Founders’ Approach on Successor Selection: game theory analysis

Family firms are vital in economies worldwide. However, only a small minority of these
outlive their founders. The founder’s lack of a proactive approach towards the succession
process has been pointed out as a key contributor to that reality. This paper employs game
theory to study the impact of the founder’s approach on successor selection in family firms. The
results obtained for a founder who adopts an activist approach and invites his preferred
successor are compared to those where the founder just reacts to his children initiating the
succession race. The findings provide analytical evidence of the importance of the founder being
proactive to safeguard intergenerational continuity as well as increase the propensity of his/her
preferred successor being appointed.