In general, CEOs related to a founder or large shareholder of a corporation underperform their peers, but some heirs make effective leaders. Is nepotism always harmful or can it be strategically advantageous?
Philosophy, punditry and common sense tell us that nepotism might be an inefficient determinant of leadership of a country or a public company. Some argue that family control enhances a firm’s performance with the long-term focus of personal interest. But most argue that family succession hurts performance by limiting the scope of labor market competition. While previous studies have examined the impact of families on business performance, none have dealt specifically with successions.
Professor Francisco Perez-Gonzalez has filled this gap, analyzing data from 335 CEO transitions in publicly traded U.S. companies to determine the impact of family succession on firm performance. In roughly a third of the cases he looked at, the new CEOs were related by blood or marriage to a founder or large shareholder of the corporation.
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