Received: 27 October 2017 Accepted: 15 January 2019

DOI: 10.1002/kpm.1594

RESEARCH ARTICLE

Family leadership succession and firm performance: The

moderating effect of tacit idiosyncratic firm knowledge

Ralph I. Williams Jr | John Mullane

Jennings A. Jones College of Business, Middle

Tennessee State University, Murfreesboro,
Tennessee, USA
Correspondence
Ralph I. Williams Jr., Jennings A. Jones College
of Business, Middle Tennessee State
University, Murfreesboro, TN.
Email: ralph.williams@mtsu.edu
The expression “clogs to clogs in three generations” illustrates the widely held percep-
tion that family business performance wanes with each generation of intrafamily lead-
ership succession. Hence, family businesses would benefit from a better
understanding of practices that help prepare potential heirs for leadership succession
and, thus, improve postsuccession firm performance. Specifically, this paper proposes
that the transfer of tacit idiosyncratic firm knowledge moderates the relationship
between family leadership succession and firm performance. The resource‐based
view of the firm and transaction cost economics is utilized to theoretically explain
the nature of this relationship. Processes that potentially enhance the transfer of tacit
idiosyncratic firm knowledge, particularly in family firms, are presented from extant
literature.

1 | I N T RO D U CT I O N to financial performance or firm survival (e.g., Dana & Smyrnios, 2010;

The increasing number of published articles, publication outlets, and
schools offering family business programs reveals the growing aca-
demic interest in family businesses (Sharma, 2004; Stewart & Miner,
2011). This increase is justified by the large proportion of family firms
in most countries: 63% of firms in Spain are family businesses, 64% in
the United Kingdom, and 79% in the United States (Mazzi, 2011).
These estimates substantiate family businesses' significant economic
impact. However, when underperformance causes a family business
to close its doors, family relationships are often harmed, internal and
external stakeholders suffer, and the resources that provide sustain-
able competitive advantages are lost (Bjuggren & Sund, 2002). Indeed,
family business performance is important at several economic and
societal levels.
Family leadership succession, the intergenerational transition of
top management from one family member to another family member
(Sharma, 2004), is vital to a family firm's performance, success, sur-
vival, and continued existence as a family business (Lee, Lim, & Lim,
2003; Morris, Williams, & Avila, 1997; Royer, Simmons, Boyd, &
Rafferty, 2008). Sadly, in the context of family business's importance
to the general economy, statistics indicate that approximately one
third of family businesses exist past the founding generation, and less
than 15% exist into the third generation (Birley, 1986; Ward, 1997).
Multiple studies found family leadership succession negatively related
Lee et al., 2003; Morris, Williams, & Nel, 1996; Pérez‐González, 2006).
Thus, as family businesses form an important economic segment, lead-
ership succession is crucial to the survival of family businesses, and
some empirical research indicates performance wanes in the context
of family leadership succession,1 family leadership succession is an
important research topic.
Despite the importance of family leadership succession, only 16%
of family firms were found to engage in substantial succession plan-
ning (Astrachan & Kolenko, 1994), and when preparing for succession,
family business owners were found to devote most of their time to tax
and estate‐planning and not to preparing their successors (Morris
et al., 1997). This highlights practitioners' need for knowledge related
to preparing leadership successors. In this context, this paper
addresses a vital and relevant question: What actions best prepare
the next generation to enhance firm performance after leadership
succession?
An objective of this paper is to propose tactics family business
leaders might employ to prepare the next generation to continue the
family business and enhance its performance. Tacit idiosyncratic firm
1
One must acknowledge that some family firms perform well, and sometimes
better, after succession. Furthermore, reasons other than succession may cause
a family business to cease existence (e.g., sale of the firm, a family's choice to
close the business to avoid risk, and firm failure).

32 © 2019 John Wiley & Sons, Ltd. wileyonlinelibrary.com/journal/kpm Knowl Process Manag. 2019;26:32–40.

WILLIAMS AND MULLANE
knowledge is wisdom not explicitly stated and is unique to the firm.
Specifically, this paper proposes that the transfer of tacit idiosyncratic
firm knowledge to future family leadership successors moderates
postsuccession firm performance; the transfer enhances
postsuccession performance. As will be shown from theory, tacit idio-
syncratic firm knowledge is a valuable resource in family businesses,
and its transfer to family leadership successors is potentially important
to postsuccession performance. Multiple family business researchers
have discussed the transfer of tacit knowledge in the context of suc-
cession: an attribute making a family member the most suitable suc-
cessor (Boyd & Royer, 2012; Royer et al., 2008); a contributor of
maintaining a competitive advantage (Boyd, Royer, Pei, & Zhang,
2015); as a part of familness, a resource affecting performance
(Cabrera‐Suarez, De Saa‐Perez, & Garcoa‐Almeida, 2001); insufficient
for developing successor innovation in the absence of experience out-
side the firm (Letonja & Duh, 2016); and the use of management
accounting and the balanced scorecard to codify tacit knowledge
(Hiebl, 2013). This paper makes two contributions to the discussion
of tacit knowledge transfer in intrafamily leadership succession. First,
applying the resource‐based view of the firm and transaction cost eco-
nomics, this paper proposes tacit knowledge transfer as a moderator
of post succession performance. Second, from extant literature this
paper discusses that multiple tactics practitioners might employ to
facilitate tacit knowledge transfer to potential family business
successors.
After an overview of family leadership succession, literature is
presented to develop proposition one, the direct relationship between
the generation of family leadership succession and firm performance.
Next, proposition two is developed, which addresses the moderating
effect of tacit idiosyncratic firm knowledge transfer on the relation-
ship between family leadership succession and firm performance, the
primary focus of this paper. Proposition two is developed by first con-
sidering the nature of tacit idiosyncratic firm knowledge. Following,
strategic and economic theories are applied to illustrate the value of
tacit idiosyncratic firm knowledge in family businesses. Finally, draw-
ing from extant literature, tactics that contribute to the transfer of
tacit idiosyncratic firm knowledge are suggested.
2 | F A M I L Y L E A D ER S HI P S U C C ES S I O N : A N
OVERVIEW
Family leadership succession is an issue vital to family businesses
and owning families. Without prepared family leadership successors,
the performance, character, existence of a firm as a family business,
and even its survival are threatened (Barach & Ganitsky, 1995;
Barnes & Hershon, 1989; Morris et al., 1996). The large circle of
stakeholders affected—family and nonfamily employees, bankers,
suppliers, and family members not directly associated with the firm
—contributes to the importance of family leadership succession
(Barnes & Hershon, 1989). Therefore, given the importance of lead-
ership succession, family business researchers have devoted much
attention to this important topic (e.g., Astrachan & Kolenko, 1994;
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33
Barach & Ganitsky, 1995; Bjuggren & Sund, 2002; Lee et al., 2003;
Morris et al., 1996; Morris et al., 1997; Pérez‐González, 2006; Royer
et al., 2008).
In an ideal scenario, a family business leadership succession pro-
cess consists of three stages: personal development of the heir‐
apparent, the involvement of the heir‐apparent in the family business
and the actual leadership transition (Morris et al., 1997). Personal
development of the heir‐apparent and the involvement of the heir‐
apparent in the family firm (stages which would include the transfer
of tacit idiosyncratic firm knowledge) apply to this paper. Tacit idio-
syncratic firm knowledge is unique to the firm and is not explicitly
stated (Leonard & Sensiper, 1998). Examples include organizational
norms, culture, values, routines, and other nonwritten knowledge
unique to the firm.
Contributing to the importance of heir preparation, it is proposed
that when the heir‐apparent is better prepared and when the succes-
sion process is planned, family leadership successions produce
enhanced postsuccession performance (Morris et al., 1997). Ideally,
preparation of a successor starts long before the assumption of a
top‐management position, yet successor preparation is directly related
to the previous leader's commitment to the succession (Barach &
Ganitsky, 1995). Preparation may include the successor completing
education levels, working in several departments, meeting external
stakeholders such as suppliers and customers, or participating in lead-
ership meetings.
Owning families may shun successor preparation in an effort to
avoid conflict. For instance, involving the successor in multiple areas
of the firm may cause conflict among players inside the business
(e.g., producing questions such as, “is the successor really qualified?”
or “what's the successor doing in here now?”). In addition, the current
leaders may want to avoid conflict with the successor associated with
the training path. Nonetheless, succession transitions are proposed as
healthier with some conflict, such as debate over operational or orga-
nizational changes proposed by new leadership or when successors
and family business leaders grapple over strategic direction (Barnes
& Hershon, 1989).
Researchers have identified positive organizational effects related
to family leader succession. It is proposed that transitions of family
business leadership reflect family cohesion (Dyer, 2006) and that
cohesion among family members who make up a firm's top manage-
ment team is likely to result in shared business goals and values
(Ensley & Pearson, 2005). Family members who lead family businesses
are proposed; generally, good stewards of their firms and conse-
quently are more focused on long‐term success than nonfamily
leaders (Pérez‐González, 2006). As family members have much to gain
from the business's success and, thus, are more committed to the
organization, family members can provide a source of social capital
for the firm (Kidwell, Kellermanns, & Eddleston, 2012; Sharma &
Irving, 2005). It is also proposed that the loyalty of external stake-
holders (e.g., customers, suppliers, employees, and lenders) is
enhanced when family businesses are led by family members, such
as dynastic successors, which could result in stakeholders contributing
to the family firm's success (Pérez‐González, 2006).

34
Despite the potential positive effects of family leadership suc-
cession on firm performance, researchers have also proposed nega-
tive effects. Firm performance can be adversely affected when
family leadership succession drives strategic planning. Vinton
(1998) shares an example where the desired firm size for a roofing
company was driven not by market potential, not by available capi-
tal, but by the founder's aspiration to have room in the business
for both his sons. In cases such as this, firm leaders may achieve
dynastic succession goals, but firm performance may suffer. Further-
more, unqualified or incompetent family leadership heirs, who
absorb company resources, may form a source of demotivation for
other firm employees (Kidwell et al., 2012), another impairment of
post succession firm performance. Compensation for family leader-
ship successors based on family ties, and not on qualifications, may
create an inefficient use of resources and impair firm performance
(Salvato, Minichilli, & Piccarreta, 2011). In addition, researchers pro-
pose that preferential evaluation of family leadership successors, or
a lack of evaluation of family leadership successors, may result in
ineffective leadership or opportunistic behavior by the successor,
limiting firm performance (e.g., Dyer, 2006; Kidwell et al., 2012).
Researchers also propose that leadership quality is hampered when
leaders are chosen from a group limited to family heirs and that pro-
fessional managers may avoid joining firms where top leadership
opportunities are limited by inclusion in a specific gene pool (e.g.,
Dyer, 2006; Lee et al., 2003; Pérez‐González, 2006; Vinton, 1998).
Researchers have proposed potential negative effects related to
the previous leader and the potential successor, the direct players
involved in family leadership succession. To reduce the risk of expos-
ing their previous leader's incompetence, family leaders may opt for
family leadership successors who are less apt to call attention to pre-
vious leadership deficiencies (Dyer, 2006). As family leadership suc-
cession is normally a transition and not an event, the previous
leader's resistance to give up control may frustrate the new leader
(Barnes & Hershon, 1989). On the other hand, young heirs may feel
guilt and self‐doubt when they catapult over qualified others in the
organization (Vinton, 1998). Several authors point to the potential
for family and business conflict associated with family leadership suc-
cession; generations may battle over control (e.g., Dyer, 2006; Kidwell
et al., 2012; Pérez‐González, 2006). Moreover, family conflict during
succession can steal focus from business strategic goals, thus harming
firm performance (Kellermanns & Eddleston, 2004). Furthermore, pre-
vious leaders face the end of their professional career, leaving the firm
they love and to which they are committed, yet heirs face the fright-
ening future of operating the firm after senior family members and
mentors abandon ship (Morris et al., 1997).
As shown above, extant literature provides multiple positives and
negatives of family leadership succession related to firm performance.
Dana and Smyrnios (2010) proposed that family successors have “the
odds stacked against them” and that the often‐quoted proverb “from
clogs to clogs in three generations” (Dana & Smyrnios, 2010, pg. 47)
is still relevent. Findings and propositions related to the relationship
between family leadership succession and firm performance are
addressed next.
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WILLIAMS AND MULLANE
3 | THE RELATIONSHIP BETWEEN FAMILY
LEADERSHIP SUCCESSION AND FIRM
PERFORMANCE
A dearth of empirical research of the relationship between family lead-
ership succession and firm performance exists. However, Pérez‐
González (2006) used survey results and financial data from 335 pub-
licly traded U.S. corporations to compare postsuccession firm perfor-
mance in firms where family members assumed the top‐management
role against firms where nonfamily members assumed the top‐
management role. The study produced several findings supporting
the proposition that family leadership succession is negatively related
to firm performance. Pérez‐González (2006) found that relative to
firms with nonfamily successors, firms with family leader successors
experienced the following: a decline in operating return‐on‐assets rel-
ative to presuccession, lower market‐based valuations and net
income‐to‐assets ratios, and declines in research and development
expenditures. Pérez‐González's (2006) findings support Barach and
Ganitsky's (1995) proposition that family leadership succession is not
in the best interests of a firm's shareholders. In addition, Pérez‐
González's (2006) findings are consistent with statistics indicating
few family firms survive into the second generation, and fewer survive
into subsequent generations (e.g., Dana & Smyrnios, 2010; Lee et al.,
2003; Morris et al., 1996).
Given the proposed negative effects of family leadership succes-
sion on firm performance, the small portion of family businesses that
survive past the founding generation, and Pérez‐González's (2006)
empirical findings, the following proposition:
P1: In family businesses, the number of generations of
family leadership succession is negatively related to firm
performance.
4 | TA C I T I D I O S YN C RA T I C F I R M
KNOWLEDGE
In this section, following a discussion of tacit idiosyncratic knowledge,
two theories are employed to illustrate the value of tacit idiosyncratic
firm knowledge: the resource‐based view of the firm and transaction
cost economics. This section concludes with a second proposition.
Tacit knowledge resides in an intuitive realm and cannot be verbal-
ized or articulated, or more colloquially “We can know more than we
can tell” (Polanyi, 1962, p. 612). It is proposed that tacit knowledge is
one of the most valuable family business resources (Cabrera‐Suarez
et al., 2001). Typically, tacit knowledge is linked to a firm's founder(s),
and passing this knowledge on to potential successors is vital to the
future of a family firm. Tacit idiosyncratic firm knowledge is gained
through experience, interaction, doing, and heritage (Lee et al., 2003).
Family businesses, because of the interaction of the family and the
business, develop a unique and idiosyncratic collection of attributes,
experiences, knowledge, and resources (Dana & Smyrnios, 2010), and
this tacit idiosyncratic knowledge is typically transferred through

WILLIAMS AND MULLANE
watching, doing, observing, listening, and practicing (Bjuggren & Sund,
2002). Family business successors may benefit from life‐long exposure
to communication, decisions, and values that form the basis of the
firm's tacit idiosyncratic knowledge (Royer et al., 2008). As children of
parent‐entrepreneurs, future family leader successors are often
exposed to candid and honest discussions related to the family business
operations, and thus, they appropriate tacit idiosyncratic firm knowl-
edge in a gradually increasing manner as they grow from children to
teens, and then from teens into adulthood (Bjuggren & Sund, 2002).
Relative to nonfamily leaders, family leadership successors may
develop expert power (perceived superior knowledge or expertise)
through long tenures with the family firm (Pieper, 2010). This superior
knowledge or expertise could include tacit idiosyncratic firm knowl-
edge, including the business' vision and their predecessors' dreams
(Dana & Smyrnios, 2010). Predecessors may not explicitly state their
visions and dreams; however, their vision and dreams may exist as
tacit knowledge, which is idiosyncratic to the specific firm. Examples
of tacit idiosyncratic firm knowledge includes the following: under-
standing of the external environment, grasp of nuances related to
motivating the firm's workforce, knowledge related to internal opera-
tions and processes, experience in implementing family values in the
firm, insight of how the firm creates value for its customers, and famil-
iarity with the firm's product innovation approach (Lee et al., 2003;
Morris et al., 1997). Another example of tacit idiosyncratic knowledge
is familiarity with the business's external stakeholders (e.g., customers,
suppliers, and lenders), and these trust‐based relationships are vital to
the family firm's performance (Bjuggren & Sund, 2002). Tacit idiosyn-
cratic firm knowledge also includes familiarity with the firm's organiza-
tional norms for individual behavior (Bjuggren & Sund, 2002).
Successful family businesses often contradict conventional manage-
ment wisdom by having little bureaucracy, few control mechanisms,
blurred reporting mechanisms, and role ambiguity (Dana & Smyrnios,
2010). Family firms that operate with a laissez‐faire administrative
approach, operating on organizational norms and not written proce-
dures, may depend heavily on tacit idiosyncratic firm knowledge.
Family businesses idiosyncratic attributes are often leveraged into
competitive advantages, and maintaining idiosyncratic firm knowl-
edge, as a strategic competitive advantage, may provide a principal
reason for family leadership succession (Dana & Smyrnios, 2010).
For example, a firm may have an unspoken and unique commitment
to excellent customer service, and the current leaders may believe
the best way to preserve that commitment to customer service is by
transferring leadership to the next family generation. Furthermore,
when contemplating the option of selling the business, idiosyncratic
tactic knowledge may affect value perceptions (Bjuggren & Sund,
2002). The present value of cash flows received from the business
with idiosyncratic knowledge kept intact may exceed those of a firm
without idiosyncratic firm knowledge preserved. Thus, the loss of tacit
idiosyncratic knowledge, resulting from the lack of a potential family
successor, may directly lower the family's perceived market value of
the firm (Bjuggren & Sund, 2002). Next, to expound the value of tacit
idiosyncratic firm knowledge in family businesses, the resource‐based
view of the firm and transaction cost economics are applied.
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35
5 | R E S O U R C E‐ B A S E D V I E W OF T H E F I R M
A N D TH E V A L U E O F T A C I T I D I O S Y N C R A T I C
FIRM KNOWLEDGE
The resource‐based view of the firm is based on this position: if busi-
nesses hold assets which are valuable, rare, and inimitable, they are
able to create and sustain a competitive advantage (Dyer, 2006;
Wernerfelt, 1984). The resource‐based view of the firm began to res-
onate with strategy theorists when Wernerfelt (1984) proposed that
firms can be regarded as a collection of resources and that those
resources are the enabler of effective firm strategies (Crook, Ketchen,
Combs, & Todd, 2008). The extent to which strategic resources pro-
vide a sustainable competitive advantage determines their value
(Barney, 1991). Further, Wernerfelt (1984) proposed that a combina-
tion of resources can form an entry barrier for a firm's opportunistic
competitors. The implication of the resource‐based view of the firm
is that the right combination of resources will enhance firm perfor-
mance and value. Supporting this position, a meta‐analysis of 125
empirical studies provides strong evidence supporting a positive link
between firm's possession of valuable, rare, and inimitable strategic
resources and business performance (Crook et al., 2008).
Given family businesses typically have countless intangible
resources (e.g., the family's commitment to the firm and the family's
good community reputation), the resource‐based view of the firm is
appropriate for consideration of family business strategic resources
(Habbershon & Williams, 1999). Strategic resource combinations are
heterogeneous, endogenous, and a result of firm specific attributes
(Barney, 1991; Crook et al., 2008). This is relevent to family firms as
families are unique, and thus, family business strategic resources and
strategic resource combinations are idiosyncratic (Habbershon & Wil-
liams, 1999). These internal idiosyncratic resources can provide a
source of competitive advantage in the family business (Habbershon
& Williams, 1999). The endogenous nature of firm‐specific strategic
resources is particularly relevant to family firms as the unique set of
competencies, organizational processes, information, capabilities, rep-
utations, and knowledge inherent to the linkage between the family
and the family business may provide a source of competitive advan-
tage (Barney, 1991; Crook et al., 2008; Dana & Smyrnios, 2010;
Gedajlovic, Carney, Chrisman, & Kellermanns, 2012),
Strategic resources providing sustained competitive advantage
exist in three categories: physical capital, human capital, and organiza-
tional capital (Barney, 1991). Human capital represents the training,
experience, judgment, intelligence, relationships, and insights. Human
capital is difficult for competitors to imitate as it is often intertwined
in the firm's complex social setting (Barney, 1991). As having the fam-
ily name on the firm's door often results in family members' motivation
and commitment to the family firm, the interconnection between
human capital and social environment is especially relevant to family
businesses (Dyer, 2006). Related to this discussion, familiness (e.g.,
commitment, culture, trust, and reputation) may form a family busi-
ness tacit knowledge resource that provides a human capital strategic
resource, which produces a competitive advantage and positive per-
formance results (Cabrera‐Suarez et al., 2001). Thus, the transfer of

36
tacit knowledge, as human capital produced from familiness, may sus-
tain the resultant competitive advantage and ensuing positive firm
performance.
Organizational capital represents a firm's reporting structure,
planning processes, manner for coordinating and controlling the firm's
systems, informal relations between groups inside the firm, and infor-
mal relations between the firm and its environment (Barney, 1991). As
families, and their influences on firms, are unique, the nuances of fam-
ily firm organizational capital may be difficult to imitate; thus, a family
firm's organizational capital could provide a valuable strategic
resource. As family members often become active in the family busi-
ness at an early age, they may develop an understanding the firm's
unique organizational traits of organizational capital resources early
(Dyer, 2006), potentially acquiring this valuable tacit idiosyncratic firm
knowledge.
As viewed through the lens of the resource‐based view, these
observations of family business human capital and organizational cap-
ital are consistent with Barney's (1991) descriptions of valuable strate-
gic resources. Therefore, idiosyncratic knowledge in family firms
represents inimitable and intangible resources that can provide com-
petitive advantage and, consequently, superior performance (Dana &
Smyrnios, 2010). Given that the elements of human capital and orga-
nizational capital in a family business are often transferred through
the lifelong association between the successor and the predecessor
(Dyer, 2006), and the tendency for family firms to have little bureau-
cracy and control in the context of blurred reporting relationships
and role ambiguity (Dana & Smyrnios, 2010), human capital and orga-
nizational capital in a family business may exist in the form of tacit and
idiosyncratic firm knowledge. Related to intrafamily succession, non-
family leaders in a family business may have difficulty, relative to fam-
ily members, assimilating knowledge of a firm's organizational capital
and human capital inherent to the family business (Dyer, 2006). To
summarize, from the resource‐based view of the firm, tacit idiosyn-
cratic firm knowledge, in the form of human capital and organizational
capital, can provide rare and inimitable assets capable of providing
competitive advantage, and the transfer of that tacit knowledge is
potentially vital in family businesses.
6 | T RANS A CT ION C OST E CO NOMIC S:
FAMILY BUSINESSES AND TACIT
I D I O S YN C R A T I C F I R M KN O W L E D G E
Transaction cost economics views the firm not as a producer of prod-
ucts or a provider of services, but as a structure governing the dealings
necessary to conduct business (Williamson, 1981). Market forces drive
the prices paid for components, assets, labor, management, and all the
other items a firm procures, whether those items are tangible and
intangible (Williamson, 1979). However, transaction cost economics
considers not only the market price of the item, but the whole trans-
action: the cost of procuring the item and the cost to govern the trans-
action (Williamson, 1979). Thus, from a transaction cost economics
view, firm leaders should aim to minimize the sum of the external
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WILLIAMS AND MULLANE
purchase costs to procure and the internal transaction costs to govern
a transaction (Williamson, 1979). As a complex machine with gears
and mechanisms can have inefficient components, transactions have
friction points that require managing and governing (Shelanski & Klein,
1995; Williamson, 1981). Varying transactions require different levels
of governance, and thus, they require different amounts of internal
transaction costs (Williamson, 1981). The lower the internal transac-
tion cost incurred, the greater the firm can depend on the market to
govern the transaction (Williamson, 1979).
Transaction cost economics characterizes procurement interac-
tions according to three attributes: the frequency of the transaction,
the uncertainty related to the transaction, and the specificity of the
asset being procured (Shelanski & Klein, 1995; Williamson, 1981).
Asset specificity is the transaction attribute most relevant to this pro-
posed study; thus, in the sake of parsimony, frequency and uncer-
tainty are not discussed here. Assets are deemed specific in three
ways: site specificity (the location), physical asset specificity (the abil-
ity to produce a certain component), and human asset specificity
(learning by doing and from experience; Shelanski & Klein, 1995;
Williamson, 1981). If assets procured are nonspecific, the market
can efficiently govern the transaction (Williamson, 1981). Conversely,
if an asset is specific, the transaction to procure that asset will require
more governance and, thus, higher internal transaction costs
(Williamson, 1981).
Human capital, in the form of tacit idiosyncratic firm knowledge, is
a specific asset gained by a family member through years of involve-
ment in the family and the family business. Related to this paper,
transferring family firm tacit idiosyncratic knowledge to a nonfamily
leadership successor chosen from the open market would require gov-
ernance, possibly resulting in higher internal transaction cost. Thus,
transaction cost economics illustrates why choosing a family leader-
ship successor is a potentially efficient in a family business; the family
business may incur cost to transfer tacit idiosyncratic firm knowledge
to a nonfamily leadership successor (Bjuggren & Sund, 2002).
The consideration of nonfamily leaders' opportunistic behavior
provides another application of transaction cost economics in family
business. Opportunism, a party acting in self‐interest, is a central tenet
of transaction cost economics and is especially relevant to interactions
involving the transfer of human capital (Royer et al., 2008; Williamson,
1979). Related to a family successor, a nonfamily leader successor may
act opportunistically and appropriate as large a proportion of the firm's
profits as possible (Lee et al., 2003). Monitoring and governing the
opportunistic behavior of a nonfamily leader represents a transaction
cost, and family firm decision makers might consider this potential
transaction cost against the probability that a family successor would
not act opportunistically.
Applying the resource‐based view of the firm demonstrates that
tacit idiosyncratic firm knowledge is a potentially valuable asset.
Transaction cost economics demonstrates that, relative to a family
successor, the transfer of tacit idiosyncratic firm knowledge a nonfam-
ily leadership successor may require higher governance costs. Conse-
quently, idiosyncratic firm knowledge is important in family
businesses dynastic succession; thus, the following proposition:

WILLIAMS AND MULLANE
P2: In family businesses, the number of tacit idiosyncratic
firm knowledge transfer processes engaged will moderate
the relationship between the number of generations of
family leadership succession and firm performance, such
that this negative relationship will weaken as the
number of tacit idiosyncratic firm knowledge transfer
processes increases.
Figure 1 provides a conceptual illustration of the propositions pre-
sented here. The next section discusses tactics for transferring this
vital asset, tacit idiosyncratic knowledge, to family leadership
successors.
7 | T A CT I CS F O R T R A N S F E RR I N G T A CI T
I D I O S YN C R A T I C F I R M KN O W L E D G E T O
FAMILY LEADERSHIP SUCCESSORS
Given the importance of knowledge to competitive advantage and
firm performance (Barney, 1991), it is little wonder that researchers
have endeavored to understand tacit knowledge and, more precisely
for this paper, its transfer between parties. Yet, tacit idiosyncratic
knowledge is difficult to transfer (Royer et al., 2008), and often those
involved in the transfer have a weak understanding of the process
(Foos, Schum, & Rothenberg, 2006). Given the difficulty of transfer-
ring tacit knowledge and its importance, when planning the develop-
ment of successors, family business leaders should explore tactics
for conveying this valuable knowledge (Salvato et al., 2011).
As an accumulation of human capital occurs from experiences
encountered over the span of a career, long tenures with the family
firm expose family leadership successors to tacit idiosyncratic firm
knowledge (Salvato et al., 2011). During long tenures, potential family
business leadership successors might fill positions at several manage-
rial levels, working up through the ranks (Lee et al., 2003) in multiple
departments or functional areas (Royer et al., 2008) to acquire tacit
idiosyncratic firm knowledge. Working at different levels and in multi-
ple departments may expose a leadership successor to idiosyncratic
firm knowledge related to operations and organizational norms (Morris
et al., 1996). In describing a family successor's development, Handler
(1989) identifies managerial steps: no‐role, helper, manager, and
leader. Future family business successors may acquire tacit
FIGURE 1 Conceptual model
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37
idiosyncratic firm knowledge through interaction with various external
stakeholders, such as suppliers, customers, strategic partners, and
advisors (Salvato et al., 2011). These are the obvious tactics for trans-
ferring tacit knowledge in family businesses; next, less obvious means
and environmental aspects are presented from literature, including
trust, close ties, and common goals.
Research findings suggest that the presence of trust has a positive
effect on tacit knowledge transfer (Foos et al., 2006; Holste & Fields,
2010; Levin & Cross, 2004). Levin and Cross (2004) describe trust as a
“quality of the trusted party that makes the trustor willing to be vul-
nerable” (p. 1478), which enhances the knowledge recipient's willing-
ness to accept the knowledge presented. Findings indicate a positive
relationship between two types of trust – benevolence‐based trust
(an affective component) and competence‐based trust (a cognitive
component)—on the transfer of tacit knowledge (Holste & Fields,
2010, Levin & Cross, 2004). In discussing their results, Levin and Cross
(2004) propose that knowledge seekers openly share their knowledge
deficiencies when benevolence‐based trust is present, and they better
absorb presented knowledge when competence‐based trust is
present.
Stewardship theory applies when a leader focuses on serving their
organization rather than their personal interests (Davis, Schoorman, &
Donaldson, 1997), and family business research has found a positive
relationship between leader stewardship and employee trust (both
family members and non‐family members; Davis, Allen, & Hayes,
2010). These finding are applicable to family firms as it is proposed
less informational asymmetry among family members engaged in a
business results from tight family relationships; they are open and vul-
nerable with each other (Tagiuri & Davis, 1996), possibly enhancing
stewardship and trust. Related to this discussion, given the positive
relationship between leader stewardship and trust, and the positive
relationship between trust and tacit knowledge transfer, when plan-
ning for succession family business leaders might consider their stew-
ardship and the related perceptions of others.
Findings indicate that interfirm knowledge transfer is more effec-
tive in strategic alliances when equity is shared as in joint ventures
(Mowery, Oxley, & Silverman, 1996). Related to this discussion, family
business leaders might consider transferring small amounts of equity
to successors early in the development process. This equity transfer,
even if small, may enhance the perception of stewardship and trust,
and the successor having a stake in the firm may enrich both tacit
knowledge absorption on the part of the successor and transfer
efforts on the part of the current leader.
Another factor found to affect knowledge transfer is the relation-
ship strength, the closeness, or social cohesion of the parties involved
(Reagans & McEvily, 2003; Tamer Cavusgil, Calantone, & Zhao, 2003).
Frequent interactions are key to closeness as they afford parties the
opportunity to understand each other's needs (Levin & Cross, 2004;
Tamer Cavusgil et al., 2003). Parties who frequently communicate
are more likely to interact effectively and have strong relationships,
and close ties may motivate investing time and effort into tacit knowl-
edge transfer (Reagans & McEvily, 2003). During interactions, open‐
mindedness boosts knowledge transfer by enabling a strong

38
understanding of the situation and requisite needs (Tamer Cavusgil
et al., 2003). It is proposed that familiness, through tacit family cultural
mechanisms, influences the success of family business succession
(Campbell, Heriot, & Welsh, 2007); frequent family interactions over
a successor lifetime transfers tacit family knowledge—goal congru-
ence, worldview, desired future, work ethic, etc.—may contribute to
successful succession.
Related to the effect close ties may have on knowledge transfer, it
is proposed that having regular family meetings—an iterative process
as “recurring occasions for processing transitory collective beliefs of
family members” (p. 41)—may contribute to agreement on goals and
strategy (Habbershon & Williams, 1999). Furthermore, findings indi-
cate that frequency of meetings is positively related to the perceived
level of agreement regarding business matters (Habbershon & Wil-
liams, 1999). Given the relationship between close ties and knowledge
transfer, and other benefits from meetings, family business leaders
might consider having regular scheduled meetings with leaders and
potential successors.
One last point related to close ties and knowledge transfer: Levin
and Cross (2004), referenced above in this section, found that trust
mediated the presence of strong ties and the transfer of knowledge;
in relationships with strong ties, the absence of trust inhibited knowl-
edge transfer. This magnifies the importance of trust in transferring
tacit knowledge from family business leaders to potential successors.
The presence of common goals is proposed to have a positive
effect on knowledge transfer (Goh, 2002). For instance, if a company's
goal is to improve product quality, employees embracing that goal may
better grasp related knowledge. From this, two tactics apply to family
business leaders who are preparing successors. First, the presence of a
well‐defined mission and vision is vital. If a developing successor is
aware of the business' mission (e.g., target customers and the values
delivered to customers) and vision (what success looks like), he or
she may seek and apply related tacit knowledge.
Second, an understanding of the family's affective goals related to
the business may further facilitate the transfer of related tacit knowl-
edge. Families gain emotional value from their involvement in a family
business (Astrachan & Jaskiewicz, 2008), which is commonly referred
to as socioemotional wealth (SEW), the nonfinancial characteristics of
the firm which meet the family's affective needs (Gómez‐Mejia,
Haynes, Nuñez‐Nickel, & Moyano‐Fuentes, 2007). It is proposed that
SEW has five dimensions, which follow the acronym FIBER: Family con-
trol and influence, Identification of the family members with the firm,
Binding social ties, Emotional attachment of family members, and
Renewal of family bonds to the firm (dynastic succession; Berrone,
Cruz, & Gómez‐Mejia, 2012). Family control and influence portray a
family's desire to maintain control over business strategic decisions.
Identification of family members with the firm relates to how internal
and external stakeholders see the firm as an extension of the family.
Binding social ties reflect the family businesses' bonds with the commu-
nity. Emotional attachment reflects a family's long history of various
and unique experiences, which produces an emotional attachment that
manifests in altruistic behavior among family members. Renewal of
family bonds to the firm relates to the family's legacy intentions and
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WILLIAMS AND MULLANE
the desire for later generations to assume leadership of the firm. A clear
understanding of which SEW dimensions, if any, are important to the
family may facilitate the transfer of related tacit knowledge.
8 | C O NC L U D I N G T H O U G H T S
Regarding future research, in addition to exploring the tactics pro-
posed above, researchers of tacit idiosyncratic firm knowledge and
its effect on postsuccession performance should consider potential
moderating factors. For example, what is the effect if prior firm perfor-
mance is negative versus positive? If the firm is underperforming, is it
possible the successor will be less interested in tacit firm knowledge?
Also, if the successor's goals are very different from the predecessor's,
will the successor welcome tacit knowledge? These and other poten-
tial moderators make tacit knowledge transfer in family business suc-
cession a rich area for future research.
Given the unique nature of family–family firm interactions, and
the family business heterogeneity, researchers should be cautious in
declaring the “best practices” for family firms; one size may not fit all
(Dana & Smyrnios, 2010). Related to this discussion, multiple factors
can affect the transfer of tacit knowledge: successor motivation, fam-
ily context and business contexts, the successor's ability to capture
both explicit and implicit knowledge and successor abilities (Cabrera‐
Suarez et al., 2001). Furthermore, rather than a specific event, succes-
sion is typically an evolutionary process, and during the succession
progression multiple things may change (e.g., relationships, business
health, stakeholder influence, and others). Therefore, it must be
acknowledged that the tactics for transferring tactic knowledge pre-
sented above may, or may not, apply at different points of the succes-
sion process. Yet, researchers should continue expand the knowledge
of family businesses, providing family business leaders insight as to
how choices and management behaviors might influence their firms,
their families, and leadership succession (Dana & Smyrnios, 2010).
Toward that end, this paper presents propositions related to the rela-
tionship between family leadership succession and firm performance,
specifically the moderating effect of the transfer of tacit idiosyncratic
firm knowledge to leadership successors on postsuccession perfor-
mance. Further, suggestions for transferring tacit idiosyncratic firm
knowledge to potential family business successors are provided. The
authors sincerely hope this work contributes to the family business
leadership succession discussion.
ORCID
Ralph I. Williams Jr https://orcid.org/0000-0001-9264-322X
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