Academic journal article Management Accounting Quarterly

Management Accounting and the Family Business: Issues, Differences, and Opportunities

Academic journal article Management Accounting Quarterly

Management Accounting and the Family Business: Issues, Differences, and Opportunities

Article excerpt

Family businesses comprise 80% to 90% of all businesses in North America and account for 60% of total U.S. employment.1 They also account for 78% of all new jobs and 65% of wages paid.2 Furthermore, among the companies listed on the S&P 500, 35% are family businesses.3 And while some of the differences between the way family-run companies and nonfamily companies do business have been studied by practitioners and academics-for example, by the Family Firm Institute (FFI), which caters to both groups with publications aimed at practitioners (The Practitioner) and academics (Family Business Review)-there is little literature that discusses these differences in relation to management accounting.

To address this gap, we will look at three primary differences between family and nonfamily businesses: accounting conservatism, a long-term orientation, and a management structure within the framework of emotional attachment. Increased emotional attachment and identification with the family business are the primary forces driving these differences.

We will provide an overview of emotional attachment in the context of the family business. We will then discuss accounting conservatism, long-term orientation, and management structure, which will include specific applications to management accounting as well as specific examples we have encountered when working with family businesses. Finally, we will conclude with implications and suggestions for the management accountant when working in or with family-owned businesses.


One of the most common characteristics of a family-owned business that the management accountant may encounter is emotional attachment to the business itself.4 Family businesses, especially ones dominated by family relationships, have a history and knowledge of shared experiences, events, and relationships that can become both the bedrock of the business and symbolic of the future direction that the business takes.5 These shared experiences and history also lead to deeper emotional attachments that members of the business may experience both with each other and with the business itself. Whether the management accountant is a regular employee of the family business or an outside member performing consulting functions, he or she should remain aware that family members are more likely to make emotionally driven decisions than nonfamily members. Such emotional attachment is far less likely to occur in nonfamily businesses where decisions are made more in the context of wealth maximization.

Family business scholars argue that such emotional attachment leads to what is termed "socioemotional wealth": the emotional benefits of the family lineage that the family members in family businesses receive and protect, such as identity and continuation.6 As such, family businesses are more likely to emphasize nonfinancial goals rather than financial goals such as wealth maximization. For example, David L. Deephouse and Peter Jaskiewicz cite nonfinancial goals such as status and reputation building; Pascual Berrone, et al., refer to cohesiveness and efforts toward environmental sustainability; and Isabelle Le Breton-Miller and Danny Miller mention organizational longevity.7

The potential downside to this is that family-owned businesses are more likely to accept organizational failure, financial losses, and below-target performance in favor of retaining family control.8 Such practices also have been shown to lead to poor decision making, leading to fraud.9

This focus on other goals might sound counterintuitive to management accountants, who often are taught that the purpose of business is wealth maximization. Owners and members of family businesses, though, have greater identification, or a feeling of oneness, with the company due to the kinship bonds, shared family and organizational values, and, in some instances when the name of the business contains the family name, an interwoven identity. …

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