The process of passing the torch to the next generation may be incredibly unsettling, yet support can come from unexpected sources.
It’s common knowledge that firms run by families have a tough time with succession planning. In spite of experts’ repeated warnings over a long period of time, no one seems to have taken heed. Recent studies show that the share of family businesses with a clear succession plan is falling in several regions.
When it comes to ensuring the longevity of the family company, why don’t the leaders show any concern? Managers may be too preoccupied with the here and now to consider about retirement and the years ahead, according to some observers. Others note the uphill battle of trying to persuade today’s youth to pick their parents’ stuffy, old company over ones that are hipper and more appealing. A lot of times, the next in line to run the family business isn’t ready for the responsibility.
Yet, we argue that a major contributing factor is the poor compatibility of family and company, especially in terms of succession. When family members also work together in business, they have what is called a “multiplex connection,” which involves interactions in more than one area of life. The older generation’s dominance inside the family and the company is not always diminished by the succession process; rather, it takes the form of a more nuanced hierarchy in which the elders retain influence within the family while passing on management of the company. Such inconsistencies in authority structure are a common source of conflict and can potentially derail a succession process.
The uniplex third is a previously unrecognized yet crucial actor in deciding the success or failure of a succession.
Succession in Chinese family companies
The uniplex third aids the older and younger generations by reinforcing the separation of private and public spheres, hence reducing the potential for hierarchy-related misunderstanding. This kind of enforcement might look like, for instance, making sure that arguments at home don’t spill over into the office and vice versa. It keeps work and personal issues from becoming intertwined and harder to resolve.
By conducting hundreds of interviews with Chinese company owners over the course of six years for a forthcoming publication in Administrative Science Quarterly, we investigated how families might work through these challenges and ensure a smooth succession. Our research focused on father-to-son successions because that is the norm in China. Hence, the mother, being the wife of the founder and the mother of the heir apparent, was the most obvious choice for the position of uniplex third.
At two of the firms we looked at, the moms decided to step away from the company when succession planning got begun. That resulted in one person leaving a high-ranking position in the company’s sales and expansion department. Another case is a mother who had no previous involvement in management but was now more adamant than ever that she not be included in any succession planning. Both men pleaded with their moms to intervene in their business disputes, but the mothers in both families remained steadfast in their decision not to do so. The two women maintained their role as protectors of the home front, making sure that professional issues didn’t spill over into unmanageable familial strife. Not only did these women facilitate a relatively peaceful transition of power between generations, but they did it without negatively impacting family ties.
Although the mother was still in charge of another company, the company fought with succession for three years. Once she removed herself from the situation, things began to go more rapidly and were ultimately concluded. The firm is now a regional leader after expanding its market share and increasing its profitability under the leadership of the new CEO.
Yet, at another company in our sample, the mother stayed in her management position throughout the succession process. This, we were informed by the company’s managers, was why personal relationships frequently interfered with work. The son began to believe that despite his parents’ concerted efforts to prepare him for leadership, he was instead being “educated like a kid” all the time. The mother did her best to keep work problems at the workplace, but her kid didn’t take her seriously because of her professional commitments. In an effort to maintain harmony among the family, they finally abandoned up on the succession plan after four years. There was no succession plan in place to take over the family business after the father retired as of 2018.
There is a consistent trend in these cases where the mother played a critical part in the succession process, but only when she was a uniplex third and did not cross over into other domains (in this case, the family sphere). Due to her little exposure outside the home, she was able to project an air of objectivity and reliability, two traits that are often at odds with one another. When we know someone will be on our side, we are more likely to trust them. Yet, since our connections are also professional, we need to be aware that difficulties in one area can simply amplify in the other.
The uniplex third position, however, has been shown to be unsustainable in three other companies. Having risen to senior levels inside the firms in question, the “in-laws” or the mother’s blood family (such as her brother) demanded that she fight for their interests in different dust-ups within the firm, accusing her of treason when she refused. In the meanwhile, her husband and kid urged her to enforce rules inside her household. Stress from competing priorities at home took a toll on all three moms. They stopped being involved in the business and family succession processes altogether because they were too traumatic. Both the succession and family relationships were in jeopardy if they didn’t intervene, as tensions between the father and son grew and the in-laws played politics. In two of the three situations, the founder saw the light and expelled the in-laws, and everything went back on track and were able to be successfully completed. Some times, though, the in-laws stayed and the fighting persisted. The son who had been designated as the company’s successor eventually quit in protest and started his own venture, taking with him a number of the finest employees.
An important takeaway from this is that maintaining focus on a single area of responsibility, although knowing it’s best for everyone involved, isn’t always achievable due to the complex web of relationships at play.
Neither China nor father-son successions are necessary to grasp our findings. According to our findings, the uniplex third may be the father, or any other member of the immediate family, a significant investor, or a trusted coworker.
The most crucial quality for the position is the ability to maintain objectivity and trustworthiness in all interactions, which comes from never mixing business with pleasure. Succession plans that don’t include such a person run the risk of failing due to the friction they cause. Our research highlights a critical component for the smooth handover of family enterprises.