Underperformance in Family Successions: The Role of Outside Work Experience

This paper examines why family firms often perform worse after a CEO succession, despite seemingly high alignment of incentives.
The authors show nearly half of all family successors have never held a full-time job outside the family firm.
These internally groomed successors drive no measurable improvements in firm performance after succession.
By contrast, family successors with outside labor market experience perform similarly to unrelated, professional CEOs.
The findings point to a critical mechanism: outside experience helps successors build leadership capital they cannot develop within the family firm alone.