Succession in family firms: navigating the power paradox

Many family business leaders hold two conflicting emotions as they near retirement: on one hand, the desire to pass the baton to their children, and on the other, the desire to retain control for as long as possible.

These opposing aims can significantly affect the parent-child dynamic and result in a paradox in which the CEO-incumbent simultaneously empowers and undermines their children’s ability to lead and guide the firm’s long-term sustainability.

Prevailing CEOs want their children to eventually take over and learn as much as possible about the business, yet their reluctance to relinquish control may lead to behaviors that jeopardize the succession process.

These range from not providing their successors with coaching or learning opportunities to keeping them from substantive roles, where they could actually take charge and develop their leadership.

In my dealings with family firms, I’ve observed this stalling behavior even when the CEO-incumbent fully and rationally recognizes that the firm’s future rests on the shoulders of the next generation.

I want you to want what I want – but not too much

So why do family business leaders get trapped in this paradox? And why are some family-led firms able to effectively hand over the reins while others fail?

These questions were the focus of an innovative research study (Huang, Chen, Xu, Lu & Tam, 2020) that examined the succession processes of ancient patriarchal monarchies and compared them to survey data from family-owned firms.

As it turns out, the empowerment-domination paradox is far from unique to family-run organizations. The principle of mimetic desire, advanced by French-American philosopher René Girard, helps shed light on this phenomenon.

According to Girard, our desire for a certain object is not born independently but rather largely influenced by the desire of others for the same object. That is, the value we place on objects is determined mimetically, derived from our relationships with others.

This might explain why the styles of fashionista influencers are so popular or why so many people had the “novel” idea of getting a dog during Covid-19 – never mind the flurry of puppy pictures on their friends’ Instagram accounts.

Mimetic desire also helps explain the paradox in family businesses: incumbent CEOs want their children to follow in their footsteps, yet within limits: if successors display too strong a desire for the firm’s leadership, parent and child end up in competition for the same outcome.

According to popular belief, successors should possess high willingness and capability: very keen to step into their future role and more than equipped to excel. Yet, according to the principle of mimetic desire, parent-child succession conflicts are least likely to arise when next-generation leaders show only moderate levels of willingness and capability.

In smooth successions, child-successors display a guarded enthusiasm for assuming the role of CEO and take steps not to overshadow the CEO-incumbent. On the contrary, overly zealous and super-prepared child-successors might cause the current CEO to pull in the reins even tighter.

Takeaways for family firms

Family-business succession is a delicate process for both parents and children in which the emotions of either side may be more complex than originally thought.

To facilitate the process, family-business leaders and their successors should carefully contemplate – and communicate – their needs, emotions and aspirations, as well as those of the other. These open lines of communication will serve as the fundamental bricks of a smooth succession process.

 

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