College of Business Education

Course: P4
Sub-topic: Succession Planning
Lecturer: Dr. Chacha Magasi
• Topic 5 Management succession and continuity
• Learner being able to:-
• Explain the importance of business succession
• Describe sole proprietorship succession scenario,
• Examine family management scenario,
• Examine partnership succession scenario,
• Examine corporate succession scenario.
 What is a family?
• A family is a group of individuals related by blood,
alliance, or adoption characterised by financial,
political, informational, or emotional relationships
(Labaki, Michael-Tsabari, & Zachary, 2013;
Scheemaecker, 2017).
• Distelberg and Sorenson (2009) define the family
as all individuals who are related by blood,
adoption, and marriage, or are closely sharing
goals, resources, and common commitment.
• The glue that holds the family members together is
primarily the cooperation and unity, its strong
emotional bonding and loyal affectionate ties
(Poutziouris, Smyrnios, & Klein, 2006).
 What is the family business?
• Lorna (2011) defines the family business as the business
which is passed on to the next generation of the family
to manage and control.
• Rettab et al. (2005) define family business as a business,
a company in which at least 51% of the shares are
owned by a single family and at least one member of the
mgt team is chosen from the owning family.
• Magasi (2020) defines the family business as business,
firm, or company in which at least 51% of the shares are
owned by a group of individuals related by blood,
marriage, adoption or alliance and actively involved in
managing that firm across generations.
 Unique features of family business
• The basic characteristics of the family-owned
business vision include incorporating and adding to
the shared family values, specifying the kind of
business the family is in, how the family will do the
business, where the family wants the business to go,
and what the family wants the business to mean to
others.
• Even though the core values of the family-owned
business may persist to subsequent generation, the
vision may be modified to fit with the needs of
existing situation.
 Unique features of family business
• The family-owned business has a concept called
familiness, which is an idiosyncratic and firm-
specific bundle of resources and capabilities
stemming from the interaction between the family,
family members, and business that form the unique
and distinctive features from non-family firms.
• The family-owned business is characterized by the
family values, history, traditions, and life cycles as
the family characteristics.
• The family-owned business features include
business strategies, structures, and systems
(Habbershon et al., 2003).
 Figure 1. Dualistic approach of family-owned business system

Family subsystem Business subsystem

•Emotional •Business function

consistent •Business demands
•Familial needs •Management of
•Stability seeking changes
 Table 1. Differences between family and business systems

Family System Business system

Blood ties forever Temporary relationships

Expressive, emotional bonds Business function, rational bonds

Informal relationships Formal relationships

Familial needs, raise family members Business demands, make profit

Unconditional acceptance Performance demands

Generational authority Role authority

Generational time framework Limited time framework

Stability seeking Management of changes

 Contribution of family-owned
businesses
• The family-owned businesses have been the
backbone and main pillars of global socio-
economic development, prosperity, and stability
(Saan, Enu-Kwesi, & Nyewie, 2018).
• Over 80% of global enterprises are the family-
owned businesses (Gersick, Davis, Hampton,
& Lansberg, 1997).
• Most of the global economies are controlled and
managed by family-owned business billionaires
(La Porta, Lopez-de-Silanes, & Shleifer, 1999).
 Contribution of family-owned
businesses
• Family-owned manufacturing firms produce goods,
develop human resource competencies, enhance
creativity and innovation, promote
entrepreneurship, creates new jobs, provide tax
revenues, contribute to export and import
revenues, and also improve the country’s GDP
(Garg & Weele, 2012).
• Family-owned firms increase production efficiency,
improve community growth, peoples’ income and
purchasing power, and also transmit business
ownership culture to the next generation (Magasi,
2020).
 Contribution of family-owned
businesses
• The global family-owned businesses contribute
between 45 and 90% of GDP, 50 and 80% of all
private sector jobs, 70 and 95% of all business
entities, and 75% of all net job growth (Adendorf,
Emuze, & Ward, 2013; Ghee, Ibrahim, & Abdul-
Halim, 2015; Gibb & Bennett, 2013).
• Private investors, development partners, and
governments should, therefore, put more effort and
resources to improve the family business
sustainability since they significantly reduce an
unemployment problem through job creation.
 Continuity Challenges for the family-owned
businesses
• Despite this major contribution of the family-owned firms,
globally 30% of family owned businesses including the
family-owned manufacturing firms survive to the second
generation, less than 14% survive to the third generation,
and less than 3% survive beyond the third generation
(Filep, 2012).
• Likewise, despite the establishment of the manufacturing
firms, including family-owned manufacturing firms, in
Tanzania being increased by 50% between the 1960s and
early 1970s (Wangwe et al., 2014), only 13% of the FOMFs
survived to 2015 due to incompetent or unsuitable leaders
(Maseyi, 2016).
• That means 87% of the FOMFs established in Tanzania
between the 1960s and early 1970s had failed up to 2015,
an indication that there is a lack of FOMFs sustainability.
• Case study 1. The Magnificent but Desolate Paint Factory
• A magnificent paint factory, in a town in Anambra state, was abandoned
for 5 years because of intra-family squabbles over who should inherit or
occupy the top position in the enterprise.
• The death of the founder of this large-scale firm generated much
acrimony and litigation among the children.
• The first and oldest son invoked the principle of primogeniture
characteristic of traditional Igbo culture and laid claim to the directorship
of the firm. Primogeniture has two closely related meanings: (1)
a principle of seniority and authority whereby siblings are ranked
according to their ages, with the eldest coming first; and (2) a principle of
inheritance, in which the firstborn child receives all or his parents' most
significant and valuable property upon their death.
• Other sons rejected his claims. A court ordered the suspension of
production until a verdict was reached on the future of the firm.
• The magnificent buildings in the company premises were so badly
neglected and dilapidated that banana trees and grass grew inside them,
even though the floors were paved with concrete.
• Case 2: Posthumous Family Interference
• In a town in Anambra state, the general manager of a chemical plant
resigned in less than one year after the death, in 1990, of his employer
and founder of the company because the latter’s wives, children and
extended family interfered with the functioning of the firm.
• The founder was nationally recognized as a pre-eminent pioneer
industrialist. The children were more interested in the finances of the
company than in its growth and durability.
• The wives and the brothers of the deceased owner insisted on
influencing who was or was not employed. Hence the general manager,
with a record of long and effective service in the company, resigned in
frustration. The company floundered and its future became uncertain.
• In 1991 the children of the founder were trying to revive the enterprise.
The manufacturing enterprise, huge by Nigerian standards, had not been
revived by August 2001 when the company premises were visited.
• The eldest son of the founder, in an interview, indicated a desire and an
on-going plan to reactivate the factory. The fact is that the investment
was dormant for 10 years and may remain so for more years.
• Case Study 3. An interview made on 12th September 2017 with the older son of one
of the passed away richest man in Tanzania
▪ The man had a transport company with 32 buses, several oil shells, and several other
business properties including buildings.
▪ The same man had 12 wives, 62 children, and over 24 grandchildren.
▪ The man failed to prepare the business successors from among his wives, elder sons, and
daughters because of not trusting their credibility and abilities. He was himself the director,
manager, and supervisor of everything in the business.
▪ When the man passed away in the late 1970s, nobody in the family had the skills
to manage and run the business. Every family member had no the right skills to deal and
network with the business stakeholders like employees, customers, suppliers, financiers,
government, and the community. Everything in the business remained in the darkness.
▪ Consequently, there was a big conflict among the family members, majority wanting to
distribute the left out wealth to family members.
▪ Each wife and her blood children could not trust the other counterparts. The decision was
reached to distribute the wealth to every wife and her children because of failing to have a
common agreement on who should stand as the director of that business.
▪ Despite each wife and her children being happy for wealth distribution, ten years later
about 70% of the properties had been lost and most family members were totally
bankrupt.
 Succession planning in the family
business
• The findings further indicate that a huge number
of FOBs fail because the management team lacks
leadership skills and in particular succession
planning (Maseyi, 2016; Tonya, 2015).
• Masango (2014) found that succession planning
predicts 54% of the variance in the survival of
FOBs in Zimbabwe.
• Magasi (2020) found that properly coordinated
succession planning predicts 61.2% of the
survival of the Tanzanian family-owned
manufacturing firms to successive generations.
 What is succession planning?
• Succession planning as an attempt to plan for the right
number and quality of leaders and key-skilled employees
to cover retirement, death, serious illness or promotion,
and any new positions which are created in future
organization plans (Sambrook, 2005).
• Succession planning as a process of identifying and
developing suitable followers with the potential to fill
critical organisational positions Taruwinga, 2011).
• Succession planning is an endless process of identifying
high-potential employees and their knowledge gap and
developing them to gain the depth of leadership
competency to fill the key organisational positions
whenever they arise aimed at ensuring the business
continuity to the successive generations (Magasi, 2020).
 Succession planning and Pipeline model
• The leadership pipeline model states that executives must
successfully pass through several stages of development and be
continually developed to the next level and positions until
assuming greater responsibilities .
• The model emphasises examining the development of leaders at
every level of management positions to avoid any possible
shortage of managerial talent in the case the management
positions become vacant.
• Thus, employee progresses through various stages by learning and
growing to manage others, from managing others to managing
managers and from managing managers to the functional
manager. From the latter, the same employee progresses and gains
more competence and grows to business manager, to group
manager, and finally to enterprise manager.
Why succession planning important in FOBs?
• When experienced and competent people leave
organizations they go with the capacity to do the
work and accumulated wisdom they have
acquired regardless of the levels and functional
areas (Rothwell, 2010).
• Most family-owned business owners put off their
succession planning because they do not want to
think about their retirement, disability or death.
• However, business succession planning should
be a priority in every family owned business.
 Differences between succession
planning and replacement planning
• Replacement planning is a means of risk/crisis management
aimed at reducing the likelihood of catastrophe from the
unplanned loss of key personnel.
• Replacement planning centers on filling an immediate
requirement for a specific significant position.
• It is more of a response to the necessity. In replacement
planning, less focus is given to the employee talent
development.
• Succession planning entails a longer-term and more extensive
approach towards the training and replacement of key
individuals.
• Succession planning approaches towards the future. It focuses
on developing succession candidates to present a proactive
solution when an unforeseen loss of talent happens.
Why succession planning important in FOBs?
• Ensures smooth leadership transition. A well-
thought-out succession plan ensures a seamless and
hassle-free transition of power and management.
• A tool for business continuity across multiple
generations.
• Ensures the viability and sustainability of the family
business across generations.
• Satisfies the positive long-term interests of the
family members such as employment opportunity,
business ownership prestige, and wealth
accumulation.
Successful Succession Planning Checklist
• Are there written criteria for the next generation’s entry into the business?
• Is there a written personal and professional strategic development plan to prepare your
children to be successful leaders of the business?
• What the process was used to determine which children would be the successor(s) and
what their individual responsibilities will be?
• Are there regularly scheduled family meetings to deal with the emotional side of the
succession process?
• What are the sources of your retirement income?
• What sources of are spouse's surviving income and their reliability?
• Is there a formal plan to transfer ownership and management control of the business to
the next generation?
• Are there legal leadership systems, charter, financial systems, communication systems?
• Has your succession plan been communicated to every member of your family, and how
succession planning will impact children not involved in the business?
• Who will control the business real estate in the next generation?
• Is there a formal strategy to reduce and ultimately pay the estate costs and taxes
associated with the transfer of your estate?
 Sources of family conflicts after the
death of the family business founder
• Marshall (2001) mentions the competition on
how to divide the financial, power, leadership,
and other legal aspects to the family members
as the cause of the biggest conflicts in family-
owned businesses.
• These conflicts arise because of unresolved
and unsettled family differences, poor
relationships, communication problems, lack
of trust, differing expectations, differing
preferences, confusion of roles, and an
inability to transfer roles.
 What factors are used in deciding which
family member(s) are groomed for
leadership? (Deloitte, 2014)
• 76% Leadership traits
• 75% Experience/knowledge within the company
• 72% Expressed an interest
• 44% Education credentials
• 32% Experience outside of the company
• 25% Academic achievement
• 7% Oldest offspring
• 4% Percentage of ownership
• 10% Others
Successor factors-work fit (Magasi, 2020)
• successor’s interests, desire, commitment, and
experiences.
• Education, experience, birth order, individual
future goals, attitude, risk-taking, self-motivation,
and consistency.
• Others are charisma, trust, integrity, ability to
obey laws and regulations, multitasking ability,
analytical thinking, and level of exposure to
national and international issues.
Succession Planning Steps/Process
 Ways of preparing the successor
1.Successor involvement in business management
• The involvement of FOB members in business mgt creates an
advantage because of building strong ties, trust relationship among the
family members and sustaining leadership pipeline.
• When choosing the business successor, it is important to consider the
degree of experience possessed by that successor within that family
business
• First, the older generation must involve the young generation in
business management and appreciate the contribution of the young
generation to that business.
• Second, both older and young generations should work together intact
to maximise the value in the succession process.
• Third, rewarding should be done equitably to both personal and group
depending on performance results.
• Finally, both young and older generations should effectively be involved
in business mgt and decision-making while minimising costs and
maximising profits to make the succession process successful and
sustainable.
 2. Training
• Training can be achieved through transmitting valuable
business management skills, knowledge, experience,
abilities, entrepreneurial attitude and values through.
• This can be done through learning, transfer,
experimentation, coaching, mentoring, teamwork, and
delegation of power.
• The family firm’s management should invest requisite
resources in developing the human capital to ensure that
the firm’s employees have ample knowledge, skills, and
competencies needed for achieving the business goals
and ensuring the long - term survival of the family
businesses.
• Training the successors is a tool for equipping them with
the necessary competencies which are needed for
improving the family firm’s performance.
 Conclusion
• Succession planning sustains leadership pipeline
and survival of the FOBs through successor
involvement in business management, sufficiently
training the successor and handing over power to
the successor whose competency and factors fit
with the relevant work or job.
• Such a competent and suitable successor should
be efficiently, best and innovatively utilized in
optimal job performance.
• Besides, handing over power to the competent
and suitable successor gets a stronger leader,
lowers monitoring costs and residual loss,
improves business efficiency and survival of the
FOBs.