WITH Hermes Down Smudars to the fictional one Waystar Royco in HBO’s “Succession,” family corporations often select their CEOs from amongst their relatives. But is it a good business decision? How researchers Who test entrepreneurship and management, we wanted to know whether keeping leadership within the family is profitable for corporations. That’s why we reviewed 175 studies on the subject to see if family CEOs are indeed the perfect selection for family businesses. We found it the reply is yes – sometimes.
Our evaluation, spanning nearly 40 years of research, confirmed that family CEOs typically prioritize a non-economic goal: keeping the corporate within the family. This suggests that nonfamily CEOs – leaders drawn from the broader business community, chosen on characteristics comparable to past performance – could also be more desirous about prioritizing purely economic goals comparable to boosting stock prices.
We also find that corporations led by family CEOs tend to care more about corporate social responsibility but invest less in innovation and international development. They also have, on average, more debt. All of this stuff can have significant business implications. For example, less investment in research and development may lead to worse economic performance.
Does this mean family directors are bad for business? Not in any respect. Looking directly at economic outcomes, we have found mixed results, with some studies finding positive effects from family CEOs and others negative effects. Based on our understanding of the literature, my colleagues and I imagine that it all is determined by the goals that family businesses themselves set for themselves.
Why is that this vital?
Although researchers don’t at all times agree on what counts as a family business, we define it as businesses managed or operated by a number of families that pursue goals set by a dominant leadership coalition and whose leaders want to pass the business on to future generations. By any definition, family businesses are extremely common: most businesses world wide are are owned or operated by families.
According to the U.S. Census Bureau, nearly 90% of U.S. businesses are family-owned, as are about 1 in 3 Fortune 500 corporations. Some essentially the most famous corporations There are family-owned corporations on the earth comparable to Nike, Dell Technologies and LVMH. Leadership decisions at these corporations have ripple effects throughout the economy.
From the angle of a person company, the choice about appoint a family CEO – or not – isn’t easy. On the one hand, family businesses often want to remain in the marketplace – and under family control – for generations. On the opposite hand, they often have to satisfy investors who expect good economic ends in the short term.
We imagine that some of the vital things a family business can do is understand its own goals and priorities. While this is simpler said than done, if a company has poorly defined goals, it can arrange the brand new CEO for failure – whether she or he is a family member or not. This is because they’re likely to pursue strategies that the family, company or shareholders don’t actually need.
What remains to be unknown
The evidence on whether family CEOs positively influence the financial performance of family firms is mixed, suggesting that sometimes they’re effective and sometimes they will not be. Researchers need to examine how a combination of characteristics comparable to age, education, political ideology, and personality influence the performance of family directors of their family firms.
Our team plans to conduct more research on family CEOs and their characteristics to understand when they’re right for the business and when family corporations should select someone from the surface.
