A company succession has been found, the handover went harmoniously, now the future can start with a fresh breeze. That this is not that easy for small and medium-sized companies is shown by Professor Dr. Nadine Kammerlander from WHU - Otto Beisheim School of Management with her co-authors Professor Miriam Bird from the University of St. Gallen and the prospective assistant professor Priscilla Kraft and doctoral student Stephanie Querbach (both WHU) in their latest study: "When the Former CEO Stays on Board: The Role of the Predecessor's Board Retention for Product Innovation in Family Firms". To this end, they examined more than 200 Swiss mid-sized companies in the phase of handing over the business.
While the focus of research on innovation in family firms has so far been mainly on the successor, the four researchers had a different approach: They looked at the role of the former boss and what his (continuing) influence after the transfer of the business means for the innovative capacity of the products and services of the business. The short answer: he is a hindrance.
To be able to assert oneself in the market through innovation is crucial in mainly medium-sized and family-run businesses such as in Switzerland (as well as in Germany). Until now, the paradigm has prevailed that the former CEO serves as a mentor and, through his experience, makes it easier for successors to enter the company. Kammerlander and her colleagues come to a different conclusion: Due to the entrenched structures, company managers lose a lot of their ability to innovate and, in order to preserve their heritage, they are more interested in maintaining the status quo. If the former managing directors, provided they continue to have influence in a committee, can then decide on their successor alone, this phenomenon is transmitted. According to the researchers, they will appoint someone similar to them and, above all, continue on the track they have chosen. Conversely, the next generation at the management level will try to impress their predecessor and lead in their spirit. New perspectives and more willingness to take risks are therefore often left aside.
The study distinguishes between whether corporate management is passed on within the family or externally. In both cases, the research results have shown that the continued influence of a former CEO is an obstacle to the introduction of innovations in companies. However, this trend weakens significantly in the case of a family-internal handover, because one's own flesh and blood is given a leap of faith and the successors are thus able to make decisions more freely. The authors of the study also work out that the longer the successors are exposed to the influence of their predecessor, the more their innovative ability decreases. As a solution, they propose to clearly and transparently define the competencies of the former boss during the handover of the company in order to avoid “shadow emperors”.
The full paper can be found online in the latest issue of "The Journal of Product Innovation Management".