SOCIOEMOTIONAL WEALTH AND HUMAN
RESOURCE MANAGEMENT IN FAMILY
CONTROLLED FIRMS
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WHY SHOULD WE CARE ABOUT FAMILY FIRMS
•
95% of firms start out as family firms
•
At least 70% of firms in U.S.A. are controlled by
families, including one third of Fortune 500
(e.g., Cargill, Motorola, Ford, Microsoft etc.)
•
At least 85% of firms in Southern European
countries are controlled by families and 70% in
northern countries
•
Around the world there is no doubt that families
represent the predominant organizational form
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STREAM OF RESEARCH SHOWING THAT FAMILY
CONTROLLED FIRMS ARE UNIQUE IN THEIR
MANAGEMENT PRACTICES
•
Gomez-Mejia, L. R. & Milkoveb, G. (Academy of Management Journal, 1976)
Population: Day Care Consortium in Minneapolis, MN.
•
Gomez-Mejia, L., Nunez-Nickel, N., & Gutierrez, I. (Academy of Management
Journal, 2001).
Population: All Spanish newspaper starting in 1948.
•
Gomez-Mejia, L., Makri, M. & Larraza-Kintana, M (Academy of
Management Journal, 2003).
Population: All Fortune 1,000 Firms
•
Gomez-Mejia, L., Haynes, K., Nunez-Nickel, N., Moyana, J. (Administrative
Science Quarterly, 2007).
Population: Olive Oil Mills in Jaen(Spain), during 50 year period
•
Cruz, C., Gomez-Mejia, L. & Becerra, M. (Academy of Management Journal,
2010)
Population: 122 Spanish firms
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•
Gomez-Mejia, L., Larraza-Kintana, M., and Makri, M.
Population: Fortune 1000 firms (Journal of Management Studies, 2010
•
Berrone, M., Cruz, C., Gomez-Mejia, L., Larraza-Kintana (Administrative
Science Quarterly, 2010)
Population: All firms reporting pollution levels to Environmental
Protection Agency
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KEY ARGUMENT
FAMILY FIRMS ARE MOTIVATED BY MORE THAN THE MONETARY
OUTCOME OF ORGANIZATIONAL ACTIVITY
• The family’s desire to exercise authority
• Enjoyment of family influence
• Maintenance of clan membership within the firm
• The appointment of trusted family member to important posts
• Retention of a favorable family and firm reputation
• The continuation of family dynasty
SOCIOEMOTIONAL WEALTH is an umbrella term that accommodates all
socioemotional elements of a family’s utility function that directly relate to the family’s
involvement in the firm.
As such, defined as “the stock of affect-related value that the family has invested in the
firm.”
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Figure 1. Family Firm Research from a Socioemotional Wealth Preservation Perspective
Management Processes
• Succession
• Professionalization
• Human Resource
Contingency Variables
• Family Stage
• Firm Size
• Firm Hazard
• Presence of Non Family Shareholders
Family Firm
Socioemotional
Wealth
Preservation
Strategic Choices
• Risk Taking
• Corporate Diversification
• International Diversification
• Acquisition Behavior
• Debt
• Accounting Choices
Organizational Governance
• Role of the Board
• Incentive Alignment
• Agency Contract
Financial
Performance
Stakeholder Relationships
• Stakeholder Management
• Corporate Social Responsibility
Business Venturing
• Role of Families in New Ventures
• Corporate Entrepreneurship
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SOCIOEMTIONAL WEALTH AND HUMAN RESOURCE
MANAGEMENT IN FAMILY FIRMS STAFFING
PROPOSITION 1: BECAUSE FAMILY-OWNED FIRMS ARE MORE LIKELY TO
USE SEW AS THE FRAME OF REFERENCE, THE RECRUITMENT PROCESS
WILL TEND TO SHOW A GREATER RELIANCE ON P-O FIT THAN ON P-J FIT.
• Emphasis on SEW preservation would imply that the firm will take the requisite steps to
ensure that the people being hired will uphold the values and cultural ethos of the firm.
• The company may often need to trade off employee capabilities and job specific
knowledge in favor of person-organization compatibility because the believe such efforts
will serve to protect the firm’s SEW and will be in the long term interest of the firm.
• Firms with SEW as the frame of reference are likely to hold the view that lower levels of
fit with the job can be addressed post selection through on-the-job training whereas poor
compatibility with the organization’s core philosophy is difficult to remedy upon
selection and could be really damaging for the SEW.
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PROPOSITION 2: BECAUSE FAMILY-OWNED FIRMS ARE MORE LIKELY TO
USE SEW AS A FRAME OF REFERENCE, THEY ARE LESS LIKELY TO RELY ON
FORMAL RECRUITMENT METHODS.
• Insights about a person’s ability to fit with the company’s culture
cannot be readily obtained during the recruitment process owing
to problems of adverse selection and provision of misleading
information during the selection process.
• Therefore, one would expect the family to use its social networks
as a means to recruit people with better fit to the organization.
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PROPOSITION 3: BECAUSE FAMILY-OWNED FIRMS
ARE MORE LIKELY TO USE SEW AS A FRAME OF
REFERENCE, THEY WILL HAVE A HIGHER
PERCENTAGE OF HIRES WITH FAMILY TIES,
EITHER BASED ON A BLOOD NEXUS OR STRONG
SOCIAL TIES TO OWNING FAMILY.
• Family owners are faced with the task of striking a balance
between the benefits proffered by the non-family employee
in terms of specialized knowledge and expertise and the
potential erosion of SEW that may arise from the increased
information asymmetries and goal conflict between outsiders
and family members which results in greater behavioral
uncertainty.
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PROPOSITION 4: BECAUSE FAMILY-OWNED FIRMS
USE SEW AS A FRAME OF REFERENCE, THEY ARE
MORE LIKELY TO CHOOSE SUCCESSORS WHO ARE
FAMILY MEMBERS.
• A family successor would reinforce family power and
influence in the company which is a key element of SEW.
• Even in contexts where non-family successors are perceived
as more suited to become leaders, they are unlikely to as
closely identify with the family-owned firm and may harbor
selfish interests.
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PROPOSITION 5: BECAUSE FAMILY-OWNED FIRMS ARE LIKELY TO USE
SEW AS A FRAME OF REFERENCE, THEY WILL HAVE A MORE
CENTRALIZED SELECTION PROCESS WITH FAMILY MEMBERS
PLAYING A KEY DECISION-MAKING ROLE.
•
Family-owned firms that strive to preserve their SEW are more likely to perpetuate
owners’ direct or control and influence over any of the firm’s affairs irrespective of
financial considerations (Gomez-Mejia et al., 2007).
TRAINING & DEVELOPMENT
PROPOSITION 6: BECAUSE FAMILY-OWNED FIRMS ARE MORE LIKELY
TO USE SEW AS A FRAME OF REFERENCE, THEY WILL TEND TO INVEST
MORE IN (LONG-TERM) CAREER DEVELOPMENT ACTIVITIES THAN IN
TRAINING ACTIVITIES.
• The company is seen as a long-term family investment to be bequeathed to
descendents (Berrone et al., 2010).
• The implementation of long-term focused developmental plans may help to instill new
employees with the norms and values of the organization.
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PROPOSITION 7: BECAUSE FAMILY-OWNED FIRMS
ARE MORE LIKELY TO USE SEW AS A FRAME OF
REFERENCE, THEY WILL TEND TO SHOW A
GREATER PROCLIVITY TO MENTOR POTENTIAL
SUCCESSORS.
• If the junior successor fails to adjust to the demands and expectations of
the new role, a premature exit may increase the risk that another family
successor cannot be found, thereby eroding the firm’s SEW.
• If the successor is adequately socialized to the role demands and
expectations, owing to the mentoring received from the incumbent,
family members or other stakeholders, his or her role commitment and
identification increases, thus preserving the firm’s SEW and enhancing
the likelihood of success in the succession process.
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COMPENSATION & REWARD SYSTEMS
PROPOSITION 8: BECAUSE FAMILY-OWNED FIRMS USE SEW AS A
FRAME OF REFERENCE, THEY WILL TEND TO ADOPT A BELOW
MARET PAY POLICY OR AT BEST “A MATCHING MARKET” PAY
POLICY.
PROPOSITION 9: BECAUSE FAMILY-OWNED FIRMS USE SEW AS A
FRAME OF REFERENCE, THEY WILL TEND TO PLACE A GREATER
EMPHASIS ON NON-MONETARY REWARDS.
PROPOSITION 10: BECAUSE FAMILY-OWNED FIRMS USE SEW AS A
FRAME OF REFERENCE, THEY WILL TEND TO PLACE A GREATER
EMPHASIS ON INTERNAL EQUITY (VERSUS EXTERNAL MARKET
EQUITY) IN THE DESIGN OF COMPENSATION CONTRACTS.
• Job security in exchange for family loyalty replaces the need for strong incentives.
• Family-owned firms are more likely to attract non-family employees who are less
motivated by economic rewards, and more by other rewards, such as the
promise of life-time job security and an informal work environment.
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PROPOSITION 11: BECAUSE FAMILY-OWNED
FIRMS USE SEW AS A FRAME OF REFERENCE,
THEY WILL TEND TO PLACE A LOWER EMPHASIS
ON VARIABLE (VERSUS FIXED) PAY.
• The lower use of performance contingent and variable pay
may be attributed to the fact that family owners have
strong faith in the ability of family employees to work in
the interest of the firm so it is not essential to make them
accountable for every performance lapse as these may
result from factors beyond their control.
• It is also a signal of trustworthiness and of reciprocal
obligations that do not need to be enforced throughout a
formal contract.
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PROPOSITION 12: BECAUSE FAMILY-OWNED FIRMS USE SEW
AS A FRAME OF REFERENCE, THEY WILL TEND TO PLACE A
LOWER EMPHASIS ON THE USE OF EQUITY BASED
INCENTIVES.
•
Although family-owned firms that emphasize SEW have an interest in
creating a common fate between the owners and non-family managers,
granting equity to outsiders may also imply renouncing power and
influence within the company.
• It also “waters down” family ownership. When balancing both, familyowned firms may probably decide to protect their SEW by not giving
equity based incentives to outsiders even then this may imply ignoring
the benefits in terms of SEW gains of aligning interest between the nonfamily executive and the family owners.
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PERFORMANCE APPRAISALS
PROPOSITION 13: BECAUSE FAMILY-OWNED FIRMS USE SEW AS A FRAME OF
REFERENCES, THEY ARE LESS LIKELY TO USE FORMAL APPRAISAL SYSTEMS.
PROPOSITION 14: BECAUSE FAMILY-OWNED FIRMS USE SEW AS A FRAME OF
REFERENCE, THEY WILL TEND TO PLACE A GREATER EMPHASIS ON THE USE OF
QUALITATIVE MEASURES FOR EVALUATING EMPLOYEE PERFORMANCE.
• Use of formal appraisal systems can bring the shortcomings of family or close employees
to the fore
• Family-owned firms that strive to preserve their SEW will refrain from using them because
it may damage their SEW.
• Inconsistencies in the use of formal appraisals for family and non-family employees can
aggravate perceptions of injustice that exist within family-owned firms.
• Hence, in family-owned firms that aim to preserve their SEW, the positive effects of
implementing objective measures to assess employee performance will not outweigh the
possible losses in SEW that may result from the implementation of such practices.
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EMPLOYEE RELATIONS
PROPOSITION 15: BECAUSE FAMILY-OWNED FIRMS USE
SEW AS A FRAME OF REFERENCE, THEY WILL TEND TO
PLACE A GREATER EMPHASIS ON INFORMAL
COMMUNICATION CHANNELS.
• Even in large family-owned firms, family owners and managers will
place greater emphasis on informal interactions in order to
strengthen the family ethos by personally conveying the culture and
values of the family business.
• Family owners may use informal interactions as a way to overcome
non-family managers’ regular complaints about their lack of voice in
the formal governance structures of the company, which are mainly
controlled by the family.
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