Founder Succession in Biotechnology Firms

Abstract

The qualities that lead a founder to create a new business are often different from those that are needed for the effective management of that business. Because the attributes of founder and manager are different, practice-focused management literature holds that there comes a time in the growth of any firm when the founder-manager must relinquish control over key aspects of the firm’s functions if it is to flourish. While these practices are supported by theoretical explanations, no consistent findings exist with regard to the downstream consequences on firm performance. Moreover, there is a significant lack of research when it comes to the ideal timing for founder succession from high-level managerial positions; when the founder should step down from a particular position within the firm, take up another role, or exit the firm completely. So, what is the impact of founder succession on firm performance? When should that succession process take place? These questions are critical given that there comes a day when, due to various possible reasons (from performance-related factors to old age), a founder must in fact part ways with his/her firm. Indeed, extant literature does not provide clear answers to such questions. This study aims to address this gap by investigating the founder succession phenomenon and its implications on a company’s performance. It examines a high-technology industry and includes all pharmaceutical, biotechnology and life sciences companies currently listed on the Australian Securities Exchange (ASX). Specifically, this study aims to examine the impact of founder succession on the company’s ability to attract investment during and after an initial public offering (IPO), as well as on the financial success of both the company and its investors. In order to conduct this research, a quantitative methods approach was adopted, collecting and analysing publically available data. The main findings of this research indicate that founder succession does in fact significantly influence firm performance. The ideal time for founder succession is found to be immediately following an initial public offering (IPO). Conclusions and suggestions are made as to how these findings could be practically implemented to aid the decision-making process of all relevant stakeholders.