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Board ownership and processes in family firms

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Abstract

This study examines how board ownership shapes board processes in family firms. The extant family firm research has extensively adopted an input–output approach to the study of boards, but results have been inconclusive, calling for further research on intervening processes. By examining board ownership, this study shows that board processes are shaped by the life cycles of family firms across generations, as reflected in ownership dispersion among family directors: Cognitive conflict is the highest and the use of knowledge and skills is the lowest when the levels of balance in a board’s voting power are moderate, which occurs when the board mostly mirrors a sibling partnership. A discussion of this study’s findings contributes to the literature on family firm boards, work groups, and corporate governance.

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Notes

  1. For instance, when family members of second generation (descendants of the founder) are in charge, a family firm may be classified in a second-generation stage. Yet, behaviors likely resemble those of a first-generation firms if ownership is still strongly concentrated in the hands of one family member (e.g., when the founder has one single descendant).

  2. For example, the aging of the controlling owner may lead to mismanagement and misconduct with regard to the firm’s choices. Or a controlling owner may wish to continue investing in the business she/he founded and avoid learning new skills when environmental and competitive conditions would rather suggest a radical change in the firm’s strategic posture.

  3. Westphal (1999, p. 16, correlation table) argues that for a given board configuration, boards’ performances in the service and control tasks may be negatively related.

  4. For example, Bettinelli (2011) examines the effect of outsider ratio on board processes, but she does not examine whether this effect holds for the service versus the control tasks separately; she provides evidence in support of hypothesized effects on board processes for board activity as a whole

  5. The survey distinguished items for the service and the control tasks; each section was introduced by a sentence asking respondents to rate the items when discussing strategy versus control issues

  6. The index is calculated as the sum of the squares of equity stakes. This index is used to describe a distribution of market shares among industry actors: The closer the index is to zero, the more minority owners hold fractional shares.

  7. Our study differs in some significant respects. (1) Bammens et al. (2008) measure generational stage asking respondents to indicate the generation that currently has the decision power in the firm (2008: 169); we adopt an alternative, complementary approach used by Schulze et al. (2003b) and based on work by Gerlisick et al. (1997), and directly capture the influence of generation through ownership dispersion on boards. (2) Their study examines the direct impact of generational stage on the board’s advice needs, while our study inquires into the actual board processes.

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  1. Department of Management and Technology, CRIOS, Bocconi University, Milan, Italy

    Fabio Zona

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Zona, F. Board ownership and processes in family firms. Small Bus Econ 44, 105–122 (2015). https://doi.org/10.1007/s11187-014-9587-z

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