Journal of Business Venturing 18 (2003) 441 – 448
An introduction to theories of family business James J. Chrismana,b,*, Jess H. Chuab, Lloyd P. Steierc a
Department of Management and Information Systems, College of Business and Industry, Mississippi State University, Mississippi State, MS 39762-9581, USA b Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada c School of Business, University of Alberta, Edmonton, Alberta, Canada
It is generally recognized that family firms have received scant attention in the mainstream management literature, particularly with respect to the development of theories of the firm. This neglect is unfortunate because in terms of contributions, and especially numbers, family businesses represent a dominant form of economic organization throughout the world (Beckhard and Dyer, 1983; Shanker and Astrachan, 1996). The failure of scholarship to recognize, embrace, and deliberately incorporate family businesses into the mainstream theories of entrepreneurship and management may lead to the neglect of factors that would otherwise make those theories more robust and valuable. Furthermore, this neglect may mean that some of the theories developed do not apply to the vast majority of organizations that exist, or will exist, in the world. Finally, family businesses may offer particularly appealing circumstances for studying certain kinds of organizational phenomena. It is hoped that this special issue will contribute to filling this gap. In this introduction to the special issue of the Journal of Business Venturing on Theories of Family Business, we first discuss how family business research is related to entrepreneurship research. Next, we provide the background that led to the development of the special issue. We then provide a theoretical context for the study of family business and a brief introduction to the articles and commentaries in the special issue.
1. Relationship between family business and entrepreneurship research In a recent article, Gartner (2001) questions whether there is a theoretical way to connect entrepreneurship and family business research. We believe that there is. First, many new * Corresponding author. Department of Management and Information Systems, College of Business and Industry, Mississippi State University, Mississippi State, MS 39762-9581, USA. Tel.: +1-662-325-1991; fax: +1662-325-8651. E-mail address:
[email protected] (J.J. Chrisman). 0883-9026/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved. doi:10.1016/S0883-9026(03)00052-1
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ventures are created with family involvement and through the pooling of a family’s financial and human resources. A recent study of new ventures that received assistance from the Small Business Development Center by Chrisman et al. (2002) suggests that approximately 80% of these ventures display the characteristics of family enterprise as defined by Chua et al. (1999). We suspect that this proportion may be even higher in other parts of the world. There must be reasons for this extent of family involvement in new venture creation. Consequently, if theories of entrepreneurship ignore family involvement, they might miss critical familyrelated factors in new venture creation. It is difficult to lay claim to developing a theory of entrepreneurship if we do not look at ‘‘organizations in all their diversity’’ (Aldrich, 1999, p. 1). We recognize that existing entrepreneurship research has not totally ignored family firms. However, we suspect that is has used very selective lenses that often ignore the family dimension. Second, as Chrisman et al. (1998) argue, entrepreneurship is a special case of strategic management, in that venture creation, organizational renewal, and innovation (Sharma and Chrisman, 1999) are acts of strategy involving a match between opportunity and resources. Few strategic decisions are made on purely economic grounds; the values and aspirations of owners and top managers also play an important role (Andrews, 1971). While the human calculus of new venture creation certainly considers profitability and its determinants, it also incorporates needs that cannot be captured in dollars and cents. Thus, businesses are started to satisfy fundamental human desires to create and build something and to add and capture value as a result of doing so. Family businesses, which bring together so starkly the economic and noneconomic realities of organizational life (Ibrahim and Ellis, 1994), offer a particularly attractive site for understanding how the confluence of economic and noneconomic considerations affect strategic decisions. Third, in the parlance of Selznick (1957), family business entrepreneurs are unique in that they seek to build businesses that are also family institutions. How founders of family businesses go about establishing and developing organizations for the purpose of creating enduring family legacies and economic value should be of interest to the field of entrepreneurship. Perpetuating these legacies require the venture to manage family succession, which besides necessitating the replacement of the founding entrepreneur, often involves changes in strategy and/or structure. Such changes might reinvoke a liability of newness (Stinchombe, 1965), with profound implications for organizational survival and growth. Therefore, it is not much of a stretch in our view to assert that succession is often an entrepreneurial problem.1 Finally, Tan and Fock (2001) show that the appointment of an entrepreneurial leader may be key to success in family firm succession. Thus, family firms may be a fruitful 1 The same could be said for professionalization, another issue frequently associated with family business management. Professionalization essentially involves a movement from a Stage I to a Stage II organization (Scott, 1971). Such major structural changes are usually instigated by the inability of the organization to effectively exploit market opportunities with its current structure (Hofer and Charan, 1984) and, again, invoke a liability of newness that calls for entrepreneurial decisions.
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setting for testing theories about attributes of entrepreneurs and understanding how these attributes develop. In summary, data suggest that a substantial proportion of new ventures are created with family involvement. Families influence entrepreneurial activities through their values and aspirations. They must sustain an entrepreneurial orientation across generations to achieve their goal of creating enduring family legacies. On the other hand, entrepreneurship requires an understanding of how family resources can be exploited and how family involvement can affect the type of venture pursued and the performance of ventures started. Therefore, we see the potential for a symbiotic link between entrepreneurship and family business research.
2. Background to the special issue This special issue disseminates a portion of the proceedings of a special conference held on September 28 and 29, 2001, in Edmonton, Alberta. That conference, sponsored by the University of Alberta, University of Calgary, and the Wharton School of the University of Pennsylvania, was the first of what will become an annual event. The conference brought a small number of scholars from mainstream disciplines, such as strategic management, economics, anthropology, organization theory, finance, entrepreneurship, etc., together with a small number of scholars in family business management. The objective was to encourage the application of mainstream theories of organizations to the study of family business. We believed this would lead to both improved theories of the firm and to a greater understanding of the most pervasive form of organization in the world. To implement this, we invited scholars to prepare papers on family business from particular theoretical or disciplinary perspectives. Researchers from either family business or a related discipline were then asked to prepare commentaries to further discuss the contributions of these theoretical approaches to the study of family business. The contents in this special issue represent a selection of the articles and commentaries presented at the conference. All underwent an extensive review process that involved feedback from the guest editors and other conference participants, double-blind review by prominent scholars in entrepreneurship and family business, and a final review by the guest editors. More articles and commentaries than could be accommodated here were judged acceptable for publication and the final selection made by the guest editors from among the acceptable papers was based mainly on fit. The remainder of this introduction summarizes the contributions made by the articles and commentaries.
3. The contents and context of the special issue Family involvement is worthy of consideration in research on new and existing businesses only if that involvement leads to materially different behaviors and outcomes
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from what would occur were there no family involvement. As a result, in our view, theoretical research in family business must address this uniqueness. How this uniqueness should be addressed may be expressed in terms of the following research questions: 1. Are family firms different from nonfamily firms in terms of their resources, behaviors, and decisions? If so, how are they different and why are they different? 2. Do these differences lead to competitive advantages and/or disadvantages that affect the achievement of organizational goals and objectives? The articles and commentaries included in this special issue address both questions. Habbershon et al.’s (2003) article investigates the positive side of family involvement by integrating the resource-based view (RBV) of the firm with system theory. They describe a family business as an interactive system composed of individuals, a family, and a firm. They propose a defining function for the family firm and theorize about the systemic synergies created by familiness and how these could lead to competitive advantage and wealth creation. From the point of view of theory building, an important contribution they make by invoking system theory is to define the criteria that must be met before resources and capabilities resulting from family interactions may qualify as ‘‘familiness.’’ We believe that these criteria—uniqueness, inseparability, and synergism— have not been articulated together before. They have set a standard that future applications of the RBV to family business research may have to meet: that resources alleged to distinguish family from nonfamily firms must be unique, inseparable, and synergistic. As such, they provide a theoretical basis for explaining how family firms are different from nonfamily firms and how that difference might manifest itself in sustainable competitive advantages. The commentary by Chrisman et al. (2003) demonstrates that Habbershon et al.’s (2003) theoretical framework can be made more broadly applicable by replacing wealth maximization with value maximization as the predominate goal of the family firm. Furthermore, by introducing the concept of ‘‘the politics of value determination’’ Chrisman et al. show how Habbershon et al.’s systems theory concepts can contribute to an explanation of the long-term survival and growth of the business as a family firm. Schulze et al. (2003) present an extensively referenced discussion of how altruism and selfcontrol can cause and/or complicate agency problems in the family firm. As such, they provide a specific theoretical rationale for the differences between family and nonfamily firms in terms of both their behavior and performance. Self-control problems arise when ownermanagers have the incentive to make decisions with adverse consequences to themselves and other owners. Altruism problems are those where owner-managers, by attempting to help others (e.g., children), encourage free riding, hold-up, and shirking. They argue that these agency problems cannot be controlled easily with economic incentives and, as a consequence, may be more difficult to resolve than the agency problems facing nonfamily firms. Their empirical evidence generally supports their hypotheses. We believe that the article by Schulze
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et al. is important and will likely leading to much debate and future research because of the negative implications they attribute to altruism.2 Greenwood’s (2003) commentary elucidates some of the central assumptions of agency theory and speculates on their validity in the context of family firms. He concludes that agency theory, while limited in its explanatory scope, is rigorous and capable of generating new insights. Greenwood also notes that, while suggestive, Schulze et al.’s (2003) study does not directly establish the presence of agency costs in family firms, measuring as it does only the relationship between mechanisms that might control agency costs under specific conditions and performance. We subscribe to Greenwood’s call for further research into the question of family firm agency, particularly research that compares antecedents, incidence, and outcomes of agency in family versus nonfamily firms. In contrast, Zahra (2003) shows theoretically and empirically that altruism, exhibiting itself in the form of stewardship (Davis et al., 1997), can positively affect strategic decisions, in this case the decision to compete internationally. Although stewardship has a long history in religious studies (cf. Griffin, 1960) and is a rigorously applied principle in law, especially with respect to the relationship between directors and shareholders (cf. Toronto Stock Exchange Committee on Corporate Governance in Canada, 1994), it has only recently begun to receive attention from management scholars. There are many conceptual issues still awaiting analysis. For example, does stewardship require selflessness, self-control, or altruism? How true is the assumption that the principal’s satisfaction is linked to the success of the organization? As Zahra (2003) points out, financial theory suggests that when a firm is financed with debt, maximizing firm value is no longer synonymous with maximizing shareholder value. That empirical evidence can be found in support of this newly revived theory in the context of family business is an exciting development because altruism may be an important force differentiating family and nonfamily firms. Zahra’s study, shows that altruistic behavior can be a positive force for firm growth even if, as Schulze et al. (2003) suggest, it might also lead to some negative unintended consequences. Miller et al. (2003) provide an elegant framework for classifying how family business successions differ in terms of continuity in strategy, organization, and governance amidst different business environments. Although the multidimensionality of family firm succession has been discussed before (Drozdow, 1998), Miller et al. examines it in greater detail and presents systematic evidence on how a mismatch among those multiple dimensions can cause failure in family business succession. Miller et al. further enhance our understanding of the family firm by discussing how and when family dynamics, culture, governance, and leadership style lead family firms to adopt the wrong combinations of succession dimensions. By incorporating family dynamics and culture into their analysis, Miller et al. address how family firm succession may be different from that in the nonfamily firm. While their current study only looks at failed efforts, it does provide a useful point of departure for developing a predictive model of family firm successions. 2
For example, recent work shows that, under certain circumstances, altruism may control shirking (Wu, 2001).
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In the final article of this special issue, Mitchell et al. (2003) integrate transaction cost and cognition theories to propose a transaction cognition approach for studying the thinking patterns of nonfamily employees in a family business setting. By identifying the sources and types of cognitive transactions necessary to engage in economic activities, Mitchell et al. have given us a potentially powerful tool for understanding the development, transfer, and utilization of knowledge in family firms. For example, at its most basic level, transaction cognition theory shows that due to the cognitions needed to deal with the interactive problems of bounded rationality, opportunism, and work specificity in two contexts rather than one, family involvement increases the complexity of a business factorially rather than additively as has been previously supposed. Furthermore, just as the greater number of cognitions necessary for transitions increases complexity, the number of cognitions in family firms multiplies the potential for the development of entire categories of knowledge resources that cannot exist in nonfamily firms. If we are to truly understand how family involvement creates unique resources and capabilities, we must study the processes and transactions in addition to the components. Mitchell et al. have given us a model that promises to help fill a critical gap in family business research. The commentary by Astrachan and Keyt (2003) integrate the contribution of Mitchell et al. (2003) with previous family business literature. They note that Mitchell et al. bring a unique theoretical orientation to the field of family business that can provide us with a better understanding of known phenomena. Astrachan and Keyt also highlight several promising avenues where transaction cognition theory may help create new, perhaps more fruitful approaches for future knowledge generation. For example, they suggest that it may be possible to study family business governance more rigorously using transaction cognitions. Finally, those authors suggest several refinements to Mitchell et al.’s theory, such as the development of a hierarchy of cognitions and explicit inclusion of ownership cognitions into the theoretical model.
4. Conclusions By inviting scholars to view the family firm using a variety of approaches, we believe that this special issue will suggest several new directions for theory development and research. In the end, research always raises more questions than it answers. The most fundamental of these questions are whether family businesses are truly different from nonfamily businesses and, if so, in what ways and to what effect. The authors of the articles and commentaries in this special issue provide both theoretical and empirical evidence that suggest they are different and that the differences do matter. However, until we have even more systematic and rigorous evidence about such differences, our theories about family firms will remain conjectures. Therefore, the fundamental questions about the incidence, causes, and consequences of the presumed uniqueness of family firms identified in this special issue should be high among our research priorities for the future.
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Acknowledgements The authors acknowledge an anonymous family for supporting the conference at which the articles in this special issue were originally presented.
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