Non-family Managers Research Articles

Beyond agency and stewardship theory: shareholder–manager relationships and governance structures in family firms

PurposeChallenging the static view of family business governance, we propose a model of owner–manager relationships derived from the configurational analysis of managerial behavior and change in governance structure.Design/methodology/approachStemming from social exchange theory and building on the 4C model proposed by Miller and Le Breton-Miller (2005), we consider the evolving owner–manager relationship in four main configurations. On the one hand, we account for family businesses shifting from a generalized to a restricted exchange system, and vice versa, according to whether a family manager misbehaves in a stewardship-oriented governance structure or a nonfamily manager succeeds in building a trusting relationship in an agency-oriented governance structure. On the other hand, we consider that family firms will strengthen a generalized exchange system, rather than a restricted one, according to whether a family manager contributes to the stewardship-oriented culture in the business or a nonfamily manager proves to be driven by extrinsic rewards. Four scenarios are analyzed in terms of the managerial behavior and governance structure that characterize the phases of the relationship between owners and managers.FindingsVarious factors trigger managerial behavior, making the firm deviate from or further build on what is assumed by stewardship and agency theories (i.e. proorganizational versus opportunistic behavior, respectively), which determine the governance structure over time. Workplace deviance, asymmetric altruism and patriarchy on the one hand, and proorganizational behavior, relationship building and long-term commitment on the other, are found to determine how the manager behaves and thus characterize the owner's reactions in terms of governance mechanisms. This enables us to present a dynamic view of governance structures, which adapt to the actual attitudes and behaviors of employed managers.Research limitations/implicationsAs time is a relevant dimension affecting individual behavior and triggering change in an organization, one must consider family business governance as being dynamic in nature. Moreover, it is not family membership that determines the most appropriate governance structure but the owner–manager relationship that evolves over time, thus contributing to the 4C model.Originality/valueThe proposed model integrates social exchange theory and the 4C model to predict changes in governance structure, as summarized in the final framework we propose.

Signaling and Stakeholder Honesty: On the Individual and Combined Effects of Owner Family Membership and Religious Affiliation

Stakeholder honesty is highly important for managers, for instance, in decisions involving hiring. Due to reciprocity, stakeholders are more likely to be honest if the managers act honestly themselves. However, external stakeholders often cannot observe managers’ actions and instead have to rely on signals. This article examines the effects of two signals—a manager’s owner family membership and religious affiliation—on stakeholder honesty. By conducting an economic experiment and a survey, we find that stakeholders behave more honestly toward family managers compared to nonfamily managers. This effect is reinforced if the family manager is presented as religious.

Introduction to the Special Issue

Introduction to the Special Issue

Corporate governance in the largest family firms in Latin America

PurposeThe aim of this study is to explore and understand corporate governance patterns in family firms across Latin America. This is in response to several calls in the academic literature urging for more empirical studies in corporate governance in developing regions.Design/methodology/approachFollowing a configurative perspective, a hierarchical cluster analysis is applied to a sample of the 155 largest Latin American family firms.FindingsThe authors identify three main corporate governance configurations across Latin American countries. First, the exported governance model resembles many characteristics of Anglo-American and Continental Europe governance patterns of public listed control, having independence from the board of directors, and mainly hiring non-family management. Second, the super-familial governance model describes private ownership where one or multiple families control both the board of directors and the top-management team. Finally, the hybrid governance model is the largest cluster identified in the sample and combines governance characteristics of both of the foregoing configurations. This configuration exhibits ownership structured through public offerings of shares combined with leadership of the board of directors by a family member as well as moderate family influence on the board and management.Originality/valueThis is the first study to investigate corporate governance in the largest listed and privately-owned family firms in Latin America. The article extends the conversation on family firm heterogeneity and contributes to the configurative approach in the family business field by offering a cross-country perspective and identifying meaningful taxonomies that are applicable beyond national boundaries.

Sucessão nas empresas familiares e o impacto no endividamento. Evidência para as PME da região de Leiria

As empresas familiares estão presentes mundialmente, contribuindo positivamente para a economia, criação de riqueza e emprego. A continuidade destas empresas depende essencialmente da sua sucessão. Neste trabalho é apresentado um enquadramento teórico sobre a sucessão das empresas familiares, o que deve ser feito e os principais erros. Posteriormente, é feito um levantamento sobre a sucessão das empresas familiares da região de Leiria, em Portugal. Por fim, é analisado o impacto da geração da empresa e da existência de gestores não familiares no endividamento destas empresas. Os resultados evidenciam que a maioria das empresas se encontra na geração do fundador e que os gestores são maioritariamente familiares. Porém, uma percentagem de 45% dos inquiridos já se preocupou com a sucessão e elaborou um plano, embora o tenha feito maioritariamente sem o apoio de especialistas na área. Por fim, a geração da empresa e o tipo de gestor não tem impacto no endividamento destas empresas.

Innovation in family firms – a generational perspective

Purpose The purpose of this paper is to clarify the generation–innovation relationship in family firms. The study acknowledges that the degree of family influence on a firm varies over generations and tests if the generation–innovation relationship is affected by two defining characteristics of family influence (family management and intention to transfer family control). Based on recent research that deconstructed a family’s influence, this paper seeks to contribute to disentangling the ambivalent findings on family firm innovation. Design/methodology/approach The study draws on the Community Innovation Survey and analyzes a comprehensive data set of German family firms. The analysis builds on a structural equation model and tests if the two defining characteristics of family influence serve as mediators in the generation–innovation relationship. Findings The study suggests that family firms raise their innovation output over generations. Yet, a considerable fraction of the increase occurs via indirect paths – particularly via the intent to transfer family control to succeeding generations. The results indicate that increased family influence has positive and negative effects on innovation, reinforcing the need for careful application of the family firm definition. Research limitations/implications The sample is exclusively composed of German firms and the generalizability of the findings is limited. Future researchers may also overcome further limitations related to the survey data used. Practical implications The results urge family firm leaders to recognize the vital role of succession planning and non-family management involvement in an innovation context. Originality/value The study deconstructs the varying degree of family influence over generations and adds to the fields of family firm innovation, family firm definitions and typologies.

Bridging the micro-macro gap: A multi-layer culture framework for understanding entrepreneurial orientation in family firms

Prior research on the antecedents of entrepreneurial orientation (EO) in family firms heavily relied on structural family-level characteristics but neglected the contribution of the business system. This may inhibit the current debate as it limits our understanding of the organizational mechanisms through which “familiness” is translated into EO. To elaborate the adolescent theory of EO in family firms and motivate future work on the topic, this article seeks to bridge the micro (family)-macro (firm-level EO) gap by introducing a multi-layer culture framework. Using an interpretivist single case study design, the theoretical utility of that framework is demonstrated by capturing the lived experiences of both family and nonfamily managers involved in shaping the organizational culture of a second-generation German family firm. The model that emerged from the analysis of archival and ethnographic interview data cuts across analytical levels and illustrates, in a fine-grained manner, how the identified cultural concepts operate and interact to stimulate EO. Specifically, it shows that family values of altruism and preservation are translated into EO by an organizational culture characterized by long-term and involvement orientation as well as psychological safety and empowerment climates. The model further uncovers the specific underlying processes of cultural transmission, such as building a quasi-family, demonstrating servant leadership behaviors, providing a written self-image, and applying value-based recruitment principles.

The effect of nonfamily managers on decision-making quality in family firm TMTs: The role of intra-TMT power asymmetries

In this paper, we examine the impact of the presence of both family and nonfamily managers on TMT decision-making quality. Based on a unique multiple respondent sample of 284 managers from 52 Belgian private family firms, we find that a higher proportion of nonfamily managers reduces TMT decision-making quality through intra-TMT ownership power asymmetries. In addition, we find that variety in knowledge and expertise in the TMT mitigates the negative effect of intra-TMT ownership power differences on decision-making quality. As such, we argue that expertise power can be a good counterbalance for the negative impact of a higher proportion of nonfamily managers on TMT outcomes in family firms.

The roles of family ownership and family management in the governance of agency conflicts

The study examined the interplay of the two separate governance dimensions of dominant ownership and management control that differentially affected the prevalence of Principal-Agent (PA) and Principal-Principal (PP) conflicts, as well as their respective impacts on shareholder value. The sample comprised of 675 Indian firms examined during the period 2006–2015. Dominant family ownership reduced the negative impacts of PA conflicts, while exacerbating the negative impacts of PP conflicts on shareholder value. However, when family ownership was combined with non-family management, the negative effects of PA conflicts were minimized, while creating a favorable impact of PP conflicts on shareholder value. Thus, the governance configuration that minimizes the undesirable impacts of both types of agency conflicts and is conducive to encouraging stewardship behaviors appears to be one where the influence of dominant (viz., family) owners is balanced by the executive decisions of non-family managers (officiating in their roles as stewards).

Family or Non-Family? A Multitask Model on Manager Selection in Family Firms

Prior economic research is very critical about family CEOs and family management. Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates are cited as reasons that speak against family management. Still, the empirical reality is different. A surprisingly large share of firms is run by family managers. Our study provides a rational economic explanation for this paradox, linked to the multitasking problem in managing family firms. We compare the performance of family and non-family managers in a moral-hazard model with imperfect performance measures, where managerial tasks are related to the economic and non-economic goals of the business-owning family. While incentive pay is more effective for nonfamily managers, the associated effort distortion towards economic outcomes is less pronounced for family managers. When economic and non-economic tasks are strong substitutes, the family hires a non-family manager at the expense of its non-economic goals. However, the more complementary the tasks, the more aligned the performance measure with the family's goals, and the less severe the moral-hazard conflict, the more likely a family manager is optimal. We find that family managers can be preferred even if they have lower ability than non-family managers on average. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family businesses deciding between hiring managers in or outside the family.

Non-family managers in family firms: review, integrative framework and future research agenda

In recent years, non-family managers (NFMs) in family firms have received increased scholarly attention, and numerous papers related to this topic have been published. Since the last academic review of NFMs in family firms (Klein and Bell in Electron J Family Bus Stud 1(1):19–37, 2007) was published a decade ago, an increasing number of relevant papers have been published. However, an integrative understanding of NFMs in family firms is still missing. An updated review in this area is useful for assessing the current state of the literature and for proposing fruitful directions for further research. For these reasons, this paper systematically reviews 118 papers relevant to the study of NFMs in family firms. The findings from the sample are organized, synthesized and analyzed with the help of an integrative framework we developed based on Gersick et al.’s (Generation to generation: life cycles of the family business. Harvard Business Press, Boston, 1997) three-circle model separated into nine different clusters. In addition, we identify a broad array of important future research avenues.

Bounded Rationality and Bounded Reliability: A Study of Nonfamily Managers’ Entrepreneurial Behavior in Family Firms

We use transaction cost economics to explain the individual-level entrepreneurial behavior of family and nonfamily managers in family firms. We argue that nonfamily managers exhibit lower entrepreneurial behavior than family managers, particularly after the founder’s departure from the business. Moreover, we identify an expanded set of factors through which family firms can facilitate nonfamily managers’ entrepreneurial behavior, including monitoring, incentives, distributive justice, access to the top management, and job control perceptions. We test these hypotheses in a sample of 296 family firm managers, contributing new insights on nonfamily managers and corporate entrepreneurship in family firms.

Non-family Managers and Innovation in Family Firms: The Effect of Decentralization

The effect of family ownership on innovation is widely debated. While family firms are often characterized as risk-averse and sluggish, under certain circumstances, they can be quite innovative, an...

Internationalization and entrepreneurial orientation of family SMEs: The influence of the family character

Internationalization is an important entrepreneurial strategy for promoting the long-term growth and survivability of small and medium-sized enterprises (SMEs). Family involvement in top management teams (TMTs) can explain the heterogeneous behaviors of these firms’ international entrepreneurship process. This paper analyzes the moderating effects of the family’s influence on the relationship between entrepreneurial orientation and internationalization with two TMT diversities found only in family firms: the family TMT ratio and generational involvement. An analysis of 191 Spanish family SMEs indicated that entrepreneurial orientation plays a significant role in explaining the degree of internationalization in family firms and that a diversely formed TMT shapes this relationship. A high concentration of family members in managerial positions hinders the international entrepreneurship process. This fact highlights the importance of hiring non-family managers to promote internationalization. The results also reveal that involving multiple generations in decision-making hampers entrepreneurial internationalization, generating control and coordination problems.

Limits to psychological ownership in the family business

PurposeThe purpose of this paper is to analyze how the sense of control, psychological ownership and motivation of both family owners and non-family managers in family firms are interrelated. This paper analyzes the limits set by family owners when delegating control to their non-family managers and the resulting potential for conflict and demotivation of the non-family managers.Design/methodology/approachBuilding on the existing literature, first, an overview of the literature on psychological ownership and control is presented. Second, the paper analyzes the insights gained from interviews with 15 family owners and non-family managers in five family firms.FindingsThis study finds that motivating non-family managers is not merely a matter of promoting a sense of psychological ownership throughout the company. A strong sense of psychological ownership may facilitate but also hinder the cooperation between family and non-family. Family owners are often only willing to delegate operational control, while non-family managers also feel entitled to participate in strategic decision making. This leads to the proposition that non-family managers’ psychological ownership in family firms’ conflicts with family owners’ desire to maintain control.Originality/valueThis study answers the calls to seek additional insight in how non-family managers function within family firms. By shedding light on the complex relationship between control, psychological ownership and motivation in family firms, the study responds to the calls for more empirical validation of the psychological ownership framework and for more research into the potential negative effects of psychological ownership in the family business.

Sistemi di gestione e controllo e professionalizzazione delle imprese familiari. Uno strumento di accreditamento intraparentale?

Within the family business field of research, professionalization and succession have strongly attracted the scholars’ attention. Both the processes entail crucial changes for family firms, whose outcomes are mysterious and sometimes differing from expectations. Though scholars have identified several relationships between these processes, the way in which succession and professionalization could evolve in the medium-long term has not been adequately investigated. In particular, it is not clear how the introduction of management control systems and the hiring of skilled nonfamily managers may be combined with the successor’s professionalization. This paper builds on an Italian longitudinal case study analyzing the use of managerial systems and the introduction of professional managers during the intra-family succession. Results show that the successor’s seal of approval moves the introduction of managerial systems and the hiring of professional managers to the detriment of long-term survival and growth.

Family firm internationalization: Heritage assets and the impact of bifurcation bias

Research Summary:We develop a new conceptual framework to uncover governance‐related determinants of family firms’ internationalization, building upon internalization theory. We assess how family firm governance features determine internationalization patterns on two key dimensions: location choice and operating mode. We focus on family governance characteristics that might drive suboptimal internationalization patterns and on removing such suboptimality. We conclude thatbifurcation bias, defined as thede factodifferential treatment of family orheritageassets versus nonfamily assets, represents a critical family firm‐specific barrier to achieving efficiency in international operations. In the short run, the key difference in international governance is between bifurcation‐biased family MNEs and all other types of MNEs. In the longer run, inefficient, bifurcation‐biased decision making will make place for comparatively more efficient governance.Managerial Summary:Family firms are susceptible tobifurcation bias—a default preferential treatment of family members and resource bundles that hold positive emotional meaning to the family, that is,heritage assets. Such preferential treatment contrasts with that afforded to professional, nonfamily managers and other resources, with which the founding family does not entertain a positive emotional connection. If left unremedied, bifurcation bias will lead to poor decisions in family‐owned multinationals that undertake international expansion, in terms of the choices of which markets to enter and how to enter these. These types of dysfunctional decisions will lead to a decline in competitiveness as compared to nonfamily multinationals. Family firms should, therefore, identify and actively prevent bifurcation bias by implementing the specific safeguarding strategies suggested in this study.

Inside the family firms: The impact of family and institutional ownership on executive remuneration

This study empirically examines the impact of ownership structure on executive remuneration of listed family firms in Malaysia. Fixed effects model as the panel analysis of 279-listed family firms from 2010 to 2014 shows that institutional investors could not represent the minority shareholders’ interest in curbing the expropriation via executive remuneration by the controlling family shareholders. When the firm CEOs are non-family directors, both domestic and foreign institutional investors could exert a significant negative impact on executive remuneration. Thus, this study provides a theoretical contribution by affirming that the Type-II agency conflict between controlling shareholders and minority shareholders in family firms is ameliorated when the firm CEOs have no family relationship with the controlling shareholders. In addition, this study also unveils that domestic and foreign institutional investors have a different impact on the executive remuneration, where the governance role of the former prevails over the latter. The findings of this study would be useful for the policy-makers and regulators such as Securities Commission Malaysia and Minority Shareholder Watchdog Group to assess the expropriation issue and corporate governance in family firms.

Strategic decision-making in family firms: an explorative study

Strategic decision-making (SDM) processes in family firms represent a complex task involving family managers, family members and, in most cases, non-family managers. Drawing on the concept of socio-emotional wealth (SEW), this study aims to explore the characteristics of SDM processes in family firms, which groups of stakeholders they involve, and how the family itself influences the process. We present a multiple case study based on qualitative data collected through 30 interviews, representing 15 family firms in the service industry. Upon discussing the findings, we are able to identify family membership, adherence of decision-makers to SEW goals, as well as the expertise and work experience of employees as crucial factors in joining and forming SDM in family firms. Moreover, strategic decisions in family firms depend on long-term firm goals and are affected by the need to cooperate/compete with other firms to overcome barriers of size and hostile environmental dynamics.

Інтернаціоналізація сімейного бізнесу: сутність процесу та чинники впливу.

The article examines the role and place of the family business as an effective form of entrepreneurship in the world economy. The internationalization of family companies as a trend of the modern entrepreneurial environment is presented. The content and directions of the internationalization of the family business are defined. Factors of influence and peculiarities of internationalization of family companies are revealed. Examples of the integration of Ukrainian family companies into the world economy are given. The advantages of internationalization for family companies are determined. The interrelations between internationalization and brands of family business, management of family firms, and the network of family companies are outlined. Promising markers for further research are proposed, among which: the impact of the internationalization of family companies on the development of family business in the domestic market; branding and internationalization; professionalization of family managers and internationalization; training abroad and internationalization of their own family business; The role of non-family managers in the internationalization of the family business.