Risk aversion in the family business: the dark side of caution

This paper aims to shed light on the potential downsides of risk aversion in family firms. Moreover, it seeks to provide measures on how to balance risk taking and risk aversion in family businesses.

The article first presents four “dark sides” of risk aversion in family businesses and then describes three groups of measures to balance risk aversion and risk taking. Both the dark sides as well as the measures to balance risk aversion and risk taking are derived from recent scientific research.

Family businesses may decrease risk aversion and foster risk taking and innovativeness by creating transparency on their risk profiles and including outside knowledge in the form of non-family managers, directors or shareholders. Moreover, properly educating and integrating younger family generations might also alleviate an overly high focus on short-term risk aversion.

Family business leaders might find the approach and findings presented in this paper helpful for securing the longer-term survivability of their firms and for improving innovativeness.

This article is among the first to deal with the dark sides of risk aversion in family businesses, which might endanger their longer-term survivability.