Generational mentorship, diverse boards drive financial success for next-gen family CEOs

When outgoing family CEOs mentor their successors within the family, the business is more likely to remain financially successful, according to an Italian study published in Strategic Entrepreneurship Journal, a publication of the Strategic Management Society. The researchers found that the impact of mentoring is even greater when the company’s board of directors includes non-family members to impart their perspectives.

The study examined 1,787 Italian family businesses over 14 years. The research, led by Fabio Quarato of Bocconi University, found that family companies perform better—especially in the short and medium term—when new family CEOs have received guidance from their predecessors.

“Greater commitment to the business, and identification with it, are expected from mentors who are family members,” Quarato’s team explained. “CEOs who belong to the controlling family may be more motivated to transfer their tacit knowledge to incoming family CEOs . . . and the new CEO is more likely to act as a steward to guard family-centered goals while seeking to bolster the firm’s family performance.”

This knowledge transfer helps new leaders maintain the company's values and focus on goals important to the family, while also aiming to improve the firm’s overall performance.

In addition, having more non-family directors on the board increases the benefits of mentoring. These independent directors are less concerned with preserving family tradition and more focused on the company’s financial health. Their outside perspectives and new ideas add value and complement the guidance given by family mentors.

However, the study also found that volatility within the industry can damper the impact of mentoring. Rapid changes require fresh resources and innovation, and practices based on a longstanding legacy aren’t as valuable when the commercial environment is unstable.

The researchers offered practical advice for family firms:

• Outgoing family CEOs should actively share their experience, feedback, and connections with new leaders to help ensure smooth transitions and protect the company’s values.
• Companies should balance their boards by including independent directors alongside family members to provide broader oversight.
• To improve leadership transitions and financial results, businesses should create formal succession plans with input from both family and non-family directors.

The study was supported by detailed models that analyzed a variety of factors, such as the influence of younger or female board members, the length of CEO service, and the age of the business.

The research highlights how advance planning, an investment in family legacy, and diverse leadership can help family businesses succeed across generations.

To read the full context of the study and its methods, access the full paper available in the Strategic Entrepreneurship Journal.

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