If we can't have it, then no one should : Shutting down versus selling in family business portfolios

How does a business family manage its business portfolio in times of declining performance to sustain the portfolio's long-term endurance? Drawing on social identity theory and six family business portfolios from Pakistan, we find that business families may prefer to shut down a satellite business rather than sell it, which is primarily driven by identity considerations. In addition, the family's goal to recycle the assets, the aim to restart the business later, and the increasing decline in performance are important contingency factors. This study contributes to the literature on portfolio entrepreneurship, business exit, and the enduring entrepreneurship of family firms.

Agency theory and the family business

The conceptual domain of agency theory is one of the dominant organisational theory perspectives applied in current family business research (Chrisman et al., 2010). According to agency theory (Jensen and Meckling, 1976), agency costs generally arise due to individuals’ selfinterest and decision making based on rational thinking and oriented toward own preferences. With more people involved in decision making, such as through the separation of ownership and management, agency costs occur due to different preferences and information asymmetries between the owner (principal) and the employed management (agent) (Jensen and Meckling, 1976). In other words, agents take decisions based on their individual preferences (for example, short term, financial gains) instead of the owners’ preferences (for example, long term, sustainable development).

Behavioural agency theory and the family business

The behavioural agency theory was developed to provide a more comprehensive explanation and prediction of managerial risk taking, in response to some shortcomings of agency theory. In general, the theory offers explanations of why decision makers prefer some strategic choices to others. The use of behavioural agency theory in family business research has, however, been very limited. Family business scholars recently adapted this theory to construct the family business variant, the ‘socioemotional wealth’ construct, which offers better explanations for the risk taking and decision making behaviours of family firms. This chapter provides an overview of behavioural agency theory and the socioemotional wealth construct, explores how they have been used in family business research, and offers suggestions for how this theory can be used in further research to contribute to both the family business and the general management literature. Keywords: family business, behavioural agency theory, socioemotional wealth, family firm heterogeneity.

Behavioural theory and the family business

Fifty years have passed since Cyert and March’s 1963 A Behavioral Theory of the Firm. During this time, BTOF has been adopted across different research domains to investigate how organizations set goals, how they determine aspirations and how they finally react to performance aspiration discrepancies. Cyert and March’s framework has also recently emerged as one of the dominant paradigms to understand the ways in which family business organizations make decisions. In this chapter, I review the theoretical development and empirical results of BTOF and its application in the family business field of study in order to identify theoretical and empirical gaps and propose suggestions for future research. The conclusions suggest that BTOF is both a theoretically and empirically valid perspective in family business research, particularly when combined with other theoretical frameworks. The principal recommendation is to apply behavioral theory to enhance scholarly understanding of  how family organisations define their aspiration levels and respond to organizational problems. 

Corporate reputation and the family business

Corporate reputation is a largely neglected topic in the family firm literature. That neglect is surprising because corporate reputation is found to be an important source of competitive advantage and can therefore be an explanatory factor for firm performance and behaviour. The purpose of this chapter is to contribute to the field of family business by demonstrating the potential of the reputation research in this field. The chapter first introduces the corporate reputation construct and how this construct and the related constructs of image and reputation capital are approached in the literature from different disciplines. The second part of the chapter provides a review of the current family business literature on this topic. Three approaches of corporate reputation have been identified: 1. Reputation of family firms as an assessment by stakeholders. 2. Reputation as a managerial goal to preserve socioemotional wealth. 3. Reputation as a communication goal or strategy of family firms. The discussion of the literature identifies major gaps in our knowledge and in our methodological orientation that represent opportunities for future research.

Critical pedagogy theory and the family business

In contemporary times family business research has been dominated by three theoretical perspectives; principal-agent theory, stewardship theory, and resource-based view theory (Siebels 2012) but at the same time scholars argue that what still needs further attention is how underlying processes and phenomena can be explained (Melin, Nordqvist & Sharma  2014). In order to understand themes such as repression or relations of asymmetry the suggestion in this chapter is to move towards a critical stance of thinking which involves problematizing the obvious issues in family firms (Alvesson & Deetz 2000) and moreover allowing the critical perspective to destabilize assumptions made within earlier research (Freire, 1974). By discussing critical theory in general but foremost the Freirean  (1970, 1974) critical pedagogy specifically, the arguments in the chapter revolves around how critical pedagogy can open up for a more novel view on family business. The purpose is via critical pedagogy discuss family business from a limited situation perspective, and to argue for a Freirean (1970) dialogue as means of developing a critical consciousness for family members in the family business context. The chapter concludes with some recommendations on platforms or common grounds in which dialogue and raising of consciousness can occur in which the concept can open up possibilities for interesting learning transfer and bring multidimensional knowledge into the family firm.

Gender theory and the family business

Gender Theory started in understanding and explain women's role in society and are also now including men and masculinities, Gender Theory has recently been adapted to family business research. This chapter will briefly introduce Gender Theory and its development, before reviewing how it has been used in family business research. Arguing that the family business context is suitable in studying gender phenomena, the chapter outlines several ways through which Gender Theory could yield new insights into issues, of how family business structures, settings and practices produce relations of power or asymmetry. A common approach so far to the study of gender in family business situations is to consider ‘gender as a variable’, which maintains the categorisation of women and men as a relevant and unproblematic variable. Many analyses of family businesses that also address gender focus on feminist ‘standpoint positions’, giving voice to women´s unique experiences. Often in family business research, the dominant approach is to conceive gender in terms of limited male/female distinctions rather than by reframing family business through critical positions, with the aim of reflection and sensitivity towards gender issues in terms of the socially constituted patterns that are produced through male/female, masculine/feminine distinctions. Concluding, the chapter suggests a possible methodology for capturing gendered processes and proposes how family business research could offer new insights into Gender theory.

Introducing theoretical perspectives on family business

As the field of family business has grown immensely over the last couple of decades, a multitude of theories from different fields has been introduced. However, there are surprisingly few attempts to provide an overview of theories that may be of particular interest for the family business scholar. Thus, this introduction chapter gives a critical overview of theoretical perspectives, before taking a closer look at the use of theories in family business studies. Regarding the current state of the family business field, the authors argue for putting more effort in building theory from family business research as well as a stronger emphasis on ‘giving back’ to theories borrowed from other fields. Lastly, the chapter describes the development of the book and introduces the 13 chapters and their contributions.

Kinship and the family business

The purpose of this chapter is to review and synthesise the prior work on kinship in family firms and to open up future research avenues for this interesting and important topic. The study shows that kinship is highly relevant in family firms by revisiting the concept of family and kinship as well as the definition of family firms. This chapter explores important aspects related to family firms, such as continuity of generations, succession, inheritance and resource provision and links these to kinship. These aspects are identified as four functions of kinship and indicate the possible research gaps, thereby suggesting future kinship research avenues.

Behavioural outcomes of next-generation family members’ commitment to their firm

Are there variations in behaviours and leadership styles of next-generation family members or descendants who join their family business due to different forms of commitment? Evidence from a dual respondent study of 109 Canadian and Swiss family firms suggests that descendants with affective commitment to their family firms are more likely to engage in discretionary activities going beyond the job description, thereby contributing to organizational performance. Next-generation members with normative commitment are more likely to engage in transformational leadership behaviours. Both affectively and normatively motivated next-generation members use contingent reward forms of leadership. A surprising finding of this study is the binding force of normative commitment on positive leadership behaviours of next-generation members. This study empirically tests the generalizability of the three-component model of commitment to family businesses, a context in which different forms of commitment may play a unique role.

Ownership Structure, Board Composition and Entrepreneurship : Evidence from Family Firms and Venture-Capital Backed Firms

The purpose of this article is to investigate how ownership structure, especially family and/or venture-capital involvement, as well as entrepreneurial activities, defined as strategic change and renewal, help explain the involvement of independent members on boards of directors. The CEOs of 2,455 small and medium-sized, private enterprises from practically all industries were contacted in a telephone survey, resulting in an exceptionally high response rate. The findings reveal that family firms are more reluctant to involve independent directors on their boards than non-family firms that presence of venture capitalists increases the frequency of independent board members and that ownership has an impact on board roles. The results do not support the hypothesised relationship that independent directors enhance entrepreneurial activities. One implication of our study is that the often-argued-for strategic contribution of outsiders to the boards in family firms may be overemphasised. Another implication is that family firms that choose to acquire additional capital should be aware that this could result in a change in the board composition and the loss of control of the business. However, new and external owners’ inclusion on the board seems to be negotiable since there are also venture capitalists that do not insist on board representation.