Firstborn ChildrenFirstborn children are traditionally the ones to take the help at the family business when the older generation moves on. But maybe they shouldn’t? As a firstborn child, it was interesting to read an article in the Wall Street Journal that perhaps firstborn children shouldn’t be the first to take over a family business. It has been traditionally the way that family businesses made the decision of who would lead the business in the next generation. However, according to the Wall Street Journal, “research has found family firms do better if they don’t choose the firstborn as chief executive.”

Firstborn Children vs. Later-Born Children: The Statistics

Even though it has been a traditional decision, the statistics cited by the Wall Street Journal don’t support the default of the firstborn child,

… a study published in 2018 in the Strategic Management Journal found that family firms that choose a later-born child as CEO saw an average 39% increase in the value of their assets, including stocks and physical and intellectual property, during the period of the study, 2000 to 2014. Those that chose a firstborn child saw just a 9% increase.

For anyone running a family business with children, that’s a significant difference in outcomes. And those statistics held true in other parts of the world, including in a study of Italian family businesses as well.

What Are The Factors Driving This?

Upon reading the stats, I was immediately curious as to why this could be. Being a firstborn child, what would make my younger brother so much better suited to run a family business? Apparently, personality differences can be very important,

Usually, first-born children take actions that are unconsciously aimed to please their parents. They are often very scared to innovate, and they are mainly oriented to preserving the status quo. … Second- or later-born children have more innovative, creative behaviors, and this fosters [greater] innovation levels than other types of businesses.

Ouch. The older sibling in me winced a little when I read that. But according to the article, choosing later-born children is becoming more popular amongst family-held businesses around the world. Unfortunately for other first-born siblings like me, the statistics seem to support this approach. We’re just going to have to grin and bear it if we’re not the ones chosen to lead the business.

What Should Your Business Do?

One thing to remember is that these statistics may not apply to your business. Maybe it’s not even possible for a firstborn child or a younger child to take over the business. But no matter what that dynamic may be, if you are preparing to exit your business, you should be speaking to professionals about the next steps and a plan to protect you and your business.

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Next Steps

Does this pandemic have you thinking about the long term succession plan? I’m open and available for a call to discuss options with you. Call my office to set up a phone or virtual Legal Strategy Session and we can review the best options for you – (877) AMAYERS.

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