Harmony, Justice, Confusion, and Conflict in Family Firms: Implications for Ethical Climate and the “Fredo Effect”

Abstract

Family firm leaders acting as stewards of a close-knit enterprise may attempt to build a positive atmosphere of trust, clarity, and cohesiveness in the firm’s operation. Yet, conditions unique to family firms may lead some family members to develop a heightened sense of entitlement and weaker bonds to the organization. This creates conditions for a Fredo effect, where a family member’s incompetence, opportunistic behaviors, and/or ethically dubious actions can impede the firm’s success, potentially resulting in a scandal that could lead to the firm’s demise and negative economic impact on employees, customers, and other stakeholders. Surveying 147 family-firm members, we examine the role that linkages among perceptions of family harmony norms, distributive fairness, role ambiguity, and relationship conflict play in the emergence of a family member who acts as an impediment to the firm, which can be manifested in damaging unethical behaviors. As hypothesized, family harmony norms and fairness perceptions are negatively related to family impediment, while role ambiguity is positively related to family impediment. However, relationship conflict mediates these connections, underscoring the potential damage this type of conflict can create in a family firm, even if leaders of the firm attempt to establish conditions that reflect a stewardship approach to firm governance. We discuss how these findings impact the development of an ethical climate in the family firm and the implications for family business survival or scandal.