Leadership practices of first and second generation family business owners and the correlation with business performance
Van der Westhuizen, Johannes Petrus
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Small and medium-sized businesses are a major contributor to many economies, but it is lesser known that some of these are also classified as family businesses. These family businesses are created due to the entrepreneurial mind set and ability of one or more of its founders, who identify an opportunity and seek to exploit such an opportunity. To be able to survive, sustain and grow the business they need to maintain at least their entrepreneurial orientation through other generations. Although these businesses face similar challenges, the literature showed that family businesses are very different to other non-family businesses due to their uniqueness and the overlapping of the family relationships. Family businesses represent a large proportion of the businesses registered world-wide, and they make an important contribution to economic growth and wealth creation in the world. South Africa is no exception and it is estimated by scholars that for the last 300 years family businesses have contributed to the South African economy. However, very few of these businesses will continue to exist after the first generation because of succession failure. This results in a great loss in skills and wealth transfer, and a change in the contribution to economic growth. Family business leaders need to learn how to manage the factors that affect the succession process. Researchers in family business literature acknowledge that leadership is vital to the success and survival of the firm. Leadership can be seen as a process of influencing the activities of an organised group in its efforts towards goal setting and goal achievement. Interestingly, family business researchers typically refer to succession and not leadership succession, and additionally, there is little crossover between the two fields of study and scholars rarely reference one another. Bridging this gap will greatly benefit the family business literature and will enhance the understanding of both fields of study. Therefore, the high failure rate for family businesses in the second and later generations has led to the problem that the succeeding generations might not have developed sufficient leadership practices to sustain the business performance of the family business. The aim of this study was to investigate whether there is a relationship between leadership practices and business performance. The results of this quantitative correlational study indicate that positive significant correlations exist between the occurrence of leadership practices and measures of business performance for first generation leaders of the selected family businesses. In addition, a disparity was found where effectively only two correlations existed between the variables for the second generation leaders. These results illuminate the potential differences in the ways that first and second generation leaders‘ lead family businesses. By empirically investigating the leadership practices of leaders in family businesses, this study has added to the limited quantity of leadership-related topics in family business literature. By way of the conceptual model developed in this study, a significant contribution has been made towards understanding the possible impact leadership practices have on business performance in these selected family businesses. As a result, this study presents propositions to assist founders to train future and existing family business leaders in leadership practices.