Dilemma in Family-Owned Businesses: Business Commitment vs. Family Commitment. Is Success Changing the Balance?

By Stoica, Michael; Pistrui, David | Journal of Business and Entrepreneurship, October 2006 | Go to article overview

Dilemma in Family-Owned Businesses: Business Commitment vs. Family Commitment. Is Success Changing the Balance?


Stoica, Michael, Pistrui, David, Journal of Business and Entrepreneurship


ABSTRACT

The paper examines the commitment relationship that exists between families and the businesses they own. The study builds on previous research on family attitudes and family involvement, and it identifies two types of family commitment: family-centered commitment and the family's commitment toward the business they own, called business-centered commitment. The relationship between the two types of commitment and the performance of the family business is scrutinized. Results show that family-centered commitment is higher when businesses are not performing well and business-centered commitment tends to be higher when businesses are high performers.

INTRODUCTION

Family businesses represent a fascinating domain for research. Family-owned companies generated between $1.3-10.4 trillion in revenues in 1996 (Heck & Trent, 1999). Between 3 and 24.2 million family companies in the United States provide employment to 27-62% of the workforce and contribute 29-64% of the national GDP (Astrachan & Shanker, 2003; Sharma, 2004). Family companies in the S&P far outperform non-family companies (Anderson & Reeb, 2003).

Family businesses represent a large majority of firms and a substantial share of the national economy. However, by inspecting the above figures, especially the range that exists in evaluating revenues, employment, and the number of companies that are claimed to be familyowned, one could easily infer that the number of family businesses depends on who is counting them (i.e., what definition for the family firm is accepted). To date there is no widely accepted definition of family business. Various definitions are reported and accepted in different studies (Aronoff, 2004; Boles, 1996; Chrisman, Chua, & Steier, 2005; Hatum & Pettigrew, 2004). Operationalizations of the family business concept differ on several dimensions: level of family involvement, level of family ownership, managerial involvement, and CEO perception of the firm being a family business (Heck & Trent, 1999; Westhead & Cowling, 1998).

Many scholars have reviewed the existing definitions and have attempted to consolidate them (Sharma, 2004). Although the main focus of these efforts has been on defining family firms so they can be distinguished from non-family firms, none of these efforts has gained acceptance (Chrisman, Chua, & Sharma, 2005; Daily & Dollinger, 1993; Sharma, 2004). Another line of inquiry relates to the lack of homogeneity of family firms, as family businesses are diverse in terms of family involvement (Astrachan & Shankar, 2003; Chrisman et al., 2005). Astrachan and Shanker (2003) proposed three operational definitions for the family business: the first level of operationalization refers to family retention of voting control over the strategy of the firm, the second level refers to the direct involvement of the family in day-to-day operations, and the third level adds to the first two the involvement of multiple generations m the firm's management.

If we accept the operational definition advanced by Astrachan and Shanker (2003) for the family company as the company in which the founders) or their families maintain a presence in senior management, on the board, or as significant shareholders (Anderson & Reeb, 2003; Jensen & Meckling, 1976; Perrigo, 1975; Wortman, 1994), then many of the major companies in the United States, companies that constitute the basis for market indices, are family-owned businesses. There are 177 examples in the S&P 500, including Microsoft, Dell, Walgreen's, Wrigley, and Wal-Mart.

Family business literature abounds with general papers that give a synopsis of the state of the research. Several authors (Bird, Welsch, Astrachan, & Pistrui, 2002; Chrisman et al., 2005; Handler, 1989; Wortman, 1994; Zahra & Sharma, 2004) have conducted overviews, current status reviews, or literature reviews. Family business is a hybrid organizational form with peculiar governance characteristics (Eckrich & McClure, 2004), or a series of systems within realms of ownership, family, and business. …

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