Predictors of Satisfaction with Succession Process in Family Firms

Journal of Business Venturing 18 (2003) 667 – 687

Predictors of satisfaction with the succession process in
family firms
Pramodita Sharmaa,*, James J. Chrismanb,c, Jess H. Chuac, 1
a
School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5
b
Department of Management and Information Systems, College of Business and Industry,
Mississippi State University, Mississippi, MS, USA
c
Haskayne School of Business, University of Calgary, 2500 University Drive, NW,
Calgary, Alberta, Canada T2N 1N4

Abstract

Recent theoretical developments suggest that satisfaction with the succession process in family
firms is enhanced by the incumbent’s propensity to step aside, the successor’s willingness to take over,
agreement among family members to maintain family involvement in the business, acceptance of
individual roles, and succession planning. Data from incumbent leaders and successors provide strong
support for these relationships. Incumbents and successors disagree, however, about the importance of
each other’s role. This implies a need to align these strategic stakeholders’ perceptions in the family
firm. Our research methodology also highlights the importance of considering multiple stakeholder
groups in conducting family firm research.
D 2003 Elsevier Science Inc. All rights reserved.

Keywords: Family business; Succession; Stakeholders

1. Executive summary

In a recent study, Sharma et al. (2001) developed a model on satisfaction with the
succession process in family firms by drawing on the premises of stakeholder theory as well
as various aspects of organizational, behavioural, and economic theories. Their model

* Corresponding author. Tel.: +1-519-884-0710; fax: +1-519-884-0201.
E-mail addresses: psharma@wlu.ca (P. Sharma), jess.chua@haskayne.ucalgary.ca (J.H. Chua).
1
Tel.: +1-403-220-6331; fax: +1-403-282-0095.

0883-9026/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved.
doi:10.1016/S0883-9026(03)00015-6

668 P. Sharma et al. / Journal of Business Venturing 18 (2003) 667–687

proposes that satisfaction with the succession process is directly affected by (1) propensity of
the incumbent to step aside, (2) the successor’s willingness to take over, (3) agreement among
family members to maintain family involvement in the business, (4) acceptance of individual
roles, and (5) succession planning. We test these relationships using data collected from
incumbent presidents and successors of a sample of family firms.
Univariate results show that incumbents and successors disagreed on important aspects of
the succession process and family firm attributes. The incumbents were more satisfied with
the process and believed more strongly that they were ready to step aside and succession was
planned. This suggests a misalignment of perception. The incumbents may not have
communicated their propensity to step aside and may have been planning the succession
without consulting or communicating with the successors.
Regression results show that the two respondent groups agree on the importance of
succession planning and acceptance of individual roles in the business in determining
their satisfaction with the process. They also indicate that agreement among family
members to maintain family involvement in the business was not important in determining
satisfaction.
They differ, however, in terms of whose attitude is important in determining their
satisfaction. Incumbents indicate that their satisfaction is influenced by the successors’
willingness to take over but not by their own propensity to step aside. Successors, on the
other hand, indicate the reverse—their satisfaction is influenced by the incumbent’s
propensity to step aside but not their own willingness to take over. This is unique evidence
about the importance of the relationship between the perceptions of incumbent and
successor.
This article makes several contributions to the study of family business management.
First, it confirms hypotheses from the literature that were integrated in Sharma et al. (2001).
These hypotheses have not been tested together before. Second, the results suggest an urgent
need to align the perceptions of incumbents and successors in order to increase the
probability of a satisfactory succession process. Third, it highlights the interactive roles
played by incumbents and successors. Fourth, in terms of methodology, the results indicate
that empirical research on family business must take into account the possibility that
different stakeholders in the family business may have very different perceptions about the
issues or topics under investigation. This is one of the first empirical studies of family
business of which we are aware that analysed an issue from more than one stakeholder
group’s point of view.

2. Introduction

Demographic trends suggest that a large majority of family business leaders will retire in
the next decade (US Census Bureau, 2000). Therefore, family business researchers’
preoccupation with leadership succession should not be a surprise (Sharma et al., 1996).
Scholars have been concerned with finding ways to preserve successful ventures, many of
which are or become family firms, beyond the tenure of their founders. To contribute to this

P. Sharma et al. / Journal of Business Venturing 18 (2003) 667–687 669

aim, this article describes a study that investigates factors influencing satisfaction with the
succession process in family firms.
In the family business literature, succession means the transfer of leadership from one
family member to another—a goal shared by a majority of family firms (American Family
Business Survey, 1997).2 A successful succession can help a family firm achieve or sustain its
´
competitive advantage over non-family firms (Cabrera-Suarez et al., 2001) by preserving the
‘‘idiosyncratic knowledge of family character’’ (Bjuggren and Sund, 2001, p. 11) or
‘‘familiness’’ (Habbershon and Williams, 1999, p. 1).
Family firms have subjective and objective performance goals (e.g., Lee and Rogoff, 1996;
Stafford et al., 1999; Tagiuri and Davis, 1992). Thus, family firms cannot be thoroughly
understood unless researchers investigate the factors that influence performance in terms of
both types of goals. Succession is no exception, and its success has two interactive
dimensions—satisfaction with the process and effectiveness of succession (Handler, 1989;
Morris et al., 1997). The former is a subjective assessment of the process and decision and the
latter an objective determination of the impact of the decision on firm performance.
Recently, Sharma et al. (2001) presented a model on satisfaction with the succession
process that draws on the premises of stakeholder theory as well as various aspects of
organizational, behavioural, and economic theories. Aside from helping to distinguish
between the two interactive dimensions of success in succession, it proposes a compre-
hensive model of the factors and interactions that influence initial satisfaction with the
succession process in family firms. The model indicates that the complex interactions of five
factors and their antecedents affect satisfaction with the succession process. This study tests
the direct influences of the five factors: (1) propensity of the incumbent to step aside, (2) the
successor’s willingness to take over, (3) agreement among family members to maintain
family involvement in the business, (4) acceptance of individual roles, and (5) succession
planning.
The study makes several contributions to research on family business management. First, it
confirms hypotheses that arise from the literature and were integrated in Sharma et al. (2001).
These hypotheses have not been tested together before. Second, the results show an urgent
need to align the perceptions of incumbents and successors in order to increase the probability
of a satisfactory succession process. Third, the study highlights the interactive roles played by
the incumbent and the successor. Fourth, the results indicate that empirical research on family
business must take into account the possibility that different stakeholders in the family
business may have very different perceptions about the issues or topics under investigation.
This is one of the first empirical studies of family business of which we are aware that
analysed an issue from more than one stakeholder group’s point of view.

2
Consistent with previous discussions in the literature (e.g., Fredrickson et al., 1988; Pitcher et al., 2000;
Sharma et al., 2001), we focus on voluntary successions where the incumbent has control over the succession
process, as opposed to successions due to death or illness or dismissals by boards or other stockholders with
sufficient ownership rights. Succession due to death or illness is out of the firm’s control, while dismissals are rare
because the incumbent tends to have ownership control. Brown (1993) discusses how to deal with the issues
arising from death or illness in the family firm.


In the next section, we briefly state our hypotheses. Following that, we describe the data
and analyses. Then, we present and discuss the empirical results. We make our conclusions in
the last section.

3. The conceptual model

Stakeholders are those ‘‘who can affect or be affected by’’ the achievement and nature of
organizational decisions (Freeman, 1984, p. vi). In family firms, all family members are
stakeholders in the succession process as they can, to varying extents, affect or be affected by
leadership transitions (Sharma, 2001).3 Consistent with the underpinnings of systems theory,
this view necessitates developing an understanding of the succession process from the
perspective of all stakeholder groups (Heck and Trent, 1999; Stafford et al., 1999). The extent
to which each stakeholder group can influence the succession process and succession decision
is clearly a function of the stakeholder group’s salience in terms of power, legitimacy, and
urgency (Mitchell et al., 1997).
Based on the premises of stakeholder theory as well as various aspects of organizational,
behavioral, and economic theories, Sharma et al. (2001) presented a model describing how
satisfaction with the succession process is affected by interactions among all of the stake-
holders of the family firm. In the model, satisfaction is influenced positively by the
interactions among five factors and their antecedents. The five factors are (1) the incumbent’s
propensity to step aside, (2) the successor’s willingness to take over the business, (3) extent of
succession planning, (4) family members’ agreement to maintain family involvement in the
business, and (5) acceptance of individual roles.4
Our test of the model is limited to the direct influences of the five factors and focuses on the
incumbent and the successor—the two key stakeholders without whose cooperation the transfer
of leadership cannot be effected (Handler, 1989). Thus, we modify the model and hypotheses
proposed by Sharma et al. (2001) to focus on the perspectives of these two groups of
stakeholders. Fig. 1 shows our simplified model. Our hypotheses are briefly discussed below.
The incumbent leaders of family firms often have significant financial and emotional
investment in the firm, providing them with legitimacy and power (Bjuggren and Sund, 2001;
Cannella and Shen, 2001) to control the succession decision and process (e.g., Lansberg,
3
It is the nature of family firms that family and business interests and issues are often confounded. Therefore,
even family members who are neither owners nor employees may affect or be affected by the succession process.
For example, their influence on the family can affect family dynamics and issues that, in turn, can affect the
succession process. For another example, family members also have the tendency to share resources. Therefore,
family members who are neither owners nor employees may, nevertheless, be affected by the succession decision
in terms of the resources available to be shared with them. If they can affect or be affected by succession in the
family firm, then they are stakeholders per Freeman’s (1984) definition of the term. For a thorough discussion
about why all family members must be considered stakeholders, see Heck and Trent (1999).
4
The antecedents are (1) perceived family harmony, (2) fit between successor’s career interests and the
business, (3) trust in the successor’s abilities and intentions, (4) incumbent’s interests outside the business, (5)
expected payoffs from the business, and (6) presence of an active board. For detailed development of the full
model and hypotheses regarding succession satisfaction, please refer to Sharma et al. (2001).


Fig. 1. Determinants of satisfaction with the succession process in the family firm. (I) indicates that the hypothesis
is supported by incumbents and (S) indicates support by successors. *P<.05, **P<.01, ***P<.001.

1999; Schulze et al., 2001). Many of these incumbents have devoted a large portion of their
lives and careers to building up their firms and some of them may find stepping aside
challenging or even frightening because they fear the loss of power, status, or personal
identity.5 Consequently, the incumbent’s propensity to step aside should directly influence the
incumbent’s satisfaction with the succession process. Since a dissatisfied incumbent could
potentially cause the process to falter or create discord within the family, the incumbent’s
propensity to step aside should also affect the successor’s satisfaction level.
Perception will be individualistic; the incumbent and the successor may have different
perceptions about the incumbent’s propensity to step aside. As a direct effect, each stake-
holder’s perception will affect that particular stakeholder’s satisfaction.6
Hypothesis 1a: There is a positive relationship between the incumbent’s perception about the
incumbent’s propensity to step aside and the incumbent’s satisfaction with the succession
process.
Hypothesis 1b: There is a positive relationship between the successor’s perception about the
incumbent’s propensity to step aside and the successor’s satisfaction with the succession
process.
5
Of course, others may view retirement as a new beginning and desirable outcome (Kets de Vries, 1985;
Lansberg, 1988).
6
Through interactions, as discussed in Sharma et al. (2001), each party’s perception has the potential to affect
the other party’s satisfaction. As discussed before, this study is limited to testing the direct effects.


Without a successor willing to take over the family business, the family may have to sell
the business. At best, succession will have to proceed with the reluctant acquiescence of or
resistance by the successor. Therefore, the process will not proceed smoothly, and
satisfaction with the process will be negatively affected (Handler, 1992; Shepherd and
Zacharakis, 2000). On the other hand, once families or incumbents decide to retain
leadership of the firm within the family, the willing successor acquires legitimacy and
power to influence the succession process. Thus, the successor’s willingness to take over
(H2a and H2b) must also influence satisfaction with the succession process for both
incumbents and successors.7

Hypothesis 2a: There is a positive relationship between the incumbent’s perception about the
successor’s willingness to take over the leadership of the family business and the incumbent’s
satisfaction with the succession process.

Hypothesis 2b: There is a positive relationship between the successor’s perception about the
successor’s willingness to take over the leadership of the family business and the successor’s
satisfaction with the succession process.

When financial and emotional assets of other family members are closely tied to the firm,
the succession decision will have a significant impact on these assets. Although the incumbent
and the successor are the key stakeholders in the succession process, these other family
members may influence the process through their combined power, legitimacy, and urgency.
Two primary ways by which these family members may influence the succession process
are through their agreement to maintain family involvement in the business (H3a and H3b)
and their acceptance of mutual roles related to the business (H4a and H4b). The first variable
indicates how these salient stakeholders view the attractiveness of their future stakes in the
family business, while the second indicates whether their roles in the business will enable
them to achieve their goals within the firm. Thus, these variables help determine whether
family members will use their positions in the family and/or firm to hinder or help the
succession process. Put differently, if there is no commitment by other family members to the
goal of succession and no agreement with respect to their future relationships with the
successor, other family members are more likely to attempt to undermine the process of
redistributing company shares, assets, and/or power (cf. Stevenson et al., 1985). This
discordance might delay or stop the succession process (Dyer, 1986; Poza and Messer,
2001). Such disruption is likely to diminish the satisfaction experienced by the incumbent and
successor with respect to the succession process.

Hypothesis 3a: There is a positive relationship between the degree to which family members
agree to maintain family involvement in the business and the satisfaction experienced by the
incumbent of the family firm with respect to the succession process.

7
Similar to the discussion in footnote 5, through interactions, one party’s perception may affect another party’s
satisfaction. This study does not test interactive effects.


Hypothesis 3b: There is a positive relationship between the degree to which family members
agree to maintain family involvement in the business and the satisfaction experienced by the
successor of the family firm with respect to the succession process.
Hypothesis 4a: There is a positive relationship between the degree to which family members
accept each other’s role in the business and the satisfaction experienced by the incumbent of
the family firm with respect to the succession process.
Hypothesis 4b: There is a positive relationship between the degree to which family members
accept each other’s role in the business and the satisfaction experienced by the successor of
the family firm with respect to the succession process.

Succession does not happen spontaneously; a process, not necessarily formal, must be put
in place to transfer leadership from one individual to another. Since leadership succession in
family firms is an emotion-bound issue, it can sometimes raise unpleasant issues for family
members. However, thoughtfully developed succession plans can increase the likelihood of
cooperation among stakeholders in the business and enhance satisfaction with the succession
process (e.g., Dyck et al., 2002). Thus, we contend that, in general, a formal process in the
form of succession planning is preferable to no succession planning because it allows for the
views of the salient stakeholders to be considered and, in varying degrees, to be incorporated
into the process itself. This contention is consistent with the importance accorded to
succession planning in the literature (e.g., Lansberg and Astrachan, 1994; Ward, 1987).
Consequently, we hypothesize that
Hypothesis 5a: There is a positive relationship between the extent to which a firm engages in
succession planning and the satisfaction experienced by the incumbent of the family firm with
respect to the succession process.
Hypothesis 5b: There is a positive relationship between the extent to which a firm engages in
succession planning and the satisfaction experienced by the successor of the family firm with
respect to the succession process.

4. Data and analysis

There is no national list of family firms in Canada. Thus, following other empirical studies
in family business research, we chose a convenience sample. The study used the 604 member
firms of the Canadian Association of Family Enterprise (CAFE), which is the only nation-
wide nonprofit association of family firms in Canada. A previous study (Chua et al., 1999)
found CAFE members to be older and larger than non-CAFE firms.8 It is difficult to imagine
that family firms within a nation would face different succession issues simply because of
8
In the previous study, the list of nonmembers was obtained from a consulting firm. This study did not have
the cooperation of the consulting firm. We did, however, control for size and generation/age in our regression
analysis.


membership in an association. After all, nonmembers can easily become members by simply
paying the membership dues. Nevertheless, self-selection bias cannot be completely ruled
out. For example, even if the succession issues are similar, members may be more willing to
seek help. As a result of effective outside assistance, they may have higher levels of
satisfaction with their succession processes.9
Rich qualitative studies conducted on succession have all observed that the process is
lengthy (Dyck et al., 2002; Handler, 1989; Vancil, 1987) and may take 15–20 years (Ward,
1990). Therefore, it is not possible to pinpoint the exact time at which a family firm begins or
ends the succession process. To make allowance for this ambiguity, we screened the sample
for firms that expected the succession event within the ensuing 5 years and those for which
the event has occurred within the preceding 5 years. The first screening criterion assumes that
if succession is expected to occur within the subsequent 5 years, the process should have
started. The second assumes that the process may still be continuing or, at least, given the
importance of succession, memories will be relatively fresh in the minds of key stakeholders
and their responses will be accurate. Based on these criteria, 509 firms were selected.10
Researchers suggest that the perceptions of incumbents and successors may differ
significantly (Poza et al., 1997). Therefore, we collected data from both incumbents and
successors, using two color-coded, pretested questionnaires. The basic questions asked were
the same, but each version of the questionnaire addressed the individual in more personal
terms. Each respondent was provided stamped self-addressed return envelopes. Usable
responses were received from 177 firms yielding an overall response rate of 34.8%. A total
of 142 responses were received from successors (27.9%) and 118 from presidents (23.2%),
but for only 76 firms (14.9%) did both the incumbent and successor respond. Among these
firms, some incumbents or successors did not respond to all of the questions, reducing the sets
of complete data available to test the hypotheses.11
Tests of nonresponse were conducted using Armstrong and Overton’s (1977) contention
that late respondents are more likely than early respondents to be similar to nonrespondents.
Data received were categorized into three batches based on the timing when they were
received. MANOVA tests were conducted to examine differences in responses among
questionnaires received at different times. No significant differences were found between
early and late respondents, suggesting that sample selection bias was not an issue in this study
(Kanuk and Berenson, 1975; Oppenheim, 1966). Furthermore, t tests on the means for the
dependent, independent, and control variables showed no statistically significant differences
between the matched and full samples for either incumbents or successors.

9
For a discussion about selection bias and its implications, see Heckman (1979).
10
The choice of 5 years before and 5 years after was arbitrary. More years would have given us a larger
sample at the expense of accuracy in memory recall in the case of those firms for which the event had taken place
and at the expense of information sufficiency in the case of those for which the event had not. Fewer years may
have yielded too few observations to perform the analysis planned.
11
Analysis using the full data sets for incumbents and successors show similar results and are available from
the authors. The results from the matched sample may have the advantage of controlling for variables that were not
explicitly included in our regression model with respect to conclusions drawn about differences in the responses of
incumbents and successors.


4.1. Operationalizing the variables

The dependent variable—satisfaction with the succession process—and the five independ-
ent variables were measured with multiple indicators using a 5-point Likert-type rating scale.
In the questionnaire used to collect data on these indicators, each anchor on the scale was
named in order to help the respondents make their choices and, hopefully, to enhance
consistency in interpretation. Although an attempt was made to use established scales where
possible, given the early developmental stage of empirical research on family firms, many of
the scales used were either modified from those used in previous studies (e.g., Handler, 1989;
Malone, 1989; Lansberg and Astrachan, 1994) or developed specifically for this study. The
definition for each variable and the indicators used are presented in the Appendix A.12
The dependent variable was a construct calculated as an equally weighted average of 12
relevant indicators. Each independent variable was also a construct calculated as an equally
weighted average of the relevant indicators. The alpha values for these constructs ranged from
.68 to .93. All constructs except that for incumbent’s propensity to step aside had reliability
coefficients greater than the conventionally accepted guideline of .70. This suggests that
results related to this variable need to be interpreted with caution and attempts should be
made in future research to improve upon this scale.
In addition to the variables related to the hypotheses, we included four control variables
that researchers believe affect the succession process. Christensen (1953) suggests that
succession from founder to the next generation is very different from that occurring in later
generations as the process becomes institutionalised. Therefore, we created a dummy variable
for the generation of the incumbent, starting with zero for the founder.13
Research (e.g., Dumas, 1989; Harveston et al., 1997) suggests that successions involving
an incumbent–successor pair of the same gender are different from those where the two are of
different genders. To take this into account, we created a dummy variable for gender mix,
with a value of zero indicating a same gender succession and a value of one indicating a
cross-gender succession.
Wong et al. (1992) and the American Family Business Survey (1997) suggest that there is a
positive relationship between firm size and successful transfers to the next generation. Thus,
we included firm revenue as the third control variable.
Finally, there could be systematic differences in the responses of the two groups of family
firms in terms of their succession timing status. Therefore, we included a dummy variable to
indicate whether succession had taken place or was still anticipated. Inclusion of this variable
also serves as a test for timing bias. In summary, the four control variables used in this study

12
An anonymous reviewer pointed out that the named anchors on the questionnaire aggregate those who were
barely or just somewhat dissatisfied in the same (not at all satisfied) category. For those questions relating to
satisfaction with the succession process, anything less than some level of positive satisfaction (somewhat,
moderately, fairly, completely) was relegated to 1 (not at all satisfied). This skews the scale. In addition, there is no
neutral point on the scale. With the limited scale and reduced range of responses, our findings with respect to the
mean satisfaction level may be biased upward, the variances on the low side understated, and the coefficients
downward biased.
13
Generation is also a surrogate measure of the age of the firm.


are generation of incumbent, gender mix, firm size, and whether succession had taken place or
was still anticipated.

4.2. Data analysis

Descriptive statistics for the sample firms and the dependent and independent variables
were obtained. A univariate comparison of the responses was conducted to test for differences
in the responses from the two groups of stakeholders.
The hypotheses were tested by estimating separate ordinary least-squares regression
models for the two groups of stakeholders. Chow test was performed to ascertain significance
in the overall differences of the two models. We used t tests to compare the coefficients of the
two regression models to identify the independent variables causing the overall differences
between incumbents and successors.

5. Results

The median revenue for the firms in our sample was between $5 million and $10 million.
Out of 76 firms, 7 (9%) had less than $1 million, 22 (29%) between $1 and $5 million, 13
(17%) between $5 and $10 million, 26 (34%) between $10 and $50 million, and 8 (11%) over
$50 million. Thirty-six firms (47%) had undergone succession in the preceding 5 years. Sixty-
five (85%) involved same gender successions (62 male pairs). Forty-nine involved a founder
transferring leadership to the next generation.

5.1. Descriptive statistics and univariate results

Table 1 shows the means, standard deviations, correlations, and alphas for the variables in
the model. The independent variable ‘‘successor’s willingness to take over’’ has the highest
mean value for both incumbents and successors. This suggests a shared perception that the
next generation was willing to take over the leadership role for our sample of family firms.
Incumbents and successors differed significantly in their satisfaction with their families’
succession processes. The mean for the former was 4.22 while that for the latter was 3.74. Both
means are significantly above 3.0, the midpoint of the scale.14 They also differed significantly
in their perceptions about four of the five independent variables, the exception being
perceptions on the extent to which their families agreed to maintain family involvement in
the business. The incumbents’ evaluations of their propensity to step aside, family members’
acceptance of individual roles, and the extent of succession planning undertaken were all
higher than the successors’ evaluations. What is most interesting is that the incumbents’
evaluation of the successors’ willingness to take over was also higher than the successors’ own
evaluation. It is impossible to tell whether this difference is a function of miscommunication
(the successor communicated what he/she thought the incumbent wanted to hear) or

14
Please see footnote 11 for limitations in interpreting these results.

Table 1
Descriptive statistics and correlations
Variables Mean Standard Deviation Cronbach’s 1 2 3 4 5 6 7 8 9 10
Incumbents Successors Incumbents Successors alpha
Satisfaction with 4.22*** 3.74 0.58 0.89 .93 À .01 À .03 .15 À .10 .36 .18 .07 .64 .71
succession

P. Sharma et al. / Journal of Business Venturing 18 (2003) 667–687
process (1)
Firm size (2) 3.03 3.12 1.15 1.20 .33 À .12 .19 .12 .34** À .06 .04 .03 .00
Gender mix (3) 0.16 0.17 0.36 0.37 .09 À .08 .02 .03 À .11 À .22* À .12 .04 À .10
Generation (4) 0.35 0.32 0.48 0.47 .22 .33** À .14 À .19 .12 À .13 .01 .12 .19
Succession 0.54 0.54 0.50 0.50 À .22 À .07 À .13 À .07 À .14 À .04 À .14 .05 À .13
timing (5)
Propensity 3.70** 3.17 0.97 1.18 .68 .21 .10 À .17 .04 À .23 .06 À .02 .19 .27*
of the
incumbent
to step
aside (6)
Willingness 4.38* 4.10 0.70 0.78 .70 .55** À .14 .10 .04 À .12 À .07 .18 .48** .24*
of the
successor
to take
over (7)
Agreement to 3.89 3.92 0.89 0.85 .73 .24 .09 À .13 .15 À .24* .10 .09 .17 .14
maintain
family
involvement
(8)
Acceptance of 3.99* 3.70 0.80 0.90 .88 .66** .07 .10 .19 À .04 .12 .16 À .02 .46**
individual
roles (9)
Extent of 3.30 ** 2.85 0.75 0.74 .85 .60** .24 À .04 À .03 .24 .27* .24* .19 .36**
succession
planning (10)
Correlations below the diagonal are for incumbents. Those above the diagonal are for successors.
Asterisks beside the means for incumbents indicate significant differences from those for successors.
* P < .05.
** P < .01.

677
*** P < .001.


misinterpretation (the incumbent interpreted the communication in the way he or she wanted to
hear it). Nevertheless, this result is consistent with the recurring pattern of differences in the
perceptions of incumbents and successors regarding the succession process found in this study.

5.2. Regression results

The regression results are presented in Table 2 below. They indicate a highly significant fit;
adjusted R2 are .55 for incumbents and .60 for successors. Tests of conformity with the
assumptions of multiple regression using guidelines suggested by Fox (1991) indicated that
all regression assumptions were satisfied.
Incumbents’ satisfaction with the succession process is significantly and positively related
to the successor’s willingness to take over (confirming H2a), family members’ acceptance of
their individual roles in the business (confirming H4a), and the extent of succession planning
(confirming H5a). However, incumbents do not believe that their own propensity to step aside
is a significant determinant of their satisfaction (rejecting H1a), nor that family agreement to
maintain family involvement is a factor (rejecting H3a).
Successors are more satisfied if family members accept their individual roles (confirming
H4b) and if there is more succession planning (confirming H5b). They differ from the
incumbents, however, in terms of whose attitude is more important to their satisfaction. They

Table 2
Results of regression analysis
Variables Incumbents Successors
Standardized t values Standardized t values
betas betas
Propensity of the 0.01 0.055 0.26 2.676*
incumbent to step aside
Willingness of the 0.39 3.046** 0.14 1.315
successor to take over
Agreement to maintain 0.12 0.955 À 0.09 À 0.948
family involvement
Acceptance of 0.28 1.942* 0.37 3.365***
individual roles
Extent of succession 0.31 2.599* 0.47 4.025***
planning
Firm size À 0.10 À 0.865 À 0.07 À 0.789
Gender dummy 0.06 0.482 À 0.03 À 0.010
Generation dummy 0.16 1.312 0.18 0.006
Succession timing dummy À 0.06 À 0.516 À 0.15 À 1.456
Adjusted R2 .55 .64
F 6.53*** 9.88***
N 47 47
* P < .05.
** P < .01.
*** P < .001.


believe that the incumbent’s propensity to step aside is essential (confirming H1b), but their
own willingness to take over is not (rejecting H2b). Consistent with the perceptions of
incumbents, they do not believe that family agreement to maintain involvement is a factor
(rejecting H3b). Finally, none of the control variables proved to have any significant influence
on the satisfaction levels of either incumbents or successors.
Chow test shows that the two regression models are significantly different ( F = 1.80,
P < .10). Tests for differences in the individual coefficients suggest that the two regression
models are different mainly due to the stakeholders’ varying responses to the incumbent’s
propensity to step aside (H1a and H1b: t = 2.85, P < .01) and the extent to which succession
had been planned (H5a and H5b: t = 2.64, P < .02).

6. Discussion

6.1. Univariate results

There are many possible conjectures to explain the differences in perceptions between
incumbents and successors. For example, incumbents could have been more satisfied with the
succession process because they were in control, and the process, as a result, was more consistent
with their views of how it should have been conducted than with the views of successors.
Incumbents may have believed more strongly than successors about their own propensity to
step aside because they did not communicate those propensities to successors effectively.
Similarly, incumbents may have believed that succession was planned to a greater extent
because they had been doing it informally for a long time. Conversely, failure of family
members to communicate their dissatisfaction with the succession process may explain why
incumbents were more sanguine about family member’ acceptance of their roles in the business.
Furthermore, incumbents may have compared their own hesitation at the time they took
over with the behaviour of the successors and concluded that the successors were more
willing than the successors actually were. Finally, incumbents’ perspectives of their
businesses may simply have been quite different from those of successors who did not have
as long or as close an association with the firm (Lansberg, 1988). All of these conjectures are
interesting topics for future research.
Whatever the reasons for the differences in perceptions, the most important conclusion to
be drawn from these results is that incumbents’ views of the business and relationships
among family members differs significantly from those of successors (Handler, 1989; Poza et
al., 1997). For researchers, this means that empirical studies will have to be qualified if the
data are collected from only one group of family firm stakeholders. For empirical results to be
interpreted as representing family firms, some consensus among the dominant coalition of
family firm stakeholders (cf. Chua et al., 1999) with respect to the issue studied must be
demonstrated. For members of family firms, this could mean that there is an urgent need for
communication and alignment of perceptions without which satisfaction with the succession
process will likely be lower. This difference reinforces our previous observation that research
about family business should reflect the views of more than one group of stakeholders.


6.2. Regression results

Results indicate that family members’ agreement to maintain family involvement did not
affect either incumbents’ or successors’ satisfaction with the succession process despite
theoretical reasons and previous research (e.g., Babicky, 1987) suggesting that this relation-
ship should hold. A closer examination of the indicators used yields some conjectures for this
finding. The use of the word ‘‘all’’ in the first indicator may have led the respondents to
interpret ‘‘agreement’’ as ‘‘unanimity.’’ If the succession had proceeded or was proceeding
without unanimity, their responses would then show no relationship between this factor and
satisfaction. Future attempts to measure agreement to maintain family involvement should
clarify this. Another conjecture arises from the central role of the incumbent president in two
of the indicators. If the impetus for succession came from the ensuing generation(s), despite
the incumbent’s control over the process, then this might have also introduced noise into the
relationship. Thus, we believe that this relationship should be subjected to further testing
before eliminating it from the theoretical model.
The results show that succession planning improved the satisfaction with the succession
process of both incumbents and successors. This justifies the preoccupation of family
business researchers with succession planning. Further research should try to establish
whether the various dimensions of succession planning—selecting the successor, training
the successor, communicating the succession decision, developing a strategy for the firm after
succession, and defining the post-succession role of the incumbent (Sharma et al., 2000)—
have different impacts on satisfaction and, if so, the reasons behind the differences. Aside
from satisfaction, future research should also investigate whether succession planning
contributes to success with respect to family firm performance after succession.
The perceptions of both incumbents and successors with respect to family members’
acceptance of each other’s roles significantly increased their satisfaction levels. This construct
mainly measures the relative absence of conflicts and the family’s ability to deal with conflicts.
Schulze et al. (2001) suggest that conflicts in family firms may be mitigated by altruism. This
is an interesting direction for future research to pursue. They also suggest that altruism may
cause actions that are unjustifiable on purely economic grounds. Research on the causes and
consequences of altruism in family firms is needed to better understand the trade-offs involved
in decisions, such as succession, when economic and noneconomic considerations may come
into conflict.
The most interesting findings from the regression analysis are with respect to H1a, H1b,
H2a, and H2b. Both incumbents and successors believe that their satisfaction levels are more
strongly influenced by the other party’s attitude than by their own.15 This also means that they

15
The evidence related to the successors’ satisfaction level is stronger than that for the incumbents. Not only
was the regression coefficient for the successors with respect to the incumbent’s propensity to step aside
significantly different from zero, but the coefficients for the incumbents and the successors were significantly
different. While the coefficient for the incumbents with respect to the willingness of the successor to take over was
significantly different from zero and that for the successors was not, the two coefficients were not significantly
different from each other.


both assign heavier responsibility for their own dissatisfaction to the other. This could be a
result of the ‘‘fundamental attribution error’’—suggested by social psychologist Fritz Heider
(1958). Heider argues that human beings have a tendency to excuse their own behavior by
explaining it in terms of circumstances, but hold others responsible for their behavior by
attributing it to their inner dispositions. Further research is needed to determine the
motivations and perceptions that underlie this difference.
From a practical point of view, this difference highlights an important relationship
between the perceptions of incumbent and successor. The attitude of one affects the other’s
satisfaction with the succession process. If we add this insight to the observation that the
successors did not believe as strongly that the incumbents were ready to step aside, we have
an explanation for why the successors were less satisfied with the succession processes their
family firms had undergone. The incumbents in our sample had a higher propensity to step
aside than what was believed by the successors. Unless the incumbents were not truthful in
their responses, there appears to be a communication problem between the two key
stakeholder groups. This failure to communicate could by itself cause the failure of a
succession process.
For example, if an incumbent does not convey that he or she is ready to step aside and
to formulate a succession plan, or does not convey the plan effectively to other members of
the family, then a potential successor could lose interest in the family firm. This, in turn,
may reinforce the incumbent’s perception that the successor is not willing to take over the
business, causing the incumbent to delay the succession planning process and further
strengthen the successor’s perception that the incumbent is not ready to step aside.
Furthermore, a successor who believes that the incumbent is less than eager to transfer
leadership may become resentful or lose confidence. A recent study has shown how such
attitudes may manifest themselves in certain post-succession strategies with particularly dire
performance consequences (Miller et al., in press). Thus, research on how the commun-
ication gap may affect the succession process and succession decision and how that gap
might be closed would be particularly valuable.

7. Conclusions

Successful succession has two dimensions in family firms. One is satisfaction with the
process and the other is performance of the firm after succession. In this article, we presented
the results of a partial test of a comprehensive model on satisfaction with the succession
process developed by Sharma et al. (2001). The data show that incumbents and successors
differ significantly in their perceptions about each other and about relationships among family
members. Researchers (e.g., Handler, 1989) have suggested that family members’ perceptions
may be different, and this study confirms the existence of statistically significant differences
in the context of the succession process. This is an important contribution of the study
because the results imply that empirical research on family business must prepare for different
perceptions and views. At the minimum, this requires empirical results to be qualified
according to which particular family stakeholder group is studied.


Four out of the five hypotheses were supported or partially supported by the regression
results. Incumbents and successors agree that succession planning and family members’
acceptance of individual roles in the business contribute to their satisfaction with the
succession process. They also agree that the decision by family members to continue the
business is not an important determinant of their satisfaction.
They differ in terms of whose attitude is more important in determining their own
satisfaction with the process. Incumbents believe that the willingness of successors to
take over is a significant contributor to their satisfaction, but their own propensity to step
aside is not. Conversely, successors believe that the incumbent’s propensity to step aside
strongly affects their satisfaction and that their own willingness to take over has no
effect.
The results empirically confirm some widely held beliefs, but they also point out a
serious misalignment of perception among family members. Finally, they consistently point
out the importance of investigating more than one stakeholder group when studying family
business.
This study assumes that the incumbent has control over the succession process. In all
cases, the families did have majority ownership of the firms, but we did not verify whether
the incumbent had ownership control or, at least, controlled the dominant familial coalition.
We do not know how this may limit the generalizability of the conclusions. Thus, our study
should be seen as a first step toward understanding satisfaction with the success process
within family firms. Only additional studies on other samples will prove the extent to which
the evidence gathered here can be generalized.

Acknowledgements

We thank Michael Hitt, William Schulze, the guest editors, and three anonymous reviewers
for their helpful comments on earlier versions of this article. We also thank the Centre for
Family Business Management and Entrepreneurship at the University of Calgary for funding
the study. This paper is based substantially on the dissertation of P. Sharma.

Appendix A. Indicators

A.1. Satisfaction with the succession process [Alpha=.93]

Respondents were asked to indicate the extent of their satisfaction with the following on a
5-point scale where 1 = not at all satisfied, 2 = satisfied to some extent, 3 = moderately
satisfied, 4 = fairly satisfied, and 5 = completely satisfied

1. The manner in which the succession process was managed.
2. The manner in which the choice of successor was communicated to family members
actively involved in the business.


3. The manner in which the choice of successor was communicated to family members not
actively involved in the business.
4. The manner in which the choice of successor was communicated to key non-family
managers.
5. The process used to determine the potential candidates for succession.
6. The criteria used to select the successor.
7. The process used to train the successor.
8. The process used to familiarize the successor with the business.
9. The process used to familiarize the successor with the employees of the business.
10. The financial arrangements for the outgoing president of your firm upon him/her retirement.
11. The criteria used for determining the distribution of ownership after the transfer of
leadership to the successor.
12. The suitability of the chosen successor.

A.2. Propensity of the incumbent to step aside [Alpha=.68]

Respondents were asked to indicate the extent of accuracy of the following statements on a
5-point scale with 1 = not at all accurate, 2 = somewhat accurate, 3 = moderately accurate,
4 = fairly accurate, and 5 = completely accurate

1. * The outgoing president of our business did not want to let go of the leadership of the
business.
2. * The outgoing president of our business felt that his or her presence in the business was
necessary to keep it running.

A.3. Willingness of successor to take over [Alpha=.70]


1. The successor had a great deal of confidence in his/her ability to run the business.
2. The successor had a strong desire to take over the business.

A.4. Agreement to maintain family involvement [Alpha=.73]


1. All family members actively involved in our business were deeply committed to the
company continuing as a family business.


2. Members of our family who were not actively involved in our business were deeply
committed to the company continuing as a family business.
3. If none of the younger family members had joined our family firm, family members of the
preceding generation would have been very disappointed.
4. The outgoing president of our business was deeply committed to continuing the business
as a family business.
5. The outgoing president of our business wanted his/her children to enter the business.

A.5. Acceptance of individual roles [Alpha=.88]


1. Our family members accepted their roles and positions in the business.
2. Our family members accepted their relative ownership stakes.
3. Our family members understood their specific roles and responsibilities.
4. Our family members acknowledged each other’s achievements in the context of the
business.
5. Our family members encouraged each other to give his/her best efforts.
6. Members of our family actively involved in the business cooperated and worked as a
team.
7. Our family members freely expressed their opinion about day-to-day decisions in the
business.
8. * Our family members found it easier to discuss problems related to the business with
people outside the family than with each other.

A.6. Extent of succession planning [Alpha=.85]

1. We had an unwritten succession plan for transferring the management control of our
business to the successor.
2. A list of potential successors was developed.
3. Explicit succession criteria were developed for identifying the best successor.
4. Explicit efforts were made to train potential successors for their future role in the
business.
5. Explicit attention was given to familiarize the potential successors with business prior to
the succession.
6. Explicit attention was given to familiarize the potential successors with the employees of
the business prior to the succession.


7. The decision of who the successor would be was clearly communicated to family
members active in the business.
8. The decision of who the successor would be was clearly communicated to key non-
family managers.
9. We had a formal plan regarding the roles and responsibilities of the outgoing president in
the business once leadership was transferred to the successor.
10. We had an unwritten understanding of the roles and responsibilities of the outgoing
president in the business once leadership was transferred to the successor.
11. A financial package was developed for the outgoing president’s retirement.
12. Explicit decisions were made about how ownership of our business would be distributed
after the successor takes over.
13. We had an understanding of what the business strategy would be after leadership was
transferred to the successor.
14. We had an explicit plan for the business after the transfer of leadership to the successor.
15. * We did not have any written succession plan for transferring the management control of
our business to the successor.

* Negatively coded items.

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