Adverse Retention of Family Talent in Intrafamily Succession

In both a practical and theoretical sense, management succession is one of the most important issues facing family firms because intentions for it influence behavior and the ability to execute it successfully ultimately influences long-term survival. One of the greatest challenges in family firms with intention for intrafamily management succession is to ensure that the most talented family members stay in the firm. Thus, this paper deals with the problem of adverse retention, a situation wherein the more talented family members leave but the less talented family members stay. We use classical microeconomic-labor-supply arguments to explore five scenarios of increasing complexity to illustrate how personal attributes, pecuniary and nonpecuniary benefits, relationships between family members, and interactions with the external labor market can give rise to or prevent adverse retention. We discuss implications and research directions suggested by our application of the model to the adverse-retention problem.