Agent-Agent Conflict: Outside Directors and Co-CEOs in Family Firms

Abstract

This study explains why outside directors in family firms are especially beneficial when co-CEOs are at the helm. Extending agency theory beyond the principal-agent and the principal-principal conflicts, it proposes a refined agent-agent conflict that arises when multiple co-CEOs run the firm. Assuming the principal opportunism, it predicts that outside directors will be beneficial under co-leadership, particularly under mixed co-leadership (i.e., comprising family and non-family co-CEOs) and family generations after the first. An analysis of Italian family firms’ export supports the hypothesized effects. The theoretical implications are discussed and have significance for research on both family businesses and agency theory.