Breaking the Rule of the Firstborn

CHOOSING TO TRANSFER THE FAMILY BUSINESS TO AN HEIR WHO IS NOT THE ELDEST CHILD OFTEN PRODUCES VERY ADVANTAGEOUS RESULTS, ACCORDING TO RESEARCH BY MARIO DANIELE AMORE AND ALESSANDRO MINICHILLI

Like Abraham and Cepheus, who were willing to sacrifice their firstborn children Isaac and Andromeda, family business owners should be willing to sacrifice their eldest sons, passing their firms to someone else in the family.
 
In The Courage to Choose! Primogeniture and leadership succession in family firms (a study published in Strategic Management Journal), Bocconi’s Alessandro Minichilli and Mario Daniele Amore, along with Andrea Calabrò (Ipag Business School) and Marina Brogi (Università La Sapienza) conclude that the habit to pass the family firm to the firstborn turns out to be the worst financial choice for the firm. Choosing a second- or subsequent-born child significantly increases post-succession firm performance, with returns on assets 39% higher than firms that appoint a firstborn.
 
Furthermore, selecting a non-firstborn family member also turns out to be a better choice than the selection of a non-family leader. In other words, what might be considered a nepotistic choice, if made among all available siblings in a large enough family pool, can be beneficial to the firm.
 
The authors conduct their empirical analysis on a unique dataset including family businesses in Italy that experienced a succession from 2000 to 2012. They investigate also the role of the so-called socioemotional wealth (the stock of affection-related value that the family has invested in the firm) in the selection of a new leader in a family firm, concluding that the likelihood of following primogeniture in leadership succession increases when a family’s socioemotional wealth endowment is high.
 
“The study’s findings clearly suggest that family business owners must have the courage to break the primogeniture rule if they want to find the right candidate to succession, granting the firstborn the same chances as the other siblings”, Prof. Minichilli says.
As in the tales of Isaac and Andromeda (neither of them was killed in the end and both the stories have happy endings), the willingness to sacrifice the firstborn brings positive fruits.

Read more about this topic:
The perfect super CEO
The Relationship Between Salary and Value
No Longer a Family Matter
The Political Influence of CEOs
 

by Fabio Todesco