When the Former CEO Stays on Board: The Role of the Predecessor’s Board Retention for Product Innovation in Family Firms

Abstract

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.

Generations in Family Business: A Multifield Review and Future Research Agenda

“…For instance, Hillebrand's (2019) quantitative study of German family firms demonstrates that these firms increase their innovation output over generations. In the same vein, Querbach et al (2020) focus on the role of predecessors, portraying them as less willing to introduce product innovation, and as they are frequently involved in post succession, their presence negatively affects the family firm innovation process. In contrast, Beck et al (2011) argue that the generation in control influences innovation through its impact on market orientation, and that later generations show a lower level of market-oriented behavior.…”

Financial managers and organizational ambidexterity in the German Mittelstand: the moderating role of strategy involvement

“…The first of the above-mentioned FM characteristics that we analyze is age, as it appears to be an important driver of innovation. Extant research shows that as people grow older, they are less open to change and less likely to take risks (e.g., Hambrick and Mason 1984;Querbach et al 2020). This lower likelihood to take risks and encourage change appears to influence managers' decision-making processes regarding innovation.…”

Explanatory and predictive drivers of entrepreneurial orientation and innovation capacity: Evidence from family enterprises

“…Another variable with potentially significant implications for EO-IC development is the proportion of family managers and degree of generational diversity on the board of directors (Murphy and Lambrechts 2015;Querbach et al 2020). Family involvement in the management team fosters a propensity towards EO-IC activities through family members' strong commitment to firm survival (Casillas et al 2011).…”