Passing on Strategic Vision: Favored Modes of Successor Preparation by CEOs of Family and Nonfamily Firms

Perhaps no recurring event the life of an organization is more critical than the transfer of power and authority from the incumbent CEO to a successor. Organizations are especially susceptible to loss of vision and purpose during periods of CEO transition, as the leaders who helped shape the vision are replaced by others who may not share the same values and abilities. Although the timing of a transition may be a surprise (as when the CEO suffers an unexpected illness or injury), the fact that it is inevitable affords an organization the opportunity to prepare for its eventuality. Thus, it is important to consider CEO transition not simply as a single event, but as a lengthy succession process that encompasses numerous activities undertaken preparation for the transition (Longenecker and Schoen 1978; Handler 1990). A critical part of this long-term succession process concerns the grooming of the successor (Goldberg and Wooldridge 1992; Seymour 1993). Much of the knowledge and intuition that comprises a CEO's strategic vision was gained on the through trial and error learning. However, errors are never costless, and as a new CEO's on-the-job education could drive the firm out of business, an incumbent CEO who wants the organization to survive the transition will search for ways to bequeath strategic vision to a successor. As Aronoff and Ward (1991) note, developing the successor is the ultimate job of the CEO. CEO succession small businesses can be particularly critical. Because CEOs of small firms face fewer organizational constraints than those large firms, their decisions can have proportionately larger and more immediate impacts on the business (Haveman 1993; Norburn and Birley 1988). Yet despite the CEOs' potential to make or break the small business, research on leadership has focused only on understanding the traits of effective leaders (Kirkpatrick and Locke 1991) rather than systematically exploring how individuals develop these traits (McCall, Lombardo, and Morrison 1988). As a result, the ways which future CEOs of small firms acquire the knowledge and skills needed to lead a company are not yet well understood. In particular, the involvement by incumbent CEOs preparing successors for transition remains an under-researched aspect of CEO succession small businesses. One might expect that CEOs of firms would concentrate more on preparing their successors than would CEOs of nonfamily firms. CEOs of nonfamily firms are free to select successors from inside or outside their companies who have established records of achievement and who can step immediately into the CEO position and function effectively. However, keeping the business in the family is a fundamental imperative of many family-firm CEOs (Ward 1991), and as there is no guarantee that their heirs will have the requisite talent and experience to handle the top job, family-firm CEOs may tend to pay comparatively more attention to successor development than to successor selection. Indeed, the ability to foster a successor's personal development may be a special advantage of businesses (Aronoff and Ward 1994). Still, little is known about how firms prepare the successor for the CEO position (Handler and Kram 1988), and as few empirical studies have contrasted the characteristics of and nonfamily firms (Daily and Dollinger 1992), our understanding of how successor preparation differs between and nonfamily firms is quite limited. This study addresses two fundamental questions: (1) which means of preparing successors do CEOs of small businesses find most important? and (2) do family-firm CEOs and nonfamily-firm CEOs emphasize different preparation activities? In the next section we outline a number of the channels through which CEOs can transfer their strategic vision - their knowledge and insight - to help prepare their successors to run the company. We then describe the method and results of an empirical study examining the differences between the successor preparations valued by family-firm CEOs and nonfamily-firm CEOs. …