This year’s final installment of assistant FBR editor Karen Vinton’s executive summaries recaps three articles from the December 2013 issue of FBR, which examine managing the boundary between family and business when one is involved with a family business; how a family enterprise’s benevolence quotient affects its relationship with non-family stakeholders; and, how earnings quality varies between firms that are acquired and firms that are non-acquired.
Summary 1: Managing Boundaries Through Identity Work: The Role of Individual and Organizational Identity Tactics
Joshua R. Knapp, Brett R. Smith, Glen E. Kreiner, Chamu Sundaramurthy and Sidney L. Barton
How do you manage the boundary between family and business when you are involved with a family business? This has been a question researchers, practitioners and family businesses have pondered for years. Do you call your boss “Mom” or Dorothy? Do you talk about the business at a family dinner? Do you identify yourself as part of the family business when you visit clients? How do you integrate non-family employees into the business?
Based on face-to-face and/or phone interviews with 44 leaders and members of four family firms, including 19 interviews with non-family employees, the authors of this paper identify and develop a taxonomy of 13 identity work tactics that people use when managing boundaries. These were further divided into four themes that comprise their model for Social Boundary Management (see Figure 1):
Identity work tactics targeted at individual boundaries are those activities enacted by an individual to help orient her/him in relation to family and business domain boundaries. Individual identity work tactics can be broadly classified into two themes:
- Managing Encounters: which includes adapting conversation, choosing interaction, re-categorizing, and selective disassociation.
- Evoking Consideration: which includes finding common ground and being sensitive to others’ perspective.
Table 3 shows a complete description of these concepts with quotes from the interviews.
Organizational identity work tactics are those activities enacted by an individual to orient others in relation to family and business domain boundaries. Organizational identity work tactics can be broadly classified into two themes:
- Adapting Managerial Style: which includes emphasizing boundaries, emphasizing domains, being open and trusting, and inclusive.
- Importing Values: which includes aligning financial values, emphasizing work ethic and extending family.
Table 4 shows a complete description of these concepts with quotes from the interviews.
More research needs to be done on these findings. In particular the effectiveness of these tactics needs to be studied. However, practitioners can use this model and the taxonomy as a springboard for discussions with their clients. For example, the thirteen tactics can be used when having a discussion about boundaries with next generation family members who are planning to enter the family business.
Summary 2: Impact of Family Control/Influence on Stakeholders’ Perceptions of Benevolence
Hannes Hauswald and Andreas Hack
When you hear the term “benevolence,” your first thought probably isn’t business related. However, benevolence is an important component of whether a stakeholder trusts an organization. In this context, benevolence refers to whether or not an organization acts in the interest of others. Stakeholders can perceive a company as being benevolent or not through the company’s actions. The authors of this study develop a model that looks at how family control in an organization impacts individual stakeholders’ perceptions of benevolence (see Figure 1).
The authors propose that more family control/influence increases the likelihood that an organization behaves benevolently toward its non-family stakeholders because non-financial goals, such as family influence, social ties, emotional attachment and identification with the family firm, predominant. These non-financial goals are collectively labeled socioemotional wealth (SEW).
The impact of these behaviors on the perceptions of non-family stakeholders depends on the extent to which stakeholders have positive impressions of family-controlled firms. For example, if a stakeholder had an unpleasant experience, e.g., the owner’s son got a job that the stakeholder wanted, with a family controlled firm, that stakeholder might view all family controlled businesses negatively. The authors propose that strategies preserving SEW may benefit family goals, such as the conservation of family control, but can put other goals at risk, e.g., economic goals, the identification of the family with the firm, and having a positive image.
If you’d like to learn more about SEW, see “Socioemotional Wealth in Family Firms: Theoretical Dimensions, Assessment Approaches, and Agenda for Future Research,” by Berrone, Cruz and Gomez-Mejia in the September 2012 issue of Family Business Review.
Summary 3: Earnings Quality in Acquired and Nonacquired Family firms: A Socioemotional Wealth Perspective
Federica Pazzaglia, Stefano Mengoli and Elena Sapienza
When we use the term “family firm,” we know that all family firms are not alike. They vary in size, industry, and age, to name just a few. This study looks at how earnings quality varies between firms that are acquired and firms that are non-acquired. A non-acquired family firm in this research study is one that was originally created by a family and then passed on to subsequent generations. An acquired family firm is one that was acquired through a market transaction. The study looks at the earnings quality of acquired and non-acquired firms in the Milan Stock Exchange between 1995 and 2008. There were a total of 1254 observations over that period of time of which 943 were non-acquired family firms and 311 were acquired family firms.
The major results of the study are as follows:
- Acquired family firms exhibit lower earnings quality than non-acquired family firms
- A family CEO has a positive effect on earnings quality for non-acquired firms but a negative effect for acquired firms.
- Non-family CEOs exhibit higher earnings quality in acquired firms.
The authors also report a post hoc finding. They found that board of directors’ independence is beneficial for acquired firms but detrimental for non-acquired firms. More research needs to be done in this area before drawing any definitive conclusions, but it is an interesting and compelling finding. Additional research also needs to be done to see if similar findings concerning earnings quality occur in other countries.
The results of this study have implications for practitioners and family firm owners and members, which the authors discuss in the “Discussion and Conclusion” section of the paper. Of particular interest is the authors’ recommendation that financial advisors should be aware of the differences between firms that are acquired through the market and firms that have been founded by a family.
If you are interested in learning more about this fascinating study, the “Introduction” section of this paper provides a concise and very readable summary.
About the Contributor
Karen L. Vinton, Ph.D. is a 1999 Barbara Hollander Award winner and Professor Emeritus of Business at the College of Business at Montana State University, where she founded the University’s Family Business Program. An FFI Fellow, she has served on the FFI board of directors and chaired the Body of Knowledge committee. From 1997 through 2011, Vinton served on the editorial board of Family Business Review and is the current assistant editor. Karen can be reached at firstname.lastname@example.org.
Stay tuned next week for another issue of The Practitioner.
Yours in Practice,