Families who run their own businesses sometimes appear to make irrational decisions. Faced with an increasingly competitive global market, they may choose to build a plant from scratch in Asia rather than relying on a joint venture with a local partner. Or they may appoint the eldest son as CEO, despite having a daughter with stronger managerial skills.
But these decisions are irrational only if we assess them exclusively through the lens of profit maximization. In reality, they follow a clear logic, rooted in an invisible yet powerful capital: socioemotional wealth (SEW). This concept, made up of identity, reputation, family cohesion, and the desire to pass on the business to future generations, has revolutionized the study of family businesses over the past two decades. Andrea Calabrò, together with a group of colleagues, recently devoted a comprehensive critical review to SEW, published in the Journal of Management Studies.
The result is not just an academic contribution but also a compass for managers and consultants who deal with the complexities of family firms on a daily basis.
Family businesses represent more than 80% of the enterprises in many countries; on average, they grow faster than non-family companies. Their uniqueness lies not only in ownership but also in the way the family shapes corporate strategies, where emotional and identity-driven motivations come into play.
The theory of SEW was introduced in 2007 with a paper by Gómez-Mejía and colleagues, showing that family decision-makers are driven by the need to protect and grow non-financial capital: the pride of keeping the family name on the company sign, the desire to pass the business on to their children, the reputation built over decades of activity. Since that seminal work, SEW has become the dominant paradigm in family business studies, with thousands of citations and attention spilling over beyond academia.
But this very success has also led to distortions. Indeed, the literature has often slipped into simplifications: portraying entrepreneurial families as perennially risk-averse, or as prisoners of dynastic logic. Yet the variety of observed behaviors reveals a much more nuanced landscape, which this new study aims to reconstruct systematically.
The paper by Calabrò and his co-authors is not just another literature review but a critical, theoretical reflection. The researchers selected 330 peer-reviewed articles published between 2007 and 2024, analyzed them with a rigorous coding and classification methodology, and organized them into five main thematic areas: generational succession, innovation, growth strategies, governance, and conflict management.
The analysis highlights several central assumptions. The first is that family owners and decision-makers (the so-called family principals) attach a special value to SEW, which becomes the primary reference point in strategic choices. This does not mean disregarding profit but rather filtering each decision through its impact on family identity, well-earned reputation, or the ability to pass the business on to future generations.
A second finding concerns risk-taking. Contrary to common wisdom, families are not inherently more risk-averse than other business owners. Rather, they adjust their behavior depending on the perceived threat to SEW. They are willing to accept performance risks, such as temporarily lower profits, if this prevents compromising the socioemotional capital built up over the years. But they become far more cautious in the face of venturing risks, such as alliances with unreliable partners or choices that could undermine family identity.
Finally, the research shows how the intensity of SEW varies over time and across contexts. It is strongest in the first generations, when the identification between the family and the business is absolute, and tends to evolve in later stages, taking on various forms that are no less significant. It also shifts depending on the institutional and cultural environment: in Latin America, Europe, or Asia, socioemotional rationale plays out with different nuances.
Socioemotional wealth is not an obstacle to rationality but a resource to be understood and managed. Family businesses that thrive in the long run are the ones that succeed in intelligently balancing the protection of SEW with the need to renew and grow. In some circumstances, to secure the company’s survival and competitiveness, they may even sacrifice part of this intangible wealth (for example, by opening up to an external CEO or embarking on non-traditional acquisitions).
From the perspective of consultants and advisors, the theory of SEW provides an indispensable interpretive key. Anyone who works with family firms knows very well that an impeccable financial analysis is not enough: They must also grasp the emotional and identity-driven rationale behind decisions. Understanding why a family rejects an M&A deal or resists a name change can make the difference between a failed negotiation and a shared strategy.
For entrepreneurial families themselves, the study also offers food for thought. SEW is not a static asset to be preserved but a dynamic resource that must evolve across generations, adapting to the changing cultural and market contexts. Nurturing this capital means investing in relationships, reputation, and governance, and at the same time being poised to adjust the boundaries of SEW when survival or growth requires it.
The challenge is to cultivate SEW, making it a source of identity and cohesion, without letting it become a straitjacket. True success is measured not only in financial statements but also in the ability to pass on a solid, valued, and shared entrepreneurial legacy.
Calabrò, A., Torchia, M., Gomez-Mejia, L.R., Pongelli, C. and Lohe, F.-W. (2025), “What Are Family Firms All About? Advancing Family Business Research Through Socioemotional Wealth Theory.” J. Manage. Stud. DOI: https://doi.org/10.1111/joms.13263.
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