Challenges of a female successor of a family business

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Master Thesis

Challenges of a female

successor of a family business

Author: Theresa Fritsch Supervisor: Björn Bjerke Examiner: Philippe Daudi Academic term: 18.05.2017 Subject: Leadership and

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CHALLENGES OF A FEMALE SUCCESSOR OF A FAMILY BUSINESS

MASTER THESIS

submitted at the

IMC Fachhochschule Krems (University of Applied Sciences)

Master Programme Marketing and Sales

Linnaeus University Sweden Master Programme

Leadership and Management in International Context

by

Theresa FRITSCH

for the award of the academic double degree

Academic Degree

Master of Arts in Business & Master of Science in Business and Economics

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Advisor Partner University: Björn Bjerke, PhD.

Submitted on: 31.05.2017

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Statutory Declaration

I declare in lieu of an oath that I have written this Master thesis myself and that I have not used any sources or resources other than stated for its preparation. I further declare that I have clearly indicated all direct and indirect quotations. This Master thesis has both been submitted at the IMC Fachhochschule Krems and the Linnaeus University and has not been handed in elsewhere for examination purposes.

Kalmar, Sweden, 31.05.2017 Signature Student

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Acknowledgements

This master thesis is the crowning achievement of my academic path and I would have never accomplished it without the endless support of my family, my boy- friend, closest friends and supervisors. I am very grateful for their advice, their pa-

tience, their encouragement and their love.

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Abstract

Family businesses are the backbone of the German economy and, indeed, of almost all economies in the world. Every year business owners face many challenges, one of which is the succession process. Unfortunately, daughters are often considered or perceived as less suitable or viable choice for the position of a successor, compared to sons. The aim of the master thesis is to identify potential challenges a female successor faces when taking over a family business and whether various strategic and/or structural requirements need to be considered by the daughter within the succession process. Empirical data has been gathered within the methodological framework of the grounded theory. Semi-guided expert interviews have been conducted to gain empirical insights. The results indicate that the challenges each individual successor will experience as most crucial or difficult will always depend on her personal character, on the senior family members’ behaviour during the succession process, and on the company’s hand-over capability at the outset of the process. Moreover, the strategic and/or structural requirements the successor faces are not as much influenced by gender, as by the up- or out-dated circumstances of the existing strategies and structures of the family business, which will ultimately determine the requirements the daughter has to fulfil. In conclusion, the succession process is very complex and burdened with emotions from the family members. Having a clear road map for the succession that leaves room for improvement in case of unpredictable factors in advance can be essential for the success of the succession. Hiring an external expert as support can be beneficial as well. Additionally, the daughter aspiring to lead her family’s company must be 100 % sure that her life’s vision is compatible with the vision of the family business.

Keywords:

Female successor, family-business, succession, female leadership, millennials

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List of Figures and Tables

Figures

Figure 1: Family - Business - Individual Successor – Paradox... 38

Figure 2: Allocation of Male and Female Successors, Family Intern - or Family Extern Members ... 55

Figure 3: How the Interviewees have Personally Experienced the Succession Process ... 92

Figure 4: Own Interpretation of Grounded Theory I ... 97

Figure 5: Own Interpretation of the Grounded Theory II ... 98

Figure 6: Challenges List for Female Successors ... 136

Tables Table 1: Family - Individual Successor - Business – Paradox ... 40

Table 2: Behaviour or Characteristics of a Female Leader ... 65

Table 3: Information about the Interviewees ... 84

Table 4: Interviewees´ Position in the Succession Process ... 90

Table 5: Advice for Female Successors by the Interviewees ... 94

Table 6: Open Codes - Question 2A ... 101

Table 7: Concepts - Question 2A ... 102

Table 8: Concepts - Question 2B ... 102

Table 9: Concepts - Question 2C ... 103

Table 10: Concepts - Question 2D ... 104

Table 12: Concepts - Question 4 ... 106

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Table 14: Categories - Question 2A, 2B, 4 ... 110 Table 15: Core Categories ... 125

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List of Abbreviations

e.g. Latin: exampli gratia; English: in example etc. Latin: et cetera; English: and so further MBI Management Buy-In

MBO Management Buy-Out

BMW German: Bayerische Motoren Werke (famous car brand of Germany)

IfM German: Institut für Mittelstandsforschung (institute for midsized-business research)

BGA German: Bundesweite Gründerinnen Agentur (national founder agency in Germany)

SME small and medium sized enterprise

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1 Introduction

In the following chapter, the topic of the master’s thesis, the challenges for a female successor of a family business, will be introduced as well as justified and the research goals presented. Further, a brief chapter outline will conclude the introduction chapter.

1.1 Background and Justification of the Topic

Family businesses are the backbone of the German economy and, indeed, of almost all economies in the world. Every year business owners face many challenges, one of which is the succession process. Furthermore, it is usually the case that potential male successors are seen as preferable and more suited to the top management positions within a company in the future. Indeed, daughters of family business owners are still in their brothers’ shadows when it comes to becoming successors. Potential female successors undoubtedly want to be considered equal to male successors, and more and more daughters are willing to take on the responsibilities of being the next generational leader of the family business. Female successors face various explicit challenges over and above those faced by the male successors as a result of the takeover procedure.

1.1.1 Economical Aspect

Germany has been called the “country of family businesses”. In 2014, family controlled businesses represented 91% of the total amount of active companies in Germany. Furthermore, family controlled businesses are responsible for 48% of the turnover and provide 56% of the socially insured employment in Germany (Stiftung Familienunternehmen, 2016). Moreover, 88% of the total amount of enterprises are family businesses managed by the owner; indeed, 55% of the total number of employees work for a family business, which are responsible for 44% of the German total turnover (Stiftung Familienunternehmen, 2014). Furthermore, there is a difference between family controlled businesses and family owned and

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nesses that are led by, legally speaking, a natural person who contributes to the success of the family company (Stiftung Familienunternehmen, 2014). Ownership and performance, however, do not need to be related. This master’s thesis focuses specifically on those businesses that are owned and run by a family.

Additionally, family businesses can be mostly categorised as small and medium sized enterprises (SME). In Germany, around 99,6% of businesses are SME (BGA, 2015, p.6). Further, in 2014, SME were responsible for 33,5% of the annual turnover of all companies in Germany. Moreover, in line with IfM Bonn, the following terms can be seen as synonyms: mid-sized sector, family business, companies run by a family, and owner-managed enterprises (IfM Bonn, 2016). According to the institute of SME research, IfM Bonn, in Germany small enterprises are characterised by having up to nine employees and an annual turnover of 1 million euros.

Medium enterprises employ between 10 to 499 people and have an annual turnover up to 50 million euros (Söllner, 2011, p.1088). Unfortunately, no exact number could be obtained regarding how many family businesses can be characterised as a SME; however, given the data provided by the IfM, it can be assumed that most of the family businesses in Bonn are SMEs.

According to a research study conducted by IfM Mannheim and IfM Bonn, around 10% of family businesses were handed over to the family’s daughter in 2000 (BGA, 2005, p.4). Indeed, actual numbers and statistics related to how many female successors are taking over the family business in general could not be found:

official statistics do not provide up-to-date data on company takeovers by women (BGB, 2015, pp.4-5).

Moreover, the Institute “Bundesweite Gründerinnenagentur” (BGA) (national founder agency in Germany) stated in their report that male owners of family businesses tend to hand their businesses over to sons (72,8 %) rather than daughters (27,2%). On the other hand, female owners choose to give the business to their sons in 55,2% of cases and to their daughters in 44,6% of cases, which is more equal (BGA, 2015, p.5).

In a nutshell, family businesses are enormously important for the success and well being of the German economy. Businesses face the challenge of finding a suitable

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successor. Indeed, women are still not considered to be as suitable for the position of head of the family business as their male siblings.

1.1.2 Rhetorical Aspect

Another aspect that is particularly relevant to the chosen topic is the rhetorical aspect. In this section, we will take a closer look at companies’ names. When we think of a successor we tend to think of a male person. The question which is often asked is why? The author of the present study aims to take the rhetorical compo- nent into account. Hypothetically speaking, the answer to the question of why we tend to think this way can be traced back to the common practice of companies to add the prefix “& son” to the company name. Brands such as Thomas Cook & Son or Schmitt & Son, for example, show how deeply embedded this practice is in our language and linguistic characteristics. Indeed, according to the author´s research, companies who add this annex to the firm´s name tend to be family businesses that have been handed over to the owner´s son in the next generation or where the son has joined the family business while his father still works in the company.

From the author’s perspective, another aspect influencing the male’s assumption of successor position was that the practice of adding the extension “& son” is seen to provide credibility, playing on stereotypes by suggesting to potential customers or clients that a strong man is in charge.

Unfortunately, less women or daughters have been considered to succeed the position of successor in family companies, as shown in the previous paragraph.

For today´s generation in particular, where gender equality plays a significant role, it is essential to include and support women – “& daughters”, of course – when seeking to fulfil the successor position. Indeed, we need to stop believing in and relying on stereotypes, biases, and prejudices against potential female successors of family businesses.

1.1.3 Women of the Generation Y

The women of the Generation Y, also known as millennials, are defined as the generation born after 1980 and before 2000 (Howe, Strauss, 2000, p.11). People

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belonging to this generation have been characterised in the following ways: they are often enormously ambitious; they are better educated than any other generation in history and “smarter than most people think” (Howe, Strauss, 2000, p.9);

they are cooperative and collegiate team-players; they are concerned about achieving work-life balance; they want to have a “career they are passionate about” (Bay, 2011); they want to be their own boss; they show considerable initiative and entrepreneurial spirit; and they are willing to take responsibility as a leader (Howe, Strauss, 2000, pp.9-17). Given this outline of the personality profile of generation Y women, it can be assumed or hypothesised that more and more daughters would be willing to take responsibility for being the next generational leader of their family’s business. Indeed, women are participating in excellent edu- cational programs all over the world and are willing to obtain work experience before they see themselves in the position of becoming a female successor. Further, generation Y women need to be considered as a valuable group with the potential to take on the successor position, especially if they demonstrate the aforementioned personal qualities. Given these circumstances, women face different challenges in leadership positions to those faced by men. Therefore, the present scientific paper deals with the challenges a women successor faces today when it comes to the issue of handing over a family business.

1.1.4 Leadership and Entrepreneurship: Building the Bridge

“There won´t be any success without the women.”

(Tucholsky as cited in Probst, 2010, p.50).

The following paragraph is a personal account of the author’s understanding of the two components, leadership and entrepreneurship, which are indispensable to the chosen topic.

Does the success of women matter in terms of the development of the wider economy? From my perspective, the female successor of a family business is at once a leader and an entrepreneur: the female successor has to lead the company while also giving fresh impetus, innovations, and ideas to the organization.

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Researchers all over the world have tried to come up with a definition of leadership and to determine what a leader is, but there is no universal definition. Every individual has a different understanding of what leading means to him or her and how he or she would define the term leadership. There are nearly as many definitions of leadership as there are people on earth. Indeed, there are many ways in which the following sentence could be finished: “Leadership is …” (Northouse, 2013, p.

2). In a nutshell, from my perspective, leadership can be seen as a process of transaction and interaction between leader and followers who are dependent on each other: leadership is about the person who is leading, leadership is about influencing, leadership is about enabling the talents of the followers, leadership is about authenticity, leadership is about working towards a common goal, leadership is not management, leadership is about vision, leadership is about communicating in order to influence the emotions of the counterpart and/or to induce change, leadership is about supporting, leadership is about leading oneself, and so on.

(Sudrajat, 2015, p.479).

In a similar manner, no exclusive definition can be given of entrepreneurship. Hen- rekson and Stenkula (2016) argue that “the term `entrepreneur´ originates from the French verb entreprendre, which means to supply or create a `space´ to be able to do something.” (Henrekson & Stenkula, 2016, p.27). I would like to briefly state my understanding of “being an entrepreneur and/or entrepreneurship”, which is to create something incredible and unique as a result of the entrepreneur’s imagina- tive ability to identify and exploit various opportunities. The entrepreneur is a cal- cutalted risk-taker who turns uncertain possibilities into successful actions, has a clear vision, is passionate about what he/she does, develops innovative ideas and improvements, while allocating resources in the most efficient and effective way possible, is a creative person, is not afraid of failure, is an optimist and a positivist, is goal and achievement oriented, and can identify and exploit new opportunities (Sudrajat, 2015, p.478). Indeed, Bjerke (2013, p.17) has suggested that an entrepreneur should involve four parts of his/her body: “the brain – in order to know/think the impossible”, “the heart – in order to be willing/to believe in your ideas”, “the stomach – in order to dare”, and “the limbs – in order to do things”. In

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short, activities such as thinking, believing, daring, and doing are in my eyes indispensable markers of a successful entrepreneur.

Given the designated topic of the present master’s thesis, leadership and entrepreneurship should not be seen as two isolated topics, but rather the concept of entrepreneurial leadership plays an important role. Leadership, after all, has a pos- itive and direct effect on the entrepreneurial mind-set and its innovative creativity (Sudrajat, 2015, p.481). Hypothetically speaking, the entrepreneurial behaviour of a successor can influence the family business in terms of developing innovative ideas and seeking out opportunities based on existing resources, taking risky de- cisions to break free from the strategic and structural approaches of the previous generation, and/or designing a new vision for the family business in order to achieve set goals in the most effective and efficient way possible. Indeed, entrepreneurial leadership, as defined by Thornberry (2006), shows that: “Leadership requires passion, vision, focus, and the ability to inspire others. Entrepreneurial leadership requires all these, plus a mind-set and skill set that helps entrepreneurial leaders identify, develop, and capture new business opportunities.” (Thornberry as cited in Renko et al., 2015, p.55). Similarly, Cunningham and Lischeron (1991) argued: “Entrepreneurial leadership involves setting clear goals, creating opportunities, empowering people, preserving organizational intimacy, and developing a human resource system.” (Cunningham and Lischeron as cited in Renko et al., 2015, p.55).

Consequently, entrepreneurial leadership occurs at the intersection of entrepreneurship and leadership. The intersection of both concepts plays a significant role within the succession process. On the one hand, the female successor wants to be the best leader she can be and, on the other hand, continuing the business in an identical manner to her father is not exactly the preferred option. Daughters seek to make their own individual contribution to the success of the family business by using their abilities to lead in an entrepreneurial way.

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1.2 Personal Interest of the Topic

This following paragraphs explore the author´s personal reasons for choosing the specific topic. As the researcher, I would like to outline the reason for choosing this specific topic, beyond its relevance for research as shown above.

Indeed, this master’s thesis on the challenges for a female successor has considerable significance for me personally, as a potential female successor in the first generation of the handover process. Whether or not I will become the successor of my family’s business will be decided in the coming years, and I would be honoured to be seen as suited to and appropriate for this specific position.

My reason for choosing this topic is therefore because I have seen from an early age how our family’s business has grown, experienced how my parents have worked hard every day in order to create a safe, caring, supporting, and loving environment for their children, and witnessed how my parents have established something successful without any existing financial reserves or entrepreneurial/leadership experience. The company is currently successful, profitable, and established on the market, with more than thirty satisfied employees. I would thus like to play my part in contributing to the future success of the business. My personal aim is to continue our family’s business and to assume the role of female successor within the next ten years. At this moment in time, it is yet to be decided whether our business will be continued by either a single manager or in a tandem management structure, in which the leading positions would be assumed by myself and my two brothers.

My personal goal with this master’s thesis is therefore to figure out what my particular challenges are as a female successor. Further, I hope to learn something about and for myself; in other words, I see opportunities within this thesis to develop myself personally as a possible future leader. Due to my emotional investment in this issue, which influences my conscious effort, I am deeply convinced that the thesis provides enormous potential for creating a structure of support, encouragement, and boldness in order to overcome the challenges other female successors face or confront.

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1.3 Research Gap

In the following paragraph the current research gap will be discussed and an outline of the essential literature provided.

Due to the economical relevance of family businesses, as outlined before, the topics of succession process and generational change in family businesses have been discussed and analysed over the past three decades. An increasing number of “how to” guides or practical handbooks related to successful succession are being published, aimed at the owners and CEOs of family companies, outlining what needs to be done in order to hand over the business in the most effective and efficient way. For example, Schwetje, Demuth, and Schubert (2016) have published a guide for owners, as well as consultancies, that covers perspectives such as economic attitudes, legal attitudes, and tax attitudes, which should be considered when it comes to succession planning. Further, the number of consul- tancy agencies with a specific focus on family business succession is increasing, for example: Stifung Familienunternehmen (foundation for family businesses), Equa Stifung (equa foundation), Pricewaterhouse Coopers, Weismann Group, etc.

Indeed, such consultancies publish several publications specifically on family business topics every year. Moreover, the general succession process of a family businesses is not only well known in Germany, but also globally. For example, in the United States of America the succession process is a frequently discussed issue: family businesses represent more than 60% of the gross domestic product and more than 80% of U.S. companies are family owned (Vera & Dean, 2005, pp.321-322). In a nutshell, literature related to succession is shaped by guide- books. It should also be noted that when literature actually focuses specifically on the successor, daughters are usually seen as less suitable successors than men.

Over the last couple of years, the number of publications examining female successors or women in family business has increased. For example, Annino et al.

(2009) specifically discuss the various roles played by women in a family business, such as being the wife, the mother, the widow, the daughter, etc. In addition, Jä- kel-Wurzer and Ott (2014) address the daughters of family businesses and state the problems they may find within themselves or within their family during the suc-

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cession process. In terms of literature specifically studying the different challenges faced by female successors, they can only be found in certain small sections of several diverse books.

Therefore, the chosen topic – the challenges for a female successor of a family business – can be seen as relevant to current research. Moreover, most literature related to succession adopts a “cook book” approach and outlines “how to” approach the issue; far less has been written and researched on the specific challenges for a female successor when it comes to the combination of the challenges she may face based on business indicators, family indicators and within herself.

1.4 Research Problem, Research Objectives, Research Ques- tion and Methodology

Based on the context clarified above, the aim of the master’s thesis will be outlined in the following paragraphs.

1.4.1 Research Problem

The succession process of a family business is enormously risky and can be piv- otal: whether the succession is successful or unsuccessful can have crucial con- sequences on the effectiveness, efficiency, well-being and competitiveness of the company´s future. Indeed, strongly embedded societal stereotypes and prejudices nowadays have resulted in a situation whereby, in general, male successors are more often seen as capable of being the head of the family business. Unfortunate- ly, female members of the next generation in a family business are often considered or perceived as the less suitable or viable choice for the position of a successor, compared to sons.

Yet, more and more women want to be seen, valued, and considered as an appropriate successor of the family business. Especially in the author’s generation Y demographic, females are highly educated, willing to take risks, and see themselves in leading positions. In addition, the number of successful female entrepreneurs and women in leading positions has increased in recent years (VanderBrug,

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2013). Therefore, transferring the family business to the daughter can be a promis- ing prospect.

Women successors thus face various different challenges in the takeover process than those faced by men due to prejudices and stereotypes surrounding how a successor should be that still exist. This master’s thesis focuses on determining and disclosing these challenges and exploring how such threats can be overcome.

I believe that this will be the crux of the analysis and discussion: the issues for a female successor of the next generation in a family business.

1.4.2 Research Objectives

The aim of the author in writing this master thesis is to provide valuable content for and insights into the research field, contributing to existing literature related to being a female successor of a family business. If successful, the outcome may be used in supporting consultancies, businesses, researchers, and future female successors to understand the research topic in more detail and to classify the challenges for a women successor that go hand in hand with the takeover process in general.

Further, the secondary objectives concern me personally: the opportunities I can take away from the process and the obstacles confronted in writing the thesis. As mentioned previously, I find myself in the position of a female successor to a family business; my aim is thus to figure out how I can deal with the takeover process in the most effective and efficient way possible. Indeed, I am required to show commitment to our family business in order to sustain its success.

1.4.3 Research Question

In order to accomplish these objectives, the master’s thesis aims to answer the two following research questions:

1) What challenges do female successors face when taking over a family business today?

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2) Are there any structural and/or strategic requirements that need to be considered by a female successor within the overtaking process?

To elaborate, the first research question will examine the profile of potential female successors from the generation Y and millennial demographic. Further, the challenges of generational change within family businesses in Germany will be analysed. There are two reasons for providing these clarifications. Firstly, in terms of the former, from the author’s perspective, it was essential to focus only on these specific generational groups because these are the groups involved in the generational shift and changing workforce today (Burgess, 2008). Secondly, the takeover process of a family business is restricted to Germany, because the author’s family business is based in Germany and, as described above, family businesses form the backbone of the German economy and are constantly facing challenges related to generational change.

Furthermore, the second research question will deal with the possible structural and/or strategic requirements of the succession process. Certain necessary condi- tions are limited to the experience of female successors. The idea behind this question is not to establish a detailed “road map” or “how to guide” that explains exactly how to overcome any structural and/or strategic changes; rather, it should be seen as an account of the potential structural and/or strategic potential requirements that female successors may face.

1.4.4 Methodology

In order to be able to answer the research questions, described in the previous chapter, the aforementioned methodology will be used. Indeed, the methodology will be described more extensively within the Chapter 3.

The methodology “grounded theory” is seen as the most appropriate method in order to fulfil the research objectives. Grounded theory is a qualitative research methodology, developed by Glaser und Strauss in 1967. The main purpose of this methodology is to develop a theory from data that has been gathered and analysed (Corbin & Strauss, 2008, p.1).

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Moreover, semi-guided expert interviews have been conducted to gather the empirical data. Face-to-face interviews are seen as appropriate to perceiving the emotions that can occur as a result of the intense topic discussed in the interview guide. Precisely, the sample used for the empirical analysis is defined in the chapter 3.6.2.

1.5 Scope and Limitations

The following paragraph will classify the delimitations of the master’s thesis topic.

The chosen topic has been restricted by several factors, so as not to extend the scope of a master’s thesis too broadly and to enable the researcher to determine a precise topic and narrower focus.

Firstly, the topic was chosen within the framework of analysing the challenges for female successors of family businesses in Germany that are managed and owned by a family, rather than controlled. Furthermore, the challenges for a female successor are considered through the lens of those categorised as members of the millennial or generation Y demographic. Secondly, the challenges of a succession are limited to three overall classified variables, which are the business, family, and personal indicators. For example, within the scope of the business variable, the various aspects that challenge the succession process are outlined appropriately;

however, no excessive detail is provided related to factors such as financial challenges, legal challenges, or tax challenges, as this would be beyond the capacity of the present paper. Thirdly, it is acknowledged that, in general terms, there are many different ways of continuing a business, for example through management buy-out, merging and acquisition, inheritance, etc. The present master’s thesis will only include those alternatives that are the most common internal or external ways of continuing a company within family businesses in Germany. Fourthly, the female leadership component of the theory is not seen as a comparison between men and women in general, but rather as an account of female leadership and its particularly distinct aspects, in the author’s own opinion. Fifthly, the identified and described challenges a potential female successor face can be also relevant for their male counterpart. Indeed, within the scope of the master thesis the author

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classifies the challenges for females and is not considering or differentiating whether the challenges can be suitable or not for both genders.

1.6 Chapter Outline of the Thesis

In the following section, the topics covered in each of the defined chapters of the master’s thesis will be given. The first chapter aims at providing a comprehensive introduction and defining the background, which is based on economical, historical and female components. Furthermore, a justification of the chosen topic’s relevance will be included and the author’s personal interest in the topic of research will be outlined. Moreover, the research gap will be discussed, as well as the research problem, the research objectives, and the research questions. In order to answer the research questions, the methodology approach used, in terms of the collection and analysis of empirical data, will be described and defined in greater detail.

The second chapter defines the theoretical framework of the scientific paper. Re- quired definitions of basic concepts, ideas, and issues for the thesis will be determined. Additionally, the general approaches to the contribution of a business based on internal and external aspects will be illustrated. The challenges of the succession process will also be analysed according to the three main aspects, namely the business indicator, the family indicator, and the personal indicator.

Moreover, as it forms a central part of the research issue, a comprehensive over- view of female leadership will be provided.

In the third chapter, the chosen methodological approach, which was used to gather the empirical data, will be defined. The research objectives will be outlined, as well as the limitation and scope of the master thesis. Additionally, the structure of the interview guide and the interview characteristics will also be presented.

In the fourth chapter the results, findings, and outcomes of the research will be analysed as well as interpreted for each of the three coding steps.

The fifth chapter aims to present the conclusions that can be deduced from com- paring the theoretical framework with the empirically collected data. A challenge

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list will be developed in light of this, which includes the possible challenges for a female successor, according to the three aforementioned variables: the business indicator, the family indicator, and the personal indicator. Future research topics will also be suggested. Finally, the author will present her personal recommenda- tions for female successors.

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2 Theoretical Framework

In the following section of the scientific paper, the theoretical framework will be outlined, defined, and analysed, which is essential to establishing a comprehensive understanding of the topic. Firstly, several indispensable definitions will be clarified with a view to developing a basic shared understanding of their use in relation to this topic. Secondly, various possible internal and external ways of continuing a family business will be analysed. Thirdly, the various challenges of the succession will be defined according to the three main points: the business indicator, the family indicator and the personal indicator. Fourthly, the overall topic of female leadership will be analysed by looking at various dependent components and aspects.

2.1 Definitions

In the following chapter the author will characterise the required definitions when considering this topic that are necessary to establishing a common theoretical ground. Further, the definitions outlined below will also help to clarify the chosen topic in more detail.

2.1.1 Family Business

In the following paragraph related to the overall aspect of the thesis, “the family business” will be defined.

The various manifestations of family businesses are as diverse as they are different; it is therefore not surprising that diverse definitions exist and that no universal definition can be found. Indeed, each researcher tends to apply the definition that best suits his or her purpose. Family companies are also characterised as hetero- geneous businesses, which means the variety of businesses that can be categorised as a family business is extensive (Döring, 2015, p.8). At present, there is no prevailing definition of family business that could be deemed valid. The question

“What is a family business?” was first asked by Landsberg at al. (1998) in the first

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issue of the “Family Business Review”, but no universal answer to his question has thus far been found. In fact, in this article, the authors argued that “people seem to understand what is meant by the term family business, yet when they try to articulate a precise definition they quickly discover that it is a very complicated phenomenon” (Landsberg et al., 1988, p.1 as cited in Döring, 2015, p.8). Further- more, Landsberg et al. (1988) figured out that “until researchers agree on what a family business is, they will find it difficult to build on each other’s work and to develop a usable knowledge base (…)” (as cited in Döring, 2015, p.8). Determining a universal definition of family business is exceptionally difficult because the term is the result of day-to-day economic practices and is used in the different forms and for different purposes. Furthermore, the term is not linked to any institutionalised criteria such as size of the business, its legal form, the number of employees, the industry, the age of the company, its organizational structure, or the family generation (Prym, 2011, pp.70-71). As it happens, scholars do agree on the fact that the term family business does describe itself in the sense that the family plays a significant and leading role in (the success of) the business (Prym, 2011, p.71). The family is defined as a group of people who are either connected due to their family relationship or due to their marriages, enabling them to thus become a part of the family (Schramy, 2010, p.10). Accordingly, a family business is commonly described as the interaction between the systems of family and business. Hence, Hack (2009) stated that the agreement among scholars ends at this point, and whether other defining characteristics – such as ownership, property, management, government, number of C-seats, and succession – will be agreed on in the future is unclear (as cited in Prym, 2011, p.71).

The definitions seen as most relevant and suited to the current paper are listed below:

“Family involvement is only a necessary condition; family involvement must be directed towards behaviour that produce a certain distinctiveness before the busi- ness can be considered a family firm” (Chrisman et al., 2005, p.557 as cited in Barrett & Moores, 2009, p.13).

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“Ownership and management are concentrated in a family unit (in which) individu- als within the firm seek to perpetuate or increase the degree of family involvement”

(Litz, 1995 as cited in Barrett & Moores, 2009, p.13).

“Members of a family have legal control over ownership” (Landsberg et al. 1988, p.2 as cited in Barrett & Moores, 2009, p.14).

“The business will be passed on for the family´s next generation to manage and control” (Ward, 1987, p.252 as cited in Barrett & Moores, 2009, p.14).

“A family business results from the interaction between two sets of organizations, family and businesses, which establishes the basic character of the family busi- ness and defines its uniqueness” (Davis, 1983, p.47 as cited in Barrett & Moores, 2009, p.14).

“Practice is controlled by the members of a single family” (Barry, 1975, p.42 as cited in Barrett & Moores, 2009, p.14).

In other words, a family business is defined by the author as a company which is owned, managed, led, and controlled by a family. The family also influences the organization due to their capital participation. Furthermore, the family business is a unique system because of the effective and efficient interaction between the family itself and the business. The family is, after all, actually involved in the business and responsible for its success, and for the succession process. Moreover, the family business aims to realise a vision over several generations.

Additionally, the size of family businesses varies significantly: one of the biggest family controlled companies in the world is Ford Motor Company, in which the Ford family (now the fourth generation) owns 40% of the company shares (Ken- yon-Rouvinez & Ward, 2005, p.1). In Germany, the Volkswagen stock cooperation is the biggest family controlled business (Die deutsche Wirtschaft, 2017). This scientific paper, however, focuses specifically on small and medium enterprises as mentioned in the introduction chapter.

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2.1.2 Generation Y and Millennials

Within the following paragraph, the terms generation Y and/or millennial will be introduced.

The terms generation Y – Gen Y for short – and millennials are used to describe people who reached their twenties, teenage years, and early adulthood around the turn of the 21st century. There is not, however, a precise delineation of the birth years that determine an individual as belonging to Gen Y:

o In an article from the Times, it was stated that Gen Y includes all people born between 1980 and 2000 (Sanburn, 2013).

o Howe and Strauss similarly categorised the Gen Y and millennials as a generation born after 1980 and before 2000. (Howe, Strauss, 2000, p.11).

o Sheahan defined Gen Y as those people born between 1978 and 1994. (Sheahan, 2005, p.3).

o According to Permant, Gen Y refers to people born between 1980 and 1994. (Permant, 2009 as cited in Hansen, 2011, p.2).

o The magazine Gründerszene (founders or entrepreneurs scene) classified people born between 1980 and 1995 as belonging to Gen Y (Gründerszene).

Despite this inconsistency, it is clear that generation Y and millennials are terms used to describe the generation following generation X (people born in the 1960s and 1970s) and the “baby boomers” (people born between 1940s and 1960s) (Twenge, 2006, p.5). Those belonging to Gen Y or millennials are part of the first generation growing up with the Internet, with electronic devices, and in an increas- ingly online world characterised by social networks (Twenge, 2006, p.5). They have also been referred to as “the world´s first generation to grow up thinking of itself as global” (Howe, Strauss, 2000, p.16). Therefore, the Gen Y is similar to terms such as millennials, net generation, digital natives, “Generation Why” (Han- sen, 2011, p.2) and the “Me Me Me Generation” (Sanburn, 2013). It is often considered to be the case that Gen Y children had an enormously protected childhood

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(Hansen, 2011, p.2). As mentioned previously in the introduction chapter, Gen Y women can be characterised as follows: they are enormously ambitious; they are better educated than any other generation in history and “smarter than most people think” (Howe, Strauss, 2000, p.9); they are cooperative and collegiate team- players; they are concerned with having work-life balance; they want to have a

“career they are passionate about” (Bay, 2011); they want to be their own boss;

they show an enormous initiative and entrepreneurial spirit; they are willing to take responsibility as a leader (Howe, Strauss, 2000, pp.9-17); they want to continually educate themselves; they are enormously independent; they value transparency;

and they seek to actively contribute (Zukunfts Institut, 2013, p.11). Additionally, millennials are seen as an enormously open and tolerant generation for whom issues such as equal marriage, freedom of religion, veganism, and the legalisation of certain drugs are commonly and openly accepted (Zukunfts Institut, 2013, p.11).

As millennials have also “been raised under the mantra `follow your dreams´ and been told they were special, they tend to be confident“(Rouse, 2015). Further- more, according to the aforementioned Times article generation Y is also considered narcissistic, lazy, coddled, and a bit delusional (Sanburn, 2013). Another negative trait, characterised by Sheahan (2005), which needs to be mentioned is that millennials tend to be manipulative; they are not hesitant about twisting and distorting information to their own benefit (Sheahan, 2005, p.15)

2.1.3 Leadership and Female Leadership

In the following paragraph, the author clearly does not intend to define leadership;

instead, a comprehensive outline of the scholar´s understanding of the phenomenon of leadership will be presented, as well as a consideration what leadership is from the author’s perspective.

Nowadays, the term leadership is found in almost every language; everyone is trying to understand what leadership is about, how to apply leadership, what dif- ferences there are between male and female leaders, the influences of culture on leadership, how to be a better leader through leading oneself, and so on. Indeed, leadership has no universal definition; rather, every scholar or individual has their

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sonal interest and individual perspective. There are perhaps as many definitions of leadership in the world as there are people living in it. Klenke (1996) explained that words for leaders, leadership and followers have been found in ancient Egyptian hieroglyphics. Furthermore, in “early Greek and Latin, the word leadership is de- rived from the word to act. Two Greek verbs, archein (to begin to lead, to rule) and prattein (to pass through, achieve) correspond to the Latin verb agree (to set into motions, to lead)” (Jennings, 1960 as cited in Klenke 1996, p.6). The term leadership or the leader is deeply embedded in our languages; it could thus be suggested that a common definition of leadership cannot been found by turning to ancient history.

Traditional leadership scholars and their theories tend to formally discuss the peripheries of leadership such as “traits, personality characteristics, born or made issues, greatness, group facilitation, goal attainment, effectiveness, contingencies, situations, goodness, style, and above all, the management of organizations – public and private” (Rost, 1991, p.3). In the past, the traditional leadership scholars were unable to specifically identify and define leadership, because they missed a very important component of leadership: the relation between the leader and his or her followers (Rost, 1991, p.3). The approach concerning the peripheries of leadership has also been defined as a drama (Hatch, Kostera & Kozminski, 2004), as well as an art (DePree, 2004).

Additionally, Michael and Lochrie (2006) have argued that the four main elements of a leadership definition are: “A. the relationship is based on influence. B. Leaders and Followers are the people in this relationship. C. Leaders and Followers intend real changes. D. Leaders and Followers develop mutual purposes.” (Michael &

Lochrie, 2009, p.54).

The following list provides several scholars´ definitions of leadership and leader that have been most relevant to the author of the present study:

o “Leadership is defined as an influential relationship among leaders and followers who intend real changes that reflect their mutual purpose.” (Rost, 1991, as cited in Michael & Lochrie, 2009, p.56)

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o “Leadership is both a personality phenomenon and a group phenomenon; it is also a social process involving a number of persons in mental contact in which one person assumes dominance over the others. (…) It is the process in which at every stage the followers exert an influence, often a changing counter-influence, upon the leaders” (Bogardus, 1934 as cited in Klen- ke, 1996, p.7).

o “Leadership is a process whereby and individual influences a group of indi- viduals to achieve a common goal.” (Northouse, 2013, p.5)

o “Leadership is what gives an organization its vision and its ability to translate that vision into reality. Without this translation, a transaction between leaders and follower, there is no organizational heartbeat.” (Bennis &

Nanus, 2007, p.19).

o “The art of leadership (…) is liberating people to do what is required of them in the most effective and human way possible.” (DePree, 2004, p. xxii) o “Leadership is much more complex. (…) we know the equations and formu-

las. If we put the right numbers into them and do the right things we will get a result. But as a leader you are dealing with people. (…) Leadership is not really something that we have or possess; it is something that we do. When we think about leadership, think actions, think behaviour. (…) Leadership is a responsibility. (…) People are looking to you. People are expecting things of you. If you are really leading, people are following you. (…) Leadership is an opportunity. (…) you also, as a leader, have the opportunity to make a difference: for customers, for the organization, for those you lead, for the world stage.” (Eikenberry & Harris, 2011, pp.10-12)

o “leadership necessarily occurs – namely, the human mind. (…) characteri- zation should be pluralized as human minds, (…) concerned equally with the mind of the leader and the minds of the follower (Gardner & Laskin, 2011, p.15)

o “The leader is the `servant´ of his followers in that he removes the obstacles that prevent them from doing their job. (…) the true leader enables his or her followers to realize their full potential.” (DePree, 2004, p. xxii)

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o “Servant leaders place the good of followers over their own self-interests and emphasize follower development.” (Hale & Fields, 2007 as cited in Northouse, 2013, p.220).

o “To become a leader, then, you must become yourself, become the maker of your own life.” (Bennis, 2009, p.48).

o “Leaders make things happen.” (Bennis & Nanus, 2007, p.xvi).

o a leader is “a person who, by word and/or personal example, markedly influence the behaviour, thoughts, and/or feelings of a significant number of their fellow human beings (here termed followers or audience members).”

(Gardner & Laskin, 2011, p.8)

o Leaders achieve their effectiveness chiefly through the stories they relate.

(…) Leaders in the arts characteristically inspire other by the way they use their chosen media of artistic expression (…) leaders embody those stories.

(Gardner & Laskin, 2011, p.8)

Based on the above definitions, the author will now classify her personal understanding of the terms leadership and leader in the following paragraph.

From my personal perspective, defining leadership is impossible; I would thus pre- fer to share my ideas of what leadership and being a leader are about.

Leadership, as described by Bennis (2009), requires three main ingredients: the leader’s guiding vision, the leader’s passion, and the leader’s integrity (Bennis, 2009, pp.33-34). A leader can appear in any size, shape, gender, and age catego- ry; what they all have in common, no matter what they look like, is their passion for what they do, their vision that guides their followers to a certain goal, and their be- lief in integrity, which is indispensable. Another argument put forward by Bennis (2009), which has been enormously inspiring for me, is the idea that “Leaders in- vent themselves” (Bennis, 2009, p.35). The on-going discussion of whether a leader is born or made will not be easily resolved; I have decided for myself to support the idea that a leader is made rather than born. Leaders are the inventors of their own path; they determine how they want to act and what they are going to do with their lives. Moreover, as DePree (2004) has argued, leadership is the abil-

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p.10). Metaphorically speaking, the leader can be seen as an orchestra director.

The music conductor listens very carefully – abandoning himself or herself to the strengths of other – to the personal abilities, needs, and desires of the musicians and then figures out a way of bringing out those abilities. Indeed, the director has to make up his or her mind in order to come up with ideas to achieve the goal of producing unique and melodic music. To do so, the musicians need to have a comprehensive and specific understanding of their role, position, strengths, and task. Until the musicians have acknowledged their responsibilities, as well as their relation to the other musicians and to the director, the music composition will not be successful. In order to support, direct, guide, and help the musicians to acknowledge this, the conductor serves as a servant: he removes the obstacles preventing the musicians from successfully carrying out their job. The director has effectively realised his role when the orchestra, and all its musicians, is able to play Beethoven’s 5^th symphony accurately. In other words, by enabling and liberating the various abilities of all the musicians and bringing them together in the right way, the director has invented a personal, unique, and melodic composition. Simi- lar to the role of conductor, the art of leadership is something that has to be learned over time, it is not something that can be mastered overnight.

Furthermore, leadership results from the transaction between the leader and his or her followers, or from the transaction between the musicians and the conductor.

Empowering people plays a significant role in leadership and followership: “Lead- ers empower other to translate intention into reality and sustain it” (Bennis, Nanus, 2007, p.ii). Empowering people is for me one of the key success factors in leadership. Furthermore, empowering means to encourage other people to fully reach their own potential and enable their own talents to be realised (De Pree, 2004, p.xxii).

In order to reinforce my understanding of what leadership is, I am going to clarify what I do not consider to be part of leadership: it is not a skill; it is not a gift pos- sessed from birth; it is not about title or position; it is not dependent on one’s gender, size, shape, or age; it does not exist only in the higher levels of an organizational hierarchy; it is not about bossing, manipulating, controlling, or pushing; it is

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is not determined by power; it is not the leader’s pride; it is not simply saying the right things; it is not simply telling people what to do and how to do it; it is not about avoiding making mistakes; it is not management; it is not about the leader; it is not about doing everything oneself; it is not having all possible answers; it is not about avoiding personal responsibility; it is not charisma alone; it is not about personal intelligence; it is not avoiding conflicts; it is not maintaining the status quo; it is not saying “yes” to everything; it is not getting the job done; it is not following.

Ultimately, leadership is about every single individual; it is about how he or she wants to act in order to create something considerable and unique.

2.1.4 Company Succession

In the following paragraph, the term company succession will be comprehensively defined. The phrase company succession is currently not universally determined in the literature. The word succession, according to the German Duden, is described as “the takeover of a certain position, function, place or rank by a predecessor;

successorship” (Bibliographisches Institut, 2017). Felden and Pfannenschwarz (2008) stated that the term succession is used in order to describe a temporary change between certain instances (Felden & Pfannenschwarz, 2008, p.25). Fur- thermore, the term company succession is described in the literature as a “generational change” or “business(man) succession”, but the term “generational change”

is only used as a synonym in the context of internal family succession (Stephan, 2002, p.12). Moreover, Spielmann (1994) has characterised the generational change/company succession as the handover of capital as well as ownership, business leadership, and management to the next generation (Spielmann, 1994, p.22). In addition, Hering and Olbrich (2003) defined company succession as the transition of ownership with the related power of performance, no matter whether the company´s ownership refers to a juridical person, such as a GmbH, or a real person, possibly also a family member. Furthermore, the person who is handing over the business has to be in charge of ownership as well as its related power of performance; only when these two criteria are fulfilled the author is referring to company succession (Hering & Olbrich, 2003, p.4).

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Moreover, company succession within a family business can either be an internal succession or an external succession. The internal succession in particular is defined as the transition of enterprise by the previous business owner to the next successor within a family. In other words, the company will be continued by a family member (commonly due to a generational change); in this case, the ownership of the company, as well as the leadership and management of the business, will be handed over to the successor (Freund, 2000, pp.17-23). On the other hand, the family business can also be continued due to various forms of external succession. In such cases, the ownership and business leadership will be transferred to a non-family member (Freund, 2000, pp.17-23). Possibilities for external succession can be selling, management buy-out, management buy-in, leasing, merging and acquisition, and so on. According to a study conducted by the IfM Bonn, around 54% of family businesses involve handing the company over to a family member (IfM Bonn, Kay & Suprinovic, 2013, p.19).

In a nutshell, the present author has decided to define company succession based on the aforementioned literature as follows. The term company succession in relation to a family business, also known as generational change when involving an internal succession within a family business, is used to describe the transition of ownership – including control over the business, leadership and management, and judicial decision making power – to either an external person (non- family member) or to an internal person (family member). It is also possible for the previous owner and manager of the business to hand over the business to more than one family member if desired. The question of how operating and decision-making power should be divided between siblings if someone chooses to hand over their family business to more than one descendant will not be taken into account here, because it would go beyond the scope of this master’s thesis. Additionally, one of the core points of the present paper is its focus on succession by female family members and specifically by daughters.

Another point that should be mentioned is that the internal successor of a family business can either be male or female. According to a study conducted by the IfM Bonn (2010), 56% of currently operating family businesses are looking to hand

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a cooperative succession between their sons and daughters. It is less common for nephews or nieces to be considered as possible successors (7%) and even less commonly the spouse (6%) (IfM Bonn 2010 as cited in Bundesweite Gründerin- nenagentur, 2013, p.17).

2.2 Different Types of Company Takeover

A large variety of possible company takeover methods are evidenced in the literature today and so, in the following chapter, the most common types of company takeover will be defined and described. The author focuses particularly on internal and external types of business succession within a family business.

Company takeovers and company succession are well-known phenomena nowadays. Every family owned business confronts the question of whether a suitable and able successor will arise. The question usually considers whether the successor will be found internally or if another possibility of continuing the organization is more favourable, that is to say an external succession solution. According to IfM Bonn, between the years 2010 and 2014 a total of 110.000 company takeovers were performed, or around 22.000 family business succession taking place annu- ally (Hauser et al. 2010 as cited in Ullrich & Werner, 2013, p.2). Indeed, the relevance of the issue of succession will only increase over the next century. Due to the demographical changes, estimates from Müller et al. (2011) suggest that the number of company successions will increase over the coming years, while the number potential of suitable successors will be in decline (Müller et al. 2006, Eu- ropean Commission 2006, as cited in Ullrich & Werner, 2013, p.2). Defining the traits of successful succession is extremely relevant for the country’s economic well-being, because of the potential loss of employment and productivity if the takeover process fails (Ullrich & Werner, 2013, p.2).

The feasible possibilities, limited to internal and external opportunities in family businesses, of a company takeover and/or company succession within family businesses are outlined below.

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2.2.1 Internal succession

There is no doubt that resigning or stepping back from being head of a business can be a life-changing event for the owner (for example, the father or mother); it could be that he or she even founded the company and put all his or her soul and energy into the family enterprise, with passion driving him or her to succeed. Yet, in order to keep the company alive, competitive, and successful, at a certain point the owner has to hand the business over to the next generation.

Internal succession within the family is more or less self-explanatory: the family business will be continued by another family member, related to the existing head of the company biologically or by marriage. Therefore, possible successors from the next generation could include the owner’s spouse, daughter, son, aunt, uncle, niece, nephew, or the spouse of one of these family members.

Moreover, the owner can inherit, sell, or donate (as if the company were a present) the business to the successor. The various possibilities open to the owner will now be detailed below.

2.2.1.1 Heritage of the Family Business

Company succession by means of anticipated heritage is a widespread practice used by owners. In this case, the owner of the company leaves the company and the personal property to the heir during their lifetime or after their death. It is also possible for the owner to leave the family business to two or more heirs, in which case the inheritance shares are divided as defined by the owner. Moreover, it is possible for the whole company to change owner or for only smaller company shares to be assigned. The main advantages of heritage are:

o Determining the date of succession

o A peaceful process, agreed with the family o Planning security for the successor

o Step-by-step transmission of the inheritance is possible due to donation during the owner’s lifetime or due to heritage

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Additionally, it is important to mention that in the case of heritage, the testator has to make sure that, if he or she has more than one child, those not considered to be successors of the company receive compensation and the heritage process is openly discussed within the family. If not, potential conflicts between the siblings may arise (Gruendungswissen 2010, Nachfolge guide).

2.2.1.2 Donation of the Family Business

The process of donating the family business to the successor is another frequently used company takeover method. The owner, who may withdraw from the family company, is able to hand over his or her company share or the whole company to the successor, either free of charge or partly free of charge. In essence, the owner can either donate the company or transfer the company for a small amount of money. Furthermore, the owner can also donate money to the successor with which he or she can buy himself or herself into the company. Similarly, he or she can donate compensation, such as money, real estate properties, or other assets, to those family members who will not fulfil the position of successor. A donation can happen during the owner’s lifetime or after death and, depending under which circumstances the company has been donated, different formal regulations need to be considered (Müller & Saurer, 2008, p.58). Additionally, the main advantages of donation are:

o The successor can deal with the new position peacefully and in advance

o The future of the company is secured

o Internal position of the points can be worked out way before the succession

o The chosen successor may be the best option for the position o The most family and company friendly succession solution

The successor takes over the company, including all company debts and properties. If the successor is the child of the owner, he or she can pay compensation to his or her parents in the form of retirement fees. Further, the successor may be