Corporate governance in family firms, learning and reaction to recession: Evidence from Italy

• Our evidence indicates that learning from a recession was not the outcome most frequently observed after poor performance, even following a CEO change (CEO turnover). Our work shows, however, that CEO turnover improved learning when the new CEO was from the owning family and after a certain amount of time (i.e., longer tenure).
• Starting from this evidence, we focus on factors that affect firm success and identify the expected future for small and medium family firms.
• Companies must learn to adapt and survive to negative shocks, downturns, and economic recessions, their ability to learn will depend on how they organize their corporate governance.

This paper focuses on the interaction between internal and external factors explaining performance of small and medium-sized family firms. We used framework foresight to suggest how learning and internal factors such as CEO’s origin, tenure and turnover, could affect the firm’s reactions to one particular external factor, economic recession. The paper draws on empirical observations of a large sample of small and medium family firms operating in Italy between 2002 and 2011 to identify the baseline future, an expected future for these firms. This analysis may be of interest to both management scholars and practitioners. We hope to contribute to the debate on how internal and external factors interact to affect firm success, measured as sales growth. The implications for the future viability of an economic system based on family businesses are straightforward, as the turbulence and instability of the economic environment has grown significantly in the last decade, especially in more developed countries. Whether the ability of a company to adapt and survive to negative shocks depends on its governance provides a rationale for exploring alternative perspectives on the competitiveness of the economic system and the ability of different owners to cope with future negative events.