What happened
Mixed outcomes. In the Japanese firm study, non-blood heirs performed better than blood heirs on the measures examined. Research on Danish firms found poorer performance following family CEO succession. The populations and succession arrangements differ, so the findings raise questions about how candidates are selected rather than settling whether family control is generally better.
- A study of Japanese listed firms grouped adopted sons, sons-in-law, and adopted sons-in-law as non-blood heirs and found favorable performance comparisons with blood heirs. Adoptive Expectations: Rising Sons in Japanese Family Firms
- In a Danish study, family CEO succession was associated with poorer performance in an analysis using firstborn-child gender to help distinguish succession choices from other firm differences. Inside the Family Firm: The Role of Families in Succession Decisions and Performance
What might explain it
Plausible
Allowing an outsider to become a family successor can widen the candidate pool while preserving continuity. Adoptive Expectations: Rising Sons in Japanese Family Firms
Alternative explanation: Firms able to attract strong candidates may already differ in ways that drive performance.
Plausible
The threat of replacement may change effort by biological heirs and professional managers. Adoptive Expectations: Rising Sons in Japanese Family Firms
Alternative explanation: Succession results do not separately identify selection from these proposed incentive effects.
Understanding the outcome
Succession, selection and agency
A succession rule changes who can become a candidate and what incentives existing candidates face. Bringing an outsider into the family can widen selection while preserving relationships associated with family control. Adoptive Expectations: Rising Sons in Japanese Family Firms Inside the Family Firm: The Role of Families in Succession Decisions and Performance
Adoption and marriage carry legal, cultural, and personal commitments. A favorable business-performance comparison does not tell us how the people entering those relationships experienced them.
Questions to take into practice
- Can the successor pool widen without losing necessary trust and knowledge?
- What evidence distinguishes good selection from a favorable inherited business?
What remains uncertain
- Were stronger candidates selected, did the prospect of competing for succession change behavior, or were firms attracting non-blood heirs already different? The perspectives of spouses and candidates excluded from succession are also missing from the performance comparison.
Sources
- Great Founder Theory — 2020 manuscript — Samo Burja