A Case Study on the Conflict Between an Incumbent CEO and a Successor

Abstract

Family businesses play a significant role in the overall economy of all countries, and the importance and weight of family businesses are increasing in various fields. Many factors are essential for a family business to grow into a long-lived business, that is, a sustainable business, but the most important one is succession. TRUST Lab at Hanyang University studied the importance of factors influencing the succession of the family business from the standpoint of the successor. As a result, it was confirmed that mutual trust is the most crucial factor, and conflict can destroy that trust. Therefore, in this study, we research conflict as a central topic for successful succession, which is the most fundamental reason for family businesses. This study was conducted as a qualitative research case study. By setting criteria suitable for the purpose of the study, we conducted interviews with ten successors who either worked or planned to work in a family-related company. Through this study, conflict management of key players is the most important to achieve a continuous succession of family businesses.

1. Introduction

1.1 Background and Necessity of Research

The type of business that continues and maintains a long history worldwide can be explained as a family business [Lea, 1991]. Generally, a company in which family members of the founder carry out the supervision and control of business operations is referred to as a family business [Churchill and Hatten, 1987]. The form of family businesses appears in various industries. According to a survey targeting several countries, there is a study that more than half of businesses in each country are family businesses [Davis Peter, 1983]. Family businesses contribute a lot to the stability of Korea’s local economy and influence the local community and economy [Kim, 2015]. Succession is a representative problem that family businesses face in order to have continuity, and the importance of succession has been proven through various preceding studies. For a family business to have continuity through succession, the role of family members is also vital [Kim, 1998]. On the other hand, one of the disadvantages of family businesses is that there is discord between family members due to disputes [Ibrahim et al., 1994]. Ward [1987] mentioned that about one-third of preceding studies on family businesses directly deal with succession-related issues. As a result, they may face the worst, even leading to bankruptcy [Westhead, 2003]. Suppose there is a good relationship between the incumbent CEO and the successor. In that Case, the successor is highly willing to respond to the Incumbent CEO’s request for succession and inherit the family business, no matter where and when. The successor’s discussion of the family business’s future management plan, goals, and vision with the successor can also have a positive effect on the Incumbent CEO s will to succeed [Cho et al., 2021].

The TRUST Lab at Hanyang University studied the importance of factors influencing family business succession from the perspective of the successor of a family business. As a result, it was confirmed that mutual trust is the most critical factor [Cho et al., 2019]. Suppose the trust formed before the start of succession is based on the special relationship between parents and children after the start of succession. In that case, trust between parents and children shows the aspect of changing into managerial trust. In the succession process, the influence of the relationship of trust between the incumbent CEO and the successor was found to be more important than several variables [Yu, 2020]. However, among various factors, conflict is a representative factor that destroys trust. In other words, conflict is as important as trust in the succession process. Therefore, in this study, to obtain successful results in succession, which is the most problematic issue in family businesses, the conflict between the Incumbent CEO and the successor, a key stakeholder in the succession process, is selected as a central theme to conduct research. Based on previous studies, we plan to research the characteristics and effects of conflicts between Incumbent CEOs and successors in family businesses.

1.2 Purpose of the research

Academic research on conflict within family businesses needs to be more comprehensive. It means the need to clarify the conflict between Incumbent CEOs and successors in family businesses. Investigating the characteristics of conflict in family businesses can be defined as the starting point of this study. This study aims to identify the types of conflicts in family businesses, what causes each type of conflict, and how the conflict develops. Depending on the type of conflict in the family business, there will be several solutions, and the purpose of this study is to identify the strategy for resolving the conflict.

The purpose of this study is summarized as follows:

1. Determining what kind of conflicts occur in family businesses and why they occur, what types of conflicts exist during the succession process between Incumbent CEOs and successors, and how they affect succession are analyzed.

2. In the context of the succession of the family business, we analyze the difference in viewpoints and problems of the conflict through interviews with the successor and suggest a solution to the conflict.

3. For the following study based on the results derived from the qualitative study, a quantitative research model on the relationship between conflict and resolution strategy will be created, and the following study will be conducted.

2. Literature Review

2.1 Definition of Family Business

A family business is defined very differently by various scholars and countries, and it is defined in various forms. In a study by Hwang [2008], he argued that the various definitions of various scholars who studied family businesses meant a need for more consistency in the definitions of family businesses. Many scholars have done much research to come up with various concepts and definitions of family businesses. However, it was confirmed that there are many difficulties in deriving a generally agreed concept and different opinions among researchers in deriving the definition. It means that each researcher uses the definition of family business appropriately for his or her research purposes. Even if different definitions are used, the definitions are similar and include some differences. According to previous studies, family businesses are mainly classified into three important factors. A family-owned and directly managed company, a company owned by a family member but managed by another professional manager, and a public company where a small family member does not control management [Morris et al., 1997].

2.1.1 Succession & Importance of Succession

Succession is used under various names according to each researcher. The meaning may be slightly different if it is called family business succession, business succession, and management succession. However, the general meaning is the same. Ward [1987] defined succession as the most crucial task facing a family business and the transfer of management rights and ownership of the business to the successor of the next generation. In the preceding study by Churchill and Hatten [1987], the criteria for succession were presented in detail. The family business succession is not a succession according to what the company pursues or the management ability of the manager, but to the members of the family who consist of the concept of family and ownership was defined as succession. In other words, succession transfers the company’s management rights. At this time, the manager of the family business, or the successor, transfers the general management rights, decision-making rights, and ownership of the company to the next generation’s. According to a study by Park [2009], it was explained that family businesses need help managing family members’ plans, family business strategic plans, and family business succession plans in addition to those managed by other non-family businesses. In other words, since family businesses require more management than non-family businesses, continuous succession management is essential. We know that succession is an important issue and recognizes that succession is vital from many perspectives in many difficulties in family businesses. From the perspective of family members, successful succession has the importance of continuously maintaining the values that companies pursue and solving problems of survival and compensation of family members [Kim, 2015]. In a family business, if the successor thoroughly prepares for the succession plan, problems may arise during the succession process, and it may cause the successor to lose credibility [Shin, 2014]. Therefore, in order to successfully execute the succession of the family business, the successor must have systematic and thorough standards for selecting a reasonable successor, when to start the succession, the role of the successor at the time when the succession is completed, communication during the succession process, and fostering and training the successor. Succession planning needs to be prepared.

2.2 Definition of Conflict

Conflict is when a person feels terrible feelings toward other members when a person plans for what a person wants to do or goals. Furthermore, conflicts arise in a variety of situations. For example, when conducting a project between team members or departments within a company, a situation that occurs when an organization member suffers damage or damages the other party’s opinion can be called conflict. The concept of conflict is defined in many different ways according to the research purpose, the research method pursued by the researcher, and the academic nature. Nevertheless, the definition of various researchers defined that there are many commonalities. However, there must be an experiencing person-to-person conflict. Furthermore, the parties experiencing the conflict must have low interdependence and interaction with each other, and the parties feel that their goals are different [Cormier and Gordon, 2001].

<Table 1> Definition of Conflict by Researcher

2.2.1 Causes of Conflict

The concept and definition of conflict are defined in various ways, as each researcher has a different perspective depending on the purpose or need of research. In addition, the causes of conflict are also studied in various ways according to the researcher’s point of view and position.

<Table 2> Definitions of Causes of Conflict by Researcher

2.2.2 Types of Conflict

Conflict types can be classified into several types depending on the classification criteria. In this study, we will examine the types of social and individual conflicts mentioned in many studies. Conflict types are classified in various ways because each individual has a different ability to cope with conflict and a different way to deal with it. Therefore, it is classified into various types of conflict depending on which classification standard is focused on in this study.

First, in this study, a type of conflict can be classified according to the subject of the conflict. Whether the subject of the conflict is an individual, a department, or the organization of a company, it can be divided into social and interpersonal conflict. Looking at previous studies on types of conflicts, Guetzkow and Gyr [1954] divided conflicts between departments in a company and conflicts caused by individual emotions, centering on the work being performed by departments in a company. Conflicts arise when the types of conflicts are divided into social and personal conflicts and different goals are pursued. This study will be conducted by dividing two types of social conflict and personal conflict. The detailed factors of social conflict are divided into three types: work conflict, process conflict, and relationship conflict. The detailed factor of personal conflict is desire. The research will be conducted by dividing it into frustration conflict, goal conflict, role conflict, and decision-making conflict.

2.2.3 Conflict Management Methods

Conflict management is the provision of structures or conditions that help prevent conflicts from escalating and escalating and allow conflicts to produce favorable outcomes [Ahn, 2005: 33-34]. If the level of conflict is too low, the manager needs to be encouraged to strengthen the level of conflict. In other words, because conflicts in organizations occur frequently and require continuous management, we face conflicts. Such an environment can be interpreted as a challenging task for managers who have to manage conflicts. Conflict managers must distinguish the types of conflicts well, and managers must continuously learn so that positive conflicts can be well maintained and dysfunctional conflicts can be resolved. Managers need to be more aware that the causes of conflict are very different due to the differences in various situations, so the appropriate solution is also different according to the situation. Looking at the previous research by Thomas and Kilmann [1992], conflict management types were divided into five types: competition, cooperation, concession, compromise, and avoidance, based on various criteria such as individual tendencies and the degree to which the other party wanted to resolve conflicts. The types were classified and defined. Because conflict can be resolved depending on which type of management is used for which conflict among the five conflict management methods, managers must continuously learn. First, the competition type is a technique of dealing with conflict by strongly pressing the other party to amplify the interest of the conflicting party. It is used when not yielding when discussing important issues, when making decisions firmly, and when enforcing laws and regulations necessary to maintain order and culture in organizational life. Second, the suitable type is a type of cooperative behavior to achieve mutual benefit together, without making decisions arbitrarily and making the other person understand the situation. Third, the compromising type corresponds to the concessions to each other by finding a compromise between individual and organizational needs. This compromise occurs when conflicting parties have different goals but similar issues [Kim et al., 2008]. Fourth, avoidance is a way for the parties to the conflict to say ’I do not know’ without dealing with the problem of the conflict. It is an avoidance strategy used to recover the feelings of anger and excitement of the other person experiencing conflict. Lastly, the conformity type is a conflict resolution strategy that shows behaviors of cooperating with the other person’s opinion rather than trying to make the other person understand their opinion. In other words, it is a technique of judging and implementing that satisfying the other person’s desire rather than one’s assertion is a wiser method than exacerbating the conflict [Kim et al., 2008].

3. Research Methodology

3.1 Qualitative Research Methodology (Case Study)

To achieve the aim in the study, Eisenhardt’s methodology was selected, and the study was conducted according to the procedure suggested by Eisenhardt. A case study is a study that establishes a thorough plan and analyzes a situation that the researcher is aware of or a similar event to a subject (individual, company, organization, or specific event) suitable for the study. It is a research methodology to understand similar cases through in-depth analysis and find a way to achieve the research purpose. Case studies aim at detailed descriptions of phenomena, various explanations, and evaluations of phenomena. Case studies have been developed in various research methods by many researchers. Different scholars have different definitions of case studies. A research method that creates overall meaningful features through ’cases’ of events at present [Yin, 2016] or collects detailed and in-depth data in the flow of situations, and through this, interest within a differentiated system. It is a research method [Creswell, 1988] that searches for cases. In this study, the conversation analysis method was applied to analyze the collected data: the interview contents. The conversational analysis method is mainly used when setting up and recognizing episodes during a conversation with a researcher when conducting an interview [Lee et al., 2006]. The reason for this episodic-based analysis is that conversations are not generated and progress in random chaos but are organized actions generated within specific social rules (Have, 1999). Conversation analysis is mainly classified into three types based on the analysis method and subject [Bak, 2001]. First, it is a method of identifying mutually shared and indistinguishable qualities with a specific purpose, and second, a method of identifying and analyzing the structural units of dialogue and the meanings to be produced during the development of dialogue. Lastly, there is a method to analyze the composition and development process of communication between the researcher and the subject. So, in this study, the second method, the analysis method of grasping all the overall meanings of the interview, was applied to create an episode, and the episode was analyzed to determine its meaning. The interview subjects were the Incumbent CEO, who runs the family business, or the successor who work or will work in the business. Graduates and current students of Hanyang University Business School’s YES MBA track, people who have a personal relationship with the researcher, and the Incumbent CEO, who is holding a meeting for the second generation, were selected as subjects. Ten successors who expressed their willingness to discuss the conflict in detail through a meeting in advance were selected. Although it was planned to interview both incumbent CEOs and the successors, there were many cases in which incumbent CEO refused to be interviewed about the conflict, so ten successors were finally selected as interview subjects.

<Table 3> Successor Interviewee Profile

4. Result

In this chapter, we analyzed the results of 10 interview studies conducted to achieve the purpose of qualitative research, and the results are as follows. This study focuses on companies controlled or managed by family members [Churchill and Hatten, 1987], companies in the process of succeeding in a family business, plans to succeed in a family business in the future, or companies that want to inherit and realize the vision of a family business [Chua et al., 1999] was established, and ten successors who fit the criteria were selected, and interviews were conducted. In order to research the causes of conflicts between Incumbent CEOs and successors in family businesses and strategies for resolving them, an interview questionnaire was created, and interviews were conducted. In order to secure the validity of the category concept, an analysis team was formed, and the analysis was conducted. In the analysis process, first, the researcher selected episodes that were judged to be meaningful among the collected data. Then, the upper category was set as the category of conflict type, conflict resolution strategy category, and third-party intervention category. Among the category of conflict types, the episode was classified into two categories: social conflict and personal conflict. Conflict resolution strategy categories were divided into four categories: cooperation strategy category, compromise strategy category, avoidance strategy category, and conformity strategy category. Finally, third-party intervention (surrounding influence) was considered the mediator role category. A total of 7 categories (social conflict, personal conflict, cooperation strategy, compromise strategy, avoidance strategy, compliance strategy, and third-party intervention) were classified and used for analysis. The subcategories that describe this category are set up to facilitate analysis by independent coders. A total of 197 episodes were used for analysis.

As a result of episode analysis with independent coders, the consensus among 197 episodes was 168, and the reliability and validity values were 0.852. This result means that the episode classified by the researcher has sufficient reliability and validity, which means there is no problem proceeding to the next stage of the study. On the other hand, 29 episodes disagreed with each other. After reading through the episodes again, the corresponding sentences were interpreted as they were, and the first classification was carried out. If an agreement was not reached, the detailed context of the episode was explained in detail, the coders were given a brief time, and the consensus process was carried out again. In this case, the next episode was analyzed regardless of the consensus of the coders.

<Table 4> Successor Categories and Subcategories

<Table 5> Definition of Conflict by Researcher

Checking the summary table by category, the reliability value for each category was 0.880 with 66 episodes out of 75 total episodes in the social conflict (category 1) category and the personal conflict (category 2) category out of 35 total episodes, 32 episodes were matched, yielding a result value of 0.914. The cooperation strategy (category 3) category obtained a value of 0.789, with 15 episodes out of 19 in total matching. Compromise strategy (category 4) category obtained a value of 0.766 with 23 out of 30 episodes matching, and the avoidance strategy (category 5) category obtained a value of 0.800 with 8 out of 10 episodes matching. In the category of adaptation strategy (category 6), 11 out of 14 episodes were matched, resulting in a value of 0.785. Finally, in the third-party intervention (category 7) category, 13 out of 14 episodes were matched, resulting in a value of 0.928. got it. As for the type of conflict, the distribution of social conflict was higher than that of personal conflict, but the reliability result value was similar. However, the personal conflict was slightly higher, and the distribution of conflict resolution strategies was in the order (compromise -> cooperation -> compliance -> avoidance). Therefore, it can be inferred that the result is in the order of the successor’s preferred conflict resolution strategy. The reliability value of the conflict resolution strategy was high for the avoidance strategy because each successor tried other strategies and judged that his or her strategy did not help resolve the conflict.

Discrepant episodes were separately classified, and the researcher identified the inconsistent episodes and confirmed the episode’s context through the interview text to prepare for coders to understand. Then the researcher rescheduled the date with the coders and ran a reanalysis. As a result of reanalysis with the coders with 29 mismatched episodes, all 29 episodes were matched. Furthermore, the before and after contexts of the episodes adopted as discrepancies were explained in detail. The coders’ understanding of the context was improved to match all the episodes.

<Table 6> Definition of Conflict by Researcher

5. Conclusion

The comprehensive conclusions of the qualitative research applicable to this study are as follows. In the interview, most of the incumbent CEOs responded that they were not pessimistic about the conflict with successors but recognized it as a problem that should be accepted as a matter of course when managing a company and that a company can develop into a company with permanence only when the problem is well resolved. As such, the conflict variable is critical in family businesses. Through the interview, it was possible to identify the causes of conflicts that the successor is experiencing, which are disagreements, differences in goals, differences in work methods, the successor’s management style, differences in role recognition, communication problems, and unsatisfactory work. They were experiencing conflicts due to the development of prior conflicts that were not resolved. Disagreement (difference in goals) was the most common cause of conflict experienced by most Incumbent CEOs, followed by differences in work methods and the successor’s management style. In other words, A responded that there were many conflicts from the successor’s authority and unreasonable demands, and it was found that he complained of psychological anxiety and difficulties due to this situation. Various conflict resolution strategies were developed to resolve the conflicts experienced by the Incumbent CEO. Conflict resolution methods preferred by the Incumbent CEO were conversation, the same hobbies, and avoidance of situations. All Incumbent CEOs knew that dialogue was a tool to resolve the causes of conflict.

Of course, not all conflicts can be resolved through dialogue. However, if they discuss it through dialogue, they can find some compromise, and rather than when the successor is sensitive, it can be resolved if they lead the conversation through the same hobby or a meal. Confirmed that there is looking at the most preferred compromise strategy through interviews, it can be inferred that dialogue plays an essential role in resolving conflicts. It was confirmed that the Incumbent CEO preferred the conflict resolution strategy in the order of compromise strategy, cooperation strategy, compliance strategy, and avoidance strategy. Most of the Incumbent CEOs make efforts to resolve the conflict. However, if the successor does not respond, it is confirmed that the cooperation strategy is switched to the avoidance strategy. It was mentioned that the intervention of a third party, the role of a mediator, had a tremendously positive effect on the process of conversation. Many Incumbent CEOs especially emphasized the importance of the mother’s mediator role and explained that the mediator had a more significant effect on the resolution strategy involved. Some Incumbent CEOs referred to siblings or executives rather than the mother’s role, and all Incumbent CEOs emphasized the importance of the mediator’s role in resolving conflicts. Since Incumbent CEO and Incumbent CEO within family businesses are generally based on the relationship between parents and children, it is judged that the positive development of the relationship or the improvement of trust will be realized only when conflicts in the private and public areas are resolved. Therefore, there is a possibility that the successor has the perception that the conflict that has arisen must be resolved. From the point of view of conflict resolution, it can be seen as a positive meaning. However, if the psychological burden of conflict resolution increases for the successor, it is likely to have a negative impact, so it is judged that an appropriate approach is needed.