Relationship of Succession Practices to Successful Leadership Transition

The study measures how the level of implementation of the top ten succession practices according to literature affect the perceived level of successful leadership transition of selected multigenerational Filipino family businesses and whether their organization profile has a significant moderating influence on the relationship of the two variables. The study surveyed a sample size of 71 respondents, each belonging to their own family business, and interviewed 10 among the respondents in order to gain a deeper understanding on the results. The results suggested that there is a strong positive correlation between the level of implementation of succession practices and the perceived level of successful leadership transition of the selected multigenerational Filipino family businesses regardless of their organization profile. It was found that family businesses highly implemented succession practices relating to communication, but the definition of the responsibilities of the predecessor after transition and measuring the performance of the leadership position were least implemented. The incorporation of the vision of the company in the succession plan in such a way that decisions were made with the company vision in mind was also found to be the most positively significant factor that affected the perceived level of successful leadership transition.


Introduction
The Philippine economy has been thriving in recent years and has remained one of the fastest-growing economies in East Asia and the Pacific region (prworksph.com, 2020). What was once called the "sick man" of Asia has transformed into the "rising tiger" economy with an average growth of 6.2 percent in the last six years (Bloomberg, 2016). In 2014, the Philippines was second only to China as the fastest growing economy in Asia (CNN Philippines, 2015).
Moreover, according to Alegado and Yap (Bloomberg, 2016), the Philippines has just posted the strongest economic growth in Asia at 7.1 percent.
Much of these economic contributions can be traced back to the basic unit of society, the family; more specifically to family businesses. In fact, at least 80 percent of all Filipino enterprises in the Philippines are family-owned (Inquirer, 2014). It is no secret that family businesses play a major role in the growth of the economy. According to Venter et al., (2005), family-owned businesses are one of the most significant contributors to wealth and employment creation in practically every economy in the world. Family businesses, in fact, employ around 50-70 percent of the world's population (Poza & Daugherty, 2013). Unfortunately, most family businesses are short-lived. According to Williams et al. (2013), almost 66 percent of family businesses fail to transition to the second-generation, and only 15 percent survive until the thirdgeneration. Moreover, a study shows that only 1/3 of family businesses make it to the secondgeneration, and roughly 1/3 of which reach the third-generation (Ghee et al., 2015).
Unfortunately, the statistics decline even more which states that 95 percent of family businesses fail to survive the transition to the third-generation owners (IFC Corporate Governance, 2016).
This phenomenon leads to the need for the sustainability of family business through effective succession planning (Wee Yu Ghee et al., 2015). As stated by several scholars, sustaining a family business is perhaps the most difficult job because of the mix of business problems and family issues (Gomba & Kele, 2016;Lee, 2006;Ward, 2011). Unlike regular nonfamily businesses, family-businesses not only have to deal with regular business problems but family problems as well. Concerns such as power struggles, sibling rivalries, and nepotism, setback family businesses from being sustainable and hinder their longevity as a business. Thus, this study aims to study multigenerational family-businesses that have had success in their succession planning practices and have experienced surpassing the issues attached to intergenerational leadership transition.
The study aims to assess how the level of implementation of succession practices of selected multigenerational Filipino family businesses have contributed to their perceived level of successful leadership transition. It investigated the profile of the different family business and assessed the level of implementation of succession practices. It also measured the moderating effects of organizational profile in the relationship of succession practices and leadership transition.

Theoretical Framework
Much research has been done on the subject of family business. The existing literature is quite broad and extensive. Many scholars in fact have dedicated their work to family business research because these businesses are not just important to the families that own and run them but also contribute to the world's economy. As cited by Peterson-Withorn (2015) from a study conducted by the Center for Family Business at the University of St. Gallen in Switzerland, family businesses account for eighty to ninety percent of firms worldwide and are the main source of job creation and GDP growth. There is no doubt about the significance of family businesses and because of the well-established fact that many scholars research and delve upon the topic of sustainability and continuity of family businesses. However, there are so many different variables being studied by various existing literature which makes the topic very difficult to navigate.

Systems Theory
Several studies have established the concept of family businesses on systems theory (Wallace, 2010). This theory is rooted from the general systems theory pioneered by Ludwig von Bertalanffy in 1928 (Walonick, 1993). The theory states that a system is made up of the interrelation of its elements and that the interdependences between the elements influence each other and the system as a whole. In relation to the concept of family businesses, the family and the business are seen as two systems, however in such case these two systems overlap, turning into subsystems of the main system which is the family business. Miller and Rice (1967) state that the interaction between the two subsystems (family and business) is where issues and problems usually arise. This interpretation of the systems model of family business can be represented by the Two Circle Model as shown in figure 1.

Figure 1
Two-Circle Model by Miller and Rice (1967) In existing studies, the two-circle model has often been used to focus on the negative aspect of the family business system. However, it has also been used to identify the positive side of family business characteristics such as closely shared values among member of the family who are also within the organization (Barret, 2014). This two-circle model however has been criticized by some researchers for ignoring or excluding other valuable elements or subsystems of a family business, which lead to the development of the Three Circle Model by Tagiuri and Davis (1982) as shown in Figure 2.

Figure 2
Three-Circle Model by Tagiuri and Davis (1982)

FAMILY BUSINESS
This three-circle model is commonly used by family business researchers. It adds another circle to the previous model (figure 1) representing ownership. Resulting from the overlap of the three circles are the seven interest groups involved in a family business system. Each of these interest groups introduce different contexts, characteristics, and ambitions. Davis (1982) states that the addition of the ownership circle or subsystem was an improvement of the two-circle model because it sheds light on the other issues which could not be explained by the previous model. The introduction of the ownership subsystem separated ownership from management as different subsystems in themselves. This separation of ownership from management caused the emergence of Agency Theory in the study of family businesses (Barret, 2014).

Family Businesses
When it comes to family business research, one must first understand the concept of the family. There are different types of families, may it be nuclear, single-parent, cross-generational, or dysfunctional. A family is a system in itself containing different elements which interact with one another. These elements are the members of the family. These individuals do not choose to be in the family, but are automatically included, unlike other groups which form a business (Schwass, 2013). All families have their own set of values which form their unique family culture (Deloitte, 2015). As mentioned by Lim (2016), the set of values a family embodies can be reflected in the way they do business. This makes family businesses unique. However, this intersection between the family and the business system is also where problems arise according to Miller and Rice (1967). In order to avoid carrying over problems from the family to the business, Houden (2016) mentions the importance of family harmony. As cited by Lim (2016) it is "the ability to trust and support, communicate differences in a constructive manner and look beyond the self at a broader picture." Rust and Chung (2006) also mentions the benefit of forming trust-based relationships in order to mitigate inter-personal conflict, promote healthy relationships, and encourage familiarity with individuals. Wrosch et al. (2011) mention that family businesses by their very nature are complex because of the need to balance the rigors of doing business within the complex relationships of the family. Similarly, Schwass (2008) explains that the complexity of family businesses is brought about by the intersection of family issues, business decisions, and ownership, which can actually be seen through the three-circle model by Tagiuri and Davis (1982). Moreover, Schwass (2008) adds that despite their complex nature, family businesses are capable and are often able to exceed non-family businesses because of shared values and their inherent will to pass on the business to future generations.
Family businesses, like any other business also face problems. In fact, family businesses deal with more problems than regular businesses because aside from common business problems, family businesses also face family problems which affect the business as well (Schwass, 2013). Problems such as sibling rivalry, nepotism (Fu, 2015), maintaining non-family member loyalty, professionalism (Lim, 2016), and succession planning (Haag et al., 2006;Motwani et al., 2006;Miller, 2014;Schwass, 2013) are the very common. As stated by Schwass

(2013) "[i]t is statistically proven that generational transition is the highest risk for continuity
and that the vast majority of families in business fail to deal with it."

Succession Planning
Quite a number of experts and researchers have identified succession planning as the most important practice for family business continuity. In order to execute a successful intergenerational leadership transition, a succession plan must be established. However, it is easier said than done. Scholars have been dwelling upon the subject of succession planning for family businesses and countless numbers of researches have already been made. Despite all the information that has already been derived from these researches, it begs the question as to why most family businesses still fail in intergenerational leadership transition. The answer lies in the complexity of the problem. Several variables impact the succession process such as communication practices (Haag et al., 2006), size of the firm (Motwani et al., 2006), predecessor or successor related factors (Chitoor & Daas, 2007), shared vision and family climate (Miller, 2014), organizational culture (Fancher, 2007) and many more.
A study conducted by Perrenoud (2012) analyzes seventy existing literature on the best practices related to succession planning. From his analysis, he had identified recurring themes from which he had extracted the top ten best practices for succession planning. The top ten recommended practices for succession planning with their corresponding frequencies are listed in Table 1. Each of the ten recommended succession practices are discussed below based on the study by Perrenoud (2012): Prepare a succession plan. Preparing a succession plan, among all other recommended practices, is the only recurring practice found in all the seventy articles reviewed. Often these plans begin informally but slowly develop into a formal plan which typically includes a timeline, and the procedures as to how the successor will be selected, trained, and finally appointed.
Succession plans are also executed by businesses in order to minimize the risks involved in the transition. Multiple researches have shown that companies that have prepared a succession plan are more likely to succeed in their leadership transition compared to those who do not (Bhen et al., 2005). However, as cited by Perrenoud from SFGate (2011), the study found that out of 1,318 CEO executives, only 35% had a succession plan.
Analyze and select quality candidates. In order to find the best candidate for the leadership position, potential successors must first be selected and evaluated. During this process the vision of the company must be considered to find the best match for the company. A company is not limited to appointing internal candidates from within the company. Instead, external candidates can also be considered for the position (Miles & Bennett, 2007).
Prepare a plan to develop successor. The candidates for succession must be developed in order to prepare them for the leadership role. The development programs commonly used by human resource departments (Bernthal and Wellins, 2006) include: formal workshops; special projects within one's own job responsibilities; articles/books; tests, assessments or other measure of skills; coaching with internal coaches or mentors; special projects outside of one's own responsibilities; computer based learning; coaching with external coaches or mentors and expatriate assignments.
Prepare well defined/communicated responsibilities. The predecessor must have well defined expectations of the successor. The successor must be made aware of these expectations and freely accept the roles and responsibilities expected of them.
Secure senior level support. Top management must acknowledge the need for succession planning and must also be involved in the planning process. Without senior level support the succession process may be ineffective.
Talent management process on company. According to Hartley (2004) as cited by Perrenoud (2012), talent management involves "recruiting, on-boarding, and developing, as well as the strategies associated with those activities in organizations." A well-developed talent management process promotes a culture of succession which inspires employees to develop in order to progress their careers. According to Chavez (2011), developing leaders from within the company is very important because companies which fail to do so are not only at risk of losing valuable knowledge and experience when the time comes for senior management to retire, but are also likely to suffer from lower productivity due to the lack of employee engagement. The longer the time is spent on developing successors, the more prepared they will be in assuming a leadership role for the company.
High level of communication. Ibrahim (2001) states that leadership transition within small or family organizations often experience a breakdown in communication. As suggested by Perrenoud (2012) the lack of communication is often an indicator of the lack of trust between the predecessor and the successor. A high level of communication is ideal to promote good relations between the transitioning parties and smoothen the succession process.
Measure performance before and after. Performance metrics measuring the progress and performance of the talent management process can make the selection of potential candidates easier (Chavez, 2001;Bernthall & Wellins, 2006;Grove, 2006). After the transition on-theother-hand, performance metrics is crucial in evaluating the success level of the transition. A study by Dalton (2006) states that within eighteen months after the transition, 40% of CEO's fail. A study by Magasi (2016) focuses on the factors that influence business succession planning among small and medium enterprises in Tanzania. It identifies demographic characteristics, business size, and family related factors as the major influencing variables to succession planning. The results from the study show that with a higher age of owners, there is a higher possibility for the business to prepare for succession. The study also pointed out that males have a higher chance of being the successor of the business. Moreover, the size of the business, the educational attainment of the top management, and the level of communication among members also show a positive relationship with the succession planning of a business.
The increased involvement of family members in the business however was found to have no influence on succession planning.

Research Design
This descriptive study used mixed methods to provide a more in-depth analysis on the topic by supporting the gathered quantitative data with more descriptive qualitative information.
Both survey questionnaire and semi-structured in-depth interview were done to collect data. The interview results were incorporated in the analysis of data.

Population and Sampling
According to Cruz (2019), approximately 80% of all businesses in the Philippines are considered family businesses although no exact number shown in any literature. It is noted however, that only 1/3 of family businesses make it to the 2 nd generation (Ghee et al., 2015), and around 95% of family businesses fail to transition to the 3 rd generation (IFC Corporate Governance, 2016). These facts have a big implication on the study since the target respondents are not just family businesses in general but only those in which have undergone intergenerational leadership transition, which makes it even more difficult or impossible to accurately quantify the exact size of the population. For the purposive sampling technique, multigenerational Filipino family business are the specific target respondents. Multigenerational means more than one generation of the family is involved in the business. Since the study also looks at the perceived level of successful leadership transition, the family businesses must have also undergone a succession of a leadership role. For this reason, the study aimed to gather as many respondents as possible within the 4-month data gathering period and had managed to collect responses from 71 multigenerational Filipino family businesses, most of which were personal contacts of the researchers. Among the 71 respondents, 10 were interviewed further to gather more qualitative data. A semi-structured in-depth interview was also utilized in collecting more information from the respondents using their respective accomplished questionnaires. The respondents shared additional insights on their experiences during the leadership succession process.

Data Gathering Process
The survey questionnaires were administered in two ways: personal administration and online means via Google Survey. Administering the survey personally involved handing the respondents copies of the questionnaires while administering online involved sending the link of the Google Survey via email or through social media streams. The semi-structured in-depth interviews were administered through face to face conversations, phone calls, video calls, or online conversation. The means of executing the interviews highly depended on the availability of the respondents. During the interview, aside from the written notes of the researcher, audio was also recorded and transcribed.

Data Analysis
The statistical treatments used for this study were frequency, percentage, mean, Pearson's correlation, multiple regression, and SEM analysis. Frequency and percentage were used to analyze the demographic profile of respondents and the organizational profile. The weighted mean was derived from the answers provided by the respondents to each item pertaining to the perceived level of successful leadership transition and the level of implementation of their succession practices. Pearson's correlation was used in order to measure the relationship of the independent variable to the dependent variable. Moreover, the simple structural equation modeling (simple SEM) using Jamovi software was employed to estimate the parameters of the mediation model. A simple SEM is a multivariate statistical analysis technique that is used to analyze structural relationships. This technique is the combination of factor analysis and multiple regression analysis, and it is used to analyze the structural relationship between measured variables and latent constructs (D. Kaplan,2001). Moreover, GLM Mediation analysis was also utilized to further test the model. GLM mediation model estimates simple, multiple, and conditional mediation models with maximum likelihood regression.   (1988), the delegation of responsibilities reduces the resistance to planning for succession. The interviews show that most of the successors already had an idea of their role in the business at a very young age because they were already exposed to the business and its functions early on. However, this was not the case for all.

Results and Discussion
One interview respondent was still surprised by the sudden leadership transition and was not completely familiar with the specific responsibilities of his new leadership position in the business.
The seven (7)   This was also the result for the study conducted by Perrenoud (2012). In his study however, the two variables fell under one main variable which refers to the respondent's opinion of the experience of the stakeholders which similarly received the highest score among the other variables. These two can be explained by the fact that most of the successors of the family businesses were already present in the operation of the business and were already introduced and have been made familiar to the clients and employees as confirmed during the interview.
Consistent with this result, the study by Savoleinen (2016) on Italian family businesses also revealed that most employees have a positive experience with the successors of the business because they already knew them beforehand. One of the respondents also revealed that the business received positive reactions from clients after the leadership transition because of changes applied by the successor which the predecessor chose not to apply because of traditional beliefs. It is possible that the leadership transition from the older generation to the younger generation brings about a positive change in terms of a new perspective which is more receptive of the changing trends and needs of their clients. The variable which landed in the middle of the group with a mean score of 2.92 is PLSLT4 which states that there were no conflicts between the successor and predecessor. This variable was moderately successful because conflict between the successor and predecessor cannot be completely avoided. Conflict in a family business is virtually inevitable because it involves so many different variables as seen in the Three-Circle Model by Tagiuiri and Davis (1982;Davis, 2016). The three-circle model shows that the family business can be explained by three distinct groups that intersect into seven (7) sub-groups which constantly interact and make decisions. It is an environment wherein conflicts are bound to arise. A respondent cited a specific reason why conflicts between the predecessor and successor happen. The respondent mentioned that their difference in generation, the respondent being a millennial and his predecessor being part of the silent generation, brings about their difference in mindset and inclinations which sparks conflict between them. Being in the silent generation, his father who was the predecessor had inclinations towards a more traditional mindset which was in contrast to his millennial point of view which again was more open to adapt to changing trends.
As for the variable which scored the lowest mean score of 2.58 (moderately successful), this was also the case in the study of Perrenoud (2012) wherein 58% of the respondents answered that successors experienced surprises with the transition and were actually caught off guard.
According Porter et al. (2004), some of the surprises faced by a new CEO comes "from time and knowledge limitations." It is, up to some point, normal for new family business leaders to face surprises given that the landscape wherein businesses operate and market trends are constantly changing. However, it is not completely out of the hands of predecessors to better prepare their successors for their new leadership role in the family business. The researcher probed further as to how family businesses would perceive a successful leadership position and several of the respondents answered that the growth of the business would indicate a successful leadership transition. This was an important factor mentioned by the interviewees because for them, the transition would only be truly successful if the successor exceeded the performance of the predecessor. The study separated the descriptive statistics for the Quality of Plan from the Perceived Level of Successful leadership transition in order to highlight a specific result which stood out among other variables as shown in Table 3. This was QOP7 or whether the company hired a succession consultant that greatly contributed to the succession plan. This specific variable scored the lowest among all variables and was the only variable which translates to an answer of strongly disagree. This was the case for all interviewees. Moreover, only one of the interviewed respondents' family business formally compiled their succession plan (QOP2). The common reason among respondents as to absence of formal compilation of the plan is that their succession plan was simple and already implied which does not need formal compilation. As a family business, their intention of passing on the leadership role within the next family generation was already assumed but not necessarily forced. However, according to two Filipino-Chinese business managers the leadership responsibility was forced upon them.

Scatter Plot of the Level of Implementation of Succession Practices and the Perceived Level of Successful Leadership Transition
It can be seen in Figure 4 that there is an upward slope which signifies a positive trend between the two variables. The study by Perrenoud (2012) displays the same upward trend.
Moreover, this result of a positive correlation between the two variables were tested further and verified using Pearson Correlation as seen in Table 4. Pearson correlation was used to analyze and verify whether there exists a positive linear association between the variables LISP and PLSLT. Based on the Table 4, there is a strong positive correlation of 0.647 between the two variables. It can also be seen that from a sample of 71, the variables are significant (r = 0.647, p-value = 0.000). This means that the more family businesses implement the top ten succession practices, the higher their perception of success is towards their leadership transition process. This result further supports the study of Perrenoud (2012), whenever businesses apply the top ten succession practices more, the higher their level of success when it comes to their leadership succession. The ANOVA in Table 5 shows that the overall multiple regression model is significant for the study with a p-value of 0.000. Furthermore, the goodness of fit of the model can be measured through the R Square which can be seen in the Model Summary. The R Square of the equation is 0.560 which means that the independent variable LISP when taken as a whole can explain 56% of the variability of PLSLT. Since the independent variable can only explain 56% of the variability of PLSLT, this means that there are still other variables which could influence the how family businesses perceive the success of their leadership transition.
Based on the multiple regression analysis results, at 95% confidence level only LISP8-"Captured the vision of the company in the succession plan in such a way that decisions were made with the company vision in mind" was statistically significant (t-stat = 3.645, p-value = 0.001) in explaining PLSLT. The coefficient of LISP8 is 0.294. This means that an increase of 1 in the score of LISP8 will give an increase in PLSLT by 0.294. This finding is parallel to the study of Neff (2015) which identifies a shared vision as the variable with the strongest positive and significant influence on the long-term success of the organization because it bonds the members of an organization towards a common goal. In the case family businesses interviewed in the study, the shared vision identified is to sustain the business and pass it on to the next generation. Moreover, it was observed by Overbeke et al. (2015) that when father and daughter share a common vision for the future of the business, the daughters are more likely to become successors of the business. The statistical data and the literature both emphasize the importance of a family businesses' vision in the success of the leadership transition. Furthermore, this vision must be shared and agreed upon by both the predecessor and the successor. This would help in aligning their intentions towards the business and would prevent conflicting interests thus smoothening the leadership transition process. The results suggest that the only organizational profile that affects the model is number of employees and asset size to successful transition. This means that the two aspects of

Conclusion
The study looked at multigenerational family businesses in the Philippines to determine The study also discovered that a number of the family businesses were unconsciously practicing some of the top ten succession practices. However, there were also practices or activities which cannot be completely measured by the ten succession practices. In conclusion, the study finds that the implementation of the top ten succession practices helps family businesses succeed in their leadership transition regardless of organization structure. However, the success of the leadership succession of family businesses does not solely rely on these generic practices, but also to more family related practices which improve family harmony and family dynamics.
This study acknowledges the fact that the succession practices of an organization is not the only factor for the sustainability of a family business. Other factors may still be considered in order to better understand how the perceived level of successful leadership transition increases.
Specifically, factors relating to family harmony or family dynamics may be taken into consideration in studying how family businesses succeed in their succession. Much of the practices identified in the study were not exclusive practices to family businesses but were generic practices which could also be implemented by other businesses undergoing succession.
For this, further research is encouraged to test other variables relating to family harmony and family dynamics through an increased sample size.