Structural Power Equality between Family and Non-Family TMT Members and the Performance of Family Firms

Abstract

The upper echelons of publicly traded family firms can comprise family members and non-family members. Due to ownership and control factors, family members often wield significant influence in the upper echelons. If non-family members lack sources of influence, they may exhibit lower participation. Limited participation by non-family members lowers access to and integration of knowledge from non-family members, thus lowering the ability to devise strategic actions that increase performance. Drawing on the structural basis of power, we set out that greater equality in structural power (or compensation, status, and representation) across family and non-family top management team members increases performance in family firms. Moreover, we posit that this relationship is stronger under increasing environmental dynamism and higher governance performance, but weaker under the presence of a founder CEO. Using a sample of 231 publicly traded family firms, representing 1,934 firm-year observations from 2001 to 2010 and controlling for endogeneity, we find support for these proposed relationships.