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Family firms: no country for young people

From the XIII Edition of the AUB Observatory on Italian family firms (supported by AIDAF (the Italian association of family firms) Bocconi, Angelini Foundation and Unicredit), we got an interesting – but alarming – statistic: for all such enterprises with over €20 million in revenues, less than a third has at least one member of the Board of Directors (BoD) who is under 40 years old. This figure was almost 50% in 2010, which means that in ten years the number companies with at least one young director was nearly cut in half. And in the same period (2000-2010), the percentage of under-40s who serve in leadership positions dropped from 16.9% to 8.7%. If we recall that all Italian businesses that top €20 million in turnover, family firms make up around 65%, the data above signal that the family firm system is having a hard time getting young people involved in governance bodies and executive management.

Why are these data alarming? Some assert that having a broad age range on the BoD is a non-issue. But I would point to research findings that demonstrate a positive relationship between diversity in the BoD and company performance. I could also cite data from the very same AUB Observatory that show a negative relationship between the age of corporate executives and board members and business performance.

But in this space, I would rather bring up a few simple, obvious reasons that I believe make it important to offset the phenomenon of the shrinking presence of young people on BoDs. Today companies in almost every industry are immersed in highly dynamic competitive arenas, with technology having an ever-greater impact. So the first reason I’ll mention is something that almost goes without saying: 30-to-35-year-olds can do a great deal to help come up with winning strategies and effective actions in this context. The second simple reason lies in the answer to a question: if board members are all the same age, how will the organization be able to deal with processes of succession that will arise as they grow older? A third reason is that by giving a young person a seat at the table in the executive body, the company can provide positive motivation for all the young people who work there. So as I see it, beyond a doubt there are more than a few valid reasons to promote the participation of young people on the BoD.

By the same token, there are no disadvantage to more young directors sitting on BoDs, in my opinion. I’ve spoken to a number of entrepreneurs, and some of them tell me that sometimes a family’s younger generation is not yet ready to take the reins from their parents in the family business. In these cases, firms could find young people outside the family who can make a substantial contribution to strategic corporate issues. Other entrepreneurs point out that if a young person comes on the board, it would mean sacrificing the experience of a more senior board member. The answer here is a simple one, it seems to me: nothing is stopping these companies from increasing the number of board members, to keep the experience of senior members and add that of young people. And when this isn’t possible for whatever reason, firms can still tap into the expertise of senior board members through other forms of engagement such as advisory boards, strategy committees, and so forth.

So if we all agree on the need to expand the number of young board members on the BoD, the next step is to figure out how to do so in concrete terms.

I believe that the experience of the 2011 Golfo-Mosca Law can shed some light on the matter. As we know, this law introduced gender balance requirements for the governing bodies of listed firms. As a result, we’ve seen a rise in the number of women directors on the boards of these organizations. In fact, 62% of listed family firms had at least one woman on the BoD in 2011, a percentage that rose to 81% in 2020. But the current situation regarding young board members, compared to women directors, is not as positive: in 2000, only 32% of listed family firms had at least one director on the board who was younger than 40 (irrespective of gender). This is why I think that legislative intervention is needed here, even more than for the gender question. I know, and in part I share, the preference of entrepreneurs for policies that allow them to self-regulate, but I also believe that the gap to fill is so wide that legislation is the only way to tackle this situation in a reasonably short timeframe. What’s more, in my opinion this emergency does not impact listed firms alone, but all family firms. So the law should apply to all enterprises that exceed a certain size.

From the viewpoint of policy makers, there are certainly more pressing problems that require their attention. But regulatory intervention like the kind I propose would fit very well within the framework of the Next Gen EU program, to underscore that we should be enacting policies that benefit young people.

Legislative intervention should go hand in hand with efforts by entrepreneurial associations to promote a culture of good governance in firms so that entrepreneurial families are better able to take full advantage of well-organized BoDs, and that these organs actually take charge of steering and supervising corporate strategy.