Isabelle Le Breton-Miller

Family Governance and Firm Performance: Agency, Stewardship, and Capabilities

After decades of being viewed as obsolete and problem ridden, recent research has begun to show that major, publicly traded family-controlled businesses (FCBs) actually out-perform other types of businesses. This article examines the nature of such family businesses in an attempt to explain why some seem to do so well and others so poorly. It begins with four fundamental governance choices that distinguish among different kinds of family businesses: level and mode of family ownership, family leadership, the broader involvement of multiple family members, and the planned or actual participation of later generations. Using precepts from agency and stewardship theory, it relates these dimensions to the nature of the resource-allocation decisions made by the business and capability development, which in turn have implications for financial performance. Propositions are drawn about the drivers that make some family businesses great competitors—while leaving others at a disadvantage.

Toward an Integrative Model of Effective FOB Succession

Given that less than 10% of family owned businesses (FOBs) survive into the third generation, the issue of top executive succession has received a good deal of attention. Unfortunately, the literature on the topic is fragmented, as it deals with different parts of the elephant. This synthetic effort tries to put together the pieces to (1) derive a more encompassing model of what it takes for a succession to succeed, (2) determine the trends, consensus findings, as well as the gaps in our conceptual and empirical knowledge, and (3) suggest areas for further research.

Lost in time: intergenerational succession, change, and failure in family business

Previous research has shown there is a high failure rate (70%) for successions in family owned businesses. Other researchers have suggested that the reasons why such successions fail are: unclear succession plans, incompetent or unprepared successors, and family rivalries. In this paper, poorly performing or failed family enterprises were tracked for several years to determine what happened. Sixteen intergenerational successions, which were followed by poor performance ending either in successor dismissal or bankruptcy, were studied. Findings indicated that intergenerational successions were often hampered by an inappropriate relationship between the past and the future. Specific problems identified include: excessive attachment to the past by an overly dependent and conservative successor, a rejection of the past by a rebellious one, or an incongruous blending of past and present by an unsure and wavering new leader. The fact that these patterns occur with such regularity suggests that they be studied further as syndromes that must be combated by a great many family owned businesses. (SFL)

Why Do Some Family Businesses Out-Compete? Governance, Long-Term Orientations, and Sustainable Capability

This article seeks to link the domains of corporate governance, investment policies, competitive asymmetries, and sustainable capabilities. Conditions such as concentrated ownership, lengthy tenures, and profound business expertise give some family–controlled business (FCB) owners the discretion, incentive, knowledge, and ultimately, the resources to invest deeply in the future of the firm. These long–term investments accrue from particular governance conditions and engender competitive asymmetries—organizational qualities that are hard for other firms to copy, and thus, if tied to the value chain, create capabilities that are sustainable. Investments in staff and training, e.g., create tacit knowledge and preserve it within the firm. Investments in enduring relationships with partners enhance access to resources and free firms to focus on core competencies. And devotion to a compelling mission dedicates most of these investments to a core competency. When such investments are farsighted, orchestrated, and ongoing, capabilities will tend to evolve in a cumulative trajectory, making them doubly hard to imitate and thereby extending competitive advantage. Arguments are supported by making reference to the literature on corporate governance and agency theory and to emerging research on FCBs.

Family and Lone Founder Ownership and Strategic Behaviour: Social Context, Identity, and Institutional Logics

There is controversy in the literature about the effects of ownership on strategy and performance. Some scholars have taken agency explanations as definitive, arguing that closely held firms outperform. Empirical studies, however, show conflicting findings for firms with concentrated ownership: lone founder firms outperform, family firms do not. Such conflicts may be due to the failure of agency theory to distinguish between the social contexts of these different types of owners. We argue that explanations of performance must take into account not simply ownership, but who are the owners or executives and how their social contexts may influence their strategic priorities. Family owners and CEOs, influenced by family stakeholders in the business, are argued to assume the role identities and logics of family nurturers and thus strategies of conservation. By contrast, lone founders, influenced by a wider set of market-oriented stakeholders, are argued to embrace the identities and logics of entrepreneurs and strategies of growth. Family founders and founder-executives are held to blend both orientations. These notions are supported in a study of Fortune 1000 companies.

Agency vs. Stewardship in Public Family Firms: A Social Embeddedness Reconciliation

Family businesses (FBs) play a key role in the worlds economies. Unfortunately, the current literature surfaces disparate understandings and conclusions concerning their conduct and performance. Much of that literature falls under two insightful perspectives, agency theory and stewardship theory, that conflict quite directly. The agency view, based in economics, maintains that families will pursue utility for themselves to the detriment of their public shareholders. By contrast, stewardship proponents, arguing from a psychological perspective, suggest that family owners will invest deeply in their enterprise, to the benefit of all. This study synthesizes the literature on each of these perspectives to derive core motivational assumptions and expected organizational outcomes. Then, by employing a third sociological perspective, it proposes to reconcile these opposing views by considering the social embeddedness of firms and their key actors within the institution of the family for different types of public family enterprises. It will argue that there is a need for such integration in order to better understand and permit accurate, context–based predictions across various kinds of family businesses and family business situations.

Governance, Social Identity, and Entrepreneurial Orientation in Closely Held Public Companies

Based on notions from the identity theory, this study argues that in public firms in which ownership is concentrated, owner–chief executive officer (CEO) identities will influence entrepreneurial orientation (EO), and EO will relate to superior performance. Specifically, lone founder owners and CEOs will embrace entrepreneurial identities: their firms will exhibit high levels of EO and outperform. Post–founder family owners and CEOs, given their ties to family in the organization, will assume identities as family nurturers, thereby limiting EO and performance. Family firm founders will exhibit blended identities and demonstrate intermediate levels of EO and performance. This analysis of Fortune 1000 firms finds support for these arguments.

Deconstructing Socioemotional Wealth

There have appeared of late numerous important articles elaborating on and researching the concept of socioemotional wealth, within the last year in Entrepreneurship Theory and Practice, others published in journals ranging from Administrative Science Quarterly to Family Business Review. Given the increasing popularity and generality of the concept, it is perhaps worth revisiting it to assess its potential for enhancing our understanding of family firms. We shall examine the socioemotional wealth concept and the challenges it poses for researchers, and propose some conceptual and methodological notions for increasing its utility.

Socioemotional Wealth Across the Family Firm Life Cycle: A Commentary on 'Family Business Survival and the Role of Boards'

The differences among family firms can be as telling as their overall distinctiveness from other forms of enterprise. In order to advance and condition the arguments of Wilson, Wright, and Scholes, we employ a typology of family firm evolutionary development to illustrate how changes in patterns of family involvement in the business can influence several socioemotional wealth priorities and how these in turn can shape the board composition required to enhance firm survival. We conclude by arguing how public listing and environmental competitive circumstances can condition these relationships.

To grow or to harvest? Governance, strategy and performance in family and lone founder firms

Purpose – This paper attempts to reconcile two opposing views of the strategies and conduct of closely held firms: that of entrepreneurship and that of family business. The former view suggests that these firms tend to be value maximizing organizations that pursue growth strategies and outperform. The latter often argues that these businesses are utility maximizers that pursue conservative harvest strategies and fail to outperform.Design/methodology/approach – In order to reconcile the controversy, this paper examines the literature in an attempt to relate ownership priorities and risk taking preferences to governance distinctions relating to family involvement, ownership, and management.Findings – It concludes that the value‐maximization expectations of the entrepreneurship literature apply only to lone or unrelated founder businesses whose owners, unencumbered by family distractions, embrace growth and outperform. By contrast the utility‐maximization expectations of the family business literature apply ...