BLOOD IN THE BOARD ROOM:
FAMILY RELATIONSHIPS INFLUENCING
THE FUNCTIONS OF THE BOARD
Sven-Olof Collin
Jenny Ahlberg
Jonas Gabrielsson
Smithsonian firm
Marxian firm
Family firm
“Nepotism is just fine, as long as it is kept within the family”
Familiness of the firm
Family governance of the firm
Ownership structure
Board of directors
Capital structure
Strategy
Audit
Managerial labor market
Structure
Do blood relationships at the board influence the functions of the board?
Board functions
Family
Blood,
i.e.
Nepotism
Control
Resource provision
Decision making
Conflict resolution
Family and genetics
A firm dominated by a family - A firm for a family
=> family governance and family nepotism
Inclusive fitness
Genetic relatedness, factor r
- 0,5 parent, child, full sibling, dizygotic twin
- 0,25 half-sibling, grandparent, grandchild, avuncular relationships
- 0,125 cousin, great grandparents, great grandchildren, great aunt/uncle
The effect of nepotism
Simplifications
Nepotism suggested to affect individual and group behavior
– genetic relatedness and socialization
Silent assumption in family firm research
Generation
The board
Board functions
- control
- decision making
- resource provision
- conflict resolution
Presence of factor r will influence the orientation towards the four functions as
well as the overall activity
Family coefficient
Hypothesis
Control Decision Resource Conflict Activity
r=0,5 (sibling, parent)
+
+
r=0,25 (grandparent, uncle)
r=0,125 (cousin)
+
+
+
+
Family coefficient
n
n
-
Sample
No files of family firms
‘Shotgun’ approach
Stepwise surveys
First survey:
– 14.421 corporations, selected 1.400 corp + 422 corp from a list of gazelle
corporations => 1704 corporations
– 278 responses (16.3% response rate)
Selected family>50% shares AND considered to be family firm by CEO or owner
=>148 corporations
Second survey = ‘blood survey’
– 68 usable responses, i.e., final response rate = 4%
=> Explorative study
Operationalization
Four questions each
– Control (alpha=0,61)
– Resource (alpha=0,79
– Decision (alpha=0,76)
– Conflict (alpha=0,88)
– Board activity=Control+Resource+Decision+Conflict
r-0,5 share etc = number of r-0.5 relationships/total number of relationships
Family coefficient= weighted sum of the r-variable, i.e., ‘blood density’ of the board
Numerous control variables: family chair, generation, board size, sales (corp size),
industry, solidity, liquidity
Results
Average 2 family (i.e., genetic) members and 2 non-family members
19% of boards with only family and members through marriage (35% US, 45%
Italy, 72% Belgian family firms)
Average Control=17,2; Decision=16,7; Resource=15,4 and Conflict=7,6
Chairman of the board from the family=43%
r=0,5 (e.g., parent) dominating family relationship
Regression results
More family, i.e., blood, less control
r=0,125 (e.g., cousin) drives conflict emphasis
r=0,25 (e.g., grandparent) reduces board activity the most
More generations, less conflict
Conclusions
Exploratory results, no generality test of hypotheses
Weak indications of genetic influence on board activity
Weak indications of nepotism in r=0.25 (e.g., grandparents) and r=0.125 (e.g.,
cousin), but not r=0.5 (e.g., parent) , i.e., strongest blood
r=0.5 (e.g., parent) includes both blood and socialization through living together
=> consider Blood and Socialization (interaction frequency etc)
Limitation: Gender should be considered
Speculation
The Battle Ground Board
r=0,125 (e.g., cousin) relationships
conflict in the extended family with attenuated blood
The Training Camp Board
r=0.25 (e.g., grandparent) relationships
the fifth board function, training camp
Blood – what’s the point?
- r: a quantitative representation of family relationships
- Generation does not represent family relationships
- Blood introduces evolutionary psychology
The social construction of reality - The natural construction of reality
Competitive advantage
of family firms?
Is it possible to manage nepotism?
Is it desirable to manage nepotism?