Nepotism Or Professionalism

The CEO turnover is the big decision for a firm.The researches on the choose of the new CEO from external recruitment or internal promotion can not totally explain the right transfer from the first generation private entrepreneur when they are getting old.The main task of the succession of the private enterprises is the transfer of the rights of residual control from the ownership and management.The transfer of ownership to the offsprings of family is believed to be taken for granted because the ownership is always represented as the family wealth.While the right of management can be separated from the ownership,the transfer decision to a family member or a professsional manager,nepotism or professionalism also,is a strategical arrangement for a controlling family.The competency modeling of the family successor can not explain a lot of cases,i.e.President Wang Jian Lin of Wanda Grop decided to give half billion yuan to his son to lose money in running Pusi Capital Co..Not all the family business tends to management revolution.A lot of researches focus on the differences between the family enterprises from the others and how the differences occur.The heterogeneity of family business needs to be paid attention for now even those are all controlled by families,because some of them tend to employ a family member while the others not.While there are some disputes on the controlling ownership to improve or impede the performance,the majority of researches agree on the conclusion that the transfers to other family members will underpormance.The two questions,do Chinese listed family enterprieses performance as the same and is there the endogeneity in the relationship between CEO and performance,need to answer firstly.This paper uses the cross-sectional data and finds that CEOs underperformance who are members of the founding family according to the Turbin Q and sales turnover.Next this paper discoveres that non-family CEOs have higher pay-for-performance with the quais natural experiment by the 2008 financial crisis and outperformance with the optimal contract theory.This research also tests the endogeneity in the relationship between CEO and performance.Secondly this research contends to explain the seemly irrational hiring activities.The businesses are embedded in the controlling familes while the families are embedded in the institutional environment.The families control their businesses to aspire after the economic goals and family-centered non-economic goals at the same time.Based on Midea,Shimao,Fotile Kitchen,and Monarch Lube,this paper constructs the CEO turnover model on the institutional environment,family and enterprise level which reveals that there is the heterogeneity of the controlling families' goals.Every family tradeoff between the family-centerd non-economic goals and economic goals meanwhile the components of FCNE goals are probably different.Compared to the researches based on western business families,Chinese familied hope to continue to control the firms trans-generationally and the offsprings to grow up healthly to family continuity.But they are so different whether to provide the position in family business and whether to gain the social capital by means of the successful business.The goals of the controlling families are influenced by the institutional environment and the willingness and ability of the next generations.The families thinking highly of FCNE goals will educate and improve the next generations'willingness and ability.The importance of FCNE goals has relations to the intendcy of nepotism or professionalism.Thirdly this research introduces a new perspective of the drive of heterogeneous goals of controlling families in establishing an analytical matching framework of economic/noneconomic goals-strategy of hiring and incentive-performance based on the multi-tasks principal-agency theory.In maxium the social suplus,the controlling families who pay more attention to the noneconomic goals tend to give lower level incentive contracts,less value the ability of the CEO candidate to run the business and prefer the family members.The case study answers how and why some families employ family members while the economic models reveals the matching equilibrium between a family and a CEO.Fourthly the statistic analyses based on the the questionnaires from 2014 All-China Federation of Industry and Commerce(ACFIC)data in the project of "The Two Healthy Index of Non-public Ownership" helps to support the previous propositions solidly.The Logisitic model discovers that the importance of FCNE goals are negative significantly with the transfer tendency to a professional employee when the family members and employees are all available.The power of making decision of the first generation and the involvement of the next generation strengthen the negative relations while the political connections weaken the negative relations.The contributions on the theory of this paper include the followings.First,the analysis on the goals can explain the succession of the management right to test the so called successfully,smoothly and satisfactorily transfer and extend the succession research previously based the willingness and ability of the new generation.Second,the social-emotional wealth has been taken as the effective respective to distinguish the family business and other firms and fails to explain the heterogeneity of diverse family business while the research on goals of controlling families can help to achieve it.We have a new understanding on the family members and non family employees in the princepal-agency framework because the family members have advantage on the FCNE goals and the professional manager on the economic goals instead of the agent cost from the trust.Last,this paper gives some advice on succession decision for the first generation entrepreneur to transfer his power to avoid the accuse each other.