Underperformance in Family Successions: The Role of Outside Work Experience

Key Takeaways

- 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.