Project – Succession Planning and Organisational Sustainability in Family-Owned Businesses

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Family-owned businesses constitute an important component of private enterprise and economic activity in many countries. Unlike corporations whose ownership and management may be separated among numerous investors and professional executives, family-owned businesses combine family relationships with ownership, control and management of an enterprise. In many cases, the business is established by an entrepreneur or family patriarch or matriarch and subsequently involves spouses, children, siblings and other relatives in ownership and managerial responsibilities. This combination of family and business interests creates distinctive strengths, including trust, commitment, shared values, long-term orientation and the desire to preserve the family legacy. At the same time, it creates distinctive challenges, particularly when control of the business must be transferred from one generation to another. Succession therefore represents one of the most critical strategic issues confronting family-owned businesses because the survival of the enterprise may depend on how effectively leadership, ownership, knowledge and responsibilities are transferred to successors (Le Breton-Miller, Miller, & Steier, 2004).

Family businesses are particularly important because they are not established merely as income-generating ventures but are often regarded by their owners as family legacies that should be preserved for subsequent generations. The desire to maintain family ownership and control can encourage long-term investment, commitment to employees and customers, and the preservation of organisational values. However, the same desire can make succession complicated where family members have different expectations concerning ownership, leadership and control. Succession may generate disagreement over who should take over the business, whether the successor should be a family member or an external professional, and whether the successor possesses the competence required to manage the enterprise. Chua, Chrisman and Sharma (2003) identified succession as one of the foremost concerns confronting family firms, demonstrating the strategic importance of leadership transition in family-business management.

Succession planning refers to the systematic process through which an organisation identifies potential successors for key positions, develops their knowledge and capabilities, prepares them for future responsibilities and establishes procedures for transferring leadership and authority when the incumbent leaves office. In family businesses, succession planning extends beyond identifying a replacement for a chief executive. It may involve determining who will inherit ownership, who will exercise managerial control, how family members will participate in the enterprise, how the successor will be prepared, and how conflicts arising from the transition will be managed. Sharma, Chrisman and Chua (2003) demonstrated that succession planning in family firms is influenced by factors such as the incumbent’s desire to retain the business within the family, family commitment to the business and the perceived willingness of a trusted successor to take over.

Effective succession planning is consequently a continuous rather than an event-based management process. It should ideally begin before the founder reaches retirement age, becomes incapacitated or dies. A succession process that begins only when the founder is no longer able to manage the business may expose the organisation to leadership uncertainty, internal conflict and loss of institutional knowledge. By contrast, early identification and preparation of successors allow potential successors to acquire managerial experience, technical knowledge, leadership competence and familiarity with the values and strategic direction of the enterprise. Le Breton-Miller et al. (2004) argue that successful family-business succession involves a combination of factors, including preparation of successors, relationships among family members, transfer of knowledge and effective management of the transition.

One important dimension of succession planning is successor identification and selection. Family businesses frequently face the temptation to assume that the eldest child or another close family member should automatically inherit the enterprise. However, family relationship alone does not necessarily guarantee managerial competence. An effective succession process should consider the successor’s interest, skills, education, leadership ability, commitment and readiness to assume responsibility. This is particularly important where the business has expanded beyond the capabilities required at its founding stage. Sharma et al. (2003) found that the presence and willingness of a trusted successor can significantly influence the extent to which family firms undertake succession-planning activities.

Another important component is training and mentoring of successors. A successor who is expected to take control of a business without adequate preparation may struggle with decision-making, employee management, financial control, customer relationships and strategic planning. Mentoring allows the incumbent to transfer tacit knowledge accumulated over years of business experience. Training, job rotation and gradual exposure to managerial responsibilities can similarly enable potential successors to understand different aspects of the organisation before assuming top leadership. Evidence from Nigerian family businesses indicates that mentoring and human-capital development are positively associated with business sustainability (Onyeukwu & Jekelle, 2019). Their study of small family-owned businesses in South-East Nigeria found that mentoring and human-capital development significantly influenced sustainability and recommended early identification and systematic preparation of successors.

Communication and family involvement also constitute important elements of succession planning. Family businesses operate at the intersection of two systems: the family system and the business system. Decisions made in the business can affect family relationships, while family relationships can influence business decisions. When succession decisions are made secretly or without adequate communication, family members may perceive the process as unfair or discriminatory. Such perceptions can produce resentment, rivalry and conflict among potential successors. Conversely, transparent communication about succession criteria, responsibilities and expectations can increase acceptance of the transition. Succession planning can therefore serve not only as a mechanism for replacing leaders but also as a governance process for harmonising family interests with organisational objectives.

The issue of professionalisation is equally significant. As family businesses grow, relying exclusively on informal family arrangements may become inadequate. Professionalisation involves the introduction of formal management structures, clearly defined responsibilities, objective performance criteria, appropriate accounting systems and qualified personnel. Onuoha (2012) emphasised the importance of professionalising family businesses in Nigeria, particularly where the increasing complexity of business operations requires management practices beyond informal family control. Professionalisation can make succession less dependent on personal relationships and more dependent on competence and organisational requirements.

The ultimate significance of succession planning is closely associated with organisational sustainability. Organisational sustainability refers to the capacity of a business to remain viable, competitive and functional over an extended period while maintaining its economic, organisational and strategic capabilities. For a family-owned business, sustainability may be demonstrated by continued operation across generations, financial viability, stable leadership, retention of employees, customer loyalty, capacity for adaptation and continued growth. Succession planning contributes to sustainability because it reduces dependence on a single founder and ensures that the organisation develops leadership capacity before a transition becomes unavoidable.

Succession planning can also help preserve organisational knowledge. Founders often possess extensive knowledge of suppliers, customers, employees, business processes and informal practices that may not be contained in written documents. If such knowledge is lost when the founder retires or dies, the successor may experience significant difficulties. A structured succession programme creates opportunities for knowledge transfer from the incumbent to the successor. It also facilitates the gradual development of the successor’s confidence and legitimacy among employees, customers and other stakeholders.

The Nigerian business environment makes succession planning particularly important. Family-owned enterprises operate in an environment characterised by economic uncertainty, changing consumer preferences, technological developments, intense competition and changing regulatory requirements. These conditions require businesses to possess leadership capable of responding to change. A business that depends excessively on the experience and personality of its founder may become vulnerable when that individual is no longer available. Consequently, the ability to develop new leadership while retaining valuable organisational knowledge is central to long-term business continuity.

Empirical evidence from Nigeria supports the relationship between succession management and sustainability. Monyei, Ukpere, Agbaeze, Omonona, Kelvin-Iloafu and Obi-Anike (2021), in a study of SMEs in Lagos State, found a strong positive relationship between succession management and corporate sustainability. Their study reported a Pearson correlation coefficient of 0.934 with a statistically significant probability value, indicating that succession management was strongly associated with corporate sustainability among the enterprises investigated. The researchers consequently argued that succession management could help organisations attract and retain skilled personnel and improve their long-term organisational capabilities.

Ayoola, Abubakar, Nwoye and Daniel (2023) similarly examined succession-planning strategies and sustainability of family businesses in Nigeria. The study considered mentoring, training, job rotation, coaching, talent management and internship as succession-planning strategies. Its findings indicated that these strategies were positively and significantly associated with sustainability. Notably, while 84.4% of the family businesses surveyed reported engaging in succession planning, only 22.1% had a written succession plan. This distinction is important because it suggests that succession may exist informally in many Nigerian family businesses without being adequately institutionalised or documented.

Evidence from other parts of Nigeria also demonstrates the importance of succession preparation. Onyeukwu and Jekelle (2019), in their study of small family-owned businesses in South-East Nigeria, reported that the absence of clear succession plans, disconnect between owners and potential successors, lack of interest among potential successors and inadequate technical and managerial capabilities can threaten business continuity. Their findings showed that mentoring and human-capital development significantly influenced sustainability, reinforcing the argument that successors need to be deliberately prepared rather than merely designated on the basis of family relationship.

The problem of succession is particularly relevant in Edo State and Benin City. Obadan and Ohiorenoya (2013) specifically investigated succession planning in small business enterprises in Benin City, Edo State. Their study of small businesses in the hotel industry found that most of the enterprises investigated did not have formal succession plans and that the capabilities of potential successors were not adequately considered. The researchers recommended the development of formal succession plans, communication of successor identity, management education and training or monitoring of relevant stakeholders.

More recent evidence has continued to highlight succession as an important concern among family-owned businesses in Benin City. Oriazowanlan and Jimoh-Kadiri (2023) examined the role of succession planning in the survival and sustainability of family-owned businesses in Benin City, Edo State. Using a descriptive survey of family-owned businesses, the researchers reported that succession planning could promote smooth business transition, harmonise family interests with business objectives and support continuity and sustainability of family-business legacies.

Similarly, Oriazowanlan and Ekenam (2024) examined leadership succession-management crises among family-owned businesses in Benin City, Edo State. Their findings indicated that family background and cultural traits, personality characteristics, professionalism and educational background can influence leadership succession choices. The study emphasised the need to consider the suitability and interest of potential successors and to regard succession planning as an important mechanism for achieving smooth leadership transitions and multigenerational continuity.

The continuing relevance of the issue is also demonstrated by research from Edo State on succession planning among SMEs. Uhunamure and Osula (2024) investigated succession planning among SMEs in Benin City using owners, founders and employees as respondents. The study reported that while some organisations identified individuals with leadership potential, weaknesses remained in training employees for future roles. This suggests that identifying potential successors without providing adequate development opportunities may not be sufficient to guarantee organisational continuity.

Despite these findings, succession planning remains a complex issue because family-owned businesses differ considerably in size, sector, ownership structure, family relationships and management practices. Some businesses may have explicit written succession plans, while others may depend on informal understandings among family members. Some founders may prefer their children to take over the enterprise, whereas others may recognise the need for professional managers. Similarly, some potential successors may willingly embrace the family business, while others may prefer careers outside the enterprise. These differences mean that succession planning cannot be reduced simply to transferring ownership from parents to children.

The situation becomes more challenging when family interests conflict with business interests. A founder may favour a family member who lacks the necessary managerial capabilities because of emotional attachment, cultural expectations or the desire to retain family control. Conversely, a highly qualified non-family manager may be excluded from leadership because the owners perceive external control as a threat to family ownership. Such practices may weaken organisational effectiveness and increase the likelihood of conflict during transition. Effective succession planning therefore requires balancing family continuity with managerial competence.

Another issue is the relationship between succession planning and organisational adaptability. Sustainability does not simply mean that a business continues to exist. A business may remain in operation while experiencing declining profitability, declining customer base, outdated practices or inability to respond to technological changes. Sustainable family businesses must therefore develop successors who can preserve valuable family-business traditions while also introducing new ideas and adapting to environmental changes. This requires a succession process that combines continuity with innovation.

The growing body of Nigerian evidence indicates that succession planning has implications for sustainability, but there remains a need for location-specific investigation. Studies by Obadan and Ohiorenoya (2013), Oriazowanlan and Jimoh-Kadiri (2023), and Oriazowanlan and Ekenam (2024) provide valuable evidence from Benin City. However, differences in the sectors, ownership structures, sizes and management characteristics of family businesses mean that additional investigation remains necessary. The present study therefore focuses specifically on selected family-owned businesses in Benin City, Edo State, with the aim of examining how succession planning relates to organisational sustainability.

The study is particularly relevant because Benin City is a major commercial centre in Edo State, with family businesses operating across trading, hospitality, education, manufacturing, retailing, transportation, services and other sectors. Many such enterprises depend substantially on the experience and personal networks of their founders. Ensuring that managerial knowledge, ownership responsibilities and leadership authority can be transferred effectively is therefore important for protecting business investments and preserving employment and family wealth.

Consequently, succession planning should be viewed not merely as preparation for retirement or death but as a strategic organisational process. It involves successor identification, leadership development, mentoring, training, knowledge transfer, communication, family participation, professionalisation and the establishment of clear procedures for leadership transition. When properly implemented, these practices can reduce uncertainty, strengthen leadership capacity and improve the ability of a family-owned business to survive beyond its founding generation. It is against this background that this study investigates Succession Planning and Organisational Sustainability in Family-Owned Businesses: A Study of Selected Family Businesses in Benin City, Edo State.

1.2 Statement of the Problem

Family-owned businesses play an important role in employment generation, wealth creation and entrepreneurial development. However, the ability of these businesses to survive beyond the founding generation remains a major concern. The death, retirement or incapacitation of a founder can create a leadership vacuum when adequate arrangements have not been made for transferring authority and knowledge to a competent successor. In such circumstances, the business may experience managerial instability, family conflict, loss of customers, employee uncertainty and financial difficulties. The succession challenge is therefore not simply a personal concern of the founder but an organisational issue with implications for business continuity and sustainability.

One major problem is the absence of formal succession plans. Many family businesses operate on the assumption that succession will occur naturally when the founder is no longer available. This informal approach may leave important questions unresolved, including who will take over, when the transition will occur, what responsibilities the successor will assume and how ownership and managerial authority will be transferred. Evidence from Benin City has previously shown that small businesses may operate without formal succession plans and may fail to adequately consider the competence of potential successors (Obadan & Ohiorenoya, 2013).

A second problem concerns inadequate preparation and development of potential successors. The mere identification of a son, daughter, spouse or other relative as the intended successor does not guarantee effective leadership. Potential successors require exposure to different areas of the business, training, mentoring, decision-making experience and opportunities to demonstrate their competence. Research among Nigerian family-owned businesses indicates that mentoring and human-capital development can significantly contribute to sustainability, suggesting that insufficient preparation of successors can undermine business continuity (Onyeukwu & Jekelle, 2019).

A related problem is the failure to separate family relationship from managerial competence. In some family-owned businesses, succession decisions may be strongly influenced by birth order, gender expectations, emotional attachment, family hierarchy or cultural considerations. While family trust is valuable, leadership positions that require substantial managerial competence may become difficult to fill effectively when the most favoured family member lacks the necessary skills or commitment. Recent research in Benin City indicates that family background, cultural traits, personality and professional or educational characteristics can influence succession decisions in family-owned businesses (Oriazowanlan & Ekenam, 2024).

Another problem is founder reluctance to relinquish control. Business founders may have devoted many years to establishing the enterprise and may consequently find it difficult to transfer decision-making authority to younger family members. Some may fear losing their identity, income, influence or relationship with the business. Others may believe that potential successors are not sufficiently prepared. Such reluctance can delay succession until retirement, illness or death makes transition unavoidable. When the transfer occurs under pressure rather than through a gradual process, the successor may have insufficient experience and legitimacy to manage the organisation effectively.

Family conflict and competing interests also pose a serious problem. Where several family members expect to inherit the business, disagreements may emerge regarding leadership, ownership shares, managerial positions and strategic direction. Such disagreements can damage relationships and distract managers from business activities. In extreme circumstances, family conflict may lead to fragmentation of assets or the establishment of competing businesses by dissatisfied relatives. Consequently, the absence of transparent succession criteria can threaten both family relationships and organisational sustainability.

There is also the problem of limited documentation and institutionalisation of succession practices. Although some Nigerian family businesses report that they engage in succession planning, evidence indicates that formal written plans are considerably less common. Ayoola et al. (2023) found that 84.4% of their sampled Nigerian family businesses reported engaging in succession planning, while only 22.1% had a written succession plan. This suggests a potential gap between informal succession intentions and formal succession systems. Without documentation, succession arrangements may depend heavily on the memory, preferences and discretion of the founder.

Another problem is loss of organisational knowledge during leadership transition. Founders frequently possess knowledge concerning customers, suppliers, employees, financial practices, informal networks and business strategies that may not be formally documented. If this knowledge is not deliberately transferred to the next generation, the successor may have to learn through trial and error. Such a situation can lead to costly mistakes, declining customer confidence and reduced organisational performance. Succession planning should therefore incorporate systematic knowledge transfer between outgoing and incoming leaders.

The issue of professionalisation also presents a challenge. Family-owned businesses may sometimes rely heavily on family members even where external professional expertise is required. Although family involvement can strengthen trust and commitment, excessive reliance on family relationships may limit access to specialised managerial capabilities. Onuoha (2012) highlighted the importance of professionalising Nigerian family businesses as they grow and become more complex. Without appropriate professionalisation, succession may reproduce existing managerial weaknesses rather than improve organisational capacity.

Furthermore, organisational sustainability requires businesses to adapt to changing market conditions, technology, customer expectations and competitive pressures. A successor who merely reproduces the founder’s traditional management practices may preserve continuity but fail to promote long-term competitiveness. Conversely, a successor who introduces significant changes without understanding the values, customers and knowledge underlying the family business may destroy valuable organisational assets. Effective succession planning must therefore achieve a balance between continuity and strategic renewal.

Evidence from Lagos demonstrates that succession management can have a strong relationship with organisational sustainability. Monyei et al. (2021) reported a significant positive relationship between succession management and corporate sustainability among SMEs in Lagos State. Similarly, Ayoola et al. (2023) found significant relationships between several succession-planning strategies and sustainability of family businesses in Nigeria. These findings indicate that succession planning is potentially an important determinant of organisational sustainability.

However, there remains a need to examine the issue specifically among selected family-owned businesses in Benin City. Although Obadan and Ohiorenoya (2013) investigated succession planning in small businesses in Benin City, their study focused on selected hotels and was conducted more than a decade ago. More recent studies by Oriazowanlan and Jimoh-Kadiri (2023) and Oriazowanlan and Ekenam (2024) have provided valuable evidence concerning family-owned businesses and leadership succession in Benin City. Nevertheless, the continuing evolution of the business environment and the diversity of family-owned enterprises justify further empirical examination of the relationship between succession planning and organisational sustainability.

The central problem, therefore, is that while succession planning is widely recognised as important to family-business continuity, many family-owned businesses may still depend on informal succession arrangements, inadequate successor preparation, founder-centred management, family preferences and poorly documented transition processes. These weaknesses can expose enterprises to leadership crises, family disputes, loss of institutional knowledge and possible business decline when ownership or management changes hands.

It is against this background that this study seeks to determine the relationship between succession planning and organisational sustainability among selected family-owned businesses in Benin City, Edo State. Specifically, the study will examine whether successor identification, training and mentoring, knowledge transfer, and formal succession arrangements contribute to the ability of family-owned businesses to achieve continuity, stability, adaptability and long-term sustainability.

1.3 Purpose of the Study

The general purpose of this study is to examine the relationship between succession planning and organisational sustainability in selected family-owned businesses in Benin City, Edo State.

The specific objectives are to:

1. examine the relationship between successor identification and organisational sustainability of selected family-owned businesses in Benin City, Edo State;
2. determine the relationship between training and mentoring of potential successors and organisational sustainability of selected family-owned businesses in Benin City, Edo State;
3. examine the relationship between knowledge transfer and organisational sustainability of selected family-owned businesses in Benin City, Edo State;
4. determine the relationship between formal succession planning practices and organisational sustainability of selected family-owned businesses in Benin City, Edo State

1.4 Research Questions

The following research questions will guide the study:

1. What is the relationship between successor identification and organisational sustainability of selected family-owned businesses in Benin City, Edo State?
2. What is the relationship between training and mentoring of potential successors and organisational sustainability of selected family-owned businesses in Benin City, Edo State?
3. What is the relationship between knowledge transfer and organisational sustainability of selected family-owned businesses in Benin City, Edo State?
4. What is the relationship between formal succession planning practices and organisational sustainability of selected family-owned businesses in Benin City, Edo State?

1.5 Research Hypothesis

The following null hypothesis will be tested at 0.05 level of significance:

H₀: There is no significant relationship between succession planning and organisational sustainability of selected family-owned businesses in Benin City, Edo State.

1.6 Significance of the Study

The study will be significant to owners and founders of family-owned businesses. The findings will provide evidence on the importance of preparing successors before the founder’s retirement, incapacitation or death. It will help business owners understand that succession should be treated as a strategic management responsibility rather than an issue to be addressed only when leadership transition becomes unavoidable.

The study will also benefit potential successors and family members. It will highlight the importance of competence, training, mentoring, commitment and gradual assumption of responsibility. Potential successors may gain a better understanding of the skills and experiences required to manage a family enterprise successfully.

The study will be useful to managers and employees of family-owned businesses. A properly structured succession system can reduce uncertainty concerning future leadership and provide employees with clearer expectations regarding organisational continuity. It may also promote leadership development and create opportunities for capable employees to participate in the future management of the business.

The findings will be relevant to entrepreneurship development agencies and policymakers. Government agencies and business-support institutions can use the findings to design training programmes, workshops and advisory services focusing on succession planning, family-business governance, leadership development and business continuity.

The study will also benefit business associations and professional advisers who provide support to family businesses. The findings may encourage associations to develop succession-planning guidelines and promote professional management practices among their members.

The study will contribute to the academic literature on family-business management and organisational sustainability, particularly within the Nigerian context. Although succession has received considerable international scholarly attention, location-specific evidence remains important because cultural, institutional and economic conditions can influence family-business practices.

Finally, the study will be useful to future researchers as a reference for further studies on succession planning, family businesses, leadership transition, organisational sustainability and intergenerational entrepreneurship in Edo State and other parts of Nigeria.

1.7 Scope of the Study

The study focuses on Succession Planning and Organisational Sustainability in Family-Owned Businesses, using selected family-owned businesses in Benin City, Edo State, as the geographical context.

In terms of content, the study will focus on major dimensions of succession planning, including successor identification, training and mentoring, knowledge transfer, and formal succession arrangements. Organisational sustainability will be considered in terms of business continuity, leadership stability, organisational adaptability, employee retention, customer continuity, growth and long-term survival.

The geographical scope is limited to selected family-owned businesses operating within Benin City, Edo State. The study does not cover all businesses in Edo State and does not include non-family-owned businesses except where they are relevant for comparison or contextual understanding.

The study is concerned primarily with family-owned businesses where family members have significant ownership, management or control responsibilities and where the issue of intergenerational succession is relevant.

1.8 Operational Definition of Terms

Business Continuity: The ability of a family-owned business to continue its operations, leadership and essential activities despite changes in ownership, management or other major circumstances.

Family-Owned Business: A business in which one family or a group of related family members has significant ownership and/or control and in which family members participate substantially in management or strategic decision-making.

Knowledge Transfer: The deliberate process through which business knowledge, experience, skills, relationships, values and operational information are transferred from existing leaders to potential successors.

Organisational Sustainability: The capacity of a business to maintain its operations, financial viability, competitiveness, leadership capacity and organisational relevance over the long term.

Succession Planning: A systematic process of identifying, developing and preparing potential successors to assume key leadership, ownership or managerial responsibilities when existing leaders leave their positions.

Successor: An individual identified or considered to assume ownership, managerial authority or leadership responsibilities in a family-owned business following the departure of the current owner or leader.

Successor Identification: The process of determining and selecting individuals who possess or can develop the competence, interest and commitment required to assume future leadership responsibilities.

Training: The structured acquisition of knowledge, skills and competencies required by potential successors to perform managerial and leadership responsibilities effectively.

Mentoring: A developmental relationship in which an experienced business owner or manager guides, advises and supports a potential successor in acquiring the knowledge, judgement and competencies required for future leadership.

Family Business Sustainability: The ability of a family-owned enterprise to survive, remain economically viable, adapt to environmental changes and preserve its ownership, values and operations across successive generations.

Project – Succession Planning and Organisational Sustainability in Family-Owned Businesses