Family Business Dynamics Notes

Family Business Dynamics

Leader Member Exchange Theory

  • Leader Member Exchange (LMX) theory is based off Least-Preferred Co-worker theory.
  • It describes the quality of relationships between people in leader-follower relationships.
  • It prescribes outcomes based on the quality of those relationships.
    • High LMX = better relationship = better outcomes.
    • Low LMX = poor relationship = ineffectiveness.
  • Family Firm LMX (Memili et al., 2014): Unique family firm LMXs are characterized by trust, respect, and obligation.
  • LMX in families increases Psychological Capital.
  • Organizational Psychological Capital of family firms increases innovativeness.
  • Trans-generational succession intentions moderate the impact of the LMXs on the development of organizational Psychological Capital and the consequent effects on innovativeness (Knowledge Management).
  • Personalization (Carney, 2005): Personalization of authority (relationship in command structure) leads to High LMX.
  • It enables the family to impose its own vision onto the business.
  • Subsequent strategies and actions tend to depend on the personal and particularistic values of the family business leader(s).
  • Founder values passed down = informal succession.

Attachment Security (Mikulincer et al., 2002)

  • A set of expectations about other’ availability and responsiveness in times of stress.
  • If I encounter obstacle, I can approach others and get help
  • Avoidance – Seeking -AND- Anxiety
  • Attachment Security plays a crucial role in the formation and maintenance of relationships, especially couple relationships.
  • It affects relational cognitions, emotions & behaviors within and outside of the relationship.
  • People with High attachment security have more positive expectations about relationships AND more positive self-views (confidence).

Professionalism

  • A professional is expected to:
    • Develop generally applicable knowledge.
    • Adopt a moral code.
    • View the career as a “calling” (Benveniste, 1987).
    • Continue to “improve their capabilities” (Hwang & Powell, 2009).
    • Display integrity to “protect the interests of clients/society” (von Nordenflycht, 2010).

Professionalism Typology (Stewart & Hitt, 2012) - Ordered from least to most professionalized:

  • Firms limited in professionalization on multiple dimensions (minimally professional family firms).
  • Firms that seek the private benefits of control with their own capital (wealth-dispensing private family firms).
  • Firms that pursue the opportunities found in informal operations (entrepreneurially operated family firms).
  • Firms remaining embedded in kinship groups (entrepreneurial family business groups).
  • Firms seeking the appearance while violating the spirit of public governance (pseudo-professional public family firms).
  • Professionally managed, family-controlled firms that seek the benefits of professionalization, while retaining family influence (hybrid professional family firms).

Decision-Making in Families

  • Child Influence (Labrecque & Ricard, 1999):
    • Increases as child ages.
    • More influence with lower stakes.
    • Less influence on when, where & how much.
    • Parents over-estimate child influence; children under-estimate their influence.
  • Formal v. Informal: Families tend to rely on informal decision-making, even in business.

Influence Strategies (Kerrane, et al., 2012)

  • Indirect v. Direct Influence (bargaining, persuasion, emotional appeal, request, laissez-faire).
  • Pre-influence strategy.
  • Intra-familial processes.
  • Intra-familial interactions co-construct eventual influence strategies.
  • Results in emergence of highly-constructed and networked strategies within the family setting.

Influence

  • Content
  • Quality
  • Credibility
  • Circulation
  • Societal
  • Profitability

Behavioral Dynamics (Ensley & Pearson, 2005)

  • The social system of the family creates a synergy in the top management team = “familiness”.
  • The unique dynamics created by the social aspects “familiness” result in higher cohesion, potency, task conflict, and shared strategic consensus.
  • When the family is a closely knit social group, social interaction among members will result in shared learning, understanding, and consensus far greater than in groups that are more loosely connected.
  • Effective FF utilize this knowledge management.
  • Beyond founding immediate family, FF become political structures.

Familiness

  • The social system of the family creates a synergy in the top management team = “familiness”.
  • The unique dynamics created by the social aspects “familiness” result in higher cohesion, potency, task conflict, and shared strategic consensus.

Components of Familiness (Ensley & Pearson, 2005)

  • Cohesion: degree to which members are attracted to each other (Shaw, 1981).
    • Cohesive teams work well together, react faster, are more flexible, use superior problem solving techniques, and are more productive and efficient.
  • Conflict: Cognitive (how), Relational (whom), Idea (what).
  • Potency: collective belief of group that it can be effective.
    • Increases with social-emotional support attachment security.
  • Strategic Cognition: consensus on what and how of strategy.

Tangible & Intangible Interrelationships

  • Tangible: Family Members, Succession, Capital Market Monitoring, Economic Endowment, Staffing, $ Growth
  • Intangible: Motivation, Social Capital, Personal Values, Personal Engagement, Individualism, Risk Behavior, CSR, Networking, Management Composition, Expertise, Decision-Making Process, Market Development, Performance