How one bad family member can undermine a family firm: Preventing the Fredo effect

Family owned and managed firms represent a large proportion of businesses operating domestically and globally. Dynamics introduced by family members can develop into significant problems for the family-owned firm, and have far-reaching implications for its performance. One challenge entails coping with a family member employee who, for various reasons, behaves in ways that have toxic and damaging effects on the business. We label this phenomenon ‘the Fredo effect,’ referencing the incompetent brother from The Godfather books and movies. Herein, we discuss the Fredo effect in a family firm context, why the Fredo effect is unique to family firms, and how the effect develops over time in family relationships. We further analyze how the Fredo effect hurts family firms in terms of leadership succession and performance, and what family firm leaders can do to address it.