Reaching Across Family Boundaries: A Study on The Role of Relationships Between Nonfamily Managers and Family Successors in Family Businesses from the Social Exchange Perspective

Abstract

Family businesses constitute two thirds of all businesses, contribute to 70-90% of the GDP and provide between 50-70% jobs globally. Yet only 30% of them survive the second generation of leadership and less than 10% make it into the fourth generation. Unsurprisingly, succession is a critical event in the life of family businesses, which impacts their longevity, and is the most explored topic by family business scholars. This study examines a critical yet relatively unexplored aspect of succession. Nonfamily employees in family firms have a large impact on the performance of the business. Relationships of family successors with these employees is important from the perspective of transferred loyalty, respect, and tacit knowledge and are critical for a successful succession; yet there are no empirical studies examining these relationships. This multi-level qualitative study explores relationships between nonfamily employees and family successors, through 64 interviews with stakeholders in 13 family firms across India, examining the impact of relationships (individual level) on leadership succession (organizational level). I use the between-case method, taking Social Exchange Theory (SET) as the theoretical umbrella and adopting the critical realist approach. The findings show how these relationships influence a successful family business succession and how these relationships are impacted by Indian collectivistic cultural setting. I also provide advice to family business owners on cultivating these relationships from early childhood of the successors to the time they join the business and, to the time they take over leadership. This study also includes a systematic literature review of research on social exchange relationships (SERs) in family businesses, providing directions for future research. I offer an extension to SET explaining how SET can be applied to relationships with nonfamily employees, which have been described by scholars as inherently agentic in nature. Thus, I contribute to a finer grained understanding of successions in family businesses, provide ways forward for future research, make academic contributions to theory, and provide implications for practice and policy. The findings show how these relationships influence a successful family business succession and how these relationships are impacted by Indian collectivistic cultural setting. I also provide advice to family business owners on cultivating these relationships from early childhood of the successors to the time they join the business and, to the time they take over leadership. This study also includes a systematic literature review of research on social exchange relationships (SERs) in family businesses, providing directions for future research. I offer an extension to SET explaining how SET can be applied to relationships with nonfamily employees, which have been described by scholars as inherently agentic in nature. Thus, I contribute to a finer grained understanding of successions in family businesses, provide ways forward for future research, make academic contributions to theory, and provide implications for practice and policy.