Academic journal article Entrepreneurship: Theory and Practice

Why Do Family Firms Strive for Nonfinancial Goals? an Organizational Identity Perspective

Academic journal article Entrepreneurship: Theory and Practice

Why Do Family Firms Strive for Nonfinancial Goals? an Organizational Identity Perspective

Article excerpt

This paper develops an organizational identity-based rationale for why family firms strive for nonfinancial goals. We show that the visibility of the family in the firm, the transgenerational sustainability intentions of the family, and the capability of the firm for self-enhancement of the family positively influence the importance of identity fit between family and firm as well as the family's concern for corporate reputation. We suggest that the concern for corporate reputation leads the family to pursue nonflnancial goals to the benefit of nonfamily stakeholders. We also discuss reinforcing feedback loops in these processes.

Introduction

The existence of nonfinancial goals related to business activity is acknowledged in various streams of literature. One context where nonfinancial goals are particularly prominent is that of the family firm. A priority for nonfinancial goals is one of the fundamental premises in family business literature (e.g., Chua, Chrisman, & Sharma, 1999; Zellweger & Astrachan, 2008). Family firms pursue nonfinancial goals when powerful controlling families seek particularistic family-centered goals (Carney, 2005), or when controlling families seek to preserve the socioemotional wealth they derive from being in control (Berrone, Cruz, Gomez-Mejia, & Larraza Kintana, 2010). The socioemotional wealth literature touches upon an identity-based rationale for the relevance of nonfinancial goals when it defines socioemotional wealth as the "nonfinancial aspects of the firm that meet the family's affective needs, such as identity, the ability to exercise family influence, and the perpetuation of the family dynasty" (Gomez- Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007). However, this literature does not further engage with organizational identity theory, which is surprising given the relevance of this theory to explain nonfinancially motivated behavior of family firms (Dyer & Whetten, 2006).

Therefore, we utilize organizational identity theory to explore why family firms strive for nonfinancial goals (Albert & Whetten, 1985; Dutton, Dukerich, & Harquail, 1994; Scott & Lane, 2000). Applied to family firms, this theory maintains that an identity fit between family and firm is important to many controlling families, given the close and often inseparable ties between the dominant family coalition and the firm (e.g., Dyer & Whetten, 2006; Sundaramurthy & Kreiner, 2008). We explain how and why family-centered goals can lead a family firm to pursue other-centered non-financial goals (i.e., goals that provide benefits to stakeholders outside the family). It is the family-centered importance of identity fit between family and firm, and the resulting concern for corporate reputation, which motivates concerns for the satisfaction of nonfamily stakeholders. This satisfaction of nonfamily stakeholders is achieved through the pursuit of nonfinancial goals. Even though all types of firms exhibit other-centered nonfinancial goals, only family firms exhibit family-centered non-financial goals, which are often tied to the family's identity. In addition, unique factors such as the visibility of the family in the firm, the transgenerational sustainability intentions of the family, and the capability of the firm for self-enhancement of the family often create particularly strong incentives to pursue nonfinancial goals. In this way, our paper explores the unique origins of nonfinancial goals within family firms. We acknowledge the heterogeneity among family firms, and argue that controlling families are not identical in their concern for corporate reputation, which helps explain why they vary in their pursuit of nonfinancial goals (Pearson, Cam & Shaw, 2008; Westhead & Cowling, 1997).

We contribute to the literature in four ways. First, by establishing linkages among family identity, organizational identity, organizational reputation, and nonfinancial organizational goals, we shed new light on how identity and reputation concerns in family firms produce incentives to pursue nonfinancial goals that satisfy the needs of non-family stakeholders. …

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