Stanley Sands, president of Standard Meat Company in Lincoln,
Nebraska, is a rarity in management. His business was begun
by his grandfather, and he took over the firm from his
father. The Sands family has managed to successfully
transfer the business from father to son twice. And that's
pretty rare.
Keeping ownership and control of a business in the family is
probably the second most important thing on the minds of most
entrepreneurs as they prepare to retire. The most important
thing is to insure their business remains successful so the
next generation can inherit a healthy company.
Companies not owned by families are different. These firms
choose new CEOs much more frequently, so the topic is more
often on the minds of their CEOs and controlling boards. So,
do nonfamily companies do it better because they have more
practice? Do they do it differently than family-owned firms?
Mark Fiegener, of Oregon State University, is interested in
CEO succession in small companies, and he found a surprising
neglect in research that compared CEO succession in family
and nonfamily firms. So the first step, he reasoned, should
be to learn if these two kinds of firms follow different
patterns.
Fiegener identified 236 family owned and operated companies
and 121 nonfamily firms. All these companies had CEOs who
were preparing to pass responsibility on to another person.
All of them had successors in mind who already worked in the
business, and all of these CEOs-in-waiting had undergone a
period of grooming and preparation in anticipation of this
transfer of power and authority.
Fiegener and his collaborators questioned each of the CEOs of
these firms in telephone interviews, and they asked them to
rate the importance of 2 groups of preparatory tasks and
experiences. Fiegener carefully noted which ones stood out
as most and least important. Then he checked to see if
importance ratings of CEOs in family and nonfamily firms
differed. They did. Of 19 preparation activities, 15 were
rated very differently between family and nonfamily CEOs.
Fiegener found five striking differences, two involving education
and three involving supervision. Nonfamily CEOs regarded
executive development seminars and university coursework as
much more important than family firm CEOs. Conversely,
family CEOs regarded supervising successor's tasks, tutoring
successors informally in skill and knowledge areas, and
managing successor's relations with customers and vendors as
much more important than nonfamily CEOs.
There were also two areas family and nonfamily CEOs agreed
were crucial: managing relations with stockholders, lenders,
and other key outsiders, and evaluating the performance of
the new CEO.
Fiegener believes these findings reveal significant
differences between the CEO successions of family and
nonfamily firms. Nonfamily firm CEOs rely upon outside
sources to prepare successors while family firm CEOs take on
the job themselves. And that worries Professor Fiegener.
Business writers often criticize entrepreneurs for insisting
upon rigid control of their businesses. They use labels such
as "authoritarian," and "paternalistic" to describe
entrepreneurs, and these writers even blame business failures
after initial periods of success upon this drive to maintain
tight control. Reluctantly, Fiegener sees substantial
evidence in his research of this rigidity and he believes it
contaminates the process of preparing CEOs. For example, his
findings revealed that involving new CEOs in strategic
planning is one of the least important preparatory activities
for family firm CEOs, much lower than nonfamily firm CEOs
rated this activity.
Fiegener believes planning business strategy should be one of
the more important activities new CEOs should experience.
Neglecting this function protects existing business
strategies so they can continue after the CEO retires, but it
also handicaps the new CEO who may not understand how these
strategies were formulated and will be unpracticed in
formulating new strategies. That's something to worry about.
Reference: Fiegener, Mark K., Bonnie M. Brown, Russ Alan
Price, and Karen Marie File (1996). Passing on Strategic
Vision. Journal of Small Business Management, July, 1996,
15-26.
Business Practice Findings, by James Larsen, Ph.D.
Passing the Torch
Researchers find reasons for concern in a study comparing CEO succession in family and nonfamily firms.