Micro-Foundations of Corporate Entrepreneurship in Family Firms: An Institution-Based Perspective

Introduction

The effects of Corporate Entrepreneurship (CE) on firm performance have been examined in a variety of organizational forms, including family firms (e.g., Kellermanns & Eddleston, 2006). Prior research, however, has mostly studied corporate entrepreneurial behaviors (e.g., innovation) at an organizational-level and overlooked the micro-foundations of CE (i.e., the role of individual-level cognitions, attitudes, beliefs, and behaviors in CE; Zahra & Wright, 2011). Seiger and Kotlar (2019) strive to fill this gap by adopting a transaction cost economics perspective to investigate nonfamily managers’ willingness and ability to engage in entrepreneurial behaviors within family firms. Specifically, they argue that the “family firm’s human asset specificity” results in higher degrees of bounded rationality and bounded reliability for nonfamily managers compared to family managers. Hence, nonfamily managers are less willing or able to act entrepreneurially.

Seiger and Kotlar (2019) offer valuable insights about individual-level entrepreneurial behaviors within family firms. Implicitly, however, their analysis assumes that the pursuit of noneconomic utilities, which are more intimately understood and valued by family members, leads to asset specificity issues shared by all family firms. In other words, Seiger and Kotlar (2019) choose not to deal with the heterogeneity among family firms (Chua, Chrisman, Steier, & Rau, 2012). Here, we extend their work by suggesting an institution-based perspective that accounts for this heterogeneity and its influence on behaviors of family and nonfamily members. Specifically, we explain that family and nonfamily members may be either encouraged or discouraged to engage in entrepreneurial behaviors by business and family institutions that constitute family firms’ institutional context. Moreover, we emphasize that business and family institutions’ positive or negative effects on individuals’ entrepreneurial behaviors have varying degrees of salience based on the extent to which family firms are professionalized and/or embedded within the family.

Family Firm Institutional Context

Institutions are “patterned behaviors infused with meaning by normative systems, and perpetuated by social exchanges facilitated by shared cognitive understandings” (Martinez & Aldrich, 2014, p. 87), and enforced by regulatory systems when available. Hence, institutions are taken-for-granted rules of the game with normative (e.g., social values and norms), cognitive (e.g., shared conceptions and meanings), and regulative (e.g., written laws and rules) elements (Scott, 1995). They have various origins (e.g., family, business, state, community, religion; Ostrom, 2010) and determine the incentives for different types of actions and interactions within an institutional context (Hira & Hira, 2000). Hence, institutions can promote or constrain different types of behaviors, including entrepreneurial behaviors, in a social context (Baumol, 1990).

Family firm institutional context is composed of institutions mainly originated from the family and/or the business because family firms are formed at the intersection of a business family and a family business (Friedland & Alford, 1991; Litz, 2008). Hence, within family firms, family institutions that represent norms related to familial relationships and responsibilities are balanced against business institutions that represent norms linked to commercial goals and market orders (Stewart, 2003). Indeed, family and business institutions coexist and coevolve within the family firm and their confluence shape family firm members’ ¹ behaviors (Kepner, 1983). Therefore, a confluence of multiple family and business institutions impact family firm members’ willingness and/or ability to engage in entrepreneurial behaviors in a family firm (Batjargal et al., 2013).

Family and business institutions have varying degrees of influence on family and nonfamily members’ behaviors (e.g., Reay, Jaskiewicz, & Hinings, 2015). The relative salience of family institutions’ vis-à-vis business institutions’ effects on individuals’ entrepreneurial behaviors in a certain family firm is determined by degrees of family embeddedness and professionalization. The higher degrees of family firms’ (cognitive, normative, political, and structural) embeddedness within the family lead to a stronger family institutions’ (positive or negative) influence (Le Breton-Miller & Miller, 2009). In contrast, family firms’ professionalization (i.e., adoption of professional managers and practices) strengthens the business institutions’ (positive or negative) influence on individuals’ entrepreneurial behaviors.

In this commentary, we focus on family institutions’ impact on family firm members’ entrepreneurial behaviors for two reasons. First, prior CE research mostly highlighted business institutions’ influence on entrepreneurial behaviors within different types of organizations. ² In contrast, there has been little attention to family institutions’ influence (Soleimanof, Rutherford, & Webb, 2018). ³ Overlooking family institutions leaves a serious knowledge gap about entrepreneurial behaviors in family firms, considering the essential role of family coalitions in family firms’ decision making. Additionally, despite several calls to investigate how family embeddedness affects entrepreneurial behaviors (e.g., Aldrich & Cliff, 2003), our understanding of the influence that the family has on entrepreneurship is limited. We believe that family firm institutional context is unique and lends itself for examination of the effects of family and its institutions on entrepreneurship. Therefore, we aim to explain why and how family institutions matter for individual-level entrepreneurial behaviors within family firms.

Family Institutions and Family Firm Members’ Entrepreneurial Behaviors

Individuals create meanings that constitute their social reality through interactions with others, and most importantly, with their family members (James, Jennings, & Breitkreuz, 2012). Family members share their social reality with each other through family interactions and form their family institutions, including, family values, ideologies, norms, traditions, roles, and purpose. Family institutions serve as the basis for family structures (e.g., flexibility of roles and responsibilities; Olson, 2000), relationships (e.g., parenting styles, communication patterns; Baumrind, 1971; Fitzpatrick & Ritchie, 1994), and expectations (e.g., unity and bonds; Silverstein & Bengtson, 1997). Furthermore, family members often internalize family institutions through family socialization process as they grow up (Hoy & Sharma, 2010). Hence, family institutions have a significant influence on shaping family members’ mindsets and attitudes (Martinez & Aldrich, 2014), which are the basis for family members’ actions and interactions with individuals inside and/or outside the family context. Therefore, family institutions influence individual-level entrepreneurial behaviors within family firms, first, by shaping family members’ cognitions and abilities, and second, by affecting interactions and relationships among family firm members.

First, family institutions are essential in shaping family members’ cognitions and abilities because the family is the first and most enduring social context in which individuals start and spend their social life (Martinez & Aldrich, 2014). Family institutions can help or hinder the development of entrepreneurial attitudes and mindsets among family members. Family structures, parenting styles, and communication patterns, for instance, may foster or hamper family members’ entrepreneurial characteristics. Family members raised in extremely rigid and/or enmeshed families tend to develop mindsets that do not appreciate adaptability, change, and decentralization, which are required for being entrepreneurial. In contrast, moderately flexible families nurture entrepreneurial family CEOs who are open to democratic leadership, comfortable with delegation, and supportive of collaborative cultures (Jaskiewicz, Combs, Shanine, & Kacmar, 2017).

Family parenting style also impacts entrepreneurial characteristics (e.g., Tenibiaje, 2010). An authoritative parenting style (i.e., balanced parental demandingness and responsiveness) nurtures children’s curiosity and entrepreneurial skills (Schmitt-Rodermund, 2004). A permissive parenting style (i.e., altruism), however, spoils kids, promotes a sense of entitlement, and leads to family members’ entrepreneurial incompetence (Kidwell, Eddleston, Cater, & Kellermanns, 2013). Likewise, an authoritarian parenting style (i.e., restrictive control and high demands) cultivates obedient kids who follow routines and avoid creativity (Jaskiewicz et al., 2017).

Finally, family communication patterns may encourage family members to freely interact, express their thoughts, and participate in discussions (i.e., a conversation pattern), or may push family members to adopt homogeneous attitudes, beliefs, and values (i.e., a conformity pattern; Koerner & Fitzpatrick, 1997). Hence, family members raised in a context that aligns with a high conversation pattern generally have stronger social/critical thinking skills and can listen to others, share information, and offer creative ideas (Huang, 1999). In contrast, family members accustomed to a high conformity pattern tend to be passive and hesitant to challenge status quo.

The second form of family institutions’ effect occurs due to family firm and its managers embeddedness within the family, which in turn, allows the family institutions to be carried over to the family business and shape relationships and interactions within the firm (Le Breton-Miller & Miller, 2009). The collegial support and knowledge sharing that are required for entrepreneurial behaviors, for example, can be shaped by family unity and communication patterns (Patel & Fiet, 2011; Webb, Ketchen, & Ireland, 2010). Family institutions that strengthen family unity and bonds (e.g., rituals), when carried over to the firm, provide a sense of security that is required for engagement in entrepreneurial behaviors with high risk of failure (Welsh, Memili, Rosplock, Roure, & Segurado, 2013). ⁴ Similarly, as family communication patterns spill over into the firm, a controlling family with a high conversation pattern and low to medium conformity pattern stimulate open and constructive communications among family firm members, which facilitate knowledge sharing required for CE. Frequent and transparent interactions among family firm members also promote trust and positive affect within the firm, which increases members’ alignment with goals and motivation to engage in CE (Carmon & Pearson, 2013; Shepherd, 2016).

As a final note, it is important to highlight that family institutions result from family members’ interactions with each other within the family or with other members of the society when family members participate in other social contexts (e.g., religious ceremonies, community events; Stern, 1939). In other words, family institutions may originate in the family or be infused into the family from other social centers (Ostrom, 2010). Hence, families can share certain types of family institutions due to their embeddedness within similar social/cultural contexts. For example, in hierarchical cultures, families tend to develop a paternalistic culture where family relationships are managed hierarchically and parents retain high authority to make decisions (Cruz, Hamilton, & Jack, 2012). Family members in such hierarchical family structures lack the required autonomy for being entrepreneurial within family firms. Likewise, in masculine cultures, families are less flexible and more influenced by gender norms that constrain female family members’ participation in leadership roles within family firms (e.g., Overbeke, Bilimoria, & Perelli, 2013; Remery, Matser, & Flören, 2014). Societies’ gender biases promote unequal power structures within families, which undermine spouses’ and daughters’ willingness and ability to act entrepreneurially within family firms (Deng, 2015; Hedberg & Danes, 2012).

As another example for the influence of societal institutions on formation of family institutions, families embedded within collectivistic cultures tend to nurture stronger emotional bonds and identity ties with extended family members (Khavul, Bruton, & Wood, 2009). Normative pressures to include extended family members in family firms lead to prevalent practice of nepotism. While nepotism may provide family members with a sense of security for engagement in risky entrepreneurial behaviors and a chance to explore entrepreneurial opportunities within extended family networks, it may also promote a sense of injustice for nonfamily members, which leads to nonfamily members withholding their creativity (Webb et al., 2010). Finally, ethnic dimensions (e.g., direct verbal vs. indirect nonverbal communication style, task vs. relationship focus) influence how effectively family and nonfamily members can communicate and share knowledge within firms that are controlled by families of different ethnic backgrounds (e.g., African American or Mexican American; Danes, Lee, Stafford, & Heck, 2008).

Future Research Directions

We offer a new lens for examining entrepreneurial behaviors and explain why an institutional perspective deepens our understanding of the micro-foundations of CE within family firms. Family and business institutions coexist within family firm institutional context and either can encourage/facilitate or discourage/inhibit individual-level entrepreneurial behaviors. Hence, a configurational approach is needed to understand how a confluence of family and business institutions, with varying degrees of salience, interact and influence entrepreneurial behaviors within family firms. Future research is required to examine how different configurations of family and business institutions, with varying degrees of family embeddedness and professionalization, influence family firm members’ proclivity and ability to engage in CE. Furthermore, we do not discuss the influence of several types societal institutions (e.g., religious values, state laws) on family firm members’ entrepreneurial behaviors, which presents opportunities for future research.