Dynamic Business

The need for succession planning

Continuity is uncertain when any business changes leadership but family business are most vulnerable when succession is unplanned. It has become almost common knowledge that the survival rate for family firms is very low.  Usually, 33% of family businesses continue from the first to the second generation. From there, only10% make it to the third, and when it passes into a forth generation only 2 to 3% survive. As a rule of thumb, in passing each generation, only one third of family businesses survive. One of the main reasons for this dismal rate is that succession is not well planned. The film makes it very clear that Fisher Morrow lacks a well-thought succession plan. As the company’s founder is on his deathbed, Robert is urged to talk to his father about signing a power of attorney.

Setting up this scenario, provides great timing for Saito.  With the opportunity for a long flight to Maurice’s funeral, Cobb’s team can do their work in getting Robert to think, “I will create for myself, not follow in my father’s footsteps.”  Yet, in the reality of the business world, Saito probably could have weighed the statistics a little better.  With Fischer Morrow’s succession so badly planned, the chances for passing successfully to Robert’s generation would already be low. The Fisher Morrow dynasty would be challenged naturally, and the event would likely lend an advantage to competitors as powerful as Saito.

As it goes in Hollywood, in the end everybody is happy. Cobb and his team accomplish their goal. The son is determined to go his own way and Saito is relieved the Fischer Morrow is headed downward.

In addition to these insights on the family firm, Inception is an American production and the ideas it intentionally or unintentionally “incepts” into our minds portray a certain American ideology.  A family firm does not fit into the American Dream of meritocracy, where an individual with a hard-working entrepreneurial spirit identifies an opportunity.  From this, he or she creates and expands a business, eventually bringing it to the stock exchange or selling out before moving on to the next business venture. This is what’s expected and an institutional example of inheritance tax further illustrates the bias against family business.  The heavy tax takes away about half of a business’ value at generational change.

In corporate America, generally speaking, family firms do not have an overly positive image and they are liable to be accused of nepotism, opacity in corporate governance, low pay, and unclear career perspectives. All allowing Inception to wrap itself around the pressing need to destroy Fischer Morrow.

In other regions of the world where less individualistic and more collective cultures dominate, such as in Europe, Latin America and Asia, family firms tend to be perceived differently. They often stand in a far more positive spotlight. They are important generators of jobs and are stable contributors to the economy. Over generations they are known to be able to deliver reliable quality. They are admired as long-term thinkers and are known to aim for sustainable development.  In India, for example, family firms are viewed as vehicles for progression into life and society.

Bottom line, Inception is a great thriller with fantastic effects.  And, at the end of the day, it’s nice to see a movie addressing the complexities, challenges and rewards of family business, even if the ideas are vaguely “incepted.”

Joachim Schwass is Professor of Family Business at IMD and Director of the Leading the Family Business program.
Willem Smit is a research fellow at IMD specialized in market intelligence and strategy.