Are family firms capable of being innovative? Two recent studies by Mario Daniele Amore and several colleagues explore the issue from two complementary perspectives: the innovativeness of family firms depending on the characteristics of the CEO, and innovation driven by family venture capital activity. Today, we look at the first of these topics.

 

There are multiple, well-argued reasons in favor of appointing an external professional as CEO in a family firm. Now, a new study by Mario Daniele Amore, Morten Bennedsen, Bordin Bordeerath, and Nicolai J. Foss shifts the pendulum in favor of the new generations of family members.

 

According to the research, appointing a family CEO improves the firm’s innovativeness through a notable upturn in the number of patents and in the quality of the citations those patents receive.

 

This drive to innovate emerges and becomes statistically significant in the medium to long term. It’s particularly strong when the family CEO holds a degree in engineering or, to a lesser extent, in business.

The context

Family firms account for a very high percentage of companies worldwide. For this reason, understanding how they differ from other organizations in terms of strategy and financial performance is a widely studied research area. At the top of every company, the CEO has decisive influence on direction and results, and in family firms, the recurring dilemma is whether to choose a family member or an external manager for this position.

 

While many studies have analyzed the impact of succession decisions on financial performance, innovation has received less attention, and current findings are often conflicting.

 

Some theories suggest that family firms, due to their risk aversion and reluctance to rely on external capital, may be less innovative. Others argue that their long-term vision, focused on passing the business on to future generations, and the alignment between ownership and management make them naturally more inclined to take on long-term innovative projects.

 

This study seeks to answer the question: Do family CEOs promote or hinder corporate innovation?

The research

The researchers adopted an exploratory approach, based on a large dataset covering 6,235 CEO succession events in Danish limited liability companies between 1990 and 2013. The Danish context proved ideal thanks to the availability of detailed information on firms and CEOs from official records.

To measure innovation, the study focused on patents, using both the number of patents filed with the Danish Patent and Trademark Office and the European Patent Office (EPO), and the number of citations those patents received, a widely used measure of patent quality.

Conclusions and takeaways

The study offers some compelling insights and possible action points for family firms:

 

• The value of the family CEO in terms of innovation: Appointing a family CEO, often a member of the new generation (and younger than the outgoing family CEO), significantly increases the number and quality of the company’s patents compared to a non-family professional CEO. This effect is not immediate but instead consolidates over the medium to long term, suggesting investments in long-term innovation projects rather than simple defensive patenting. In other words, it’s not about placing legal protections on already existing know-how at the time of the generational handover.
• The importance of human capital: The positive impact on innovation is significantly greater when the family CEO holds a degree in engineering (with a 13% increase in patents and a 14% increase in citations) or in business. This suggests that education in specific fields complements family ties in promoting innovation.
• Stable relationships with stakeholders: The researchers identified a potential mechanism behind this proliferation of innovation. Specifically, appointing a family CEO leads to greater workforce stability. This greater security and tolerance for failure among employees, stemming from the long-term vision of family CEOs, are crucial factors that support innovation.

 

These findings are only seemingly in conflict with previous studies showing that external CEOs improve short-term financial performance. Rather, they suggest that there are different management styles. While professional CEOs appear to focus on short-term cost efficiency, family CEOs, with their longer time horizon and desire to preserve family control, seem more inclined to pursue potentially riskier long-term projects that generate innovation.

 

Family firms should therefore seriously consider internal succession, especially when the successor has a strong background in terms of human capital acquired through higher education.

 

Indirectly, the research underscores the value of promoting a stable, risk-tolerant work environment, as this can unlock the innovative potential of employees.

 

Ultimately, the findings confirm the need to plan succession early and carefully. Succession should not be seen as a one-off event, but rather as a process. If the ideal outcome is a family successor who is both willing to take the helm and who holds a solid degree in engineering or business, it’s crucial to understand that such an outcome is only possible through thoughtful, long-term planning.

 

Mario Daniele Amore, Morten Bennedsen, Bordin Bordeerath, Nicolai J. Foss, “CEO Succession and Patenting in Family Firms.” Strategy Science. Published online in Articles in Advance 28 Apr 2025. DOI: https://doi.org/10.1287/stsc.2023.0122.