Why Father-to-Son Can Ruin a Family Business
Family-owned businesses are in many ways the backbone of capitalism around the world. But at some point in their growth, having family members in charge is not only problematic, but dangerous.
New research looking at firm performance of thousands of medium-sized businesses found a lot to like for family run enterprises. But it also pinpointed a common practice that can lead to a business diving into big problems. And that practice is when the founder hands the CEO title to his oldest son.
"The firm's share price and profits usually take more of a tumble when the company is handed from the founder to his eldest son relative to an outsider," according to the researchers, reporting on their results in Harvard Business Review. "Studies of CEO succession also suggest that sons who become CEOs usually have poorer college results and are much younger than other CEOs."
As an alternative, family owners should consider bringing in professional managers from the outside, say the researchers -- Nicholas Bloom (Stanford), Raffaella Sadun (Harvard Business School), and John Van Reenen (London School of Economics). "Keeping things in the family can be bad for the wallet as well as the welfare of the next generation.
For a different view, read Mitchell Kaneff's account on BNET of how he saved his family's business by firing dad.
Have you witnessed a bad transition from founder to son? What did you learn from the experience?
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