A Configurational Approach to Analyze Family Governance and Family Firm Outcome Preferences

A Configurational Approach to Analyze Family Governance and Family Firm Outcome Preferences

Antonio Carlos Cuenca (University of Valencia, Spain) and Tomás F. González-Cruz (University of Valencia, Spain)
DOI: 10.4018/978-1-7998-1655-3.ch015

Abstract

This chapter follows the new research current that looks for heterogeneity between family businesses and its consequences. Through a cluster analysis, the chapter presents a taxonomy of four groups with different family government profiles, depending on the scope—number of issues considered—and the level of formalization. Alike, the research describes the different relative importance that each group attaches a to financial and non-financial performance measures, as well as to the dimensions of business and family success. The chapter analyzes a sample of 147 SME family businesses that belong to the tourism industry. All of them are closely held family businesses that range between the first and third generation. Results show how family businesses with wide and formalized family government systems place a special emphasis on those success measures related to stakeholder satisfaction, family satisfaction, and wealth preservation. They present a stronger continuity intention.
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Introduction

Along the last two decades Family-Business Academy focus his effort in developing a sound theoretical rationale, sometimes borrowed from mainstream general management literature –Agency Theory, Resource Based View, etc.–, sometimes as an own theoretical development that contributes to the general management Academy –Socio-Emotional Wealth–. In general terms, this theoretical background is useful in order to increase knowledge about family-firm distinctive mindset, resources, processes, practices and performance assessment, in comparison to non-family-firms.

Meanwhile, some papers began to analyze family-business as a heterogeneous phenomenon, looking to gain better understanding about how different family-business bear different mindsets, deploy resources following a distinctive logic; enact different financial, management and organizational practices; and look for a different mix of firm outcomes.

Two main research strategies allow facing this challenge. First, departing from a sound rationale based on accepted theories, the development of typologies of family-firms that share common characteristics that differentiate each type from other family-business(Dyer, 2006; Li & Daspit, 2016, Nordqvist, Sharma, & Chirico, 2014; Scholes & Wilson, 2014; Sharma, 2002). The Second one, consist on exploring family-business features looking for taxonomies. This research strategy is inductive and empirically driven, and results in classifications that are valuable to develop new theory and advance in understanding family-business as a rich and diverse phenomenon. This chapter is going to follow this second research strategy.

Papers presenting family-business taxonomies are recent and to some extent scarce, in fact Neubaum, et al., (2019) report 16 papers that count 1,639 citations, being the most cited contribution Tagiuri & Davis (1992). However, the majority of papers date form the last ten years.

With regard, the main issues that past research considers for building family-business taxonomies, research aligns into two main categories:

On the firm side, research considers criteria like:

  • Firm features, like size and ownership concentration (Miller et al., 2013) –;

  • Firm practices, like management professionalization–

  • firm orientations and capabilities, strategic (Basco & Rodriguez, 2009; Dekker et al., 2013), Internationalization (Swoboda & Olejnik, 2013) or innovation (Erdogan et al., 2019)–;

  • Family-firm resource endowment, Social capital (Sanchez-Ruiz et al., 2019)–;

  • Family-business goals/outcome profiles (Basco, 2017; Tagiuri & Davis, 1992).

On the family side:

  • family involvement and degree of family orientation (Birley et al., 1999; Basco & Rodriguez, 2011; Uhlaner, 2005);

  • family size and complexity (Westhead & Howorth, 2007);

  • communication patterns between the family and the firm, as well as inside and across the family group (Dalpiaz et al., 2014; Distelberg & Blow, 2011; Leiß & Zehrer, 2018; Zody et al., 2006);

  • founder and family values (García-Álvarez & López-Sintas, 2001; Rau, Schneider-Siebke & Günther, 2019).

Key Terms in this Chapter

Taxonomy: Categorization that uses inductive and empirically driven methods to identify similarities and assign corresponding cases into groups. These sets of similar groups are built into larger groups, allowing for comparison between and among groups across dimensions.

Family Constitution: It is an agreement that sets out the rights, values, responsibilities and rules applying to stakeholders in the family business, and provides plans and structures to deal with situations that arise in the course of the family business’s operation.

Family Council: A structural device that supports meetings of the familial group. The entire family, or a representative group of their members, sets plans, creates policies and strength family communications and bonds.

Family Firm Outcome Model: Firm outcomes can be determined by assessing a set of appropriate financial, operational, and external outcomes. A FFO is a reflection of the dominant coalition—mainly the owner family—intention and vision.

Closely Held Family Business: A family firm whose stock is held by a small number of people pertaining to the same kin group.

Family Business: A business governed and/or managed by a dominant coalition that are members of the same family or a small number of families, in a manner that is potentially sustainable across generations of the family or families.

Family Government System: Describes the process of joint decision-making that a family chooses to adopt based on their unique needs and characteristics. As a system, it can manage family members’ competing and interrelated interests, defining roles and boundaries, and supporting the family’s collective vision.

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