An Overview of the Field of Family Business Studies: Current Status ...

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An Overview of the Field of Family BusinessStudies: Current Status and Directions for the FuturePramodita Sharma

Based on a review of 217 refereed articles on family business studies, the literatureis organized according to its focus on individual, interpersonal or group, organi-zational, and societal levels of analyses. An assessment of the status of our currentunderstanding at each level is provided and directions for future research are sug-gested. A discussion of definitional issues, bases of distinctiveness, and family firmperformance is used to help understand the domain or scope of the field. Method-ological issues and strategies aimed to enhance the pace at which the field achievesa distinctive legitimate place in organizational studies are presented.

Whether measured in terms of number ofpublished articles,1 publication outlets,2

schools offering family business programs,3

research support provided by private donorsand foundations,4 or the membership of

FAMILY BUSINESS REVIEW, vol. XVII, no. 1, March 2004 © Family Firm Institute, Inc.

1 An ABI inform search indicates the number of articleson “family business” in peer-reviewed scholarly jour-nals has shown a dramatic increase: 33 articles up to1989; 110 from 1990–1999 (an average of 11 articles peryear); and 195 articles in the four-year period from2000–2003 (almost 49 articles per year indicating overfour-fold increase!).2 Family business research has begun to emerge inmainstream journals such as Academy of ManagementJournal, Academy of Management Review, Journal ofFinance, and Organizational Science (e.g., Andersen etal., 2003, 2003a; Burkart et al., 2003; Gomez-Mejia et al.,

2002, 2003; D. S. Lee et al., 2003; Schulze et al., 2001,2003a). Special issues of family business research ofsome of the top-ranked entrepreneurship journals suchas Entrepreneurship Theory and Practice (27(4)), andJournal of Business Venturing (18(4) and 18(5)) havebeen published in the year 2003.3 The AACSB (Association to Advance CollegiateSchools of Business) website <http://www.aacsb.edu/members/communities/interestgrps/familybusndoc.asp> lists nearly 50 accredited schools with family business programs. Aronoff and Ward (1995) reportthat more than 70 universities, including leadingschools such as Harvard, North-Western, Notre Dame,the University of California in Los Angeles (UCLA),Wharton, INSEAD, and IMD, have active family business programs.4 Some notable examples include the Coleman, Cox,Kauffman, Mass Mutual, and Raymond Foundations inthe United States; Lombard Odier Hentsch & Cie inEurope; and the Tanenbaum foundation in Canada.

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family firm associations,5 the interest infamily business studies is increasing.As a fieldof study develops, it is important to intermit-tently pause to evaluate the progress madeand reflect on the directions to pursue infuture so as to gain deeper insights into thephenomenon of interest. The purpose of thisreview is to provide such a reflective momentfor the field of family business studies, as theprimary scholarly journal of the field, FamilyBusiness Review, embarks on its new journeywith Blackwell Publishing.

The guiding principle of any professionalinvestigation in social sciences is to clarify ourunderstanding of the segment of the socialworld that is of interest (Lindblom & Cohen,1979). Scholars and practitioners interested infamily firm studies seek to gain new insightsand knowledge into the causal processes thatunderlie these firms (cf. Lewin, 1940). Theoryis an efficient tool that guides the develop-ment of knowledge because it helps make connections among observed phenomenon,thereby helping build conceptual frameworksthat stimulate understanding (Sutton & Staw,1995). It aids in building connections betweenthe work at hand and preexisting research,thus making use of our cumulative knowledgeto reveal a range of alternatives for effectiveaction (Lindblom & Cohen, 1979; Moore, 1962;Weiss, 1977). Kurt Lewin’s (1945) often-quotedendorsement of theory, “there is nothing sopractical as a good theory,” suggests the keyrole of theory in guiding effective practice.

This article is based on a rigorous review of217 peer-reviewed articles on family businessstudies. The point of departure for this reviewwas the previous consolidation attempts ofthe literature by Sharma, Chrisman, andChua6 (1996, 1997). Although an attempt ismade to provide an overview of the literature,the size and scope of it precludes detaileddescriptions of individual studies or anexhaustive listing of every article that wasreviewed. Instead, given the importance oftheoretical knowledge in a scholarly inquiryand development of a field of study (Whetten,1989, 2002), the focus here is primarily onresearch that is theoretically oriented.7

Scholarly research can be undertaken atvarious levels of analyses: individual, inter-personal/group, organizational, and societal(cf. Low & MacMillan, 1988). Although it ispossible to theorize across multiple levels,given the preparadigmatic status of familybusiness studies, with few exceptions, most ofthe literature is focused on one level ratherthan the conceptually complex domain ofmultiple-level theorizing (cf. McKinley, Mone,& Moon, 1999). This article organizes thefamily business literature according to thefour levels of analyses, provides an assessmentof the status of our current understanding ateach level, and presents suggestions for futureresearch.

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5 Examples include the Family Firm Institute (FFI),which was founded in 1986, had about 500 members in1992, and now has nearly 1,200 members; CanadianAssociation of Family Enterprises (CAFÉ), which wasestablished in 1983 with 15 founding members and nowboasts more than 2,400 members representing almost900 family firms across Canada.

6 In addition to these broad-based literature reviews,Bird et al. (2002); Chrisman, Chua, and Sharma (2003);Dyer and Sanchez (1998), Handler (1994), andWortman (1994) have presented more focused reviewsof a selection of the family business literature.7 Although not included in this article, some insightfulexperiential and prescriptive articles include Hubler(1999); Kaye (1999); Krasnow (2002); McCann (2003);Mendoza and Krone (1997); and Murphy and Murphy(2001).



However, before presenting the highlightsof the literature, the following section engagesin a discussion of the domain or the scope of the field of family business studies. This is accomplished through a discussion ofdefinitional issues, basis of distinctiveness ofthe field, and various facets of family firms’performance. Strategies for efficient creationand dissemination of knowledge that shouldenable the field of family business studies toprogress toward being considered a legitimatescholarly field that is theoretically rich andpractically useful are shared in the lastsection.

Domain of the Field of FamilyBusiness StudiesIn an information-overloaded and competi-tive world of organizational studies, in orderto attract intellectual and financial resources,interested scholars and practitioners need to provide convincing reasons for directingresearch efforts on family business studies (cf. McKinley et al., 1999). Thus far, the mainreason provided by scholars for directingscholarly research toward family firms haslargely been the observed dominance of thesefirms on the economic landscape of mostnations.8 Although an effective starting pointin generating interest and gaining attention,this approach is not unilaterally sufficient togain legitimacy for the field. Convincing, the-oretically based answers must be provided forquestions such as: Are family firms really dif-

ferent from other business organizations? andWhy do these firms deserve special researchattention? In working toward a response tosuch questions, there is a need to clarify thedefinition of family firms, source of distinc-tiveness of the field, and the different facets offamily firm performance. Each of these is dis-cussed below.

Definition

A challenging task in most social sciences,9

the importance of establishing clear defi-nitions of family firms cannot be denied asthese will assist in building a cumulative bodyof knowledge. Numerous attempts have beenmade to articulate conceptual and operationaldefinitions of family firms. Various scholarshave reviewed existing definitions, madeattempts of consolidation of thoughts, andconceptualized another definition of familyfirms (e.g., Chua, Chrisman, & Sharma, 1999;Handler, 1989a; Litz, 1995). The focus of mostof these efforts has been on defining familyfirms so that they can be distinguished fromnonfamily firms. Although none of thesearticulations has yet gained widespread ac-ceptance, most seem to revolve around theimportant role of family in terms of deter-mining the vision and control mechanismsused in a firm, and creation of uniqueresources and capabilities (e.g., Chrisman,Chua, & Litz, 2003; Habberson et al., 2003).

Reflecting on the well-established fact that a large majority of firms in most countries

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An Overview of Family Business Studies: Current Status and Directions for the future

8 Evidence of the prevalence of family firms has beenprovided by Klein (2000) in Germany; Morck andYeung (2003) in Sweden; and Astrachan and Shanker(2003) and Heck and Stafford (2001) in the UnitedStates.

9 For example, a struggle for resolving the issue ofdefinitions continues in the literatures of entrepre-neurship (Shane & Venkataraman, 2000), corporateentrepreneurship (e.g., Sharma & Chrisman, 1999), andleadership (Yukl, 1989).



have a significant impact of “family” in them (e.g., Astrachan, Zahra, & Sharma, 2003;Corbetta, 1995; Klein, 2000), scholars questionthe homogeneity of these firms (Sharma,2002). Empirical research has revealed thatthese firms are only rarely an either-or sce-nario (Tsang,2002). Instead, they vary in termsof degrees of family involvement. Attempts tocapture the varying extent and mode of familyinvolvement in firms have been directed in three general directions: articulation ofmultiple operational definitions of familyfirms (e.g.,Astrachan & Shanker, 2003; Heck &Stafford, 2001; Westhead & Cowling, 1998);development of scales to capture various typesof family involvement (Astrachan, Klein, &Smyrnios, 2002); and development of familyfirm typologies (Sharma, 2002).

Using three modes of family involvement,Astrachan and Shanker (2003) provide threeoperational definitions of family firms.10 Theirbroad definition uses the criteria of family’sretention of voting control over the strategic

direction of a firm. In addition to retention ofsuch control by the family, the mid-rangedefinition includes firms with direct familyinvolvement in day-to-day operations. Themost stringent of definitions classifies firmsas family firms only if the family retainsvoting control of the business and multiplegenerations of family members are involvedin the day-to-day operations of the firm. Usingthese definitions, these researchers estimatebetween 3 to 24.2 million family firms in theUnited States that provide employment to27–62% of the workforce, and contribute29–64% of the national GDP.

Astrachan, Klein, and Smyrnios (2002) havepresented a validated ready-to-use scale forassessing the extent of family influence on anybusiness organization. This continuous scaleis comprised of three subscales: power, expe-rience, and culture (F-PEC scale). Particularlyimpressive in this study is the power scale,which articulates the interchangeable andadditive influence of family power throughownership, management, and/or governance.The experience scale measures the breadthand depth of dedication of family members tothe business through the number of indivi-duals and generations of family membersinvolved in the business. Family’s commit-ment to the business and values are used forthe culture scale. These scholars encourageresearchers to move away from a bi-polartreatment of firms as family or nonfamilyfirms toward exploring the mediating andmoderating effects of family involvement intheir studies.

Using the well-established overlappingthree-circles model (Lansberg, 1988), eachcircle representing family membership, own-ership, and managerial roles of internal familyfirm stakeholders, Sharma (2002) has pro-posed a typology that identifies 72 distinct

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10 Two other examples of multiple operationaldefinitions include:

1. The 1997 and 2002 National Family BusinessSurveys that use four different definitions of familyfirms based on the level of involvement of family in thebusiness. These studies indicate a significant influenceof family firms in the United States with over 8.6million families (one out of every 10 households) in theUnited States owning family firms. Collectively, thesebusinesses generated between $1.3–10.4 trillion ingross revenues in 1996, depending on the definitionused (Heck & Trent, 1999; Heck & Stafford, 2001).

2. Westhead and Cowling (1998) present seven oper-ational definitions to classify firms in the UnitedKingdom according to varying levels of family owner-ship, managerial involvement, and CEO perception ofthe firm being a family business or not, and concludethat these firms are a numerically important group ofbusinesses in the United Kingdom.



nonoverlapping categories of family firmsaccording to the extent of family involvementin terms of ownership and management. This“collectively exhaustive,”“mutually exclusive,”and “stable” system of classification meetssome of the key criteria of a good classi-fication system (Chrisman, Hofer, & Boulton,1988, p. 416; McKelvey, 1975, 1982). Subjectingthis classification system to empirical testsshould help identify the types of family firmsthat prevail in each nation at any point intime. Research has revealed that the nationalfiscal laws (e.g., inheritance and capital gainstaxes) influence the type of family firm thatprevails in a country, as firm leaders makeattempts to minimize tax payment and retainthe fruits of their labor within their familyand business (e.g., Burkart, Panunzi, &Shleifer, 2003; Foster & Fleenor, 1996; Wells,1998). An important task that lies ahead forthe field is to subject the theoretical taxonomydeveloped to empirical tests in differentnations. Such an effort should assist in thedevelopment of empirical taxonomies thatcan operationally distinguish family fromnonfamily firms and between different typesof family firms (cf. D. Miller, 1996).

Distinctiveness

In 1994, after conducting a thorough review ofthe family business literature, Wortman com-mented: “no one really knows what the entirefield is like or what its boundaries are orshould be” (Wortman, 1994, p. 4). Perhaps thelack of definitional clarity at the time com-pounded the difficulties of pinpointing thesource of distinctiveness of the field (cf. Hoy,2003). As progress is being made on the devel-opment of definitions of family firm based onthe varying extent and nature of familyinvolvement in a firm, some clarity on the

domain and distinctiveness of the field offamily business studies is being experienced.

Encouraged by suggestions based on previ-ous reviews of the literature (Sharma et al.,1997; Wortman, 1994), one stream of effortaimed at finding the source of distinctivenessin family firm studies was directed towardcomparative studies of family and nonfamilyfirms (e.g., Anderson & Reeb, 2003; Coleman& Carsky, 1999; Gudmundson, Hartman, &Tower, 1999; M. Lee & Rogoff, 1996; Littunen,2003; Westhead, Cowling, & Howorth, 2001;Zahra, Hayton, & Salvato, in press). Thisresearch revealed mixed results, with familyand nonfamily firms being different on somedimensions (e.g., entrepreneurial activitiesundertaken, performance, perception of envi-ronmental opportunities and threats) but noton others (e.g., strategic orientation, sourcesof debt financing).Although these efforts haveaided in improving our understanding ofthese firms, no set of distinct variables sepa-rating family and nonfamily firms has yetbeen revealed. Clearly, there is a need toconduct a meta-analysis of this researchstream to determine what these efforts havecollectively disclosed in terms of distinctionsbetween family and nonfamily firms.

Scholars have suggested broad-based con-ceptual models of sustainable family busi-nesses that take into account the reciprocalrelationship between family and businesssystems (Stafford, Duncan, Dane, & Winter,1999). These models are aimed toward thesimultaneous development of functional fam-ilies and profitable firms. Others have encour-aged the adoption of a “family embeddednessperspective” by including the characteristicsof family systems in research studies (Aldrich& Cliff, 2003; Chrisman, Chua, & Steier, 2003;Zahra et al., in press). Large-scale carefullydesigned empirical studies have revealed that

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the success of family firms depends on theeffective management of the overlap betweenfamily and business, rather than on resourcesor processes in either the family or the busi-ness systems (Olson, Zuiker, Danes, Stafford,Heck, & Duncan, 2003). A seeming conver-gence is appearing that it is the reciprocalimpact of family on business that distin-guishes the field of family business studiesfrom others (e.g., Astrachan, 2003; Dyer, 2003;Habbershon, Williams, & MacMillan, 2003;Rogoff & Heck, 2003; Zahra, 2003).

To crystallize the source of distinctivenessof this field of study from other related fields,it is important to understand its distinctionfrom and linkages with other fields of study.Noteworthy efforts toward this end have beenmade in the recent special issues of Entre-preneurship Theory and Practice (27(4)) andJournal of Business Venturing (18(4) and18(5)). These issues are directed towardexploring the linkages between family busi-ness studies and other disciplines or theoriesdeveloped in other fields.11 Such efforts mustbe continued in the future as they propel thefield toward establishing its niche and identityin the domain of organizational studies.

Family Firm Performance

Recognition of the intertwinement of familyand business in family firms has led to adefinition of high-performing family firmsthat takes into consideration performance on both family and business dimensions

(Mitchell, Morse, & Sharma, 2003). It is gener-ally accepted that these firms aim to achieve acombination of financial and nonfinancialgoals (J. A. Davis & Taguiri, 1989; Olson et al.,2003; Stafford et al., 1999). Research hasrevealed significant variations in perceptionsof family firm stakeholders regarding even the most fundamental issues (e.g., Poza,Alfred, & Maheshwari, 1997; Sharma, 1997).An important direction for the future is tounderstand the extent of a lignment in thedefinition of success used by the key playersof family firms. The tenets of stakeholdertheory may prove useful in gaining such anunderstanding (Freeman, 1984). Perhaps, analignment of stakeholders’ perspective onwhat “success” means to them could be animportant predictor of success of familyfirms, as such an alignment can lead to agree-ment on appropriate mode and extent ofinvolvement of key family and nonfamilymembers in the firm. On the contrary, a mis-match in the definitions of success or goalsthat different stakeholders strive to achievefor the family firm could point toward a tenacious source of conflict (Astrachan &McMillan, 2003).

If family firm performance refers to highperformance in terms of family and businessdimensions, at any point in their lifecycle,family firms may be successful on either oneor both these dimensions. Using a two by twomatrix (Figure 1) four variations of the per-formance of family firms can be conceptual-ized based on whether a positive performanceis experienced on one or both dimensions (cf.Davidsson, 2003; Sorenson, 1999). Althoughgood performance on the family dimensionindicates firms with high cumulative emo-tional capital, good business performanceindicates firms with high cumulative financialcapital.

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11 For example, Aldrich and Cliff (2003) explore link-ages of family business studies with entrepreneurship;Stewart (2003) does it with anthropology; Sirmon and Hitt (2003) and Zahra (2003) link it to strategicmanagement.



Warm hearts—deep pocketsFirms in Quadrant I of Figure 1 are the suc-cessful family firms; they experience pro-fitable business as well as family harmony. Inother words, they enjoy high cumulativestocks of both financial and emotional capitalthat may help sustain the family and busi-ness through turbulent economic and emo-tional times. Staying in this quadrant over a sustained period of time would be the most desirable performance combination for family firms. Haniel in Germany,Cranes papers, S. C. Johnson, J. M. Smucker,Cargill, and Nordstorm in the United States,Kikkoman in Japan, Beaudoin, Thomson, andMolsons in Canada, and Antinori, Ferragamo,and Torrini in Italy are examples of suchfirms.

Pained hearts—deep pocketsQuadrant II firms are characterized by busi-ness success but also are tension prone orexhibit failed family relationships. This scenario has been observed in many largefamily firms, such as McCains in Canada andPritzkers in the United States, that continue toexpand globally and experience increasedprofits, but the family relationships have beenstrained by discontent and conflict (e.g., Pitts,2001). Such firms carry high stocks offinancial capital but are low on family emo-tional capital. Relational issues have beenfound central to the sustainability and successof family firms as good relationships can over-come bad business decisions but the oppositeis more difficult to achieve (Olson et al., 2003;Ward, 1997). This is because, unlike with unre-

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FAMILY DIMENSION

Positive NegativePo

siti

ve

I

Warm Hearts

Deep Pockets

High Emotional and

Financial Capital

II

Pained Hearts

Deep Pockets

High Financial but

Low Emotional Capital

Neg

ativ

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III

Warm Hearts

Empty Pockets

High Emotional but

Low Financial Capital

IV

Pained Hearts

Empty Pockets

Low Financial and

Emotional Capital

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SIN

ESS

DIM

ENSI

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Figure 1 Performance of FamilyFirms.



lated parties, relationships among familymembers are densely linked, wherein the tre-mors of one bad relationship are felt through-out the tight web of other relationships(Astrachan, 2003). Emotional capital and sta-bility provide the fuel to reap the benefits ofother types of capital (Puhakka, 2002). Thus,the long-term survival of firms in this quad-rant is dependent on them developing supportmechanisms aimed at mending family rela-tionships and moving toward Quadrant I.

Warm hearts—empty pocketsQuadrant III firms enjoy strong relationshipsamong family members, though their busi-nesses are low performers. In other words,they are endowed with high levels of emo-tional capital but low financial capital. TheSoutham family of the Southam newspaperchain in Canada, Agnelli’s of Italy, and FordMotor Company in the past few years exem-plify such firms. The strength of the glueamong family relationships can aid thesefirms to endure poor business performancefor some time. However, over longer periodsof time, accumulated resources are likely todeplete, causing stress in family relationshipsas well. Although the nature of interventionrequired to turn these firms toward QuadrantI is different than that required by firms inQuadrant II, a move toward Quadrant I will beneeded for long-term sustainability of suchfirms.

Pained hearts—empty pocketsQuadrant IV firms are failed firms thatperform poorly on both the family and busi-ness end. Although failure on the businessdimension can be used as a learning experi-ence that may even enable these familymembers to launch another venture in future(Davidsson, 2003), failure on the family

dimension is likely to create long-term, far-reaching tremors that may take several yearsto fade, if they do so at all. Although the mostdesirable position for these firms would beQuadrant I, they may have to follow the paththrough Quadrant II or III to reach that happystate.

Care must be exercised in the path followedand strategies used to move toward a morefavorable quadrant such that firms avoid trip-ping into the next worst quadrant instead. Forexample, firms in Quadrant II may be enticedto pay family members with hopes of achiev-ing family harmony and moving into Quad-rant III, while their aim is ultimately toachieve a position in Quadrant I. However,over time, they may find themselves unable topay those fees for sustaining family harmony,which in turn may land them in Quadrant IVinstead of I.

The above description of possible outcomesof family business performance is a simplifi-cation as only two dimensions, each with only two extreme positions, are considered.Further refinements in conceptualization offamily firm performance will be essential toensure clarity in dependent variables used intheory development and empirical research.Comprehensive scales that measure the performance of family firms along various business and family dimensions will need tobe developed and validated. Olson et al.(2003) have provided a very good start in thisdirection. Future efforts can modify thesescales to develop the equivalent of a “FamilyBusiness Score Card” (cf. Kaplan & Norton,1996).

Research also needs to be directed towardunderstanding why family firms find them-selves in a particular quadrant, the factors thatinfluence movement from one quadrant to thenext, and pathways followed to move to a

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quadrant with superior performance on oneor both dimensions.

Some preliminary evidence of the role offamily involvement on firm performance and key strategic decisions such as CEO payhave been revealed through recent researchconducted on publicly listed family firms.Using accounting and market measures,Anderson and Reeb (2003) found that firmperformance increases until a family ownsabout a third of the business, after which ittends to decrease. Gomez-Mejia, Larraza-Kintana, and Makri (2003) find familymember CEOs receive significantly lower paythan nonfamily CEOs, although family leadersare better protected from systematic (indus-trywide) or unsystematic (unique to business)risks. This study confirms similar findings byMcConaughy (2000).

Important extensions of this researchstream would be to conduct research tounderstand the role of family involvementalong other dimensions, such as power,through a combination of governance, man-agement, and ownership, family culture andstructure, and experience in terms of numberof family members and generations involvedon firm performance in publicly and privatelyheld family firms (Astrachan, Klein et al.,2002; Heck, in press).

Summation

The discussion thus far reveals an increasinginterest in the field of family business studies.The intertwinement and reciprocal relation-ships between the family and businesssystems is being recognized as the key featuredistinguishing this field of study from others.Efforts are underway to develop conceptualand operational definitions of family firms.Instead of one definition, a range of

definitions that capture varying extent andmode of family involvement in these firms are being used. Some preliminary efforts areunderway to develop general purpose classifi-cation systems that distinguish family firmsfrom nonfamily firms and between differenttypes of family firms. A framework to under-stand firm performance along business andfamily harmony dimensions is presented.

Levels of Analysis in Family Business StudiesIn this section, the family business literatureis organized according to its focus on the fourlevels of analyses: individual, interpersonal/group, organizational, and societal. At eachlevel, a review of the prevailing literature ispresented so as to highlight the topics thathave received attention, provide an assess-ment of the prevailing understanding, andgive suggestions for future research.

Individual Level

Stakeholders have been defined as “any groupor individual who can affect or is affected by the achievement of firm’s objectives”(Freeman, 1984, p. 47). Freeman (1984)identified 16 generic stakeholders12 and dis-tinguished between primary (those who affecta firm’s objectives) and secondary (thoseaffected by a firm’s objectives) stakeholders.However, he did not include “familymembers” as a distinct generic category. In an

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12 Owners, employees, unions, customers, consumeradvocates, competitors, suppliers, media, environmen-talists, governments, local community organizations,political groups, financial community, trade associa-tions, activist groups, and special interest groups(Freeman, 1984, pp. 25, 55).



extension of this concept into the family firmcontext, Sharma (2001) distinguished betweeninternal and external family firm stakehold-ers. Those involved with the firm either asemployees13 (receive wages), and/or owners(shareholders), and/or family members arereferred to as internal stakeholders. On theother hand, stakeholders not linked to a firmeither through employment, ownership, orfamily membership, but that have the capac-ity to influence the long-term survival andprosperity of a firm, are referred to as exter-nal stakeholders. At the individual level ofanalysis, family business studies have devotedvarying attention to four categories of inter-nal stakeholders: founders, next-generationmembers, women, and nonfamily employees.Research related to each is discussed below.

FoundersDue to their anchoring role in a firm, organi-zational leaders have been recognized ashaving a significant influence on culture,values, and performance of their firms(Collins & Porras, 1994; Schein, 1983). Familybusiness literature recognizes the influentialposition of founders. Due to their long tenuresand the centrality of their position in theirfamily and firm, founders exert considerableinfluence on the culture and performance oftheir firms during and beyond their tenure(Andersen et al., 2003; García-Álvarez,Lóopez-Sintas, & Saldaña-Gonzalvo, 2002;Kelly, Athanassiou, & Crittenden, 2000;McConaughy, 2000). Efforts have been madeto understand the leadership styles adoptedby these leaders and their relationship withother family and nonfamily members

(Aldrich & Cliff, 2003; Lubatkin, Ling, &Schulze, 2003; Sorenson, 2000).

As compared to nonfamily executives,tenures of family business leaders have beenfound to be longer. In a sample of publiclytraded American firms, McConaughy (2000)found the tenure of family business leaders tobe almost three times longer than that of non-family executives (17.6 years vs. 6.43 years).These long tenures have been attributed tothese CEOs facing higher cognitive costs andpsychological barriers to exit their firms(Gomez-Mejia et al., 2003, Lansberg, 1988).Although some have been reported to ex-perience loneliness and boredom in theirpositions (Gumpert & Boyd, 1984; Malone &Jenster, 1992), others remain energetic andrejuvenated throughout their tenure (Keynon-Rouvinez, 2001). It can be speculated that acombination of individual traits, family struc-ture and values, future goals for the enterpriseand the envisioned role of the founder in it,and contextual factors such as the state ofeconomy or industry growth, would influencethe disposition of founders during the courseof their tenure. Perhaps those involved inmentoring of future leaders or philanthropicactivities may continue to feel an excitementin their work lives. It would be useful tounderstand the reasons for the observed dif-ferences in the energy and excitement levels offounders with respect to their jobs and firms.

Using the social network theory (Brass,1995), Kelly et al. (2000) have developed theconcept of founder centrality within a familyfirm and its influence both during and after the tenure of a founder. They suggest three dimensions of centrality—betweenness(central to the flow of information), closeness(direct linkages with top management group),and connectivity (ability to influence the mostconnected members). A variety of hypotheses

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13 The term “employees” is used broadly and includesall levels of the employed workforce in a firm.



are proposed, such as that high founder cen-trality should lead to (1) an alignment of per-ceptions between founder and other familyand nonfamily executives, (2) better firm per-formance along the dimensions of successthat are important to a founder, and (3) astronger influence of the founder on the firmafter his or her tenure ends.

Using 13 cases of Spanish family firms,Garciá-Álvarez et al. (2002) observe that thefounders’ view of the role of business in theirfamily influences the mode and process ofsocialization they use for next-generationfamily members, thereby influencing theculture of the firm beyond their tenure. Thosewho regard their business as a means tosupport the family, value the feeling of familyand limit the growth of their firm. They com-municate higher values of group orientationto their successors, who were found to join thefirm at a young age, lower position, and withlow levels of formal education. On the otherhand, founders viewing business as an end initself encourage successors to achieve highlevels of formal education and experienceoutside the business before joining the familyfirm at senior levels.

Research conducted on publicly tradedfirms by Anderson and Reed (2003) andAnderson Mansi, and Reed (2003) reveals apositive role of founder on firm performancein terms of accounting profitability measures,market performance, and cost of debt financ-ing for family firms. This performance com-pares favorably with performance of familydescendants as well as outsiders as CEOs, sug-gesting that founders bring unique value tothe firm.

Family business leaders have been ob-served to adopt five leadership styles: partici-pative, autocratic, laissez-faire, expert, andreferent (Sorenson, 2000). Participative

leaders, who value the input from and consis-tently evaluate family and nonfamily employ-ees, were found to achieve high performanceboth on family and business dimensions.However, this study did not reveal conclusivefindings on the affects of other leadershipstyles on performance related to family orbusiness dimensions, suggesting a need forfurther research on this topic. Research onpersonality traits and attitudes regardingappropriate power distance between familyand nonfamily members may inform whyfounders adopt different leadership styles.Moreover, a clearer understanding of thelong-term goals of founders in terms of per-formance on family and business dimensionsmay influence their management and leader-ship styles and any observed differences inthese styles over the course of their longtenure. Stage of life through which an indi-vidual, family, and the business are going mayfurther influence the observed leadershipstyle of founders.

The relationship of founders with otherfamily members has received some attention.Two recent conceptual efforts are noteworthy.1 In a crisp articulation of the linkagesbetween the fields of entrepreneurship andfamily business studies, Aldrich and Cliff(2003) suggest that families aid founders torecognize the opportunities around which tocreate a venture and lend support to ensure its birth and sustenance over time. Other re-search has provided empirical support for theintegral role played by family in providingboth the financial and nonfinancial support tofounders for creating new ventures (Astrachanet al., 2003; Erikson, Sørheim, & Reitan, 2003).2 Using behavioral economics and organiza-tional justice theories, Lubatkin et al. (2003)propose that the extent of self-control exer-ted by founders differenti-ates “far-sighted”

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founders from those suffering from “myopicaltruism.” Although far-sighted founders areable to withhold immediate gratification ofeach and every need of family members infavor of actions that enhance long-term valuefor the family and the firm, myopic altruistsfind it difficult to take such actions, therebyviolating rules of procedural and distributivejustice, leading to their being perceived asunjust by family and nonfamily members.

As is evident from this account, at this pointin time, a significant amount of researchfocused on family firm founders is in theorydevelopment stages. Although this is a goodstarting point toward developing clearer in-sights regarding the role of family firmfounders, these conceptual ideas need to besubjected to empirical tests to gauge theirvalidity and generalizability for practice. Itwould be useful to understand the role offamily composition, values and beliefs, andindividual personality and dispositional traitsof founders on their position in the business;how different types of family involvementduring founding and later life stages of a firminfluence founder and firm performancealong different dimensions; and factors that lead to far- versus near-sightedness offounders in terms of careful planning thatleads to sustainable family firms. Although, sofar, this literature has focused on individualfounders or controlling owners, researchneeds to be directed toward understandingfounding teams of the same or differentgenders and ethnic backgrounds, given thepredicted trend toward team leadership infamily firms (Astrachan, Allen, & Spinelli,2002).

Next generationHandler (1989b) successfully directed theattention of the field toward the importance

of focusing on next-generation familymembers and understanding their perspec-tives. Following her suggestions, research has focused in three general directions:desirable successor attributes from the per-spective of leaders; performance enhanc-ing factors; and reasons these family membersdecide to pursue a career in their family firms.

Exploratory research conducted both inWestern and Eastern cultures revealed“integrity” and “commitment to business” asthe two most desirable next-generation attrib-utes from the viewpoint of the firm leaders(Chrisman, Chua, & Sharma, 1998; Sharma &Rao, 2000). Other attributes found importantare ability to gain respect of nonfamily em-ployees, decision-making abilities and experi-ence, interpersonal skills, intelligence, andself-confidence. The attributes consideredimportant by the leaders are relatively versa-tile in their applicability to different situationsand cultures. However, it would be importantto understand why attributes are rated higheror lower, if there are differences based oncurrent and future performance objectives ofa firm. Despite the central position of firmleaders, given their emotional involvementwith the next generation and their boundedand parenting rationalities14 (Simon, 1957;Ling, 2002), leaders may not be in the bestposition to accurately assess either the list ofdesirable successor attributes or the extent towhich members of the next generation possess

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14 Bounded rationality refers to the limited ability ofhuman beings to process information and understandthe environment around them (Simon, 1957). In thecontext of family firms, it is the limited understandingof parents as to the attributes of the next generationthat would lead to highest expected returns (referred toas parenting rationality by Ling (2002).



them. Future research in this area will benefitfrom collecting such data from multiplerespondents in family firms and drawing onthe psychology literature to develop mecha-nisms to assess amounts of each attribute pos-sessed by the next generation of leaders.Moreover, whether possession of differentattributes leads to high performance onfinancial and/or nonfinancial dimensionsmust be studied.

Due to their long tenures, family firmleaders possess a significant amount of idio-syncratic or tacit knowledge related to thefirm (D. S. Lee, Lim, & Lim, 2003). It has beensuggested that the performance of the nextgeneration is likely to be based on the effec-tiveness with which this knowledge, andsocial networks, are transferred across gener-ations (Cabrera-Suárez, Saa-Pérez, & García-Almeida, 2001; Steier, 2001). Research oneffectiveness of knowledge transfer between asource and recipient has unequivocallyrevealed the importance of the absorptivecapacity of the recipient and the nature ofthe relationship between the source and therecipient (W. M. Cohen & Levinthal, 1990;Szulanski, 1995). Defined as the ability toacquire, assimilate, transform, and exploitnew knowledge, recipients’ absorptive capacity has been found to be dependent onthe existing stocks of knowledge and skills(Szulanski, 2000; Zahra & George, 2002).

Mirroring this research, the family businessliterature has revealed that the level ofpreparedness of the next generation and itsrelationship with the senior generation have a significant influence on the next generation’s performance (e.g., Goldberg,1996; Morris, Williams, Allen, & Avila, 1997). Asupportive relationship characterized bymutual respect enables the smooth transitionof knowledge, social capital, and networks

across generations (Steier, 2001). With thisresearch, preliminary steps have been taken tounderstand some of the factors that enhancefirm performance and knowledge transferfrom one generation to the next. In the futureit would be useful to understand whether themode of preparedness of the next generationshould vary based on the goals of family firms,and the interests, attitudes, and psychologicaltraits of involved family members. Effortshould also be directed to understanding thecontextual factors that impede or enhancetransfer of knowledge across generations.

As compared to their peers who come from nonfamily business settings, junior-generation members of family firms werefound to have lesser clarity about their abili-ties, talents, goals, and career interest (Eckrich& Loughead, 1996). Although this observationreveals a difference in vocational clarity offamily members, it would be interesting tounderstand why this lack of clarity prevails,and its implication for individual dispositionand firm performance. Perhaps it is a productof the socialization processes that inculcate asense of obligation among juniors to pursue acareer in their firms (García-Álvarez et al.,2002). Knowing they have no real choices tomake, they subdue consideration of what theirown interests might be. However, these areonly some speculative explanations and needto be subjected to careful theoretical devel-opment and empirical testing.

Stavrou (1998) observed several reasons fornext generation decisions to join the familyfirm. Why were these differences observed?Would differences in motivating factorsimpact the performance outcomes of thesefamily members? Drawing on organizationalcommitment literature, Sharma and Irving(2002) have developed a theoretical model tounderstand the behavioral and performance

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implications of next-generation familymembers based on their reasons for pursuinga career in their family firms. Behavioral andperformance variations are expected depend-ing on whether juniors join their family firmsbecause they want to, from a sense of obli-gation, due to involved opportunity costs,or from a sense of need. Research directed to assess the validity of this model wouldimprove our understanding of the motiva-tional factors directing next-generationmembers toward family firms. Also fruitfulwould be to understand the role of envir-onmental context (family, industry, and business) on the motivations to join and performance of next-generation familymembers.

WomenResearch on this topic suggests that a majorityof women in family firms continue to remainin the background, frequently occupying therole of a household manager and taking on theprimary responsibility for the household andchild-rearing tasks (Cole, 1997; Fitzgerald &Muske, 2002). Although they may seem tooccupy a subdued role, such a positioning pro-vides them with a unique vantage point thataids in the development of a rich understand-ing of the prevailing issues and relationshipdynamics (Dumas, 1998; Lyman, Salangicoff,& Hollander, 1995). They can also provide theemotional reservoir to be drawn on forefficient conduct of the business and manage-ment of relationships among family members(cf. Puhakka, 2002). If used astutely, theirobservations, intuition, and emotional capitalcan make a difference between the success andfailure of a family firm, though formalresearch has still not reached these topics.

Based on interviews with 11 spouses of suc-cessful family firms, Poza and Messer (2001)

describe six different types of roles adoptedby these women: jealous spouse, chief trustofficer, partner or co-preneur, vice-president,senior advisor, and free agent. In anothersimilar attempt, Curimbaba (2002) inter-viewed 12 potential heiresses of Brazilianfamily firms to report that they occupy eithera professional, invisible, or anchor role in theirfirms. Although these studies based on smallconvenience samples provide an indication ofthe varying types of roles that women infamily firms tend to adopt, they do not explainthe reasons that prompt their adoption or theimplications these role adoptions have on firmperformance. This leaves an opportunity toconduct theoretically oriented large-samplestudies to understand the role of females infamily firms.

The last few years have witnessed a numberof female leaders taking over the reins of theirfamily businesses, in some instances along-side their male relatives while in others out-competing them. Some examples includeMarcy Syms (Syms Corporation), Gina Gallo(E&J Gallo Wineries), and Abigail Johnson(Fidelity Investments) in the United Statesand Gail Regan (CARA operations) andMartha Billes (Canadian Tire) in Canada.Despite this trend, no systematic research hasyet been directed toward understanding thecontextual and individual factors that buoythese women into leadership positions, theirperformance goals in terms of family andbusiness dimensions, or the leadership andmanagerial styles adopted by them, pointingtoward an interesting and ripe area for seriousstudy.

Nonfamily employeesIn terms of number of individuals involvedand the impact on the success and growth offamily firms, nonfamily employees are an

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important stakeholder group (Chrisman et al.,1998; Gallo, 1995; Ibrahim, Soufani, & Lam,2001). Moreover, these individuals maypossess idiosyncratic knowledge of the firmthat may be prove valuable in mentoring offuture-generation leaders, or filling in theleadership role should a need arise (D. S. Leeet al., 2003). In larger firms, nonfamily execu-tives have been found to play a critical role instrategic decision making (Chua, Chrisman, &Sharma, 2003). However, it is only recentlythat some efforts are being directed to under-stand the complexity of their role and theirperceptions.

Using transaction costs and social cogni-tion theories, Mitchell et al. (2003) have theo-retically demonstrated that in comparison toemployees in nonfamily settings, family busi-ness employees need to manage dramaticallycomplex cognitions even for performingsimple transactions. This conceptualizationprovides a theoretical explanation of whysome individuals may prefer not to work infamily firms.

Lubatkin et al. (2003) use behavioral eco-nomics and distributive justice theories tosuggest that nonfamily employees’ percep-tions of fairness, in terms of resource alloca-tion exhibited by controlling owners, will bedependent on the extent of self-control exhib-ited by these individuals. If they are perceivedto make decisions that gratify immediateneeds of family members as opposed to pro-moting long-term value for the family firm,they will be perceived as unjust. Such percep-tions are likely to lead to dissatisfaction ofnonfamily employees and reduce the likeli-hood of high performance or long tenures ofthese employees.

We have hardly scratched the surface ofunderstanding this stakeholder group. Thetheoretical models proposed need empirical

verification. Clearly, there is a need to devotemore attention to understanding the perspec-tive of nonfamily employees, issues that areimportant to them, and that would lead tosuperior performance of these individualsalong various dimensions.

Interpersonal/Group Level

Significant research attention has beendevoted to this level of analysis. Three topicsrelated to interpersonal or group levels thathave been investigated are nature and types of contractual agreements, sources of conflictand management strategies, and intergenera-tional transitions.

Nature and type of contractual agreementsIn the field of family business studies, interestin this topic was kindled when two sets ofscholars—Gomez-Mejia, Nuñez-Nickel, andGutierrez (2002) and Schulze, Lubatkin, Dino,and Buchholtz (2001)—began to question theapplicability of the central tenets of agencytheory in the context of family firms. As theirworks received acceptance in mainstreamjournals of organizational studies, they at-tracted immediate and widespread attentionin the field, leading to a number of subsequentconceptual developments and empiricalstudies (e.g., Burkart et al., 2003; Chrisman,Chua, & Litz, 2002; Gomez-Mejia et al., 2003;Greenwood, 2003; Ling, 2002; Lubatkin et al.,2003; Schulze, Lubatkin, & Dino, 2003a, 2003b;Steier, 2003).

Built on the central tenets proposed byAdam Smith (1796), Berle and Means (1932),and Max Weber (1947) agency theory wasconceived and popularized in organizationalstudies by Jensen and Meckling (1976) and

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Ross (1973).15 It is based on the idea that theseparation of ownership and management infirms leads to a principal-agent relationship inwhich the managers (agents) may not makedecisions that are in the best interest ofowners (principals). Thus, suggestions weremade to develop mechanisms to align theseinterests (Jensen & Meckling, 1976). It wasexpected that an alignment of ownership andmanagement within a family would alleviatethe agency problems in family firms becauseindividual family members would engage inaltruistic behaviors wherein they subjugatetheir self-interests for the collective good ofthe family.

Two different perspectives exist on the reasoning that motivates family members to engage in other-regarding behavior as opposed to self-regarding acts. The econo-mist perspective is that “altruism is self-reinforcing and motivated by self-interestbecause it allows the individual to simulta-neously satisfy altruistic (other-regarding)preferences and egotistic (self-regarding)preferences” (Schulze et al., 2001, p. 102). Fromthis perspective, family members are viewedas utility maximizers who are rooted in eco-nomic rationality. Research related to major-ity and minority family member shareholderspoints toward examples of family memberswho may be motivated partially or exclusivelyby their self-interests rather than other-regarding family-oriented behavior (Morck,Shleifer, & Vishny, 1988; Moore & Yeung,2003).

However, an alternate viewpoint, rooted in theological perspective, is offered by ste-

wardship theory (J. H. Davis, Schoorman, &Donaldson, 1997; Greenwood, 2003). Follow-ing the views of McGregor (1960), Maslow(1970), and Argyris (1973), this theory uses ahumanistic and self-actualizing model ofhumankind, wherein an individual viewshimself or herself as a “steward whose behav-ior is ordered such that pro-organizationalcollectivistic behaviors have higher utilitythan individualistic, self-serving behaviors”(J. H. Davis et al., 1997, p. 24). From this view-point, the other-regarding or selfless behaviorexhibited by controlling family businessowners is motivated by their collectivisticrationality that there is greater utility in coop-erative behavior (cf. Hofstede, 1980, 2001).Regard-less of the reasoning underlying theother-regarding behavior in family firms,these views led to a belief that there was noneed for a formal governance mechanism insuch instances of aligned management and ownership, as it would be an unnecessaryexpense that would deter firm’s financial performance.

Scholars working in the context of familyfirms argue that while the agency costs causedby the separation of ownership and manage-ment may be reduced to some extent in familyfirms, other types of problems arise, revealingdarker implications of altruism (Gomez-Mejia et al., 2002; Schulze et al., 2001). Whendealing with members of one’s own family,problems of “myopic altruism” may arise,wherein controlling owners may experience alack of self-control due to which they havedifficulty restraining their impulse to gratifyevery need and wish of their family (Lubatkinet al., 2003). In other instances, being bound-edly rational, these owners may not be awardof the behaviors that would lead to highestexpected outcomes for their children (cf.Simon, 1957). Ling (2002) argues that even

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15 For a more detailed account of development of thisstream of research, see Chrisman, Chua, and Sharma(2003).



when parents attempt to engage in self-control, their fundamental ideological beliefsand values will constrain and determine thegovernance choices made by them (cf. Todd,1985). All these underlying causes may lead toadverse selection or entrenchment in familyfirms, leading to placing family members inpositions for which they are not best qualified(Burkart et al., 2003). Moreover, familymembers may engage in shirking or free-riding behaviors to the detriment of firm per-formance (Gomez-Mejia et al., 2002; Schulzeet al., 2001).

Steier (2003) has argued that variants ofagency contracts among family membersoccur within a continuum of positive-altruistic and economically-oriented rational-ities among family members. As both positiveand negative aspects of altruism have receivedsome empirical support, it is being suggestedthat family firm leaders engage in self-controland adopt governance mechanisms thatwould aid in curbing the negative tendenciesof altruism even when owners and managersbelong to the same family (Gomez-Mejia et al.,2002).

This research stream has been successful inelaborating the boundary conditions ofagency theory and extending its theoreticalrange (Greenwood, 2003). Although the majorfocus of this research has been on relation-ships between family members who areowners and family employees, Chrisman et al.(2002) observe that it has opened rich avenuesfor scholarly examination of agency relation-ships among various internal and externalstakeholder groups of family firms. Some ofthese relationships have received previousscholarly attention. For example, Morck et al.(1988) and Morck and Yeung (2003) have doc-umented the potential agency costs to minor-ity shareholders in firms that have an

entrenched dominant shareholding, whileMyers (1977) and C. Smith and Warner (1979)focus on agency costs in owner-lender rela-tionships. The literature on venture capitalfinancing can be informative in further devel-oping an understanding of this latter relationship.

Future research on this topic would benefitfrom taking into consideration the conceptu-alization of success prevailing in a family firm.For example, if maintenance of performanceon family dimensions is important, it may bein the long-term strategic interest to keepmembers of one generation (even if they areunderperformers) engaged in a business, withthe hope of improving the training and fos-tering the interest of future generations in thebusiness. In other words, some generationsmay primarily act as bridge—or connector—generations, maintaining family harmony andfinancial performance at par or subpar levelsuntil more competent or prepared familymembers become available. Clearly, the timehorizons under consideration in this instanceare significantly longer than in cases dis-cussed currently in agency theory. Perhapssystematic study of dynastic family firms maybe informative in understanding how thesefirms have sustained through multiple gene-rations with varying levels of alignment of skills, abilities, and interests of familymembers of different generations with tasksundertaken by the firm. As the field engagesin this inquiry, it would be fruitful to examinethe differences between explicit and psycho-logical contracts among the different stake-holders (Argyris, 1960; Kotter, 1973; Levinson,1962), and take into consideration the role ofthe family’s culture, beliefs, and value systemson the nature and effectiveness of contractsamong different stakeholder groups in familyfirms.

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Sources of conflict and managementstrategiesAn embeddedness of the family and businesssystems, which in their original forms arebased on fundamental sociological differ-ences, makes family firms a ripe context formisunderstandings and conflict (Boles, 1996;E. J. Miller & Rice, 1988; Swartz, 1989). Conflicthas been described as “awareness on the part of the parties involved of discrepan-cies, incompatible wishes, or irreconcilabledesires” (Jehn & Mannix, 2001, p. 238).

Based on work-groups conflict literature(e.g., Jehn, 1995, 1997), three types of conflictshave been conceptualized: task (disagreementon what tasks should be accomplished),process (disagreement on how to accomplishthe tasks), and relationship (based on inter-personal incompatibilities about values, atti-tudes, etc.). Cross-sectional studies in thisliterature (e.g., Jehn, 1995; Shah & Jehn, 1993)have revealed that relationship conflict isdetrimental to individual and group perfor-mance, reducing the likelihood that membersof a group will work together in the future. Amoderate level of task conflict has been foundto increase group performance in cognitivelycomplex tasks as it allows groups to benefitfrom different opinions and avoid groupthinking (Janis, 1982). Process conflict hasbeen associated with lower levels of produc-tivity and group morale (Jehn, 1997). Most ofthese studies, however, have been cross-sectional in nature, focusing on static levels of conflict and ignoring temporal issues.Even in a case where an attempt was made to understand patterns of conflict over time(e.g., Jehn & Mannix, 2001), the study was conducted on graduate students who, at best,have to work together on projects for the rel-atively limited duration of their program ofstudy.

The family business literature is just begin-ning to develop conceptual models to under-stand the nature, causes, and implications ofdifferent types of conflict. Scholars recognizethe positive and negative aspects of conflict,comparing it to “social friction” (Astrachan &Keyt, 2003; Mitchell et al., 2003). Cosier andHarvey (1998) have proposed that process and task conflicts can be beneficial becausethey promote creativity and innovation.Preliminary evidence of cross-generationalinnovation would support this notion (Litz & Kleysen, 2001). Building on this idea,Kellermanns and Eddleston (2002) suggestthat task and process conflicts interact withrelationship conflict to influence firm per-formance. These researchers also theorize that the relationship between conflict and performance is moderated by the ownershipstructure of the firm.

Another stream of literature has attemptedto understand how conflicts may be resolvedand the impact of adopted resolution strate-gies on financial and nonfinancial dimensionsof firm performance. Sorenson (1999) exam-ined the five conflict management strategies of competition, collaboration, compromise,accommodation, and avoidance used by family firms.Although collaboration strategieslead to positive outcomes on both family and business dimensions, the avoidance andcompetition strategies performed poorly onboth dimensions. Compromise and accom-modation were better for the family-relatedoutcomes but not for the business-related ones. Astrachan and McMillan (2003) andHabbershon and Astrachan (1996) have sug-gested that systems for regular collectiveencounter among family business stakehold-ers aid in the development of shared cognitivemaps and beliefs. In turn, these shared percep-tions enable prediction and pro-active man-

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agement of conflict, thus increasing the ef-fectiveness of intervention strategies, shouldthese be used.

Due to the relative stability of membershipover time and multiplicity in variety of inter-actions that take place among family mem-bers, family firms offer a natural setting tounderstand the root causes and temporaldimensions of conflict (Astrachan & McMillan, 2003; Grote, 2003). Moreover, effec-tive resolution of conflict is likely to influencefirm performance in terms of financial andnonfinancial dimensions. Thus, this is anextremely important area for future researcheffort as we need to understand the root causesof each type of conflict, whether there is anylinkage between the overall goals of a firm andthe frequency of the nature of conflict experi-enced, and resolution strategies that are morehelpful in different types of conflict situations.It is possible to conceive, for example, thatrelationship conflict may be caused by alloca-tion rules of distributive justice (equity, equal-ity, or need based16) that prevail in a family(Lubatkin et al., 2003); or differences in funda-mental norms guiding a family’s values aboutthe nature of relationship among siblings (e.g.,whether one sibling is regarded above othersin terms of inheritance of parental property orall are considered equal) (e.g., Todd, 1985); ordisagreements in terms of choices made alongother dimensions of life such as mate selection(e.g., Kaye, 1999).

Intergenerational transitionSince the inception of this field of study,significant research efforts have been devoted

to the topic of succession (Handler, 1994). Theinterest continues (e.g., Burkart et al., 2003;D. S. Lee et al., 2003; Sharma, Chrisman, &Chua, 2003a; Le-Breton-Miller et al., in press).Earlier reviews revealed the importance ofthis topic and described efforts devoted todescribing the phenomenon of successionprocess and observed best practices (Bird,Welsch, Astrachan, & Pistrui, 2002; Sharma etal., 1996; Wortman, 1994).

A majority of family firm leaders have beenfound to be desirous of retaining familycontrol past their tenure (e.g., Astrachan,Allen et al., 2002). Although the initial reac-tions to such preference were relegated to thepropensity of family firms toward nepotism,recent conceptual thinking suggests suchpreference to be a rational and efficient choicewhen: (1) the prevailing legal system accordslow shareholder protection, such that separa-tion of ownership and control becomesinefficient, (2) the family gains significantnonpecuniary and reputational benefits fromretaining the leadership within the family, and(3) the competitive advantages of a firm arebased in idiosyncratic knowledge that canonly be transferred efficiently to familymembers or the most-trusted outsiders(Burkart et al., 2003; D. S. Lee et al., 2003).

Both incumbents and successors play critical roles in this process, although theyattribute more importance to the others’ role(Sharma et al., 2003a). Significant differencesin perceptions about the process have beenidentified repeatedly (Handler, 1989b; Poza et al., 1997; Sharma, 1997), pointing towardthe importance of engaging in processes that lead to development of collective beliefs(Habbershon & Astrachan, 1996). Using thetheory of planned behavior from the socialpsychology literature, Sharma, Chrisman,and Chua’s (2003b) study of 118 family firm

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16 In equity, allocations are commensurate with contri-butions; in equality, equal allocations are made regard-less of contributions; and allocations are based on needto survive with dignity in need-based systems (R. L.Cohen, 1987; Gilliland, 1993; Lubatkin et al., 2003).



leaders revealed that the presence of a trustedsuccessor willing to take over the leadershipof a firm was the spark that controls the suc-cession planning process. This suggests a needto engage the next-generation family mem-bers in succession planning, as it is theircareers and lives that are involved in this deci-sion. The pursuit of understanding the extentof interest of next-generation family membersin their firms and the best mode for gettingthese individuals involved in the firm mustcontinue (Fiegener, Brown, Prince, & File,1996).

Attempts have been made to reveal variousdimensions and phases of the successionprocess, differentiating between successfuland unsuccessful successions, and identifyingthe factors that contribute to effective succes-sions (Cadieux, Lorrain, & Hugron, 2002; P.Davis & Harveston, 1998; Gersick, Davis,Hampton, & Lansberg, 1997; Harveston, Davis,& Lynden, 1997; Morris et al., 1997; Murray,2003; Poza et al., 1997; Sharma, Chrisman,Pablo,& Chua,2001; Sharma et al.,2003a).Mostof these studies subject theoretically devel-oped models to empirical tests, thereby im-proving our understanding of the successionprocess (Rogoff & Heck, 2003). This processhas been revealed to be a multistaged phe-nomenon with trigger events or markers dis-tinguishing one stage from the other (Cadieuxet al., 2002; Gersick et al., 1997; Keating & Little, 1997; Lansberg, 1999; Murray, 2003). Forexample, using an analogy of a relay race,Dyck,Mauws,Starke,and Miske (2002) suggestthe importance of sequence (appropriatenessof successors’ skills and experiences), timing,technique (details by which succession will beachieved), and communication between thepredecessor and successor. It is generallyagreed that this process extends over time andneeds to be carefully planned (P. Davis & Har-

veston, 1998; Harveston et al., 1997; Sharma etal., 2003a). Recently, Le Breton-Miller, Miller,and Steier (in press) developed an excellentintegrative model for successful successionsthat describes the succession process whiletaking into account the contextual variableswithin the family, industry, and society.Although research needs to be directed towardsubjecting this model to empirical testing, thiseffort is successful in providing a comprehen-sive conceptual framework to understand thesuccession process in family firms.

Parallel efforts have been directed towardunderstanding the reasons that successionsfail when failure is defined as successor dis-missal or firm bankruptcy (Dyck et al., 2002;D. Miller, Steier, & Le Breton-Miller, 2003).Based on their study of 16 failed successions,D. Miller et al. (2003) note that at the heart of failed successions is the misalignmentbetween an organizational past and future.Three observed patterns of this alignment areconservative (attachment to the past), rebel-lious (wholesale rejection of the past), andwavering (incongruous blending of the pastand present). Each pattern leads to differentperformance implications. These studiespresent conceptual models that are simplywaiting for large-scale empirical testing. Inrelated efforts, it would be useful to carefullyconsider the effect of performance objectives,family values and beliefs, and other contextualvariables that might influence the effective-ness of a succession process.

In the past few years, questions have beenasked about whether continuity of a familybusiness is always a good thing (Drozdow,1998; Kaye, 1996). Although experience andintuition point toward a negative answer tothis question, systematic conceptual develop-ment of this issue has not yet been undertaken.Some have made suggestions for adopting

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broader definitions of “success” of succession(Kaye, 1996) and differentiating between ele-ments of a family business that should andshould not be transferred across generations.Research based on a resource-based view ofthe firm suggests the importance of transfer-ring the tacit embedded knowledge (Cabrera-Suarez et al., 2001),networks and social capital(Steier, 2001), passion (Andersson, Carlsen,& Getz, 2002), and innovative spirit (Litz &Kleysen, 2001) across generations, as suchtransfers would lead to competitive advantagesfor family firms. Future research needs to bedirected toward understanding effective waysof transferring these resources across genera-tions, as well as exploring the extent of impor-tance of their transfer in different types offamily firms located in varied cultures (Dyer,1988). Literatures on diffusion of innovationand knowledge transfer could be informativein this regard (e.g., Roger, 1983; Szulanski,1995, 2000).

Organizational Level

At the organizational level of analysis, effortshave been largely directed toward theidentification and management of resourcesin family firms. Resource-based theory of thefirm has been used to inform the researchdirected toward identification and manage-ment of the unique resources in family firms.Habbershon and Williams (1999) suggest thatit is the “familiness” or the idiosyncratic inter-nal resources built into a firm as a result of theinvolvement of family that makes family firmsdistinctive. Further, they argue that “famili-ness” can used either as a source of strategiccompetence (distinctive) or encumbrance(constrictive) by family firms.

In an article that conceptually consolidatesdifferent types of capital, Sirmon and Hitt

(2003) distinguish between five types ofcapital resources and the characteristics thatdistinguish family from nonfamily firms.These sources of capital are human, social,survivability, patient, and governance struc-tures. They suggest that to gain competitiveadvantage, family firms need to evaluate,acquire, shed, bundle, and leverage theirresources efficiently. The interaction betweenfamily and business in these firms providessome advantages and challenges to pursuingthese activities.

To truly understand the strategic decisionprocesses of family firms, it is important toincorporate the role of family beliefs andculture. In one related attempt, Sharma andManikutty (2003) have presented a conceptualmodel for understanding the interactive role of prevailing community culture and familybeliefs on resource-shedding decisions infamily firms. They hypothesize varying levelsof inertia to divest unproductive businessunits by family firms depending on the valuesheld by the owning family and the culture thatprevails in the community where the familybusiness is located. However, empirical testingof the conceptual models developed in thisresearch stream is necessary.

Research directed toward understandingthe sources of financial capital used by familyfirms has consistently revealed a “peckingorder” with highest preference given to inter-nal financing, followed by debt and equityfinancing (Coleman & Carsky, 1999; Erikson et al., 2003; Morck & Yeung, 2003; Poutziouris,2002; Romano, Tanewski, & Smyrnios, 2000).External financing is generally avoided be-cause it is a source of accountability. However,research focused on understanding the cost of debt financing in publicly traded fam-ily versus nonfamily firms has revealed alower cost of debt financing in family firms

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(Anderson et al., 2003). The rationale offeredfor this finding is that the bondholders per-ceive lower conflict of interest with familyfirms due to their long-term orientation andundiversified portfolios. This perception, inturn, leads to a reduction in the cost of debtfinancing (Anderson et al., 2003).

Clearly, more attention needs to be directedtoward the firm level. For example, there is aneed to understand the mechanisms familyfirms use to develop, communicate, and rein-force desired vision and organizationalculture over extended tenures of leaders andacross generations; strategies used to main-tain long-term relationships with externalstakeholders and other organizations; ethicaldilemmas faced and resolution strategiesused; and human resource strategies used,especially as these firms provide limited leadership opportunities for nonfamily executives.

Societal/Environmental Level

A majority of the research efforts directedtoward understanding the role of family firmsat the societal level have focused on establish-ing the extent of economic importance ofthese firms in various nations such asGermany (Klein, 2000), the Gulf region (J. A. Davis, Pitts, & Cormier, 2000), Italy (Corbetta, 1995), Spain (Gallo, 1995), Sweden(Morck & Yeung, 2003), and the United States(Astrachan & Shanker, 2003; Heck & Stafford,2001). As a consistently high influence offamily firms has been found in most nationswhere such studies have been undertaken,perhaps it is time to get to the question of whythese firms endure, try to understand theimpact of fiscal systems on the formationsthat persist in different environments, andtake a look at the role of these firms in their

communities. Theories such as institutionaltheory and population ecology might be usedin such endeavors.

Summation

Overall, the majority of research on familyfirms in the past decade or so has beendirected toward the individual or group levels,with only scant recent interest in the organi-zational level. Topics such as organizationalvision and culture development, marketingstrategies used, human resource practices,interorganizational relationships, and so forthremain unstudied. Further, the impact offamily firms at the societal level has largelybeen ignored, except for the documentation ofa large number of these firms in differentnations.

At the individual level, founders and next-generation members have received the mostattention, with only some attention shownwomen and nonfamily employees. The longterms and significant influence of founders ontheir firms during and after their tenures iswell established. However, the reciprocalimpact of family on founders and the firms is only just beginning to gain attention.Although different leadership styles have beenobserved, there is still lack of clarity on stylesthat may be more effective given differentorganizational goals and personality traits offounders or leadership teams. The focus haslargely remained on individual founders;issues related to team founding and leader-ship await attention. From the perspective ofleaders, committed next-generation familymembers with high integrity are desirablesuccessors, even though such individualsmight remain unclear about their abilities,skills, or career interests. Women are found toplay multiple roles. Nonfamily employees face

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a complex environment in family firms. Ourunderstanding of either of these stakeholdersis preliminary at this stage, showing a need formore systematic research attention in future.

At the interpersonal level, agency theoryhas dominated the research related to thenature of contractual agreements betweenfamily owners and family employees. Theseefforts have revealed that an alignment ofownership and management within a familymay not reduce the overall agency costsbecause, although some costs are alleviated,new types of problems arise. The dark side ofaltruism has been revealed, displaying humanlimitations in terms of accurate understand-ing of how actions taken today mightinfluence the future of a firm, or the impact of one’s control impulses in decisions relatedto family members. Research on the nature ofconflict and resolution strategies has high-lighted different types of conflicts and varyingdegrees of effectiveness of resolution mecha-nisms, although this stream is still in itsinfancy. In terms of the leadership transitionprocess, it is now clear that this process is along one and marked with trigger events. Boththe departing and incoming leaders play acritical role, although their perceptions on keydimensions may vary significantly. Compre-hensive conceptual models of the successionprocess have been developed, and are await-ing empirical testing.

Moving Forward: Strategies for Knowledge Creation and DisseminationThe ultimate aim of the field of family busi-ness studies is to improve the functioning offamily firms. This aim can be achieved bygaining deeper understanding of the forcesthat underlie these firms. Creation and dis-

semination of usable knowledge is a painstak-ing effort that requires strategic thinking. Notonly must we efficiently use our collectiveintellectual resources, we must continuouslyattract and retain good thinkers who willdevote their energies toward gaining insightsinto the world of family firms. In this section,I present some thoughts related to gainingefficiencies in the tasks of knowledge creationand dissemination. Strategies that can beadopted at the individual and communitylevel to expedite our collective understandingof family firms are discussed.

Knowledge Creation

Three aspects related to creating knowledgeabout family firms merit some consideration:What topics deserve attention? How can weeffectively organize our ideas around ques-tions of interest? How can we design effectivescientific investigations?

Choosing research topics and questionsAsking the right questions is the first criticalstep in finding the right answers. A majordifficulty in a new field of study is to deter-mine the projects that must be undertakenand intelligently formulate the research ques-tions. Review papers and directions for futureresearch listed in research articles providesome suggestions to individual scientists.However, the level of thoughtfulness andsophistication with which projects are chosencan be greatly enhanced by a mutually inter-active process among scientists, and betweenscientists and practitioners, in which thesystem achieves a rationality superior to thatof any individual in it.

Some efforts along this dimension areunderway. For example, the International

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Family Enterprise Research Academy’s(IFERA) annual researchers meeting and thescholars program at the Family Owned Busi-ness Institute (FOBI) at Seidman School ofBusiness, Grand Valley State University haveinitiated efforts to aid critical evaluation ofresearch proposals related to family businessstudies. Such efforts can avoid uncoordinatedefforts of isolated individuals and help makegood choices for research projects. Moreover,such meetings enable development of coordi-nated efforts among scholars, as exemplifiedby the F-PEC study that involves nine scholarsin four nations. Another good example ofresearch collaboration is the 1997 NationalFamily Business Survey that involved 25scholars from 17 institutions across theUnited States and Canada (Winter, Firzgerald,Heck, Hayes, & Danes, 1998), with follow-upU.S. reinterviews in 2000 (Winter, Danes, Koh,Fredericks, & Paul, in press). Further progresscan be made by involving family firm practi-tioners and the scientific community moreclosely in relation to issues faced by both communities.

Development and organization ofconceptual thoughtsAfter developing well-thought-out researchquestions, the next step in scientific investiga-tion involves development and organizationof conceptual thoughts. Theory is an efficientmechanism to build conceptual frameworksthat stimulate understanding and provide astrong foundation for conducting systematicresearch (Sutton & Staw, 1995). In explaininga phenomenon, a good theory identifies thevariables that are important and why, specifieshow and why the variables are interrelated,and identifies conditions under which theyshould or should not be related (Campbell,1990). A high priority needs to be placed on

continuously building and improving our the-oretical and conceptual knowledge base asover time such efforts aid in generating usableknowledge (Lindblom & Cohen, 1979).

In the academic realm, theoretical knowl-edge is the distinctive intellectual capital thatprovides legitimacy to a field of study(Elsback, Sutton, & Whetten, 1999). It assistsin developing a language to express the realityaround us, build on each others’ work, andattract and retain the attention of scholarsfrom other disciplines to contribute to thefield (McKinley et al., 1999).

Similar to this pursuit in most other socialsciences, the ultimate aim of the field of familybusiness studies is to develop “theory/ies offamily firms” that take into account the recip-rocal relationships between family and busi-ness systems. A starting point for achievingthis ultimate objective is to reexamine thecurrent theories in the family and organiza-tional fields to test the extent of their validitywhen these two systems are intertwined(Figure 2). Such filtering process will ensurethat the theories developed are valuable androbust so that they will apply to a vast major-ity of organizations in the world (Chrisman,Chua, & Steier, 2003).

Research directed toward an examinationof agency theory in the context of family firms(e.g., Gomez-Mejia et al., 2002, 2003; Schulzeet al., 2001, 2003a, 2003b) is an excellentexample of how a reexamination of anaccepted theory in the domain of family firmshas revealed the limited scope of the originaltheory, suggested extensions that aid in itselaboration and refinement, and at the sametime aided the field of family business studiesto gain deeper insights and rapid legitimacyin the broader academic arena.

As a community of scholars, we must directefforts toward training researchers interested

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in the field to learn the craft of theory build-ing and writing for scholarly publishing.Research conferences such as the “Theories ofFamily Enterprise Conferences” organized bythe Universities of Alberta, Calgary, andWharton, are an effective way to promote andsupport scholarship in the area. Such effortsshould be continued and similar initiativesundertaken to promote interaction betweensenior and newer scholars. At an individuallevel, we need to make continuous efforts toeducate ourselves on the nuances of theorybuilding, and share our research findings invaried venues.

Designing effective studiesResearch designs must be chosen based on theresearch question of interest and the prevail-ing level of understanding on the issue. In the“full cycle” of research, there is an importantrole of both qualitative/process and quantita-tive/variance approaches to develop rich generalizable theories (Cialdini, 1980; Mohr,1982). Although the process theories useevents and states to tell a story about how outcomes are achieved, the variance theoriesuse independent variables as necessary andsufficient causes of variation in dependentvariables (Elsbach, Sutton, & Whetten, 1999).

In an emerging field of study as standards arebeing laid down, it is critical to understandand adopt widely accepted tenets and guidingprinciples of the chosen approach (e.g.,Langley, 1999; Whetten, 2002). Research onsuccession in family firms has made goodprogress through its pursuit of rigor in bothqualitative (e.g., Handler, 1989a) and quanti-tative (e.g., Sharma, 1997) methods.

As significant differences in perceptions ofleaders and other family members have beenrevealed (e.g., Poza et al., 1997; Sharma, 1997),it is necessary for researchers to use multire-spondent data-collection methods to capturedifferent prevailing perspectives. Topics ofinterest in family firm studies such as firmperformance along financial and nonfinancialdimensions across generations, sources ofconflict, efficacy of resolution strategies, andsuccession process extend over long periodsof time, and suggest a need for longitudinalstudies or cross-sectional studies repeatedover time.

As we work toward building cumulativeknowledge on family business studies, it isextremely important to share in detail themethods used, definitions of variables ofinterest and their operationalization, andresearch instruments (Handler, 1989a). The

25


THEORIES OF FAMILY FIRMS

Organizational Theories

Family System Theories

(when the two systems

operate asone)

Family Firm Filter

Figure 2 Toward the Develop-ment of Theories of FamilyFirms.



trend in the field is in the right direction asgood descriptions of methods are beginningto emerge (e.g., Cole, 1997; Danes, Reuter,Kwan, & Doherty, 2002; Keating & Little, 1997;Mustakallio, Autio, & Zahra, 2003; Poza &Messer, 2001; Smyrnios et al., 2003), anddefinitions and research instruments arebeing shared more often (e.g., Astrachan,Allen et al., 2002; Olson et al., 2003;Westhead & Cowling, 1998).

In our role as reviewers, we should strive to maintain the highest standards by en-couraging research that is developed on a theoretically strong foundation and is meth-odologically sound (Bird et al., 2002).Although our judgments should be based onhigh quality, our reviews should be develop-mental so that we can support each othertoward the conduct of good research. In short,the field can benefit from using rigorousdesigns both in qualitative and quantitativeresearch methods, longitudinal or repeatedcross-sectional studies using multiple respon-dents, and adoption of a culture of sharingand mutual support.

Dissemination of Knowledge

Efficient dissemination of acquired knowl-edge is at least as important as its acquisition.Scholars of an emerging field of study need tofind effective ways to share their ideas bothwithin the academic community and amongpractitioners. Below, strategies that can enableeffective dissemination in both these commu-nities are presented for consideration.

Dissemination within the academic communityIt is largely through academic journals andconferences that research is communicatedwithin the academic community. Although weare fortunate in this field to have this journal

devoted exclusively to family business studies,in order to attract more scholars to the fieldand generate widespread interest and credi-bility, it is important to continue our efforts todisseminate our research in a variety of jour-nals and conferences, and invite scholars fromother fields of study to conferences devoted tofamily business studies in an effort to increaseawareness.

At the community level, efforts can be madeto organize meetings where successful seniorscholars are placed in mentoring roles forjunior family business researchers so as togenerate interest in a wider community ofacademics and aid the new scholars to learnthe craft of publishing (Whetten, 2002).

Dissemination among practitionersFor improving the functioning of familyfirms, it is critical that created knowledge beeffectively disseminated into the communitiesof practice. However, transfer of knowledge isa challenging task as significant losses areexperienced in the transmission process,leading to a time lag between knowledge creation and its use (Lindblom & Cohen,1979). Adding to the challenge is a generalhuman resistance to change and the adoptionof new ideas (Lewin, 1943).

Research has revealed that knowledgetransfer can be expedited by involving therecipients in the generation of research ques-tions and studies, ensuring communicationmechanism are adapted to the absorp-tive capacity of users, and developing an inti-mate trusting relationship with the users(Szulanski, 1995).

At individual levels, researchers must continue to make efforts to communicateresearch findings in a manner conducive topractitioners. Usage of diagrams and modelshas been suggested to help in providing struc-

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ture to thoughts and communication ofcomplex ideas (Whetten, 2002). Enlightenedpractitioners must make efforts to keepabreast of new research findings. Collabora-tive efforts between scholars and academicscan be hugely beneficial in generating and dis-seminating usable knowledge. Associationssuch as the Family Firm Institute can play asignificant role in aiding the knowledge trans-fer process by providing opportunities forincreased interaction between scholars andpractitioners, and making efforts to developobjective standards of achievement, withoutwhich no learning can take place.

Summation

Overall, this review has revealed a positivetrend in the field toward more sophisticatedresearch that is based on rich theory-basedconceptualizations of various phenomenon ofinterest. Although such efforts should con-tinue in future, it is equally important tosubject the theoretical models developed tocarefully designed empirical (qualitative orquantitative) studies. Only through continu-ous theory development and testing can wefind ourselves closer to the creation of usableknowledge.

In conclusion, the state of the field of familybusiness studies can be described using JimCollin’s analogy (2001) of a huge heavy metalflywheel mounted horizontally on an axle. Theaim of interested scholars is to turn this wheelof understanding family firms fast and long.At first, through persistent efforts of earlyresearchers in the field such as Beckhard,Danco, Dyer, Hollander, Lansberg, Levinson,and Ward, it inched slowly and imperceptibly.As more individuals joined the field, the wheelgained momentum. At this point in time, thewheel seems to be turning slowly using its

own weight. Before it gains unstoppablemomentum, it is worthwhile to take stock ofits current direction and take care that futureefforts are made in a desirable manner so asto ensure that the wheel of understandingfamily firms moves expeditiously. This is myattempt at stock taking for the field of familybusiness studies.

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Pramodita Sharma is an Associate Professor atthe School of Business and Economics, WilfridLaurier University, Waterloo, ON, Canada.

I am grateful for the detailed suggestions andcomments provided by Joe Astrachan andRamona Heck that helped improve this papersignificantly. Thanks also to Jim Chrismanand Jess Chua for their encouragement andsupport.

Sharma

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