Family growth versus family firm growth: professional

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Family growth versus family firm growth: professional management and succession process Toma´s M. Ban˜egil Palacios, Ascensioń Barroso Martıńez and Juan Luis Tato Jimeńez Dpto. Direccioń de Empresas y Sociologıá, Universidad de Extremadura, Badajoz, Spain Abstract Purpose – Given the relevance of family businesses and the substantial weight that they carry within the socio-economic make-up of any country, this paper consists of the analysis of family firms to explore whether there are any differences between companies which grow at a faster rate than the family and those in which the family grows at a greater rate than the company, in terms of their process of succession and the professionalisation of the people involved and the methods of management. The purpose of this paper is to differentiate between different groups of family businesses through a set of independent variables. Design/methodology/approach – The paper opted for discriminant analysis as an appropriate statistical tool, since it allowed the assigning of an individual to a pre-defined group (dependent variable) on the basis of a number of characteristics (independent variables). A total of 180 family businesses were analysed. Findings – The results of the study show that significant differences exist between family firms where the family grows more than the company and those where the company grows more than the family. Each group has a different vision. The former is more oriented towards meeting their family needs through the company, whereas the latter is more oriented towards business and professional efficiency. Research limitations/implications – One of the limitations arises from the fact that the question concerning the rate of growth of the company and the family is a “self-reported” question that can lead to bias due to the subjective perception of growth. Other limitations arise from the cross-cutting and exploratory nature of the research. Originality/value – This paper analyses the differences between family firms where the family grows more than the company and those where the company grows more than the family. Keywords Family firms, Business development, Growth, Succession, Management, Professionalisation Paper type Research paper

Resumen

Management Research: The Journal of the Iberoamerican Academy of Management Vol. 11 No. 1, 2013 pp. 58-76 q Emerald Group Publishing Limited 1536-5433 DOI 10.1108/1536-541311318071

Propo´sito – Dada la importancia de las empresas familiares debido a su peso dentro de la realidad socio-econo´mica de cualquier paı´s, el presente trabajo consiste en el estudio de la empresa familiar para analizar si su comportamiento, en funcioń del proceso de sucesioń y de la profesionalizacioń de personas y me´todos de gestioń, es diferente cuando la empresa crece a un ritmo superior al de la

The authors would like to thank Junta de Extremadura, Vicepresidencia Segunda y Consejerıá de Economıá, Comercio e Innovacioń and Fondo Social Europeo, as financiers of Ascensioń’s scholarship and to thank the editor and reviewers for their comments and recommendations.

familia y cuando es la familia la que crece a un ritmo superior al de la empresa. El objetivo de esta investigacioń era diferenciar entre los distintos grupos de empresas familiares mediante un conjunto de variables independientes. Disenõ/metodologıá/enfoque – Optamos por el ana´lisis discriminante como tećnica estadı´stica apropiada pues permite asignar un individuo a un grupo definido a priori (variable dependiente) en funcioń de una serie de caracterı´sticas del mismo (variables independientes). Un total de 180 empresas familiares fueron analizadas. Conclusiones – Los resultados del estudio nos indican la existencia de diferencias significativas entre las empresas familiares en las que la familia crece ma´s que la empresa y en las que la empresa crece ma´s que la familia. Ambos grupos tienen visiones diferentes, ya que uno esta´ ma´s orientado hacia la familia para atender sus necesidades a trave´s de la empresa y otro ma´s orientado a la eficiencia empresarial y profesional. Limitaciones de la investigacioń/implicaciones – Una de las limitaciones es derivada del hecho de que la pregunta sobre el ritmo de crecimiento de la empresa y de la familia es una pregunta “self reported” que puede dar lugar a un sesgo por la percepcioń subjetiva del ritmo de crecimiento. Otras limitaciones derivan de la naturaleza transversal de la investigacioń y su caraćter exploratorio. Originalidad/valor – En este trabajo se analizan las diferencias entre las empresas familiares en las que la familia crece ma´s que la empresa y en las que la empresa crece ma´s que la familia. Palabras clave Empresa familiar, crecimiento, sucesioń, gestioń, profesionalizacioń Tipo de artıćulo Artıćulo de investigacioń

Resumo Objetivo – Dada a importaˆncia das empresas familiares por causa do seu peso dentro na realidade soćio-econoˆmico de qualquer paı´s, este trabalho consiste no estudo das empresas familiares para discutir se o seu comportamento, dependendo do processo de sucessaõ eo profissionalizaçaõ de pessoas e me´todos de gestaõ, e´ diferente quando a empresa cresce a uma taxa mais ra´pida do que a famı´lia e quando a famı´lia esta´ a crescer a um ritmo mais ra´pido do que a empresa. O objetivo desta pesquisa foi a diferenciaçaõ entre os diferentes grupos de empresas familiares atrave´s de um conjunto de varia´veis independentes. Metodologia – Optou-se pela ana´lise discriminante como tećnica estatı´stica adequada para atribuir um indivı´duo como um grupo definido a priori (varia´vel dependente) baseado em uma se´rie de caracterı´sticas do mesmo (varia´veis independentes). Um total de 180 empresas familiares foram analisados. Resultados – Os resultados do estudo indicam a existeˆncia de diferenças significativas entre as empresas familiares quando a famı´lia cresce mais do que a empresa e quando a empresa cresce mais do que a famı´lia. Ambos os grupos teˆm diferentes pontos de vista, ja´ que um e´ mais orientado para a famı´lia para satisfazer as suas necessidades atrave´s da empresa e outro mais orientado a` eficieˆncia empresarial e profissional. Limitaço˜es/implicaço˜es – Uma limitaçaõ deriva do fato de que a questaõ sobre o ritmo de crescimento da empresa e da famı´lia e´ uma questaõ de “auto-avaliaçaõ” que pode levar a um vie´s pela percepçaõ subjetiva do ritmo de crescimento. Outras limitaço˜es decorrem da natureza transversal da pesquisa explorato´ria. Originalidade/valor – Este artigo analisa as diferenças entre as empresas familiares, onde a famı´lia cresce mais do que a empresa e onde a empresa cresce mais do que a famı´lia. Palavras-chave empresa familiar, crescimento, sucessaõ, gestaõ, profissionalizaçaõ Tipo de artigo Artigo de investigaçaõ

1. Introduction Research concerning the family firm has increased significantly in recent years (Chrisman et al., 2010). It is estimated that these kinds of companies account for 85 percent of all companies worldwide, 65 percent of the GDP and employment in

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Europe, and 50 percent of US GDP and 60 percent of its employment. As such, the unique characteristics of family firms include the participation of multiple generations, a long-term strategic projection, a strong collective identity, an extraordinary commitment to the survival of the company and the valuing of both economic and socioemotional results (Chirico et al., 2011). The importance of the issues inherent to family businesses is a well-established and widely accepted fact. They must overcome many challenges to ensure their continuity through several generations. In order to do this, they must successfully and simultaneously manage three different demands: the demand of being a company, the demand of being a family firm, and the demand of having a family business owned by the family. To ensure their survival, the business must evolve, grow and, specifically, promote the strategic and organisational development of the company on a permanent basis. Likewise, as a company owned by a family, it also must face the challenge of achieving unity and family commitment to the continuation of the company. In order to be competitive at a national and international level and survive, family firms are confronted with two key challenges: one of them is related to the process of succession, the other, to the professionalisation of people and methods of business management (Chittoor and Das, 2007; Zuń˜iga-Vicente and Sacristań-Navarro, 2009). The majority of family businesses have strong family tensions as a consequence of the superimposition of the family and work spheres. These conflicts occur especially in the periods before, during, and after generational change (Sharma et al., 2003). Further, it is assumed that the success of a company is based on the professionalisation of the owning family, of the ownership, of governance, of the management and of the company, by the hiring of professionals from outside of the family (Martıń, 2001; Craig and Moores, 2002; Gasco et al., 2005). That is why efforts are often made to put in place structures such as the Family Council, the Shareholders’ Meeting, the Board of Directors and a family protocol, in order to ensure the management and resolution of family-business issues (Martıńez, 2007). It is obvious that a family business is much like any other kind of company, but with characteristics that sometimes make it more resistant to, but unfortunately some other times, more vulnerable to, the obstacles that confront any company (Tagiuri and Davis, 1996). The fact that successful family businesses are more profitable than successful non-family companies should not hide the fact that family SMEs have major structural deficiencies to compete in a globalised environment. Many of these are derived from a family policy which, for the sake of defending family interests, does not promote a strong direction or family commitment to the professionalisation of their company (Gallo and Amat, 2003). One of the main sources of problems for family firms is related to the growth of the family and of the company, since it greatly increases the complexity of the company and aggravates the challenges of professionalisation and succession mentioned above. Gersick et al. (1997) suggested that the nature of the family business changes over time in response to the development of the family, the business and ownership, with a greater or lesser impact on the company in its different stages. Along these lines, this study analyses two types of family firms based on their family versus company focus, determined by the rate of growth of the family in relation to the company. The purpose is to understand how they conceive the need to achieve a level of professionalisation and management aimed at economic efficiency; whether they perceive the succession process as a risk for their continuity; and how they prepare for such process.

A rate of family growth greater than that of the company means that the number of members of the family grows faster than that of the economic activities of the company. This implies a greater concern for the family sphere than for that of the business, which leads to different practices in terms of professionalisation, management, succession and growth strategies. The fact that the family grows faster than the company indicates that the company cannot generate enough jobs to fill the needs of all the family members at the same rate. Conversely, if the company grows faster than the family, this means that the family will lose control of the day-to-day activities of the company, its management, or both, as staff will have to be appointed from outside the family in the absence of sufficient family members. In order to ascertain if the rate of growth of the family is greater than that of the company, the managers of the family firms interviewed were asked directly about this. Moreover, in order to know the growth strategy that they followed, we asked whether companies had increased the number of businesses, products, processes and investment in new technologies, and if the company had entered new domestic and/or international markets over the past five years. In other words, if the company growth more or less keeps pace with the family in relation to the dual goals of creating jobs for family members and having sufficient family members willing to cover them. The paper structure is described below. Section 2 contains a literature review that provides an overview of the concept of the family business. This deals with aspects such as the growth of both family and company, and its impact on the professionalisation of management and the succession of family businesses. The next section provides a description of the methodology used, followed by the results obtained. In the final section the main conclusions of the study are presented. 2. Theoretical framework 2.1 The family business What actually constitutes a family business remains an open question despite decades of study and investigation (Astrachan et al., 2002). The majority of authors identify the following as key features of family businesses, namely, that the family participates in the ownership and management of the company; that there is an interdependence of ownership and control; and that the business is passed down through the generations with a drive for continuity (Ruiz et al., 2010). Some researchers maintain that whether or not a company is in fact a family firm is determined by the distribution of ownership. Lansberg et al. (1988, p. 2) define a family business as a company in which the members of a family have the legal control over ownership. Others maintain that it depends upon who actually controls the business. Neubauer and Lank (2003, p. 37) define it as that company, whether individual or corporation of any kind, in which voting control is held by a given family. For others the determining factor is the continued ownership of a company by members of a family. Fahed-Sreih and Djoundourian (2006, p. 227) maintain that a family firm is any company that is controlled or influenced by a single family with the intention of staying in it. For still others, it is the combination of some or all of the above characteristics. For example, Davis (1983, p. 47) combines ownership and management, defining it as an organisation in which the policy and management are under the significant influence of one or more nuclear families. This influence is exercised through ownership and sometimes through the involvement of family members in management. Chua et al. (1999, p. 25) combine


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ownership, management and a drive for continuity, defining the family business as a business that is governed and/or managed with the intention of shaping and implementing the vision of the company held by a dominant coalition controlled by members of the same family, or a small number of families in a way that is potentially sustainable through generations of the family or families. For the purpose of this paper, the latter definition will be adopted, since it makes a clear distinction between family ownership and family management or control. This allows for the inclusion of those family companies that are managed by family members, as well as those governed by people from outside of the family (Hall and Nordqvist, 2008). Therefore, a family that has control of the ownership of a company may opt not to participate in its operational management but, thanks to their ownership and control, they can influence the making of strategic decisions such as succession planning, vision creation, long-term values, and so on (Chittoor and Das, 2007). Regarding the management of family businesses, various authors characterise family businesses as being introverted, inflexible, burdened with old traditions and resistant to change (Ket de Vries, 1993). They behave like a system closed around the family, instead of looking outward (Cohen and Lindberg, 1974), where family members have preferential treatment in the company. On the other hand, some experts consider family businesses to be very efficient organisations, capable of generating high levels of employment and wealth, highly committed to reinvestment, offering quality services and products, great flexibility and the capacity to adapt to the tastes of consumers, and to position themselves or launch new products in the market (Kleiman et al., 1995). However, some family businesses, despite showing an ability to adapt to the market, prefer to penetrate a niche market and stay there (Dyer, 1988). Having contemplated these two perspectives, it seems that the family business is faced with a dilemma of either positioning itself in, and focusing on, the market, thus achieving maximum efficiency, or being family oriented and focusing on family needs. This will lead us to propose two types of companies in our study, which we will attempt to confirm by discriminant analysis. 2.2 The growth of the family and the growth of the company As mentioned in the introduction to this study, one of the main problems for family businesses is the passing of time, namely, the development and growth of both the family and the company. Gersick et al. (1997) suggest that the nature of family businesses changes depending on the phase of development that they are in. Thus, within a company’s framework, the starting-up phase involves an informal structure, with the founder as the central actor in all of the processes. The expansion phase involves the development of multiple product lines, which could require an increasing professionalisation of the business management process, strategy, financial management and support systems. The maturation stage is characterised by a stable, more complex, formal structure and professional management. Therefore, the complexity of a company increases as it grows in size, works in different markets and industries, becomes increasingly international and uses different technologies and the like (Gimeno and Baulenas, 2002). Family companies, just like any other business, face a dynamic, global and highly competitive market that demands more and more new products, new technologies, new methods of organisation, and new ways of competing in the open market

(Fernańdez and Nieto, 2005). This means that family businesses need a certain level of investment/growth, provided that their objective is to maintain competitiveness and ensure long-term survival, whilst at the same time maintaining ownership and control of the company in family hands (Pollak, 1985; Casson, 1999; Chami, 1999). As the complexity of the company develops over time, it becomes necessary to invest in growth strategies, which require additional financial resources other than those available from within the family and the company. This means that the company will have a higher level of indebtedness and/or involve external partners with the aim of attracting additional funds without losing control of the company (Olutunla and Obamuyi, 2008). Along with increasing complexity, the family will need new knowledge and skills in order to manage a competitive, complex and growing company as required; however, such knowledge and skills that are not always available from family members. The generational growth of the family takes place over time and means an increase in the number of family members belonging to different branches of the same family dynasty. This brings about dispersion in ownership as a result of a further distribution of the stock certificates that are passed from parents to children. This dispersion results in a loss of shareholders’ power and requires a great deal of negotiation and consensus for the governance of the company. The result of this dispersion of ownership related to the growth of the family is that different types of shareholders may be identified, according to their involvement in the running of the company. Thus, shareholders can be seen as being either active or passive. Active shareholders are those whose interests go beyond mere company profitability, in other words, beyond their shares. Generally they are active because either the management of the company works very hard to ensure their commitment, or because they work in the company in a management position. On the contrary, passive shareholders only show interest in the profitability of their shares and will have a tendency to sell (Gersick et al., 1997; Lansberg, 1999; Schulze et al., 2003). A second aspect to consider concerning the growth of the family is how difficult it is for all members of the family to work in the company. That is, when the business outgrows the family, in principle, there is no problem in incorporating all the family members who wish to work there. However, when the family has outgrown the company, if many family members wish to join the company, the potential for conflict is heightened (Ban˜egil, 2012). In this way, generational changes often seek the growth of the company in order to accommodate the needs of an extended family according to some authors, such as Poza (1988). It can therefore be seen how family growth has a number of consequences for the family business. From the above it follows that a potentially difficult area for family businesses are interpersonal relationships, which are of the utmost importance. Family members involved in the managing of the company cannot make purely business-related decisions in isolation without taking into account family matters as well. One way of managing the separation of business and family so that it does not affect the business is to clearly delineate the boundaries between family and business matters. To do so, it is advisable to have a Board of Directors separate from family deliberations, whereas the members of the family should meet regularly to discuss family and business matters (Neubauer and Lank, 1998; Sańchez-Crespo, 2003). The latter discussions may take place in bodies such as the Family Assembly and the Family Council.


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2.3 Implications of the growth of the company and the family for the professionalisation of management As remarked above, the complexity involved in the growth of the company needs to be addressed by the professionalisation of management. The design of a common plan for all company workers, of a specific plan for family employees and another one for non-family employees and/or a specific plan for successors, are dilemmas that the management of the family business should rate according to their interests and objectives. This is coupled with the complexity arising from the growth of the family, which causes the dilution of ownership. One of the most recurring solutions is to employ professional managers with relevant skills and knowledge that help the family be competitive. Therefore, professionalisation is the first step on the way to being able to handle overlapping family and business systems. Throughout the first generation, especially in the early years, ownership and leadership skills are often combined, but as time passes and generational changes occur, ownership is diluted. As the family grows, not all family members will work in the family business, a development that will increase the problems derived from company management. An appropriate solution to this could be to employ professional managers from outside the family who may adapt to the company culture, whilst also ensuring the use of more objectively efficient management techniques to maintain or improve the competitiveness of the business. In a general sense, then, professionalisation can be understood to be the process of employing non-family, professional managers who bring experience and training to bear on the specific area to be improved. In addition, professionalisation implies that family directors undergo suitable training and gain the qualifications necessary for their positions (Giovannoni et al., 2011). The important thing is to realise the need for talent within the company to cope with the complexity involved in managing overlapping family and business systems. This will require the planning of professionalisation, and the seeking of the necessary motivation in the personnel, both within and outside of the family. Dyer (1989) suggests three ways to achieve professional management of the family business: the professionalisation of the owning family members, the professionalisation of non-family employees that currently work in the company, and the bringing in of talent from outside of the company by employing non-family directors. These three prongs focus on several human resources areas that are particularly problematic for family businesses, such as personnel recruitment, performance appraisal, and compensation (Network of Family Business Chairs, 2007). According to Martıń (2001), the best way to select the family member or other candidate most qualified for senior management is to form a steering committee composed of non-family members to make the final selection. Another reason for undergoing the necessary process of professionalisation by employing non-family managers is that they bring technical skills that the family company lacks. Equally, not having family relationships, but having specialised training, they make an objective, impartial and non-prejudiced contribution to the company, as well as professional experience from other work environments and new ideas and they can be seen as a breath of fresh air. On the other hand, these managers open internal channels of communication and encourage effective planning and decision-making in areas such as benefits, compensation policies and succession plans. As far as succession is concerned, external managers can guarantee the continuity of the company, as for example, when there are problems in the generational transfer,

they can ensure the safe management of the company until the family is able to regain control (Ussman, 2004; Ward, 2004). Consequently, the employment of outside managers is just as necessary in the foundation stage, in other words, the start of the life of the family business, as in the generational change stage. In order for these outside directors to succeed in a family business, the family must select the manager not only for their professional skills, but also for their inter-personal skills, in order to maintain a balanced relationship with the owning family (Blumentritt et al., 2007). In fact, according to Hall and Nordqvist (2008, pp. 57-58), the formal skills, that is, the formal education, training and experience, are relevant factors for the professional management of the company, but these are not sufficient if senior management is to be effective. What are also needed are cultural skills, defined as an under standing of the objectives of the family and the raison d’eˆtre of the business, that is to say, the values and rules which constitute the basis for the family to be in the business. This is as relevant as the formal skills and qualifications for the management of family businesses. Other theories, such as the theory of socioemotional wealth, consider that when there are family members as candidates, family businesses see it as a socioemotional loss not to choose them, which can lead to choices where performance is not the sole decision-making reason (Welsch, 1996). The literature in the field suggests that family company owners treat directors who are family members, and those who are not, differently. Lastly, it has to be taken into account that family businesses, due to their inherent features, are not very appealing in the labour market (Institute of Family Businesses, 2007). Therefore, as the business grows and becomes more complex, the future of the family business depends upon its ability both to employ and promote its more capable family members and to offer desirable conditions to attract and retain the best professionals from outside of the family (Galve-Go´rriz and Salas-Fuma´s, 2011). 2.4 Repercussions of generational changes on growth One of the most important tasks undertaken by family businesses to ensure their survival and development is to plan the succession (Barnes and Hershon, 1994; Handler, 1994), and as such, it is one of the most widely researched topics. In family business literature, succession is understood to be the transference of leadership from one generation to the next (Lansberg, 1988; Ibrahim et al., 2001). The succession planning process includes all the actions, events, and organisational mechanisms to enable the transfer of both the leadership, and sometimes, the ownership of the company (Le Breton-Miller et al., 2003). In this way the leadership could be transferred as much to a family-member as to a non-family member. With the transfer of the leadership to a non-family member, in other words, a transfer of management, the company continues to be a family company, as there is no succession of ownership. In many cases, the source of the problem in the succession process is either the non-availability of family members with the necessary training in management, or that there are just too many family members of a large family seeking key management roles available in the group (Chittoor and Das, 2007, pp. 69-71). The process of succession planning is of paramount importance since in organisations, according to Dyck et al. (2002), there is a positive relationship between a successful passing of the leadership baton and organisational performance. A successful generational transfer will therefore affect the smooth running of the company and, consequently, its survival.


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According to the model used by Ward (1987, 1997), some authors indicate that the first generation of family companies is more business oriented than the generation that follows, and that companies geared more towards business have a greater capacity for growth (Cromie et al., 1995; Dunn, 1995). Martin and Lumpkin (2004) found that, with respect to successive generations, the entrepreneurial focus tends to decline and the family focus seems to prevail, and therefore stability and inheritance issues become the main drivers of the company. One of the most important tools for successful succession planning is the family protocol (Fuentes, 2007). The family protocol can be defined as the family framework that regulates the relationship between family members and the company, with the aim of consolidating the continuity of the family through successive generations (Sańchez-Crespo, 2009). Likewise, for the future survival of the company, a family protocol should be drafted to clarify the vision and mission of the family as regards the company, as well as setting clear rules and goals for family members (Kenyon-Rouvinez et al., 2005). The family protocol contains, amongst other things, the plans for the succession. The main characteristic of the plans of succession is that they are never fully completed, and that they depend on how the family and the company evolve. Consequently, these plans need to be reviewed periodically (Gallo and Tomaselli, 2007). In this way, the protocol can minimise the problems often found in the process of succession. In order to ensure the continuity of the family business, it is necessary to have efficient control. This requires taking into account the two structures and ways of thinking that shape the family business: family and business (Carlock and Ward, 2002). In order to minimise the conflicts that may arise in the company as it matures, the family firm has to develop its own formal governing procedures, which are essential when companies have reached a certain size (Galve, 2002). In order to do this, it is necessary to adopt structures and governing policies that require collaboration and power sharing (Lansberg, 2007); that is, certain instruments (such as the family protocol mentioned above) and management bodies that are exclusive to family businesses must be implemented and adapted (Family Council, Family Assembly). Additionally, other tools not limited to family businesses (such as Shareholders’ Meetings, Board and Boards of Directors meetings) are also required to be adapted to the specificities of family companies to ensure the smooth and efficient performance of their duties (Martıńez, 2007; Sańchez-Crespo et al., 2005). It is therefore important to note that, once the family has grown considerably, it becomes necessary to make a clear and acceptable division between the Board of Directors and the Family Assembly or the Family Council, as all members of the family with interests in the company should meet regularly to discuss both family matters and business (Neubauer and Lank, 1998; Sańchez-Crespo, 2003). 3. Methodology The description of the methodology used is structured in five sections: definition of the population and sample, design and development of the data collection instrument, field work, group variable and analysis. 3.1 Data collection The studied population includes companies registered in the Autonomous Community of Extremadura (Spain). Methodologically, our first objective was to establish

a database to find the percentage of family businesses in Extremadura, since there were no previous studies in this regard. To do so, we used the ARDAN database, which is included in the 2008 Guide to Businesses in Extremadura. ARDAN is a business information service which contains economic data concerning the filing of financial statements by companies in Extremadura with the Companies’ Registry. Since the number of companies included in ARDAN is very high (some 10,263 companies), we were obliged to introduce a limit, i.e. to include only those companies with more than five employees. Thus, the population for our study was made up of 3, 673 companies that fell into this category. To find out which of these companies were family businesses, we sent an initial questionnaire to 810 companies, and found that more than 70 percent of companies in Extremadura are family businesses. Finally, within this percentage, a sample of 180 family companies continued to collaborate in our study. The next step was to hold a personal interview with them. 3.2 Measurement The initial questionnaire was born out of the need for a first test to identify family companies in Extremadura. The second questionnaire was developed from existing literature and a Delphi analysis. The Delphi panel of experts was taken from members of the Network of Family Business Chairs. Each of the questions in the questionnaire was measured by a five-point Likert scale (1 – strongly disagree, 5 – strongly agree). 3.3 Field work The first questionnaire was delivered by way of telephone calls. For the second questionnaire, a letter of introduction was first sent to the family companies interested in participating in the study, together with the aforementioned questionnaire. Later the companies were called to arrange a meeting in their respective geographic locations with the aim of completing the questionnaires with the responses obtained in a personal interview. These personal interviews ensured that the questionnaires were completed by a key informant, that is, by a company owner and manager. 3.4 Group variables The groups were classified based on a question in the questionnaire, as to whether the growth of the family had been greater than that of the company. 48 variables were also included in the analysis concerning the succession, professionalisation, management and growth of the company. 3.5 Data analysis The objective of this study was to differentiate between different groups of family businesses through a set of independent variables. To do so, we opted for discriminant analysis as an appropriate statistical tool, since it allowed us to assign an individual to a pre-defined group (dependent variable) on the basis of a number of characteristics (independent variables). As mentioned earlier, a total of 180 companies were analysed. A discriminant function was generated based on Wilks’ lambda and the likelihood ratio criterion. 4. Results The results of the discriminant analysis of the groups formed by the variable “the family grows at a greater rate than the company” were the following (Table I).


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The results of the discriminant function are shown in Tables II and III. The centroid or midpoint of the discriminant functions was 2 0.937 for the group of family companies that grew at a rate greater than the company and 0.717 for the group that did not. Table IV shows the standard coefficients of the canonical discriminant functions (n ¼ 143). Also this table suggests which are the variables that discriminate between groups, i.e. following the standard coefficients, the following table shows which are the most important variables in the discriminant function. 75 percent of the cases were classified correctly. This number indicates that the discriminant function is effective (Table V). 5. Conclusion and discussion First, the initial conclusion that we can draw is that there are differences between the groups, as indicated by the discriminant analysis. These differences relate to the process of professionalisation and management, how to manage the succession process, and the growth strategies followed by companies. According to Ward (1987, 1997) the family business seems to be faced with a dilemma between either positioning itself and being market oriented, thus achieving maximum efficiency, or being more family oriented and concentrating more on meeting family needs. The referred author remarks that a distinction should be made between those companies where the family business serves the family (family oriented) and those where the family serve the company (company oriented). From our results it can be concluded that family businesses where the family has grown more than the company are more family-oriented, as can be clearly seen in variables such as supply of jobs and financial resources to the family, together with wealth management. In this sense, the family-oriented type sees the company as a place where family members can find work, which provides financial resources to serve family needs. In this way, their management seems to be more directed to guaranteeing future work for the following generations whereas, on the contrary, there seems to be less concern about the legacy of the company.

Box’s M F Table I. Results of the test

Function Table II. Autovalue

Autovalue

Canonical correlation

0.681

0.637

1

Test of functions Table III. Wilks’ lambda

1

2,430.8 1.224 1,225 52,032.261 0

Approx. df1 df2 Sig.

Wilks’ lambda

x2

df

Sig.

0.595

60.531

49

0.125

Stand. coef. Wilks’ lambda Management and professionalisation variables Managers being family members makes management easier Having several generations of owners has a positive influence on management It is advisable to use company financial resources for family needs It is advisable to use family financial resources for company needs is recommendable The Board of Directors is a useful body The shareholders meeting is a useful body The Family Assembly is a useful body The Family Council is a useful body Holding the majority of votes in the Board of Directors is important for its smooth running It is important to have a common training plan for all employees It is important to have a specific training plan for family members The investment in training must be evaluated The current level of training of family members is commensurate with the posts they hold Family members must have priority to hold management positions It is a priority to find positions for family members in the company It is important to pass patrimony on to successive generations It is a priority to improve both competitiveness and growth It is a priority to survive In making decisions family matters must be taken into account Family workers report to non-family directors The criteria for setting salaries must be the same for everyone Family members of the same generation must have similar salaries When employing a non-family manager, the family assesses the newcomer’s readiness to follow their values The family brand image is identified with the family image We have closed/sold a business for family reasons Being a family company means that the company takes more risks The family company has to become international to be more competitive To become international it is important that the manager in charge is a family member

F

Sig.

2 0.028

0.979

2.962 0.087 *

2 0.32

0.967

4.765 0.031 * *

0.085

0.975

3.671 0.057 *

2 0.198 2 0.14 0.257 2 0.476 0.565

0.99 0.981 0.985 0.998 0.994

1.48 2.675 2.103 0.276 0.904

0.231

0.952

7.184 0.008 * *

0.202

0.983

2.411 0.123

0.296 2 0.419

0.974 0.996

3.739 0.055 * 0.525 0.47

0.133

0.992

1.134 0.289

0.114

0.977

3.302 0.071 *

0.079

0.996

0.576 0.449

0.067

0.996

0.509 0.477

2 0.203 2 0.062

0.997 1

0.419 0.518 0.039 0.843

2 0.048 2 0.034

0.989 0.996

1.537 0.217 0.576 0.449

0.198

0.994

0.856 0.357

2 0.207

0.934

2 0.47

0.997

0.393 0.532

2 0.111 2 0.128

1 0.991

0 1.33

0.998

0.295 0.588

2 0.347

0.996

0.568 0.452

0.267

0.996

0.545 0.461 (continued)

0


0.226 0.104 0.149 0.6 0.343

10.039 0.002 * *

0.995 0.251 Table IV. Equality tests of the midpoint of the groups and coefficients of the canonical discriminant function

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70

Table IV.

Stand. coef. Wilks’ lambda Family values are important to form alliances with other companies We prefer to make contracts with companies in the region It is important to sponsor sporting, social and cultural Economic crises affect family businesses less Not being goal-oriented is a relevant cause for business family failure The appointment of family members ill-suited to the job is a relevant reason for family business failure Family differences in management are a cause for failure in the family business The company sells abroad Membership of the Family Business Association of Extremadura Succession variables To have more than one family owner is a positive influence on succession To provide for the succession of the main manager is a positive thing It is important to inform the family of the succession plan It is important to inform non-family employees of the succession plan It is important that the company continues in family hands The succession issue is a relevant cause for failure in the family business Strategic growth variables To launch more products/brands than the competition To increase investment in new processes and technologies To open new national markets To open new international markets To increase the number of businesses

F

Sig.

0.428

0.957

6.366 0.013 * *

2 0.545

0.976

3.508 0.063 *

0.111 2 0.022

0.999 0.999

0.098 0.755 0.116 0.734

2 0.052

0.997

0.471 0.493

0.129

0.969

4.537 0.035 * *

0.29 0.243

0.987 0.993

1.859 0.175 1.035 0.311

2 0.122

0.982

2.602 0.109

0.072

0.998

0.286 0.593

0.988

1.705 0.194

2 0.03

0***

0.427

0.915

13.023

0.231

0.931

10.487 0.001 * *

2 0.139

0.999

0.106 0.745

0.081

0.985

2.181 0.142

0.207

0.997

0.484 0.488

2 0.03 2 0.248 0.434 2 0.301

0.988 0.998 0.978 0.997

1.678 0.23 3.139 0.493

0.197 0.632 0.079 * 0.484

Notes: Significant at: *p , 0.10, * *p , 0.05 and * * *p , 0.001; n ¼ 62, n ¼ 81

Second, regarding professionalisation, both groups (more family-oriented companies and more results-focused companies) have in common is that they give little importance to bringing in directors from outside the family. This can be explained by the findings of some studies dealing with promoting information asymmetry when outside directors are recruited (Kellermanns and Eddleston, 2004; Gomez-Mejia et al., 2011b); and also by the differences between the objectives of non-family managers (career development) and those of family managers (more family oriented) (Gersick et al., 1997). However, differences exist in the holding of a plan for training family directors, bearing in mind that their lack of aptitude for their posts could cause serious problems for the company. According to the literature that discusses socioemotional wealth

(Gomez-Mejia et al., 2011a), it is evident that these companies consider that there are many family members as candidates, and they see it as a loss of socioemotional wealth not to count on them in the future. The significance with reference to family directors is further confirmed by the fact that they see the lack of professionalisation of family members as a possible cause for failure. In terms of management, it is interesting to note how they perceive the need to create alliances in order to be competitive. By working in this way, it is possible to bring new resources to the company without compromising ownership control or management (Ban˜egil et al., 2011). The literature also offers another explanation in that family companies like to build long-term relationships with their stakeholders, as it helps them achieve a better image and have more resources or strength to survive, and they are more in line with their long-term vision (Carney, 2005; Godfrey, 2005; Miller and Le Breton-Miller, 2005; Berrone et al., 2011). In this sense, the variable referred to their preference to make contracts with companies in the region is also significant. What is not significant is the variable concerning the necessity for the company to look to international markets to become more competitive. This is in accordance with the emotional theory approaches that posit that family businesses prefer not to become international, since this could dilute ownership (by needing a greater volume of capitalisation), and lead to a loss of power, as management is passed to other geographical centres, which also leads to an increased information imbalance between managers and family (Gomez-Mejia et al., 2011a). No significant differences can be observed between the two groups of companies as far as the variables relating to governing bodies are concerned, whether they are family-related or company-related. This fact could be explained by the small size of the companies in our sample and the generation of family members concerned, together with the lack of awareness of family governing bodies. Additionally, first-generation companies with a high concentration of ownership could explain the lack of a need for such bodies. The difference between the groups seems to be the control of the Board of Directors by the number of votes, rather than the mere existence of the same. According to the theory of emotional wealth (Gomez-Mejia et al., 2011a), keeping the majority votes of the Board of Directors in family hands allows the family not only to manage the strategy of the company but also its socioemotional wealth. Third, as regard show the process of succession is managed, those family businesses where the family grows more than the company have a greater concern over the control of ownership, the planning of the succession process, and also a greater need to communicate the process of succession to the family and to the rest of the company.

Family growth greater than that of the company Original

Recount %

Yes No Un grouped cases Yes No Un grouped cases


Predicted group membership Yes No Total 48 21 0 77.4 25.9 0

14 60 1 22.6 74.1 100

62 81 1 100 100 100

Table V. Classification results

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Lastly, concerning strategies for growth, it must be remembered that, in the face of a loss of management control or ownership, the issue underlying growth is, on the one hand, the ability to provide jobs for current and future family members, and on the other, a need to survive or take advantage of a market opportunity. The variable concerning the necessity to compete in international markets is the only significant one. From a perspective of agency theory, this is explained by the fact that the company seeks to diversify risks in terms of business, finance, and relations with suppliers across several countries (Kim et al., 1993; Lessard, 1985; Kogut, 1985; Rugman, 1979, 1981). Conversely, the fact that the rest of the variables are not significant could be explained by the fact that the growth of the family, rather than that of the business, is more important for those businesses that are family-oriented, both groups seeing the growth of the company in the same light. To conclude, we wish to recognize the limitation arising from the fact that the question concerning the rate of growth of the company and the family is a “self-reported” question that can lead to bias due to the subjective perception of growth. Other limitations arise from the cross-cutting and exploratory nature of the research. Despite the limitations mentioned, we believe that this study helps to fill a gap in a little-researched area regarding the different views of the family and business spheres based on the rates of growth of the same, and the different management processes, ways of professionalisation, succession and growth that this can lead to. In addition, this study invites future researchers to overcome these limitations and explore the theoretical contradictions identified. References Astrachan, J.H., Klein, S.B. and Smyrnios, K.X. (2002), “The F-PEC scale of family influence: a proposal for solving the family business definition problem”, Family Business Review, Vol. 8 No. 2, pp. 45-58. Ban˜egil, T.M. (Ed.) (2012), La gestioń de las empresas familiares. El caso de Extremadura, Universidad de Extremadura, Badajoz. Ban˜egil, T.M., Barroso, A. and Tato, J.L. (2011), “Profesionalizarse, emprender y aliarse para que la empresa familiar continué”, Revista de Empresa Familiar, Vol. 1 No. 2, pp. 27-41. Barnes, L.B. and Hershon, S.A. (1994), “Transferring power in the family business”, Family Business Review, Vol. 7 No. 4, pp. 377-392. Berrone, P., Gomez-Mejia, L.R., Cennamo, C. and Cruz, C. (2011), “Socioemotional wealth and proactive stakeholder management: why family controlled firms care more about their stakeholders”, unpublished paper, IESE Business School, Barcelona. Blumentritt, T.P., Keyt, A.D. and Astrachan, J.H. (2007), “Creating an environment for successful nonfamily CEOs: an exploratory study of good principals”, Family Business Review, Vol. 20 No. 4, pp. 321-335. Carlock, R.S. and Ward, J.L. (2002), La planificacioń estrate´gica de la familia empresaria, Ediciones Deusto, Bilbao. Carney, M. (2005), “Corporate governance and competitive advantage in family-controlled firms”, Entrepreneurship Theory and Practice, Vol. 29 No. 3, pp. 249-265. Casson, M. (1999), “The economics of family firm”, Scand. Econ. Hist. Rev., Vol. 47, pp. 10-23. Chami, R. (1999), “What is different about family businesses?”, Working Paper 01/70, Notre Dame University and International Monetary Fund Institute.

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Ward, J.L. (1997), “Growing the family business: special challenges and best practices”, Family Business Review, Vol. 10 No. 4, pp. 323-337. Ward, J.L. (2004), Co´mo crear un consejo de administracioń en empresas familiares. Respuesta a los retos de continuidad y competencia, Ediciones Deusto, Barcelona. Welsch, J. (1996), “The impact of family ownership and involvement on the process of management succession”, in Beckhard, R. (Ed.), The Best of FBR: A Celebration, Family Firm Institute, Boston, MA, pp. 96-108. ˜ ´ Zuniga-Vicente, J.A. and Sacristań-Navarro, M. (2009), “Los directivos externos y la sucesioń en la empresa familiar: un caso de estudio”, Universia Business Review, segundo trimestre, pp. 74-87. Further reading Klecka, W. (1980), Discriminant Analysis, Sage, Beverly Hills, CA. Red de Ca´tedras del Instituto de la Empresa Familiar y PricewaterhouseCoopers Human Resource Services y Unidad de Empresa Familiar (2007), “Investigacioń: Polı´ticas de capital humano en la empresa familiar”, Documento 142. Schein, E.H. (1995), “The role of the founder in creating organizational culture”, Family Business Review, Vol. 8 No. 3, pp. 221-239. Corresponding author Ascensioń Barroso Martıńez can be contacted at: [email protected]

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