International and Product Diversification: Which Strategy Suits Family Managers

Research Summary: This article explores the impact of family and professional managers on performance and how this relationship is affected by international and product diversification. Using a dataset of 262 German firms from 2000 to 2009, we find that an increasing proportion of family managers on the management board is associated with higher performance. This relationship is negatively moderated by higher levels of international diversification but reinforced by increased product diversification due to differences in the human and social capital between family and professional managers. Firms with a significant presence of family members on the top management team (TMT) face a choice of either adopting a corporate strategy that runs counter to “globalfocusing” or adjusting the balance of family and professional managers in the TMT. Managerial Summary: Deciding the extent of family involvement on the executive team is a key strategic decision. While our research supports the general proposition that family managers will enhance performance, we show they do not have the same positive impact in all situations. More precisely, we show that family managers are more suited to lead diversification than internationalization. If a family firm wants to go international, it is sensible to increase the proportion of professional managers on the executive team. Diversifying into new product markets, however, does not require outside expertise commonly associated with professional managers.