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DOI : https://doi.org/10.33395/owner.v6i3.878

The Role Of Founders In The Sustainability

Of Family Businesses In Indonesia
Istiatin 1), Ari Susanti2), Legowo Dwi Resihono3), Fithri Setya Marwati4)
1) 3)
Universitas Islam Batik Surakarta, Sekolah Tinggi Ilmu Ekonomi Surakarta2), Politeknik Pratama
Mulia Surakarta4)
istiatinumi@gmail.com, santisties@gmail.com, legowo.resihono@gmail.com,
firhri_marwati@yahoo.com

Diajukan : 4 April 2022

Disetujui : 9 April 2022
Dipublikasi : 1 Juli 2022

ABSTRACT
The sustainability of the family business is an essential thing that needs to be prepared by the
founders of the company and designed to be conveyed to their children as the next generation. This
research aims to determine how to prepare the founders of the family business to carry out succession
to the successor's age so that it can continue for generations. The method used in this study is to use
SEM-PLS analysis. Respondents in this study were 50 MSMEs in Indonesia. The analysis is used to
determine the effect of free variables on bound variables. Data processing in this study will SmartPLS
6.0 software. The results of this study show that the role of the founder, succession planning, and
succession planning needs to be carried out and have a significant effect on the character of the
successor. The sustainability of the family business is supported by the competence of the successor,
good planning, and increased competence of the successor.

Keywords: Founder role, Succession Planning, Competence, Sustainability, Family Business.

INTRODUCTION
A family company is a company whose shares are primarily family-owned. The family and its
next-generation manage shareholding management. The role of the founder when running the company
starts from the beginning to carry out succession planning for family members, especially their
children, with various steps, including preparing children's education, training, and incorporating the
next generation into the company's activities. The strategy carried out in the family business is the
most crucial decision to run the business. The decision in planning a family business for the next
generation is the most important. Family business decisions that will move to the next generation will
represent the resources and security in terms of finances and the reputation and value of a family. The
next generation not only integrates family interests and business interests in a planning process
strategy. Then it takes a family commitment to running a business, and the business strategy will not
pay off. Preparation is planning to integrate and balance family and business interests is very important
to note. Communication of business development problems between business founders, the next
generation, and all the families involved are carried out for sustainability and interrelationships
between business and family-owned so that harmony will be created.

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Strategies in running a family business require family commitment. Planning family

business management also requires involvement from advisors who are not family members to provide
creativity and a new picture of strategic thinking. The family business will carry out this formulation
process. The set will play a role in giving a prominent view of the management or ownership transition
period. Planning that needs to be done in a family business is planning that considers long-term
performance, family readiness, stability, and sustainability in case of turmoil in the family or
management. (Carlock, Randel S., & Ward, John L., 2001).

Succession planning is a step taken by the founder where succession is the transfer of
authority and responsibility in the family company from the founder of one generation to the next
generation. This transfer of authority is a process that affects companies and families (Steier & Miller,
2010). In terms of succession, what needs to be considered is how the characteristics of the successor
in leading, providing decisions that can be used by the business and accepted by the family. The
characteristic of the successor that is the key to success is willing to commit to the business and its
integrity as a family-owned company. (Chrisman, Chua, & Sharma, 1998; Sharma & Rao, 2000).
Sharma and Irving (2005) argue that as the next generation in the family company, the characteristics
possessed are four commitments, namely affective (perceived desire, normative (there is a sense of
obligation owned), calculative (opportunity), and imperative (need). The next generation's commitment
to starting from scratch has been instilled to invest time to higher provide the best for the business and
have more desire to maintain the company-owned than to sell the company.

The long succession process begins in childhood and begins to be taught in childhood. The
entry of the next generation into the family business at the management level of the family business
starts from the lowest level. It continues at a higher level of management. The increase in the next
generation level at the leadership level of the company will allow potential successors who have been
prepared for many years to be able to accept responsibility for running their family company.
(Longnecker & Schoen, 1978)

The founders are concerned about the family business's long-term viability. Fairness
between family and non-family employees at work is one of the most difficult difficulties facing family
businesses. Employees who are related to each other and who are not related to each other have the
capacity to contribute to the company in distinct and different ways, making obtaining justice amongst
them complex and difficult. The family business's complex problem of the gloom of human nature is
how the family company can achieve justice between family employees and non-families. So the role
of the founder in making family business decisions and requiring a debt from an advisor promotes fair
practices in the family business workplace. Research conducted by (Dhaenens, 2017) produces
propositions about the effects of family status as a family business than on specific aspects of
organizational commitment. In particular, the founder must be able to cultivate different types of duties
and other types of obligations according to the next generation.

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METHOD
This research was conducted on family business owners in Indonesia, especially those who
have MSMEs and are family businesses that already have the next generation. Respondents in this
study were 50 MSMEs in Indonesia.

The analysis is done to figure out which variables have the most impact. Variables are not
bound. SmartPLS 6.0 software will be used to process the data in this investigation. At the same time,
the data analysis used The Structural Equation Model (SEM) approach is used in this research. Method
SEM is a sort of multivariate analysis that uses a combination of factor analysis and regression to
assess the relationship between exogenous and endogenous variables at the same time (Mahfud
Sholihin & Ratmono, 2013). SEM is used to compensate for the flaws in the regression approach. The
SEM method is separated into two approaches, according to some experts: Covariance Based SEM
(CBSEM) and Variance Based SEM or Partial Least Squares (PLS). Partially least squares analysis is a
type of data analysis that does not require many assumptions about the data. It might be nominal,
categorical, ordinal, intervals, or ratios (Sugiyono, 2015).

PLS is a method for carrying out Structural Equations. Modeling (SEM) is currently
considered better than SEM techniques such as AMOS and LISREL software. The selection of PLS
methods is based on thinking that four latent variables formed with a formative structure in this study.
The formative model assumes that indicators influence the construct, where the direction of the
relationship causality from indicator to construct. PLS can also be used to build relationships that do
not yet have a theoretical basis or for the testing of propositions (Fatwa, 2016)

Pls approach using random multiplication where assumptions. Normality will not be a
problem, but it also does not require the amount minimum sample to be researched so that research
with a small sample (below 100) can continue to use PLS.

1. Inner Model Analysis

The percentage variance explained by the R-square value for the dependent variable, the
Stone-Geisser Qsquare test for predictive relevance, the t test, and the significance of the coefficient
parameters of structural pathways can all be used to evaluate the inner model.

The R-square for each latent dependent variable is the first step in evaluating the inner
model with PLS. Then, in his understanding, it's the same as in regression. R-square value changes
can be used to examine the impact of specific independent latent factors on latent variables and
whether they have a significant impact.

2. Goodness of Fit Model

The goodness of fit, according to Ghozali (2006) is used to measure conformity of observation
inputs or actually with model predictions that Filed. In the analysis using WarpPLS, the value used

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as The standard that the indicators of the fit model have been met is APC (Average Path
Coefficient) and ARS (Average R-squared), with significant limitations of p<0.05. While the value
of AVIF (Average Variance Inflation Factor) as a multicollinearity indicator must be < 5, and VIF
(Variance Inflation Factor) value Below 3.3. (Mahfud & Ratmono, 2013).

3. Hypothesis Testin

Hypothesis tests are used to explain the direction of relationships between variables. Independent
and dependent variables. This test is done by analysis. Path analysis of the model that has been
created. Results of correlation between Constructs are measured by looking at path coefficients and
their level of significance (pvalue), which is then compared to the research hypothesis.To see
whether an idea is acceptable or statistically rejectable can be calculated through its significance
level. The story of significance used In this study was 5%. As for refusing or accepting the
Hypothesis using probability, then Ha is obtained if the value p <0.05 (Husein, 2015)

DATA ANALYSIS

Figure 1. Research result

Measurement Model (Outer Model)

The created research model is validated through outer model testing. Construct validity
testing (convergent validity and determinant) and construct internal consistency testing are the two
primary parameters (reliability). The construction validity test was passed, but two of the 18 existing
indicators were not, so two indications with lower values than other indicators had to be eliminated
for future hypothesis testing.

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Validity Test

Table 1. Average Variance Extract (AVE)

Description PS PP KS KMS KL
AVE 0,649 0,569 0,609 0,550 0,563
Source: WarpPls 5.0 data processing output

Tabel 2. Factor Loading

Indicator PS PP KS KMS KL
PS1 0,857
PS2 0,840
PS3 0,713
PP1 0,743
PP2 0,784
PP3 0,735
KS1 0,820
KS2 0,831
KS3 0,680
KMSFE1 0,853
KMSFE2 0,783
KMSFE3 0,738
KMSFI1 0,561
KL1 0,713
KL2 0,841
KL3 0,688
Source: WarpPls 5.0 data processing output

Table 3. Validitas Determinan

Variabel PS PP KS KMS KL
PS 0,806 0,581 0,479 0,600 0,395
PP 0,581 0,754 0,635 0,616 0,508
KS 0,479 0,635 0,780 0,586 0,461
KMS 0,600 0,616 0,586 0,741 0,542
KL 0,395 0,508 0,461 0,542 0,750
Source: WarpPls 5.0 data processing output

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The table above shows that by issuing 2 indicators of successor competency variables, the
average variance extracted (AVE), factor loading, and determinant validity are met, namely >0.50.
The determinant validity test matrix also shows a solid and significant positive relationship
between one variable and another.

Reliability Test

Table 4. Reliability Test

Decription PS PP KS KMS KL
Composite reliability 0,847 0,798 0,822 0,827 0,793
Cronbach’s Alpha 0,726 0,621 0,675 0,719 0,607
Source: WarpPls 5.0 data processing output

The reliability test findings demonstrate that the composite reliability and Cronbach's alpha
values >0.60, indicating that the matter has fulfilled the 0.60 rule of thumb. If the responder is
consistent in responding questionnaire questions, the findings can be evaluated.

Substructural Model (Inner Model)

Table 5. Path Coefficient

Variable Path Coefficient P Value Description
PPPS 0,641 <0,001 Significant positives
PS  KS 0,197 0,049 Significant positives
PP KS 0,523 <0,001 Significant positives
PS  KMS 0,337 0,002 Significant positives
PP KMS 0,253 0,016 Significant positives
KS  KMS 0,280 0,008 Significant positives
KMS  STB 0,566 <0,001 Significant positives
Source: WarpPls 5.0 data processing output

The function of the founder in succession planning has a path coefficient of 0.641 and a p-value of
0.001 (significance 0.05) as seen in the table above. As a result, the founder's role has a positive and
significant impact on succession planning. The path coefficient of succession planning for succession
characters is 0.197, with a p-value of 0.049 (effective 0.05). This demonstrates that succession
planning has a positive and significant impact on the successor's personality. The path coefficient of
the successor character's foundation role is 0.523, with a p-value of 0.001 (significance 0.05). This
demonstrates that the founder's role has a good and significant impact on the successor's character. The
route coefficient for successor competence planning is 0.337, with a p-value of 0.002 (effective 0.05).

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The findings revealed that succession planning had a favorable and considerable impact on the
successor's competency.
The path coefficient value of the founder on the successor's competency is 0.253, with a p-value of
0.016 (significant 0.05). The findings revealed that the founder's position had a favorable and
considerable impact on the successor's competency. The path coefficient of the successor's character to
the successor's competence is 0.280, with a p-value of 0.008 (significance 0.05). This result indicates
that the successor's character has a favorable and considerable impact on the successor's competency.
The path coefficient of the successor to sustainability is 0.566, with a p-value of 0.001 (significance
0.05). This conclusion indicates that the successor's competency has a favorable and considerable
impact on long-term sustainability.

The Role of the Founder Has a Positive Influence on Succession Planning

Hypothesis 1 states that the role of the founder has a positive effect on succession planning.
The table above shows that the p-value of the founder's role in succession planning is <0.001 with a
path coefficient value of 0.641. The statistics show that the p-value is <0.05 (significance <0.05), so
it can be concluded that if the role of the founder increases, then succession planning increases. This
statistical test successfully accepted hypothesis 1, which states that the part of the founder has a
positive effect on succession planning (H1 is received).

Succession Planning Has a Positive Effect on the Character of the Successor.

Hypothesis 2 states that succession planning has a positive effect on the character of the
successor. The table above shows that the p-value is 0.049, with a path coefficient of 0.197. The p-
value value is <0.049 (significance <0.05), so it can be concluded that if succession planning
increases, then the character of the successor will also increase. This statistical test successfully
accepted hypothesis 2, which states that succession planning positively affects the surface of the
successor (H2 is received).

The Role of the Founder Positively Affects the Character of the Successor
Hypothesis 3 states that the role of the founder has a positive effect on the character of the
successor. The table above shows that the p-value is <0.001 with a path coefficient of 0.523. The p-
value value <0.001 (significance 0.05), so it can be concluded that the higher the role of the founder,
the higher the character of the successor. Thus, the statistical test results successfully accepted
hypothesis 3, stating that the part of the founder positively affects the surface of the successor (H3 is
received).

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Succession Planning Has a Positive Effect on the Competence of Successors.

Hypothesis 4 states that succession planning has a positive effect on the competence of
successors. The table above shows a p-value of 0.002 with a path coefficient value of 0.337. The p-
value is 0.002 (significance 0.05), so it can be concluded that if succession planning increases, then
the competence of the successor increases. Thus, the results of this statistical test successfully accept
hypothesis 4, which states that succession planning positively affects the competence of successors
(H4 is received).

Succession Planning Has a Positive Effect on The Competence of Successors Through The
Character of Successors.
Hypothesis 5a states that succession planning has a positive effect on the competence of
successors through the character of the successor. The table above shows the p-value values of
0.049 and 0.008 with a path coefficient value of 0.055. The p-value is 0.049 and 0.008 (significance
0.05), so it can be said that the successor character can mediate the relationship between succession
planning and successor competence. If succession planning increases, then the competence of the
successor will also increase through the nature of the successor. Thus, the statistical test results
successfully received Hypothesis 5a, which states that succession planning has a positive effect on
the competence of successors through the character of the successor (H5a Accepted).

The Character of the Successor Has a Positive Effect on the Competence of the Successor.
Hypothesis 5b states that the character of the successor has a positive effect on the
competence of the successor. The table above shows a p-value of 0.008 with a path coefficient of
0.280. The p-value value is 0.008 (significance <0.05), so it can be interpreted that if the character
of the successor increases, then the competence of the successor will also increase. Therefore, the
results of the statistical test successfully accepted hypothesis 5b, which stated that the character of
the successor had a positive effect on the competence of the successor (H5b Received).

The Role of the Founder Positively Affects the Competence of the Successor Through the
Character of the Successor.

The 5c hypothesis states that the role of the founder has a positive effect on the competence
of the successor through the character of the successor. The table above shows p-values of <0.001
and 0.008 with path coefficient values of 0.523 and 0.280. The p-value value is <0.001 and 0.008
(significance <0.05). It can be interpreted that the character of the successor can mediate the
relationship between the role of the founder and the competence of the successor. The more the part
of the founder increases, the more competence of the successor is also increased through the
character of the successor. Thus, the results of this statistical test successfully accept hypothesis 5c,
stating that the role of the founder has a positive effect on the competence of the successor through

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the character of the successor (H5c accepted).

The Role of the Founder Positively Affects the Competence of successors

Hypothesis 6 states that the role of the founder has a positive effect on the competence of
the successor. Based on the table above, a p-value of 0.016 with a path coefficient of 0.253. The p-
value value is 0.016 (significance,0.05), so it can be interpreted that if the role of the founder
increases, then the competence of the successor will also increase. Thus, the results of this statistical
test successfully accepted hypothesis 6, which stated that the role of the founder had a positive
effect on the competence of the successor (H6 Accepted).

Succession Planning Has a Positive Effect on Sustainbility Through Successor Competence.

Hypothesis 7a states that succession planning has a positive effect on sustainability through
the competence of successors. The table above shows p-values of 0.002 and <0.001 with path
coefficients of 0.337 and 0.566. The p-value value of 0.002 and <0.001 (significance <0.05) can be
interpreted that the competence of the successor can mediate the relationship between succession
planning and sustainability. The more succession planning increases, the more sustainability
increases through the competence of the successor. Thus, the statistical test results successfully
accepted hypothesis 7a stating that succession planning has a positive effect on sustainability
through successor competence (H7a Accepted).

The Role of the Founder Has a Positive Effect on Sustainability Through The Competence of
Successors.
Hypothesis 7b states that the role of the founder has a positive effect on sustainability
through the competence of the successor. The table above shows the p-value values of 0.016 and
<0.001 with path coefficients 0.253 and 0.566. The p-value of 0.016 and <0.001 (significance
<0.05) can be interpreted that the competence of the successor can mediate the relationship between
the founding role and sustainability. The more the part of the founder, the more sustainability
increases through the competence of the successor. The results of the statistical test successfully
accepted hypothesis 7b, which stated that the role of the founder has a positive effect on
sustainability through the competence of the successor (H7b Accepted).

Succession Planning Has a Positive Effect on Sustainbility Through The Character of

Successors And Competencies of Successors.
Hypothesis 7c states that succession planning has a positive effect on sustainability through
the character of the successor and the competence of the successor. P-values of 0.049, 0.008 and
<0.001 with path coefficients of 0.197, 0.280 and 0.566. P-value values of 0.049, 0.008 and <0.001
(significance <0.05) can be interpreted as the character of the successor, and the competence of the
successor can mediate the relationship between succession planning and sustainability. The more
succession planning increases, the more sustainability increases through the character of the

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successor and the competence of the successor. This statistical test successfully accepted the 7c
hypothesis, which states that succession planning has a positive effect on sustainability through the
character of the successor and the competence of the successor (H7c Accepted).

The Role of the Founder Has a Positive Effect on Sustainability Through the Character of
Successors and Successor Competencies.

Hypothesis 7d states that the role of the founder has a positive effect on sustainability through
the character of the successor and the competence of the successor. P-values are <0.001, 0.008 and
<0.001 with path coefficients of 0.523, 0.280 and 0.566. P-values of <0.001, 0.008 and <0.001
(significance <0.05) can be interpreted that the character of the successor and the competence of the
successor can mediate the relationship between the role of the founder and sustainability. The higher
the role of the founder, the higher the sustainability through the character of the successor and the
competence of the successor. The results of this statistical test successfully accepted hypothesis 7d,
which states that the role of the founder has a positive effect on sustainability through the character of
the successor and the competence of the successor (H7d Accepted)

CONCLUSION
The conclusion that can be drawn from this study is the importance of the role of the founder,
succession planning to the character of the successor. In carrying out succession planning, it is
necessary to pay attention to the competence of the successor for the smooth running of the family
business. Furthermore, the competence of the successor is also supported by the character of the
successor, who runs the family business well. So in this study, all variables affect supporting the
sustainability of the family business. The role of the founder has a positive effect on sustainability
through the competence of succession planning successors have a positive impact on sustainability
through the character of the successor and the competence of the successor.

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