Non-family Managers Research Articles

Family ties, firm performance and managerial compensations in African SMEs

This paper uses data from the World Banks Enterprise Surveys to assess the impact of family ties on managerial compensations in selected African SMEs. The results suggest that while managers who are related to the owners of an enterprise receive higher performance-based compensations than professional managers, their compensations are less sensitive to firm performance than that of professional managers. These findings parallel those of Chinese enterprise managers identified by Cai et al. (Rev Econ Stat 95(3), 850–867, 2013). This suggests that family relations play a significant role in compensation schemes for enterprises in developing and emerging markets and that differential treatment exists between family and non-family managers.

When does family involvement produce superior performance in SME family business?

This study analyzes how family involvement leads to high performance in SME-family businesses (SME-FB). This research considers family involvement in management and firm governance, development of family governance, firm size, generations in FB, and ownership concentration. Results show three combinations that lead to high performance: 1) a large-enough SME-FB with a family CEO and a board with significant presence of non-family directors; 2) a large-enough SME-FB in its first generation, without family government structures, and that a non-familial top managerial team runs; 3) a large-enough SME-FB with low ownership concentration and family governance structures.

Are All Non‐Family Managers (NFMs) Equal? The Impact of NFM Characteristics and Diversity on Family Firm Performance

AbstractManuscript TypeEmpiricalResearch Question/IssueAlthough non‐family managers (NFMs) can be expected to influence firm performance, this issue is largely under‐investigated. In this study, we examine how diversity inside the non‐family component of the top management team (non‐family team, or NFT) influences family firm performance. More specifically, we investigate the performance effects of three specific sources of NFT diversity (NFT size; NFT tenure diversity; and NFT dominant functional diversity).Research Findings/InsightsThe analysis of 584 survey responses by top managers representing 97 complete NFTs (and the related top management teams, TMTs) out of the top 500 family‐controlled firms in the Italian furniture industry indicates that (1) NFT‐dominant functional diversity improves firm performance; (2) a U‐shaped relationship exists between NFT tenure diversity and family firm performance; (3) an inverted U‐shaped relationship exists between NFT size and family firm performance. Additionally, we show that the relation between non‐family manager characteristics and firm performance is moderated by family dominance in the entire TMT, that is, the proportion of family to non‐family managers.Theoretical/Academic ImplicationsOur results call for further exploration regarding the demographic characteristics of non‐family managers and their effect on the performance of family firms. In this way, they have several implications for the family business literature, contributing to the growing debate on the socio‐emotional wealth (SEW) perspective of family firms’ behaviors. Moreover, our results highlight the importance of better contextualizing research on strategic leadership and strategic leaders.Practitioner/Policy ImplicationsOur study suggests that the choice of outsiders should take into account not only their “market value” and reputation, but also the attributes of other NFMs among the company's executives, providing guidance to family owners in their decisions about professionalization.

Examining the Impact of Family Management on Patent Applications for German Industrial Firms

Elaborating the innovation behavior of family-owned businesses, prior research primary focused on the impact of ownership structure on innovation. However, surprisingly little attention has been given to understand the role of family management in this context. Our study contributes to literature closing this research gap. Using the number of applied patents as proxy for R&D outcome, our findings show that family management affects R&D output negatively. The empirical results of the study are in line with expectations drawn from agency and stewardship perspectives supposing substantial differences in research and development strategies of family and non-family managers.

The Role of Professionalization and Managerialization in Family Business Succession

This paper aims to analyze the role of professionalization (the involvement of professional non-family managers) and of managerialization (the use of managerial mechanisms) in the family firm’s succession process. In the light of the scarce literature on such issues, it aims to open the black box, giving some insights on the relationship between the involvement of non-family managers, the use of managerial mechanisms, such as strategic planning (SP) and management control systems (MCSs), and family business succession. This is an explorative paper aimed at developing a theoretical framework on the outlined issues. The research method is based on the longitudinal analysis of a case study of a European medium-sized family firm, that made different choices in terms of: 1) how to cope with the family succession, 2) the involvement of non-family members, and 3) the role assigned to SP and MCSs. The longitudinal analysis of the case study shows that non-family professional managers may have a relevant role in the family firm’s succession, but in particular former employees of the company. A significant role of both family and firm governance mechanisms is also showed. Instead, managerial mechanisms, such as SP and MCSs, are introduced mostly to cope with firm’s and environment’s complexity and agency conflicts. Consistently with research findings, we propose a research framework, articulated in a few propositions, concerning the role of professionalization and managerialization in helping family firms to overcome generation succession.

Lone founders, types of private family businesses and firm performance

Although previous research focused on private firms has revealed that family involvement generally has an insignificant or negative effect on performance, the effects of family on the performance of non-listed firms has not been tested based on a clearly defined relationship. This study considers the limited evidence regarding the performance of private family firms and the debate about whether lone founder and family firms perform differently. It replicates and provides a deeper examination of the Miller et al. (2007) study for private family firms. Therefore, our contribution is mainly empirical. Our results indicate that lone-founder firms perform better than family businesses (FBs) in a private firm context. Our findings also reveal that firms with family involvement do not significantly outperform other firms. Nevertheless, when FBs are characterized by ownership concentration and non-family management, their performance is significantly lower than other firms.

Family firms and the incentive contracting role of accounting earnings

We investigate how family controls affect the sensitivity of the variable pay of top management to the firm’s accounting-based performance (PPS) in order to deal with both the traditional agency problem between owners and managers, and the central agency problem between controlling and minority shareholders. Using five-year data from Taiwan-listed firms, our results show that PPS is stronger for both non-family managers employed by family firms, and family managers, and is weakest for managers in non-family firms. Additionally, PPS is more pronounced in family firms with potential central agency problems, when the CEO is not a family member than when the CEO is.

An explorative study on family firms and open innovation breadth: do non-family managers make the difference?

The degree of openness in innovation is a key strategic decision of family firms (FFs). Although there is an increased interest in studies on FFs and open innovation (OI), the existing knowledge is rather limited. This study explores the determinants of OI in FFs. We focus on two distinctive types of FFs: those held and managed by family members and FFs where ownership and management are disjointed, leading to non–family managers being involved in strategic decision–making. Our study shows that FFs managed by non–family managers are motivated by an innovation strategy that is more aggressive, more oriented towards technological excellence and radical innovation as compared to FFs managed by family managers. And they are more likely to search for a broader set of external sources in embracing OI. We argue that the presence of non–family managers is what makes the difference in shaping firm behaviour in terms of OI breadth.

How is firm performance related to family ownership in Malaysia and does board independence moderate the relationship?

This paper explores whether the performance of publicly-listed family-controlled firms in Malaysia is related to the extent of the families’ ownership. It also explores whether there are any moderating effects from the various attributes of board independence on the ownership-performance relationship of these firms. The findings indicate that increasing families’ ownership is related to better firm performance under the condition that the families do not have absolute ownership and control over their firms. However, giving more control via majority ownership that causes the families to become the only dominant party might enhance their ability to expropriate and cause firm performance to deteriorate. Therefore, proposal to increase ownership as a mean to reduce the classical agency-theory problems should be caveated under the principal-principal perspective. It is also found that the various board independence attributes do not exhibit any moderating influence on the family ownership-firm performance relationship. This finding may indicate the powerlessness of the boards of director in Malaysia when encountered with the influential controlling families whom the directorship tenures and opportunities of the non-family directors depend on. Decisions made by the controlling families which have bearing on firm performance may not have been effectively counter checked by the boards due to the lack of truly independent nature of the boards

Risk aversion in the family business: the dark side of caution

Purpose – This paper aims to shed light on the potential downsides of risk aversion in family firms. Moreover, it seeks to provide measures on how to balance risk taking and risk aversion in family businesses. Design/methodology/approach – The article first presents four “dark sides” of risk aversion in family businesses and then describes three groups of measures to balance risk aversion and risk taking. Both the dark sides as well as the measures to balance risk aversion and risk taking are derived from recent scientific research. Findings – Family businesses may decrease risk aversion and foster risk taking and innovativeness by creating transparency on their risk profiles and including outside knowledge in the form of non-family managers, directors or shareholders. Moreover, properly educating and integrating younger family generations might also alleviate an overly high focus on short-term risk aversion. Practical implications – Family business leaders might find the approach and findings presented in this paper helpful for securing the longer-term survivability of their firms and for improving innovativeness. Originality/value – This article is among the first to deal with the dark sides of risk aversion in family businesses, which might endanger their longer-term survivability.

Nonfamily Managers, Family Firms, and the Winner's Curse: The Influence of Noneconomic Goals and Bounded Rationality

We explain why family–centered noneconomic goals and bounded rationality decrease the willingness and ability of small– and medium–sized family firms to hire and provide competitive compensation to nonfamily managers even in a labor market composed of stewards rather than agents. Family–centered noneconomic goals attenuate the ability to attract high–quality, nonfamily managers by promoting inferior total compensation packages, fewer opportunities for advancement, idiosyncratic strategies, and higher performance expectations. Furthermore, bounded rationality limits nonfamily managers’ ability to meet performance expectations when hired. The result is the “winner's curse,” where neither the economic nor noneconomic goals of family owners are fully achieved.

The Effect of Organizational Characteristics on the Appointment of Nonfamily Managers in Private Family Firms

This article examines the effect of organizational characteristics (firm innovativeness, firm internationalization, firm size) on the appointment of nonfamily managers in private family firms while taking into account the moderating role of socioemotional wealth (SEW). While these organizational characteristics increase the need for expertise, family firms cope with a limited pool of family managers. Therefore, new creative knowledge from nonfamily managers is needed. However, results from a sample of 145 Belgian family firms indicate that the positive effect of organizational characteristics on the integration of nonfamily managers decreases when family-related objectives reflected by SEW become more important for the firm.

The Use of Incentive Compensation Among Board Members in Family Firms

Although previous literature has focused on managerial compensation differences between family and non-family firms, the examination of differences in the compensation structure of family directors versus their non-family counterparts within family firms has received much less attention. We analyze several contingencies related to directors’ kinship ties to the owning family that may influence directors’ total compensation levels and their incentive compensation in family firms. The empirical evidence is provided by a sample of publicly listed family firms from the United States. Our results show that family-member directors receive a lower share of variable pay and a lower level of total compensation than non-family directors within the same firm. In addition, a high family ownership concentration and a large proportion of family members on the board impact negatively on the use of incentive compensation among board members with kinship ties to the owning family.

Nonfamily Managers, Family Firms, and the Winner's Curse: The Influence of Noneconomic Goals and Bounded Rationality

We explain why family‐centered noneconomic goals and bounded rationality decrease the willingness and ability of small‐ and medium‐sized family firms to hire and provide competitive compensation to nonfamily managers even in a labor market composed of stewards rather than agents. Family‐centered noneconomic goals attenuate the ability to attract high‐quality, nonfamily managers by promoting inferior total compensation packages, fewer opportunities for advancement, idiosyncratic strategies, and higher performance expectations. Furthermore, bounded rationality limits nonfamily managers' ability to meet performance expectations when hired. The result is the “winner's curse,” where neither the economic nor noneconomic goals of family owners are fully achieved.

Untangling Board Composition in Family Firms: Main Effects on Firm Performance

This article aims to clarify the still cryptic nexus existing between family involvement in the board of directors and firm performance. According to prior literature, it is not clear yet if a high family representation in the board is a counter-productive factor for organizational performance or not. Stemming from principal-principal conflict and faultline arguments, we try to shed new light on this aspect, bringing in the debate an unconventional classification of family board members (distinguishing between family directors working and not- working in the firm), in addition to the traditional dichotomous classification between family directors and non-family directors. Results coming from a unique sample of 421 Spanish privately- held family firms, suggest that while using conventional measures of family representation in boards (family directors versus non-family directors) there is an inverted U-shaped relationship between the presence of the family in the board and firm performance, when adopting a new standpoint (i.e., the ratio of family directors that also work in the firm) there is a U- shaped relationship between the level of this ratio and firm performance. We observed that the lowest performance is reached in presence of boards characterized by an equal representation of the two family sub-groups suggesting that principal-principal conflicts and factional faultlines are detrimental to firm performance.

Buoys & Anchors: Owning Family Behaviours that Influence Non-family Manager Preferences to Stay

This paper addresses calls for greater attention to the non-family managers who work within family-owned firms. Expected to play increasingly prevalent and influential roles within such organizatio...

The Effect of Family Business Professionalization as a Multidimensional Construct on Firm Performance

In family business literature, business professionalization is often simplified into a binary characteristic, that is, the presence of a nonfamily manager. We contend that other professionalization features, which may act simultaneously, can influence firm performance. This study addresses professionalization as a multidimensional construct, as intended by general management literature, and assesses the impact on business performance based on these underlying dimensions. Using a representative sample of 523 private elgian family businesses, we identify five different dimensions of the professionalization construct by means of an exploratory factor analysis. Further regression results revealed significant positive effects of increasing nonfamily involvement, implementing human resource control systems, and/or decentralizing authority on firm performance. However, nonfamily involvement only seems to improve firm performance if there is sufficient decentralization of authority and an average or even low amount of formal financial control systems.

Management accounting in the family business: tipping the balance for survival

Purpose – This article presents the family business-specific benefits of taking a proactive approach to using management accounting practices and information. Design/methodology/approach – The (scarce) literature on management accounting in family businesses is used to discuss the obstacles and benefits of management accounting in family businesses. The benefits are presented using the three-circle model, which displays the family business system consisting of the three subsystems ownership, business and family. Findings – For family businesses, the main benefits of (increasingly) using management accounting should lie in codifying tacit knowledge, preparing for family and non-family succession, facilitating more fact-based decision-making and alleviating the production of proper information of non-family investors and creditors. Practical implications – Family business owners, as well as non-family managers in family businesses, might find helpful food for thought regarding how to establish or develop further the management accounting system in a family business. Originality/value – This article is among the first to discuss the benefits of management accounting for family businesses.

Blending personal and managerial capitalism: Bertelsmann's rise from medium-sized publisher to global media corporation and service provider, 1950–2010

This article suggests that the distinction between family and managerial capitalism is not as clear as often assumed and presents empirical evidence for hybrid forms of governance. It is based on a case study of Europe's largest media company, Bertelsmann AG, which grew from a mid-sized firm into a large multinational after 1950. Family-led until 1981, Bertelsmann is still family-controlled today. The article analyses the structure of the family, the remodelling of ownership and controlling rights, the methods of financing, and the role of non-family managers. On all levels, creative solutions were found that overcame traditional forms of patriarchal family capitalism and introduced strong elements of managerial capitalism into a family business. Managers enjoyed considerable space for autonomous action providing they did not challenge the ground rules set by the family.

Top management teams and performance in non-listed family firms

AbstractSupporting on recent theoretical approaches to the concept of familiness based on the notion of social capital, this study analyzes the composition of top management teams in non-listed family firms and its effect on the performance of these firms. An empirical analysis comprising 929 Spanish private family firms highlights the positive and significant influence of the inclusion of non-family managers, the family nature of top executives, as well as the presence of the founder. The study includes no significant results regarding homogeneity within family managers, or the interaction between a top family executive and the proportion of non-family managers.