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Family business succession: From dream to reality

By Rania Labaki

A study by the EDHEC Family Business Centre shows the rate of intra-family business succession in France is below 20%. While the tax environment exerts a significant impact on the low rate of family succession, it represents only the tip of the iceberg.

For further understanding, Rania Labaki, associate professor, director of Family Business Center at the EDHEC Business School, dives below the surface to explore the “emotional nexus” binding the business and the family.

Family businesses represent a unique form of organisation characterised by the emotional interaction of the family and business systems, to different extents. Researchers agree that succession is undeniably the most emotionally charged process in the lifecycle of family businesses, turning it into the most critical for the business continuity in the family's hands.

Traditionally, understanding what processes lead to a specific human behaviour has been subject to debate by thought leaders beyond the world of family businesses. The Nobel Prize winner in economics Daniel Kahneman offers an analysis of our “Thinking, fast and slow”, revealing that our economic decisions are not made emotionless and that our behaviour is governed by two cognitive systems: fast and intuitive on one side, slow and deliberate on the other side.

In a similar line of thought, the bestselling author Malcom Gladwell argues a “blink” (intuition) is by far more effective than a cautious decision. Added to this, Dan Ariely, professor of psychology and behavioural economics, suggests positive and negative behaviour can be “predictably irrational” while the award-winning business reporter Charles Duhigg observes that “the power of habit” can de rive its sources from emotional rewards and lead to unintended consequences.

Moving to the macroeconomic perspective of Gladwell's "tipping point”, we learn that a small change can have unforeseen effects. In the same line, the tipping point of the professor of positivity Barbara Fredrickson's suggests that an individual's positive to negative emotions ratio marks the difference between human flourishing and floundering.

Transposing those insights into family businesses makes us wonder whether the family succession behaviour is a product of well-thought of steps allowing to successfully move from the dream to reality or whether the latter is simply a product of imagination or instinct.

My study in collaboration with FBN France's scientific council analyses the succession process, from the development of the intention for succession by the generation in power to its accomplishment through passing on the baton to the next generation. Building on the perceptions of the senior generation, it shows that the family patterns are one of the key factors triggering or hindering the succession process. Tracing back the family history helps understanding the current generation's behaviour in regards with succession.

According to Bowen's Family Systems Theory, families are multigenerational units where emotionally charged patterns can be transferred across generations, some of which can be largely dysfunctional. Understanding the origins of certain patterns in the past and present is an important preliminary stage for the family to deal with existing dysfunctional behaviour of succession where it might be stuck.

One example of functional patterns could be the traditional rituals shared and passed on over generations, charged with pride and respect. As such, they contribute to triggering early on the intention for succession.

As an interviewed family manager puts it: “We all knew it since childhood. Our destiny is sealed in the cradle. 'You will be in the family business, my son!' That's what my father used to tell me. That's what I tell my children as well.”

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