The study of 24 fast-growing firms, published in the journal Entrepreneurship Theory and Practice, compares three types of management teams: parental, familial without parents, and unrelated professionals. Parental teams were the most functional, with a greater consensus on strategic direction. Familial teams composed of siblings, cousins and other relatives were the most dysfunctional. Professional teams fell between the other two.

The parental management teams often included the founding couple’s children, says study co-author Allison Pearson, professor of management at Mississippi State University. “Because they had grown up together, they had developed a strong set of family values and norms of acceptable behavior,” Pearson says of the parent-child teams. “When we looked at the more dispersed family firms, we found more conflict and less clarity on the direction of the firm.”

A separate study by Wharton professor Raphael Amit and Harvard Business School professor Belen Villalonga last year found that familial management adds value when the founder serves as the chief executive or as chairman with a non-family member hired as CEO. But the firm’s value tends to be “destroyed” when a descendant is the CEO, according to their research.

Corporate America provides examples from both ends of the spectrum.

A family success story: Mark J. Bissell, president and CEO of Bissell Homecare, is the privately held company’s fourth generation of family leadership. Bissell Homecare, a 129-year-old company best known for its vacuums, reported sales in 2004 of $700 million, an increase of more than 30 percent.

On the other hand, Christopher Galvin, grandson of Motorola founder Paul Galvin, retired as chairman and CEO in January 2004 following years of job cuts and losses. Edward J. Zander, former president and COO of Sun Microsystems, succeeded him. Motorola says net income rose 14 percent in the first quarter of 2005.

Adam Bellow, author of In Praise of Nepotism and son of novelist Saul Bellow, says nepotism is a good practice, providing an avenue for younger generations to gain experience. The trick is finding the right mix between hired help and nepotism. “It’s the rare family business that survives to the third or fourth generation,” Bellow says. “The ones who do understand how to balance merit and nepotism.”

For more information, see the online items “What Do I Do About the Owner’s Daughter,” “The Nepotism Problem Is Alive and Well” and “Irreplaceable You.”

--Todd Henneman