Section 2 Chapter and Lecture Notes 37
Chapter 7 Succession and the Transfer of Power
Learning Objectives
1.
and its succession and continuity plans.
2. To discuss the need for the orderly transfer of power.
Chapter 7 Essence
CEOs of family enterprises perceive both the business and the family much more
favorably than do the rest of the family and nonfamily managers. This is likely to lead to
lack of awareness or little sense of urgency about the need to plan for succession and to
transfer power. A top management team with nonfamily managers on it, a board with
independent advisors or directors on it, and a family council or shareholder group with
active governors constitute the best institutions to ensure the effective transfer of power.
The six most common CEO exit types are the monarch, general, ambassador,
Best practices used by successful CEOs to create family businesses that last include:
Pursuing strategic growth by building on the fir 6).
Planning the estate with business agility, not just tax minimization in mind (Chapter
7).
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Discussion Questions
1. Why are family-business CEOs often an obstacle to the very succession and
continuity efforts they so prominently subscribe to?
CEOs perceive the business and the family much more favorably than the rest of the
family and nonfamily managers. This is the most statistically significant finding of
the longitudinal research effort of close to a hundred family businesses conducted by
These are not surprising findings given the tremendous autonomy of family-owned
business CEOs and how little performance feedback these CEOs generally receive
from both family members and key nonfamily managers that report to them. The
power implicit in being the top manager, principal owner, and head or partner of the
family reduces the access and changes the nature of the information provided the
CEO-parent.
2. How did Samuel Curtis Johnson III lead SC Johnson to succession and
continuity?
Samuel Curtis Johnson III, retired fourth-generation chief executive of SC Johnson,
arrived rather easily at the realization that he had to be the architect of the transition;
y. Herbert Fisk Johnson, second-generation president
Assuming the responsibilities of the chief architect of a $5 billion, 100% family–
owned enterprise, he assembled a continuity construction project team. Team
members were not only his capable heirs but key nonfamily management, one of
whom served as bridging president for several years while the next generation got
ready. Independent outsiders on the board and a small cadre of estate, family, and
family-business consultants assisted the project. Over the span of more than 10 years,
Johnson family members, also assisted behind the scenes undoubtedly by their
spouses, planned with these key nonfamily professionals the building of a unique
structure for the Johnson family and the SC Johnson Company; much as Frank Lloyd
Wright and his team designed their very unique company headquarters building in
Racine, Wisconsin, in the late 1930s.
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3. What are the six most common CEO exit styles and what are their implications
for succession?
The six most common CEO exit types are the monarch, general, ambassador,
governor, inventor, and transition czar.
Monarchs Do not leave office until death strikes or until they are decisively
forced out by others.
4. Does the CEO spouse always have to be responsible for the creation of a trusting
environment in the business-owning family?
CEO spouses are not the only individuals who can perform these roles. Others
5. What are the CEO spouse role types and what are the implications of each role
type for succession and continuity in the family firm?
Spouses assume different leadership functions depending on their relationship to the
CEO, their knowledge and interest in the business, and their commitment to a vision
Section 2 Chapter and Lecture Notes 41
The six leadership or role types are: (1) the Chief Trust Officer, (2) the Business
Partner, (3) the Interim CEO, (4) the Senior Advisor and Values Keeper, (5) the Free
Agent, and (6) the Jealous Spouse.
Chief Trust Officer Chief Trust Officer spouses see their major contribution to
the family-owned business as providing the glue that keeps the family together
through the predictable challenges families, especially families that work
Business Partner Business Partner spouses are critical to the business, whether
through their financial investment in the business or their professional, technical,
or administrative skills. Some of these spouses begin as partners during the start-
up and early stages of business development and then move on to a different role.
Others remain business partners for longer periods or permanently. The Business
Interim CEO Much like the Business Partner, this spouse is often critical to
running the family-owned business after the death or illness of the CEO. This
Senior Advisor and Keeper of the Family Values Related to the Chief Trust
Officer type, the Senior Advisor is more than a relationships problem solver. The
42 Section 2 Chapter and Lecture Notes
Free Agent The Free Agent spouse is often very aware of both family and
business matters, having perhaps served the family-owned business in some
capacity earlier in life. But this spouse chooses to grow and develop an identity
Jealous Spouse Many entrepreneurs and family-business owners, particularly
those led by a first or second generation, have a mistress-like relationship with
their businesses. The family seems to have to compete with the business for the
ime. In this context, many
Regardless of the role played, CEO spouses repeatedly described themselves and
others like them as follows:
Stewards of the family legacy.
6. If the CEO spouse role is so important, why does it remain largely invisible to
people outside the family–to scholars, board members, and advisors?
There is enough ambivalence between spouses about the nature of spousal influence
in family-business relations to keep it out of everyday conversation and observation
Section 2 Chapter and Lecture Notes 43
7. What can CEOs do to lead their companies into successfully transferring to the
next generation?
Building a top management team with nonfamily managers on it, creating a board
Relevant Case Resources
The Binghams and the Louisville Courier-Journal Companies, and The Vega Food
Company cases are lucid examples of the resistance to plan and the painful implications
of such delay for family members and company employees. The Fasteners for Retail: A