Family leadership succession and firm performance: The moderating effect of tacit idiosyncratic firm knowledge

• Published date: 01 January 2019
• Author: Ralph I. Williams,John Mullane
• DOI: http://doi.org/10.1002/kpm.1594
• Date: 01 January 2019

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|INTRODUCTION

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

to financial performance or firm survival (e.g., Dana & Smyrnios, 2010;

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).

Received: 27 October 2017 Accepted: 15 January 2019

DOI: 10.1002/kpm.1594

32 © 2019 John Wiley & Sons, Ltd. Knowl Process Manag. 2019;26:32–40.wileyonlinelibrary.com/journal/kpm