Underperformance in Family Successions: The Role of Outside Work Experience

Studying CEO successions in family firms, we document that successors from controlling families are typically positioned in the firm long time prior to succession and that approximately half have never worked full-time outside the family business. These inside family successors underperform successors from controlling families with outside work experience, who perform on par with professional CEO-successors. We propose that inside successors are more likely to internalize their families' beliefs and business strategies, whereas outside work experience enhances successors' cognitive diversity. Our results suggest that business families should use outside experience as an observable signal in the selection of intergenerational successors.