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Research Highlight: The Effect of Crisis Triggered Succession in Family Firms

November 9, 2023

Peng Ren, Isabel C. Botero, and James Fiet

Leadership succession is one of the most critical events in a family business. To successfully navigate this process family businesses are encouraged to create a plan in case the unexpected occurs. However, many family firms postpone the planning process. So, what happens when a sudden event, like a crisis, triggers a change in leadership without any prior planning? This study looks at how this sudden change impacts the business’s financial performance and how the successor’s education and experience can diminish the potential negative effects that can ensue.

The study finds that not all crisis-driven successions negatively affect the financial performance of a family business. The impact depends on the type of crisis. Crises driven by changes in the market, like economic downturns, can harm the business financially after an unplanned change. However, if the successor has a good education and significant work experience, the negative effects on the business’s performance are lessened.

In simpler terms, when a family business faces unexpected changes, like the previous leader falling ill or an economic crisis affecting the market, the new leader stepping in without proper planning can hurt the business. But, if the new leader is well-educated and has worked in similar roles before, the damage to the business isn’t as severe. This highlights the importance of preparing the next generation for leadership roles in family businesses.