The article explores the phenomenon of continued predecessor activity in the aftermath of a CEO succession in family firms. Special attention is given to the performance impact of predecessor activity and the human capital of the successor. The authors find that the likelihood of predecessor activity is increased by family succession, nepotism and tacit knowledge, but reduced by the successor’s human capital, successor’s ownership and corporate age. The performance impact of prolonged predecessor activity is positive for successors with low human capital, but turns negative with increased successor human capital, while this negative impact is amplified by the degree of influence of the preceding CEO.
The authors interpret this finding in the following way: If the successor has still low levels of human capital, a prolonged activity of the predecessor is accompanied with shielding and positive effects for performance. With increasing experience and responsibility of the successor the predecessor is best advised to gradually reduce and adapt his role. Arguably the observed pattern can be regarded as an empirical validation of the theory of the “succession dance” of Handler (1990), which described succession a process of mutual role adaption.
The results of this article are relevant for advice seeking family entrepreneurs, banks, rating agencies, consultants, family business owners and successors. In addition, the results provide an empirical view on knowledge which has so far been based on theory or anecdotal or case study related evidence and thereby expand our existing knowledge on family firm successions. The article is the second chapter of a cumulative dissertation at the ifm (Jan-Philipp Ahrens). The first chapter "Nepotism - CEO succession, ownership, and enterprise performance" (Jan-Philipp Ahrens, Sandra Gottschalk, Michael Woywode) was also awarded with a Best Paper Award at the European Academy of Management Conference 2013.
The Family Enterprise Research Conference took place in June 6-8, 2014, in Portland (USA). This annual meeting of the family business research community enables scholars to exchange ideas and to further develop research projects that are theoretically sound, empirically accurate, and of practical significance to family firms.