When the Former CEO Stays on Board: The Role of the Predecessor’s Board Retention for Product Innovation in Family Firms
Stephanie Querbach, Miriam Bird, Priscilla S. Kraft and Nadine Kammerlander
Originally published: January 6, 2020 (PDMA JPIM • Vol. 37, Issue 1 • March 2020)
Read time: 47 minutes
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Understanding product innovation in family firms is an important research endeavor given the economic predominance of those firms, their idiosyncrasies, and the importance of constant renewal for those firms to achieve transgenerational survival. Recently, family firm research has highlighted the role of next‐generation chief executive officers (CEOs; i.e., successors) who are often seen as drivers for innovating a family firm’s products. However, prior research has typically neglected that predecessors, who are often portrayed as less willing to introduce product innovation, frequently remain involved postsuccession through occupying board positions and thus still substantially influence the decision‐making processes and outcomes of family firms, such as product innovation. As a result, our understanding of the role of predecessors and their postsuccession involvement in family firms’ product innovation remains unclear. Building on stakeholder salience theory and on insights from the literature on innovation and succession in family firms, we develop hypotheses about how and under which conditions the predecessor’s board retention affects product innovation in family firms after succession. Building on more than 200 family firm CEO succession cases in small‐ and medium‐sized, privately owned family firms, our results reveal that the predecessor’s board retention negatively affects product innovation. This negative effect is strengthened with increasing involvement of the predecessor in the successor selection process, and it is offset in the case of family succession. Our findings contribute to the emerging stream of research on family firm succession and product innovation and provide important implications for practice.
- For family firms facing succession, our results emphasize that they should be aware that predecessors, who remain involved postsuccession by staying on the board of the firm, constitute salient stakeholders who can substantially hinder product innovation as they tend to preserve the status quo and restrict necessary changes.
- To ensure the successor’s discretion in product innovation, family firms that are planning succession should thus emphasize transparency about and clarity of the predecessor’s duties to prevent “shadow emperors” who negatively influence product innovation.
- Moreover, family firms should avoid having predecessors select the new CEOs solely by themselves, as this strengthens their power and legitimacy as important stakeholders and thus increases their negative influence on product innovation.
- In the case of family successions, predecessors tend to be less intervening in product innovation, whereas they hinder product innovation in family external succession. Our results thus imply that family firms should particularly focus on reducing the predecessor’s influence on product innovation post succession in family external successions.