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Intergenerational succession in family firms in the Philippines
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Intergenerational succession in family firms in the Philippines
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Content
Intergenerational Succession in Family Firms in The Philippines
Maria Vanessa Rose L. Tanco
Rossier School of Education
University of Southern California
A dissertation submitted to the faculty
in partial fulfillment of the requirements for the degree of
Doctor of Education
May 2023
© Copyright by Maria Vanessa Rose L. Tanco 2023
All Rights Reserved
The Committee for Maria Vanessa Rose L. Tanco certifies the approval of this Dissertation
Emmy Min
Adrian Donato
Robert Filback, Committee Chair
Rossier School of Education
University of Southern California
2023
iv
Abstract
Most corporations in the world are family firms, employing the majority of the world’s
workforce and contributing the most to the world’s GDP, and yet the survival rate of family
firms is very low. While there are many reasons family firms fail, one of the most common
reasons is intergenerational leadership succession. This study uses the KMO gap analysis
theoretical framework to study the knowledge, motivation, and organizational influences that
affect intergenerational leadership succession in large family firms in the Philippines. Eleven
second and third generation family firm CEOs were interviewed in this study. Through the
interview responses, this study was able to come up with best practices and a succession plan
template that can be used by family firms that plan to undergo intergenerational leadership
succession in the future. Several areas for future research were also suggested including
interviewing the founders and/or predecessors, interviewing fourth and fifth generation family
CEOs, and studying how tacit, idiosyncratic procedural knowledge is acquired by the CEOs.
v
Dedication
To my mom. Thank you for believing in me more than I believe in myself. Your confidence and
love have allowed me to achieve things I never thought were possible.
To my dad. Thank you for trusting me to lead a family business and for showing me how a
leader should be.
To my brother. Thank you for being the best brother ever and for always being there when I need
you.
To my children, Chiara and Jett. You are my inspiration to do my best and be my best every day.
I hope that one day I can return the favor and inspire you to be the best versions of yourselves
too.
To my husband. Thank you for your love and patience throughout the years. Your love and
support mean the world to me.
To all of you. I love you all so much.
vi
Acknowledgements
I would like to thank my dissertation committee chair, Dr. Robert Filback, for his
guidance and mentorship throughout my dissertation journey. I would also like to thank my
dissertation committee members, Dr. Emmy Min and Dr. Adrian Donato, for their feedback and
insight.
vii
Table of Contents
Abstract ........................................................................................................................................... iv
Dedication ........................................................................................................................................ v
Acknowledgements ........................................................................................................................ vi
List of Tables .................................................................................................................................. ix
Chapter One: Introduction ............................................................................................................... 1
Context and Background of the Problem ............................................................................ 1
Purpose of the Study ............................................................................................................ 2
Research Questions ............................................................................................................. 3
Importance of the Study ...................................................................................................... 3
Mission and Goals of Family Firms .................................................................................... 4
Stakeholders for This Study ................................................................................................ 5
Overview of the Theoretical Framework and Methodology ............................................... 5
Definitions ........................................................................................................................... 5
Organization of the Dissertation .......................................................................................... 6
Chapter Two: Review of the Literature ........................................................................................... 8
Background on Family Firms .............................................................................................. 9
Family Versus Non-family CEOs ..................................................................................... 15
The Succession Process ..................................................................................................... 22
Theoretical Framework: Clark and Estes Gap Analysis .................................................... 36
Conclusion ......................................................................................................................... 56
Chapter Three: Methodology ........................................................................................................ 57
Research Questions ........................................................................................................... 57
Research Setting ................................................................................................................ 57
Participating Stakeholders ................................................................................................. 58
viii
Participants and Sample .................................................................................................... 60
The Researcher .................................................................................................................. 60
Instrumentation .................................................................................................................. 61
Interview Setting and Data Collection Procedures ............................................................ 61
Data Analysis ..................................................................................................................... 62
Trustworthiness ................................................................................................................. 62
Ethics ................................................................................................................................. 63
Limitations and Delimitations ........................................................................................... 63
Chapter Four: Results and Findings .............................................................................................. 65
Findings ............................................................................................................................. 65
Research Question 1: Knowledge Influences .................................................................... 66
Research Question 2: Motivational Influences .................................................................. 75
Research Question 3: Organizational Influences ............................................................... 80
Chapter Five: Suggested Recommendations ................................................................................. 89
Discussion .......................................................................................................................... 90
Recommended Strategies to Address KMO Influences .................................................... 95
Future Research ............................................................................................................... 104
Conclusion ....................................................................................................................... 105
References ................................................................................................................................... 108
Appendix A: Semi-Structured Interview Protocol ...................................................................... 129
Start of the Interview ....................................................................................................... 129
At the End of the Interview ............................................................................................. 130
ix
List of Tables
Table 1: Knowledge Influences, Types and Interview Assessment for Knowledge
Gap Analysis
45
Table 2: Motivation Influences, Types and Interview Assessment for Motivation
Gap Analysis
49
Table 3: Organizational Influences, Types and Interview Assessment for
Organizational Gap Analysis
55
Table 4: Demographic Information of Participants
59
Table 5: Assumed Knowledge Influences and Interview Data Findings
66
Table 6: Assumed Motivational Influences and Interview Data Findings
76
Table 7: Assumed Organizational Influences and Interview Data Findings
81
Table A1:
Interview Questions 130
1
Chapter One: Introduction
Ninety percent of businesses in the world are family firms (The Economist, 2015), but
fewer than two-thirds of them survive to the second generation of family leadership, and only
13% make it to the third generation (Ward, 2011). Leadership succession is a major reason that
many family firms fail (Chiang et al., 2021), particularly in cases of intergenerational succession,
where leadership is passed from one generation to the next (Ibrahim et al., 2001). Different
levers can positively or negatively affect the succession process, especially when the successor
starts as a student who is not actively working for the family firm, but eventually takes over the
most senior leadership position (Cater and Justis, 2009; Churchill and Hatten, 1987; Handler,
1990). The succession process can be a sensitive and emotional process for all stakeholders
(Chan et al., 2020), especially for the incumbent and successor, and it’s prone to a lot of
resistance and failure. But when handled correctly, completing this process can almost guarantee
a successful transition (Handler and Kram, 1988). This study examines the knowledge,
motivational, and organizational influences affecting intergenerational leadership succession,
through the eyes of second- or third-generation incumbent family business leaders who have
experienced the succession process. Using the resulting data, the study proposes a template for
developing a succession plan that family firms can use to plan and manage the leadership
succession process.
Context and Background of the Problem
The low survival rates for family firms—as Ward (2011) noted, only 13% survive to the
third generation—arise from both external and internal causes. External causes include selling
the family firm to an outside buyer willing to pay a premium, firm closure due to increased
competition, and difficulty dealing with customers and suppliers (Ward, 2011). But internally,
2
the biggest problem is leadership succession (Chiang et al., 2021) and the accompanying
resistance to succession at every level in the business (Handler and Kram, 1988). This resistance
may be driven by the incumbent’s unwillingness to give up his or her position, family
relationship issues or conflicts (Handler and Kram, 1988), or a lack of willing successors (Ward,
2011).
Parker (2016) defined the “willing successor” problem as “the dilemma facing family
owner-managers of how to increase the probability that offspring will take over and run the
business as a family business after the ownership and control has been transferred to them” (p.
1241). Although around 36% of current or incumbent family CEOs say that a family member
will take over their family firm (Grant Thornton, Family Business Australia, and Family
Business New Zealand, 2021; Calabro and Valentino, 2019), a worldwide survey of 28,105
university students with family businesses found that only 6.9% plan to manage their parents’
business immediately after graduation and only 12.8% plan to manage their family business five
years after graduation (Zellweger et al., 2012). This shows a stark difference between
incumbents’ and potential successors’ intentions. Grant Thornton et al. (2021) identified several
barriers to transition, most urgently the availability, competence, and interest of potential
successors.
Purpose of the Study
Given that leadership succession is one of the biggest challenges facing family firms, it is
significant that few family firms intentionally plan for succession. In one study only 30% of
family firms reported having a succession plan (Calabro and Valentino, 2019), and another study
of 2,802 key decision-makers in family firms found that “only 15% of family firms have a ‘plan’
for their succession process” (PWC, 2016, p. 05). The purpose of this study is to identify the
3
knowledge, motivation, and organizational influences that help or hinder leadership succession
in family firms, specifically large family firms in the Philippines. The resulting findings can be
used to develop recommendations and resources for succession planning among family firms that
are going through or planning to go through an intergenerational succession process.
Research Questions
To pursue this goal, the study addresses three main research questions:
1. What knowledge influences affect intergenerational leadership succession in large
family firms in the Philippines?
2. What motivational influences affect intergenerational leadership succession in large
family firms in the Philippines?
3. What organizational influences affect intergenerational leadership succession in large
family firms in the Philippines?
Importance of the Study
Identifying these influences is important because of the impact family firms have on
national and global economies. About 90% of the world’s corporations are family firms (The
Economist, 2015), employing about 60% of the global workforce (Neckebrouck, 2018) and
contributing to about 70% of the global GDP (Osunde, 2017). Family firms are known for their
long-term orientation, a reputation that has helped them outperform non-family firms globally
since 2006: family firms trade at an 11% premium over non-family firms, they have higher
revenues and profits, and they have less debt (Klerk et al., 2018). The Philippines, the research
site for this study, has the 11th-largest population of family firms in the world (Klerk et al.,
2017), with 83.2% of the publicly listed companies being family firms (Fan et al., 2011) and the
top 15 Philippine family corporations controlling 47% of the country’s GDP (The Economist,
4
2015). Several studies have also shown that, even in times of crisis, family firms have better
profitability, better job security, and less debt than non-family firms (Amore et al., 2021;
Bessanini et al., 2013; Grant Thornton et al., 2021). More to the point, succession-ready or
transition-ready family firms are more resilient in times of crisis, with succession-ready firms
seeing more increases in revenues than non-transition-ready firms in the 12 months of the
COVID-19 pandemic (Grant Thornton et al., 2021). Furthermore, considering how few family
firms have a succession plan in place (Calabro and Valentino, 2019), it is important to identify
the knowledge, motivation, and organizational factors that affect intergenerational leadership
succession, with the long-term goal of creating a template for developing a succession plan.
Mission and Goals of Family Firms
The mission of family firms is to ensure the survival of the family business by keeping
the business within the family. Among family firm incumbents (i.e., current senior leaders), 60%
reported that they planned to transition their business to a family member (KPMG Enterprise et
al., 2018), but only 15–30% of family firms have a succession plan (Calabro and Valentino,
2019; PWC, 2016; Seidman College of Business Family-Owned Business Institute, 2014). The
majority of the incumbent CEOs represented in the family firm’s literature are 50 to 55 years old
(Calabro and Valentino, 2019; KPMG Enterprise et al., 2018) and plan to retire after the age of
60 (Calabro and Valentino, 2019; KPMG Enterprise et al., 2018), giving family firms five to ten
years to complete the whole succession process. Taking into consideration the time it would take
for family firms to implement a succession plan, the succession planning template proposed in
this study uses a 2-year implementation timeline.
5
Stakeholders for This Study
To evaluate the knowledge, motivational, and organizational influences that affect
intergenerational succession in family firms, the most significant stakeholder groups are the
incumbents and the successors. This study will focus on incumbent second or third generation
CEOs, a group chosen because they represent a combination of the incumbent and successor
groups. Specifically, they have already experienced the succession process as a successor and are
in position to guide the next potential successor into a future leadership role. This puts them in
the best position to talk about the knowledge, motivational, and organizational gaps they have
experienced during their firms’ intergenerational succession processes.
Overview of the Theoretical Framework and Methodology
The theoretical framework used in this study is Clark and Estes’ (2008) gap analysis,
which focuses on knowledge, motivational, and organizational (KMO) factors that influence
performance, in order to find the root causes and meaningful solutions to address relevant gaps.
This model was chosen because the low survival rates of family firms from generation to
generation shows that there is a gap in the intergenerational succession process, and because the
succession planning template can potentially fill these gaps. Data was gathered using qualitative
methods, specifically through 11 semi-structured interviews conducted with CEOs of large
family corporations in the Philippines.
Definitions
This section will define and contextualize several key terms for the study.
Family Firms
6
Firms where at least one-third of the outstanding capital stock of the company is owned
and controlled by one person or one family (Barth, 2004), and where the highest management
position is occupied by a member of that controlling family.
Family Business Leader/Incumbent
A person that is currently the highest-ranked family member in the family firm (Calabro
et al., 2021).
Intergenerational Succession
The transfer of the leadership role from one generation to the next generation, usually
from parent to offspring (Ibrahim et al., 2001).
Succession/Transition Plan
A document that details how the incumbent will transition out of the family business
leader role and pass it to the next generation. It also details the retirement plan for the incumbent,
including what he or she will do after retirement and how his or her finances will be taken care
of (Langsford et al., 2021).
Succession/Transition Process
The process by which firm management and sometimes ownership is passed from one
generation to the next generation of family members (Walsh, 2015).
Successor
The family member who will replace the founder or incumbent during the succession
process to lead the family firm (Ramadani et al., 2017).
Organization of the Dissertation
Five chapters comprise this study. This chapter clarified the background and purpose of
the study, described its research questions and significance, identified the mission and goals of
7
family firms, characterized the stakeholders, defined the methodological framework, and
explained the important terms used in the study. Chapter 2 provides a review of the literature
related to the study, including a brief history and background of family firms in the world, in
southeast Asia, and in the Philippines; the differences between family and non-family CEOs; the
stages of the succession process; and the KMO gap analysis theoretical framework. Chapter 3
describes the methodology including the research setting, sample and participants, data
collection procedures, and data analysis. Chapter 4 describes the data collected, reviews the
results, and shows how the data was assessed and analyzed. Chapter 5 details the
recommendations, based on the data and literature, for addressing the gaps in intergenerational
leadership succession in family firms, then gives recommendations for further research.
8
Chapter Two: Review of the Literature
Family firms are vital to the global economy. A study conducted by EY and the
University of St. Gallen showed that in 2021, the top 500 family businesses in the world
generated $7.28T in U.S. dollars in revenue and employed 24.1 million people (Robertsson et al.,
2021). Worldwide, about 90% of all corporations are family firms (The Economist, 2015),
employing about 60% of the global workforce (Neckebrouck, 2018) and contributing to about
70% of the global GDP (Osunde, 2017). The top family firms are also known for their longevity:
75% of the top 500 largest family corporations are over 50 years old with the oldest being in
business for more than 400 years (Robertsson et al., 2021). Family firms are also known to
perform better than non-family firms as in general, they trade at a higher rate, have higher
revenues and profits, and have less debt (Klerk et al., 2018). While the impact of family firms on
the global economy cannot be denied, complex family dynamics likewise impact each of these
firms.
The family component of leadership succession, which includes values, relationships, and
goals, can be an advantage or disadvantage to family firms depending on how they handle it
(Walsh, 2011). As noted earlier, although around 36% of current family CEOs expect a family
member will take over the family firm (Grant Thornton et al., 2021; Calabro and Valentino,
2019), a worldwide, large-scale survey of 28,105 university students with family businesses
found that only 6.9% planned to manage their parents’ business after graduation (Zellweger et
al., 2012). Similarly, Grant Thornton et al. (2021) identified the most problematic barriers to
family succession as the availability, competence, and interest of potential successors.
This chapter reviews the relevant literature relating to family firms and succession, as
well as the theoretical framework which will be used in the study. First, it considers the
9
background of family firms, focusing on the Philippines. The Philippines is the perfect setting for
this study as it has the 11th greatest number of family firms in the world (Klerk et al., 2017),
including five of the top 500 family corporations worldwide (Robertsson, 2021). Second, given
the difficulty of finding the right family successor, this chapter compares the advantages and
disadvantages of having a family member versus non-family member as the CEO of a family
firm. Third, it dives into the succession process and examines studies of the incumbent and the
successor at each stage of the succession process. Finally, this chapter takes a closer look at
Clark and Estes’ (2008) gap analysis model, the study’s primary theoretical framework, and
explores how knowledge, motivation, and organizational factors affect succession in family
firms.
Background on Family Firms
Family firms make up the majority of firms in the world, including in Southeast Asia and
in the Philippines, and they have a significant impact on national, regional, and global
economies. Most of the top corporations in the world today began as a family business
(Bjornberg et al., 2015), and more than 90% of the companies in the world, both big and small,
are still family-run businesses (The Economist, 2015). According to a study by McKinsey &
Company, although fewer corporations are owned by a single family in developed countries, in
emerging markets, around 60% of private companies with revenues of $1B in U.S. dollars or
more were family-owned businesses, as of 2010. The same study forecasts that this category of
firms will grow substantially by 2025, reaching 5,608 total firms representing about 40% of top
global corporations to (Bjornberg et al., 2015).
10
Family Firms in Southeast Asia
In Southeast Asia, 80–90% of large corporations are family-owned (Bjornberg et al.,
2015). A 2016 study by the Boston Consulting Group (BCG) shows that 54% of the top 200
Southeast Asian companies (by revenue) are family firms, and that family corporations in
Southeast Asia outperformed non-family firms in revenue growth by 4% from 2005 to 2013
(Bhalla et al., 2016). Businesses in Southeast Asia have many things in common: employment
tenures are usually short, financing is usually through banks, interpersonal relationships based on
trust are very important, and most companies are owned by either a family or the state (Witt,
2019). Additionally, large private corporations in the ASEAN-5, which is made up of five of the
10 Southeast Asian countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand),
have four similar elements:
Their ownership and control are concentrated among a handful of prominent business
families; most of these families have Chinese origins; each family owns a collection of
legally distinct firms that collectively form a business group; and the owning families
have formed extensive connections with politicians and bureaucrats. (Samphantharak,
2019, p. 13-1)
Given these similarities, it is particularly important that the top families in Southeast Asia
hold substantial wealth in their nations (The Economist, 2015). The same report shows that the
top 15 families control significant assets: in Malaysia, the top 15 families control assets worth
76% of their country’s GDP, and the percentages are 48% for Singapore and 47% for the
Philippines. It is also interesting to note that despite each countries’ laws and regulations
protecting indigenous businesses, the most successful firms in postcolonial Southeast Asia are
11
led by ethnic Chinese businessmen—they are usually from Fujian or Guangdong, and started
their careers as either poor unskilled immigrants or traders and agriculturalists (Mackie, 1992).
According to Fan et al. (2011), many of the publicly listed companies in Southeast Asia
are still family-owned and controlled. with the lowest proportion in Malaysia (39%) and the
highest in the Philippines (83.2%). Samphantharak (2019) compared the ownership of the top
200 publicly listed corporations per ASEAN-5 country before and after the 1997–98 Asian
financial crisis, and found that although the four other countries either had similar or lower levels
of family-owned firms after the crisis, family-owned firms in Philippines started at 45% of the
publicly-listed companies (Claessens et al., 2000) and reached 77% by 2008 (Carney and Child,
2013).
History of Family Firms in the Philippines
The development of family firms in the Philippines was greatly influenced by its Spanish
and American colonizers, as well as by Chinese immigration.
Spanish Colonial Period
Spain, which colonized the Philippines for more than 350 years from 1521 to 1898, has
greatly influenced the way Filipinos act, both culturally and economically. The earliest
Philippine businesses, particularly family firms, can be traced back to the Spanish colonial era in
the 18th century with the development of large-scale agriculture, which resulted in a few families
holding large tracks of land (Batalla, 2010). The oldest corporations in the Philippines were
owned by landed Spanish mestizos, Chinese mestizos, or traditional oligarchs (Palanca, 2017),
whose businesses typically started in agriculture and trade (Brown, 2006). The agricultural
industry created an entire economy as natives, bankers, traders, and other professions also grew
as a result of its success (Batalla, 2010). It was during this time that families such as the Roxases
12
and Barrettos started their businesses. Domingo Roxas was the patriarch of several elite families,
including the Zobel-Ayala, Roxas, and Soriano families (Batalla, 2010). Ayala Corp., the oldest
and still one of the largest family businesses in the Philippines, was founded in 1834 and is still
controlled and managed by the Zobel-Ayala family (Nikkei Asia, 2022). Enrique Barretto is the
founder of San Miguel Brewery (Batalla, 2010), which began as La Fabrica de Cerveza de San
Miguel in 1890, when “it received the Royal Grant from the Spanish king to brew beer in the
Philippines” (San Miguel Corporation, 2022). San Miguel Corporation is still operated as a
family business and produces the majority of beer in the Philippines.
American Colonial Period
During the American period, which lasted from 1898 to 1946, the Philippines still
focused on agriculture and trade, but emphasized commodities important to the American market
such as coconut, tobacco, and most notably sugar (Batalla, 2011). In 1916, two events allowed
the burgeoning of Filipino family firms: the Philippine Autonomy Act, which allowed Filipinos
to take government positions, and the creation of the Philippine National Bank (PNB), a majority
government-owned bank which provided funding to local manufacturing firms (Batalla, 2011).
The PNB provided long-term loans to ten local producers to build sugar centrals that were
mostly owned and controlled by prominent and landed Filipino families, thereby admitting
Filipinos into an industry that had been fully dominated by foreigners (Nagano, 1993).
Post-colonial Period and the Rise of Chinese-Filipinos
For centuries Filipinos of Spanish descent dominated Philippine businesses, but over the
past three decades, Filipinos of Chinese descent have started to take over the Philippine economy
(Palanca, 2017). In the Philippines, these Chinese mestizos are differentiated from ethnic
Chinese: Chinese mestizos are Chinese Catholics who married into Philippine society, are
13
considered Filipinos, and are allowed to own land, whereas ethnic Chinese are Chinese
immigrants who mostly work as traders (Samphantharak, 2019). These ethnic Chinese did not
come from generations of inherited land and wealth but started as poor immigrants with rags to
riches stories (Koike, 1993). Although ethnic Chinese have been trading in the Philippines since
the time of the Spanish colonial period (Santiago, 2000), they often encountered political
pressures that either did not allow them to practice their trade or made it very difficult for them
to gain Filipino citizenship, such as the residency laws during the Spanish period
(Samphantharak, 2019) and the Chinese Exclusion Act during the American colonial period
(Palanca, 2017).
In 1946, the Philippine Trade Act or Bell Trade Act allowed free trade between the
Philippines and the USA, giving Americans the same rights as Filipinos in terms of business
engagement, including in industries that used to be reserved for Filipinos (Batalla, 2011). The
Bell Trade Act caused a backlash against foreign ownership and created a strong sense of
nationalism in the Philippines. One outcome was the Retail Trade Nationalization law, which
was meant to eliminate Chinese traders, but resulted in the naturalization of many Chinese
(Batalla, 2011), especially with the Supreme Court granting Filipino citizenship based on jus
soli, or place of birth (Aguilar, 2011). It also facilitated the diversification of Chinese traders into
other businesses such as manufacturing (Batalla, 2011). Several family firms got their start
during this post-colonial time. The strong nationalistic movement also caused Americans to
divest from their holdings in the Philippines (Batalla, 2011), allowing the Lopez family (for
example) to purchase Manila Electric Company (MERALCO), the leading electric power
distribution company in the Philippines, from its American owners. Similarly, John Gokongwei
founded Universal Corn Products in the 1950s, initially processing corn into cornstarch and later
14
vertically integrating into the poultry and swine business (Gutierrez and Rodriguez, 2013). The
largest conglomerate in the Philippines, Shoemart (SM), was founded by Henry Sy, Sr. as a shoe
manufacturer and retailer (Gutierrez and Rodriguez, 2013).
It was also during this time that President Ferdinand Marcos passed the Mass
Nationalization Law in 1975, allowing Filipino Chinese to gain citizenship (Palanca, 2017).
Martial law, which was enacted in 1972, also changed the economic environment of the
Philippines, as many industries were nationalized and the crackdown on traditional oligarchs
allowed ethnic Chinese Filipinos to have equal rights (Palanca, 2017). The last 30 years or so
have seen a steady increase in the number of top businesses owned and controlled by Filipino
Chinese families. In the 2021 Forbes Magazine annual report of the top ten richest people in the
Philippines, seven of the top families represented are of Chinese descent, a consistent trend in the
Philippines since at least 2006 (Karmali and Ho, 2021). These ethnic Chinese families own
diversified business portfolios that include retail, banking, real estate, food, consumer products,
and many more industries.
Family Businesses in the Philippines Today
Today, all of the top ten richest people in the Philippines own, control, and manage
family businesses—representing an average net worth of $4.9B in U.S. dollars as of 2021
(Karmali and Ho, 2021). In fact, everyone mentioned in the top 50 are either founders or
members of the founder’s family. Research by EY and University of St. Gallens found that five
of the top 500 family firms in the world are from the Philippines (Robertsson, 2021). Most of
these families own several corporate entities that form a business group with a diversified
portfolio of companies. The Philippines’ richest family, the Sy siblings (children of Henry Sy,
Sr.), own businesses in real estate and mall operations, banking, education, retail, among many
15
more areas. The Gokongwei siblings, children of John Gokongwei, ranked fourth; they own
businesses in real estate and mall operations, food manufacturing, hotel management,
telecommunications, etc. The Ayala-Zobel family, ranked number five, owns businesses in real
estate and mall operations, banking, education, telecommunication, and more. The rest of the
firms on the top ten list are also family-owned and controlled firms with diversified businesses,
showing that family firms dominate the Philippine business landscape (Karmali and Ho, 2021).
Many family firms in the Philippines are already being managed by a second generation
family member or beyond. However, studies have shown that the younger generation is less
interested in running a family firm for a long time. A study by Calabro and Valentino (2019)
showed that 78% of millennial CEOs plan to retire before they are 50 years old. The same study
documented that Generation X and millennial CEOs believe that their firm’s next CEO will not
be a family member (Calabro and Valentino, 2019). Given this data, it is important to explore the
option of having a non-family CEO managing the family firm.
Family Versus Non-family CEOs
There are two types of successors in family firms: a family CEO is a descendant or a
family member of the controlling family, while a non-family or professional CEO is an outsider
and not a member of the controlling family (Kang et al., 2021). Previous studies comparing the
performance of family firms under both types of CEOs overwhelmingly show that a family firm
is better off with a non-family CEO (Chang and Shim, 2015; Chung and Luo, 2013; Kang and
Kim, 2015; Khanin, 2019; Lien and Li, 2014; Miller et. al, 2014; Minichilli et al., 2016), though
a few studies suggest that family firms are better off with family CEOs (Kang et al., 2015;
McConaughy, 2000). Hiebl and Li (2018) reviewed 26 articles that analyzed the effect of
professional management on the performance of family firms. Of the reviewed studies, 17
16
documented improved performance, six saw a decrease in performance, and three did not find an
increase or decrease in performance. However, the impact of performance premiums under a
non-family CEO is moderated by the concentration of ownership, the involvement of the family
members in the firm, the firm’s life cycle stage, and the economy.
Research has also shown that family CEOs bring other advantages to the firm, such as
longer tenure and lower compensation, even though those outcomes are not directly tied to firm
performance (Chen et al., 2013; Hiebl and Li, 2018; McConaughy, 2000). Other researchers
pointed out that although most studies concentrate on family CEOs versus non-family CEOs,
professionalization does not necessarily mean hiring a professional CEO. There are many other
ways that a family firm can professionalize their management practices (Dekker et al., 2015;
Hiebl and Li, 2018; Polat, 2020; Razzak et al., 2021).
The Case for Non-family CEOs
On average, research has shown that non-family CEOs or professional CEOs outperform
family CEOs. A study by Chung and Luo (2013) of 573 publicly listed Taiwanese firms, with
data spanning 4,316 firm years, showed that outside succession outperforms family succession in
terms of return on assets (ROA). Chang and Shim (2015) evaluated 945 family firms listed in
Japanese stock market exchanges to show that transitioning from family CEOs to professional
CEOs improved firm performance, but not transitioning from one family CEO to another.
Similarly, Kang and Kim (2015) found similar results after studying 1,298 firm years of Korean
conglomerates. Khanin et al. (2019) surveyed 1288 family firms from 11 economically advanced
countries and estimated that choosing a non-family CEO increases firm revenue by 32%
compared to choosing a family CEO. Having a non-family CEO not only enhanced firm
performance but also firm operations, firm monitoring (performance appraisal and
17
improvement), and talent management, thereby increasing the firm’s probability of being a better
firm by 18% (Khanin et al., 2019).
There are several reasons why professional CEOs perform better. Chung and Luo (2013)
found that while family CEOs were seen as more traditional with more firm knowledge,
outsiders were seen as more professional, more diverse in their experiences, more able to lead
change, and more open to new perspectives and opportunities, which are especially important in
emerging markets. Chang and Shim (2015) stated that the performance improvement seen when
transitioning from a family to professional CEO is due to professional CEOs having “superior
management talents” (p. 1313) and coming from a bigger talent pool, which prompts family
firms to look to them when firm performance is bad.
The size of the family’s shareholdings in the firm has also been shown to affect the
performance of professional CEOs, although that effect differs from study to study. Chung and
Luo (2013) found that although professional CEOs perform better than family CEOs regardless
of the size of family ownership, family CEOs tend to perform better when the family owns more
shares of the firm. Similarly, Chang and Shim (2015) also found that when a professional CEO
succeeds a family CEO, increases in firm performance are more pronounced when the family has
a large share in the firm. In contrast, a study of 893 family-controlled Italian firms with revenues
of more than 50 million Euros showed that non-family CEOs perform better when there are
several owners overseeing them, compared to being monitored by only one major owner (Miller
et al., 2014). Minichilli et al. (2016) studied the performance of 219 industrial publicly listed
Italian family and non-family companies during an eleven-year period and found that, similar to
Miller et al. (2014), during normal times, non-family CEOs with dispersed or more major owners
perform better. Lien and Li (2014) analyzed 205 publicly listed Taiwanese firms over 10 years to
18
see whether family ownership and control, as well as having the appropriate corporate
governance improvement (i.e., professionalizing by hiring a non-family manager), impacts firm
performance negatively or positively post-IPO. The study found an inverted U-shaped curve
whereby firm performance reached its peak when family control exceeded 20.5%, which is the
criteria for effective corporate control of a firm, and then dropped from there as family
shareholding increased (Lien and Li, 2014).
Factors Affecting Non-family CEO Performance
Although some studies have shown that professionally run family firms perform better
with more concentrated ownership while other studies document better firm performance with
more dispersed ownership, they all agree on the importance of monitoring the professional CEO,
increasing ownership oversight, and lowering agency costs. Family CEOs, on the other hand, are
not affected by an increase or decrease in ownership oversight. This could be because family
CEOs are already concerned with the socio-economic wealth of the family and are already
balancing that wealth with the firm’s performance (Miller et al., 2014). Overall, family firms
want to have the advantages of professional management, control agency costs, and still protect
their socio-economic wealth (Chang and Shim, 2015). This can be seen in the study of Kang and
Kim (2015), who found that although transitioning from non-family to family CEOs does not
improve firm performance, it is usually larger, publicly-listed companies that switch from non-
family CEOs to family CEOs. To add to this, Lien and Li (2014) found that block shareholders
(shareholders with substantial equity holdings) fear that professional managers may not act in the
best interest of the shareholders and may be threatened by professionalization of the firm. Due to
this, preserving the concentration of ownership of the controlling family, together with block
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shareholders and professional management, is the preferred governance strategy for positive
post-IPO firm performance (Lien and Li, 2014).
Family involvement in the firm also affects the performance of professional CEOs:
professional CEOs perform better when the family is less involved in managing the business
(Chang and Shim, 2015; Miller et al., 2014). Specifically, Chang and Shim (2015) found that
professional CEOs who take over a family firm perform better when the family members do not
oversee the professional CEO. Miller et al. (2014) found that professional CEOs perform better
as a sole CEO and worse if they have a co-CEO that is a member of the family. Having non-
family managers is only beneficial if they are given leeway to manage the business without
interference from the family owners (Dekker et al., 2015).
Studies have also identified other factors that affect the performance of a professional or
non-family CEO such as the economy, the stage of the firm’s life cycle, and the firm’s industry.
Minichilli et al. (2016) found that although family and non-family firms perform relatively the
same financially over time, family firms tend to perform better during times of crisis. The study
also shows that although non-family CEOs perform better than family CEOs on average, family
CEOs with many major owners improve their performance during times of crisis, while non-
family CEO performance either decreases a lot or remains steady, depending on whether
ownership is less concentrated or highly concentrated, respectively (Minichilli et al., 2016).
Khanin et al. (2019) found that a non-family CEO has bigger advantage over a family CEO
during the firm’s growth stage, but the advantage decreases after a certain point in the firm’s life
cycle. Finally, Chung and Luo (2013) found that compared to other industries, non-family CEOs
performed best in the high-tech industry. They still had an advantage in other industries, but the
effect was not as pronounced.
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The Case for Family CEOs
In contrast to the studies above, Kang et al. (2021) found that transitioning from family to
non-family CEOs is the only type of CEO turnover that leads to a decline in stock price. Kang et
al. (2021) studied 825 firms with a total of 8,109 firm years listed on the Korea Exchange, and
found that all other CEO turnovers (family to family, non-family to family, and non-family to
non-family CEOs) did not affect stock price. This is because changing from a family CEO to a
professional CEO usually signals a decline in profitability and that the family wants to “dump”
to a non-family CEO (Kang et al., 2021). When a firm is doing well but there is still a change
from a family to a non-family CEO, this signals that the family CEO is pursuing private benefits
and that the firm will no longer have responsible management (Kang et al., 2021).
Several studies have shown that engaging a family CEO is beneficial in other ways. A
study by McConaughy (2000) that examined 82 publicly listed family firms documented a
difference between the salary and incentives of family and non-family CEOs, with family CEOs
being paid less and rewarded less for performance. Despite this difference, family CEOs
performed just as well as non-family CEOs with similar profit and operating margins
(McConaughy, 2000). Another advantage of a family CEO is that they generally have longer
tenures, as family firms tend to look at family CEOs on a longer time horizon than non-family
CEOs, therefore giving them more time to adjust and improve (Chen et al., 2013). The longer
tenure can also be due to the fact that professionals are seen as temporary fillers for the position
until a suitable family member is found and succession is completed (Chen et al., 2013; Hiebl
and Li, 2020).
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Professionalization of the Family Firm Aside From the CEO
Dekker et al. (2015) noted that “professionalization” in family businesses is usually
defined as the hiring of an external manager or non-family manager in lieu of family members
managing the firm. However, they point out, the positive or negative effects of
professionalization cannot be attributed to just the hiring of a non-family member: other ways a
family firm can professionalize include “diminishing family involvement in governance systems,
increasing usage of human resource control systems, and decentralizing organizational authority”
(Dekker et al., 2015, p. 530). Razzak et al. (2021) similarly defined professionalization as a
multidimensional, firm-specific resource that includes formal managerial systems and processes.
Razzak et al. (2021) specifically demonstrated that family commitment, when the family
commits resources to the firm and aligns the family’s goals with the firm’s goals, increases firm
performance on its own. But when undertaken together with professionalization, it increases firm
performance even more. Polat (2020) expanded Dekker et al.’s (2015) definition of
professionalization to include the professionalization of both family and non-family employees,
as well as professionalization of the work environment and organizational culture. Khanin et al.
(2019) noted that family CEOs usually find ways to lessen the professionalization gap through
better hiring practices, research and development, and other strategies, showing that there are
ways to professionalize apart from simply hiring a professional CEO.
While some family firms choose to hire a non-family CEO to manage their family
business, the majority of family firms still prefer to transition to another family CEO (KPMG
Enterprise et al., 2018). The next section will show how the succession process plays an
important role in intergenerational succession.
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The Succession Process
One of the major reasons that family firms fail is a lack of succession planning. Calabro
and Valentino (2019) showed that 70% of family firms do not have a succession plan.
Succession planning is defined as “the process of identifying very important positions in the
organization and creating a talent pipeline, by preparing employees to fill vacancies in their
organization as others retire or move on” (National Health Institute, n.d.). In the case of family
firms, this is more difficult because leadership talent may not be found among immediate family
members (Miller et al., 2014). Succession planning or creating a succession plan is also
challenging because family members may have conflicting goals, values, personalities,
expectations, etc. (Walsh, 2011). Parker (2016) described this as the “willing successor”
problem, highlighting the lack of next-generation family members who are able and willing to
take over a family firm once the incumbent retires. Due to this problem, families have to work
even harder to ensure that a succession plan is in place.
Succession planning is a whole process and not a one-time event (Cater and Justis, 2009;
Churchill and Hatten, 1987; Handler, 1990). According to Francis (1993), succession planning is
a progressive process that requires the incumbent family CEO to create a plan that ensures the
firm’s success after he or she retires, and more importantly to implement that plan. Several
studies have talked about a four-stage process of leadership succession in family firms
(Cardieux, 2007; Cater and Justis, 2009; Churchill and Hatten, 1987; Handler, 1990). While
there is a slight difference in the first stage of the process, where the successor is either still a
student (Cater and Justis, 2009) or has no role in the family business (Churchill and Hatten,
1987; Handler, 1990), the rest of the stages are highly similar. The four stages are as follows:
1. Before the successor joins the firm and the incumbent is the sole leader of the firm.
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2. When the successor joins the firm and is learning the ropes.
3. When the successor is fully immersed in the firm and has been given bigger
responsibilities.
4. When the successor takes over as leader of the firm.
Cardieux (2007) interviewed predecessors and successors of Canadian family firms that
successfully transitioned, and found that succession is a complicated process where the roles of
the incumbent and successor evolve at each stage. As both the incumbent and the successor are
the most important players in the succession process, it is important to follow their journey
through the different stages and see how their relationships, feelings, and roles change from stage
to stage.
Stage 1
The first stage in the succession process happens before the successor joins the firm. The
incumbent is the sole entrepreneur or leader in the business and the successor either has no role
in the business or is still a college or university student (Cater and Justis, 2009; Churchill and
Hatten, 1987; Handler, 1990). This is also called the “initiation” stage (Cardieux, 2007), and in
some cases the successor is first introduced into the family firm as early as childhood.
Building Positive Incumbent-Successor Relationships
At this stage of the process, the incumbent–successor relationship is that of a parent and
child. If this relationship is positive, it sets the stage for the successor’s interest in joining the
family firm. Studies have shown that a founder or incumbent that plans to pass the family
business onto their successor should plan for succession early on, starting by developing a good
and positive relationship when the successor is still a child (Cater and Justis, 2009; Humphrey et
al., 2021). Cater and Justis (2009) did case studies of six parent-child relationships in family
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firms and observed that developing trust and respect in the family’s home life was the starting
point for carrying that positive relationship to adulthood. Le Breton-Miller and Miller (2015)
likewise found that family homes filled with love, where conflicts are properly resolved, lead to
stronger and more solid family relationships. When parents spend quality time with their children
(Le Breton-Miller and Miller, 2015), children associate even simple day-to-day events like
driving to work or bonding with their parents with positive feelings, even later in life (Cater and
Justis, 2006). This quality time also encourages children to grow up to be individuals who care
for and support each other, both inside and outside the business (Le Breton-Miller and Miller,
2015). These types of experiences also shape children’s personalities, giving them helpful
attributes for later professional success. However, parents and children who have negative
relationships end up negatively affecting their business because of this relational strain. (Le
Breton-Miller and Miller, 2015).
Emotions Play a Big Role
Studies have also shown that a successor’s decision to join the family firm is an
emotional decision, and that parental support (starting from childhood) plays a large part in the
intention to join the family firm (Chan et al., 2020; Jayantilal et al., 2016). Jayantilal et.al. (2016)
found that when family members are closer to each other, children have higher emotional costs
when they go against their parents’ wishes. In these cases, if a founder takes the initiative to
choose a successor, he will more likely be successful in having the chosen successor take over
the firm (Jayantilal et al., 2016). Chan et al. (2020) studied a total of 242 second and third
generation Filipino successors and found that a successor’s decision to join the family business is
more an emotional decision rather than a rational one. The study also found, just like Jayantilal et
al. (2016), that long-term parental encouragement increases the children’s intention to join the
25
family business. By contrast, parents who use psychological control on their children (i.e.,
parents that are manipulative and controlling) often create “negative feelings toward the family
business” (Chan et al., 2020, p. 472) and therefore push children away from the family firm
(Chan et al., 2020).
Learning and Knowledge Acquisition
Because parents are their children’s first teachers, children in family firms can acquire
business knowledge early in life, such as during conversations at the dinner table (Churchill and
Hatten, 1990) or when talking shop (Handler, 1994). In these settings, parents can productively
spend time with their children and talk about the intricacies of their family business. These
conversations not only teach the child about the business but also instill values like stewardship,
a positive attitude, and developing the skills needed to join the family firm (Le Breton-Miller and
Miller, 2015). Parents and grandparents can also lead by example. Le Breton-Miller and Miller
(2015) gave the example of a 70-year-old billionaire who talked to his grandchildren about their
business and answered their questions during mealtimes, all while exuding the values that he
believes are important to the family firm, such as hard work and humility. This education can
easily continue during formal family gatherings and in school (Le Breton-Miller and Miller,
2015).
School life is another important factor at this stage of the succession process. Ahrens et
al. (2019) states that successors are expected to have a university degree, but a high-quality
education, including specific courses that are relevant to the needs of the family firm, is
important for a successful succession. Successors with university or college degrees have easier
transitions, have better performance after succession, and gain more confidence from
26
stakeholders (Le Breton-Miller et al., 2004). Indeed, according to Tatoglu et al. (2008),
education is used by family firms to select potential successors who have yet to work in the firm.
In summary, Stage 1 of the succession process happens before a successor joins the
family firm. At this stage, the positive relationship between the incumbent and potential
successor plays a very important role in creating interest in joining the firm. If the parent-child
relationship is positive, featuring love, support, and quality time, and if the parent has actively
taught the child the right values and introduced the family firm early on, the child has a higher
likelihood of joining the family firm in the future. Once the successor actually starts working in
the firm, the second stage begins.
Stage 2
The second stage of the succession process, which Cadieux (2007) calls the “integration”
stage, is when the successor starts working in the firm. The incumbent is still the leader but the
successor comes in to help. Due to the introduction of the business into the incumbent-successor
relationship, it evolves into one that is more mature, going from parent-child to superior-
subordinate (Churchill and Hatten, 1987). It is during this stage of the process that the
incumbent’s role changes from the sole entrepreneur to what is known as the “monarch,”
“having preeminent power over other family members” (Handler, 1990, p. 45) and “unable to
even temporarily relinquish power” (Litz, 2012, p. 123). A good incumbent-successor
relationship at this stage, which includes a good working experience for the successor, will
determine how engaged and motivated the potential successor will be in the firm.
The Incumbent-Successor Relationship
Often, the incumbent has a hard time transitioning out of the parent child-relationship
during this stage. As a result, the successor may still be treated like a child and thus given small
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and easy tasks (Handler, 1992). This stage is the most fragile as dissatisfaction and lack of
commitment are very prevalent among successors, along with conflicts between the incumbent
and successor (Handler, 1990; Litz, 2012). Both factors contribute to preventing intra-family
succession (De Masis et al., 2008). For successors, dissatisfaction and lack of commitment stem
from the type of responsibility they are given, especially if they are limited to one aspect of
operations or to simply being an assistant to the incumbent (Handler, 1990; Litz, 2012). Handler
(1990) conducted in-depth interviews with 32 next-generation successors and found that at least
50% of them were dissatisfied with the roles they had in the family business, stating that they
were doing work that they didn’t like or being treated like a “messenger boy” or “soccer ball” (p.
45). Litz (2012) describes the successor’s job at this stage as boring, frustrating, and unfulfilling,
doing just the work that is requested by the incumbent. At this stage of the succession process,
Litz (2012) points out, the “double bind” theory also affects the incumbent-successor
relationship. The double bind theory was first introduced by Bateson et al. (1956) to describe a
no-win situation for children who are constantly given contradictory messages by their parents.
In the context of family firms, successor children are caught in two double binds: first, their
parents want them to follow their desires but also make their own mark; and second, the children
are frustrated with their situations and yet do not have a better alternative than working in the
family firm (Litz, 2012).
Incumbent Support
Le Breton-Miller and Miller (2015) recommended several ways in which an incumbent
can support a successor’s development, and precipitate his or her interest and engagement, early
on. These include a management training program where junior family members rotate through
the different departments of the business, mentorship and coaching from experienced employees
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and senior family members, and board apprenticeships where younger family members can learn
from both senior family board members and independent directors (Le Breton-Miller and Miller,
2015). Successors who are interested in the business, who are given more responsibilities, and
who have a high sense of ownership tend to be more satisfied and more motivated to work in the
business (Handler, 1992), trends incumbents must consider when planning for succession.
Incumbents must also account for the successor’s life stage, as one’s family and career needs and
priorities might be different at each stage (Handler, 1992).
Garcia et.al. (2019) reviewed literature related to career development, organizational
behavior, and family businesses, and found that perceived parental support—where parents help
the child through emotional and career-related skills support—can positively affect a child-
successor’s business self-efficacy, commitment, and engagement in the family business.
Conversely, parental psychological control, where a parent “intrudes on a child’s sense of self by
manipulating and constraining interactions, and invalidating choices and feelings” (Garcia et al.,
2019, p. 228), negatively affect a child-successor’s business self-efficacy, commitment, and
engagement in the family business (Garcia et al., 2019). McMullen and Warnick (2015) argued
along similar lines, but used the terms “nurturing” (p. 1396) and “grooming” (p. 1396) instead of
“parental support” and “parental psychological control,” respectively. Nurturing parents
prioritize the child’s needs over that of the firm, while grooming parents prioritize the firm and
their own needs over that of the child’s, believing that their interests are best for the child even if
those interests run contrary to what the child wants (McMullen and Warnick, 2015). Supportive
and nurturing parents benefit the child, the firm, and themselves, as child-successors are better
able to satisfy their own needs and interests and are more likely to engage in the family business
(Garcia et al., 2019; McMullen and Warnick, 2015).
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Stage 2 of the succession process is a very important step in encouraging the successor to
be fully committed to the family firm. When their Stage 2 experience is positive, the successor
will most likely stay on in the firm and take on more responsibility in Stage 3.
Stage 3
The last two stages of the succession process are the most critical in ensuring a successful
succession (Handler, 1990). Stage 3 in the succession process is when the successor starts taking
on more responsibility in the firm. At this stage, the incumbent is the supervisor while the
successor takes on responsibilities of a manager (Cater and Justis, 2009), thereby giving the two
shared responsibility or “joint-reign” (Cadieux, 2007).
The Role of Trust in the Incumbent-Successor Relationship
Stage 3 is another very sensitive stage in the succession process since it requires a
relationship built on trust: the incumbent has to relinquish some of his or her responsibilities and
delegate them to the successor (Handler, 1990). In fact, Sharma et al. (2001) argued that the
incumbent’s difficulty in voluntarily leaving his or her position is one of the top reasons that
succession fails. Handler interviewed 32 next-generation successors and found that incumbents
gradually let go of their power once trust has been developed, once they realize that the
successor has the capability, or when an unexpected event forces the incumbent to pass on
responsibility to the successor (Handler, 1990). A study of 89 Canadian family businesses by
Gagne et al. (2021) highlights the importance of successor trust by the incumbent during
succession on the grounds that succession requires the incumbent to make the family firm
vulnerable to the decisions of the successor. The successor usually earns the incumbent’s trust by
showing leadership and management competencies through work-related experiences (Ahrens et
al., 2019), both inside and outside the family firm.
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How to Earn Trust
Researchers agree on the importance of successors working in the family firm prior to
succession, as a stepping stone to gaining the incumbent’s trust and to eventual professional
success. Based on two in-depth group interviews with 25 successors during their succession
process, Wiecek-Janka et al. (2016) identified 20 competencies considered most important
during the succession process. Practical experience, which is defined as “a set of experiences
achieved in the family firm in different posts” (p. 124) was seen as both a base competency,
which determines if a successor is prepared to take over the firm, and a development of a base
competency, which is necessary when managing the family firm after the succession process
(Wiecek-Janka et al., 2016). Working in the family business prior to succession was likewise
required in Collins et al. (2015): all four candidates to succeed Oughtred’s CEO position in
William Jackson Food Group were family members working in the family business, who had
proven themselves professionally capable (Collins et al., 2015). But evidence is mixed regarding
what the successor’s entry position should be, the development of the successor inside the family
firm, and how long they should be working in the firm. Tatoglu et al. (2008) contended that
joining the family firm early and in an entry-level management position is important to
understand the family business culture. By contrast, a survey of 55 successors of family firms
showed that starting the successors in mid- to senior-level management levels, utilizing
participatory management where they are able to share their ideas, and giving successors a
certain level of autonomy helped more with successful transitions (Ghee et al., 2015).
While research by Mokhber et al. (2017) suggested that a successor working and being
trained in another company prior to joining the family firm is good for family firm performance,
Sardeshmukh and Corbett (2011) showed that if that outside experience was not in senior
31
management, then there is a negative relationship with potential firm growth when the successor
takes over the family firm. It is important to have developmental experiences where the
successor is able to use their experience in the other business and apply it in the setting of the
family firm (Sardeshmukh and Corbett, 2011). Chalus-Sauvannet (2016) did six case studies on
successors who came back to lead a family firm after first working and succeeding elsewhere.
Their research highlights the importance of a successor’s successful outside experience before
joining the family business, as their prior success makes them “legitimate leaders” (Chalus-
Sauvannet, 2016, p. 726) when they take over the family firm.
The Incumbent’s Mindset
While preparing the right skills through work experience is necessary for a successor to
take over the family firm, understanding the incumbent’s mindset during this stage is also very
important. Handler (1990) found in her interviews that incumbents can have a hard time
adjusting to their new role and lessened responsibilities, so it takes them longer to settle into their
new positions. One successor interviewed by Handler (1990) talked about how she was
“groomed” then “de-groomed” (p. 47) by her father, who couldn’t decide whether he wanted to
retire or not. This is in line with the findings of Huang et al. (2020), where parents seek to protect
their position and power by exerting coercive control over the behaviors of willing and capable
successors. Their survey of 157 parent-child dyads showed that parents exert more control when
a child is seen as either uncommitted and incapable or very committed and very capable. Data
from another 103 parent-child dyads illustrated that parents want their children to follow their
qualities as a business leader and yet think of their children as competition if the children imitate
them too well (Huang et al., 2020).
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The incumbent plays a huge role in the eventual success of the successor, so having the
right mindset and the willingness to turn over the firm is very important. An incumbent who
wants to retain control of the firm, refuses to delegate, and distrusts others inhibits successful
succession (Barach and Gantisky, 1995). Mentorship by the incumbent is essential, especially
when it involves building relationships and personal networks, teaching successors about the
family’s social capital and corporate culture, and making long-term investments (Le Breton-
Miller and Miller, 2015). Cadieux’s (2007) findings, based on 22 in-depth interviews, support
this view. According to Cadieux (2007), the incumbent must take several roles at this stage to
ensure the success of the successor: supervisor (to pass on certain roles to the successor), teacher
(to teach the successor firm-specific skills and knowledge), introducer (to introduce the
successor to the employees and other important contacts, such as suppliers and customers),
mobilizer (to support and reassure the successor), and collaborator (to work together with the
successor once the successor is deemed ready for the job as head of the firm).
Stage 3 is all about preparing the successor for his or her eventual role as leader of the
family firm. While it is clear where the successor will end up at the end of the succession
process, however, the new life of the incumbent is not as clear or straightforward.
Stage 4
Stage 4 of the process is when the actual succession happens. The incumbent takes the
role of a consultant on the business while the successor becomes the leader of the family firm
(Handler, 1990). Success in this step of the process is clear when the incumbent (now the
predecessor) is able to find a life outside of the business and when the successor (now the leader)
gets the support and autonomy needed to manage the business.
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The Successor’s (New Leader’s) Life As Head of the Firm
Successfully taking over a leadership role in the family firm does not necessarily mean
success in the firm’s performance. The new leader will still have to fight many battles, including
those from employees who are still loyal to the predecessor or from a predecessor who has not
entirely left the firm (Harvey and Evans, 1995). It is common for employees and other
stakeholders to feel that the new leadership has changed the company environment or culture,
sometimes leading to reluctance to follow the new leader—especially if the predecessor was seen
as a father figure (Sonnenfeld and Spence, 1989) or that a profitable way of doing business is
being changed (Harvey and Evans, 1995). It is also common for the new leader to feel that their
predecessor is still able to meddle in the family firm, especially if the predecessor is still directly
involved in the business.
The Predecessor’s Life After Stepping Down
Up to this stage, the predecessor’s life has typically been very much tied to the family
business (Barach and Gantisky, 1995), such that the family firm has been an extension of the
predecessor’s own self rather than a separate entity (McGivern, 1978; Sonnenfeld and Spence,
1989). Sonnenfeld and Spence (1989) noted that because predecessors’ personal and professional
lives are intertwined with the life of the family firm, many of them fear retirement because they
corelate it with old age. For this reason, the emotional and personal needs of the predecessor
need to be considered during the final stage of succession, and even after the transition is over
(Harvey and Evans, 1995; McGivern, 1978; Sonnenfeld and Spence, 1989). This can be done by
clearly pre-defining the predecessor’s role in the family firm after succession (Chalus-Sauvannet,
2016; Le Breton-Miller et al., 2004), helping the predecessor pursue an interest outside the
family firm (Collins et al., 2015; Handler, 1990; Sonnenfeld and Spence, 1989), and making sure
34
that the predecessor is provided with the proper care and support needed for the next stage in
their lives (Harvey and Evans, 1995).
The Predecessor’s Transitional Role
While Cadieux’s (2007) predecessor participants all had veto power over their
successors’ decisions as chairman of the board, Le Breton-Miller et al. (2004) recommend that
the predecessor have a clear transitional role in the family firm that does not interfere with the
autonomy of the new leader. There are several transitional roles that the predecessor can assume
(Chalus-Sauvannet, 2016; Handler, 1990). Handler (1990) advised that predecessors move into a
consultant role in preparation for retirement, so they are no longer involved in the operations of
the company and so the new leader can assume the position of primary decision-maker in the
company. The predecessor, having been a stabilizing factor in the family firm (Handler, 1990),
often still enjoys employee loyalty from the culture they developed over the years (Le Breton-
Miller and Miller, 2015). Therefore, according to Chalus-Sauvannet (2016), one way that the
predecessor ensure internal stability during succession is to become the “catalyst for
organizational change” (p. 726) and rally the employees around the new leader. According to
Cadieux, 2007), other roles that the effective predecessors had were those of a “symbol” (p. 102)
or the hero of the firm, “safeguard” (p. 102) or the person who kept the firm’s values intact,
“intermediaries” (p. 103) between the successor and suppliers and/or customers, “technical
support” (p. 103) in highly skilled businesses, and “facilitators” (p. 103) or mediators among
family members.
After-Retirement Support for the Predecessor
It is not easy for a retiring predecessor to leave his or her work in the family business and
start a new life. Just as it requires a lot of support, training, care, and more for a successor to
35
successfully take over the family business, so too do predecessors need support, training, and
care to successfully transition out of the family business (Harvey and Evans, 1995). Collins et al.
(2015), in their exemplar case study, found that it was important for the incumbent, Christopher
Oughtred, to work with a personal counselor to help him figure out his life after retirement and to
go away on a long vacation immediately after retirement, so he could get both physical and
psychological distance from the family firm. McGivern (1978) agreed that having a personal
counselor is essential to help the predecessor to realize that continuing to be part of the business
is detrimental to the firm and the new leader, that the business must continue without the
predecessor’s intervention, and that the predecessor must find other interests outside the family
firm. According to Harvey and Evans (1995), some predecessors will need more time and
support than others, but whatever the case, there should be a system in place to help predecessors
transition out of their former roles. Helping the predecessor find other interests such as traveling
or pursuing other hobbies is important for the predecessor’s well-being (Handler, 1990).
Transfer of Shares
For succession to fully take place, there should also be transfer of ownership, not just
transfer of management (Handler, 1990). Most predecessors try to avoid transferring controlling
ownership of their company so that they can still make the final decision. In the case studies by
Cadieux (2007), even though transferring of shares was part of the succession process, the
predecessors did not transfer enough shares for the successors to control the family firm. The
predecessors still had a majority of the shares or held enough that their approval would still be
necessary for strategic decisions (Cadieux, 2007). Harvey and Evans (1995) also found that one
of the major problems in succession is that “the old man still has veto power” (Harvey and
Evans, 1995, p. 9) due to the number of shares still in the hands of the predecessor. Succession is
36
not complete until both management and ownership control are passed on to the successor
(Handler, 1990).
Overall, the succession process is very important for a successful leadership succession to
take place. The incumbent and the successor’s relationship, role adjustments, emotions, and more
have to be taken into consideration to ensure a successful succession. To help people understand
more about the succession process and locate the potential gaps in implementing a succession
plan, Clark and Estes’ (2008) gap analysis is the perfect framework to use.
Theoretical Framework: Clark and Estes Gap Analysis
The theoretical framework used in this study is Clark and Estes’ (2008) gap analysis
framework. This framework suggests that there are three factors—knowledge and skills,
motivation, and organizational barriers—that cause performance gaps in organizations, and that
all three must be addressed to find the right solutions to improve firm performance (Clark and
Estes, 2008).
Skills and Knowledge
Krathwohl (2002) described four types of knowledge dimensions relevant for this study:
factual knowledge or foundational knowledge, conceptual knowledge or how different pieces of
foundational knowledge work together, procedural knowledge or how to complete a certain task,
and metacognitive knowledge or self-knowledge. In addition to these four types of knowledge,
we must evaluate the cognitive process dimension, which includes a range of lower-order to
higher-order thinking skills: remembering, understanding, applying, analyzing, evaluating, and
finally creating (Anderson et al., 2001). Considering both aspects can help individuals and
organizations develop learning objectives that will help them in their knowledge acquisition and
improve on performance gaps.
37
The oldest family firms in the world have been around for many generations. This
longevity creates tacit and idiosyncratic knowledge that is unique to the family firm, and is
important to be passed on from generation to generation (Boyd et al., 2014; De Massis et al.,
2016; Williams and Mullane, 2017; Zwack et al., 2016). Tacit knowledge is defined as “the
assumptions and values at the base of an organization’s culture in the past” (De Massis et al.,
2016, p. 102) while idiosyncratic knowledge is defined as knowledge about the firm that is
specific, unique, and informal (Boyd et al., 2014). For this study, it is important to understand the
declarative, procedural, and metacognitive knowledge needed to ensure successful succession.
Declarative Knowledge
Successors need to have general knowledge about the family firm and general business
and management knowledge. There are two types of declarative knowledge: factual knowledge
and conceptual knowledge. For family firm successors, important declarative knowledge
includes general knowledge of the firm, such as the history of the family and the family firm; the
firm’s commitment to the community, including charitable contributions to society; and the
values that need to be lived out, including humility and industriousness (Le Breton-Miller and
Miller, 2015). Of the 20 important successor competencies identified by Wiecek-Janka et al.
(2016), declarative knowledge is central in elements like firm knowledge, entrepreneurship,
communication skills, and organizational skills. Ahrens et al. (2019) confirmed that choosing a
successor with the right competencies is vital, as those without the right CEO attributes or
competencies can negatively affect the firm’s performance. These CEO attributes or CEO-related
human capital, which include general management and leadership skills, can be gained by the
successor through education and/or work experiences (Ahrens et al., 2019).
38
Procedural Knowledge
Successors need to have tacit, idiosyncratic family firm knowledge. There is a lot of tacit,
idiosyncratic knowledge that goes with managing and operating a family firm (Boyd et al., 2014;
De Massis et al., 2016; Williams and Mullane, 2017). This knowledge can be in the form of
long-standing family and family firm traditions, firm-specific experiential knowledge, and
networking knowledge. Boyd et al. (2014) did case studies of two 200-year-old family firms and
highlighted the importance of transferring firm-specific experiential knowledge from one
generation to the next. The first family business, Kang, which operates commodities trading and
farming, passed agrometeorology and regional crop grown knowledge to the next generation.
The second family business, HBK, which operates commodities trading, a distillery, and a wood
trade, passed shipbuilding knowledge, distillery knowledge, and recipes to the next generation
(Boyd et al., 2014). In most family businesses, passing network-related knowledge, often based
on the social and relationship knowledge of the predecessor, is also a priority (Boyd et al., 2014;
Tatoglu, 2008). Successors need to be introduced to key stakeholders and maintain relationships
with them (Tatoglu, 2008). Relevant social networks and stakeholders include governments,
customers (Boyd et al., 2014), partners, and suppliers (Le Breton-Miller and Miller, 2015). It is
important for the next generation to gain knowledge on how to maintain these relationships,
learn what makes them special, meet the people involved, and learn how to grow the
relationships (Le Breton-Miller and Miller, 2015; Tatoglu, 2008). De Massis et al. (2016) studied
six multigenerational family firms and found that past knowledge (including family traditions,
operating and manufacturing processes, etc.) is a critical firm resource that must be passed to the
next generation so it can be used for product innovations. Suddaby and Jaskiewicz (2020) agreed
with De Massis et al. (2016), stating that by using a firm’s “rhetorical history” (p. 235), or past
39
knowledge and traditions, as a strategic resource, family firms can create innovative products
that ensure the continuity of the family firm and its values (Suddaby and Jaskiewicz, 2020).
One of the family firms De Massis et al. (2016) studied is Beretta, a 500-year-old firm,
whose traditional family values of hunting and craftsmanship led them to become the oldest
gunsmith company in the world and continue the family tradition by creating innovative
shotguns for competition. Another family firm is Lavazza, a fourth-generation family firm,
whose family tradition in blending coffee led them to create the first capsule-based espresso
system that works even in space (De Massis et al., 2016). Still another family firm is Vibram, a
70-year-old family firm, whose family tradition in hiking led them to create the first rubber sole
and continue the family tradition by starting the barefoot movement and introducing FiveFingers
to allow people to feel like they are running barefoot (De Massis et al., 2016). None of these
family firms would have found success and continuous innovation had they not passed their
family firm-specific knowledge from one generation to the next.
Metacognitive Knowledge
Successors need to be self-aware of what knowledge their family firms lack. Given that
family businesses have been around for a very long time (Le Breton-Miller and Miller, 2015), it
is surprising that when it comes to planning for succession, many family firms are unprepared for
the eventual transition. A survey by Calabro and Valentino (2019) on family business succession
planning and governance found that only 30% of family business have a succession plan in
place, only 47% have a CEO retirement plan in place, only 16% have a family employment
policy, only 9% have formal family meetings, only 16% have family bylaws, and only 11% have
a formal board of directors. The authors offer several recommendations and suggestions,
including implementing a formal succession plan, having a CEO retirement plan, and adopting
40
more than one family governance tool (Calabro and Valentino, 2019). Also, given that family
firms are more trusted (versus other corporations) to prioritize and invest in the firm’s long-term
well-being, they often find it difficult to project the future because they anticipate several key
challenges (PWC Global Family Business Survey, 2018). Among the 2,950 global family
businesses PWC interviewed, the top challenges include the need for innovation (66%),
accessing the right skills and talent (60%), digitalization (46%), and domestic and international
competition (49% and 38%, respectively; PWC Global Family Business Survey, 2018).
For family firms to continue their success, it is important for them to be aware of these
challenges, reflect on them, and develop and implement plans to address them. Clark and Estes
(2008) give some advice on how to improve skills and knowledge to meet those goals.
Improving Knowledge
Clarke and Estes (2008) highlighted transfer challenges, that is, difficulty in realizing
when to use certain skills or past experiences to solve a new problem, as people usually learn
knowledge and skills in a very informal and disorganized way. This is true especially in family
firms, where knowledge and skills are commonly transferred in very informal settings, usually at
a young age, often through stories or by observing older family members (usually the
predecessor or incumbent). Humphrey et al. (2021) stated that storytelling enables the older
generation to share their work experiences and their corporate culture with the younger
generation. Similarly, Le Breton-Miller and Miller (2015) noted that some families have an older
generation member who protects the family stories, values, and traditions—as well as the family
firm’s history and culture—so that they can be told to the next generation and passed on. Clark
and Estes (2008) identify four ways to increase performance through improving knowledge and
41
skills more formally (i.e., with more structure and organization) and with clear associated
performance goals: information, job aids, training, and education (Clark and Estes, 2008).
Information
Information, according to Clark and Estes (2008), is given to people who have done
something similar in the past and just need to be told or reminded to do the same thing to
complete the performance goal. Past experience of different tasks is important because it gives
learners something to draw from (Clark and Estes, 2008). For family firms, apprenticeships are a
good place for next-generation family members to start getting exposed to the intricacies of the
business at a young age. Apprenticeships can come in the form of completing rotations within
different departments inside the family firm or learning from other corporations, to generate a
variety of experiences to pull from later on (Le Breton-Miller and Miller, 2015). Several studies
have talked about the importance of work experience, both inside and outside the family firm,
that can be applied to leading the firm later on (Mokhber et al. 2017; Sardeshmukh and Corbett,
2011; Tatoglu et al., 2008). A study by Sardeshmukh and Corbett (2011) of 119 family business
successors found that it is not enough to simply have work experience: successors need
“developmental experience” that can be applied in a bigger role in the family firm later in their
careers (Sardeshmukh and Corbett, 2011). It is therefore important that the job experience forms
part of a person’s information bank that can be called upon when needed.
Job Aids
Job aids, according to Clark and Estes (2008), are tools in written form that help people
do their jobs properly. Jobs aids are meticulously crafted and prepared to teach people how to do
a task or make decisions about a particular process (Clark and Estes, 2008). In the case of the
succession process, one of the most effective job aids comes in the form of a family constitution
42
(sometimes called a family protocol or family agreement). A family constitution is an agreement
among members of the family, usually created by a family council, which states the purpose of
the firm and includes rules on how to manage certain aspects of the firm, especially those
relating to family members (Villalonga et al., 2015). A family constitution’s main purpose is to
ensure the longevity of the family firm by taking into consideration areas that may cause conflict
among family members involved in the firm (Arteaga and Menendez-Requejo, 2017). Topics
covered include: the family firm’s history, mission, vision, and values; managing the family
firm, including compensation of family members working in the business and the process for
appointing next-generation successors; ownership of the family firm, including transferring and
selling shares, dividend policies, and non-family or outside ownership of the family firm; and
governance of the family firm, including rules on retirement for older family members and
composition of family councils and board of directors (Arteaga and Menendez-Requejo, 2017;
KPMG, 2010).
A family constitution is important because as the next generation enters the firm, there
will be more individual shareholders involved with different, sometimes conflicting, interests
and expectations (KPMG, 2010). Having a family constitution has also been shown to improve
firm performance. A comparative study by Arteaga and Menendez-Requejo (2017) of 530
Spanish family firms, where 50% (265 firms) had a family constitution and 50% (265 firms) did
not, showed that firms that created a family constitution had better firm performance growth, as
measured by better return on assets and return on equity. Despite these advantages, only 28% of
family firms surveyed by KPMG had a family constitution (KPMG Enterprise, 2018). It takes
time to begin creating a family constitution as it requires the buy-in of family members, many of
which may not believe in it. The development and implementation of the family constitution will
43
also take time, easily 12 to 18 months for the development and review alone (KPMG, 2010), but
family firms must take this task seriously if they care about the company’s future. Apart from a
family constitution, family firms can create other plans to improve firm sustainability, including
strategic contingency plans, strategic long-term plans, legacy planning plans, and succession
plans (Yukselen and Yildiz, 2014).
Training
Training, according to Clark and Estes (2008), entails teaching someone how to do
something, allowing them to do it, and giving them feedback on whether it was done correctly.
Training is used when people do not know how to do something and therefore need teaching,
practice, and feedback to accomplish the goal (Clark and Estes, 2008). Le Breton-Miller and
Miller (2015) recommended that mentorship or coaching should be given to younger family
members based on their career track in the family firm. They should be assigned older family
members or senior executives within the firm who understand their position or role in the family
firm, who can evaluate them, and who can point them to their next goals (Le Breton-Miller and
Miller, 2015). Sardeshmukh and Corbett (2011) found that working within the family firm alone
does not give the successor the proper knowledge and skills they need; instead, successors need
proper training with “feedback, management support and mentoring” (Sardeshmukh and Corbett,
2011, p. 119).
Education
According to Clark and Estes (2008), while information, job aids, and training are used
when people do not know how to do a task, education is used to help people conceptualize
solutions for new or unexpected issues that may arise in the future. Thus, education teaches
people new concepts that can form the foundation for applying previous knowledge to solve
44
unanticipated challenges (Clark and Estes, 2008). Le Breton-Miller and Miller (2015) added that
formal education is key in helping a person learn how to analyze data and reflect on how to
handle new situations. This is especially important in business training, because many formal
education institutions use innovative case studies and simulation techniques similar to those that
successors may encounter while handling a family firm.
The European Commission’s (2009) report on several issues relevant to family firms
showed that the lack of “entrepreneurship education and family-business-specific management
training” (p. 18) can affect family firms in general. The reason for this is that entrepreneurial or
intrapreneurial skills, such as innovation and creativity, help ensure that the family firm
continues to re-invent itself and thrive (European Commission, 2009). Management training
targeted towards owners and successors of family firms, which several academic institutions in
Europe already provide through courses such as family firm governance and succession, are very
important tools to counter knowledge and skills performance gaps (European Commission,
2009). Yukselen and Yildiz (2014) studied four Turkish firms and found that, aside from
management training, learning a foreign language was also significant to firm success. The same
study observed that incumbents can have education gaps as well, especially in using and
implementing newer management and technical tools, and that this gap can lead to conflict with
the successors or other professionals on the team (Yukselen and Yildiz, 2014).
Summary
It is very important for a successor to have the relevant knowledge and skills to lead and
manage the family firm. This includes general knowledge of management and the family firm,
specific knowledge of the family firm, and the awareness of what knowledge and skills are
45
lacking. These required elements are summarized in the table below, together with how they will
be assessed in this study.
Table 1
Knowledge Influences, Types, and Interview Assessment for Knowledge Gap Analysis
Knowledge influence Knowledge type Knowledge influence assessment
Successors need to have
general knowledge about
the family firm.
Declarative Can you tell me about how your family
firm was founded/started?
Successors need to have
general business and
management knowledge.
Declarative What education and training did you
have that is useful to your position?
What background work experience did
you have that is useful to your
position?
Successors need tacit,
idiosyncratic family firm
knowledge.
Procedural Are there any special skills or knowledge
required to run your family business?
Successors need to be self-
aware of what knowledge
their family firm lacks.
Metacognitive What were the best practices you had
before, during, and after the
succession process?
What were the challenges you had
before, during, and after the
succession process?
If you were to do the succession process
again, would you change anything?
46
Motivation
According to Clark and Estes (2008), gaps in motivation happen when a person does not
like the task he is doing, when he is distracted or unfocused during the task, or when he thinks
the task is too easy or too difficult to achieve. Motivation has three facets: active choice
(choosing to do the task), persistence (continuing to do the task), and mental effort (being
challenged to do the task). Combining these facets increases performance (Clark and Estes,
2008). There are several factors that can affect a successor’s motivation including self-efficacy,
affect (emotional state), and stewardship.
Self-Efficacy
Successors need to be confident about their leadership and management abilities. Self-
efficacy is defined as a person’s beliefs about their abilities, affecting their behaviors,
expectations, and perceptions while performing a task (Bandura, 2000). Self-efficacy can also
determine a person’s commitment to a goal, their perseverance in pursuing the goal when facing
adversity, and what they ultimately achieve (Bandura, 2000). Clark and Estes (2008) added that
developing self-confidence is instrumental in increasing one’s motivation and therefore vital to
goal achievement. Self-confidence is important because if a person thinks that she does not have
what it takes to handle a certain task, she may not do it. It is also important to note, though, that
if a person is over-confident or thinks that a task is too easy, then she won’t be motivated to do it
either—a task should have the right degree of challenge to enhance self-confidence (Clark and
Estes, 2008).
In the context of family firm succession, Goldberg and Woodridge (1993) surveyed 254
CEOs of family firms and found that self-confidence as a manager and managerial autonomy are
the top two factors that make a successor effective. Another extensive survey conducted by PWC
47
(2019), of 950 next-generation successors across five continents, similarly showed that self-
doubt or the lack of self-confidence is a major hindrance to a successor’s growth within the
family firm, with 54% of respondents saying that it was a barrier to their progress.
Affect
Successors must feel positive emotions about the family firm. A person’s affect or
emotional state can influence his or her motivation and performance. According to Clark and
Estes (2008), people can feel unmotivated due to a negative emotional environment at work. If
people feel angry or depressed at work, they will be less committed, just as people who are
happy at work will be more committed (Clark and Estes, 2008). It is therefore important for
firms to create a positive emotional environment. A survey by Henssen and Koiranen (2021) of
111 Finnish CEOs of family firms found that having positive emotions at work makes a person
more committed to the family firm. Henssen and Koiranen (2021) found that “joy of work” (p.
191) leads to better performance for both the CEO and the firm. Specifically, if a CEO feels a
sense of ownership in the company, the CEO will feel more joy working for the company. It is
therefore important for the incumbent CEO to communicate this positivity to their successor, in
order to elicit the successor’s commitment to the family firm (Henssen and Koiranen, 2021).
Yezza et al. (2021) did an in-depth, longitudinal case study of a Tunisian family firm and
showed how a negative emotional work environment caused the successor to leave the family
business to work for another firm. The successor in the case study faced two conflicts within the
organization—first, the family firm employees were unhappy with the way the successor started
controlling expenses, and second the successor’s father (the incumbent) resented the fact that the
successor did not finish his schooling (Yezza et al., 2021). The negative emotions at work, which
brought about feelings of frustration, distrust, and resentment in the successor, led him to leave
48
the family firm, only returning when his father’s deteriorating health required the successor to
take over the family business (Yezza et al., 2021).
Stewardship
Successors must be motivated by stewardship and not personal gains. Stewardship theory
was presented by Donaldson and Davis (1991), based on a survey they conducted of 321 U.S.
corporations on the duality of leadership when the same person was CEO and chairman of the
Board. The research found that when the CEO is also the chairman, the shareholders’ return on
equity was higher than when the CEO role was separate from the chairman, showing that a
corporation’s leader looks out for the interest of the firm, especially when they are given the
reins (Donaldson and Davis, 1991). Stewardship theory also states that managers or stewards
prioritize the collective interest of the firm and its owners, thereby seeking to increase sales and
profitability rather than pursue their own personal objectives or personal gain (Davis et al.,
1997). Stewardship theory is very applicable to a family business, as family leaders of the firm
are seen as stewards who are motivated to take care of the firm’s assets, increase firm
profitability, and prepare the firm for future generations (Davis et al., 2010).
Summary
Knowing what motivates successors is very important to persuading a successor to join
the family firm, to improving firm performance, and to ensuring that the successor stays at the
firm long-term. A successor’s motivation is directly affected by self-efficacy, affect, and
stewardship. The table below details how these factors will be assessed.
49
Table 2
Motivation Influences, Motivation Types, and Interview Assessments for Motivation Gap
Analysis
Motivators Interview assessments
Successors need to feel confident about their
leadership and management abilities (self-
efficacy).
Why do you think you were chosen to lead the
family firm?
Successors must feel positive emotions in
the firm (affect).
Why did you decide to join the family firm?
Do you enjoy working in the family firm?
- Why or why not?
Successors need to be motivated by
stewardship and not by personal gains
(stewardship).
Why did you decide to join the family firm?
How do you balance your role as owner and
manager of the family firm?
How do you balance your personal goals,
family goals, and family firm goals?
Organization
According to Clark and Estes (2008), although the lack of material resources and
inefficient work processes are the usual suspects when identifying organizational gaps,
organizational culture actually affects an organization’s performance the most (Clark and Estes,
2008). The organizational culture includes its goals, values, and beliefs, all of which shape how
people in the organization interact with each other at work and accomplish their tasks (Clark and
Estes, 2008).
Cultural Models
Gallimore and Goldenberg (2001) described cultural models as “shared mental schema or
normative understandings of how the world works, or ought to work” (p. 47). The family
business model is very different from a non-family business model, as it uniquely engages
50
additional issues relating to family members, family values, and family traditions (Davis et al.,
2010). Cater and Justis (2009) specifically noted that having a positive parent-child relationship,
a long-term orientation, and a spirit of cooperation create a good model for leadership
succession.
Successors need to have a positive relationship and experience with the incumbent and
the family firm. Both family and family firm culture are engrained in successors as children,
typically by their parents at a very young age. Children who have positive relationships with
their parents early in childhood carry that over to adulthood and into their work life, usually
resulting in a successful leadership transition (Cater and Justis, 2009). One of the big obstacles to
that transition, however, is the authoritarian behavior of incumbents who want to control their
successor’s behavior, which could drive away the successor from the family firm altogether
(Chan et al., 2020; Garcia et al., 2019). The successor also has his or her own career,
psychological, and life stage needs that have to be fulfilled. Effective incumbents can and should
find ways to fulfill these needs in the corporation, so the successor will be more willing to be
part of the family firm (Handler, 1992). Introducing potential successors to the business early
and helping them form realistic expectations can help them decide whether the family firm is the
right place for them or not, fulfilling a career need. Allowing successors to grow on their own
within the firm and giving them challenging tasks can help the relationship grow out of the
parent-child relationship, fulfilling a psychological need. And giving successors tasks that are in
line with their life stage (allowing for exploration, advancement, or balance, depending on the
life stage), fulfilling a life stage need, will give successors positive experiences that encourage
them to be part of the firm (Handler, 1992).
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Successors need to have a long-term orientation toward the family firm. Having a long-
term orientation means considering the longevity of the firm during strategic decisions.
Nicholson (2008) identified three unique attributes of family firms, all tied to firm longevity:
genetic identity, intergenerational transmission, and wildcard inheritance. First, genetic identity
means that the owners personally identify with the business and therefore protect the firm, often
because the family name is tied to the firm (Nicholson, 2008). One of the costly effects of
genetic identity is the “emotional attachment” (Nicholson, 2008, p. 79) developed due to the
close association with the firm, which can prevent the family from making sound decisions
regarding exit strategies (Nicholson, 2008) or from making the changes needed to push the firm
forward (De Massis et al., 2016). The resulting long-term vision means that family firms place a
premium on the longevity of the family firm, while non-family firms are usually valued based on
their short-term performance.
The second unique attribute is intergenerational transmission, where the firm is passed
from one generation to the next. Since the firm is expected to stay with the family for
generations, family members are incentivized to look out for the long-term health of the firm
(Nicholson, 2008). Family CEOs see themselves as both owners and employees of the firm,
therefore usually devoting their entire work life to the firm and looking out for the good of both
the family and the firm (Morris et al., 1997). In non-family firms, the CEOs have less affinity
with the firm and their performance is usually tied to their term in the firm, so they are more
likely to look out for the short-term interest of the firm (Morris et al., 1997). A long-term
orientation also encourages the family to take care of their employees and thus promote a culture
of loyalty, even if it sometimes is very expensive to manage (Le Breton-Miller and Miller, 2015).
This means that successors sometimes need to give up short-term profits for the long-term well-
52
being of the firm (Cater and Justis, 2009). Although there are additional costs relating to having
long-term orientation, the family firm benefits from having loyal customer, suppliers, and
employees, as family firms work harder to develop these relationships and keep them satisfied
(Cater and Justis, 2009).
Lastly, family firms feature wildcard inheritance since they are bound to promote a
family successor to lead the family firm (Nicholson, 2008). Due to bloodlines, family firm
incumbents pick successors that they would probably not have picked in a non-family firm
(Nicholson, 2008). Also, in family firms, there is less chance that a family CEO will be
terminated due to bad performance, compared to CEOs in non-family firms (Morris et al., 1997),
which can affect the way the CEO works. A family CEO is more likely to be motivated to work
because of the benefits his or her success brings to the family, whereas a CEO of a non-family
firm is motivated more by his or her career advancement (Morris et al., 1997).
Successors and incumbents need to have a spirit of cooperation. It is important that the
family members in the family firm, especially the incumbent and successor, work together for
the common good of the family firm (Cater and Justis, 2009). Le Breton-Miller and Miller
(2015) told a story about a family that holds a yearly extended family gathering for all the
grandchildren, so they can build better relationships and learn to work together. Other families
have family dinners to get family members from different generations (and within generations)
to interact with each other (Le Breton-Miller and Miller, 2015). A spirit of cooperation can be
found in siblings who have different personalities and work in complementary roles (Cater and
Justis, 2009), or between the incumbent and the successor when they start adjusting their
individual roles for the good of the firm (Handler, 1990). For a leadership transition to
successfully take place, the incumbent and the successor must work together in defining each
53
other’s roles in the firm, with the incumbent slowly giving up management control and the
successor gradually increasing control (Handler, 1990).
Cultural Settings
Gallimore and Goldenberg (2001) define cultural settings as “those occasions where
people come together to carry out joint activity that accomplishes something they value” (p. 48).
In this case, the cultural setting is the family firm itself and all the processes, resources, and
culture that it has in place.
Family firms must establish the necessary plans to have a successful succession.
Although family firms are expected to be passed to the next generation, a large-scale survey of
more than 1,800 family business CEOs, or the highest-positioned family member in the family
business, showed that very few family firms have family succession plans in place (Calabro and
Valentino, 2019). In fact, only 30% of family firms have a succession plan in place and only
53% have a specific CEO retirement plan in place (Calabro and Valentino, 2019). This can be
due to the incumbent’s resistance to change, especially when it comes to letting go of his or her
position in the family firm (Sharma et al., 2001).
For instance, a study by Langsford et al. (2021) identified several barriers to an
incumbent wanting to leave the family firm, including the incumbent’s fear of entering the next
life stage (usually associated with old age) and the unfinished goals the incumbent wants to
achieve before leaving the firm. This type of atmosphere makes it difficult for the successor to
take his or her place in the family business, and often he or she has to wait until the incumbent is
unwell before taking over (Handler, 1990), which makes the transition less smooth. It is
therefore important for family firms to have not just a succession plan but also a retirement plan
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in place, to help the incumbent CEO transition out of his or her leadership role (Harvey and
Evans, 1995).
Family firms must have the right corporate governance tools in place to have a successful
succession. Surveys on the use of other family governance tools also paint a dim picture of how
family firms are preparing for leadership transitions. Globally, only 16% have a formal
succession process, only 16% have formal bylaws, only 11% have a formal board of directors,
only 7% have a board of advisers, only 6% have a mandatory retirement age, and only 5% have
external directors on the board (Calabro and Valentino, 2019). Culturally, family firms are more
emotionally charged and more complicated to manage because of the family dimension, which is
precisely why family governance tools need to be in place.
One useful governance tool is a mechanism for accurate performance feedback. While
regular performance feedback is important in increasing employee performance in all
organizations, this task is much more complicated in family firms, where family members often
have to evaluate each other or non-family managers have to evaluate more junior family
members (Walsh, 2011). Walsh (2011) suggested using a self-assessment tool together with a
“numeric performance ranking scale” (p. 38) instead of a written performance assessment to
make the process easier.
Decision-making is also another complex issue in the family firm, particularly decisions
about CEO or management succession. Walsh (2011) suggested that the successor (next-
generation leader) should take charge of the management succession process with help from the
incumbent. Decision-making in family firms is also more centralized, while in non-family firms
decision-making involves more people (Morris et al., 1997). The most successful family firms
hold family business and family council meetings when making important decisions, including
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those concerning succession (Walsh, 2011). Le Breton-Miller and Miller (2015) noted that a
family council usually meets to discuss and decide on family-related business issues. Improving
the cultural setting by putting proper corporate and family governance in place has been shown
to both improve family members’ attachment to the firm and increase firm performance (Calabro
and Valentino, 2019).
Summary
Aside from successors’ knowledge and motivation, organizational culture can influence
leadership succession in family firms. Positive relationships, positive experiences, and having the
appropriate succession and governance plans and tools in place can all help the succession
process. Table 3 summarizes the relevant organizational influences and stakeholders for family
firm succession, as well as how these influences will be assessed in this study.
Table 3
Organizational Influences, Types, and Interview Assessments for Organizational Gap Analysis
Organizational Interview assessments
Successors need to have positive
relationships with the incumbents.
What is your relationship like with your
predecessor?
Successors need to have positive
experiences in the family firm.
Do you enjoy working in the family firm? Why
or why not?
Successors need to have a long-term
orientation for the family firm.
What are your long-term goals for your family
firm?
Successors and incumbents need to have a
spirit of cooperation.
Is your predecessor still involved in the family
firm? In what capacity? How do you work
together?
Family firms must have the necessary plans
in place to have a successful succession.
Does your firm have a succession plan? Can
you describe the succession process in your
family firm?
Family firms must have the right corporate
governance tools in place to have a
successful succession.
What corporate governance tools does your
family firm employ?
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Conclusion
Chapter 2 started with background on family firms and how the different colonizer
influences specifically affected the development of family firms in the Philippines. Second, this
chapter examined the differences between family CEOs and non-family CEOs and their
respective advantages and disadvantages. Third, the chapter reviewed the different stages of the
succession process and how each stage influences leadership succession. Finally, the chapter
used KMO gap analysis to analyze the different factors that influence leadership succession.
Chapter 3, on methodology, will build on the KMO section, assess the KMO influences in the
study’s dataset, and find solutions for the performance gaps in family firm leadership succession.
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Chapter Three: Methodology
One of the biggest obstacles to family firm success is intergenerational succession
(Chiang et al., 2021). The purpose of this study is to identify the knowledge, motivation, and
organizational influences that help or hinder next-generation leadership succession in large
family firms in the Philippines. The findings from this study can be used to develop
recommendations and resources, to help guide other family firms that are going through or
planning to go through the succession process.
Research Questions
To meet this goal, this study addresses three research questions:
1. What knowledge influences affect intergenerational leadership succession in large
family firms in the Philippines?
2. What motivational influences affect intergenerational leadership succession in large
family firms in the Philippines?
3. What organizational influences affect intergenerational leadership succession in large
family firms in the Philippines?
Research Setting
The research context is large family firms in the Philippines. Family firms, for the
purpose of this study, are defined as firms that are controlled through management and
ownership by multiple members of a single family (Miller et al., 2007). The Philippines offers a
rich context to explore these research questions, given that the majority of the top 100 Filipino
corporations are family firms (Reyes et al., 2020) and that the Philippines ranks 11th in the world
for the greatest number of family firms (Klerk et al., 2017). A large family firm is legally defined
as one with at least 100,000,0000 Philippine pesos in asset value (Republic Act No. 9501, 2008)
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or at least 200 employees (Mapa, 2022), and they make up about 0.40% (4,083) of the
corporations in the Philippines (Philippine Statistics Authority, 2013).
Family firm management means that the firm’s chairman, president, and/or key
executives are members of the biological family that owns the corporation. Family firm
ownership means that a single family owns at least one-third of the outstanding capital stock of
the firm. Many of the important decisions in Philippine corporations, including declaring
dividends, sale and disposition of assets, and investing corporate funds in another business
require a two-thirds vote for ratification (Republic Act No. 11232, 2018), so a family who owns
at least one-third of the capital stock still has enough power to block and control certain
important decisions. This coincides with the definition of family firms by Barth et al. (2005), a
firm where one person or one family owns at least 33% of the corporation’s shares and where the
firm is managed or headed by a family member.
Specifically, this study evaluates family firms in the Philippines that are at least 15 years
old to capture how they handle firm leadership across multiple generations. A generation,
according to Pew Research Center (2015), is defined as 15 to 20 years long, so staying in
business for at least 15 years would give the predecessor enough time to establish (if the
predecessor is the entrepreneur-founder) and/or grow the business (if the predecessor is an heir
of the founder), and to allow time for a new incumbent-successor to take over as head of the
firm.
Participating Stakeholders
Eleven president and CEO participant-successors participated in this study, including five
second-generation and six third-generation successors. Nine of the participants were male and
two were female. Six participants had master’s degrees, one had a law degree, and four had
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bachelor’s degrees. Nine industries were represented in this study. Table 4 identifies each
participant’s generation, gender, educational attainment, and firm industry, based on the S&P
Global Industry Classification Standard (2016).
Table 4
Demographic Information of Participants
ID Generation Gender Educational
attainment
S&P global industry
classification standard (2016)
Participant 1 2nd Male Master’s degree Chemicals
Participant 2 3rd Male Bachelor’s degree Trading companies and
distributors
Participant 3 3rd Male Master’s degree Real estate management and
development
Participant 4 2n Male Master’s degree Food products
Participant 5 3rd Male Master’s degree Household products
Participant 6 3rd Male Bachelor’s degree Construction materials
Participant 7 2nd Female Master’s degree Trading companies and
distributors
Participant 8 2nd Male Bachelor’s degree Commercial services
Participant 9 3rd Male Law degree pharmaceuticals
Participant 10 2nd Female Bachelor’s degree Hotels, restaurants, and leisure
Participant 11 3rd Male Master’s degree Real estate management and
development
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Participants and Sample
A non-probability purposeful sampling technique was used to identify the participants in
this study, based on the criteria described above. As Merriam and Tisdell (2016) put it,
“purposeful sampling is based on the assumption that the investigator wants to discover,
understand, and gain insight and therefore must select a sample from which the most can be
learned.” The participants in this study are CEOs, presidents, or the highest-ranking family
member in large Philippine family firms. Their position titles vary depending on what
terminology is used by the firm. None of the participants founded the firms: they are second-
generation or third-generation family firm leaders who have gone through the succession process
and thus can talk about the successes and challenges they faced. The participants are also now in
the position to change and improve the succession process based on their experiences. Eleven in-
depth interviews were conducted for this study.
The Researcher
Merriam and Tisdell (2016) identified three critical issues regarding the researcher-
participant relationship: insider/outsider issues, positionality issues, and the intersection of the
two. I am a second-generation CEO of a large Philippine family corporation. This puts me in the
category of an insider with a similar social, economic, cultural, and racial background to the
participants. Being an insider with similar positionality has several advantages: participants are
known to trust and open up more to people of similar backgrounds (Merriam and Tisdell, 2016),
the researcher will be able to understand and connect better with the participants, and the
researcher will be able to use the data in her own work (Dwyer and Buckle, 2019). But insider
researchers must also be aware that their personal biases may influence the research and should
keep these biases in check when conducting the study (Dwyer and Buckle, 2019). For the present
61
study, I avoided bias by using an interview guide so the same questions can be asked of each
participant, asking general questions first and then slowly making them more specific, and being
careful not to use leading questions or words that might project my own beliefs and opinions.
Instrumentation
The method used in this study is semi-structured interviews. The interview protocol,
provided in Appendix A, lists the questions asked of each interview participant (Merriam and
Tisdell, 2016). The questions are based on the KMO theoretical framework and follow-up
prompts were prepared in advance, for potential use based on the conversation’s progress. The
reason for this approach is that CEOs of large firms are complex individuals who differ in
cognition and emotions (Liu, 2018), and who have had varied experiences of the succession
process. Specifically, the participants’ past experiences and characteristics can change how they
make decisions (Liu, 2018). Having the right prompts will allow the researcher to dig deeper
into their feelings and opinions, particularly relating to the KMO factors influencing succession.
Overall, each interview featured a mix of 17 open-ended questions about the knowledge and
motivation of family firm CEOs and the family firm’s organization.
Interview Setting and Data Collection Procedures
The interviews were conducted online via Zoom, since some interview participants reside
in other regions of the Philippines. Participants were also given the option of completing the
interviews using Google Meet, telephone, or face-to-face meeting. Zoom also allows the
researcher to have audio as well as video recordings of the interviews, with the explicit consent
of the participants. Recordings were only turned on after the participant gave his or her consent
at the start of the interview. If the participant did not give consent, the researcher took
handwritten notes during the interview. After the study is completed, all the stored audio and
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video recordings will be destroyed immediately. Each interview was scheduled for one hour,
including the time to review participant consent.
Data Analysis
To qualitatively analyze the answers to the in-depth interviews, each question was broken
down based on the KMO gap analysis theoretical framework, then the answers were reviewed
and analyzed in relation to the research questions. The researcher reviewed each interview
recording and transcript multiple times to make written comments and observations. Each
transcription was broken down into smaller units and then categorized based on emerging themes
(Merriam and Tisdell, 2016). These themes were then sorted and compared with each other to
identify patterns, a process that involved back-and-forth checks to see if the patterns were
supported by the units from the transcriptions and vice versa (Merriam and Tisdell, 2016).
Finally, the data were categorized based on the themes of knowledge, motivation, and
organization. Each category was designed to answer a research question, to accommodate all the
important observations and notes made, and to be free from researcher bias.
Trustworthiness
To ensure the trustworthiness of the data collected through the interviews, two main steps
were taken. First, member checking was used to gather the first three participants’ feedback on
the accuracy of the researcher’s interpretation of the main themes from the interviews (Merriam
and Tisdell, 2016). Second, a one-page executive summary of the main points of the interview
was also sent out to each participant. To ensure that themes gathered from the interviews are
sufficiently representative of all the interview participants, the researcher used a saturation
strategy to identify repeated ideas and concepts among the interviewees. The saturation levels
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were sufficient to establish credible answers to the research questions (Merriam and Tisdell,
2016).
Ethics
Each interview was completely voluntary, a fact emphasized during the initial phone or
email invitation to each participant, and again at the start of the interview. Informed Consent was
solicited and obtained from all interview participants, including assurances that their answers
were confidential, with all personally identifiable information (including the interviewee’s names
and their firm names) removed from the final output of the study (Merriam and Tisdell, 2016).
The interviewer also asked for permission to record the interviews, then stored the audio and
video recordings on a password-protected hard drive. The recording files will be destroyed after
the completion of the study. Since the interviews are voluntary, the participants were allowed to
skip any interview question or stop the interview at any time. Finally, the interviewer actively
sought to take on the participants’ perspective rather than judging their responses based on her
own experience.
Limitations and Delimitations
This study identifies the successes and challenges of large family firms in the Philippines
during the succession process, specifically with regards to CEO succession. To do so, the
researcher interviewed 11 second and third generation CEOs of these businesses.
A potential limitation to the study is the online interview environment, which can be
subject to fluctuations in internet connection quality. Using Zoom also made it more difficult to
observe a participant’s reaction or body language during the course of the interview, as only the
participant’s shoulders and above could be observed. Also, given that only 11 participants were
interviewed, it might be difficult to generalize the results of this study to the general population.
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Finally, another limitation is the time limit in the interviews. Given the breadth and depth of the
CEOs’ knowledge and experience, 60 minutes may have not been long enough for each
interview.
Potential delimitations to this study are the transferability of the results. The study was
conducted on large corporations in the Philippines, a developing country, and broad
generalizations may not apply to developed countries like the United States. For example, large
corporations in the United States are those that employ 500 or more people, while in the
Philippines large corporations employ 200 or more people, a potentially significant difference in
analyzing CEO behavior.
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Chapter Four: Results and Findings
The purpose of this study was to identify the knowledge, motivation, and organizational
influences that help or hinder next-generation leadership succession in large family firms in the
Philippines. The study used Clark and Estes’ (2008) Gap Analysis framework, using data from
11 semi-structured interviews with family firm leaders, to identify what successful family firms
had done during the succession process, as well as analyzing what worked and what didn’t work
for them. The interviews were developed based on a comprehensive literature review on the
history of family firms, family member versus non-family member CEOs, the succession
process, and the Gap Analysis framework (Clark and Estes, 2008). Specifically, the review
clarified potentially significant knowledge, motivation, and organizational influences on the
succession process. This chapter describes the participating stakeholders’ views on these
influences, based on their interview responses, to address the study’s three research questions:
1. What knowledge influences affect intergenerational leadership succession in large
family firms in the Philippines?
2. What motivational influences affect intergenerational leadership succession in large
family firms in the Philippines?
3. What organizational influences affect intergenerational leadership succession in large
family firms in the Philippines?
Findings
The data presented below is organized based on the influences identified by Clark and
Estes (2008): knowledge, motivation, and organization. Each influence is divided according to
the influences identified in the literature review. In analyzing the findings, if eight of 11 or
72.72% of the interview participants provided a similar response, that response constituted a
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majority. When a majority of the participants confirmed the influence, that means there was no
gap in the influence as it relates to the existing group of participant-successors, so it is suggested
that future successors account for that influence as well.
Research Question 1: Knowledge Influences
Krathwol (2002) identified three categories of influential knowledge types: declarative
knowledge, procedural knowledge, and metacognitive knowledge. Several interview questions
were used to determine whether these knowledge influences were present and to assess how they
contributed to successful succession. This section shows those findings, starting with a summary
in Table 5.
Table 5
Assumed Knowledge Influences and Interview Data Findings
Assumed knowledge influence Interview data findings
Successors need to have general knowledge
about the family firm.
All participant-successors displayed general
knowledge about the family firm.
Successors need to have general business
and management knowledge.
All participant-successors exhibited general
business and management knowledge
through formal education.
Successors need to have general business
and management knowledge.
All participant-successors gained general
business and management knowledge
through extensively working in the family
firm.
Successors need tacit, idiosyncratic family
firm knowledge.
The majority of family firm successors had
tacit, idiosyncratic family firm knowledge.
Successors need to be self-aware of what
knowledge their family firm lacks.
All participant-successors were self-aware of
what knowledge their family firm lacks.
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All Participant-Successors Displayed General Knowledge of the Family Firm
The interview data showed that all participant-successors knew about the history of their
family firm. When asked about how their family firm was started, all the participant-successors
were able to mention who started the family business, what type of business was started, and
how the firm grew to its current stage.
Specifically, all the participant-successors were introduced to the family firm at a young
age through story-telling by an older family member, or through going to work with their mom
or dad on weekends or holidays. It was through this early introduction and immersion that the
participant-successors were able to learn most about the family firm. Participant 9 remarked, “I
know growing up, my Lolo and Lola [grandfather and grandmother] would always talk about the
business as well as my mom, she would always talk about the business. So, I grew up around
always hearing about the business.” Participant 6 similarly stated,
Ever since I was young … I would usually follow my dad to the office whether it’s for
playing or summer job or doing stuff. … I would go there in a morning, do some, go to
the warehousing, learn the business, and then have fun during. And my treat was to have
a really good meal at lunch.
Participant 1 added to this, saying,
Well, since I was young I think since I was maybe 10, I would spend a lot of my
summers doing various odd jobs in the company. So minor things like you know working
in the lab or one time I was in [the] accounting department. One time I was in the
delivery and dispatch department just in a way kind of learning about how things were
being done in the company.
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Therefore, the interviews showed that it was important for participant-successors to be exposed
to the family firm at a young age, as this will help them gain family firm knowledge.
All Participant-Successors Exhibited General Business and Management Knowledge
Through Formal Education
The interview data also showed that all the participant-successors took business and
business-related programs in their undergraduate and/or graduate programs, some locally in the
Philippines and some abroad, and therefore they were familiar with the basic facts and concepts
relating to business. The study participants had mixed views on formal education, with some
finding it valuable and some finding it less valuable for their work.
Some Participant-Successors Did Not Find Their Education Useful to Their Work
Although all the participant-successors took business and business-related programs in
school, they differed in their opinion of whether or not their studies helped in their work as
President or CEO of their family firm. Four of the interview participants did not find their studies
useful: two stated that what they learned was not useful to their work at all, one said that only
10% of what she learned in her business undergraduate program was useful, and the last one said
that 80% of what he learned in school was not relevant anymore. As Participant 8 put it, “And I
tell you, everything that I learned, nothing applied to where I am right now. So, this is the type
that book smart doesn’t apply. You just have to learn as you go and become street smart.”
Participant 4 agreed with this, saying,
It’s beyond the courses it’s beyond the programs, right? Because I took my master’s
degree [and] brought it to the company, I was the president then, it took me four or five
years (to finish the program) and then nothing worked. So, all the tools that I got from a
master’s degree didn’t work.
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Some Participant-Successors Valued What They Learned Through Formal Education
In contrast to this attitude, three participant-successors stated that they went back to
business school for their master’s degrees, after working for their family firm for several years,
because they realized that they were lacking particular skills. They were able to learn and
develop these skills in business school. Participant 3 said, “What I felt was that I obviously knew
what my weaknesses are which was finance. That’s why I went to grad school after 6 years in the
family business.” Participant 7 agreed:
I’ve been really scared with numbers. If there was something that I didn’t wanna deal
with at the time when I was still studying are numbers, right? But when I went to AIM
(Asian Institute of Management), and they made me fully understand what financials
look like and how to really understand them and how they relate to each other and how
you can make decisions based on numbers, etc. Definitely it has helped me and my
exposure to becoming like, I became the CFO of our dealership here in Manila.
To add to this, two participant-successors said that they were able to learn from the
experiences of their classmates, which helped them a lot when they took over their family firms.
Participant 5 pointed out, “So what I benefited from an executive MBA, was really meeting other
professionals at the same level or higher and seeing sort of where’s the floor and ceiling for other
professionals and hearing their stories and things like that.” Participant 6 added that he
transferred to a co-op program where “while you're studying, you get to learn, you get to
experience, dealing with a lot of people corporate wide, right? And that helped me when I’m
now professionalizing my business.”
Other Participant-Successors Learned a Lot From Mentors in the Family Firm and Being
Immersed in the Environment
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While the participants were split on whether formal business and business-related
education is important to family firm leaders, several participant-successors believe that
mentorship and immersion in the business are very important. Some stated that they were able to
learn more from mentors and coaches who guided them in the family firm, and from being
immersed in the business and the surrounding community before they took over the top position.
These mentors and coaches were family and non-family executives who were experienced and
tenured in the family firm, so they knew the ins and outs of the business. Participant 8 stated,
“I’m just glad that I had the vice president of marketing who had been with the company at that
time for about 25 years to mentor me quickly.” Participant 10 pointed out that her “training came
from my dad first, then my brother, who were both my mentors.” Other successors mentioned
that being immersed in the family firm and the surrounding environment for a long time
contributed much to their business knowledge. Participant 2 proudly described his firm’s home
district, Binondo, as a university: “I went to USF but more than that, I went to BU. Boston
University? No, Binondo University. That’s where I learned everything, right? That’s where you
learned everything. I was exposed. I was educated.”
All Participant-Successors Gained General Business and Management Knowledge
Through Extensively Working in the Family Firm
Aside from gaining general business and management knowledge from formal education
and from mentors, participant-successors also gained business and management knowledge
through working in the family firm. Each of them worked extensively in the family firm,
advancing to a high-level position before taking over the firm. These high-level positions
included being the chief financial officer, chief operating officer, head of the biggest
departments, and head of a subsidiary. Although all of the participants gained extensive
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knowledge of the family firm—through early childhood introduction, immersion in the different
departments or subsidiaries, and/or mentorship by the previous generation or older executives—
their professional experiences prior to leading the family firm were split almost evenly among
three groups. Participants in the first group worked outside the family firm (four participants),
those in the second group were successful entrepreneurs who started their own businesses (three
participants), and those in the last group worked exclusively in the family firm (four
participants).
Working Outside the Family Firm Before Joining the Family Business
A group of four participant-successors worked in another corporation prior to joining the
family business, not including successors who had part-time jobs or internships in other
companies. These four successors said that their family firms recognized the importance of
professionalizing and bringing in family members who had worked in other corporations or
organizations outside the family firm. They knew that the outside experience would help
professionalize and improve their business. Participant 1 stated in a magazine interview that their
firm has rules on accepting a family member into the family business: “before a family member
can join, he or she must be a graduate from college and have worked outside for at least two
years” (Ong, 2022). Participant 9 further highlighted the importance of outside work experience
in his family firm, stating:
I was working in the U.S. I was, my training has been in law, so corporate law. And
around the time of 2006, 2007, my uncle who at the time was chairman and CEO, he
asked if I would be interested in coming back to the Philippines to help with the business
since at the time we were professionalizing. And so, since I had some professional
72
experience in the states, he offered me that opportunity. I think working outside of the
business was very valuable and I would also just recommend that to other people.
Running a Successful Businesses Before Being Called to Join the Family Firm
The second group of participant-successors started their own businesses and were
successful entrepreneurs before joining the family firm. This group of participants felt the
responsibility to help their family firm, knowing that they were the best candidate to lead it, even
though it meant taking time away from their own successful businesses. Participant 4 said, “I
joined the business because I felt that it was my responsibility, right? Because of my parents’
urging. But if given a chance, I would start, I would stay with my own.” Participant 8, another
successful entrepreneur, agreed with Participant 4: “I always tell everyone that I’ve never
become, I started [my own businesses] and I never became an employee, then 10 years after, I’m
forced to become an employee for family duty, right?” This group of participants were able to
manage their own businesses and their family businesses simultaneously.
Working Exclusively for the Family Firm
This last group worked only for their family firm (except for one who completed
internships while at college), and started their full-time jobs in the family firm right after college.
This group felt that they were drawn to the family firms from the get-go. Participant 11 said:
So, the reason why I got into real estate was quite interesting … after college, my mom
said, “You know, we have this theatre. ... You’re a fresh grad, you know, you have the
energy, why don’t you go do that?” I said, “Sure”. She goes, “Why don’t you do it for
like a year or two before you move on.” … I really enjoyed it.
Although they chose to work for the family firm immediately, two of the successors felt that
working outside the family firm would have been beneficial to them. Participant 5 stated, “I’m
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aware of like what I have lost from not working in other companies. So, when I do so there was a
very deliberate sort of movement to hire very sophisticated and professional upper
management.” Similarly, Participant 10 said, “Looking back, it would have been a good
experience to work outside or abroad first. Working for another company will give a different
perspective on how organizations are run.”
Tacit, Idiosyncratic Family Firm Knowledge
As discussed during the literature review, there are many types of tacit, idiosyncratic
family firm knowledge. It can include family traditions and customs, networking and relationship
knowledge, and firm specific knowledge. Some participant-successors talked about the different
relationships that they need to maintain and cultivate, and credited those relationships for their
firms’ success. Participant 8 highlighted “the value of keeping relationships. We keep our
relationships with our clients, with our stakeholders, with our suppliers. We have a rule that we
pay everything on time, we give bonuses on time.” Participant 2 agreed that relationships,
especially with employees, are important, saying that their executives are all “homegrown” and
that they promote from within.
Additionally, several participant-successors confirmed the value of firm-specific
knowledge, especially in manufacturing. Participant 6 said that their manufacturing process is
“like cooking. You need to add the right amount of salt and pepper and flour. Same with this, we
have to get the right amount of zinc, aluminum and the different ratios that you need to produce
certain products.” Participant 4 agreed that learning the process is very important saying, “Yeah,
there was [firm-specific knowledge]. Technically, yes. Yeah. Technical stuff, yeah. And that’s
why I immersed myself for 8 years. Technical training.”
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By definition, tacit knowledge is something that is internal and therefore difficult to talk
about or express (Nonaka, 1994). Tacit knowledge comes from a person’s years of experience in
a certain field and can be applied to benefit a company through innovations and new ways of
doing things (Nonaka, 1991). The interview data showed that the interview participants have
driven innovations in their respective firms in terms of new processes, new products, and new
businesses. Participant 5 noted, “When I joined in 2002 actually, we went nationwide. We
opened a new factory and we went to other product lines.” Participant 3 started the firm’s real
estate department, which is now the biggest department in their company: “[When] I joined the
company … we didn’t have a real estate department. So, basically, I was the first employee of
the real estate department.” There were three participant-successors, however, who said that they
did not have any special knowledge needed to lead the family firm. Polyani (1966) pointed out
that “we can know more than we can tell” (p. 4), and so a lot of times people with tacit
knowledge do not even realize that such knowledge exists and therefore are not able to name it
when asked about it. It could then be that these three participant-successors are just not aware
that they have tacit knowledge.
Self-Awareness of Gaps in Knowledge
All the participant-successors were aware that there are things that their family firms lack
and that there are ways that they can improve. These participants were also aware of what they
are doing well right now, such as introducing the next generation to the family firm at an early
age and developing potential successors’ love for the family firm. The most common gaps that
participants saw in their own firms were the need to prepare the next family firm leaders, the lack
of corporate governance tools, and the lack of a formal succession plan. While these common
succession gaps will be discussed later in this chapter, other relevant concerns included
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managing family members’ emotions, distributing family firm shares, and finding the right talent
within the family. Participants 5 and 7 talked about how emotions play a part in the succession
process. Participant 5 admitted, “There’s a lot of emotion involved. Like, you know when the
sentence starts off, like ‘this is what your grandfather did’ and then I have to be like super alert.
It’s a legacy thing.” Participant 7 added that one of the major challenges is “stabilizing not just
the company, but everybody else. Like, imagine emotions are up and uncertainty is up. So,
therefore that was the first thing that had to be done. How do you stabilize things?”
Participant 6 said that it was difficult to talk about the distribution of shares, especially
when some of the previous generation had already passed away. Others talked about finding the
right talent within the family, saying that being born into the family should no longer mean
automatic acceptance into the family firm. Participant 5 put it this way: “Birthright doesn’t make
them a qualified person for the succession, nor does it make them wanted.” Participant 4 agreed
with this, saying, “So, for the business, they’re not expected to join. If they want to join then they
have to prove themselves.” All these show that the participants are aware of what they can do to
improve succession in the family firm.
Research Question 2: Motivational Influences
Based on the literature review, three areas of motivation affect leadership succession in
family firms: stewardship, affect or emotions, and self-efficacy. The findings suggest that
participant-successors are motivated by stewardship and not by personal gains, they enjoy
working in the family firm, and they feel confident about their leadership and management
abilities. Several interview questions were used to determine whether these motivational
influences were present and to assess how they contributed to successful succession. This section
reviews those findings, starting with a summary in Table 6.
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Table 6
Assumed Motivational Influences and Interview Data Findings
Assumed motivational influence Interview data findings
Successors need to feel confident about
their leadership and management
abilities.
The majority of participant-successors were
confident about their leadership and
management abilities.
Successors must feel positive emotions in
the firm.
All participant-successors enjoyed working in
the family firm.
Successors need to be motivated by
stewardship and not by personal gains.
All participant-successors were motivated by
stewardship and not by personal gains.
Confidence About Leadership and Management Abilities
The findings from the interview data showed that participant-successors are consistently
confident about their abilities to lead the family firm. Although the interview participants cited
several reasons why they were chosen to lead the firm, the majority mentioned two main reasons:
their experience and position in the firm (four participants), and their willingness to step up to
the task (four participants). Both reasons show that they had the confidence of their predecessors
and confidence in themselves to take on the position.
Some Participants Were Chosen to Lead the Family Firm Because of Their Position and
Experience in the Firm
Four of the interview participants stated that they were chosen to lead the firm because of
their experience, and because of the position they held in the firm at the time the leadership
transition needed to be made. None of these four successors (Participants 1, 3, 7, and 10) were
the eldest in their family. In fact, only one interview participant, Participant 4, said that he was
chosen to lead because he was the eldest in the family. Participants 3 and 10 were the youngest
in the family but they had the blessing of not only their predecessors but also their older siblings.
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Participant 3, being the youngest, has three older brothers, but he was chosen to lead the family
firm because he handled the biggest part of the business. He said:
I handled the biggest part of the business … now it’s probably 95% already in the
company. So you know, I mean obviously, I’m considering where the company’s headed,
you know, talking to investors, talking to banks and all of these things, analyst. So, that’s
why it was decided that I would, you know, I would be the CEO.
Participant 1 said that he was the chief financial officer (CFO) at the time when their
company was planning to list, and although he never asked why he was chosen to head the
family firm, he believed it was because of his CFO position, because he “had handled the IPO
previously,” and because of the trust his family had in him. These participant-successors were
able to prove to the predecessor and other stakeholders that they had the competence to lead the
family firm.
Some Participant-Successors Were Willing to Step Up to Lead When No One Else Was
Willing
Four of the interview participants said that they were not chosen as successors; they
either volunteered or were the only ones willing to step up at that time. Participant 5 said, “I
don’t think I was chosen. I think I volunteered and there was nobody else volunteering. … I
really wanted to grow the business. … So, lucky or unlucky, the business got me first.”
According to Participant 11, since his older and younger brother both started working outside the
family business, he spent the most time with his father, learning about the business. He added:
So, I guess he didn’t know whether [my brothers] would join the family business or not.
So, kind of, because I was the only one who expressed that strong interest and
commitment to be the family business and kind of by default, I was the only one.
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By stepping up and volunteering to the task, these participant-successors showed confidence that
they were able to lead the family firm.
All Participant-Successors Have Positive Emotions in the Family Firm
When asked whether they enjoyed their work, all 11 interview participants affirmed that
they enjoyed working in the family firm. They offered many different reasons for their
enjoyment, including having a sense of fulfillment, getting the respect of the older generations,
continuing the family’s legacy, building and growing the business, relishing the challenges, and
just loving the work. The most common reason they gave was the freedom and flexibility that
came with working in the family firm, with four participants specifically citing that reason.
Participant 3 said that his father “just trusted and was super confident in what I said… he never
hovered around me.” Participant 1 added to this, saying:
What I’m very grateful for is that my dad, my uncles gave, not just me, but my cousins a
lot of leeway, a lot of flexibility, a lot of freedom to really do things on our own, make
our own mistakes. But at the same time still be there as guides and mentors for us, not
just as our bosses.
Being Motivated by Stewardship and Not by Personal Gains
When asked why they decided to join the family firm, none of the successors said that
they joined because of financial or personal reasons. They did it out of a sense of duty to either
the family (mainly their parents) or to the family firm. In fact, a few of successors commented
that the family firm doesn’t pay well or doesn’t pay at all. Participant 8 said:
Do you know that on the first year I took over, my salary was zero, right? And then, you
know how family firms pay you crumbs and then for the next 5 years they paid me
30,000 pesos a month to the point that I couldn’t even fund my cell phone, my food, my
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gas. So, every time I go to work, I was actually losing money, right? That was family
duty, right?
Overall, of the 10 different reasons successors decided to join the family firm, none of them had
to do with personal gains such as financial rewards, power, or control. Although each successor
gave several reasons, the two main reasons successors decided to join the family firm had to do
with a sense of responsibility to their parents and their family’s legacy.
A Sense of Duty to Their Parents
The majority of the successors stated that they decided to join the family firm either
because their parents asked them to join (five participants) or because their parents were getting
older (three participants). Participant 4 stated, “And when I graduated, I started my own business
... after 5 years, my parents asked me to help with the business because they’re getting old and
they offered to buy my business as a part of the company.” Participant 4 also saw how difficult it
was for their parents when they started the family firm, so he wanted to make sure that it would
continue to grow. Participant 7 was persuaded by her father to join the family firm, even though
she didn’t want to join the firm at first:
I was convinced by my dad to join the company and my journey started as a sales
executive at the time. So, since then I’ve been exposed to the different areas of the
organization, which I got to explore and eventually loved. So, that’s why I am here today,
20 plus years after.
A Sense of Responsibility for the Family Firm
Eight of the successors said that they decided to join the family firm because of a sense of
responsibility for the family firm, with several giving multiple reasons connected to this sense of
duty. It stems from their love for the firm that was rooted in childhood (four participants), their
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desire to build something bigger (three participants), and the need to continue the legacy of the
family firm (five participants). Participant 2 said that he joined because he loves the business and
“it was being instilled in me to love it” from an early age. This love for the firm is also rooted in
the comfort they feel: for instance, Participant 10 said, “It’s something very familiar to me, like
home.” Participant 9 said that he joined the family firm because he wanted to continue the legacy
that his grandparents built and to “help build something bigger or help to contribute to building
something bigger, for me, that was more of an attraction.” Participant 7 summarized it all by
saying, “I love the company, it is my father’s. There’s a sense of family duty, a sense of legacy, a
sense of keeping his memories alive through his company.”
Research Question 3: Organizational Influences
The literature identifies five areas of organization that affect leadership succession in
family firms: good relationships, long-term goals for the family firm, cooperation between the
predecessor and successor, succession plans, and corporate governance tools. The interview
findings suggest that a majority of the participant-successors have positive relationships with
their predecessors, all the participants have concrete long-term goals for the family firm, all
participants whose predecessors are still involved in the business have a good working
relationship with them, none of the family firms have a formal succession plan, and some family
firms have the necessary corporate governance tools. Several interview questions that were used
to determine whether these organizational influences were present and to assess how these
organizational influences contributed to successful succession. This section shows those
findings, starting with a summary in Table 7.
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Table 7
Assumed Organizational Influences and Interview Data Findings
Assumed organizational influence Interview data findings
Successors need to have positive
relationships with the predecessors.
The majority of successors had positive
relationships with their predecessors.
Successors and incumbents need to have a
spirit of cooperation.
All participants whose predecessors were still
involved in the business had a good working
relationship with them.
Successors need to have a long-term
orientation for the family firm.
All successors had concrete long-term goals for
the family firm.
Family firms must have the necessary plans
in place to have a successful succession.
None of the family firms had a formal
succession plan.
Family firms must have the right corporate
governance tools in place to have a
successful succession.
Some of the family firms had the necessary
corporate governance tools in place.
Relationships With Predecessors
When asked to describe their relationship with their predecessor at the family firm, eight
successors said that it was good, two said so-so, and one said that it was not good or that there
was no relationship. Handler (1991) described a good working relationship as having a “level of
mutual respect and understanding between the current and the next-generation family members
… that includes trust, support, communication, feedback, and mutual understanding” (p. 26). The
participant-successors talked about their relationship with their predecessors both at home and at
work. The interview data showed that the predecessor-successor relationship at home carried
over to the work environment. Indeed, those successors who reported good and loving
relationships with their successors at home also had great working relationships with their
predecessors. The literature shows that positive predecessor-successor relationships serve as
stepping stones to a successful leadership succession.
Predecessor Relationships When Their Predecessor Is a Parent
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Eight out of 11 interview participants had a parent as their predecessor, and 7 of them
said that they have a good relationship (or a very close relationship) with their predecessor. Only
one said that he had a “yo-yo relationship with his father.” Among the participants reporting
good relationships, Participant 11 said about his father: “I learned a lot from him and we really
get along. Also, we have the same wave, like the same mindset, so we have a very good, good
working relationship.” Participant 2 similarly that his father always looks out for his well-being,
even when he is at work:
You know what in Excom, I’m always shaking my head, you know like we’re talking,
I’m so serious. Give them (Excom) all the issues. But my dad would go on the side and
say: “[Name], do you drink your, remember the Vitamin C I gave you earlier.”… He’s
gonna stop the meeting and he’s gonna tell you “You didn’t take your fish oil.”
Two of the successors, both female and both of whom took over the family business after their
fathers passed away, contrasted their work and home relationships. Participant 7 said, “We have
two relationships. So, one is at home and in the office. It is very clear to me that when we are in
the office, he’s my boss. We only talk father-daughter when we’re at home.” Participant 10
confirmed this, saying, “So, our relationship was first father-daughter, second, boss-personal
assistant. … I was his favorite, he was the nicest to me among us siblings … he always respected
my decisions.”
Participant 1 said this about this father:
I confide a lot of things with him. So, I’d say [we’re] pretty close. I discuss a lot of things
with him which is good not just from a personal side but on the business side as well.
And there’s a lot of trust. There’s a lot of love of course.
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Participant 1 was a special case, as he was able to work with both his father and his uncles. He
also had good relationships with all of them, calling them his mentors and coaches, unlike the
other participants below.
Predecessor Relationships With Non-parents
Two of the interview participants had predecessors who were their uncles, and neither
participant reported good relationships with them. Participant 9 said that their relationship was
difficult, especially when the firm had to go through restructuring in the third generation, in
order to give different nuclear families more autonomy. He said that the relationships are starting
to get better again now that the restructuring is behind them. Participant 10 also had a difficult
relationship with his predecessor uncles:
Well, to tell you the history, when my father died, the ones who took over are his three
siblings, right? Three Titos [uncles], male Titos, basically the company for the past 30
years after his death didn’t grow under them. So, that being said, I really don’t like their
opinion. I don’t go to them. So, when I took over during my mom’s presidential term,
which I basically run, we overhauled everything.
Working Relationships With Involved Predecessors
When asked if their predecessor is still involved in the family firm, five participants said
that their predecessor is still involved and six said that their predecessor is no longer involved in
the firm. Of the five predecessors still involved in the family firm, only two are involved full-
time in operations. The rest are involved in operations, but only on a part-time basis as
consultants, mentors, board members, or select projects. Of the predecessors who are no longer
involved, three had already passed away and the other three are involved in non-operational parts
of the business, such as the family council, and as regular shareholders.
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The two participants whose predecessors were still involved have both established a good
working relationship with their predecessor. Participant 5 said that although he still reports to his
dad based on the organizational structure, he has the autonomy to handle his firm’s operations: “I
now handle all parts including manufacturing and so, it’s a lot more work, but I think it’s a lot
more streamlined in terms of the relationship and work relationships.” Participant 6 also said that
although his father is still very much involved in operations, his father listens to him when it
comes to changes that need to be made, and that the firm is set up so that he can easily take over
the company anytime his dad decides to officially retire.
Concrete, Long-Term Goals for the Family Firm
All of the successors confirmed that they had long-term goals for the family firm. These
long-term goals fell into three groups: growing the business (six participants), preparing the firm
for the family’s next generation (three participants), and professionalizing the company (five
participants). One participant cited both growing the business and preparing for the next
generation, and two participants cited both preparing for the next generation and
professionalizing the firm.
Goal 1: Growing the Family Business
Six of the participants said that they wanted to grow the family business financially, by
increasing revenues and/or expanding the market. One participant said that his goal for the
family firm is to be listed in the stock exchange, so he set his revenue target at 2 billion U.S.
dollars. Another participant talked about expanding the firm’s export market from one-third of
their family firm revenues to 50% of revenues. Participant 9 presented growth in terms of
employee satisfaction:
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Well, I’d like to build it even bigger so that we can provide more for the employees, as
well as the family, so that employees can look at it as a place where they can work, you
know, forever if they wanted to, right? So, and where they can also achieve a good
standard of living, right?
Goal 2: Preparing Next-Generation or Professional Firm Leaders
Three participants said that their long-term goal right now is preparing the firm for the
next generation, as they saw themselves as stewards of the family firm. Participant 7 stated, “if I
were really to look at our long-term goal is really having to be able to properly and successfully
do our succession planning and pass the baton on to the next generation.” Participant 3 likewise
noted:
I think one of my major goals is, as much as I’m an owner of the company, I like to see
myself more as a steward of it. To get the next generation prepared. To prepare the, they
call it our shareholders agreement and our stocks in place to ensure that it’s something
that can be around for the next couple of decades. I think that’s one of my major goals.
So, you know, to be able to say that I’m third generation and you know, the rumor that
the third generation that effectively uses the wealth.
On the other hand, five interview participants, including Participant 5, stated that they
wanted to professionalize their family firms so that there was no pressure for the next generation
to join in the operations of the firm. Participant 8 put it this way: “So, 10 years from now, I’d
like to pass the torch to somebody who will be a better guardian of our assets.” He added,
I want to be the last [family member leader] and I want to choose my heir and I will not
choose any of my cousins. My siblings have their own world. I can’t find anybody
qualified to replace me. So, I told them that it has to be a professional.
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Participant 7 said that it is important to include both family members and professionals in firm
leadership, saying:
We wanted our company run by professionals as much as possible. Definitely we wanted
family members to be involved but for the longevity of the company, we wanted to have
professionals running it. So that we think of the benefit of the company and our
stakeholders rather than, you know, being family members.
None of the Family Firms had a Formal Succession Plan
When asked whether they had a succession plan in place, all the successors admitted that
they did not have a formal plan in place, but most of them said that their predecessors used and
informal process that they plan to improve. Participant 2, for instance, described the succession
plan as more of a vision: “So yes, succession planning for us I think is organized because we
have a structure for it, but it’s more for vision, more than really a map or a road map, right?”
Most of the participants agreed that their plan should be formalized. Participant 9 stated,
“But it’s definitely, something that we wanna formalize a better process, right? As opposed to it
being arbitrary where let’s say the CEO or the chairman chooses someone, so it’s a work in
progress.” Participant 9 added that his family has also grown since his father’s time as head of
the company. Participant 3 agreed with needing a more formal plan:
So, I think it should be more formal you know, right? My dad did it to resolve obviously
just one branch. He was the, you know, he was the 99% owner of the company. But now
there’s going to be you know, in essence, four branches already.
Participant 1 added that having a more formal plan is important now that the family is growing:
We do want to make the process more formal and in a way, so the way the first gen did it
my dad and my uncles. There were just five of them. And so in a way it was very easy for
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them to discuss and decide. But in our case with our second gen there’s a lot more family
members. So, we do need a little bit more structure and so that’s something we will have
to figure out on our own. We can’t exactly follow what the first gen did, just because we
have so many more members and we’d like to have more involvement across the
different family members.
Participant 11 said that there was no structure to his father’s approach saying the brothers
were just asked, “Who’s interested? ... You shadow me, you spend time with me, you join me in
every meeting, you join me in all of the discussions and all of the work. You are always with
me.” He added that his parents, together with he and his brothers, defined their succession plan
collaboratively, although very informally, as a family.
Some Participants Used Corporate Governance Tools
The interview participants were divided on whether their family firms have all the
necessary corporate governance tools (3), whether they employ some corporate governance tools
(2), or whether they do not use any tools (5).
The first group of family firms were either publicly listed or planned on publicly listing,
and they all employed corporate governance tools. Having the proper corporate governance tools
is a requirement for all publicly listed companies and those that plan to do an IPO (initial public
offering). According to Participant 1, having corporate governance tools “really helped,
especially when we listed our companies in the stock exchange… We have seven members on
our board, out of which the majority, four are independent. So, only three are family members.”
The second group of family firms employed some corporate governance tools. For
instance, Participant 8 said that he created an audit committee. Participant 7 said that her family
firm had to “learn how to move away from the traditional way of family member taking over. So,
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we’ve done a lot of initiatives on operations. We’ve also done a lot of initiatives as far as policies
and procedures in the company,” but she also knows that they have to do more.
The third group of family firms were not currently using any corporate governance tools,
though four out of five participants said that they do plan to implement them in the future.
Participants 5, 6, and 9 said that they have other priorities right now, including professionalizing
and restructuring, and that employing corporate governance tools would be the logical next step.
Participant 9 said, “We’re aware of a lot of the corporate governance practices and so we try and
implement them. So, whether it’s getting, you know, sort of, a quality auditor or you know,
having the necessary board committees.” Participant 6 echoed this:
I see that happening probably once I professionalize the business because we are in the
process of doing that, right? There’s a lot of organizational structure development that
we’re doing. So, when that is done, then yes, then I will see the need to bring in corporate
governance tool, in that aspect. For now starting out with the family constitution and
having it written down between us families first.
Just like succession plans, corporate governance tools have not been a priority for family firms in
this study. The next chapter will consider why this may be the case and give recommended
strategies for family firms planning for succession.
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Chapter Five: Suggested Recommendations
Chapter 4 presented the findings from data collected during 11 in-depth interviews with
second- and third-generation family firm CEOs. The participants were asked questions relating
to the knowledge, motivational, and organizational influences which help or hinder
intergenerational succession in large family firms. Since the interview participants are successful
family firm leaders, when a majority of them confirm a particular influence, that influence
constitutes a best practice for the purposes of this study. A best practice, as defined by Merriam
Webster (2023), is “a procedure that has been shown by research and experience to produce
optimal results and that is established or proposed as a standard suitable for widespread
adoption.” It is therefore suggested that other family firms follow these practices to ensure a
successful intergenerational transition. Conversely, when less than a majority of the participants
confirm a particular influence, it does not constitute a best practice for the majority of family
firms in this study, but recommendations will be made regarding those influences. Overall, of the
13 potential influences considered in this study, 11 qualify as best practices while two do not
constitute best practices.
This chapter will include a discussion of these results, recommended strategies for family
firm succession, recommendations for future research, and a conclusion. The discussion section
will particularly engage the unexpected findings and possible explanations for them. The
recommended strategies section recommends paths to incorporate corporate governance tools
and develop a succession plan for family firms. These recommendations, which are based on the
influences highlighted by Clark and Estes’ (2008) KMO framework, will form a succession plan
template that other family firms can use to plan and undertake succession. The template is based
on the succession planning process that was introduced by Cater and Justis (2009), Churchill and
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Hatten (1987), and Handler (1990). The future research section will highlight topics that
emerged during this study that, with further research, would help family firms in the future.
Finally, this study will end with some concluding remarks.
Discussion
This study examined family firm successors and how different KMO influences affected
firms’ leadership succession practices. Family firms make up about 90% of corporations in the
world (The Economist, 2015) and employ about 60% of the global workforce (Neckebrouck,
2018), yet only two-thirds of family firms make it to the second generation and only 13% make it
to the third generation (Ward, 2011). It is therefore important to understand the different
influences that affect leadership succession in family firms, as the longevity of family firms is
vital to the world economy.
There were 13 predicted influences (five knowledge influences, three motivational
influences, and five organizational influences) in this study and while most of them functioned as
expected based on the literature, two results were surprising. Of the 11 expected influences,
many are significant for the performance of both family and non-family firms. For example,
general business knowledge is known to increase firm performance. In general, all CEOs with
business degrees, not just family firm CEOs, do better as managers of corporations (Mun et al.,
2020), which confirms the importance of the participant-successors to go through business
education. CEOs with business degrees were also found to “have higher value of excess cash”
(Mun et al., 2020, p. 17) in the companies they managed and were better at handling operations
of the corporations they managed (Mun et al., 2020). In fact, Zhang et al. (2022) found that as
CEOs reach higher levels of education, their tolerance for risk decreases, meaning that they are
more concerned with the long-term well-being of the corporation.
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Along similar lines, firm knowledge and extensive work experience are both known to
increase firm performance. Studies also found that inside CEOs are better than outside CEOs, as
they are able to run more stable corporations that “build on existing organizational capabilities”
(Zhang and Rajagopalan, 2009, p. 343). Finally, self-efficacy or the CEO’s confidence is known
to improve firm performance. A study by Bharati et al. (2016) found that CEO confidence, in
this case measured by the way a CEO estimates potential cash flows and risk, can increase the
performance of a corporation’s stock price by 3.00%–4.50% over those with CEOs who are not
confident in themselves.
Two other influences, however, are more distinctive to family firms: long-term
orientation and stewardship. Given the family dynamics inherent to family firms, these strengths
are not surprising. What is surprising is why these factors are not more prevalent in non-family
corporations. A study by the National Association of Corporate Directors (2016) found that
while family firms value long-term strategic planning more, non-family firms value short term
valuation and goals more. A long-term orientation is also connected to stewardship. Le Breton-
Miller and Miller (2006) stated that “long term priorities include good stewardship aimed at
reducing risk or building up resources” (p. 732). Stewardship is important in family businesses as
the leaders are caring for the family firm for the next generation (Davis et al., 2010). Long-term
orientation is likewise important for family firms because the family leader is preparing and
waiting for the next generation to take the leadership position (Le Breton-Miller and Miller,
2006), which according to Miller (2005) is one reason family firms do better than non-family
firms. Non-family firms’ leaders do not have a next-generation family member to pass the firm
to and therefore may be less concerned with how the firm performs in the future than with their
short-term performance.
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While the study’s findings on knowledge and motivational influences all emerged as
expected, the data on two organizational influences (i.e., the need for corporate governance tools
and succession plans) generated unexpected results. Although the literature review confirmed
that few family firms have the right corporate governance tools in place, it is known that these
tools help in leadership succession. Given that all the interviewees had successfully transitioned
to second- or third-generation leadership, it was unusual for a majority of the firms not to have
them. Moreover, all of the family firms represented in this study are at least 30 years old. A
study by Fahed-Sreih and Djoundourian (2006) found that older family firms (those that are
more than 30 years old and have gone through at least one leadership succession) use more
corporate governance tools than younger family firms (those that are less than 30 years old). The
study showed that only 11.4% of younger firms have advisory boards compared to 30.4% of
older family firms, and only 37% of younger family firms hold family meetings compared to
53.3% of older family firms (Fahed-Sreih and Djoundourian, 2006). Thus, it was surprising to
find relatively few firms in this sample with corporate governance tools.
Several reasons may explain why relatively few family firms use corporate governance
tools. First, family firms value trust. According to Chaudhary et al. (2021), one of the strengths
of family firms is their trust-based relationships, which they work hard to cultivate. Whether it is
an advisory board or independent directors, many corporate governance tools require an outsider
to be part of the family corporation. This may not be palatable to family members who spent
decades building up their family’s reputation. There may also be some trade secrets that family
members want to keep to themselves. A study by Rajbhandary (1996) found that family firms
have trade secrets such as supplier lists, customer discounts, unique products or services, and
industry- and firm-specific knowledge that they don’t want to share with outsiders. The finding
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section confirms this trend, as the majority of the participant-successors have tacit, idiosyncratic
family firm knowledge (which includes stakeholder relationships, firm-specific knowledge, and
other forms of knowledge) that is important to leading the firm. Rajbhandary (1996) pointed out
that outsiders can take advantage of such trade secrets by starting their own competing firm or
handing the secrets out to competitors, which is why family members don’t want outsiders to be
too knowledgeable about the family firm. Overall, the level of trust that family firms have for
family members is much higher than their trust of outsiders.
Another reason that family firms have not incorporated corporate governance tools is that
they prioritize other projects over the development of corporate governance tools—and since the
family firm has been successful so far with few if any such tools, they are in no rush to develop
and implement them. Family firms, unlike other firms, have both non-economic family goals and
economic firm goals (Kotlar and De Massis, 2013). This, along with the high number of
stakeholders in a family firm, makes goal -setting much more complex as it becomes harder to
satisfy all the parties involved. The resulting challenges make it difficult for family firms to
focus on working on corporate governance tools. That said, of the five participant-successors
whose firms do not employ corporate governance tools, four stated that they wanted to work on
those tools in the future. This suggests that family firms do recognize the importance of
corporate governance tools, but those tools tend to take a back seat to other firm priorities.
Similarly, the researcher also assumed that successful family firms (like those
interviewed) would have succession plans in place. It was surprising to see that none of
successful family firms in this study had a formal succession plan, as this was thought to be one
of the reasons for their success. One possible explanation could be that all the family firms in this
study were only on their second or third generation of leadership, reducing the number of family
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branches involved and thus simplifying succession. Family members in these firms, usually
siblings, are often very close and do not feel the need to have a formal succession plan.
Handler (1991) described this as “sibling accommodation” (p. 29) wherein “siblings
working in the business agree on their relative positions of responsibility or power” (p. 26),
usually based on their expertise. Several participant-successors in this study talked about how
each of their siblings were able to fit into different company positions based on what they
enjoyed or were good at. The siblings themselves were then able to figure out who was best able
to lead the company based on their skill set. In the case study of a large family corporation
presented by Ibrahim et al. (2001), the eldest son and the second son were both involved in the
business in different high-level positions, but it soon became clear that it was the younger son
who was more qualified to lead the company. The eldest son was more family-oriented and did
not have the drive that his younger brother had, so the eldest son was happy to let his younger
brother lead the company after their father suddenly passed away (Ibrahim et al., 2001). When
the firm leadership reaches the fourth and fifth generation, with more families and people
involved, it is recommended that a succession plan be in place as it would be necessary to avoid
conflicts.
Another possible reason family firms do not have a formal succession plan is that the
founders or the predecessors did not prioritize the creation of a succession plan. A study by
LeCounte (2022) found that many family firms are still owned and managed by the founder.
Even when the family firm is officially managed by the next generation, many times control and
ownership of the firm still lie with the founder or predecessors. The transfer of shares is another
important aspect of succession that can be covered in future research. According to Marshall et
al. (2006), family firm “owners create formal plans with minimal input from other family
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members” (p. 364), creating conflicts that make planning even harder. As the owner, who is
usually the founder and/or predecessor, gets older, he or she tends to use the “conflict
management approach” (p. 365) and be more concerned with his or her own outcomes, rather
than others’ concerns, which hinders the creation of succession plans (Marshall et al., 2006). For
example, in the case study by Ibrahim et al. (2001), the founder suddenly died of a heart attack
without a succession plan in place. The ensuing years were marred with conflicts between
working family members, non-working family members, and ranking non-family members
(Ibrahim et al., 2001). Knowing the characteristics and leadership styles of the founders or
predecessors is important in “understanding the culture of family firms and subsequent influence
on succession planning” (LeCounte, 2022, p. 627). Succession plans should therefore be
developed with open communication and open minds, ideally through corporate governance
tools such as formal family meetings, shareholders meetings, advisory boards, and other methods
that promote healthy dialogue among family members (Fahed-Sreih and Djoundourian, 2006).
Given the importance of both corporate governance tools and succession plans, it was
surprising to see that very few family firms in this study implemented them. The next section
recommends specific strategies to address these two influences, as they are important for family
firms planning to transition in the future.
Recommended Strategies to Address KMO Influences
Two organizational influences in the KMO model, both in the organizational dimension,
were found not to be best practices of the family firms interviewed in this study: the need for a
succession plan and the need for corporate governance tools. This finding complements existing
research showing that very few family firms have a formal succession plan or corporate
governance tools in place (e.g., Calabro and Valentino, 2019). The discussion section shared
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several possible reasons for this trend, including the lack of succession plans among the
interviewees’ firms. While there are good reasons for not using corporate governance tools and
succession plans, this study and the literature still recommends their use. Below are some
recommended strategies for their implementation.
Recommended Strategies for Corporate Governance Tools
Globally, Calabro and Valentino (2019) found that 45% of family businesses employed
one governance tool, 22% employed two tools, and 33% employed three or more. This study
found that 50% of the participant-successors that responded to the interview question on these
tools said that they did not use any corporate governance tools, 30% said that they did, and 20%
said that they used some. Those firms that use corporate governance tools consistently are
publicly listed or plan to publicly list in the near future, and therefore view corporate governance
tools as a form of government compliance more than a family business need. The Securities and
Exchange Commission of the Philippines (SEC) has a Code of Corporate Governance for
Publicly Listed Companies that lists guiding principles that corporations should follow for good
corporate governance. Each of the Code’s five main sections recommends specific tools: clear
board governance responsibilities, which includes having independent directors and board
committees; disclosure and transparency, which includes selecting an external auditor and
procedures proper disclosure of material issues; internal control system and risk management
framework, which includes internal audits; cultivating a synergic relationship with shareholders,
which includes respecting the rights of all shareholders; and duties to stakeholders, which
includes the corporation’s responsibility to all other stakeholders like employees and even the
surrounding community.
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The literature identifies the two most-used corporate governance tools as board
independence and CEO separation (Abbasi et al., 2012; Adebayo et al., 2013; Goh et al., 2014).
Board independence means the inclusion of independent directors in the corporation’s board of
directors. An independent director is not part of the corporation’s management team and does not
have an interest in or a relationship with the corporation (Goh et al., 2014). The literature has
shown that board independence is positively related with firm performance (Adebayo et al.,
2013; Goh et al., 2014). CEO separation, when the CEO and the chairman positions are held by
different persons, is also considered good corporate governance for shareholders (Syriopoulos
and Tsatsaronis, 2012). The literature has shown that having CEO separation increases a
corporation’s performance (Adebayo et al., 2013; Syriopoulos and Tsatsaronis, 2012). Even
though trust may be an issue for family firms when incorporating an outsider, this study therefore
recommends that family firms bring independent directors into the board to help increase firm
performance. This study also recommends having different persons taking the CEO and
chairman roles in the firm.
Recommended Strategies for Succession Plans
Although none of the participant firms had a formal succession plan in place, a surprising
result, there seemed to be an informal plan that all the predecessors followed which was
implemented by their respective family firms. This is in line with a report published by the
2015–16 National Association of Corporate Directors, documenting that when it comes to CEO
succession plans, only 24% of family businesses have a formal succession plan compared to 43%
of other companies, 56% of family firms have an informal plan compared to 54% of other firms,
and 21% of family firms have no succession process compared to only 7% of other firms
(NACD, 2016).
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This study aims to formalize these informal succession plans by presenting a step-by-step
guide, based on the KMO influences that were considered best practices by the participants in
this study. This plan will be discussed in greater detail in the recommended strategies section of
this chapter, following the succession planning process introduced by Cater and Justis (2009),
Churchill and Hatten (1987), and Handler (1990). To summarize the recommendations:
1. The predecessor should introduce the successor to the family firm at a young age.
2. The predecessor should encourage the successor to earn a business or business-related
degree.
3. The successor should work extensively and be given significant tasks in the family
firm.
4. The predecessor should maintain a positive relationship with the successor and create
a positive and enjoyable environment within the family firm.
5. The successor should be aware of what the family firm lacks as a corporation and
what he or she lacks as a leader.
6. The predecessor should set an example of stewardship for the successors to follow.
7. The successors should have a long-term orientation for the family firm.
According to Cater and Justis (2009), Churchill and Hatten (1987), and Handler (1990),
succession is a four-step process that starts before the successor joins the family firm and
concludes when the successor finally takes over the family firm. This chapter will present the
recommended strategies for family firms to follow at each stage of the intergenerational
succession process, based on the findings of the study, using the KMO Gap Analysis (Clarke and
Estes, 2008) framework.
Stage 1: Before the Successor Joins the Family Firm
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The Predecessor Should Introduce the Successor to the Family Firm at a Young Age
The findings from this study show that introducing the family firm to the next generation
at a young age gave the participant-successors general knowledge of the family firm. All the
participant-successors were introduced to their family firms at a young age. For example,
predecessors would bring the participant-successors and their siblings to work during the
summer or on weekends, so that they could be exposed to and trained in the family firm from a
young age, or an older family member would tell stories about the family firm to younger
children. There seemed to be a deliberate attempt to involve each participant-successor, even at a
very young age. This had two effects: first, the participant-successor gained knowledge about the
family firm, and second, it fostered a sense of love and comfort in the family firm. Being able to
spend time with the predecessor brought about positive feelings which according to research,
helps boost successors’ desire to join the family firm in the future. Previous research supports
this early intervention with potential family firm successors (Cater and Justis, 2009; Humphrey
et al., 2021), and confirms that story-telling by the older generation to the next generation is
important to keeping the family culture and memories alive (Humphrey et al., 2021).
Accordingly, it is recommended that the predecessor introduce the successor to the family firm at
a young age.
The Predecessor Should Encourage the Successor to Earn a Business or Business-Related
Degree
Friedman and Laurison (2020) found that children of doctors have a 24 times greater
chance of becoming a doctor and that children of lawyers have a 17 times greater chance of
becoming a lawyer. Parents have a big influence on the career paths their children take in the
future. When parents constantly talk about the family firm and about business in general, it
100
piques the interest of their children and in turn makes them want to explore that path more.
Participants in the study spoke of how exposure to the family firm made them want to get into
business too. One participant specifically talked about how his dad influenced his choice of
major in college. Having a proper general business and management foundation is important for
those wanting to work in business in the future. Although the participant-successors expressed
varying opinions on the application of business education in the workplace, a study by Webb and
Chaffer (2016) found that although not all skills required by employers were found to be
adequate after students took their accounting degrees, most of the necessary skills were properly
developed through formal education. Accordingly, it is recommended that the predecessor
encourage the successor to earn a business or business-related degree.
Stage 2: When the Successor Starts Working in the Family Firm
The Successor Should Work Extensively and Be Given Significant Tasks in the Family Firm
The literature review and interview findings of this study both show that there is a great
debate on the importance of working at an outside company before joining the family firm. There
is no debate, though, on the importance of working extensively in the family firm before taking
over its top post. Proper successor preparation is important, and studies have shown that learning
how to successfully run a corporation can only really be done by doing it and reflecting on how
you can do better next time. As Smith (2001) stated, “In the end, we can only learn about it by
doing it, and then thinking over carefully what happened, making sense of the lessons, and
working through how the learning can be built on and used next time around” (p. 36). Experience
truly is the best teacher when it comes to leading a firm. The predecessor needs to ensure that the
successor has ample preparation and training inside the family firm—and not just any type of
work. The work has to have a certain degree of significance to help the successor lead the family
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firm in the future (Sardeshmukh and Corbett, 2011). Thus, it is recommended that the successor
work extensively and be given significant tasks in the family firm.
The Predecessor Should Maintain a Positive Relationship With the Successor and Create a
Positive and Enjoyable Environment Within the Family Firm
Although this study identified many different influences in the different stages of the
succession process, there was one common influence throughout succession: positive family
relationships, especially between the predecessor and successor, lead to positive emotions about
the firm. Findings from the study suggest that participant-successors equate the family firm with
the predecessor, and therefore the participant-successors feel a sense of duty and responsibility to
the family firm because of the sense of duty and responsibility they feel for their family, most
especially their predecessor. Often, the participant-successors related their predecessor to the
family firm—discussing how their parents went through hardship to build the business, or that
the company is their father’s—showing that they see the family business as an extension of the
predecessor. At each stage, we see how positive relationships play a role in influencing the
successor to want to be part of the family firm, stay in the family firm, lead the family firm, and
eventually plan for the future of the family firm.
A study by Ross (1994) found that work relationships positively influence job
satisfaction, especially when there is clarity regarding the roles of individuals in the organization,
and that managerial support and individual involvement can improve firm performance. Kahn
(2017) also found that positive work relationships “help attach people to their organizations” (p.
1990). He stated, “When people feel meaningfully connected to others, they are more likely to
feel connected as well to what they are doing and the group and organizational contexts in which
they are doing it” (Kahn, 2017, p. 190). Thus, it is recommended that the predecessor maintain a
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positive relationship with the successor and create a positive and enjoyable environment within
the family firm. This will create a positive work environment that will benefit everyone.
Stage 3: When the Successor Takes On Greater Responsibility in the Family Firm
The study found that the participant-successors were aware of what their firms lack, as
well as their own shortcomings as leaders of the organization. This self-awareness is a very
important leadership attribute. In fact, Stanford Graduate School identified self-awareness as one
of the primary skills that business leaders must have to succeed as a leader (Showry and Manasa,
2014). According to Carden et al. (2022), self-awareness is
Self-awareness consists of a range of components, which can be developed through
focus, evaluation and feedback, and provides an individual with an awareness of their
internal state (emotions, cognitions, physiological responses), that drives their behaviors
(beliefs, values and motivations) and an awareness of how this impacts and influences
others (p. 164).
In a rapidly changing business environment, it is vital for leaders to recognize their firms’ and
their own shortcomings, so they can find ways to grow and improve. Silvia (2004) found that
people who are self-aware are more creative when thinking of solutions, especially when they
believe that they can improve the task or the situation, and that they also try harder. Accordingly,
it is recommended that successors be aware of what the family firm lacks as a corporation and
what they personally lack as a leader.
Stage 4: When the Successor Takes Over the Family Firm
Predecessors Should Set Examples of Stewardship for Successors to Follow
In this study, the participant-successors were all motivated by stewardship and not by
personal gains. According to Block (2013), “Stewardship begins with the willingness to be
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accountable for some larger body than ourselves—a team, an organization, or a community”
(para. 3). Some participant-successors saw the hard work and challenges that their predecessors
went through to set up the business for the family, while others heard stories of how their
businesses were started. The participant-successors in the study felt a sense of duty to their
predecessor and to the firm to be the steward of the family firm, both for the next generation and
for other stakeholders. Block (2013) also wrote that stewardship means choosing service to
others over self-interest. Some of the participant-successors gave up time in their own thriving
businesses to work in the family firm, and some gave up their salary, all because they value their
family and service to the family over themselves. In the case of family firms, leaders can show
stewardship by working relentlessly toward the longevity of the firm by taking care of important
stakeholder relationships (Miller et al., 2008). Alves et al. (2020) observed that when there is a
culture of stewardship in the firm, employees are more committed to their work: specifically,
when the leader of the corporation acts as a steward, family firms perform better (Alves et al.,
2020). When the predecessor displays stewardship attitudes, the successors will follow. Thus, it
is recommended that predecessors set examples of stewardship for their successors to follow.
Successors Should Have a Long-Term Orientation for the Family Firm
Family firms plan for the long-term much more than other firms do. A survey by The
National Association of Corporate Directors (NACD, 2016) found that family firms prioritize
long-term strategic planning more than non-family firms. Non-family firms, on the other hand,
prioritize how a corporation performs and what it is worth more, which are shorter-term goals
(NACD, 2016). Family business owners have more to gain from thinking long-term as “their
family’s fortune, reputation and future are at stake” (Miller et al., 2008, p. 51). The findings from
this study show that all the participant-successors have long-term goals for the family firm,
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meaning that they plan on keeping the family firm for the long haul. This long-term orientation is
one of the factors that make for good leadership succession (Cater and Justis, 2009). In Miller’s
(2005) book, he identified long-term orientation as one of the main reasons family firms do
better financially than non-family firms. The importance of this long-term orientation cannot be
overstated. It compels a family firm leader to invest in long-term relationships with their
employees and their partners, creating a company that is stronger and harder to copy (Le Breton-
Miller and Miller, 2006). Long-term orientations have allowed family firms to survive for
generations, and therefore it is recommended that successors have a long-term orientation for the
family firm to continue to thrive.
Future Research
This study measured and evaluated 13 assumed influences, based on the Clark and Estes
(2008) KMO Gap Analysis Framework, that contribute to the successful leadership transition of
family firms in the Philippines. A total of 11 second- and third-generation family firm CEOs
were interviewed in this study to identify the knowledge, motivational, and organizational
influences that help or hinder leadership succession. Suggested future research includes
interviews with fourth- and fifth-generation family CEOs to see if these influences are still valid
with older family firms. Additionally, this study did not interview founders of family firms or the
CEO predecessors who are very much a part of the successor’s life before, during, and possibly
after the succession process. Future research should be done on the KMO influences from the
point of view of the predecessor and/or founder of a family firm. Future research can also be
done on the transfer of shares in family firms. Many studies relating to family firms have
explored management transition, but few have analyzed ownership transition. Data for this study
was also gathered by interviewing successors from one region in the Philippines—the National
105
Capital Region. Future research should include family firms representing different regions in the
Philippines, to increase diversity. Future research can also consider how procedural knowledge
(i.e., tacit, idiosyncratic knowledge) is acquired and developed in family firms. Finally, although
the current study only interviewed each participant once, future studies could integrate follow-up
interviews with participants to better explore each CEO’s breadth and depth of professional
knowledge.
Conclusion
The purpose of this study is to identify the knowledge, motivation, and organizational
influences that help or hinder leadership succession in family firms, using the Clark and Estes
(2008) gap analysis framework. The best practices from the study can serve as a suggested
succession plan template for family firms planning to go through leadership succession in the
future.
This study first reviewed literature relating to family firms. Topics covered include the
background of family firms in the world, in Southeast Asia, and in the Philippines. The literature
documents that the majority of corporations in the world, as well as in the Philippines, are family
corporations, and that the global economy is dependent on family firms for employment. Next,
the study reviewed literature relating to family versus non-family member CEOs and found that
although more studies have found that non-family CEOs or professional CEOs perform better
due to having more choices and more experience, changing from a family CEO to a non-family
CEO sometimes signals that the family firm is not doing well and leads the value of family firms
to decline. The study then looked at literature on the succession process. Several studies talked
about the four-step succession process and what the predecessors and successors go through at
each stage of the process. Finally, the study looked at the Clark and Estes (2008) gap analysis
106
theoretical framework and the knowledge, motivation, and organizational influences that are part
of the succession process.
Eleven second- and third-generation family firm CEOs from large Philippine
corporations, all of which were able to successfully transition, were interviewed. The interview
questions were based on the Clark and Estes (2008) gap analysis framework and solicited
participants’ knowledge, motivation, and organizational influences. The interviews were
transcribed and the data was grouped into themes and categorized based on the KMO influences.
The findings show that there are a lot of similarities when it comes to KMO influences
among the participant-successors. For most of the questions, there was a consensus on the
answers given by the participant-successors, showing that although they run different companies,
they have similar backgrounds and experiences. For instance, the study showed that all
participant-successors started working in the family firm early on, took business or business-
related programs, worked extensively in the family firm, were self-aware of what their family
firm lacked, enjoyed working in the family firm, were motivated by stewardship and not by
personal gains, and had concrete long-term goals. The study also showed that the majority of
successors were confident in their leadership and management abilities, and that they have good
relationships with their predecessors. The study also found that few family firms used corporate
governance tools and none of the family firms represented have a formal succession plan.
The discussion section presented a couple of possible reasons for why few family firms
employ corporate governance tools. These include the family members’ lack of trust for
outsiders and having other corporate priorities. There were also a couple of reasons given for the
lack of succession plans: sibling accommodation and the predecessor’s lack of urgency. Some
interview participants mentioned that choosing the next family firm leader and going through
107
transition is easier when the firm is in the early generations—transitioning from the first to the
second generation and from the second to the third generation. As the number of family members
grows, the succession process becomes more complicated and choosing a successor becomes
more difficult, so corporate governance tools and formal succession plans are recommended as
the leadership transitions from the third to fourth generation and beyond.
108
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Appendix A: Semi-Structured Interview Protocol
This appendix section contains (fill in the blank).
Start of the Interview
Good morning Mr./Ms. _______. Thank you for agreeing to participate in my study. I
appreciate the time that you have set aside to answer my questions. As I mentioned when we last
spoke, the interview should take about an hour, does that still work for you?
Before we get started, I want to remind you about this study, an overview of which was
provided to you in advance, and to answer any questions you might have about participating in
this interview. I am a doctoral student at USC and am conducting a study on the low success
rates of intergenerational succession in family firms. I am particularly interested in learning
about what makes family firms successful in the succession process, the challenges that family
firms encounter before, during, and after succession, and what succession plans they have in
place. I am talking to multiple second- and third-generation family CEOs of family firms from
the top Philippine corporations about this.
As stated in the information provided in advance, this interview will be done via Zoom,
you will be asked a series of questions regarding the study, and your responses will be recorded
in both video and audio format. This interview is confidential. What that means is that your
name will not be shared with anyone outside of the research team. The data for this study will be
compiled into a report, and while I do plan on reporting some of what you say as direct quotes,
none of this data will be directly attributed to you. Pseudonyms will be used to protect your
institution’s and your identity, and all stored recordings will be destroyed upon the completion of
this study. I am happy to provide you with a copy of my final paper if you are interested. This
130
interview is voluntary, and you can skip answering certain questions or stop the interview at any
time. Do you have any questions before we proceed?
At the End of the Interview
Thank you so much for you sharing your thoughts with me today! I really appreciate
your time and willingness to share. Everything that you have shared is really helpful for my
study. If I find myself with a follow-up question, can I contact you, and if so, is email ok? And
if there are any websites or documents that you feel comfortable sharing with me to help me
learn this content, could you please email them to me? Again, thank you for participating in my
study.
Table A1
Interview Questions
Interview questions Potential probes RQ
1. Can you tell me about how your family
firm was founded/started?
Why was your family firm
started?
1
2. What education and training did you have
that is useful to your position?
Please state the institution or
training programs.
1
3. What background work experience did
you have that is useful to your position?
How long did you work for the
family firm before you
became the CEO?
Did you work outside the
family firm?
1
4. Are there any special skills and
knowledge required to run your family
business?
Is there any industry or firm
specific knowledge that is
required?
1
5. What were the best succession practices
you had before, during, and after the
succession process?
Can you give three examples? 1
6. What were the succession challenges you
had before, during, and after the
succession process?
Can you give three examples? 1
7. If you were to do the succession process
again, would you change anything?
Yes - What changes would you
make?
No - What made the process
1
131
Interview questions Potential probes RQ
work?
8. Why do you think you were chosen to
lead the family firm?
What criteria do you think are
most important to succeed as a
family firm leader?
2
9. Why did you decide to join the family
firm?
Can you give three reasons? 2
10. Do you enjoy working in the family firm? Why? 2, 3
11. How do you balance your role as owner
and manager of the family firm?
Do you value one over the
other? Why?
2
12. How do you balance your personal goals,
family goals, and family firm goals?
Do you value one over the
other? Why?
2
13. What is your relationship like with your
predecessor?
Would you say it was good or
bad?
3
14. What are your long-term goals for the
family firm?
3
15. Is your predecessor still involved in the
family firm?
Yes - In what capacity?
- How do you work together?
No - What is he or she doing
now?
3
16. Does your firm have a succession plan? Can you describe the
succession process in your
family firm?
3
17. What corporate governance tools does
your family firm employ?
Can you give me three tools
you use?
3
Abstract (if available)
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Asset Metadata
Creator
Tanco, Maria Vanessa Rose Luym
(author)
Core Title
Intergenerational succession in family firms in the Philippines
School
Rossier School of Education
Degree
Doctor of Education
Degree Program
Organizational Change and Leadership (On Line)
Degree Conferral Date
2023-08
Publication Date
07/05/2023
Defense Date
03/30/2023
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
family firms,intergenerational succession,KMO gap analysis,OAI-PMH Harvest,predecessors,successors
Format
theses
(aat)
Language
English
Contributor
Electronically uploaded by the author
(provenance)
Advisor
Filback, Robert (
committee chair
), Donato, Adrian (
committee member
), Min, Emmy (
committee member
)
Creator Email
tanco@usc.edu,vanessa.tanco@gmail.com
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Tags
family firms
intergenerational succession
KMO gap analysis
predecessors
successors