Family businesses are different from other businesses. Besides unique estate tax, succession and governance issues, family businesses must also deal effectively with past, present and future family members, family values and the inevitable family politics. Fortunately, dealing with these challenges gives family businesses a significant competitive advantage. A family business' special competitive
Family businesses are different from other businesses. Besides unique estate tax, succession and governance issues, family businesses must also deal effectively with past, present and future family members, family values and the inevitable family politics. Fortunately, dealing with these challenges gives family businesses a significant competitive advantage. A family business' special competitive weapon is its family culture, which opens communication, streamlines decisionmaking and creates an environment with strong standards and values.
A recent study published in the November 2010 issue of Entrepreneurship Theory and Practice (vol. 34, issue 6, pps. 1093-1116), “Is Blood Thicker Than Water? A Study of Stewardship Perceptions In Family Business,” by James H. Davis, Mather R. Allen and H. Davis Hayes, examines one aspect of family business culture: the stewardship behavior of the family business leadership.
Stewardship theory has been used to explain the culture and relationships within family businesses. Significant research has demonstrated that stewardship leads to superior family business performance. So what is stewardship theory? Stewardship theory explains situations in which the leadership within organizations serves the organizational good and its mission rather than pursuing self-serving opportunistic ends. It's ideal for explaining governance in the family business context because of a family business owner's deep emotional investment in the family. Similarly, a family business owner's personal satisfaction and reputation are tied to the family business. In this case, owners adopt the role of the steward in serving the organization rather than themselves. Good stewards in family businesses are motivated to serve organizational interests, and as a result, receive intrinsic satisfaction when the business advances and succeeds.
Contrast stewardship theory with a more common leadership behavior, known as “agency theory.” Agency theory assumes that executives are self-serving and opportunistic, resulting in agency costs to the organization and its shareholders. As a result, businesses concerned with agency costs must focus on controlling executive opportunism and its associated expenses. Businesses with good stewards and a stewardship orientation, however, don't have the agency costs, and as a result, can direct resources that would have been spent on monitoring and control toward maximizing firm performance. Family businesses typically outperform non-family businesses because they don't have to invest in agency costs, and as a result, have higher financial performance because of the superior attitudes of stewardship.
Although commentators extol the virtues of stewardship theory in family businesses, few studies have empirically investigated the mechanisms associated with stewardship behavior in the family business context, including the differences between family member and non-family member employees. The current study remedies that problem. It worked with a sample of 1,100 family business employees, consisting of both family and non-family members.
The study found that the situational mechanisms supporting stewardship in the family business held true for both family member employees and non-family member employees alike. Having determined that, the researchers found a distinction in the overall perceptions of family member employees and non-family member employees. Although both groups overall perceived high levels of stewardship in family businesses, family member employees perceived significantly higher stewardship in family business leadership than non-family employees. Stewardship indicates that the leaders serve the greater good, rather than themselves. In the case of family businesses, the greater good is the collective good of the family and the business. Family employees recognize the family business leader's commitment to the family and that the leader's efforts for the good of the family are for them. The family is the collective whose interests are being served.
Non-family member employees are an interesting case. They choose to work for the family business knowing that family will typically come first in terms of rewards and advancement. Although they trust the leaders of the family business, they don't trust them as much as family member employees do. They know that when it comes to the collective, they aren't family, and therefore, when it comes to stewardship, their interests aren't as protected as those of family member employees. Essentially, blood is thicker than water.