Family business
Frank Hoy
Serious academic attention toward family busi ness is recent, yet the origins are obscure. The editor of Family Business Review asserted in 2003 that family business was only twenty years old as a subject of scholarly study (Astrachan, 2003). He based his argument on a special issue of the journal Organization Dynamics that appeared in 1983. Others might cite Le´on Danco as the sem inal figure in the field. Danco’s book, Beyond Survival (1975) stimulated attention toward at tributes of family firms that were distinct from standard curricula in business college degree programs. A strong argument could be made for an article that has become a classic in the scholarly literature on family firms, ‘‘Transfer ring power in the family business’’ by Barnes and Hershon, which appeared in the Harvard Business Review in 1976. Published in a journal read by both practitioners and academics, this article continues to be frequently cited in the family business literature.
In addition to these contributions, two other factors played important roles in family business gaining a foothold at universities:
- Family business programs have proliferated at universities. The University of Pennsylvania formed the first one in 1979. The second was created at Oregon State University in 1985. Today, there are more than one hundred in the United States, plus programs in at least ten other countries. These insti tutes, forums, and centers are typically organized to provide continuing education and consulting to family owned firms. In doing so, they provide faculty with access to data for research and publishing.
- The Family Firm Institute (FFI) was founded in 1986 as a nexus for those concerned with family enterprises. The FFI is an international professional membership organization that provides interdisciplinary education and networking opportunities for family business advisors, consultants, educators, and researchers. The diverse member ship of FFI includes consultants, attorneys, accountants, therapists, financial advisors, academics, and others who have family owned firms as their clientele. In 1988, FFI launched Family Business Review, the only scholarly journal devoted to family business. Through FBR, researchers have an outlet for the findings of their family enterprise investigations.
A major issue in assessing the quality, trends, and contributions of family business research has been the lack of a generally accepted definition of family business. This problem is not unique to this field, but is shared with entrepreneurship and many behavioral sciences.
Definitions
In an exhaustive literature review, Sharma, Chrisman, and Chua (1996) found 34 distinct definitions of the term ‘‘family business.’’ They vary on such dimensions as ownership, management, employment, relationships, interaction, and generational involvement. Regarding the last, one of the debates among those conducting research is whether family participation must be multi generational in order to qualify. In the inaugural issue of Family Business Review, the editors announced a policy of not defining the term, but requiring authors to state specific ally their operational definition when submitting a paper for consideration. Thus, readers will know what a family business is for any given study, but variation across articles may reduce the ability to generalize or aggregate findings.
Just as the term ‘‘entrepreneurship’’ has become a domain label under which multiple subjects are encompassed (e.g., angel investors, global start ups, intrapreneurship, small business, venture capital, etc.), family business is not merely a defined entity. Multiple and inter relating disciplines make up the body of know ledge in family business.
Body of Knowledge
The FFI created a Body of Knowledge Task Force in 1995 and designated it a permanent committee in 1997. The mission of the commit tee is ‘‘to identify and integrate existing and emerging knowledge about family businesses’’ from and for the various disciplines represented in the membership of the Institute (Family Firm Institute, 2003: 1). The contents of this body of knowledge may constitute a proxy for the domain of family business. Acknowledging the complexity and diversity of the field, the committee identified four major content areas with which a family business expert should have familiarity:
- Behavioral science
- Finance
- Law
- Management science
Sharma, Chrisman, and Chua published their annotated bibliography, mentioned above, in 1996. Drawing from the American Business Index – Global, they observed that only 188 family business related articles were published between 1971 and 1985, but for 1986 to 1995 they could document 680 articles. The preponderance of the studies they reviewed fell within a strategic management framework. The editors classified the literature into six strategy categories: goals and objectives, strategy formulation and content, strategy implementation and design, strategic evaluation and control, general management and ownership issues, and organizational evolution and change. The general management and ownership issues category contains the bulk of the research on succession, which Sharma, Chrisman, and Chua found to represent approximately 20 percent of the entire family business literature. They labeled their second major framework for classification ‘‘family influence on the business.’’
Dyer and Sa´nchez (1998) presented a retrospective of the research that had appeared in the first decade of Family Business Review. They found that the scholarly articles were dominated by management professors. Of the 226 aca demic based authors who were listed over the 10 year period, 174 were in management departments. This dominance occurred despite the intent by the journal and its parent, the Family Firm Institute, to be multidisciplinary. The most frequent topics addressed in the articles were:
- Interpersonal family dynamics
- Succession
- Interpersonal business dynamics
- Business performance and growth
Within these various disciplines are topics that fall within the domain of entrepreneurship.
Family Business and Entrepreneurship
The Entrepreneurship Division of the Academy of Management incorporated the study and teaching of family business in its original domain statement. The fields, however, do not completely overlap. Family business is predominantly focused on the firm and its survival from generation to generation. It is concerned with the healthy functioning of both the enterprise and the family unit. Financially, the focus is on wealth retention. With entrepreneurship, attention is given to pre venture activities: opportunity recognition, start up capital, feasibility assessment. Innovation and early stage survival issues take precedence. The focus is on wealth creation and harvesting. Subjects such as psychological counseling and estate planning are rarely found in the entrepreneurship literature.
An early attempt to link family business and entrepreneurship was offered by Hoy and Verser (1994). Working from Gartner’s (1990) effort to identify elements of the entrepreneurship domain, they proposed a set of continua on which entrepreneurship topics and family business topics were clearly delineated on each end, but merged in the center.
More recently, the Journal of Business Venturing produced two special issues on family business. The first resulted from a conference held in Edmonton, co sponsored by the University of Alberta and the University of Calgary in 2001. The organizers of the conference (Chrisman, Chua, and Steier, 2003) contended that theories can be applied to the nexus of entrepreneurship and family business. They based their argument on four observations from prior research:
- Many, if not a majority, of new ventures are created with family involvement.
- Entrepreneurship is a special case of strategic management and the formation of family firms demonstrates the confluence of eco nomic and non economic considerations that influence strategic decisions.
- Family business entrepreneurs seek to build businesses that are also family institutions.
- The appointment of an entrepreneurial leader may be the key to successful family firm succession.
The conference brought together experts in various academic fields to examine whether family firms are in any ways different from non family firms, and, if so, whether these differences lead to competitive advantages or dis advantages.
A second set of papers from the Edmonton conference appeared in Entrepreneurship: Theory and Practice (Chua, Chrisman, and Steier, 2003). In these, the authors wrestled with definitional issues, but the issue’s major contribution was to examine negative economic consequences of family involvement through the lens of agency cost theory and to contrast that perspective with the benefits suggested by the resource based view. The subsequent issue of the Journal of Business Venturing, while developed independently of their work, is a natural extension of their theory building, by attempting to find connections between family business and entrepreneur ship research (Rogoff and Heck, 2003). The editors contend that research in the two fields followed parallel tracks, with three areas of commonality: (1) a focus on the business; (2) examination of traditional business dimensions such as strategy, management, production, labor, and performance; and (3) investigation of organizational stages and transitions.
When the three issues are taken together, the emergence of prospective research streams in the overlapping domains becomes evident. A few potentially productive directions of flow follow:
- Family systems theory has had limited impact on family business research because of the emphasis on the business to the exclusion of the family. Changing definitions and compositions of ‘‘family’’ in North America may be having dramatic effects on business formation, growth, and survival that systems theory may help scholars to understand and predict.
- New applications of the resource based view of the firm and agency cost theory are helping to explain the tension that exists between rational decision making and altruism in financing family business creation and survival.
- Succession, the dominant theme of family business literature, is being redefined at the nexus with entrepreneurship, with evidence suggesting that the successor’s role is not necessarily to bring professional management skills to the firm, but to infuse an organization in mature or declining stages with an innovative spark or entrepreneurial vigor.
Conclusion
Traditionally, management education has at tempted to instruct students in applying logic and engaging in rational decision making. The encroachment of family business programs in schools of business, combined with research studies that demonstrate the impact of family relationships on company performance, forces reconsideration of widely accepted theories and models. In particular, entrepreneurship scholars are incorporating family concepts and issues into their studies. Graduates who enter entrepreneurial careers are likely to draw on family members for financing, labor, advice, networking, and other associated activities. The fledgling connections of the fields are more likely to expand than to be severed.
Bibliography
Astrachan, J. H. (2003). Commentary on the special issue: The emergence of a field. Journal of Business Venturing, 18: 567 72.
Barnes, L. H. and Hershon, S. A. (1976). Transferring power in the family business. Harvard Business Review, 53 (4): 105 14.
Chrisman, J. J., Chua, J. H., and Steier, L. P. (2003). An introduction to theories of family business. Journal of Business Venturing, 18: 441 8.
Chua, J. H., Chrisman, J. J., and Steier, L. P. (2003). Extending the theoretical horizons of family business research. Entrepreneurship: Theory and Practice, 27: 331 8.
Danco, L. (1975). Beyond Survival: A Business Owner’s Guide for Success. Cleveland, OH: University Press.
Dyer, W. G. and Sa´nchez, M. (1998). Current state of family business theory and practice as reflected in Family Business Review 1988 1997. Family Business Review, 11: 287 96.
Family Firm Institute (2003). The Body of Knowledge (BOK) Book. Boston, MA: Family Firm Institute.
Gartner, W. B. (1990). What are we talking about when we are talking about entrepreneurship? Journal of Business Venturing, 5: 15 28.
Hoy, F. and Verser, T. G. (1994). Emerging business, emerging field: Entrepreneurship and the family firm. Entrepreneurship: Theory and Practice, 19: 9 23.
Rogoff, E. G. and Heck, R. K. Z. (2003). Evolving research in entrepreneurship and family business: Recognizing family as the oxygen that feeds the fire of entrepreneurship. Journal of Business Venturing, 18: 559 66.
Sharma, P., Chrisman, J. J., and Chua, J. H. (eds.) (1996). A Review and Annotated Bibliography of Family Business Studies. Boston, MA: Kluwer Academic Publishers.
Tags