ACE research vignette 022 : family business succession : when death takes a hand

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. In this vignette, Dr. Mervyn Morris considers the impact on family business operations due to the sudden and unexpected death of a key family member.

In for the long haul : family business succession at HaulageCo

This is a case about family business succession. Because many successions fail, the 'problem of succession' is a key issue in the family business field (see Aronoff 1998; Bird eta/. 2002; Dyer & Sanchez 1998; Sharma 2004; Zalu·a & Sharma 2004). Indeed, from the non-family business literature, we know one third of relay successions - like this case where there is an identified successor - will fail, with the prospective CEO leaving before succeeding the incumbent CEO (Cmmella & Shen 2001). Research on next generation family business members is limited. Successor ath·ibutes (Chrisman, Chua & Sharma 1998; Sharma & Rao 2000), as well as various characteristics such as socialisation (Garcia-Aivmez, L6pez-Sintas & Gonzalvo 2002) a11d gender (Haberman & Danes 2007; Vera & Dean 2005) have all been considered to play a role. So too have successor intentions (Stavrou & Swiercz 1998), motivation (Le Breton-Miller, Miller & Steier 2004), commitment (Sharma & Irving 2005) and transformation from follower to leadership (Cater & Justis 2009). In this case, by outlining the socialisation of the successors, explanations of their motivations for joining a11d their current employment we can begin to see some of the underlying mechanisms at work motivating the next generation to join and stay in the family business.

Micro-family-owned business : transitory survival mechanism or long term wealth creator?

Principal Topic: Entrepreneurship is key to employment, innovation and growth (Acs & Mueller, 2008), and as such, has been the subject of tremendous research in both the economic and management literatures since Solow (1957), Schumpeter (1934, 1943), and Penrose (1959). The presence of entrepreneurs in the economy is a key factor in the success or failure of countries to grow (Audretsch and Thurik, 2001; Dejardin, 2001). Further studies focus on the conditions of existence of entrepreneurship, influential factors invoked are historical, cultural, social, institutional, or purely economic (North, 1997; Thurik 1996 & 1999). Of particular interest, beyond the reasons behind the existence of entrepreneurship, are entrepreneurial survival and good ''performance'' factors. Using cross-country firm data analysis, La Porta & Schleifer (2008) confirm that informal micro-businesses provide on average half of all economic activity in developing countries. They find that these are utterly unproductive compared to formal firms, and conclude that the informal sector serves as a social security net ''keep[ing] millions of people alive, but disappearing over time'' (abstract). Robison (1986), Hill (1996, 1997) posit that the Indonesian government under Suharto always pointed to the lack of indigenous entrepreneurship , thereby motivating the nationalisation of all industries. Furthermore, the same literature also points to the fact that small businesses were mostly left out of development programmes because they were supposed less productive and having less productivity potential than larger ones. Vial (2008) challenges this view and shows that small firms represent about 70% of firms, 12% of total output, but contribute to 25% of total factor productivity growth on average over the period 1975-94 in the industrial sector (Table 10, p.316). ---------- Methodology/Key Propositions: A review of the empirical literature points at several under-researched questions. Firstly, we assess whether there is, evidence of small family-business entrepreneurship in Indonesia. Secondly, we examine and present the characteristics of these enterprises, along with the size of the sector, and its dynamics. Thirdly, we study whether these enterprises underperform compared to the larger scale industrial sector, as it is suggested in the literature. We reconsider performance measurements for micro-family owned businesses. We suggest that, beside productivity measures, performance could be appraised by both the survival probability of the firm, and by the amount of household assets formation. We compare micro-family-owned and larger industrial firms' survival probabilities after the 1997 crisis, their capital productivity, then compare household assets of families involved in business with those who do not. Finally, we examine human and social capital as moderators of enterprises' performance. In particular, we assess whether a higher level of education and community participation have an effect on the likelihood of running a family business, and whether it has an impact on households' assets level. We use the IFLS database compiled and published by RAND Corporation. The data is a rich community, households, and individuals panel dataset in four waves: 1993, 1997, 2000, 2007. We now focus on the waves 1997 and 2000 in order to investigate entrepreneurship behaviours in turbulent times, i.e. the 1997 Asian crisis. We use aggregate individual data, and focus on households data in order to study micro-family-owned businesses. IFLS data covers roughly 7,600 households in 1997 and over 10,000 households in 2000, with about 95% of 1997 households re-interviewed in 2000. Households were interviewed in 13 of the 27 provinces as defined before 2001. Those 13 provinces were targeted because accounting for 83% of the population. A full description of the data is provided in Frankenberg and Thomas (2000), and Strauss et alii (2004). We deflate all monetary values in Rupiah with the World Development Indicators Consumer Price Index base 100 in 2000. ---------- Results and Implications: We find that in Indonesia, entrepreneurship is widespread and two thirds of households hold one or several family businesses. In rural areas, in 2000, 75% of households run one or several businesses. The proportion of households holding both a farm and a non farm business is higher in rural areas, underlining the reliance of rural households on self-employment, especially after the crisis. Those businesses come in various sizes from very small to larger ones. The median business production value represents less than the annual national minimum wage. Figures show that at least 75% of farm businesses produce less than the annual minimum wage, with non farm businesses being more numerous to produce the minimum wage. However, this is only one part of the story, as production is not the only ''output'' or effect of the business. We show that the survival rate of those businesses ranks between 70 and 82% after the 1997 crisis, which contrasts with the 67% survival rate for the formal industrial sector (Ter Wengel & Rodriguez, 2006). Micro Family Owned Businesses might be relatively small in terms of production, they also provide stability in times of crisis. For those businesses that provide business assets figures, we show that capital productivity is fairly high, with rates that are ten times higher for non farm businesses. Results show that households running a business have larger family assets, and households are better off in urban areas. We run a panel logit model in order to test the effect of human and social capital on the existence of businesses among households. We find that non farm businesses are more likely to appear in households with higher human and social capital situated in urban areas. Farm businesses are more likely to appear in lower human capital and rural contexts, while still being supported by community participation. The estimation of our panel data model confirm that households are more likely to have higher family assets if situated in urban area, the higher the education level, the larger the assets, and running a business increase the likelihood of having larger assets. This is especially true for non farm businesses that have a clearly larger and more significant effect on assets than farm businesses. Finally, social capital in the form of community participation also has a positive effect on assets. Those results confirm the existence of a strong entrepreneurship culture among Indonesian households. Investigating survival rates also shows that those businesses are quite stable, even in the face of a violent crisis such as the 1997 one, and as a result, can provide a safety net. Finally, considering household assets - the returns of business to the household, rather than profit or productivity - the returns of business to itself, shows that households running a business are better off. While we demonstrate that uman and social capital are key to business existence, survival and performance, those results open avenues for further research regarding the factors that could hamper growth of those businesses in terms of output and employment.

Ownership structure and business evaluation practices in family SMEs : evidence from empirical research in Italy

This paper presents early results from a pilot project which aims to investigate the relationship between proprietary structure of small and medium- sized Italian family firms and their owners’ orientation towards a “business evaluation process”. Evidence from many studies point out the importance of family business in a worldwide economic environment: in Italy 93% of the businesses are represented by family firms; 98% of them have less than 50 employees (Italian Association of Family Firms, 2004) so we judged family SMEs as a relevant field of investigation. In this study we assume a broad definition of family business as “a firm whose control (50% of shares or voting rights) is closely held by the members of the same family” (Corbetta,1995). “Business evaluation process” is intended here both as “continuous evaluation process” (which is the expression of a well developed managerial attitude) or as an “immediate valuation” (i.e. in the case of new shareholder’s entrance, share exchange among siblings, etc). We set two hypotheses to be tested in this paper: the first is “quantitative” and aims to verify whether the number of owners (independent variable) in a family firm is positively correlated to the business evaluation process. If a family firm is led by only one subject, it is more likely that personal values, culture and feelings may affect his choices more than “purely economic opportunities”; so there is less concern about monitoring economic performance or about the economic value of the firm. As the shareholders’ number increases, economic aspects in managing the firm grow in importance over the personal values and "value orientation" acquires a central role. The second hypothesis investigates if and to what extent the presence of “non- family members” among the owners affects their orientation to the business evaluation process. The “Cramer’s V” test has been used to test the hypotheses; both were not confirmed from these early results; next steps will lead to make an inferential analysis on a representative sample of the population.

Stepping into my shoes: Generativity as a mediator of the relationship between business owners' age and family succession

The authors investigated generativity – the concern in establishing and guiding the next generation – as a mediator of the relationship between family business owners' age and succession in family businesses. Data came from 155 family business owners in Germany from different industries between the ages of 26 and 83 years. Results showed that age was positively related to generativity, and that generativity, in turn, positively influenced an objective measure of family succession. Generativity fully mediated the positive relationship between age and family succession. The findings suggest that generativity is an important psycho-social construct for understanding ageing, careers and succession in family business settings.

The influence of family ownership on the quality of accounting information

This article explores the quality of accounting information in listed family firms. The authors exploit the features of the Italian equitymarket characterizd by high ownership concentration across all tpes of firms to disentangle the effects of family ownership from other major block holders on the quality of accounting information. The findings document that family firms convey financial information of higher quality compared to the nonfamily peers. Furthermore the authors provide evidence that the determinants of accounting quality differ across family and nonfamily firms.

Escalation of conflict in large private family businesses

This study investigates escalation of intra-familial conflicts in family top management teams. Using a Critical Incident Technique approach, this study uses interviews to collect data from 23 family and non-family individuals and groups within six large-scale privately-held family businesses in Indonesia. The study develops a theoretical model to explain why family business conflicts escalate and become destructive. An inductive content analysis found that the use of a dominating strategy by both parties in dealing with conflict, the expression of negative emotions, and the involvement of non-family employees are more likely to cause escalation. This study contributes to the theory of family business conflict to help family business more satisfying and productive.

Do we need to use an accountant? The sales growth and survival benefits to family SMEs

This article explores the relationship between the usage of an external accountant and family firm sales growth and survival. Using a longitudinal panel of Australian small and medium sized family enterprises, we find that external accountants have a positive impact on sales growth and survival. We also find that the degree to which the accountant is acquainted with the family and the firm’s needs, which we term as embeddedness, moderates these positive outcomes. Furthermore, we find that appropriate strategic planning processes are necessary to maximize the sales growth benefit; however, these processes are not necessary to gain the survival benefit.

The nature of intra-familial conflict in large-scale privately-held family businesses in Indonesia

This thesis is a qualitative study aimed at better capturing the complexity of conflict in family businesses. An inductive content analysis revealed two important issues: the dynamics of intergenerational conflicts and the escalation process of conflicts. The results demonstrated that conflicts are more likely to be intergenerational than intra-generational due to the role of senior members in daily business operations, generational differences, and a perception gap that exist between generations concerning each other’s competencies in doing the business. Furthermore, the set of factors contributing to conflict escalation is related to how family members handle the conflict, how they manage their emotions, and how they are able to avoid non-family employee involvement. These findings provide a foundation for taking preventative actions, implementing strategies for managing conflicts or devising effective solutions for resolving conflicts before they become more destructive.

From production to purpose : using design led innovation to Build Strategic Potential in a Family-Owned SME

There is an evident need to develop the strategic capabilities of companies from within, to ensure competitive competence in a time where strategy is a necessity. This paper is based on the first 4 months of a longitudinal embedded case study of a family-owned Australian small to medium enterprise, in their journey towards design integration. The first author was embedded as a ‘Design Innovation Catalyst’ to collaborate on overcoming early barriers of strategic development, using design led innovation. Action research methodology, semi-structured interviews with seven out of eight employees and a reflective journal revealed the absence of a shared vision, conflicting drivers and a focus on operational efficiency rather than strategy. Through the Catalyst’s facilitation, a company vision, general awareness, practice and knowledge in strategic development have emerged as the first steps to generating strategic design competence within the firm.

The new lows : representing Asian-Australians on television

This project utilises creative practice as research, and involves writing and discussing four sample episodes of a proposed six-part dramatic, black-comedy1 television mini-series titled The New Lows. Combined, the creative project and accompanying exegesis seeks to illuminate and interrogate some of the inherent concerns, pitfalls and politics encountered in writing original Asian-Australian characters for television. Moreover, this thesis seeks to develop and deliberate on characters that would expand, shift and extend concepts of stereotyping and authenticity as they are used in creative writing for television. The protagonists of The New Lows are the contemporary and dysfunctional Asian-Australian Lo family: the Hong Kong immigrants John and Dorothy, and their Australian-born children Wendy, Simon and Tommy. Collectively, they struggle to manage the family business: a decaying suburban Chinese restaurant called Sunny Days, which is stumbling towards imminent commercial death. At the same time, each of the characters must negotiate their own personal catastrophes, which they hide from fellow family members out of shame and fear. Although there is a narrative arc to the series, I have also endeavoured to write each episode as a selfcontained story. Written alongside the creative works is an exegetical component. Through the paradigm of Asian-Australian studies, the exegesis examines the writing process and narrative content of The New Lows, alongside previous representations of Asians on Australian and international television and screen. Concepts discussed include stereotype, ethnicity, otherness, hybridity and authenticity. However, the exegesis also seeks to question the dominant cultural paradigms through which these issues are predominantly discussed. These investigations are particularly relevant, since The New Lows draws upon a suite of characters commonly considered to be stereotypical in Asian-Australian representations.

Death : is it fatal?

Death is a common occurrence in the world of today and impacts upon families in a variety of ways, depending upon a range of circumstances. This paper examines the impact that a sudden, unexpected death of the founder of a family business had on both the business and the family. The basis for the research is a single case study of a family business operating in regional Victoria. At the time of the death of the family founder (from a fatal motorcycle accident) his adult children had not been prepared to take over the company. The paper examines if the death of the founder proved fatal to the family business.

Incremental entrepreneurship : best practice professionalization across generations

This chapter will introduce Australia’s Dennis family – a case of ‘incremental entrepreneurship’ in the business transition from the first to the second generation. Following the second generation’s formal involvement and ownership in the business, Dennis Family Corporation (DFC) undertook a major professionalization process to formalize the family business and ensure its continued success. The members of the second generation have successfully sustained the entrepreneurial spirit of their family business (albeit in a different style), adding value to the firm in an ‘incremental’ manner. Throughout the chapter there will be a strong emphasis on the family element of DFC and the roles that each family member has played. Bert Dennis, as the founder and incumbent leader of the firm, has witnessed major changes to the business he built from the ground up. His children, in particular his son Grant Dennis as the primary next generation issue champion, have seen the changes from another perspective – ensuring the business remains within the family into the second generation and beyond. The professionalization process was sparked by a commitment from the second generation to continue to ‘make a real go’ of the family business rather than simply liquidating and distributing the assets. The dedication of all the family members to this objective has ensured the success of this process, and ultimately, the longevity of the firm. Although DFC has become more ‘professional’, it has not lost its entrepreneurial character; rather, it has improved the ways in which entrepreneurialism is fostered and pursued in the company. In essence, this case outlines how the implementation of appropriate governance and management practices has allowed the Dennis family to overcome the challenges and maximize the opportunities associated with owning and operating a multigenerational family fi rm. From a theoretical perspective, this case uses the concepts of entrepreneurial orientation (EO) (Lumpkin and Dess 1996) and the resource- based view (RBV) (Habbershon and Williams 1999; Barney 1991; Wernerfelt 1984) to demonstrate how the fi rm has leveraged its familiness to foster an enduring spirit of entrepreneurship and to maintain a sustained competitive advantage.

Do SMEs cluster around innovation activities? Discovering active, incremental and opportunistic innovators

Do SMEs cluster around different types of innovation activities? Are there patterns of SME innovation activities? To investigate we develop a taxonomy of innovation activities in SMEs using a qualitative study, followed by a survey. First, based upon our qualitative research and literature review we develop a comprehensive list of innovation activities SMEs typically engage in. We then conduct a factor analysis to determine if these activities can be combined into factors. We identify three innovation activity factors: R&D activities, incremental innovation activities and cost innovation activities. We use these factors to identify three clusters of firms engaging in similar innovation activities: active innovators, incremental innovators and opportunistic innovators. The clusters are enriched by validating that they also exhibit significant internal similarities and external differences in their innovation skills, demographics, industry segments and family business ownership. This research contributes to innovation and SME theory and practice by identifying SME clusters based upon their innovation activities.