Abstract
Family firms are distinguished theoretically from nonfamily firms due to their pursuit of unique, family-related aspirations and goals. The pursuit of these aspirations and goals leads many family firms to define success or failure in terms of a broader set of outcomes than nonfamily firms. Despite this, family firm research has generally taken a constricted view of family firm outcomes by concentrating on narrowly defined financial performance as measured by accounting and/or market-based indicators. We contend that this somewhat myopic focus has slowed the field’s development to some degree, by constraining our ability to test its fundamental tenets. To address this, we draw on several disciplines to systematically order family firm outcomes within a family firm(s) outcomes model that encompasses both financial and nonfinancial dimensions. While financial performance is important in research and practice, herein we refer to both financial and nonfinancial outcomes and explain how these outcomes map on the family unit and the family firm. Furthermore, we suggest measures that can be used and explain how the model can be applied when researchers select financial and nonfinancial outcomes important to family members as the family firm’s success or failure is gauged.
A considerable number of studies in the family firm literature focus on the relationship between family involvement and firm’s success or failure, with little consensus emerging (e.g., Amit & Villalonga, 2014; Chrisman, Chua, & Bergiel, 2009; Chrisman, Chua, & Sharma, 2005; Dyer, 2006). Anderson and Reeb (2003), for example, found that among firms in the S&P 500, “Family firms are significantly better performers than nonfamily firms” (p. 1324). Conversely, Hillier and McColgan (2009) concluded that family involvement actually hinders firm success. In an effort to resolve the often “puzzling” (Dyer, 2006, p. 253) inconsistencies that have been reported, two meta-analyses examined the association between family involvement and firm financial outcomes. While both reported negligible correlations, one concluded that family involvement may have little if any impact on a firm’s success or failure (O’Boyle, Pollack, & Rutherford, 2012) while the other argued that key mediators must be examined if the relationship is to be fully understood (Carney, Van Essen, Gedajlovic, & Heugens, 2015). 1
Amit and Villalonga (2014) suggest, however, that the often conflicting findings and conclusions may arise from a mismatch between the unique aspirations and goals that characterize many family firms and the outcomes actually measured in most family business studies. Specifically, scholars advance the notions that family firms differ because they pursue family-centered nonfinancial outcomes and that the strategies employed in the pursuit of these are both relevant and meaningful to families and their firms (e.g., Berrone, Cruz, & Gomez-Mejia, 2012; Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010; Colli, 2012; Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Zellweger & Dehlen, 2012). Despite the widespread acknowledgment of the importance of nonfinancial and family-related goals, empirical studies have largely focused on financial performance, rather than a broader array of outcomes (e.g., Amit & Villalonga, 2014; Chrisman, Kellermanns, Chan, & Liano, 2010). As a result, research may not be fully capturing the desired and wide-ranging outcomes derived from the strategic priorities of family firms. In a manner somewhat analogous to Steven Kerr’s (1975) article, “On the Folly of Rewarding A, While Hoping for B,” family firm research could be characterized as theorizing that critical family firm outcomes (FFOs) are one set of things (“A”—firm financial and family-centered, nonfinancial outcomes), while empirically testing only a subset of these things (“B”—firm financial “performance” outcomes).
This disconnect between the theory that has been advanced and empirical measurement is the central concern of our article, and we address it in several ways. First, we draw on family firm literature and other relevant disciplines to develop an FFO model, which synthesizes and theoretically structures key outcomes in family firms along two dimensions—the systems involved (i.e., the family and the firm) and the outcomes pursued (i.e., financial and nonfinancial). Second, we offer guidance on how key outcomes may be assessed by identifying specific measures from the family firm literature, the family science literature, and the broader psychological and sociological literature. Finally, we highlight several research opportunities, detailing how the specific dimensions of performance identified in the FFO model can inform future research.
By synthesizing and defining key outcomes and identifying how these outcomes can be measured, we make several important contributions. First, we build on the work of Evert, Martin, McLeod, and Payne (2016), who reviewed 319 empirical manuscripts, concluding that the lack of attention given to the conceptualization and operationalization of constructs as a key challenge facing family business scholars. Of these constructs, the outcomes that family businesses are striving toward have been the most discussed, as several have unequivocally argued that the theoretical development in the field will be inhibited unless the outcomes are specified such that the discipline’s theories can be developed and the core tenets can be tested in greater depth (Miller & Le Breton-Miller, 2014; Pearson & Lumpkin, 2011; Yu, Lumpkin, Sorenson, & Brigham, 2012). 2
Second, we address the “stretching” of the nonfinancial outcomes umbrella where too many classes of things have been lumped together such that there is no precise understanding of these outcomes or their attributes. Theoretically, we posit that nonfinancial outcomes have become so general that researchers can empirically couple these aspects of the family firm with multiple outcomes and competing theories about their role in family firm decision making, without violating any of the assumptions. This limits the field’s ability to meaningfully study what determines family firms’ scale and scope, how the pursuit of particular outcomes may enhance or limit the family’s ability to fulfill their objectives, and what outcomes are the sources of heterogeneity among family firms (Chua, Chrisman, Steier, & Rau, 2012). In essence, with a more detailed specification and operationalization of outcomes, meaningful tests can be developed and conducted such that we avoid the folly of theorizing FFOs as both financial and nonfinancial outcomes (“A”), while empirically measuring only financial “performance” outcomes (“B”). As important, this will give us the means to directly test how family firms go about fulfilling the primary purpose of optimizing outcomes such that financial as well as family-centric nonfinancial goals are met.
Heterogeneity Among Family Firms
Researchers suggest that a homogenous classification of family firms may lead to misleading theoretical conclusions regarding the extent to which family involvement influences firm outcomes. Family firms, instead, differ among one another as they make strategic trade-offs as they simultaneously pursue financial and nonfinancial outcomes—a challenge, we argue, that is faced by nonfamily firms as well. Family firms differ, however, in the range of outcomes that may be meaningful. Chrisman, Chua, and Zahra (2003) model the family firm decision-making process, suggesting that differences likely begin with the family’s goals and aspirations. Goals and aspirations may differ across family and nonfamily firms but may also explain differences among family firms. Chua et al. (2012) note, “Variations in the behavior and performance across family firms may be as large if not larger than the variations between family and nonfamily forms of organizations.” They further conclude, “The mix of economic and noneconomic goals is a cause of [this] heterogeneity” (pp. 1103-1104).
To illustrate this point, we consider three differing family firm orientations, each with potentially differing goals. While several differing “types” of family firms have been described (Birley, 2001; Dyer, 2006; Micelotta & Raynard, 2011; Sharma, 2004) and substantiated empirically (Basco & Rodriguez, 2009), we draw on research that has suggested that family firms typically fall within three categories, namely, business-first enterprises, family-first enterprises, and balanced enterprises (e.g., Micelotta & Raynard, 2011; Ward, 1987). With each of these types of family firms, the range of outcomes that are considered meaningful would be expected to vary as the family aspirations and goals vary with each of these orientations. When the family’s goals are centered on financial dimensions, this leads to a choice to be structured and operated in a way that closely mimics nonfamily firms. As the family develops idiosyncratic family-centered goals and aspirations, additional outcomes, whether they be family- or firm-specific, should be considered and measured (e.g., Basco & Rodriguez, 2009). Table 1 summarizes these types of family firms, the key stakeholders involved with each, and potentially relevant financial and nonfinancial outcomes.
Family Firm Examples: Meaningful Outcomes Linked to Theoretical Research and Practice.
Note: The descriptions of the firms, theoretical perspectives, and key stakeholders were developed based on descriptions from Birley (2001), Micelotta and Raynard (2011), Miller and Le Breton-Miller (2014), and Ward (1987).
In business-first family enterprises, there is a distinction between the family and the business. Although the importance of the founding or controlling family is acknowledged, the familial component of the business is downplayed, whereas the traditional organizational outcomes of a commercial enterprise are highly valued. Many have argued that family issues are not considered when making decisions in these types of firms (e.g., Birley, 2001; Dyer, 2006; Micelotta & Raynard, 2011). For these firms, this choice is made under the assumption that a focus on family issues may ultimately bring harm to the firm; therefore, the benefits that could be garnered would be short-term, as benefits available from the business would decrease if it were to decline. Accordingly, the outcomes pursued by these firms would largely mimic those pursued by nonfamily firms.
With family-first enterprises, there is an intimate connection between the firm and the family—so much so that the family drives the identity of the firm and family needs become the top priority in business planning and decision making (e.g., Birley, 2001; Dyer, 2006). With the familial component of the business and the family’s values representing the core essence of the enterprise, goals tend to be more family-centered and may run counter to the interests of nonfamily stakeholders. Birley (2001) describes these as “family in” firms where nepotism is the norm. Thus, goals likely include having family members dominate management and board membership regardless of qualifications and using business resources to grow family wealth or reputation without regard to other stakeholders. Taking this into account, financial outcomes would be a necessary, but insufficient, means of assessing the family-first firms’ overall goals.
Put differently, firm financial outcomes are necessary if the business is to survive and meet any of the nonfinancial goals the family may have. But, measuring only firm financial outcomes would lead to a less than complete operationalization of outcomes in family-first enterprises, as these outcomes do not necessarily consider the family-centric goals. For instance, researchers have used sales per employee as a measure of family firm success (e.g., Rutherford, Kuratko, & Holt, 2008). While sales per employee measures a firm’s productivity and efficiency (as it was used by Rutherford et al., 2008), it would not necessarily reflect a meaningful outcome for the family-first firm as the family accrues no direct benefit, regardless of magnitude. With this in mind, this particular financial outcome, used alone, would be incomplete unless other, family-centered outcomes were considered. Nepotism, for instance, is often characterized as detrimental to FFO but may represent one of these key nonfinancial outcomes, as it represents a means of fulfilling family obligations and engendering the necessary commitment to ensure control across generations (Jaskiewicz, Uhlenbruck, Balkin, & Reay, 2013).
With the balanced family enterprise, the family and the business are both prominent (e.g., Birley, 2001; Dyer, 2006). Moreover, the positive attributes of families and familial relationships (like loyalty, trust, and caring) are often transposed to the companies’ relationships with customers (Dyer, 2006; Micelotta & Raynard, 2011). These positive family attributes are presented as a basis of experience that helps the firm perfect the characteristics of traditional organizations (Micelotta & Raynard, 2011). Although family preferences cannot be dismissed and hold considerable influence, benefits accrued through the firm are distributed not only to the family but to other stakeholders as well. Unlike the family-first enterprises, priorities in these firms go beyond the family, including investments to enhance reputation with stakeholders, forming sustaining relationships with partners, and investing in the community (Miller & Le Breton-Miller, 2014). Moreover, one might expect a balance between family and nonfamily executives and directors with family member involvement decided based on competence rather than heredity. Accordingly, a complete measure of these firm’s outcomes includes myriad financial and nonfinancial measures.
Family Firm(s) Outcomes Model
Given this heterogeneity, we propose a holistic approach to viewing outcomes that attempts to account for the complexities among family firms that have been theorized. To comprehensively model these outcomes, we draw on a framework by Venkatraman and Ramanujam (1986), strategic management scholars who suggest that firm outcomes can be determined by assessing a set of appropriate financial, operational, and external outcomes. 3 The first, most basic set, financial outcomes, “encompasses three specific areas of firm outcomes: (a) financial outcomes (profits, return on assets [ROA], return on investment, etc.); (b) product market outcomes (sales, market share, etc.); and (c) shareholder return (total shareholder return, economic value added, etc.)” (Richard, Devinney, Yip, & Johnson, 2009, p. 722). The second, operational outcomes, taps internal functional dimensions such as product quality and managerial efficiency. The third and final set, external outcomes, represents external dimensions of importance to shareholders, managers, and customers but extends beyond financial outcomes and the internal operations of the firm.
Using only these financial, operational, and external outcomes, however, does not sufficiently capture the distinct but overlapping family and business systems that are unique to family firms (e.g., Sharma, 2004). That is, the domain of FFO can be viewed more accurately as one that includes (a) firm outcomes and (b) family outcomes, including outcomes that arise due to the family systems interaction with the business system (e.g., Sharma, 2004). Firm outcomes represent meaningful outcomes for the firm that, while they may be affected by the family system, would also play a role in firms with no family involvement. Family outcomes represent meaningful outcomes for the family that may be affected by the business system but that would also be relevant in families with no business involvement (e.g., family cohesion, family income). With these definitions in mind, we deliberately acknowledge and incorporate the interactions and feedback processes that are important within the family business system. For instance, employee well-being (i.e., employee job satisfaction) would be a firm outcome in the FFO model. This classification is based on the idea that both family and nonfamily firms have some interest in employee well-being (although this interest, as we know, varies significantly across both family and nonfamily firms). We, however, acknowledge that employee job satisfaction may vary based on the extent to which family involvement influences job satisfaction positively or negatively, introducing interesting research opportunities regarding the mechanisms that may lead to these differences. In addition, the outcomes take several different forms, as suggested by Venkatraman and Ramanujam (1986), such that financial and nonfinancial outcomes are considered (with nonfinancial outcomes falling into two broad categories, internal and external).
We also posit that understanding any particular FFO is contingent on understanding that firm’s goals (Chrisman, Chua, Pearson, & Barnett, 2012). Hofer and Schendel (1978) consider goals to be the ultimate, long-run, ends that an organization or individual pursues. Essentially, goals represent what an individual or organization aspires to accomplish. Indeed, empirical findings suggest that there are wide variations in the behaviors of family firms (e.g., Chrisman & Patel, 2012). Moreover, these variations arise from the unique and potentially varied set of family goals that these firms pursue as the controlling family exercises its discretion to behave idiosyncratically. Integrating these thoughts, we depict the range of FFO in our model, the family firm(s) outcomes model, 4 in Figure 1.
Family firm(s) outcomes model.
While understanding the range of outcomes relevant to family firms is essential, it is also critically important for researchers to accurately measure these outcomes. In fact, Evert et al. (2016) note that family business scholars find reliable and valid measurement one of the field’s greatest challenges. As we have noted, several calls have challenged researchers to develop appropriate measurement scales so that the phenomena observed in family firms can be better understood (Litz, Pearson, & Litchfield, 2012; Miller & Le Breton-Miller, 2014; Pearson, Holt, & Carr, 2014; Pearson & Lumpkin, 2011; Yu et al., 2012). In short, for the field to advance, proper measurement is essential, with Miller and Le Breton-Miller (2014) specifically asking for “more direct, multifaceted, and finer grained measures” (p. 718) of FFO and aspirations.
Toward this end, we provide example measures, with demonstrated validity and reliability that are available to assess the outcomes in the FFO model. While it is not our purpose to comprehensively review the psychometric properties of these measures (see Pearson, et al., 2014, for a detailed discussion of family business measures), information regarding validity and reliability is critical if researchers are to make informed decisions as to whether a scale should be adopted for their research purposes. Furthermore, we do not prescribe what outcomes measures a researcher should choose. Instead we classify and propose a wide range of measures from which the researcher could select with regard to the research questions and theory under study.
Firm Outcomes (Figure 1, Blocks Ia-Ic)
Firm outcomes represent meaningful outcomes that may be affected by family involvement but play a role in firms with no family ownership or management as well. Firm-specific financial outcomes (Figure 1, Block Ia) typically encompass financial outcomes (e.g., profits, ROA, and return on investment) and market outcomes (e.g., sales and market share). Firm nonfinancial internal outcomes, defined as those associated with the effective and efficient internal operations of the firm, include control-oriented and operations-oriented indicators of product quality and operational efficiencies (Figure 1, Block Ib). In addition, these include key affective outcomes like job satisfaction and organizational commitment. These nonfinancial internal outcomes have a rich legacy in the operations management and organizational behavior literature, with comprehensive reviews addressing them (e.g., Chenhall & Langfield-Smith, 2007; Fields, 2002). Finally, firm nonfinancial external outcomes (Figure 1, Block Ic) reflect fulfillment of goals, such as customer loyalty, customer satisfaction, firm reputation, firm image, and social responsibility (e.g.,Venkatraman & Ramanujam, 1986; Walsh & Beatty, 2007), that extend beyond the internal boundaries of the firm.
In terms of financial outcomes (Figure 1, Block Ia), Table 2 offers a summary of accounting, market, and mixed measures that have been used by family business scholars (Holt, Pearson, Carr, & Barnett, 2012) along with the benefits and limitations of these measures. These outcomes are usually assessed with one of two approaches. First, researchers often use multiple, single-item outcome measures with each measure being treated as an independent outcome (i.e., several regression models each with different outcome measures are compared and tested, Rutherford et al., 2008). Second, outcomes are sometimes aggregated into a “collective” measure. This approach has been commonly used with subjective surveys of financial outcomes, which are completed by key informants (typically an owner-manager, CEO, or senior manager) who rate several financial outcomes relative to competitors, using multipoint response options ranging from not at all satisfactory to completely satisfactory (e.g., Craig & Dibrell, 2006). Typically, the outcomes include (1) sales, (2) market share, (3) employees, (4) profitability, (5) return on equity, (6) ROA, and (7) profit margin on sales. As research moves forward, we would, however, suggest that multi-item indicators be considered, even when measured with objective data (Boyd, Gove, & Hitt, 2005). 5 Hamann, Schiemann, Bellora, and Guenther (2013) provided an example of how financial outcomes can be operationalized with multi-item measures, presenting evidence of construct validity and reliability. Specifically, they identified multi-item measures for three independent constructs, namely, profitability (using a three-item measure that includes return per employee, return on sales, and ROA; α = .90), growth (using a three-item measure that includes employment growth, assets growth, sales growth; α = .76), and liquidity (using a three-item measure that includes cash flow return per employee, cash flow return on sales, and cash flow ROA; α = .86).
The strategic management literature was consulted to compile the benefits, limitations, and research considerations of the financial outcomes. Consult the following for more detailed discussions: Combs, Crook, and Shook (2005), Murphy, Trailer, and Hill (1996), and Richard, Devinney, Yip, and Johnson (2009). bThe financial outcomes emerged from a systematic review of 464 manuscripts that reported empirical findings with performance as a dependent variable (Holt, Pearson, Carr, & Barnett, 2012). The manuscripts were identified through broad searches of databases and manual searches of key journals (e.g., Entrepreneurship: Theory and Practice, Family Business Review). cSubjective assessments of performance have been made by asking a key informant, “How would you rate your firm’s current performance as compared to your competitors (past 3 years)?” With items evaluating accounting dimensions of performance such as: growth in sales, return on assets, return on equity, and employment growth. Researchers often use similar measures without justifying how these indicators relate with one another or family firms (e.g., Craig & Dibrell, 2006).
Several measures of firm nonfinancial internal and external outcomes (Figure 1, Blocks Ib-Ic) can be recommended. Richard et al. (2009), for instance, offered the balanced scorecard as a means of measuring nonfinancial internal business processes, innovation, and learning. Spector’s (1997) Job Satisfaction Survey is an exemplary measure of this key employee attitude, while Mowday, Steers, and Porter’s (1979) measure of organizational commitment has been well validated and adapted for use in family firms (Klein, Astrachan, & Smyrnios, 2005). Family business scholars have also made a significant contribution to the measurement of these outcomes with the development of a valid and reliable stewardship climate scale (Neubaum, Thomas, Dibrell, & Craig, 2016). With regard to external factors, Walsh and Beatty (2007) developed an instrument that measures five key dimensions of reputation, namely, customer orientation, perceptions of the firm as a good employer, reliability of the firm, product and service quality, and social and environmental responsibility. While Walsh and Beatty (2007) offer a subjective measure of social responsibility, Dyer and Whetten (2006) used the Kinder, Lydenberg, and Domini and Company index of corporate social responsibility—an objective measure. This index assesses social responsibility based on perceptions of social initiatives directed toward the environment, diversity, employee relations, human rights, product features, and corporate governance.
Family Outcomes
Returning to the FFO model and moving beyond firm outcomes and measures, we also explore family outcomes and measures. Our view of the family outcomes is consistent with the extant view of socioemotional wealth and has been derived from the specific outcomes that have been introduced and discussed as part of this broad construct (e.g., Gómez-Mejía et al., 2007). Family-specific outcomes represent meaningful outcomes for the family that may be affected by the business system, but they also play a role in families with no business involvement (Figure 1, Blocks IIa-IIc). These outcomes are important to family business scholars because of the causal, overlapping, synergistic, or substitutional relationships that they may have with each other (Zellweger & Nason, 2008). Causal relationships occur when one outcome causes another. Family cohesion is a family-specific outcome that may enable or cause the realization of other outcomes. Theoretically, cohesiveness would be expected to reduce agency costs between owners and managers, sparing the firm costs that come with control mechanisms, thereby increasing firm and family wealth. Thus, just as profits might drive other meaningful outcomes like corporate philanthropy, cohesiveness could drive meaningful outcomes while simultaneously being a meaningful outcome itself. Moreover, family outcomes could be far more important to the family than firm outcomes when the family’s aspirations or goals are more family-centered, as opposed to firm-centered (i.e., a family first enterprise). Table 3 offers several reliable and valid measures that are available to assess these outcomes.
Family Outcome Measures (Blocks IIa-IIc of the Financial Family Outcomes model in Figure 1).
Note. In some cases, items were modified to put them in a family firm context with terms like “I” being replaced with collective terms. Citations from the family sciences literature are marked with an asterisk “*.”
Family Financial Outcomes (Figure 1, Block IIa)
With a few notable exceptions (e.g., Danes, Stafford, Haynes, & Amarapurkar, 2009), the financial outcomes specific to the family (e.g., income and other financial assets like real estate) have largely been overlooked (O’Boyle et al., 2012), although family business researchers often allude to family wealth. Danes et al. (2009) defined family wealth as the monetary and physical assets owned by family members, individually or collectively. Financial assets are cash or those assets that can readily be converted into cash; they include pooled money of the nuclear and extended families as well as funds from financial institutions. Moreover, the desire for the accumulation of these assets would vary as some family firms might be lifestyle firms that aspire to a specific level of wealth and no more.
Surprisingly few measures of family wealth are available. The most common measure appears to be the Family Affluence Scale (FAS), a four-item measure of family wealth developed by the World Health Organization (Boyce, Torsheim, Currie, & Zambon, 2006). Items on the FAS address (a) family ownership of a car, van, or truck; (b) a dedicated bedroom for each child; (c) family computer ownership; and (d) the frequency of family travel for holidays. This instrument, however, has several biases that likely limit its generalizability across cultures. Bedroom sharing, for instance, may better represent culture and family size, as well as age and gender of the children, rather than family wealth (Boyce et al., 2006). While the content from the FAS may serve as a basis to develop a more generalizable measure, an alternative is Danes et al.’s (2009) straightforward calculation of family net worth (see Table 3).
Several other measures are available to gauge family financial outcomes. As researchers select these measures, we recommend that they consider the research context such that financial outcomes appropriately take the family and firm into account. One such outcome is total shareholder returns, which represent the changing value of wealth that is derived from ownership shares (either increasing or decreasing) plus whatever dividends have been paid or reinvested. Although not commonly used by family business or strategic management scholars (cf. Hamann et al., 2013), total shareholder returns are common indicators of corporate outcomes that are reported in corporate governance documents (Dalton & Aguinis, 2013).
Family Nonfinancial Internal Outcomes (Figure 1, Block IIb)
Family-specific, nonfinancial, internal outcomes represent meaningful nonfinancial outcomes for the family that reflect the degree to which the family values and identifies with these nonfinancial outcomes. We differentiate these outcomes from family processes like behaviors and interactive practices that characterize family relationships (e.g., Olson, 2000). These processes include factors such as conflict management, differentiation, communication, problem solving, and control norms, which are common in many of the family science instruments (e.g., Smilkstein, Ashworth, & Montano, 1982). While there is no question that these functions and processes would be related to and affect family outcomes, our focus is on the outcomes themselves.
An evaluation of the family science and assessment literatures indicates that there are several key affective family outcomes (e.g., Grotevant & Carlson, 1989). Most broadly, overall family health represents the family’s general well-being and comprises subjective evaluations of physical, material, social, and emotional factors. More specifically, family emotional well-being and family happiness have also been identified as important family outcomes (Epstein, Bishop, & Baldwin, 1983; Pless & Satterwhite, 1973), representing subjective assessments of the family’s love, intimacy, and global pleasantness.
Cohesion is an important and frequently discussed family outcome (e.g., Grotevant & Carlson, 1989) that has been introduced to the family firm literature (Bjornberg & Nicholson, 2007). Cohesion is the degree to which family members view themselves as emotionally close or distant from each other (e.g., Smyrnios et al., 2003). It varies along a continuum from tightly woven to disengaged. Tightly woven families have blurred boundaries and high levels of emotional responsiveness (i.e., high levels of intimacy). In contrast, disengaged families tend to have rigid family boundaries, a lack of emotional responsiveness, and little communication among family members. Family conflict is associated with less cohesiveness and emotional bonding. Bjornberg and Nicholson (2007) differentiate between emotional and cognitive cohesion, presenting a measure with both validity and reliability evidence. Emotional cohesion reflects affective attachment while cognitive cohesion refers to shared views. The distinction between affect and cognition may be particularly important as multigenerational family firms may share views but have weaker emotional attachments.
As noted, the family business literature has focused on nonfinancial outcomes that arise as the family and firm are intertwined (e.g., Gomez-Mejia et al., 2007); however, this literature does not provide a theoretical rational for the dimensions that are included. To further specify constructs linked to these outcomes and provide a theoretical grounding, we turn to the emerging literature on psychological ownership, which provides a sound theoretical framework for relevant nonfinancial internal outcomes. Pierce, Kostova, and Dirks (2003) define psychological ownership as a “state where an individual feels as though the target of ownership or a piece of that target is ‘theirs’” (p. 86). These feelings of ownership develop toward material objects such as a business, as well as immaterial objects, such as ideas, with those objects that are grounded psychologically becoming a part of the individual’s “extended self.” Linking these concepts with the family business literature, psychological ownership produces feelings of (a) psychological meaning, (b) autonomy, and (c) belongingness (cf. Pierce, Kostova, & Dirks, 2001).
The first outcome of psychological ownership is identity and meaning. Mere ownership tends to be emotionally gratifying because possessions become symbolic extensions of the self, taking on a unique affective significance (Kahneman, Knetsch, & Thaler, 1990; Zellweger & Dehlen, 2012). Essentially, individuals develop a sense of satisfaction and identity through their interactions with their possessions coupled with a reflection on their intrinsic meaning. Of course, this meaning is not derived from all possessions—relatively trivial items do not engender psychological identification. However, significant possessions, like a business, can foster an important sense of worth and meaning (Pierce et al., 2001; Schulze, Lubatkin, & Dino, 2003; Zellweger, Kellermanns, Chrisman, & Chua, 2012). Moreover, those possessions, like a business, that require a significant investment become more intertwined with who and what the individual or the family is, thereby becoming a significant part of one’s or the family’s identity.
The second outcome of psychological ownership is decision autonomy. Because discretion in decision making has been identified as a central theme in the concept of autonomy, we, like Berrone et al. (2012), define autonomy as the extent to which the family feel or perceive that they can make operational and strategic decisions unilaterally. With this in mind, the concept of autonomy is closely linked to the concepts of authority that one expects to come with ownership. However, objective ownership (i.e., the proxy that has been used to measure control; Berrone et al., 2012) does not necessarily equate to perceptions of autonomy as these perceptions may vary regardless of objective ownership. Indeed, Westhead and Cowling (1998) show how diverse perceptions of autonomy might be, reporting that 21% of British firms did not perceive themselves to be a family business even though they were a family-controlled firm. Interestingly, nearly 77% of the firms having less than 50% of the ownership concentrated with a single family still perceived themselves as a family firm.
The third outcome of psychological ownership is belonging. The need to belong refers to the extent to which an individual feels that quality, long-lasting relationships among family and nonfamily members are formed through the family firm. Baumeister and Leary (1995) argue that the need to belong is a fundamental one that, when fulfilled, produces positive effects under a variety of conditions. To fulfill this need, people strive to be included in meaningful social relationships. Although families vary, many have suggested that they are a uniquely postured environment to provide belongingness, social structure, and a sense of caring and empathy (Sirmon & Hitt, 2003). Furthermore, tangible support can be provided through the wealth-creating capabilities and career opportunities the family firm may afford.
Finally, fulfillment of familial obligations is a key outcome. Familial obligations refer to the extent to which the family can provide wealth-generating capabilities for the family and create career opportunities for family members. Theories of philanthropic giving argue that the caring associated with giving does not reflect selflessness or the absence of self; rather, caring fulfills the needs of the caregiver as well as the needs of the recipient, providing the caregiver with a level of emotional satisfaction (Schervish & Havens, 2003). This satisfaction is particularly strong when the benefactor recognizes that the needs of others are similar to individual or collective family needs. Hence, as the family becomes more closely intertwined with the firm, the owners of family businesses, driven by caring, may gain satisfaction as they select family members for key management roles or make choices regarding family member compensation (Carney, 2005).
In Table 3, we present direct measures of these family nonfinancial internal outcomes. Measures of meaning and identity, for instance, have been developed and tested by Ball and Tasaki (1992). While developed with consumers in mind, these can be adapted to represent the extent to which a family would feel the firm is a key part of defining the family’s meaning and worth. Similarly, Bollen and Hoyle (1990) developed and tested a direct measure of belonging that can be adapted to assess feelings toward the family, the business, or both. Perhaps more important, these measures have considerable evidence with regard to validity and reliability (Ball &Tasaki, 1992; Bollen & Hoyle, 1990). Specifically, we considered the extent to which the literature had reported (a) content validity evidence (i.e., evidence of systematic scale development), (b) construct validity evidence (i.e., evidence of convergent and discriminant validity), (c) predictive validity evidence (i.e., evidence of theoretical relationships between the focal measure and outcomes), and (d) reliability evidence (i.e., evidence of test–retest reliability and internal consistency), omitting instruments for which validity or reliability evidence is not available. 6
Before including a scale in Table 3, we considered two additional criteria. First, the instrument had to be related to a family outcome (i.e., it did not measure a family process). Thus, scales such as Smilkstein et al.’s (1982) five-item measure of family functioning, which has been used in family business research (e.g., Danes, Zuiker, Kean, & Arbuthnot, 1999), was not included. Second, the instrument had to be general in nature and not developed for a specific context such as the assessment of family happiness when the family had a terminally ill child. Table 3 summarizes measures that are related to the key dimensions of general family well-being, emotional well-being, and family cohesion as well as an example item and available reliability evidence.
Family Nonfinancial External Outcomes (Figure 1, Block IIc)
Family nonfinancial external outcomes are associated with perceptions of those beyond the boundaries of the family, regardless of the degree of family involvement with the firm(s). These outcomes include family image, family legacy, and community embeddedness, as summarized in the recent review piece on philanthropy by Feliu and Botero (2016). For example, perceived family image and family prestige, defined as the degree to which members feel that community members hold the family in positive regard in absolute and comparative terms, differ from firm image in that the frame of reference shifts to the family. To simplify our discussion, we explain these distinctions as we discuss image and legacy of the family and the firm.
Family firms have been characterized as altruistic with collectivistic orientations that encourage deliberate, thoughtful actions that consider the effects these actions have on the firm, family, and community, presumably to develop or preserve the family or firm’s image and legacy (Eddleston & Kellermanns, 2007). Image reflects the family members’ belief about outsiders’ perceptions of the family, the firm, or both (Gioia & Thomas 1996). Unlike image, legacy refers to the enduring meaning that has been attached to the family or firm and extends beyond the time horizon that comes as one particular generation leads the family, manages the family firm, or owns the family firm (e.g., Fox, Tost, & Wade-Benzoni, 2010; Hammond, Pearson, & Holt, 2016).
Consistent with this thinking, we suggest that the family’s image refers to the extent to which the family feels that it is visible in the local community and that the community has a positive view of the family, regardless of the family’s involvement in a family firm. In contrast, the firm’s image is linked to the community’s perception of the firm. Undoubtedly, the family’s image and the firm’s image are linked when the family is involved with a firm. Moreover, both should be linked to reputation. And, finally, these links would be stronger as the family and firm are more completely intertwined. Rubenstein (1990), for instance, reported that 20% of the senior managers in firms that shared the family’s name indicated that respect for the family name was one of the firm’s top three priorities as compared to 9% of the senior managers in family firms that were not named for the family.
Like image, legacy can be related to the family, the firm, or both (Hammond et al., 2016). A legacy is developed when the family, the firm, or both makes substantial contributions that last beyond the family or a particular generation’s direct leadership of the family, extending the family’s enduring meaning into the future. Legacy has a deep psychological meaning that epitomizes socioemotional wealth as it has been conceptualized by Gomez-Mejia and his colleagues (Gomez-Mejia, Cruz, Berrone, & de Castro, 2011; Gomez-Mejia et al., 2007; Gomez-Mejia, Makri, & Larraza Kintana, 2010). To illustrate, Wade-Benzoni, Sondak, and Galinsky (2010) suggest that legacies are viewed as a way to defy death, with people viewing their legacy as a way to connect with future generations after they, themselves, are no longer a part of the social environment. This serves as strong impetus to acting on the behalf of future generations, demonstrating concern for and commitment to the well-being of those future generations.
As presented in Table 3, image and prestige can be assessed with an eight-item scale developed by Mael and Ashforth (1992). While initially developed for a study of universities, the measure has been adapted for for-profit firms and seems well suited for the family, as it includes items like “People in my community think highly of [blank].” Our review of the literature, however, failed to identify a measure of legacy, and this appears to be a notable gap in the literature. In the absence of direct measures, we encourage researchers to use proxies that reflect legacy-building activities that include the allocation of resources and capabilities to create a lasting impact on one’s community or other groups that are meaningful.
Offering another alternative, we suggest that prestige and legacy might be measured by adapting a scale developed by Mitchell, Holtom, Lee, Sablynski, and Erez (2001), which was designed to gauge embeddedness (i.e., the extent to which the family feels it fits and is linked to the community; see Table 3). In addition, the measure captures the sacrifices that are felt if these links are severed. Mitchell et al.’s (2001) measure of embeddedness includes items like “We love the place where we live.” In turn, the image and legacy measures parallel those that are measured for the family; however, the frame of reference changes to assess perceptions regarding the firm rather than the family (Mael & Ashforth, 1992).
Family Goals
To fully understand how the behaviors and outcomes in family firms vary, the conceptualization of outcomes must be coupled with an understanding of the family owners’ and managers’ willingness to pursue family-centered, nonfinancial goals and engage in idiosyncratic behavior to achieve those goals (i.e., the continuum along the base of the FFO model in Figure 1). In other words, the strategic decisions and operations of the firm are only influenced by nonfinancial utilities (i.e., socioemotional wealth) when and if they are included among the aspirations of the dominant family coalition (Debicki, Kellermanns, Chrisman, Pearson, & Spencer, 2016).
Unfortunately, research has generally lacked measures of the family firm’s aspirations, which are a crucial explanatory variable. Often, the family’s goals and aspirations have been inferred based on governance variables like family involvement in ownership and management or generic measures of risk aversion (e.g., Chrisman & Patel, 2012). When attempts have been made to measure aspirations directly, financial goals of the family firm have been emphasized over nonfinancial or socioemotional goals (e.g., Basco & Rodriguez, 2009). To assist researchers, Debicki et al. (2016) offers an instrument that assesses more emotional aspirations. Specifically, the instrument assesses the importance of (a) family image, (b) family sustainability, and (c) fulfilment of family obligations. While Debicki et al.’s (2016) measure is in its infancy, it may provide the missing measure of family aspirations that can effectively differentiate family firms from one another and guide the selection of appropriate outcome measures based on goals and aspirations.
Future Research Opportunities
The classification scheme offered in the FFO model and the identification of measures to operationalize those outcomes is useful in several ways (see Table 4). Foremost, it aids in the development of a research agenda for family business scholars. As noted in the introduction, meta-analyses by O’Boyle et al. (2012) and Carney et al. (2015) suggest that family involvement has little if any relationship with a firm’s success. Put differently, the findings have indicated that family firms perform at least as well as, or no worse than, nonfamily firms. This suggests that the nonfinancial outcomes that family firms pursue may provide some compensating capabilities that allow them to overcome any firm- or family-specific deficiencies. By using the FFO as a guide, researchers might begin to empirically tease out which specific outcomes may “cause” firm-specific outcomes across differing samples of family firms and offer a better understanding of the underlying mechanisms that help family firms perform at the levels of nonfamily firms.
Research Opportunities Presented by the Family Firm Outcomes Model.
As this is done, we encourage researchers to give special consideration to questions regarding family specific outcomes like family harmony that may be affected by the firm but play a role for families with no involvement in a firm (see Figure 1, Blocks IIa-IIc). Family harmony (a family-specific outcome) may affect the perceptions of well-being (i.e., job satisfaction) among nonfamily employees, which subsequently influences firm financial success (Davis, 1983). Moreover, individual family members may have very different perceptions of harmony, leading to many intriguing questions that revolve around the variability in the family members’ perceptions of key nonfinancial outcomes and how this variability influences the firm (Holt, Madison, & Kellermanns, 2016). While these dynamic influences between the family and the business have been suggested (Sharma, 2004), few have been tested directly (e.g., Holt et al., 2016).
Several intriguing opportunities also emerge as one begins to view nonfinancial outcomes as stocks of wealth that can be accumulated. That is, just as the pursuit and attainment of financial outcomes lead to financial wealth (i.e., profits may lead to shareholder wealth), the pursuit and attainment of nonfinancial outcomes could lead to a stock of nonfinancial wealth (Chua, Chrisman, & De Massis, 2015; Shepherd, 2016). When considering this perspective, we have little understanding of how these nonfinancial outcomes are accumulated to create this wealth. Indeed, most tests of nonfinancial outcomes take the presence of this wealth as a given, assuming it positively influences the family regardless of its specific form. As a result, these models offer few insights about how nonfinancial wealth develops, the mechanisms through which it accumulates, and the consequences of its use as it interacts with other firm outcomes.
With a clear conceptualization and operationalization of nonfinancial outcomes, we might begin to understand how nonfinancial wealth is accumulated and how its accumulation may vary as differing outcomes are pursued. Decision autonomy, for instance, might come as the firm is founded where family legacy would accumulate only as the firm reaches some threshold of legitimacy whether that be financial or nonfinancial (i.e., Figure 1, Block Ia or Ic; Hammond et al., 2016). In other cases, nonfinancial wealth might accumulate through a series of complex relationships among specific nonfinancial and financial outcomes (Zellweger & Nason, 2008). Family image and prestige might be expected to follow such a pattern, emerging over time as customers and the community at large recognize the contributions made by the family. In some instances, these contributions may be facilitated through philanthropic donations made by the firm (Feliu & Botero, 2016), and these may influence the family either positively or negatively. That is, philanthropic donations would positively influence the family only if the image, prestige, and tax advantages generated offset the financial returns that are foregone.
As we delve more deeply into understanding of how family nonfinancial wealth is accumulated, family business scholars have the opportunity to explore the multilevel nature of several phenomena while integrating several novel theoretical perspectives into our work (see Table 4). The FFO model, along with others, posits that family legacy is an important nonfinancial outcome family firms pursue (i.e., from 1995 to 2015, 109 manuscripts make reference to it; Hammond et al., 2016). The concept of legacy, however, has been conceptualized as an individual-level construct where an individual transmits what he or she stands for, receiving some level of intrinsic satisfaction (Hunter & Rowles, 2005). Yet family business scholars posit that legacy has properties at a higher level—the family—and a family legacy emerges through social interactions and exchanges among individual family members (Hammond et al., 2016). This suggests that sense-making theory (Weick, 1995), which describes how emergent properties of a group evolve, can be invoked to help us understand how outcomes like family legacy, family harmony, and family cohesion originate within a small group of family members to accumulate as family-level outcomes that are imprinted such that shared expectations and understandings are developed and, most important, valued. Moreover, we can also begin to understand the causal or synergistic relationships among the differing forms of wealth, helping us further isolate the capabilities that allow family firms to overcome any deficiencies they may have as they compete (Carney et al., 2015; O’Boyle et al., 2012).
Collectively, the accumulation of wealth, whether it be nonfinancial or financial, leads to interesting avenues of research in another emerging area—time (e.g., Ployhart & Vandenberg, 2010). While time has been acknowledged in family firm research (arguing that family firm leaders have a long-term orientation relative to their nonfamily counterparts; Gentry, Dibrell, & Kim, 2016), time is generally viewed as a medium under which positive or negative changes occur, without considering specific time-related constructs. Put differently, a researcher might hypothesize that the strategic persistence of a family firm influences financial outcomes over time where a longitudinal examination would a better choice to analyze such a relationship than cross-sectional examination. Time-related constructs like duration, rate, and pattern, however, become important as the accumulation of firm and family nonfinancial outcomes are considered (see Figure 1, Blocks Ib-Ic, Blocks IIb-IIc; Mitchell & James, 2001). Duration would refer to the length of time that a specific form of nonfinancial wealth lasts in a steady state, and rate refers to the speed at which the particular form of wealth would be expected to change. Pattern, in turn, would represent the trajectory or shape of any change that takes place over time where these might be described as stable, linear, exponential, or sinusoidal patterns. Unlike the linear patterns that are often studied and assumed, it would be reasonable to expect nonfinancial outcomes, whether they be classified as firm or family, to ebb more dramatically over time, leading to more dynamic durations, with potentially instantaneous change rates and complex patterns. Making this more interesting, the conceptualization of time itself may be unrelated to the objectively measured passage of time, instead, being a concept that is subjectively constructed by the family.
These specific research areas are particularly interesting because they present family business scholars with an opportunity to not only help us understand family firms but also inform other areas of management. Shepherd (2016), for instance, has indicated that an understanding of how nonfinancial outcomes are created, maintained, and leveraged by the family firm not only would offer insights into the family business literature but also has the potential to inform the entrepreneurship literature. By examining temporal issues, family business scholars can inform many other areas in management as very little is known about the subjective passage of time, its role in organizations, and how it influences the current decisions. Family firm scholars are uniquely postured to offer insights into these theoretically and practically important issues because of the unique goals of family firms that revolve around the optimization of financial as well as family-centric nonfinancial outcomes.
Practical Implications for Researchers
Beyond the broad research topics we have detailed, the FFO model offers practical implications for researchers involved in testing theory that explains family firm decision making and behavior. We recognize that it will not always be feasible to collect nonfinancial outcomes, especially when secondary data sources are used. Studies, however, should be designed such that the differences in financial and nonfinancial outcomes and the interrelationships among these outcomes are taken into account. Several financial outcome measures, for instance, may be relevant to the family and the firm depending on whether the firm is family owned and managed or just family owned (see Table 2). When a family has ownership but no managerial involvement, several financial outcomes may not directly overlap with the family. For example, ROA appears to be the most commonly measured FFO (Holt et al., 2012; O’Boyle et al., 2012). This outcome, however, may or may not overlap with family financial outcomes, as it does not necessarily provide direct benefits to the family, regardless of magnitude. That is, a firm with a high ROA may or may not have a higher share price and may or may not pay dividends (Dalton & Aguinis, 2013). Accordingly, higher ROA might not provide a direct financial benefit to the family, and such an outcome, although important for the firm, may not completely represent the family’s financial outcomes.
A related implication is that outcomes, whether they be firm- or family-related or financial or nonfinancial in nature, address distinct constructs. Thus, researchers (and reviewers) should not expect results from different tests of the same hypothesis to converge if differing outcomes from the FFO model are examined. Expanding operations and sales into an international setting should accelerate growth, prestige, and image but might have ambiguous effects on accounting returns, family wealth, and cohesion. Thus, we would encourage researchers to collect data across the classification scheme that is presented in the FFO model for the purpose of building a unique body of knowledge around each type of outcome measure. However, we would caution researchers not to expect traditional methods of triangulation to converge if the measures of outcomes represent differing constructs (i.e., firm financial outcomes vis-à-vis family financial outcomes).
Conclusion
Despite the FFO model’s utility in synthesizing and framing the portfolio of outcomes relevant to family and firms, we would encourage researchers to continue to refine the FFO model and build on the framework if we are to fully understand “the nature of family firms distinctions” (Chrisman et al., 2005, p. 559). For example, there are likely additional and more nuanced outcomes at the interface between the family and the firm (both financial and nonfinancial) that are garnered by the family and its members because of its involvement in the firm. Similarly, there are likely theoretically meaningful outcomes that are important to the firm because of family involvement in the business. Sirmon and Hitt (2003), for instance, define patient capital as financial capital that is invested without threat of liquidation for long periods, which distinguishes it from typical financial capital based on the intended time of investment. They explain that family and nonfamily firms likely strive to develop such capital but nonfamily firms are less able to do so because of the reward structures within markets. Family firms, in contrast, are postured to generate such capital for the firm as they have aspirations to perpetuate the business for future generations. Accordingly, patient capital would be a meaningful financial outcome for the firm that arises as the family is involved.
As another example, the domain of nonfinancial outcomes is very broad (i.e., internal and external) and comprises a diverse set of elements including emotional (e.g., happiness), social (e.g., belonging), cognitive (e.g., cognitive cohesion), and normative (e.g., family values) constructs. While we leveraged strong theory to develop the domain of internal and external nonfinancial outcomes (e.g., Berrone et al. 2012; Gomez-Mejia et al., 2007; Pierce et al., 2003; Venkatraman & Ramanujam, 1986), we acknowledge there is a need for a more detailed look at these dimensions and that a more developed understanding of these outcomes would be an important refinement to the model, particularly at the interface of the family and firm. The first review issue of Family Business Review highlights theoretical areas in family business research that demonstrate the nuanced integration of family and firm goals with respect to important FFO. For example, Madison, Holt, Kellermanns, and Ranft’s (2016) integration of agency and stewardship theories provides a specific example of how firm and family goals may affect outcomes. The FFO model can help researchers consider possible additional outcomes to represent either the family or the firm, and future research can continue to refine outcome measures at the interface of both. Opportunities for further delineation of both family and firm outcomes abound, and perhaps the most important opportunity is to identify outcomes that reflect the interface of family and firm.
In closing, Venkatraman and Ramanujam (1986), while addressing the broader discipline of strategic management, succinctly stated, “The narrowest conception of business performance centers on the use of simple outcome based financial indicators” (p. 803). Among family business scholars, this is a point that has been recognized and accepted for some time (e.g., Berrone et al., 2010; Gomez-Mejia et al., 2007), suggesting that the overall success or failure of the family firms can be completely understood only when the nonfinancial outcomes that are relevant and meaningful to families and their firms are understood. Yet, as we look at family business scholarship, we, as family business scholars ourselves, sense that our research can often be characterized as theorizing FFO as one thing, while empirically measuring something else. Put differently, family business scholars, almost unanimously, have theorized that family firms differ from nonfamily firms in the range of outcomes that are desired, pursuing a set of unique goals and aspirations that are related to the family, the firm, or the interface of the family and the firm. In an attempt to view these outcomes comprehensively, we present the FFO model, which synthesizes and structures the literature on family firms with the extant literature on firm outcomes, family assessment, and psychological ownership to identify the outcomes that are related to the family and the firm. With an understanding of the entire portfolio of outcomes, family firm scholars will be able to more directly (a) evaluate the strategic choices that are made by family firms, (b) assess where family firms stand vis-à-vis nonfamily firms, and (c) understand how family firms evolve over time.
Footnotes
Acknowledgements
We would like to express our appreciation to Grand Valley State University for sponsoring this research. In addition, we would like to thank Jess Chua for his insightful comments on previous versions of this article.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research was supported with a scholarship of $5,000 from the Family Owned Business Institute at Grand Valley State University.