CEIBS Prof Kwan: Succession Planning a Matter of Time

For any family-held business, the question of succession is a compelling and often time-sensitive one. A recent study now examines the effects of a CEO’s temporal focus (to what extent they focus on past, present and future concerns of the company) on the process of succession planning. Our research also explores how family interactions and environmental uncertainty (how stable and/or predicable the current business environment is for the company) influence this process.

Comprehensive succession planning – the deliberate, considered and formal transfer of management control from one family member to another – is known to have a wide range of established benefits. However, it is a process frequently fraught with tension, which often leads to repeated or indefinite postponement, usually to the detriment of present and future business prospects. Understanding this risk, as well as the realities of what influences succession planning, requires a deeper understanding of CEOs’ temporal mind-sets and the dynamics of family interactions at play.

In China, most members of the first generation of family businesses are now approaching retirement age. Recent estimates suggest that around 75% of family businesses will undergo succession in the next 5 to 10 years. This makes succession planning more important than ever, especially considering the unprecedented volatility and uncertainty that typified the majority of 2020.

Based on our study of 198 CEOs of family businesses in China, along with data from 15 semi-structured interviews, we offer three main findings:

Firstly, we found that a CEO’s temporal focus – whether it is more strongly past, present or future focused – can positively influence succession planning in different ways.

Secondly, family interactions strengthen the relationship between CEO past focus and succession planning, while weakening its relationship with CEO present and future focuses.

Finally, our study suggests that environmental uncertainty encourages past-focused CEOs to plan for succession, where they might not otherwise see the need to do so in more stable and predictable times.

To our knowledge, this is the first empirical study of the role of family business CEOs’ temporal focus in predicting their succession planning. No previous study has examined how a CEO’s subjective view of time helps determine the nature and quality of their succession planning. By factoring in the two further boundaries of family interactions and environmental uncertainty, our study takes a much more holistic look at how much influence temporal focus has on the process of family business succession.

Each of the temporal focus elements of the study carry important practical implications. Our findings suggest that CEOs’ past focus can be essential in producing viable succession plans by calling on past entrepreneurial experience and knowledge to develop the company’s long-term vision. A present focus may help CEOs nearing retirement age recognise the urgency of succession planning, rather than remaining too preoccupied with the immediate business needs of the day. Finally, a CEO’s future focus encourages goal setting and long-term plans for combining their knowledge and business aspirations with that of their successor.

In terms of understanding the impact of family interactions on succession planning, our study also offers new insight into how effective family interaction improves the efficiency of knowledge transfer between incumbent CEOs and their potential successors. Our results recommend enhancing the frequency and quality of family interactions, which are tied to (and beneficial to) attaining common goals for the family firm, enlarging the internal talent pool of successor candidates, and obtaining familial agreement on important succession issues.