Succession planning is a process of management ownership and leadership transition from incumbent to successor (Miller et al 2013). Succession planning management (SPM) is directly related to governance for family owned small to medium enterprises (SME) (Burkhart, Panunzi and Shleifer 2003). An effective succession, be it for a family owned business (FOB), a small to medium enterprise (SME) or a multi-national enterprise (MNE) helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.
18 As Garman and Glawe (2004) also explain, SPM is a structured process that involves the identification and preparation of potential successors to assume leadership roles in a business. A key feature in succession concerns the transfer of physical capital (equipment, land and cash) and the assumption of responsibility for human capital that includes individual knowledge, capabilities and physical appearance (Steier 2001). More broadly, given that corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals (Cadbury 1999), the consequent challenge is to align, as nearly as possible, the interests of individuals, corporations and society. Tarlow (2012) has noted that good business governance and good family business governance are complex and somewhat elusive concepts given the many facets – social, economic, political and cultural - that can be involved.
In the context of SPM in such businesses, Asian family owned businesses continue to be the best performing companies in relation to financial results and business performance despite the lack of monitoring and possible proper governance mechanisms (Wong 2011). Consequently, as Wong (2011) concludes, further studies are required to enhance the understanding of and knowledge about the strategic development of family firms. Implicit in the strategic development of family firms and the future development of SPM is the idea of grooming family leaders, so that the firm’s tacit knowledge can be transferred and developed (Chirico and Nordquist 2010). What is less evident, assuming the implicit objective of SPM is to ensure the growth and prosperity of a business, is the need for transparency in the succession process. This reduces ambiguity that can spur conflict within the family (Brun de Pontet et al 2007). What is also important in succession planning management is consensus on issues where the owner’s wishes matter most. Consensus provides family members with a shared sense of identify and mission that transcends their individual interests in the business (Gupta et al 2009).
Beyond the emphasis on the tangible physical and human capital elements of SPM, Dunemann and Barett (2004) highlight social capital and the social networks (which map and measure relationships between people and groups), as critical factors. Social capital can be considered as a set of resources founded in relationship, with a central premise that networks of relationships are valuable in conducting social affairs (Nahapiet and Ghoshal 1998).
19 Another aspect of social capital is the stock of active connections among people: the trust, mutual understanding, and shared values and behaviours that bind the members of human networks and wider communities and make cooperative action possible (Cohen and Prusak 2001). Social capital includes elements such as, culture, social relationships, consensus and participation that collectively contribute to effective succession planning management. Relationships are about the connections, ties and myriad of webs and networks arising from these connections (Fox, Nilakant and Hamilton 1996). Relationships go to the heart of the socially embedded nature of Asian business behaviour and the broader context that surrounds Asian family business. The essence of social capital in an Asian context is the network of relationships that include family, friends, and casual relationships with others such as suppliers of important resources of knowledge, information and support (Bordieu 1986; Coleman 1990 and Putnan 1995). Not surprisingly, Mustakallio, Auto and Zahra (2002) have argued that social capital and the associated social capital theory seems highly applicable to the study of family firms. Yet, somewhat paradoxically, as Miller et al (2004) have noted, there is as yet limited research on SPM that addresses the issue of context – which includes the family, industry and business. Moreover, rather than examine organisational dynamics, succession planning studies so far appear to focus mostly on individuals. That is, the focus appears to be on the choice of successor and the transfer of authority. As a result, there appears to be some significant gaps in research and knowledge in relation to the way, for example relationships, personal and social dynamics and the context surrounding family businesses can influence SPM (Dunemann and Barett 2004).
A further theme in research is that country focused family business studies are an emerging field in literature. For example, an earlier study by Wortman (1995) cited by Gupta and Levenburg (2010) found that some 84% of family business studies were situated in the United States, Canada or the United Kingdom. As Wortman (1995) indicated there were, at that point, few comparative studies of family-owned businesses across cultural, ethnic or national boundaries.
An interesting question to ask is: are there really differences in the way family businesses operate – sub-nationally, nationally or globally? Since Wortman (1995) several studies, focused on family businesses, have emerged that consider institutional contextual factors such as culture, values, conflict, networks and social capital.
20 The majority of these investigations were in the US, with some also in Spain, China and the United Kingdom. But few were conducted on Asian or Vietnamese FOBs. Importantly, also, the majority of two-nation studies appear to involve the US or other Anglo nations, with the focus generally being on finding universal or common features within and between regions (convergence hypothesis), or how the local FOBs differ from Anglo-based ones (divergence hypothesis). Other frequently examined institutional factors included culture, values, gender, conflict, networks and social capital (Gupta and Levenburg 2010). Interestingly, the evidence emerging from these studies is that industry and cross-national differences may be more important than whether the businesses are family or non-family owned firms (Smith 2008). Turning to the Australian context, research in the local business community suggests there is a rising interest in SPM, due to the increasing age of business owners and the imminent need for some form of ownership or management transfer in the near future (Dunemann and Barett 2004).
In Australia, the family owned SME has been identified as a major contributor to the country’s social and economic environment. For example, as suggested in the MGI / RMIT survey by Dana and Smyrnios (2013) of family businesses in Australia, around 72% of privately owned businesses were family owned and or controlled. Further research (Family Business Australia 2013) confirms that around 70% of small businesses are FOBs adding that this category employs some 50% of the total workforce. Importantly, a large and growing segment of this family owned group of SMEs comprise ethnic Asian migrants (Tung and Chung 2010). The significance of this growing segment of Asian Australian family SMEs is principally in their contribution to job creation, as well as stimulation of economic growth (Waddell et al 2013). The trend in FOB is that small businesses will continue to be significant in its contribution to economic growth and performance in Australia. This importance of small businesses to economic growth is being repeated across the Asian region. For example, a study by Credit Suisse, Emerging Market Research Institute (Asia Family Business Report 2011), reported that family owned SMEs in Asia generate 34% of the nominal gross domestic product (GDP).
What is also apparent in regard to Asian SMEs operating in both Australia and regionally is that there is a higher concentration of family owned SMEs in the southern Asian countries of Malaysia, Singapore and Vietnam where FOB’s make up to 65% of the total number of listed companies.
21 Family owned SMEs in China, Malaysia, Singapore and South Korea achieved the strongest relative performance in terms of capital growth (Credit Suisse 2011). In addition, given that Asian FOBs account for half of all listed companies in South Asia with an annual investment of USD500 million, the long-term economic performance of Asian FOB to Australia’s (and the regional) economy is clearly significant (Credit Suisse 2011). In terms of SPM, Asian families share key fundamental strengths of family influenced businesses in general, including long-term commitment to the business, consistency in decision making and better alignment of ownership and management interests. Asian FOBs not only benefit from the long term and more stable investment strategies of their business owners, but their performance is helped by Asian family values that view family businesses as an inheritance (Tung and Chung 2010). This perspective provides an important source of continuity in the transfer of business and wealth between generations.