When Managers, Founders Lead Family Companies to Better Performance

Bernardo Caprotti was a far-sighted entrepreneur who managed to to create a retail empire in the Italian grocery business. Famous for his unique entrepreneurial skills, before his death he came under the spotlight for the troubled succession at the helm of Esselunga, characterized by bitter family feuds and even legal battles. But the cases of family conflict and disputed transition are multiplying. Some time ago, the woman entrepreneur of the Gilardoni companay of Mandello was banned by a judge from being the company's top executive, for alleged violent behavior against her employees. At Luxottica, Leonardo Del Vecchio has been struggling for years with a complicated case of corporate succession.

There are many companies that, on the one hand, benefit from the extraordinary managerial skills provided by founders in terms of collective motivation and individual talent, but which on the other struggle when it comes to pass the baton to the next generation or to managers external to the family that controls ownership.

The literature in the field provides ample empirical evidence on the higher profitability of companies directly managed by founders. For example, Villalonga and Amit's analysis conducted on Fortune 500 US companies shows that family-run businesses with founders in key positions (either as managing directors or board chairs) perform better than non-family businesses. Conversely, family companies run by the founder's heirs perform significantly worse than non-family companies.

➜ Style is not hereditary
However, some important conditions need to be respected for the founders to have a positive effect on company performance. In particular, colleagues Miller, Le-Breton-Miller, Lester and Cannella demonstrate that for the firm to prosper, the founder should be the only member in command. In other words, the founder's effect on business performance disappears when other family members share power at the top of the company (even in the case of first-generation companies).

These findings suggest that founders tend to have a peculiar management style, which is difficult to transmit to other members of the family, and does not fit well with governance models based on collegiate leadership. Indeed, in spite of the good management results discussed above, more recent studies show that founder-led companies have management practices of lower quality compared to, for example, companies with multiple shareholders or controlled by private equity funds.

➜ Planning is the solution
In summary, founders have a fundamentally ambivalent effect on the life of companies. On the one hand, their managerial vision and talent translate in successful financial performance; on the other hand, their very centrality and unique management top of the company.

We know that the first generational passage is perhaps the most critical moment in the life of family companies. It is therefore necessary to find what companies can do to maintain the superior results achieved by founders, in the period following their demise.

Good corporate governance mechanisms such as the presence of non-family members in the board of administration and proper succession planning succession can certainly facilitate the proper management of this process, which ultimately determines whether a family business will continue to thrive over the years, or if it is destined to be sold or disappear.