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The purpose of this paper is to bring together a strategic choice perspective and an institutional perspective in order to address the key research questions: how do Russian founder-CEOs perceive the institutional environment when succession issues are taken into consideration?; how do the perceived characteristics of different formal and informal institutions affect the founder-CEO’s decision to delegate authority to a professional CEO?; and what are the main barriers to founder-CEO succession in threshold firms in emerging markets such as Russia?

Using a data set of 500 entrepreneurial companies from fast growing industries in Russia, the paper defines and studies threshold firms and analyses how various perceived characteristics of the institutional environment in emerging markets influence the likelihood of transition from founder management to professional management.

Institutional factors such as poor security of property rights and dependence of the business on relationships with government officials have a negative impact on the likelihood of founder-CEO succession in threshold firms in emerging markets. At the same time, the perception of contract law as insecure increases the likelihood of transition from founder management to professional management.

Most research on initial succession deals with internal organisational factors and does not consider external environments and their influence on founder-CEO departure and willingness to exit from company management. This study is unique in its focus on the external environment and institutional factors and their impact on management transitions in threshold firms in emerging economies.

Although founders are often replaced with external CEOs prior to firms making IPOs, firms that do retain founder CEOs generally perform better at IPO. However, this relationship may be contingent upon context. This study aims to investigate how national context influences the relationship between a founder CEO and IPO long-run performance. The authors hypothesize that founder-CEOs will perform better in IPO firms in countries where managerial discretion, future orientation, and the level of conformity to professionalize management are high, and uncertainty avoidance is low.

Using insights from the upper echelon and institutional theory, the authors used hierarchical linear modeling to analyze over 1,000 firms across eight countries.

Founder CEOs perform best in IPO firms in a national context where managerial discretion is low, uncertainty avoidance is high and the level of conformity is high.

This study contributes to a growing area of cross-national IPO research in management by investigating the relationship between culture, management and IPO performance.

This study aims to empirically identify cultural patterns in the family business: paternalistic, laissez-faire, participative and professional. Our second goal is to understand whether, besides the variable generation, there are other aspects that are based on the different cultural patterns in first and second generations. Dyer (1986) proposed a theoretical model to exploit cultural change in the family business, describing a typical temporal sequence of cultural patterns throughout the succession process.

We selected a qualitative research approach with multiple case studies. Six small-sized Portuguese family businesses were selected. Data were collected from in-depth and semi-structured interviews with the family leaders and those directly responsible for human resource management.

We empirically identified paternalistic, laissez-faire and participative cultural patterns. We also verified that, besides the generation, there are other factors that are at the root of the emergence of a cultural pattern within family businesses: the founder’s age and academic level and the presence of a human resource technician, in the case of businesses managed by founders and the presence of the founder in the case of businesses managed by second generation.

By identifying different cultural patterns, we were able to verify that culture is an important variable to explain the relationship between the members of the family businesses and the way they are managed. Furthermore, this study suggests that more complex models, which consider multiple variables, are required to understand culture in the context of family businesses.

The purpose of this study is to investigate the impact of non-founder CEO succession on firms’ research and development (R&D) decision, and further explore its mechanism and economic consequences.

Using founders’ personal-level information of entrepreneurial firms in the Chinese growth enterprise market from 2009 to 2015, the authors empirically investigate whether firms can be motivated to launch more R&D activities as the result of switching to non-founder CEOs. The author’s further test the impact of non-founder CEOs on R&D output to distinguish their motivation. Moreover, the authors use stepwise regression to explore the mechanism and possible channels.

The authors find that R&D investment significantly increases in firms with non-founder CEOs and the R&D output that comes in the form of patent exhibits an upward trending in numbers, too, ruling out non-founder CEOs’ incentive to chase private benefits. Specifically, the authors find that non-founder CEOs can promote R&D investment through their more professional human capital and better internal control. The authors also show mitigating effects under different circumstances on the relationship between non-founder CEOs and R&D investment.

This study helps the authors to understand the impact of non-founder CEO succession on R&D investment in emerging markets. It also indicates that human capital of non-founder CEOs is critical in driving firms’ innovation, proposing policy suggestions to improve formal intermediary labor market of professional CEOs.

This study provides elaborate theoretical analysis and empirical tests on the mechanism and economic consequences of (non-)founders’ impact on R&D activities.

There is a growing consensus that entrepreneurial activity is essentially a collective family endeavour, with some configuration of family involvement in business (FIB) working better than others. This paper aims to examine the effects of FIB on strategy and financial performance (FP), drawing from the institutional theory for the Indian family businesses.

The sample comprises of 105 pharmaceutical companies listed on the Bombay Stock Exchange for FY2013–2017. A two-way random effects panel model was invoked to examine the relationship between FIB and strategy, as well as the intermediating effect that strategy has on the FIB-FP link.

On average, the family has a high ownership concentration, with the founders predominantly holding the chief executive officer (CEO) and chair positions. The econometric results highlight that the founder’s descendants adopt a conservative strategy. A significant positive moderating effect of strategy on FIB-FP link was observed for the descendants as the largest owners, CEO and board chair. The presence of a professional CEO and independent chair, however, leads to an intervening adverse impact on FP. The ownership-management-governance configurations highlight that some combinations of family and non-FIB leads to better performance than others.

The study provides a plausible explanation for the conflicting evidence on the direct FIB-FP relationship through the strategy intermediation. The institutional perspective emphasizing the identity and role family members play in terms of strategy provides an unconventional epistemological underpinning to the present research.

This qualitative study attempts to understand what kinds of evolutionary selection and variation occur in family businesses during the preparation of a managerial and ownership succession.

The study was conducted by interviewing members of one family business in Louisiana, USA and one in Finland in order to contribute to the understanding of succession preparation in small family businesses with two generations. Evolutionary economics was adapted for this interdisciplinary study to explain evolutionary changes in a family business succession.

The findings indicate that both selection and variation can take place through different routes during the preparatory phase of a family business succession. Selection is influenced both by the founder and next generations. However, it does not occur in company A due to the reluctance of the younger generation. In company B selection is processed through joint thinking and visioning. This will lead to variation which is shaped by both generations.

This study is based on qualitative interpretation. Limitations of the study are the small number of informants and the lack of generalization of the results.

This study shows that selection and variation are intertwined. If selection does not occur in a family business, it leads to no variation between the generations. However, exits are possible; death and birth of companies are part of the life cycle of family businesses.

Evolutionary thinking has not been studied recently among family firms except in the field of evolutionary psychology. Evolutionary thinking offers a variety of topics to study in the future.

With the growing importance of small and medium entreprises (SMEs), especially in Asia Pacific, the demand for research on these topics continues to grow. This study examines the growth challenges faced by Vietnamese entrepreneurs by exploring the founders' challenges, decisions and motivations during their company's growth stage. The study aims to expand the body of knowledge about entrepreneurship in an emerging Asian market, Vietnam, as well as to give practical advice to entrepreneurs and businesspeople in Vietnam.

The study adopted an inductive, grounded theory approach, using a series of in-depth interviews with public relations agencies' founders in Vietnam.

The study found that founders in Vietnam's public relations industry are challenge-driven, firmly attached to their founded consulting businesses. These founders appreciate learning and earning opportunities more than company growth or control; thus, they did not demonstrate the growth dilemma usually seen in SME founders.

This study provides guidance to nascent entrepreneurs in Vietnam, especially those in the public relations sector. As founders in this industry usually lack a business management background or experience, understanding what lies ahead in the start-up venture will help them better prepare themselves and avoid failure early in their business.

The study findings challenge the widely-held assumption that all entrepreneurs pursue growth and typically experience the growth versus delegation crisis. The study also contributes by expanding the limited body of knowledge about Vietnamese entrepreneurship, an area that has not been well studied and the Vietnamese public relations agencies.

The purpose of this paper is to understand the change of the founder’s psychological ownership when s/he sells the business and its implications for the organization’s strategy.

The study contributes with a longitudinal study of psychological ownership, accounting for its development over time in a Swedish e-commerce company. By applying a case study methodology, conclusions are drawn from a vast amount of archival data and interviews. The empirical material covers the transition from a founder-run, family-owned to a first foreign-owned, and currently private-equity owned company.

Theoretically, it extends understandings of psychological ownership and its strategic implications by including former legal owners; that is, how psychological ownership changes after legal ownership ceases. Thereby, it develops the individual dimension (founder and former owner) of psychological ownership as well as its collective dimension (employees toward founder). The paper contributes to the psychological ownership founder and exit-literatures by highlighting continuity after the formal sale of legal ownership and its consequences for the organization.

It finds that new legal owners can use this heritage to signal continuity and launch strategic changes by transforming it into artifacts.

This study extends the understanding of development of psychological ownership of founders from foundation to exit and its consequences for the organization’s strategy. This extension sheds new light on founders as artifacts of organizations and thereby their role for the organizational heritage.

The purpose of this paper is to propose a solution to the challenges of professional service firms (PSF), which are referred to as cat herding, opaque quality and lack of process standardization. These result from misalignment in the mental pictures that managers, employees and customers have of the service. The study demonstrates how the process of articulating a shared service concept reduces these challenges.

A narrative methodology is used to analyze the perspectives of old management, new management and employees during organizational change in a PSF – a website design company growing to offer full-service branding. Group narratives are constructed using longitudinal data gathered through interviews and fieldwork, in order to compare the misaligned mental pictures and show the benefits of articulating the service concept.

Professional employees view growth and change as threats to their culture and practice, particularly when new management seeks to standardize processes. These threats are revealed to stem from misinterpretations caused by miscommunication of intentions and lack of participation in decision making. Articulating a shared service concept helps to align understanding and return the firm to equilibrium.

The narrative methodology helps unpack conflicting perspectives, but is open to claims of subjectivity and misrepresentation. To ensure fairness and trustworthiness, informants were invited to review and approve the narratives.

The study contributes propositions related to the value of articulating a shared service concept as a means of minimizing the challenges of PSFs.

The learning outcomes of this study are as follows:1. Learn to analyze a hostile takeover bid from the perspectives of the acquirer, target firm’s management and a large institutional investor in the target firm.2. Review the structuring, financing, valuation, mode of consideration, legal and regulatory aspects of a hostile takeover.3. Understand the role of the target firm’s board in a hostile takeover transaction.4. Address “to sell or not to sell” dilemma of a large institutional investor in the target firm in the event of a tender offer given financial and non-financial considerations.

On June 14, 2019, Pulak Prasad, Founder and Chief Executive Officer (CEO) at Nalanda Capital, in consultation with other managing partners at Nalanda Capital, had to decide whether to tender a 10.6% equity holding in Mindtree Ltd. in an unsolicited open offer made by Larsen and Toubro (L&T) Ltd. Until then, Nalanda Capital, led by Prasad, had aligned with the Mindtree founders and had led a campaign to thwart L&T’s bid to acquire Mindtree; L&T’s offer to acquire 31% of Mindtree shares was because of open on June 17, 2019 and it is time for Prasad and the management team to take a reasoned call – whether to stay in Mindtree or to exit? Associated aspects included – What could be the consequences of not selling the stake? What could be L&T’s game plan? Could Mindtree continue to create wealth for its shareholders under L&T?

This case is appropriate for Mergers & Acquisitions and Strategic Financial Management courses in modules focused on structuring, financing and takeover defence techniques in a hostile takeover transaction. The case is appropriate for graduate MBA and EMBA programmes.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.