Morning Knowledge /11. Succession
POST SUCCESSION FAMILY FIRM PERFORMANCE IS 39% HIGHER WHEN A SUBSEQUENT BORN SIBLING IS AT THE HELM, TWO BOCCONI UNIVERSITY SCHOLARS DISCOVERLike 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 a recent paper, Bocconi’s Alessandro Minichilli and Mario Daniele Amore (with Andrea Calabrò and Marina Brogi) conclude that the habit to pass the family firm to the firstborn is the worst financial choice for the firm. Choosing a subsequent-born child significantly increases post-succession firm performance, with returns on assets 39% higher than firms that appoint a firstborn.
Selecting a subsequent-born 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 can be beneficial to the firm, if made among all available siblings in a large enough family pool.
Finally, the positive effect of selecting a non-firstborn sibling is stronger in later-generation successions that in founder successions. This is presumably due to a larger pool of family candidates and more formalized selection practices, that ensure the best possible fit.
by Fabio Todesco
