Entrepreneurship and Family Business [1 ed.] 9780857240989, 9780857240972

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ENTREPRENEURSHIP AND FAMILY BUSINESS

ADVANCES IN ENTREPRENEURSHIP, FIRM EMERGENCE AND GROWTH Series Editors: Jerome A. Katz and G. T. Lumpkin Recent Volumes: Volumes 1–2:

Edited by Jerome A. Katz and Robert H. Brockhaus Volumes 3–4: Edited by Jerome A. Katz Volume 5: Edited by Jerome A. Katz and Theresa M. Welbourne Volumes 6–8: Edited by Jerome A. Katz and Dean A. Shepherd Volume 9: Edited by Johan Wiklund, Dimo Dimov, Jerome A. Katz and Dean A. Shepherd Volumes 10–11: Edited by G. T. Lumpkin and Jerome A. Katz

ADVANCES IN ENTREPRENEURSHIP, FIRM EMERGENCE AND GROWTH VOLUME 12

ENTREPRENEURSHIP AND FAMILY BUSINESS EDITED BY

ALEX STEWART College of Business Administration, Marquette University, USA

G. T. LUMPKIN Syracuse University, USA

JEROME A. KATZ Cook School of Business, Saint Louis University, USA

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2010 Copyright r 2010 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. No responsibility is accepted for the accuracy of information contained in the text, illustrations or advertisements. The opinions expressed in these chapters are not necessarily those of the Editor or the publisher. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-85724-097-2 ISSN: 1074-7540 (Series)

Awarded in recognition of Emerald’s production department’s adherence to quality systems and processes when preparing scholarly journals for print

CONTENTS LIST OF CONTRIBUTORS

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AN INTRODUCTION TO THE SPECIAL VOLUME ON FAMILY BUSINESS AND ENTREPRENEURSHIP

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PART I: EMPIRICAL RESEARCH THE IMPORTANCE OF LOOKING TOWARD THE FUTURE AND BUILDING ON THE PAST: ENTREPRENEURIAL RISK TAKING AND IMAGE IN FAMILY FIRMS Esra Memili, Kimberly A. Eddleston, Thomas M. Zellweger, Franz W. Kellermanns and Tim Barnett UNDERSTANDING EXIT FROM THE FOUNDER’S BUSINESS IN FAMILY FIRMS Carlo Salvato, Francesco Chirico and Pramodita Sharma THE ROLE OF FAMILY MEMBER SUPPORT IN ENTREPRENEURIAL ENTRY, CONTINUANCE, AND EXIT: AN AUTOETHNOGRAPHY William R. Meek SPOUSAL CONTEXT DURING THE VENTURE CREATION PROCESS Sharon M. Danes, Amanda E. Matzek and James D. Werbel v

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SOCIETY IN EMBRYO: FAMILY RELATIONSHIPS AS THE BASIS FOR SOCIAL CAPITAL IN FAMILY FIRMS Ritch L. Sorenson, G. T. Lumpkin, Andy Yu and Keith H. Brigham THE CATHOLIC SPIRIT AND FAMILY BUSINESS: CONTRASTING LATIN AMERICA, EASTERN EUROPE, AND SOUTHERN EUROPE Vipin Gupta and Nancy Levenburg

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PART II: ANALYSIS AND COMMENTARY SKEPTICAL ABOUT FAMILY BUSINESS: ADVANCING THE FIELD IN ITS SCHOLARSHIP, RELEVANCE, AND ACADEMIC ROLE Alex Stewart

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THE YIN AND YANG OF KINSHIP AND BUSINESS: COMPLEMENTARY OR CONTRADICTORY FORCES? (AND CAN WE REALLY SAY?) Alex Stewart and Michael A. Hitt

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KINSHIP, CAPITAL, AND THE UNSETTLING OF ASSUMPTIONS: CONTEMPORARY ANTHROPOLOGY AND THE STUDY OF FAMILY ENTERPRISE AND ENTREPRENEURSHIP Danilyn Rutherford

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KINSHIP AND GENDER Harold W. Scheffler

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SOURCES OF ENTREPRENEURIAL DISCRETION IN KINSHIP SYSTEMS Alex Stewart

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CROSS CAMPUS COLLABORATION: A LAW SCHOOL PERSPECTIVE Edward A. Fallone

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THE PROMISE OF FAMILY BUSINESS AS AN ACADEMIC FIELD IN MAJOR RESEARCH UNIVERSITIES Anne S. Miner

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PRACTICE-BASED RESEARCH IN FAMILY BUSINESS Dean R. Fowler

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FOUR AESTHETIC MODELS FOR RELEVANT RESEARCH IN THE FIELD OF FAMILY ENTERPRISE Judy Green

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TEAM APPROACHES TO ENTREPRENEURSHIP AND FAMILY BUSINESS EDUCATION Frank Hoy

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LATE STAGE ENTREPRENEURIAL ACTIVITY: WHAT STUDENTS SHOULD KNOW ABOUT FAMILY-OWNED AND FAMILY-CONTROLLED COMPANIES Ernesto J. Poza

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TAKING STOCK OF ONE DECADE OF RESEARCH: AN OUTCOMES-BASED FRAMEWORK FOR TEACHING FAMILY BUSINESS Ritch L. Sorenson, Andy Yu and Keith H. Brigham

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A FAMILY BUSINESS PROJECT? SO WHAT! EIGHT STRATEGIES FOR INTRAPRENEURIAL SCHOLARS Rosa Nelly Trevinyo-Rodrı´guez

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ADVANCING THE 3Rs OF FAMILY BUSINESS SCHOLARSHIP: RIGOR, RELEVANCE, REACH Pramodita Sharma

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LIST OF CONTRIBUTORS Tim Barnett

College of Business, Mississippi State University, USA

Keith H. Brigham

Rawls College of Business Administration, Texas Tech University, USA

Francesco Chirico

Institute of Management, Centre for Entrepreneurship & Family Firms (CEF), University of Lugano (USI), Lugano, Switzerland

Sharon M. Danes

Family Social Science, University of Minnesota, USA

Kimberly A. Eddleston

College of Business Administration, Northeastern University, USA

Edward A. Fallone

Law School, Marquette University, USA

Dean R. Fowler

Dean Fowler Associates, Inc., USA

Judy Green

Family Firm Institute, Inc., USA

Vipin Gupta

Simmons College School of Management, USA

Michael A. Hitt

Texas A&M University, Mays Business School, USA

Debra Houden

University of Wisconsin Family Business Center, USA

Frank Hoy

Department of Management, Worcester Polytechnic Institute, USA

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LIST OF CONTRIBUTORS

Franz W. Kellermanns

The University of Tennessee, USA and WHU (Otto Beisheim School of Management), Germany

Nancy Levenburg

Seidman College of Business, Grand Valley State University, USA

G. T. Lumpkin

Whitman School of Management, Syracuse University, USA

Amanda E. Matzek

Family Social Science, University of Minnesota, USA

William R. Meek

University of Dayton, School of Business Administration, USA

Esra Memili

College of Business, Mississippi State University, USA

Anne S. Miner

Department of Management and Human Resources, School of Business, University of Wisconsin – Madison, USA

Ernesto J. Poza

Thunderbird School of Global Management, USA

Danilyn Rutherford

Department of Anthropology, University of California, Santa Cruz, USA

Carlo Salvato

Strategic Management Department, Bocconi University, Milan, Italy

Harold W. Scheffler

Department of Anthropology, Yale University, USA

Pramodita Sharma

John Molson School of Business, Concordia University, Montreal, Canada & Babson College, USA

Ritch L. Sorenson

Opus College of Business, University of St. Thomas, USA

Alex Stewart

College of Business Administration, Marquette University, USA

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List of Contributors

Rosa Nelly Trevinyo-Rodrı´guez

Instituto Tecnolo´gico y de Estudios Superiores de Monterrey (ITESM), Family Business Center – Campus Monterrey

James D. Werbel

Iowa State University, College of Business, USA

Andy Yu

College of Business, University of Southern Indiana, USA

Thomas M. Zellweger

Center for Family Business, University of St. Gallen, St. Gallen, Switzerland

AN INTRODUCTION TO THE SPECIAL VOLUME ON FAMILY BUSINESS AND ENTREPRENEURSHIP The chapters in Volume 12 of Advances in Entrepreneurship, Firm Emergence and Growth address a range of topics that reflect the presence of entrepreneurial activity in family businesses. A key assumption of this volume is that family systems make an important contribution to entrepreneurial success and failure. Nevertheless, researchers have often underestimated the role played by families in conceiving, launching, sustaining, and exiting business enterprises. This volume contributes to filling that gap by highlighting the role of family in nurturing entrepreneurial ventures and advancing entrepreneurial processes aimed at maintaining the strength and viability of new and established family firms. It also addresses several of the complex issues family business enterprises face and how an entrepreneurial perspective contributes to family business dynamics. Volume 12 emerged in part from the fourth annual Family Enterprise Research Conference (FERC), hosted by Marquette University from April 18th to 20th, 2008. As with other FERC meetings, there were two modes of presentation. In one mode, panels and speakers were chosen by Alex Stewart to address a particular theme, in this case, advancing the field of family enterprise in its scholarship, relevance, and academic role. These talks formed the basis for the section of this volume on that topic. The other mode of presentation was works that had been submitted in response to a call for papers. These papers were intended to reflect current scholarship in the field of family enterprise, regardless of the conference theme. These submissions were screened first for their acceptance at FERC. Second, they were screened by a three person panel (Tom Lumpkin, Becky Reuber, & Bill Schulze) for judging the best papers. Awards were presented on the final day, in which Tom Lumpkin also gave a brief talk inviting submissions for a special volume of Advances in Entrepreneurship, Firm Emergence and Growth. Given the roles played by Lumpkin and Stewart, it was natural that xiii

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the former took charge of submissions responding to the subsequent call for papers, and that the latter took charge of the thematic papers. This volume and the FERC gathering which preceded it reflect the continuing intellectual diversity of the field of family business. While family firms predate history (Earle & Ericson, 1977; Earle, 2010), the modern focus on the family business began nearly 80 years ago with an interdisciplinary effort of a lawyer, Adolf Berle, and an economist, Gardiner Means, in their seminal book on corporate governance, The modern corporation and private property (Berle & Means, 1932). Their work is generally thought of as important for its explanation of the power of the corporate form and of the managers who control it, but the two authors wrote it with a higher degree of wariness than most management faculty attribute to the tome. In fact, Means is attributed with the observation that when the economy is fueled by large business, the interests of management supersede the interests of the public. In their contrast of the family-owned firm and the widely held corporation, they used the former as the benchmark for what needs to be sought in the latter – accountability, communication, and an attitude of responsibility. Later thinkers such as John Kenneth Galbraith (1967) would see the family firm as a more primitive precursor of ‘‘professional’’ management. While work extending Berle and Means (see in particular Burch, 1972) continued in several areas of management and finance, family business appeared only sporadically in the social sciences until the 1960s. For example, one of the most famous studies of worker participation (Coch & French, 1948) occurred only because a doctoral student inherited the family’s pajama manufacturing firm, and offered his site for the study. From the 1960s on, social scientists in a number of disciplines expanded the scope and depth of consideration of family businesses. This happened largely outside of business schools because business school faculty had come to the conclusion that the family firm was not a relevant topic for those who taught and presumably studied professional managers. For example, psychoanalytic organizational researchers such as Harry Levinson (1971) plumbed the depths of the family’s psychodynamics (especially the founder’s), while technocratic management theorists (Colli, 2003) like Barnes and Hershon (1976) went at the family from a more eclectic approach. These authors, along with business historian Alfred Chandler (1962) and economist John Kenneth Galbraith (1967), represented a unique institutional perspective. All of these individuals were on the faculty at Harvard Business School when they wrote their major works disparaging the family business in favor of a more professional approach to

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management, such as that taught at their common employer. Coming to the same conclusion from a variety of disciplinary perspectives and with the vigor of one of the most published business faculties in the world at that time, this uncoordinated group of academics with a common conclusion held sway in business schools. As a result, aside from iconoclastic business researchers such as John Ward (at that time teaching at Loyola in Chicago), Craig Aronoff (teaching at Kennesaw State outside Atlanta), and Ernesto Poza (teaching at Case Western Reserve in Cleveland, and a contributor to this volume), most of the major thinking and research on family businesses in the 1960s and 1970s was done in anthropology, sociology, and psychology. In some areas, studies flourished; for example, the study of ethnic entrepreneurship, a mainstay of sociology (see Aldrich & Waldinger, 1990 for a review), and anthropology (see Stewart, 1991 for a review) were comprised almost entirely of family-owned firms. Other unusual studies of family businesses emerged such as sociologist Dean Savage’s (1979) study of leadership, succession, and business performance using a sample of 291 French firms from 1958 to 1968; Schein’s (1983) work on the cultural impact of founders; and Stinchcombe’s (1965) analysis of census data showing how older forms of work (which he labeled ‘‘pre-factory’’), such as stores and farms, are more family-owned and family-involving businesses than later forms. Family ownership remains dominant in nineteenth-centurybased industries such as woodworking, although in industries which emerged later, family ownership and family involvement are less common. In many of these studies, the family business was a by-product of the research rather than its primary focus. This changed in the 1980s and into the 1990s as a group of researchers and practitioners coalesced around family business issues. In many ways, the hallmark of this period was the creation of the Family Firm Institute (FFI) in 1986, with the publication of the first issue of its journal Family Business Review (FBR) in 1987. With this opportunity to gather and to publish, the field took on the major institutional characteristics common to emerging disciplines or industries (Aldrich & Fiol, 1994). The FFI was distinctive in that at its inception it was composed almost equally of academics and practitioners. In fact, many of the academics at the time were themselves developing centers of family business in their universities, which in effect broadened and complemented practitioner offerings to family firms, but in so doing made many academicians into part-time practitioners. As a result, family business research during this period was strongly influenced by ‘‘real-world’’ issues around the mainstays of family business consulting – succession (Handler, 1994; Barach & Ganitsky, 1995), internal relationship management

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(Friedman, 1991; Marshack, 1993), integration of nonfamily managers (Dyer, 1989; Daily & Dollinger, 1992), using boards of directors (Ward & Handy, 1988; Alderfer, 1988), and maintaining wealth (Churchill & Hatten, 1997). This emerging interest converged with a separate development in Finance, in which empirical studies extending Burch’s (1972) work noted that family controlled firms are not represented only by small, privately held businesses, but rather represent the majority of publicly traded firms on a global basis, and a substantial proportion of traded firms even in the United States (Becht & Mayer, 2001; Faccio & Lang, 2002; La Porta, Lopez-de-Silanes, & Shleifer, 1999). Today, organizations such as United States Association for Small Business and Entrepreneurship (USASBE) have subgroups focused on family business, and there has been some growth in venues for presentations on family business. The emergence of the FERC (linked to this volume of Advances) and its European counterpart International Family Enterprise Research Academy (ifera) are important new gathering places for family business scholars and outlets for family business research. Nonetheless, while entrepreneurship journals publish family business papers and have sponsored several special issues on the topic, we know of only one other family business related journal that has been launched since FBR namely, the Journal of Family Business Strategy. As such, family business journals lag the rest of the field of entrepreneurship. Prior to FBR’s founding in 1987 there were seven refereed entrepreneurship journals published (Katz, 1991). Today, there are more than 100, but only one family business journal that we know of in addition to FBR. These situations coincide with the assertion of several chapters in this volume that there remain serious challenges to the study of family business. However, the authors of the chapters in this volume, consistent with the historical record, see that the enormous number of family businesses and the family firm context continue to demonstrate the importance of family business research as a topic with the potential for profound impact in our communities and in our economies. The chapters in this volume emphasize in particular the contribution of family systems research and the challenges that will be faced by the next generation of family business scholars.

PEER-REVIEWED CHAPTERS The peer-reviewed chapters in Volume 12 emphasize the role of family systems in shaping entrepreneurial outcomes. Interestingly, spousal influence

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is a major topic in three of the chapters. Another important theme is family business identity and how a range of different influences – from within-family perceptions to broad institutional pressures – affect family business image and organizational performance. Both quantitative and qualitative research methods are employed to address the role of entrepreneurship in family businesses. The intersection of entrepreneurial practices and family business concerns is highlighted in the chapter by Esra Memili, Kim Eddelston, Thomas Zellweger, Franz Kellermanns, and Tim Barnett. Drawing on the organizational identity literature, the authors claim that a strong family image is essential to building the kind of reputation needed for good performance. Further, though family firms are often perceived as reluctant to take risks, the authors argue that family businesses that engage in higher risk taking will enjoy strong performance. They also argue that a strong image and higher risk taking will be associated with greater family expectations, that is, the expectation that family members will identify with the family image and work hard to maintain it. Based on a sample of 163 Swiss family businesses, their finding suggests that family firms may benefit from two growth paths – forward looking risk taking and leveraging an image of the family firm that builds on the past – and that both paths are enhanced in family’s with stronger family expectations. Entrepreneurship research favors studies about new entry into markets; family business research often focuses on how family firms persevere and maintain continuity across multiple generations. Neither domain tends to highlight studies of exit from a founder’s initial business. In their essay on understanding exit, Carlo Salvato, Francesco Chirico, and Pramodita Sharma suggest that entrepreneurial decision making can contribute to successful exit and re-entry into another business. Through an in-depth analysis of the Italian Falck family’s decision to exit the steel industry and re-emerge as a provider of renewable energy, the authors investigate the de-escalation and de-commitment needed to successfully exit. They also identify family-specific facilitators and inhibitors to business exit such as psychological factors and emotional barriers that are likely to accompany a major change in business purpose and identity. Developing the capability to exit from a failing course of action has important implications for both family and nonfamily ventures including equipping successors with an entrepreneurial mindset that will enable them to seize new opportunities in the future. The case study presented by William Meek captures both the startup and exit of a short-lived family business. As the son of the founder, Meek had a

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‘‘front row seat’’ not only during the startup and operation of the business but also from years of involvement with the family before and after the era of the business. As such, he is able to present a detailed and unique autoethnography about a family-owned motorcycle dealership in the U.S. Midwest. The insights he draws revolve around several dimensions of a key theme: family support. Even though there was a lack of spousal support for the enterprise, the founder’s children played a key role by providing both labor and emotional support. But the support of children was not enough to surmount the perception that the family’s new lifestyle as entrepreneurial owners made too many demands on their life together as a family. The chapter contributes rich insights into the benefits and costs of family business ownership. The chapter by Sharon Danes, Amanda Matzek, and James Werbel investigated the spousal relationship during the venture creation process. They emphasize the role of context generally in entrepreneurial processes and note the importance of family context, especially as it relates to financial, human, and social capital resources. Two theoretical frameworks are tapped into to develop a model: the Family Fundamental Interpersonal Relationship Orientation (FIRO), a theory of interpersonal dynamics, and Conservation of Resources (COR) theory to evaluate the stress associated with utilizing spousal resources. Couple-level data from 94 startup businesses at Time 1 and 78 businesses at Time 2 were analyzed. Direct and indirect spousal involvement in the business, spousal moral commitment, spousal perception of entrepreneur’s business self-efficacy, business communication quality, and emotional support from the spouse were found to be enabling during the venture creation process; work overload and work–family conflict were constraining. Couples who reported being in strong couple relationships reported significantly more enabling resources and fewer constraining resources than couples not in strong relationships. The nature of family influence on family businesses, and the elements that contribute to the development of family social capital, are the subject of the chapter by Ritch Sorenson, Tom Lumpkin, Andy Yu, and Keith Brigham. A central focus of the chapter is how the social structure that exists between marriage partners may influence the social structure in family firms. The authors draw on two data sources. First, a family business history is used to illustrate elements of family social capital: information channels; moral infrastructure; norms, obligations, and expectations; reputation; identity; and collective trust. Then, a sample of 272 U.S. family businesses is used to test hypotheses related to differences in family influence. Findings suggest that the greater the role a spouse plays in a family business, the more the

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social structure of the business will reflect the social structure of the family. Further, results indicate that firms led by female CEOs have higher levels of family social capital in their business social structure than firms led by males. Vipin Gupta and Nancy Levenburg consider another influence on family business: the Catholic Church. Noting that institutional pressures including religious values and practices often impact organizational characteristics, the authors investigate the influence of the Catholic ethic on family businesses in three clusters of countries: Southern (or Latin) Europe, Latin America, and Eastern Europe. The distinctive aspects of the Catholic Church, with its emphasis on families, the patriarchal structure of families, and conservative attitudes toward gender roles, are circumscribed further by the different forms of Catholicism – Orthodox, Roman, and Latino – found in these regions. Clear differences between Eastern Europe and Latin America family businesses were found, with Latin European family businesses bridging that divide. Among the many findings, in Eastern Europe, business reputation is emphasized, the succession process tends to be weakly competitive, and leadership tends to be gender-centered. In Latin America, family reputation takes precedence, the succession process tends to be more cooperative, and leadership tends to be less gender-centered.

INVITED CHAPTERS Alex Stewart’s chapter ‘‘Skeptical About Family Business’’ serves as the transition to the invited chapters. In this polemical essay Stewart is skeptical that we can be objective; that ‘‘family’’ can be defined; that there is a field of ‘‘family business’’; that we will engage important theories from other disciplines; that kinship itself exists, or rather that research will be adequate to the topic; that scholarship in the field will progress; that research will be relevant; and that the field can find a significant niche within the university. These are the concerns that motivated his solicitation of the invited chapters. These chapters all consider the challenges for the advancement of the field. The first chapter addressing scholarly advances is ‘‘The Yin and Yang of Kinship in Business: Complementary or Contradictory Forces?’’ This chapter began as a talk at the FERC (2008) by Michael A. Hitt summarizing his strategic management perspective on the field. It developed as a collaborative effort with Stewart, and thereby resulted in a mix of classical Chinese thought and anthropology with empirical studies of performance

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effects in economics, finance, and strategy. It offers a wide-ranging overview of performance effects. Implications include the need for more discrimination between traded and private family firms and the need to move beyond a black box measurement of family or kinship variables. The next three chapters address family business (or, in the second case, kinship theory more broadly) from an anthropological perspective. The first paper, by Danilyn Rutherford (then of the anthropology department of the University of Chicago, now the University of California – Santa Cruz), surveys and advocates for high quality, recent work in kinship studies. On one hand, this may serve to balance the advocacy of older traditions in both of the next two chapters. On the other hand, her clear methodological prescriptions – illustrated with exemplary ethnographies – are timeless and not (it happens) at odds with the other views in this volume. Nor are her views about kinship-like values in the economy and instrumental values in the family at odds with the other chapters. However, she offers new insights into these relationships. Hopefully her chapter will inspire family business scholars to follow up on the works that she has introduced. The rationale for including Harold Scheffler’s chapter, ‘‘Kinship and Gender,’’ is developed in Stewart’s ‘‘Skeptical About Family Business’’ chapter. The methods Rutherford advocates may well be acceptable to Scheffler and other anthropologists of his generation. However, the abandonment of any explanation other than a cultural one – not advocated by Rutherford but by influential anthropologists – is not. The particular and controversial case that Scheffler tackles is the replacement of ‘‘sex’’, with its biological dimension, by ‘‘gender’’, which is purely cultural. Scheffler also develops the linkage between this illusion and Schneider’s influential work on American kinship. Alex Stewart’s chapter, ‘‘Sources of Entrepreneurial Discretion in Kinship Systems’’ seeks to identify what characteristics of kinship systems are sources of discretion, that do and do not lend themselves to choices, by entrepreneurs or other strategic actors, about the use or avoidance of ties by kinship or marriage. He is seeking only to identify the sources. He is not seeking to identify the causes of these sources, such as differences in ecological conditions. Nor is he seeking to map these sources across world cultures or develop an evolutionary scheme; thinking in popular evolutionary terms could in fact be misleading. He offers seven propositions, referring to (1) incorporation of talent regardless of sex roles; (2) nonrelatives treated as kin; (3) widening the vertical range of kinship; (4) widening the collateral range of kinship; (5) incorporation of relatives through marriage; (6) redefining kinship ties and obligations; and

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(7) selective exclusion. Stewart is out on a conceptual limb with this chapter, so his propositions might best be considered speculations. Proposals for further research focus on empirical comparative study and development of theories of conflict as related to modes of affiliation in kinship systems. The next two chapters are written from perspectives outside the family business field. In the first, ‘‘Cross Campus Collaboration: A Law School Perspective,’’ corporate law professor Edward Fallone asks if family firms are distinctive enough to warrant tailored legal approaches. He believes that they probably are, because the default rules for widely held and closely held firms, which exist in all 50 of the United States, can lead to unfortunate consequences for family firms. As a result, he suggests ways in which family business researchers could collaborate with law faculty to better understand the needs of family firms; in his words, ‘‘a modest research agenda’’ for collaboration. He also proposes ways for collaboration with law schools in areas other than research. Anne S. Miner writes from the perspective of a faculty member who has witnessed three other fields – entrepreneurship, women’s studies, and organizational learning – as they developed a measure of legitimacy within the university. As a senior faculty member (Ford Motor Company Distinguished Chair and Executive Director of the Initiative for Studies in Technology Entrepreneurship) at a major research university (the University of Wisconsin, Madison), she is alert to the challenges family business will face. By the same token she is guardedly optimistic, based on the potential for the field to develop not only ‘‘know how’’ and ‘‘know what’’ but also ‘‘know why’’ knowledge about important questions. Dean Fowler and Debra Houden provided their own summary which I will follow. They argue that in most cases the research literature in family business demonstrates little or no dialog with practitioners. Research could be enhanced by engaging practitioners (family business consultants) in research activities. This collaboration could develop a practice-based research model that integrates the insights from theoretical models, family businesses, and the consultants who serve them. They also suggest topics for research and mechanisms for collaboration that emerged from the FFI’s task force on practice-oriented research, chaired by Dean Fowler. Fowler is the founder and CEO of Dean Fowler Associates. Houden was with Dean Fowler Associates at the time their chapter was written. She now directs the Center for Family Business of the University of Wisconsin, Madison. Because Judy Green is Executive Director of the FFI, she might have been expected to echo the previous chapter’s thoughts on suggested topics for study and modes of collaboration with practitioners. Instead, she has

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offered an ingenious analogy between approaches to relevance and four models of aesthetics: art as expression, art as interpretation, art as historical record, and art for art’s sake. Interestingly, she finds potential for the development of relevant family business research in all of these approaches, even the last one. The next four chapters address the development of a niche for family business within the curriculum. The first of these, ‘‘Team Approaches to Entrepreneurship and Family Business Education’’ by Frank Hoy, reflects on lessons from the implementation of the Kauffman Entrepreneurial Initiative at the University of Texas at El Paso (UTEP). Hoy proposes a team approach that extends beyond the business school into other colleges and beyond the campus into the community. For example, team building activities and extensive community linkages helped UTEP to gain commitment and resources. Hoy argues that the resolution to increasing complexity and comprehensiveness, of both entrepreneurship and family business, is collaboration. Only with this approach can the institution deploy requisite capabilities in the face of limited staff resources and political resistance. Hoy closes with questions that all colleges and universities may consider. Second among these four chapters is Ernesto Poza’s ‘‘Late Stage Entrepreneurial Activity: What Students Should Know about FamilyOwned and Family-Controlled Companies.’’ As his title implies, Poza summarizes the fundamental knowledge that future family firm members need to learn. His emphasis is on understanding ownership: its challenges, responsibilities, and pitfalls. Poza provides both fundamental lessons and illustrative examples. To the question, is there a unique knowledge base that family business members need to acquire, Poza’s summary of crucial knowledge provides the answer: definitely yes. The third educationally oriented chapter is by Ritch Sorenson, Andy Yu, and Keith Brigham, ‘‘Taking Stock of One Decade of Research: An Outcome-Based Framework for Teaching Family Business.’’ Like Poza, they address the question of content for family business education. Their approach is to compare the content of two textbooks, Poza’s and another by Carlock and Ward, with a clustering summary of the dependent variables and categories treated in empirical family business research. They find a high degree of congruence between both texts and research content, suggesting that education in this field is no longer reliant only on reports based on anecdotes and consulting experience, if in fact it ever was. The last of these four chapters, Rosa Nelly Trevinyo-Rodrı´ guez, has a title that catches our attention: ‘‘A Family Business Project? So What!

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Eight Strategies for Intrapreneurial Scholars.’’ This title suits the tone of her chapter, which is unusually personal, both in discussing her own experiences and also in the relationship she adopts with her readers, as she exhorts us to be ‘‘intrapreneurial’’ in our teaching. She clearly intends to be encouraging but she does not shy from noting the many challenges. Pramodita Sharma’s ‘‘Advancing the 3Rs of Family Business Scholarship: Rigor, Relevance, Reach,’’ is used as the closing statement because it is the most comprehensive of the invited chapters. Her point of departure is the widespread failure of business school research to have an impact on practice. Drawing on the conceptual scheme of Boyer’s influential book Scholarship reconsidered (which has over 1,000 citations in the Social Sciences Citation Index (SSCI)), she makes the case for the scholarship of integration, practice, and teaching as well as discovery (that is, primary research). In her view, family business research is relatively well positioned to have more impactful scholarship because it has been more receptive than more established fields to the first three forms of scholarship. However, she recognizes that the field must develop in all its modes including learning from other fields how to improve in primary research. She concludes with advice for family business scholars who wish to have an impact on both research and practice.

CONCLUSION We are optimistic that the field of family enterprise benefits from important subject material and from an emerging community of scholars who are energized by its questions and its promise. The chapters by Miner, Sharma, and others remind us that this alone is no guarantee that the field will realize its potential. Certainly, we will need to be attentive to the challenges facing this or any other new, applied field of research. However, the chapters in this volume themselves provide us plenty of reason for hope that family enterprise research will be high in scholarly quality and relevant for both students and for practicing managers.

REFERENCES Alderfer, C. P. (1988). Understanding and consulting to family business boards. Family Business Review, 1(3), 249–261. Aldrich, H. E., & Fiol, C. M. (1994). Fools rush in? The institutional context of industry creation. Academy of Management Review, 19(4), 645–670.

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Aldrich, H. E., & Waldinger, R. (1990). Ethnicity and entrepreneurship. Annual Review of Sociology, 16, 111–135. Barach, J. A., & Ganitsky, J. B. (1995). Successful succession in family business. Family Business Review, 8, 131–155. Barnes, L. B., & Hershon, S. A. (1976). Transferring power in the family business. Harvard Business Review, 54, 105–114. Becht, M., & Mayer, C. (2001). Introduction. In: F. Barca & M. Becht (Eds), The control of corporate Europe (pp. 1–45). Oxford: Oxford University Press. Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. New York: Commerce Clearing House, Loose leaf service division of the Corporation Trust Company. Burch, P. H. (1972). The managerial revolution reassessed. Lexington, MA: Heath. Chandler, A. D. (1962). Strategy and structure: Chapters in the history of the industrial enterprise. Cambridge: M.I.T. Press. Churchill, N. C., & Hatten, K. J. (1997). Non-market-based transfers of wealth and power: A research framework for family business. Family Business Review, 10(1), 53. Coch, L., & French, J. (1948). Overcoming resistance to change. Human Relations, 1, 512–532. Colli, A. (2003). The history of family business. Cambridge: Cambridge University Press. Daily, C. M., & Dollinger, M. J. (1992). An empirical examination of ownership structure in family and professionally managed firms. Family Business Review, 5(2), 117–136. Dyer, W. G., Jr. (1989). Integrating professional management into a family owned business. Family Business Review, 2(3), 221–235. Earle, T. (2010). Exchange systems in prehistory. In: C. D. Dillian & C. L. White (Eds), Trade and exchange (pp. 205–217). New York: Springer. Earle, T. K., & Ericson, J. E. (1977). Exchange systems in prehistory. New York: Academic Press. Faccio, M., & Lang, L. H. P. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65, 365–395. Friedman, S. D. (1991). Sibling relationships and intergenerational succession in family firms. Family Business Review, 4(1), 3–20. Galbraith, J. K. (1967). The new industrial state. Boston: Houghton Mifflin. Handler, W. C. (1994). Succession in family businesses: A review of the research. Family Business Review, 7(2), 133–157. Katz, J. A. (1991). The institution and infrastructure of entrepreneurship. Entrepreneurship: Theory and Practice, 15(3), 85–102. La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54, 471–517. Levinson, H. (1971). Conflicts that plague family businesses. Harvard Business Review, 49(2), 90–98. Marshack, K. J. (1993). Coentrepreneurial couples: A literature review on boundaries and transitions among copreneurs. Family Business Review, 6(4), 355–369. Savage, D. (1979). Founders, heirs and managers: French industrial leadership in transition. Beverly Hills, CA: Sage Publications. Schein, E. H. (1983). The role of the founder in creating organizational culture. Organizational Dynamics, 12, 13–28. Stewart, A. (1991). A prospectus on the anthropology of entrepreneurship. Entrepreneurship: Theory and Practice, 16(2), 71–91.

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Stinchcombe, A. L. (1965). Social structure and organizations. In: J. G. March (Ed.), Handbook of organizations (pp. 142–193). Chicago: Rand McNally. Ward, J. L., & Handy, J. L. (1988). A survey of board practices. Family Business Review, 1(3), 289–308.

Alex Stewart G. T. Lumpkin Jerome A. Katz Editors

PART I EMPIRICAL RESEARCH

THE IMPORTANCE OF LOOKING TOWARD THE FUTURE AND BUILDING ON THE PAST: ENTREPRENEURIAL RISK TAKING AND IMAGE IN FAMILY FIRMS Esra Memili, Kimberly A. Eddleston, Thomas M. Zellweger, Franz W. Kellermanns and Tim Barnett ABSTRACT Drawing on organizational identity theory, we develop a model linking family ownership and expectations, entrepreneurial risk taking, and image in family firms to explain family firm growth. Testing our model on a sample of 163 Swiss family firms, we suggest that entrepreneurial risk taking and image can both lead to growth in family firms. We further find that family expectations have an influence on both entrepreneurial risk taking and family firm image. This finding suggests that family firms may benefit from two growth paths – forward looking risk taking and the image of the family firm that builds on the past, and that these paths are nurtured by family expectations. Entrepreneurship and Family Business Advances in Entrepreneurship, Firm Emergence and Growth, Volume 12, 3–29 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2010)0000012004

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INTRODUCTION Entrepreneurial orientation, involving ‘‘the processes, practices, and decision-making activities that lead to new entry’’ (Lumpkin & Dess, 1996, p. 136), is critical for effective corporate entrepreneurship and ultimately firm prosperity and survival (Dess & Lumpkin, 2005). Entrepreneurial orientation sets the stage for corporate entrepreneurship by providing the entrepreneurial mindset and organizational impetus to achieve and build the basis for long-term success. In family firms, achieving a goal of ‘‘sustained family legacy’’ requires an enduring ‘‘entrepreneurial orientation across generations’’ (Chrisman, Chua, & Steier, 2003, p. 443). The underlying emphasis on the future and sustainability of the business makes the risk taking dimension of entrepreneurial orientation, defined as the willingness to make large resource commitments in the interest of obtaining high returns by seizing opportunities in the marketplace (Lumpkin & Dess, 1996), a particularly important factor to family firms as they pass from one generation to the next (Zahra, 2005). Research suggests that reciprocal altruism, concern for future generations, long-term orientation, and social capital can facilitate entrepreneurial risk taking in family firms (Arregle, Hitt, Sirmon, & Very, 2007; Corbetta & Salvato, 2004; Eddleston & Kellermanns, 2007; Habbershon, Williams, & MacMillan, 2003; Le Breton-Miller & Miller, 2006; Miller & Le Breton-Miller, 2005; Zellweger, 2007), whereas high ownership concentration has been associated with risk aversion (Schulze, Lubatkin, & Dino, 2003b). Family business owners’ risk aversion tendencies are empirically supported (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Romano, Tanewski, & Smyrnios, 2001; Schulze, Lubatkin, Dino, & Buchholtz, 2001). However, the risk taking behavior of family firms remains unclear owing to the interplay between economic and noneconomic goals (Gomez-Mejia, Hynes, NunezNickel, & Moyano-Fuentes, 2007). Aside from exploring uncharted water through entrepreneurial risk taking, emphasis also needs to be placed on a family firm’s ability to exploit the established position in the market and in particular the competitive advantage of being a family-operated business; specifically through its projected image and reputation as a family firm. Organizational image is ‘‘what organizational agents want their external stakeholders to understand is most central, enduring, and distinctive about their organization’’ (Whetten & Mackey, 2002, p. 401). Family owners may see the firm as an extension of the family (Dyer & Whetten, 2006; Dyer, 1992) and may desire to project the image of the firm as a family business to the firm’s stakeholders. Indeed, family firms may be regarded as particularly

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trustworthy entities (Tagiuri & Davis, 1996; Ward & Aronoff, 1995) and as integral parts of their communities (Steier, 2001). Thus, top executives of the firm (whether family members or not) may decide to cultivate the firm’s image as a family business so as to reap performance advantages. Indeed, research by Dyer and Whetten (2006) suggest that image concerns contribute to family firms’ success. Hence, both family firm image and risk taking propensities may be necessary for growth in firms. Accordingly, we argue that while risk taking behaviors may lead to greater performance, projecting a positive family firm image may also enhance performance by building on the firm’s past achievements and established reputation in the community. Therefore, exploitation of the established family firm image in combination with exploration of entrepreneurial risks directed towards the future may lead the way to high levels of family firm performance. What leads some family firms to take entrepreneurial risks or project a family business image? We draw upon organizational identity theory to try and answer this question and to explain how entrepreneurial risk taking and projecting a family firm image contribute to family firm performance. Organizational identity theory is seen as a way to explain ‘‘what we do as an organization’’ as well as ‘‘who we are as an organization’’ (Nag, Corley, & Gioia, 2007, p. 824). Indeed, previous research has tied organizational identity to strategic change (Nag et al., 2007) and firm image (Dyer & Whetten, 2006; Whetten & Mackey, 2002) suggesting that both entrepreneurial risk taking and image building are organizational identity-related activities that could affect firm outcomes. Given our focus on family firms, we consider the family’s influence on entrepreneurial risk taking and family firm image, by examining how the degree of family ownership in the firm and the family’s expectations for the firm relate to its attempt to project a family firm image and engage in risk taking behavior. This study contributes to the family firm literature in several ways. First, our use of organizational identity theory to understand entrepreneurial risk taking and family firm image helps to demonstrate how the family has an enduring influence on the family firm – affecting investments in the firm’s future through risk taking as well as exploiting the achievements of its past based on a strong family firm image. This dual path to family firm effectiveness adds to the burgeoning interest in strategic aspects of entrepreneurship and its specificities in the family firm context (Hitt, Ireland, Camp, & Sexton, 2001). Second, this study contributes to the family business literature by illustrating the effects of entrepreneurial risk taking and family firm image on performance (Naldi, Nordqvist, Sjo¨berg, &

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Entrepreneurial Risk Taking

Family Ownership

Performance (Growth)

Family Expectations

Family Firm Image

Fig. 1.

Conceptual Model.

Wiklund, 2007). This adds to our knowledge on family firms and demonstrates how an emphasis on entrepreneurial risk taking and family involvement can contribute to family firm success. While entrepreneurial risk taking may be an important way for family firms to remain competitive, the image of being a strong family firm may be a way for family firms to distinguish themselves from their nonfamily firm counterparts. Third, because our sample is composed of Swiss family firms, our study provides non-U.S.-centric insights. In the remainder of this paper, we develop our model and hypotheses, describe the methodology, present our results, and suggest future research directions. Fig. 1 provides a visual representation of our hypotheses.

THEORETICAL OVERVIEW Family Firm Image Organizational identity answers the question, ‘‘Who are we as an organization?’’ (Albert & Whetten, 1985), providing guidance to organizational members as they conduct their daily work (Nag et al., 2007). Organizational identity embodies organizational members’ cognitive views of their organizations as well as their collective behaviors (Nag et al., 2007). In line with this perspective, we see organizational identity as a framework which guides a family firm’s strategic behaviors and affects how managers attempt to portray their organization to the public (Scott & Lane, 2000) in order to shape its external image and develop its reputation

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among stakeholder groups. For family firms, organizational identity is unique in that the family is a distinct, central, and enduring component of the firm. Organizational identity approaches to the study of family firms might be particularly fruitful because organizational salience, attraction, and identification are enhanced by the demographic similarity of family members, which is a key characteristic of family firms (Hogg & Terry, 2000). Seeing the family as one with the firm – sharing values, goals, and membership – can have a profound impact on organizational behavior. Family business members exhibit longer tenure than business members in nonfamily firms since family business membership often starts from childhood, continues through summer jobs, and extends into the lifelong career of family business members, which can enhance salience of family business membership (Dutton, Dukerich, & Harquail, 1994; Le BretonMiller, Miller, & Steier, 2004). Similarly, organizational identity studies suggest that identification is related to internalization of or adherence to organizational expectations, desire for group attachments, and ambitious and achievement-oriented pursuits (Mael & Ashforth, 1995). These elements of organizational identity are relevant to family firms exhibiting an ‘‘enduring nature’’ based on image, trustworthy reputation, unified ownership and management by family members, creativity, attention to research and development, long-run orientation and expectations, and emphasis on company sustained performance (Habbershon & Williams, 1999, p. 5; Dyer & Whetten, 2006). A strong organizational identity may therefore provide a beacon for family members, helping them to align their values with those of the organization and guide their decision-making. Organizational identity helps individuals preserve their continuity of selfconcept and provides distinctiveness and self-enhancement (Dutton et al., 1994). High levels of organizational identification with a family firm may elevate a family member’s cooperation with organizational members and sense of competition with other organizations. Indeed, Dutton and colleagues (1994) argue that members with strong organizational identification tend to work on long-term projects, push superiors to raise standards, and provide ideas for developing their organizations. Individuals identify with their organizations to the extent that they perceive an overlap between their individual identity and the identity of their organization (Foreman & Whetten, 2002). Thus, in line with organizational identity theory, family members may see themselves as extensions of their firm, causing them to want to portray the family firm in a positive light (Dyer & Whetten, 2006) and behave in ways that support family firm principles and goals.

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Organizational image is related to organizational identity, but conceptually distinct. Organizational image relates to the way organizational members believe others see their organization (i.e., construed external image) and the way organizational leaders would like outsiders to see the organization (i.e., desired or communicated image) (Gioia & Thomas, 1996; Scott & Lane, 2000; Ravasi & Schultz, 2006). Hence, image encompasses the internal conception of the organization and the intentional projection of it to outsiders (Dyer & Whetten, 2006). Organizational identity theory suggests that firms work to project their organizational image and build a positive reputation among stakeholders by promoting attractive branding (Einwiller & Will, 2002). A firm’s brand represents a set of promises implying trust and consistency for the buyers (Craig, Dibrell, & Davis, 2008). Accordingly, the branding process involves a firm differentiating itself from competitors through advertising and promotion aimed to appeal to the market and highlight the integrity of the brand (Miller & Le BretonMiller, 2006; Karreman & Rylander, 2008). Consequently, the successful creation and maintenance of a coherent brand can lead to a positive image, forming the basis for a favorable organizational reputation (Einwiller & Will, 2002; Craig et al., 2008). Since ‘‘a positive reputation in the minds of key stakeholders may serve as a form of social insurance, protecting the firm’s (and family’s) assets in times of crisis’’ (Dyer & Whetten, 2006, p. 785), firms have an incentive to create and maintain a positive image that can thereby lead to a positive reputation in the marketplace. Furthermore, a favorable reputation, derived from a positive image, allows organizations to charge a premium price, attract better job applicants, and provide better access to capital markets (Fombrun, 1998; Fombrun & Shanley, 1990; Rindova, Williamson, Petkova, & Sever, 2005), thus fostering firm success. Organizational image may be an important concern particularly for family firm members since family businesses are often associated with the family name and a poor image ‘‘would soil the ‘good name’ of their family and, in turn, reflect poorly on them individually’’ (Craig et al., 2008; Dyer & Whetten, 2006, p. 791). Unlike an employee in a nonfamily firm, a family member cannot switch families and therefore family members may be more likely to work together to preserve the family firm’s good name (Dyer & Whetten, 2006). Furthermore, family firms are often regarded as trustworthy (Tagiuri & Davis, 1996; Ward & Aronoff, 1995) and as placing great emphasis on maintaining long-term relationships (Sirmon & Hitt, 2003). Indeed, Dyer and Whetten (2006) showed that family firms are more adept at avoiding socially irresponsible acts. Consistent with studies on organizational image and family firms’ apparent need to sustain and project a

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favorable image, Craig et al. (2008) suggest that family firms with a positive image can subsequently build a reputation, capitalizing on customers’ positive perception of family firms. Hence, we expect that a family firm image will be positively related to firm performance. Hypothesis 1. Family firm image is positively related to family firm performance. Entrepreneurial Risk Taking Risk is perceived as exhibiting ‘‘variation in the distribution of outcomes, their likelihoods, and their subjective values’’ and ‘‘measured either by nonlinearities in the revealed utility for money or by the variance of the probability distribution of possible gains and losses associated with a particular alternative’’ (March & Shapira, 1987, p. 1404). According to Shapira (1995, p. 126), risk taking differs from ‘‘playing the odds’’ or ‘‘gambling’’. Organizational studies draw attention to risk taking as an integral entrepreneurial function that can lead to success (Brockhaus, 1980; Shapira, 1995). This risk derives from venturing in uncertainty, financial risk due to commitment of large amount of assets and/or heavy borrowing, and the personal risk of executives (Brockhaus, 1980; Lumpkin & Dess, 1996; Dess & Lumpkin, 2005). Being a central dimension of entrepreneurial orientation, entrepreneurial risk taking is defined as ‘‘the degree to which managers are willing to make large and risky resource commitments – i.e., those which have a reasonable chance of costly failures’’ (Miller & Friesen, 1978, p. 923). The notions of heavy borrowing, leveraging of assets, and heavy commitment of resources are consonant with this definition of risk taking (Lumpkin & Dess, 1996). Such risks are often taken in the interest of obtaining high returns by seizing opportunities in the marketplace. Economic theory assumes that many organizations tend to be risk averse and will not be willing to undertake high risks unless a hefty return is expected (Singh, 1986). However, March and Shapira (1987, p. 1415) argue that risk is manageable and controllable through ‘‘engineering of risk taking’’ and ‘‘risk management’’ rather than simply accepting a level of risk. Hence, management can modify risks rather than simply accept them. Consistent with March and Shapira’s argument, Dess and Lumpkin (2005) suggest that companies can research and evaluate risk factors in order to reduce uncertainty and apply useful techniques to manage risk. Within the context of risk management, managers play an important role in defining risk and risk attitudes they hold (Shapira, 1995). Managerial behavior tends

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to be shaped by reward systems, various perceptions, cognitive biases, and shared understandings in a firm. Consequently, successful risk taking behavior can help a firm to outperform its competitors, whereas failure from risk taking can lead to financial and personal losses in organizations (Dess & Lumpkin, 2005). Family firms are often seen as unwilling to take risks, take advantage of opportunities, grow, and develop (Habbershon & Pistrui, 2002; Hall, Melin, & Nordqvist, 2001; Ward, 1997; Wilken, 1979). They are portrayed as being reluctant to invest in new ventures (Cabrera-Suarez, Saa-Perez, & Almeida, 2001), assume risk (Morris, 1998), or induce change (Levinson, 1987). Another perception about family firms is that their entrepreneurial orientation tends to diminish at later stages of the business life cycles due to established traditions and resistance to change (Hall et al., 2001; Ward, 1997). Over time, family firms become much more focused on preserving wealth as opposed to creating wealth. Yet in order to provide for future generations and to remain competitive, entrepreneurial risk taking is necessary. It can be expected that entrepreneurial risk taking is pursued to ensure transgenerational sustainability and firm performance. Accordingly, we predict that entrepreneurial risk taking will be positively related to family firm performance. Hypothesis 2. Entrepreneurial risk taking is positively related to family firm performance.

THE FAMILY INFLUENCE Given our focus on family firms, we now consider how the family may affect firm performance through their influence on entrepreneurial risk taking and family firm image concerns. First, in order to consider the degree of family control and potential influence in the firm, we look at how family ownership affects risk taking and family firm image. Second, to assess the family’s level of identification and concern for the firm, we consider how family expectations influence risk taking and family firm image. As such, we see risk taking and family firm image as mediators in our model that help to explain how the family can have a positive effect on family firm performance. Family Ownership Organizational identification reflects the cognitive and emotional attachment that an individual has with his or her firm based on shared attributes

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(Nahapiet & Ghoshal, 1998). Employees identify with their firms to the extent that they perceive an overlap between the identity of their organization and their individual identity (Dyer & Whetten, 2006; Foreman & Whetten, 2002). People are particularly likely to identify with their organizations when the organization contributes to their self-esteem, selfconsistency, and self-distinctiveness (Ashforth & Mael, 1989; Scott & Lane, 2000). In the context of family firms, a family member may identify with the family, the firm, or both. Just as family firm founders tend to view their businesses as extensions of themselves (Dyer & Whetten, 2006; Dyer, 1992), the greater the degree of ownership family members have of the firm, the more likely their identity may be tied to the family firm. Family ownership is significant ‘‘when a family owns all or a controlling portion of the business and plays an active role in setting strategy and in operating the business on a day-to-day basis’’ (Kelly, Athanassiou, & Crittenden, 2000, p. 27). In most family firms, ownership and management are unified (Carney, 2005; Gersick, Davis, Hampton, & Lansberg, 1997; Lubatkin, Schulze, Ling, & Dino, 2005). Other family governance types are sibling partnerships where ownership is spread around members of one generation and cousin consortiums where ownership is transferred to third and later generations. Family firm studies suggest that family ownership can increase the possibility of growth (Habbershon & Williams, 1999; Ward, 1997). However, the link between family ownership and growth is not well established. When decision-making is centralized among top family members, flexibility increases, while cost decreases (Habbershon & Williams, 1999). As a result, family firms can be more responsive to changes in the business environment through rapid decision-making facilitated by heuristics and intuition that can facilitate growth (Carney, 2005). Zahra (2003) argues that family ownership significantly affects strategic choices of the family firm. Consistent with Zahra’s (2003) argument, Carney (2005) explains how ownership allows family members to have control rights over the firm’s assets and that they then use these rights to influence and dominate decision-making processes in family firms. Indeed, through the identification with the organization, higher levels of family ownership may ensure that necessary risk taking activities will be pursued. Therefore, we expect family ownership to positively influence entrepreneurial risk taking. Hypothesis 3. Family ownership is positively related to entrepreneurial risk taking.

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Because family control encourages families to protect their ‘‘good name’’ (Dyer & Whetten, 2006), family ownership may be positively related to family firm image. Due to their individual identity being entangled in the organization’s identity, family members are likely to see customer complaints and firm mishaps as reflections of themselves and the family (Dyer & Whetten, 2006; Post, 1993). Drawing from organizational identity theory, Dyer and Whetten explain that families work to maintain a positive image in their communities because ‘‘(1) family members share a common need to view themselves positively (I am a good person); (2) they know they cannot switch families, if word of a shameful family activity ‘‘gets out,’’ (3) so they band together to preserve the family reputation’’ (2006, p. 790). Furthermore, close monitoring and control by family owner/managers can elevate the quality of products or services and help build relational or goodwill trust with customers (Poppo & Zenger, 2002; Sako, 1991; Tagiuri & Davis, 1996; Ward & Aronoff, 1991; Weigelt & Camerer, 1988). Indeed, higher levels of family ownership may help family businesses to develop and sustain strong relationships with customers and other external stakeholders (Aronoff & Ward, 1995; Dick & Basu, 1994; Habbershon & Williams, 1999; Lyman, 1991) that help to establish a strong image. As such, higher levels of family ownership may increase a family firm’s tendency to project a family firm image in the marketplace. Therefore: Hypothesis 4. Family ownership is positively related to family firm image. Family Expectation Organizational identity research often focuses on how organizations create meaning for their employees, providing a cognitive frame in which to interpret their work practices and surroundings (Nag et al., 2007). Organizational members aim to align who they think they are as an organization with how they would like to be perceived by outsiders (Ravasi & Schultz, 2006). They work to reaffirm positive aspects of their organizations in the interest of their own needs for self-esteem and self-consistency (Brown, 1997; Scott & Lane, 2000). As organizational members’ identification with their firm increases, so does their motivation to reach firm goals (Ashforth & Mael, 1989). According to organizational identity theory, it is then suggested that the most effective managers are ‘‘those whose self-concepts overlap so extensively with their organizations that organizational effectiveness is a prerequisite for their self-esteem’’ (Scott & Lane, 2000, p. 56–57). As such, a strong family firm identity may help family firms to succeed by persuading

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family members to show concern for the firm’s well-being and to work toward accomplishing firm goals. When individuals strongly identify with their organizations, they are motivated to cooperate with firm members and to pursue the firm’s interests (Ashforth & Mael, 1989). Therefore, we consider family expectations – i.e., the family’s expectations of individual family members’ work performance as well as the congruence between individual family member and family values – will affect entrepreneurial risk taking and family firm image concerns. In line with organizational identity theory, when family expectations are high, family members may work particularly hard to sustain the family business, creating wealth and jobs for future generations by engaging in risk taking activities. Continuously focusing family members’ efforts on achievement and superior work performance may keep family firms from becoming stagnant or outdated. The expectation for family members to contribute to the firm may also encourage family members to invest in the firm’s future by pursuing entrepreneurial initiatives. Hypothesis 5. Family expectations are positively related to entrepreneurial risk taking. Similarly, family expectations may contribute to family firm image. Since family members are likely to see the firm as a key expression that of the family identity, they may work hard to preserve the firm’s image in the community (Dyer & Whetten, 2006). Individuals have an innate need for positive selfimage which causes individuals to prefer to belong to groups that are viewed positively by outsiders (Baumeister, 1998). Because family members may see their businesses as extensions of themselves as well as their family, strong family expectations in terms of family members’ work performance and value overlaps between the individual and the family may therefore increase a family member’s concern for their family firm image. Indeed, Dyer and Whetten’s (2006) study on organizational identity and image effects suggested that family firms work harder to avoid social problems and firm mishaps than their nonfamily firm counterparts. They later explained that ‘‘a family that owns an enterprise with its ‘name on the building’ may y feel a greater responsibility’’ to protect the family image (Dyer & Whetten, 2006, p. 797). Accordingly, we hypothesize: Hypothesis 6. Family expectations are positively related to family firm image. Lastly, we argue that family firm image may affect entrepreneurial risk taking. Family business members, whose self-esteem, self-integrity, and

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self-worth are tied to the family business reputation (Dutton et al., 1994; Smidts, Pruyn, & Van Riel, 2001) may be more motivated to take entrepreneurial risks if they believe that the resulting organizational growth would reflect positively upon them. Indeed, studies suggest that organizational identity can promote or manage change in organizations (Davide & Van Rekom, 2003). Accordingly, Fillis (2003) points out that firm image, derived from organizational identity and the subsequent reputation building, lie at the heart of entrepreneurial endeavors. As Habbershon and Williams (1999) suggest, positive reputation associated with family ownership and relationship-based business activities can lead to stakeholder efficiencies in family firms. Hence, family business members who identify with the organization and maintain higher levels of family firm image have an incentive to be involved in risk taking activities. Indeed, these efficiencies may be a driving force for risk taking and growth in family firms. Formally stated: Hypothesis 7. Family firm image is positively associated with entrepreneurial risk taking.

METHOD Sample A mailing list of 1,250 privately held Swiss family firms was obtained by a family firm center associated with a major Swiss university. As is common in family firm research, we collected the data via a mail survey (Chrisman, Gatewood, & Donlevy, 2002; Eddleston & Kellermanns, 2007; Schulze, Lubatkin, & Dino, 2003a). In order to ensure that the firms in our sample were family firms, we first ensured that the firm had identified itself as a family business to the university center. Second, we only considered those firms that reported having at least two family employees (Eddleston & Kellermanns, 2007; Eddleston, Kellermanns, & Sarathy, 2008). For the purpose of this study, we relied on the CEO as a knowledgeable respondent (Kumar, Stern, & Anderson, 1993; Seidler, 1974). This focus is particularly appropriate, since CEOs in family firms are mostly responsible for entrepreneurial behavior, indeed family firm research focused on entrepreneurial behavior has previously utilized this approach (Kellermanns, Eddleston, Barnett, & Pearson, 2008; Zahra, 2005). Overall, 219 individuals responded from 179 firms. However, as we focused on CEOs and some surveys contained missing data, our final sample consisted of 163 CEO respondents and a response rate of 13%. This response rate compares to

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similar survey-based studies (Chrisman, Chua, Chang, & Kellermanns, 2007; Cycyota & Harrison, 2002; Simonin, 1997). To address nonresponse bias concerns, we first compared early and late respondents utilizing an analysis of variance, but did not discover any significant differences between the two groups. Since no differences were observed, concerns about nonresponse bias are diminished to some extent (for a recent example see Chrisman, McMullan, & Hall, 2005). We further assessed concerns for common method bias by performing a factor analysis (Podsakoff & Organ, 1986). This revealed five factors with Eigenvalues W1.0, which accounted for 67.32% of the variance. The first factor in the analysis accounted for 25.69% of the variance and no common method factor emerged, which reduces concerns related to common method variance.

Measures All items used to assess the dependent, independent and mediating variables are listed in the appendix. Below, we discuss each measure in turn. Dependent Variable – Family Firm Growth Prior research on entrepreneurial behavior has focused on growth-related performance outcomes (Kellermanns et al., 2008) and scholars suggest that the firm’s growth rate is a reliable, if not a superior performance measure in family firms (Kellermanns et al., 2008; Schulze et al., 2001). Indeed, compared to other performance measures, growth measures are less likely to be underreported (Daily & Dollinger, 1992; Dess & Robinson, 1984; Schulze et al., 2001). Accordingly, we assessed sales growth and market share growth as our outcome variable. Both were measured on a 7-point Likert-type scale asking if the growth in sales and market share was currently, and in the last three years, much worse to much better than that of their competitors. Independent Variables and Mediators We assessed total family ownership by asking: ‘‘What percentage of equity is owned by the family?’’ We expanded the two-item scale of family expectations from Beehr et al. (1997) by an adapted third item the authors initially utilized to assess role conflict (i.e., ‘‘The family expects me to do things that do not conflict with my own judgment’’). By expanding the scale we are able to introduce an ethical element and to more realistically reflect the family firm context. The items were measured on a 7-point Likert scale. Coefficient alpha for this measure was .69.

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We assessed entrepreneurial risk taking based on the entrepreneurial behavior dimensions of risk taking. As can be seen in the Appendix, the 7-point scale was anchored by two items at opposite ends of the continuum. We used three items presented in Barringer and Bluedorn (1999), which were earlier developed by Miller and Friesen (1982) and Covin and Slevin (1988). The alpha for this measure was .83. Our family firm image measure was developed based on suggestions by Dyer and Whetten (2006) and assesses the degree to which the organization attempts to utilize the family firm’s image. Some of the items in our 6-item scale, which were assessed on a 7-point scale, are: ‘‘The family firm name is recognized in the community’’; ‘‘The family name is used as brand’’; and ‘‘The fact that we are a family business is a great marketing tool.’’ The items were measured on a 7-point Likert scale. Alpha for this measure was .75. Control Variables Lastly, we need to mention the control variables. We utilized industry controls (construction, wood processing, engineering, business services, manufacturing), to assess for varying levels of entrepreneurial activities by industry (Capon, Farley, & Hoenig, 1990). We further investigated firm age, since younger firms could have higher growth potential, and firm size (Kellermanns & Eddleston, 2006). However, none of these controls had a significant impact on our mediators or the dependent variable, and were thus omitted from the structural equation model for the sake of parsimony and to enhance interpretability of the model.

Results We analyzed the data using AMOS 16TM and SPSS 15.0TM, and used structural equation modeling with maximum likelihood estimation to test our hypotheses. The correlations, means, and standard deviations are displayed in Table 1. First, we estimated a measurement model (CFA). In order to assess the fit of our model, we used multiple fit indices. Specifically, we used the chisquare statistic (w2), comparative fit index (CFI), incremental index of fit (IFI), and Tucker-Lewis index (TLI). Larger values of CFI, IFI, and TLI (.90 or above) denote an acceptable fit of a model to the data. Additionally, the root mean square error of approximation (RMSEA) for the models was investigated. A RMSEA lower than .08 is suggested to indicate good fit (Hu & Bentler, 1995; Kline, 1998; Mulaik et al., 1989). The measurement model

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Importance of Looking Toward Future and Building on Past

Table 1.

Descriptive Statistics and Correlations.

Variables

Mean

SD

1.

2.

3.

4.

Total Family Ownership Family Expectations Entrepreneurial Risk Taking Family Reputation Family Performance (Growth)

87.20 6.08 4.05 4.95 4.63

26.36 .73 1.16 1.21 1.14

.10 .06 .15w .09

.26 .34 .05

.26 .25

.22

N ¼ 163, wpo.10; po.01; po.001.

showed acceptable fit with CFI ¼ .845, IFI ¼ .848, TLI ¼ .804, RSMEA ¼ .106 and w2(95) ¼ 268.202. In a second step, we estimated two nested models to establish full or partial mediation. In order to improve the fit, we allowed the sales growth and market share growth of the respective time period to covary. Our findings support the hypothesized model of full mediation with w2 (96) ¼ 206.614, CFI ¼ .901, IFI ¼ .903, TLI ¼ .876, and RMSEA ¼ .084 (Hu & Bentler, 1995; Kline, 1998; Mulaik et al., 1989). We then compared the fit of our hypothesized model with a partially mediated models with a chi-square comparison test: w2 difference (96–94) ¼ 206.614–204.541 ¼ 2.044 n.s. Although the fit indices of the partially mediated model were also acceptable, the failure to show an improved fit over the hypothesized model suggests that the better fitting model is the full mediation model. Accordingly, we report our findings pertaining to the fully mediated model in more detail below. The un-standardized path loadings, estimated via maximum likelihood estimation, are presented in Fig. 2. Hypothesis 1 was marginally supported, since the relationship between family firm image and family firm performance (B ¼ .274, po.10) was marginally significant. Our second hypothesis, stating that entrepreneurial risk taking behavior would be positively related to growth received strong support (B ¼ .238, po.05). Hypotheses 3 and 4 argued that higher levels of family ownership are positively related to entrepreneurial risk taking and family firm image, respectively. However, no significant relationships were observed between family ownership and entrepreneurial risk taking. The relationship between family ownership and family firm image was significant, albeit small (B ¼ .005, po.05). Hypotheses 5 and 6, which posited a positive relationship between family expectations and both risk taking (H5) and image (H6) received strong support. Family expectations were both strongly related to

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ESRA MEMILI ET AL.

Entrepreneurial Risk Taking

.000

Family Ownership

.238* .005* Performance (Growth)

.137 .327* .274† Family Expectations

Family Firm Image

.444***

Non significant † p