Is it a good idea to pass along a family business to the next generation?The book does not explain, but apparently that is based on the authors podcast and transcript:
Sure, if your goal is to kill off the business -- for the data show it's general better to bring in an outside manager.
So why, instead of tapping that big talent pool, do you want to draw from your tiny little gene pool instead? The economists who study family firms say that you destroy value when you hand off the business to your blood relative.But the podcast explains that the American data shows that the firms do fine unless the rich kid is so dumb that he only got admitted to a third-rate college.
Furthermore, it seems to me that there is a huge gap in the economic analysis. They ask whether the son outperforms when the business is handed to him from his father. A better question is whether the father outperfoms when he anticipates handing the business to his son.
The Freaks are arguing that it is bad policy for businesses to be handed father to son. Maybe so, but it seems to me that to prove that, you need to show that neither the father nor the son outperform.
My guess is that it is the fathers who would outperform, if they believe that they are building businesses for their sons to take over. I cannot understand why the economists would ignore this point.