Family Business Audiocast | Episode 56 | Dr. Jan-Philipp Ahrens

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R. Adam Smith: Welcome to the Family Business Audiocast. I'm R. Adam Smith, creator of this series. A warm thank you to our live audience today and those listening in the future. On this episode, I'm joined by Jan-Philipp Ahrens, a leading scholar at the University of Mannheim and one of the most innovative researchers at the intersection of family firms, AI, big data, and sustainability. Jan, great to have you here today.

Jan Ahrens: Thank you so much too — it's a pleasure to be here.

R. Adam Smith: You lead the university's Interdisciplinary Research Group for Family Firms — a global team combining business research, strategy, data science, and computer science around the family business ecosystem, operating within a supercomputer environment dedicated to family firm research. Your work has appeared in top journals, including Entrepreneurship Theory and Practice, the Journal of Management Studies, and the Journal of Family Business Strategy, where you're also a senior editor, and you've presented at many elite conferences worldwide.

Before academia, you contributed research to German federal ministries, collaborating with family enterprises globally. You speak on technology, AI, sustainability, and crisis management, and you bring a personal perspective as a fifth-generation family business successor — you helped steer your family enterprise through the global financial crisis when you were younger. After the business was sold, it became a private foundation supporting sustainability and philanthropic causes. Let's start with the IRG — the Interdisciplinary Research Group for Family Firms you lead at Mannheim.

Jan Ahrens: I really like this group. I was educated at this university in intercultural and international business studies, which teaches you there isn't one single truth — someone from a different country or context may see the world very differently than you do. I was always drawn to bringing different perspectives together and working across disciplines, which isn't always easy, but once you get those perspectives speaking to each other, it's both performance-enhancing and creativity-enhancing.

Over the last decade we've built a team from five different countries, majority female, producing a lot of innovative research that we push toward conferences and, hopefully, publication. Our prime goal is always to help family businesses — I try to stay as relevant as possible within the boundaries of our scientific system.

R. Adam Smith: The IRG covers AI-driven, multi-method research on the family firm ecosystem using big data — very timely — and also focuses on sustainability, blending interviews and on-the-ground data with data science, plus leadership, succession, and governance. Where can people learn about the IRG, and how should they reach out to collaborate?

Jan Ahrens: At the moment we work on topics that matter from a global perspective — sustainability is one, alongside broader transformation: innovation and digitalization, and how family and non-family businesses alike can meet the challenges on the table today.

Typical questions we tackle: how should a firm's top management and other parameters be configured? Should the family CEO be at the top, or should governance be structured differently? What's the role of other board members — should the board be international, to bring more perspectives? We look at female leadership and leadership equality, and questions around succession — how much firm-specific experience matters, whether it should be a family successor — and how all these parameters affect a firm's sustainability orientation, innovation output, and performance, including standard measures like return on assets and profit margin.

R. Adam Smith: You bring a personal dimension to this work, coming from a fifth-generation family enterprise — not common among academics. How did that shape your research philosophy?

Jan Ahrens: On a personal note — I grew up with a very typical background: a patriarch, a strong personality, one of these larger-than-life figures who seemed to do everything right. It's not always easy to find your own path in that environment. It wasn't just the family business side, either — my other grandfather was a professor. My own instinct was always to detach myself a bit and earn my own stars, which practically meant I wouldn't take money from the family firm I hadn't earned — I'd only take payment I genuinely deserved, which meant working in positions and conditions that made that possible. I was never afraid to do that.

I think what it takes is detaching yourself from the family world and asking: how would I lead my own life in a way that's actually worthy? That gives you the normal perspective anyone without a family business background has — all the career struggles, the money struggles.

From the family business side, going through a crisis teaches you something too. When I graduated, I had a job lined up at a consultancy, but my grandfather called and said, "We have a crisis, you need to work for the family business." So I did. Seeing that crisis firsthand — knowing we had to shut down an entire production plant and lay people off just to become profitable again, which we managed to do — teaches you that whatever you do needs practical value. I've never forgotten that, even in academia. A lot of academic papers lose that direct sense of purpose — we need to serve family firms, and that's what we're trying to do.

R. Adam Smith: On this podcast we've had many of your academic colleagues discuss how family enterprises differ across culture, national standards, philosophy, language, and geography — guests from FBN, from academia, from Deloitte, RSM, Merrill Lynch, and colleagues of yours like Massimo Baù and Alfredo De Massis. Everyone brings a somewhat different cultural lens to family enterprise. What's your perspective on the actual purpose of the family enterprise — not the family office, but the enterprise itself — across different cultures, even within Europe?

Jan Ahrens: That's a complicated question researchers have spent decades on. We've advanced on the definitional side too — which is actually what led us to build our supercomputer unit. We believe we're the leading institute running algorithms on family firm definitions at scale, automating them so we can essentially know who owns the world, and who runs a family firm across the globe.

From a practical perspective, I'd say a family business is the embodiment of a family's entrepreneurial aspirations — the real-world starting point of what the family aspires to be, the dreams of one generation or several. That comes bundled with purpose — why you want to live your life the way you do.

Academically, we distinguish between two main approaches. One is the "essence" approach — the shared vision a family holds about where they want to be. That's hard to measure quantitatively since it's not on the balance sheet; it's conversational, and it varies depending on who you ask — the next generation will describe it very differently than the patriarch or matriarch. The other is the "components of involvement" approach — is there family involvement on the board or in management, does the CEO have a family background? Those components work well as quantitative data drawn from balance sheets, and that's actually how we ended up building our supercomputer environment ahead of the AI wave — almost by coincidence.

We wanted to automate what's traditionally a manual process — tracing ownership layers, figuring out where the family sits, how much ownership they hold, whether they're involved in management. That takes a lot of reading. We built a long algorithm that collects balance sheet and ownership data worldwide across 500 million firms — half a billion. One full run of the algorithm currently takes about two and a half months, but the output lets us identify around 80 million family firms globally for research.

R. Adam Smith: Bridget Kustin at Oxford, Alfredo De Massis, and I'm sure Martin Roll at INSEAD and McKinsey would love to hear about that — I'd encourage that collaboration. Beyond the quantitative side, you also integrate qualitative methods — large-scale AI modeling and supercomputing alongside qualitative case studies, similar to what we see at Campden, FBN, or Bridget Kustin's Super Family Office study. How do you combine both approaches?

Jan Ahrens: Hi to everyone listening, including researcher friends. For the quantitative approach, you need a supercomputer with a lot of RAM — you either look up each firm individually, which is a save-and-load process, or load everything into one large memory space at once. We chose the latter because it's faster. A couple of years later we added AI to that quantitative foundation.

We use AI to estimate variables like sustainability, which have no balance sheet data — but we can measure them for any firm with a webpage. That combines our family firm definition with genuinely interesting variables in a big data environment. But pure quantitative work only gives you a limited worldview. Once you've identified a phenomenon, run the regressions, maybe built instruments to address endogeneity concerns, you want the real world to speak to you — so we conduct in-depth interviews to understand the phenomenon more fully and get more perspectives. You'll often see this in our publications: quantitative data paired with powerful quotes from in-depth interviews that add color and practical meaning to what the numbers show.

R. Adam Smith: You and the institute also focus on sustainability performance. Is that a sub-segment of your broader multi-paradigm research, a personal passion, an academic focus, or something clients are actively using your data for? And is it general ESG-style sustainability, or the sustainability of the firm itself as an entity?

Jan Ahrens: Honestly, it's a passion. As a researcher, you sometimes work like a musician — a soundtrack for each decade. Over the past ten years I worked a lot on succession and practical topics. Then I asked myself: what do I want to do with the remaining three decades I have? Looking at the state of the world, the answer was sustainability. Since choosing it as a primary focus, I go to the office with a smile every morning — it feels like I'm doing something that matters, even in a small way, because it produces genuinely actionable advice.

We've shown our results to the German government — very practical results, since we can tell people what kind of manager a firm needs to become greener, faster. That's a top priority for our economy. What kind of sustainability are we really talking about? It's more —

R. Adam Smith: Let me interrupt for a moment — I've been talking recently about the limitation of the term "next gen" and "succession," since succession is often treated as purely a human capital concept that doesn't capture the corporate dimension of succession.

Jan Ahrens: That's true. Succession involves a lot of human capital questions with real performance impact, and it plays out very differently for large corporations versus family firms. A publicly traded corporation typically sees a new CEO every six years on average; family firms go much longer. That creates a need for different human capital, because family business succession often comes bundled with a wave of innovation and restructuring — necessary, since a family firm may not have had the same pace of updating that a modern publicly traded corporation has over the past 20 years.

R. Adam Smith: Next gen is also becoming such an important topic given the massive wealth transfer happening between Gen X and millennials — often either underestimated or overestimated. I find the "next gen" framing too limiting for sustainability purposes, because as many experts on this show have pointed out, many children simply aren't relevant to a company's succession — they won't stay involved, lack the capability, or lack the interest. So "next gen" often oversimplifies family dynamics; I prefer to focus on the corporate dynamics.

Jan Ahrens: That's very true — you need people who are genuinely interested and have the human capital, otherwise it becomes a nepotism problem that hurts the firm and its other stakeholders, employees and shareholders alike. I've done research on this: if someone has the same human capital you'd want from an external candidate, choosing a family member is actually a bonus, because of the social capital that comes with a family background — the expectations other shareholders project onto the next generation. Once that social capital translates into real capital — performance and money — because people trust and project that social capital onto the new leader, and if that person has the same human capital strengths and genuine motivation, having someone from the family is actually advantageous. Only then, though — there's a small "family bonus" that allows for a slightly smaller human capital gap, but only a small one. That's essentially my ETNP paper.

I agree that sustainability itself is a wonderful way to bring the next generation on board motivationally — giving them a sense of purpose in the family firm that might be exactly what draws that generation in.

R. Adam Smith: Setting aside non-family successors, what do you think is the single most powerful factor determining a next-gen family member's success taking over the business?

Jan Ahrens: As a leader, you first need the kind of experience that earns everyone's trust, leading with integrity and authenticity — not something everyone has by default, but largely learnable. I'm a fan of some kind of test environment — say, the family gives you a million dollars for a spinoff, and you show what you can do as a leader with your own idea and your own small team, with nobody interfering and the numbers entirely yours. That gives you the experience and confidence — a few stars and medals on your chest before you even walk in the door. I think that's essential.

R. Adam Smith: I discussed that balance of entrepreneurship within family firm and family office dynamics — the power of entrepreneurship alongside its risks — with Professor Matt Hughes at Leicester, for familybusiness.org, last year. Massimo Baù does a lot of research there too, and Guillermo Salazar in Latin America was also on our show.

Jan Ahrens: I want to come back to your earlier question about what kind of sustainability we're discussing. There are really two: sustainable management, meaning long-term orientation for the firm, and ESG. Our AI work tackles the ESG side specifically. It works from a keyword list of roughly 25 ESG-related terms, occurring across multiple languages, which we scan for on a firm's webpage. The AI then interprets the paragraph around each keyword hit — is this genuine ESG-relevant content, or just "painting the wall green"? Trained on examples we've provided, it calculates a score from the true keyword hits found across a homepage — what we call "sustainability intensity," an abstract measure of how green a firm is likely to be.

We validated this against satellite data — European Space Agency satellites measuring SO2 emissions over specific areas, including above production sites. Correlating those emissions with our AI-generated sustainability intensity score shows a significant negative relationship: as the AI-measured sustainability score goes up, real-world emissions go down. That gives us some confidence in the measure, though it's still just an indication and should be treated with appropriate caution.

That's the direction I think our research needs to move, because one key limitation right now is that there's simply not enough sustainability data available, and we need answers for how to green our economy faster — we can't wait for the accountants while the planet burns. Even as a "second-best" AI method, it provides answers that are genuinely needed right now. I think we'll see a lot more of these AI methods in research going forward, which requires rethinking how research institutes operate. I was just at Stanford, and there's enormous AI-enabled research happening — not just ChatGPT-style tools, but AI used within methods themselves to reach greater scale and accuracy.

There's always the question of trust — think of melanoma recognition in medicine, where studies already show AI outperforming even veteran doctors on accuracy, despite a very noisy pattern to work from. The same holds for sustainability. I think this approach is opening pathways for research we're just beginning to understand.

R. Adam Smith: On the Stanford side, given the importance of family enterprise data, you might want to connect with Ilya Strebulaev, who leads Stanford's venture capital research program and was on our podcast last year — probably the leading academic venture capital researcher in the world. On the impact side, I'd love for you to speak with Chelsea Toler, who blends women's leadership with next-gen impact and is deeply into data as well — she was on our show last year.

We're running short on time, but you've referred to "sustainable family capitalism" — bringing technology, insights, shared values, and ethical governance principles into family enterprises, which is very relevant to next gen. Can you speak to that, with advice for listeners in their mid-twenties to mid-thirties?

Jan Ahrens: I'm especially thankful for this generation, because it teaches us what we may have gotten wrong over the last decades, even centuries, with respect to capitalism. Sustainability, to me, also includes working on a more equitable basis — making sure everyone in the next-gen pool is included, women especially. There's still a lot of inequality globally.

If we want to achieve something great as humans, we can't rely only on male leaders — we have to include everyone, including women, if they have the human capital, because it simply doesn't matter whether that talent is male or female. Some family businesses still get this wrong. My own grandfather had five daughters, but none of them became CEO of our firm, which I think was a mistake — my mother was an entrepreneur in her own right and did well; she had that entrepreneurial instinct. Many family businesses in Germany still make the same choice, and I don't understand why.

I think inclusiveness is absolutely necessary, and it's performance-enhancing — if you have a larger pool of potential successors and choose the best one by human capital, and that happens to be a daughter, wonderful. If you don't, you're losing performance potential simply to hand it to a brother instead — that's the wrong answer. Gen Z in particular is pointing out that we need to combine capitalism with wellbeing and inclusiveness, and I'm genuinely thankful for that.

R. Adam Smith: Wonderful — we'll talk more about that later; I actually run a nonprofit focused on refining modern capitalism. To recap: we've covered the intelligent enterprise, family values, next-gen succession, blending values into the enterprise, multi-paradigm and multi-factor research well beyond ChatGPT-style AI in producing useful data for both academia and sustainability, and the importance of sustainability of the family enterprise itself, beyond just ESG impact.

Coming from your own family business background, I want to emphasize the scale of family enterprises — they're not a niche segment; in most countries they represent 50, 60, 70, even 80% of GDP. That brings us to the risks to that sustainability — technology and the scale of large corporations, which can create a dynamic of haves and have-nots. If family businesses aren't as dynamic or don't have the same scale, they risk losing out to bigger companies — not necessarily bad from a commercial perspective, but a real loss in terms of history, story, legacy, and family values. What's your view on that — the structure of capitalism and a more Darwinian approach to industry?

Jan Ahrens: We've recently developed a new theory we call the "intelligent entity view," which conceptualizes the firm — within the boundaries of capitalism — as an intelligent entity from a macro perspective: something that gets poked by a problem, a challenge, maybe a crisis, and responds intelligently as a whole body, an entire entity. We built this drawing on neuroscience discussions from Stanford linked to the Carnegie School, understanding the firm as one mind, one entity responding intelligently to a stimulus.

You can think of this in three basic ways. In the human brain, cells interact through a neural net; in AI, processors talk to each other; in a firm, people talk to each other — employees, management processes are essentially our neurons. From a macro perspective, that's a neural net producing a response to a challenge in a performant way — there's actual published research on this at the Carnegie School, describing it as a form of collective intelligence, published in the journal Science.

Beyond the neural net, there's also memory. Humans store experience to navigate reality efficiently, so we don't touch hot things twice. Firms have that too — routines, standard operating procedures, culture, especially in family businesses — essentially programs stored in the firm's collective memory.

There's also perception. Humans rely on sensors — we see something, react, and filter it. AI does the same. Organizations have sensors too — computer systems, but also us, perceiving problems in a filtered way aligned with organizational goals. Not everything the organization perceives gets acted on; it's a matter of relevance.

Family firms add a wrinkle here: they don't just have the capitalist goal, they also have a family-centered goal. Add a third goal, like sustainability, and you're now tracking multiple objectives with a limited amount of management attention and resources — like a rocket launcher tracking too many drones at once, something falls off the table. In family firms, that extra family-oriented goal can crowd out sustainability, unless the family goal itself is sustainability.

On age and size — older firms accumulate a lot of routines and organizational "memory" that has to make sense together. Adding something new, like a sustainability goal, carries real transaction costs to integrate it with everything already running — more expensive for a large, old corporation than for a startup. It's the same phenomenon in humans: it's more costly for us to learn something new once we've already learned so many routines.

R. Adam Smith: Thank you for that — a lot for our listeners to sit with, probably worth a few re-listens. It does make me think about the next gen and whether entrepreneurs will actually want to run these businesses, take on the legacy and historical weight needed to sustain them — because if many family enterprises aren't effectively taken over and run for the long term, many will be sold. Over time, that's not necessarily a bad thing, but in the short term it's a real change to the commercial and business fabric you're describing.

I'd like to thank you for joining today, Dr. Jan-Philipp Ahrens. We covered so much ground — the hard and soft elements of family enterprise, the quantitative and qualitative sides of business, and how enterprises are increasingly intelligent, adaptive entities requiring both human intuition and the power of technology. Thank you for sharing your personal journey today as well.

Jan Ahrens: Thank you for having me. One more thing, Adam — if you think of the firm as that intelligent entity, the next big question is what adding AI to that entity will really do. I think the next big thing we'll experience is being able to talk to firms directly and get informed answers back. I'm really looking forward to what happens next.

R. Adam Smith: Thank you for that, Jan. This is R. Adam Smith, signing off. Stay tuned for the next episode of the Family Business Audiocast.

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