sense of family belonging (identifying with the family, gaining a strong sense of safety from the family, and showing a sharp sense of responsibility for the family), the more inclined the second generation will be to view the family business as its master. Regarding himself/herself as a part of the family, the second generation will be strongly motivated to take the baton and develop a strong sense of ownership. The sense of family belonging enables the successor to develop a strong sense of responsibility for the family and deem himself/herself as an inseparable part of the family business.

Interestingly, the second generation’s real ownership (proportion of equity) doesn’t have much to do with his psychological ownership. In other words, a larger proportion of equity held by the second generation doesn’t mean they regard the family business as their own child. Several factors need to be coordinated to ensure the successor adjusts their psychological role. These factors center on the same keyword: “family”.


Key Finding IV: Successor’s aspiration for business succession




Key Finding IV
  1. The factors that determine aspiration for business succession involve the individual, family and company. When these factors are well coordinated, the successor tends to show a strong aspiration to take over the family business
  2. For the second generation, whether he is well educated or not exerts an influence on his aspiration for business succession. When parents exert strong authority, the more educated the second generation is, the more reluctant they will be to take over the company, particularly if the second generation has a scientific or engineering background.
  3. The generations’ sense of responsibility for the family and the organization is a major determinant for aspiration for business succession. Self-efficacy, or self-confidence, is another major determinant. The second generation’s self-efficacy has much do with their relationships with family members. Strong family cohesion and family adaptability can sharpen the second generation’s sense of self-efficacy.
  4. From the perspective of the family cohesion, adaptability and harmony (fewer conflicts) among family members can provide a huge boost to family business succession. Family adaptability, which refers to family members’ ability to tackle issues openly and flexibly, exerts a larger impact on the second generation’s aspiration to take over the company than the family cohesion (emotional loyalty and care) does.
  5. The support and prospects of the organization are also an important consideration for business succession. Trust and support from senior employees and the boss carry much weight with the successor. A large-scale and highly standardized organization can also offer the successor a wider scope to demonstrate his leadership, increasing his aspiration to take over the company.

 


The first stumbling block in the process of succession is when the founders’ children are reluctant to take the baton. According to relevant data, only 35% of the “rich kids” nationwide have expressed their aspiration for family business succession. If they are forced to take the helm, they are likely to trigger a string of potential problems for themselves, their family businesses and their families in the future.

Why are some willing to take the baton? What approaches can be adopted to increase their aspiration for family business succession? We have interviewed a number of successors who are undergoing or have completed the business succession process to find out the degree to which they aspire to be a part of the succession, and to explore the possible factors that influence this.

We identify three types of factors that can exert a significant impact on the second generation’s aspiration for succession: Individual factors, family-related factors and business-related factors.

         

Individual Factors


  • Educational Background
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In Key Finding II, we have pointed out that a good educational background can help a successor to develop strong self-confidence. Our findings show that the more educated they are, the more highly motivated the second generation is to take over the family business. Members of the second generation who hold a Master’s degree show a stronger aspiration for business succession than those with a junior college certificate or Bachelor’s degree. It should be noted that management related degree programs don’t have much influence on aspiration for business succession. Members of the second generation that have a management-related degree do not demonstrate a stronger aspiration to take over the family business.  

  • Self-efficacy
Self-efficacy, namely self-confidence in one’s ability to take over the family business and make it prosper, is another major factor that influences the aspiration for business succession. Chinese family businesses currently face the dual challenge of succession and transformation & upgrading, which means higher requirements for the successors’ personal abilities. Without sufficient self-confidence, the second generation may refuse to take the baton.

  • Working Experience
As the Chinese saying goes, “Be it mule or horse, take it out for a walk”. Good education provides a source of confidence for successors, and jobs in a real workplace give them the chance to test their real abilities. Corporate experience can be divided into two types: The successor works as a subordinate in other companies; the successor assumes a specific post in the family business. Our research indicates that external work experience doesn’t boost the second generation’s aspiration for business succession. It is only work experience in the family business that motivates the second generation to take over the family company, partly because of the unique corporate environment. The second generation generally considers it difficult to transplant well-proven experience from other companies into the family business, as it does not boost their confidence in running the family enterprise. In contrast, work experience in the family business carries much weight with the successor. The more challenging the tasks assigned, the more opportunities for trial and error, and the more positive feedbacks given in the family business, the more willing the successor will be to pick up the baton.

Family-related Factors

It is often impossible to have the best of both “family” and “business” when various conflicts and contradictions arise. However, “family business” combines “family” and “business” together in a natural way. Once the second generation takes over the family business, he/she will not be able to avoid having to handle family interests at work. In other words, disputes at work can become a family affair and even trigger fiercer wrangling among family members. This increases the second generation’s anxiety when thinking about succession. In this situation, family support turns out to be especially important.

We have mentioned that the “family culture”, namely, family harmony, prosperity and sense of family belonging, along with cohesion, adaptability and conflicts exert a great impact on the second generation’s aspiration for business succession. The second generation’s family-based values can impact, to a large extent, their aspiration to pick up the baton. The family-based values emphasize family solidarity and harmony; emphasize family continuity and prosperity; identify with the concepts of revitalizing the clan and bringing glory to the family; and show an acute sense of family belonging. In other words, the more emphasis the second generation places on family solidarity and harmony, continuity and prosperity, and revitalization of the clan and family, and sense of family belonging, the more they will aspire to take over the company.


Family Values
Family values also affect the second generation’s aspiration for business succession. Family values take shape gradually under the long-term influence of a family. Our findings show that the first generation’s family-based values are significantly correlated with those of the successor. In other words, the first generation entrepreneur has unconsciously influenced the successor’s family value orientation over the years during family interactions. If the first-generation entrepreneur attaches great importance to the family, his/her children tend to show a strong sense of responsibility for the family, with a higher aspiration for business succession. If the first generation entrepreneur neglects the family, his/her children will likely lack a sense of family mission, and have less aspiration for business succession.

  • Sense of Collective Responsibility
The second generation’s sense of collective responsibility mirrors the impact of the family values on his aspiration for business succession from another perspective. Sometimes, the second generation’s personal aspiration is inconsistent with the family goal. If so, to take over the family business means to sacrifice some personal pursuits for the sake of the whole family. The second generation is more inclined to adjust his personal target in the interest of the family by taking over the family business when he attaches more importance to the collective interests than to those of the individual, and values the success of the team over that of the individual, and is willing to give up his personal target for team success.

Business-related Factors


Finally, a successor’s aspiration for business succession is also closely connected with the prospects of the organization.

Family business management doesn’t depend solely on any one individual. The support from the founder, boss, family members and senior employees will determine, to a large extent, whether the successor is capable of smoothly taking over the family business.

As shown in our research, the second generation’s relationships with the boss, family members, and senior employees have a direct bearing on his aspiration for business succession. If the relationships are mutually beneficial through information sharing, the successor will have a stronger aspiration for business succession. In addition, trust from the founder and non-family executives in the second generation can also boost his aspiration to take over the family business.

  • Business Size
Our research results show that the larger the family business (the more employees in the organization), the more the second generation aspires to take it over. It needs to be noted that we have made a rough breakdown of the companies by size, with only a few large-scale enterprises incorporated into the sample. Thus, we are not sure whether the successor’s aspiration for business succession will decline when the family business reaches a certain scale. We can observe from some individual cases that an excessively large business size seems to create huge psychological pressure on the successors. More data need to be collected to support this.

  • Standardized Management
Nearly all successful family business entrepreneurs boast great personal charisma and boldness in business. However, if an organization is solely dependent upon the founder’s personal charm and business capabilities, it will be extremely difficult for the successor to develop the business as successfully as the founder did. This casts a shadow over the post-succession prospects of the organization. Any organization that relies on a sound system and structure for self-development will have brighter prospects of stable progress and standardized management. As a result, the successor will show a stronger aspiration for business succession. Standardization, also understood as institutionalization, involves the following:

  • The company shall have clearly-defined rules and policies.
  • A manual of working rules and procedures shall be available for employees to refer to at all times.
  • The company shall have clearly-defined job specifications for most positions.
  • The work performance of every employee shall be explicitly traceable.
  • The company shall launch formal training courses for most of the new staff.

 

  • Ownership Allocation
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For family businesses, the ownership allocation is unique among the business-related factors. Majority ownership secures a family’s control over the business. Given the comparatively shorter history of Chinese family businesses, their ownership is still mostly retained by the first-generation entrepreneurs. This can have a subtle influence on the family business’ decision-making, management style, family culture and succession process.

Interestingly, our research shows that in the case of low family cohesion, if the first generation holds a higher proportion ownership stake, the second generation will be more highly motivated to take over the business. The underlying reason may be that the second generation wants to take over the business ownership held by the first generation. It is also possible that the second generation just wants to carry forward the business established by their parent.


Key Finding V: Successor’s Succession Effect



Key Finding V
  1. The effect of business succession depends on the successor’s commitment to the company and his capability to run the enterprise.
  2. The successor’s commitment to the organization depends, to a large extent, on his aspiration for business succession. If he has forged close family relationships, gained trust and support from the boss and senior employees during the succession, and boosted his self-confidence through education and other corporate work experience, he will make stronger commitments to the organization. Thus, the successor’s strong commitment to the organization necessitates continued self-recognition and backing from the family and the organization.
  3. A successor may behave quite differently before and after taking the baton, which has no correlation to educational and professional background or corporate experience. The organizational factors determine, to a large extent, whether the successor can demonstrate his talent. In a highly standardized organization, the successor will be more highly recognized by the founder and senior executives for his capability. For members of the second generation that have been highly educated overseas, a standardized organizational platform is necessary in order for them to spread their management concepts.
  4. The founder’s leadership style also influences comments on the successor’s capability: the successor appointed by a founder who exercises visionary leadership and metes out proper awards and penalties will be more highly recognized by senior executives.
  5. If the founder exercises authoritative leadership, senior executives will be inclined to make more negative comments on the successor’s capability. The successor appointed by a founder who exercises authoritative leadership, finds it difficult to be recognized by senior employees.

 


“Will the rich child become a competent successor to their family businesses?” As Chinese family businesses arrive at the stage of intergenerational succession, this question is not only a concern of families and businesses, but an issue attracting the attention of the government and society.

Which factors will influence the succession effect? The macroeconomic environment, and industrial context, along with business-related and personal factors may all play a part. Under a specific external environment, our research is designed to explore the factors affecting the succession from the perspectives of the businesses and the successors.

Poor succession effect can be attributed to two internal reasons. First is the low commitment of the successor to the organization. More concretely, having taken the baton, the successor has no ambition for running the business or is absent-minded and fails to put his/her full heart and soul into the business. The second is low evaluation of the successor. That is to say, after the successor takes over, his/her performance receives a low evaluation from top management and the founder due to influence by the leadership style of the founder or other business-related factors. The successor is assumed not to be able to surpass the achievements made by the founder.
 

Subjective Commitment


  • Original Aspiration Affects the Commitment
As the saying goes, “You can lead a horse to the water but you cannot make him drink”. As verified by our research, if the second generation has no aspiration for business succession early on, he will be unlikely to devote himself to the company after taking it over under family pressure.

  • Relationships with the Boss and Senior Employees
During the succession, the second generation’s relationships with the boss and senior employees not only determine his/her aspiration for business succession (please refer to Key Finding IV), but also influence his commitment to the business after taking it over. “An able fellow needs the help of three other people”, if the successor is able to maintain good relationships with key personnel, win their support and cooperation, and share information with them, he/she will feel much assured and thus give a stronger commitment to the family business. The trust of the founder and non-family executives can also motivate the successor to devote himself/herself to the family business.

 
  • Family Culture
Harmonious family can lead to success for everything; a successor who is fully devoted to the family business is often supported by a harmonious family. Family cohesion, adaptability and harmony enable the second generation to put their ideas into practice and increase their commitment. (See Key Finding III for details)

  • Working Experience for Business Succession
During the succession process, offering a variety of work experiences (taking on challenging tasks, obtaining more opportunities for trial and error, and gaining positive feedback) to the second generation can boost their confidence in building on the family business and enhance their capability for management. With more confidence in the family business, the successor will give more input. Stronger capability will make the inputs more efficient; hence a virtuous circle. In this way, the successor will make a stronger commitment to the organization after taking over the business.

Objective Evaluation

In addition to subjective commitment to the organization, whether the practical management strengths of the successor can be recognized by the organization also affects the succession effect. During the survey, we invited the non-family executives to evaluate the performance of successors on aspects such as business decision-making, staff management, business reputation and operations maintenance, time and efforts devoted, leadership quality, and networking skills, in order to identify the factors that help enhance the succession effect.

Sadly, the second generations’ educational background, family relationship, and even their work experience in business are not closely related with their actual management capabilities. Only the following two factors have notable correlation with the evaluation of management capability:
 

  • Standardized Management
As shown in our research, if a family business is highly standardized with sound systems and institutions, the management capability of the second generation will be recognized by the first generation and senior executives after they take over the business. It is not a surprising finding. Almost all successful family business entrepreneurs boast great personal charisma and boldness in business. However, if an organization is solely dependent upon the founder’s personal charm and business capabilities, it will be extremely difficult for the successor to develop the business as successfully as the founder. This therefore casts a shadow over the post-succession prospects of the organization. If a family business depends not merely on the first generation entrepreneur’s leadership, but also on sound systems for self-development, the successor will have a fair chance of smoothly picking up the baton. On the other hand, the successor shall not be wholly to blame if he fails to receive positive recognition after succession, as the first generation has failed to lay a solid foundation for the company.  



  • The First Generation’s Leadership Style
In addition, the first generation’s leadership style can also influence the succession effect to a great extent. Obviously, the first generation’s leadership style directly determines the company’s management model and the path for business succession. Among the following three types of leadership, non-family senior executives’ sense of involvement in the family business differs considerably. As a result, their expectation and comments about the second generation vary significantly.

  • Visionary Leadership
If the founder is far-sighted and excels in describing their vision to subordinates, the non-family senior executives will find it relatively easier to get engaged in the family business and identify with the first generation’s concept of an enduring family business, and the second generation will be inspired by this vision to perform better. As a result, the non-family senior executives will think more highly of the successor’s capability.

  • Proper Rewards and Penalties
If the founder can clearly assign the jobs and define the targets for the non-family senior executives, and promptly grant rewards and impose penalties based on the working process and results, it is easy to understand whether the second generation stands ready for business succession and whether he will deliver good performance after succession. As the second generation’s succession exerts a low impact on the non-family executives’ power (their contribution will also be recognized), it stands to reason that they will be more appreciative of the successor’s capability.

  • Authoritative Leadership
If the founder emphasizes that their authority allows for no challenge, and asks subordinates to absolutely obey his orders, the founder’s confidence in his capability will prompt him to have a low opinion of his successor. In other words, the successor’s capability will draw more adverse comments if his performance does not live up to the founder’s expectations.