Wealth Inheritance and Corporate Governance Risks in European Legacy Families: Legal Disputes, Tax Settlements, and Business Continuity

In the intricate world of European legacy families, the interplay between wealth inheritance, corporate governance, and legal challenges has become a critical determinant of business continuity and shareholder value. Over the past five years, legal disputes and tax settlements have increasingly exposed vulnerabilities in governance structures, particularly as family-owned enterprises navigate cross-border regulatory landscapes and socioemotional wealth (SEW) priorities. This analysis explores how these dynamics shape risk profiles for investors and what strategies can mitigate their impact.

Legal Disputes and Tax Settlements: A Growing Financial and Governance Burden

The global litigation funding market, valued at USD 18.2 billion in 2025, has emerged as a lifeline for high-stakes legal battles among European legacy families [3]. As tax enforcement initiatives like the U.S. Department of Justice’s Swiss Bank Program and FATCA intensify scrutiny, family businesses are increasingly relying on third-party litigation funding to manage costs. For instance, international tax attorney William M. Sharp has advised on restructuring cases for European family offices, particularly those with U.S. real estate holdings, to align with evolving compliance obligations [4]. These interventions highlight the growing alignment between legal and financial strategies to resolve disputes, yet they also underscore the rising complexity of cross-border tax compliance.

A notable case in Ireland—a 11-year civil dispute described as the longest in the country’s history—exemplifies the toll of protracted legal battles on family cohesion and business operations [5]. Such disputes often stem from conflicting visions for the firm’s future, exacerbated by SEW motivations that prioritize family control over transparency. These conflicts not only strain relationships but also divert resources from strategic growth, directly impacting shareholder value.

Governance Risks: The Shadow of Socioemotional Wealth

SEW, which emphasizes family legacy and control over financial returns, has been linked to governance risks such as nepotism, cronyism, and agency issues [1]. Research indicates that family businesses with weak governance structures are more prone to internal conflicts, particularly during succession planning [6]. For example, the principal–agent problem—where managers act in self-interest rather than for shareholders—becomes pronounced in family firms due to overlapping ownership and control [2]. This misalignment can lead to higher agency costs, including monitoring expenses and residual losses, which erode long-term profitability.

The 2025 foreign direct investment (FDI) survey reveals that 37% of European businesses scaled back or postponed investments due to tax policy uncertainties, a trend likely amplified in family firms [3]. Poorly structured tax systems, as highlighted by the 2024 International Tax Competitiveness Index, distort investment decisions and economic performance, further compounding risks for legacy businesses [2].

Business Continuity and Shareholder Value: A Delicate Balance

The resilience of European family businesses during crises, such as the 2020–2025 pandemic, has been attributed to "survivability capital"—the pooling of family resources to sustain operations [7]. However, this strategy is contingent on robust governance frameworks. For instance, firms participating in Italy’s Regime di Adempimento Collaborativo (Collaborative Compliance Program) reduced tax avoidance but saw declines in ESG scores, suggesting a trade-off between tax transparency and broader corporate responsibility [8].

Investors must weigh these factors carefully. While family businesses often exhibit long-term orientation and stakeholder loyalty, unresolved legal disputes and governance gaps can undermine continuity. The 2025 EU report on economic governance emphasizes the need for fiscal transparency and structural reforms, which are critical for family firms to align with regulatory expectations [1].

Recommendations for Investors

1. Prioritize Governance Audits: Investors should assess the strength of governance structures, including succession plans and conflict resolution mechanisms, to mitigate agency risks.
2. Leverage Tax Compliance Expertise: Engaging specialists like William M. Sharp can help family businesses navigate cross-border tax challenges, reducing litigation exposure.
3. Monitor ESG Trade-offs: While tax compliance is essential, investors should evaluate how compliance strategies impact broader ESG metrics to ensure holistic risk management.

Conclusion

European legacy families face a dual challenge: preserving their heritage while adapting to stringent regulatory and market demands. Legal disputes and tax settlements, though costly, offer opportunities to strengthen governance and transparency. For investors, the key lies in balancing SEW-driven priorities with modern corporate practices to safeguard both continuity and value. As the EU’s regulatory landscape evolves, family businesses that embrace structured compliance and conflict resolution will emerge as resilient long-term assets.

Source:
[1] Texts adopted - Wednesday, 12 March 2025 [https://www.europarl.europa.eu/doceo/document/TA-10-2025-03-12_EN.html]
[2] International Tax Competitiveness Index 2024 [https://taxfoundation.org/research/all/global/2024-international-tax-competitiveness-index/]
[3] 2025 foreign direct investment trends in Europe [https://www.ey.com/en_gl/foreign-direct-investment-surveys/why-europe-confidence-persists-despite-investment-at-a-nine-year-low]
[4] William M. Sharp | Professionals [https://www.hklaw.com/en/professionals/s/sharp-william-m]
[5] Full article: How family business practices are created [https://www.tandfonline.com/doi/full/10.1080/08985626.2024.2331149]
[6] Decoding the dark sides of family business: a synthesis [https://link.springer.com/article/10.1007/s11846-025-00860-7]
[7] Mobilisation of survivability capital - family firm response to the coronavirus crisis [https://www.researchgate.net/publication/356174478_Mobilisation_of_survivability_capital_-family_firm_response_to_the_coronavirus_crisis]
[8] Tax governance as a social responsibility of the firm [https://www.emerald.com/srj/article/doi/10.1108/SRJ-01-2025-0094/1256223/Tax-governance-as-a-social-responsibility-of-the]