Keeping it in the family

Is the practice of inheritance legitimate? This was the question posed to philosophers, economists, and other social scientists in a conference subtitled “Ethical and Economic Aspects of Wealth Transfers” at the University of Antwerp in 1995. Haslett (1997), in a contribution to the conference entitled “Distributive Justice and Inheritance”, argued that the practice of inheritance is illegitimate. The practice of bequeathing wealth, he claimed, is inconsistent with an essential value of capitalism: equality of opportunity. Inherited wealth gives an individual access to certain opportunities (e.g. personal investment in productive capital) that others cannot have without such wealth. In a similar vein, Halliday (2018) argues that the practice of inheritance results in economic segregation, which occurs when “an individual’s life prospects, and/or social status, depend on [whether] his or her group […] [possesses] greater wealth than other groups” (1). He further explains, “[the practice of inheritance makes] one’s prospects in life become dependent on the fortune of being born into a family that already possesses substantial wealth, which it has managed to retain through the passing of generations” (1). Family business succession is a specific type of inheritance that has received little attention in the literature, but retains these potentially negative impacts on equality of opportunity. There are two ways in which a family business can be inherited: by passing on ownership of the business, or by passing on management of the business. Business ownership succession, on the one hand, involves a kind of wealth transfer wherein the wealth grows as the business itself grows, even without the inheriting person’s active effort. This gives individuals inheriting ownership of a business an unfair advantage over others whose parents do not possess such productive capital, much less pass it down to their children. Business management succession, on the other hand, might involve giving family members an advantage over equally qualified (or even better qualified) non-members of the family when making appointments for vacant positions left by retired or deceased family members.