Family Firm Behavior From a Psychological Perspective

Areas of Psychology Most Applicable to Family Business Research

As noted above, psychology is a science that deals with understanding how genetic endowments and environmental circumstances influence behaviors, and the consequences of these behaviors (Kimble, 1989). A pervasive and diverse field of study, we highlight five of the areas of psychology recognized by the American Psychological Association (APA)—social psychology, developmental psychology, cognitive psychology, industrial organizational (I-O) psychology, and evolutionary psychology—that have been used in family firm studies in the past and have the greatest promise for research in the future. We discuss each area individually, although it should be apparent that they are not mutually exclusive.

Social Psychology focuses on how people’s cognitions, emotions, and behaviors are influenced by the actual or imagined behaviors and intentions of others (Allport, 1985). By covering both intrapersonal and interpersonal phenomena, it overlaps with the other branches of psychology. For example, it overlaps with developmental psychology and cognitive psychology in terms of how the development of self-concept is influenced by others. Its coverage of group dynamics overlaps with industrial psychology although the latter has a narrower focus on the industrial setting. A review by Jiang et al., (2018, p. 129) finds that family business propositions and hypotheses based explicitly on the concepts and theories of social psychology “remain scant.” However, those authors stress that many family business studies fall within the scope of social psychology. They illustrate this by showing in detail how SEW may be dissected and given a more rigorous theoretical basis by using the social, motivational, cognitive, affective, and behavioral tenets of social psychology.

Broadly, in order to understand behavior within organizations, we need to appreciate the importance of human interactions along with their many influences. Anthropologists remind us that familial structures and kinship ties influenced the very origins of economic enterprise and play an important role in businesses throughout the world (Peredo, 2003; Stewart, 2003). Indeed, most of the world’s firms are family firms (La Porta, López-de-Silanes, Shleifer, & Vishny, 1999). Whereas sociology has long recognized the important role of the family in the organization of enterprises, the combination of sociological and psychological perspectives offers a useful framework for studying the myriad of enterprises and organizational forms manifest in family firms. The articles in this special issue introduce and explore important topics related to the influences on human interaction and organizational outcomes in family firms and fit well within the realm of social psychology.

Developmental psychology is the study of why and how people grow, change, adapt, or stay the same over the course of their lives. This branch of psychology spans the study of physical, social, intellectual, and emotional changes over the course of life. Influenced by modern developmental psychologists such as Levinson (1978), family business researchers have found life cycle concepts useful for understanding family members’ evolution over life stages, intrapersonal relationships over time, and how these changes affect firm behavior. Examples include research on exit styles at the end of a leaders’ career in family business (Sonnenfeld & Spence, 1989), father–son relationships over life stages (Davis & Tagiuri, 1989), and changes in ownership and governance structures over generations (Gersick, Davis, Hampton, & Lansberg, 1997).

Although interesting findings continue to be revealed by this line of inquiry (Hoy, 2006), the use of concepts from developmental psychology seems to have declined since the 1990s, perhaps because of the numerous and hard-to-predict divergences in the life paths of individuals and organizations. However, applications of developmental psychology are beginning to reemerge. The study by Erdogan, Rondi, and De Massis (2020) in this issue on how long-lived family firms manage the potential conflict between tradition and innovation is a case in point. As evidenced by recent special issues (e.g., Debicki, Kellermanns, Dawson, & Sharma, 2017; Gagné, Sharma, & De Massis, 2014; Hoon, Hack, & Kellermanns, 2019), interest in developing a fine-grained behavioral theory of individuals in family firms to understand causal factors underlying observed firm-level outcomes is rapidly increasing. ¹ Given the importance of temporal issues in family firms (Sharma, Salvato, & Reay, 2014), it is important to rejuvenate this line of inquiry.

Using insights from developmental psychology, there are at least three avenues for future research. First, there is a need to reexamine the findings of the studies of the 1980s and 1990s because today the variance in family structures is markedly larger than it was two or three decades earlier (Arregle, Hitt, & Mari, 2019). Second, it would be interesting to study the effectiveness and performance of different types of family business teams (e.g., sibling, parental, spousal, kin-non-kin), at different stages of individual and organizational cycles of development. Questions of importance include the following: Do temporal considerations in decision making vary according to the type of team? Are teams with innovators more or less adept at managing conflicts and disagreements than teams dominated by guardians of family legacy? Are families with strong and stable values better at dealing with bifurcation bias or motivating nonfamily employees toward family firm goals than families with values that change with the times? What kinds of teams perform better within different environments—those with stable relationships and skill sets or those with evolving relationships and skill sets (Gagné et al., 2014)?

Third, the influence of family institutions such as parenting styles and structures on self-efficacy, entrepreneurial orientation, and commitment of the next generation to their family firm has been theorized in the literature (Garcia, Sharma, De Massis, Wright, & Scholes, 2019; McMullen & Warnick, 2015; Reay, 2019) but needs to be empirically tested. Developmental psychologists have used both lab experiments and field studies to understand the role of parental behaviors on the social, intellectual, and emotional development of children, as well as their self-efficacy and learning behaviors over time. Family firm researchers can perhaps accelerate their quest for understanding the causes of family level outcomes by using similar techniques to design more rigorous research studies (Jiang & Munyon, 2017).

Cognitive psychology is described by the APA as the study of how information is acquired, perceived, processed, and stored in the human brain, and how the mind acts on received inputs to make decisions. The influence of cognitive psychology on family firm research is most evident through applications of the behavioral agency model (Gómez-Mejía, Cruz, Berrone, & De Castro, 2011) and mixed gambles (Gómez-Mejía et al., 2014) derivatives of prospect theory to the study of how the affective benefits of SEW influence family firm behaviors. Prospect theory is largely based on the work of cognitive psychologists, most notably Kahneman and Tversky (1979), who found that decision makers evaluate risky situations based on gains and losses rather than ending stocks of wealth. Drawing from this literature, Gómez-Mejía et al. (2011, 2014) suggested that when evaluating risky alternatives, family firm leaders not only weigh the financial gains or losses of each alternative but also the gains or losses to their SEW that come from the ownership of the business (Berrone, Cruz, & Gómez-Mejía, 2012; Debicki, Kellermanns, Chrisman, Pearson, & Spencer, 2016). SEW, in conjunction with prospect theory, provides a basis for understanding family firm behaviors in terms of issues such as procedural justice (Barnett, Long, & Marler, 2012), internationalization (Arregle, Naldi, Nordqvist, & Hitt, 2012), stakeholder engagement (Cennamo, Berrone, Cruz, & Gomez-Mejia, 2012), and the bifurcated treatment of family and nonfamily employees (Verbeke & Kano, 2012).

Although notable progress has been made toward understanding the consequences of family involvement in business, additional theoretical and empirical work is needed. Cognitive psychology has rich theoretical and methodological traditions that can be used in this regard. Not only has this branch of study contributed to the understanding of human decision making, the APA has an impressive repository of over 2,000 peer-reviewed psychometric measures and tests available for research. ² These scales and tests can be easily adapted for use in family business research. Similar to developmental psychology, cognitive psychology also relies on experimental research to understand reactions (effect) to stimuli (cause). For example, mental resonance imaging is being used to understand the brain’s reactions to stimuli and how different brain structures can affect a person’s health, personality, or cognitive functioning. Miller, Wiklund, and Yu (2020) provide an excellent start in conceptualizing the relationships between mental health and SEW dimensions in family firms. The time seems to be ripe for scholars to become more familiar with how cognitive psychology can enhance the theories and methods used to study family firms.

I-O psychology aims to understand human behavior for the purpose of enhancing employee well-being and organizational performance. I-O psychology is a frequently used area of psychology in management research. Topics of interest range from focuses on individual (recruitment, motivation, commitment, personality, career development, and so on), intrapersonal or group (emotions, team dynamics, trust, conflict, and so on), and organizational levels (goals, values and culture, reputation, HR or communication systems, and so on) with some topics, such as leadership and power, being studied at all levels and even across levels (e.g., Hitt, Beamish, Jackson, & Mathieu, 2007).

Behavioral issues are increasingly permeating family business research given the realization that the involvement of kin and non-kin in business ownership and management adds a unique dynamic that has not been addressed by mainstream organizational behavior research (Gagné et al., 2014). For example, as noted in comprehensive reviews of the succession literature in family firms (e.g., Daspit, Holt, Chrisman, & Long, 2016), leadership transfers among kin or between kin and non-kin raise significantly different issues in terms of ground rules, successor development, and management of the transition and post-transition stages. In this issue, Bertschi-Michel, Kammerlander, and Strike (2020) address how external advisors can assist in managing emotions during the succession process. While emotions play a key role in any leadership transition, given the involvement of deep-rooted and temporally expansive family relationships, the intensity of emotions is higher, and the type of intervention needed different, than transitions between non-kin as studied in the literature on upper echelons (Hambrick, Humphrey, & Gupta, 2015) and leadership (e.g., McClean, Burris, & Detert, 2013).

Another set of interesting family business research questions relate to the management and interactions between kin and non-kin employees (Verbeke & Kano, 2012), and perceptions of fairness and justice (Barnett & Kellermanns, 2006). In this issue, Ciravegna, Kano, Rattalino, and Verbeke (2020) theorize on how leaders of long-lived family firms manage these interactions. It is interesting to note that it is often not the dependent variable of interest that is markedly different but the communal context of family firms with long histories and anticipated futures that add interesting twists to research, as evident in the study of Erdogan et al. (2020) on how long-lived Turkish craft firms manage the tradition and innovation paradox. In addition to the above directions for future research, we encourage interested scholars to refer to the extensive lists of research opportunities provided in the editorials of special issues on behavioral influences in family firm research (Debicki, Kellermanns, Dawson, & Sharma, 2017; Hoon et al., 2019; Sharma et al., 2014).

Evolutionary psychology is a theoretical lens that informs different branches of psychology (Kruger, 2009). Considered a unifying theory of life sciences, evolutionary psychology is based on the theories of Darwin (1859), which explain how natural and sexual selection shape physiological structures and psychological mechanisms (Buss, 2009). A key insight of these theories is that gene preservation drives physical adaptations and behaviors. Kruger (2009) argues that evolutionary explanations enable deeper understanding of behavior. Kurzban (2009) notes that the theory of natural selection is integrated in the training of research scientists studying 1.5 million species on Earth, except for those who study human beings, thereby leaving social scientists to explain human behavior without the tools of Darwinism. The heuristic value of evolutionary psychology relates to understanding adaptations for survival and longevity, competition and conflict, preferences based on genetic distance with kin and non-kin, and desires to preserve and support kin; all of these variables are of interest to family firm researchers.

Over the years, Nicholson (2008, 2013, 2015) has argued for the inclusion of evolutionary theory in family business research, illustrating its applicability in better understanding genetic factors that drive behaviors such as altruism, nepotism, sibling relations, and family conflicts over firm assets. In this issue, Yu et al. (2020) provide a much-needed boost to this perspective with an empirical study of kin and non-kin CEO appointments and compensation under varied levels of firm performance and family control. As involvement of family in business is the core feature distinguishing family from nonfamily firms (Chua et al., 1999), integration of evolutionary psychology into family business research has the potential to enrich the development of a theory of the family firm.

Articles in This Issue: Psychological Perspectives of Family Firms

Below, we introduce the five articles in this issue, highlighting how each uses psychological perspectives to understand behaviors in family firms. Two articles use multiple case studies: the first examines eight Turkish crafting family firms (Erdogan et al., 2020), and the second examines five Swiss companies (Bertschi-Michel et al., 2020). A third article is based on a study of publicly listed Chinese small- and medium-size first-generation firms (Yu et al., 2020). The remaining two articles are conceptual in nature (Ciravegna et al., 2020; Miller et al., 2020). As usual, each article benefited from feedback during the conference and then survived a double-blind review process. Similar to the procedures followed for the 2011 conference (Chrisman, Sharma, Steier, & Chua, 2013), some participants were invited and the remainder were selected according to a preliminary review and ranking of competitive papers submitted to the Family Enterprise Research Conference in 2018.

Conclusions

In the last decade, family business research has evolved along three discernible tracks. First, there has been a move away from binomial descriptive and comparative studies that focus on differences between the “average” family firm and the “average” nonfamily firm, toward studies that focus on how and why these firms are distinctive (Payne, 2018), and the variations rather than the similarities among family firms (Chua et al., 2012). Second, there has been a recognition that financial performance is not the only motivation of family firm behavior; researchers now better understand the importance of both financial and nonfinancial goals and performance to family firms (Gómez-Mejía et al., 2011). Third, researchers have been expanding their scope of inquiry to consider business families and groups, thereby necessitating multilevel theorizing and attention toward family- and individual-level variables as causal factors to explain (and predict) firm-level behaviors. Papers in this special issue represent this third dimension as psychological influences underpinning family firm behaviors and outcomes are studied.

In this article we suggest that five areas of psychology—social, developmental, cognitive, I-O, and evolutionary psychology—appear particularly promising as sources of inspiration for family business researchers. Yet, care is needed because new ways of theorizing will be necessary to ensure that psychological theories and methods are appropriately modified and expanded to explain the behaviors and relationships among individuals, families, and family firms.

In their papers each team of authors has suggested multiple avenues for future research. We have tried to bolster and extend these possibilities throughout this article and will thus not repeat those possibilities here. However, we do want to point out that the stakeholders considered in family business research have expanded over the years to include a more diverse set of within-family and nonfamily categories. For example, Bertschi-Michel et al. (2020) focus on the role of external advisors during the succession process; Miller et al. (2020) highlight family members with a mental disorder; and Yu et al. (2020) use genetic distance to differentiate family members of different levels of genetic closeness. Likewise, the work of Erdogan et al. (2020) and Ciravegna et al. (2020) reminds us of the importance of understanding the legacies of family ancestors both in terms of traditions and in terms of the relationships and social capital they developed within and without the family firm over time (cf., Hammond, Pearson, & Holt, 2016). It is encouraging that more attention is being given to previously understudied stakeholders since their impact on family firm behaviors and performance can be profound.

There are other stakeholders, however, that have yet to be the subject of attention. An example is powerful family members, such as spouses, who are not formally involved in the ownership, management or governance of the business enterprise, and yet have a significant influence on goals pursued, resources deployed, and next-generation capability development. Efforts to understand how and why such latent stakeholders influence family business should be an interesting and worthy line of research. Furthermore, the sweeping demographic changes and societal expectations to enhance communities and the natural environment (Sharma & Sharma, 2019) are likely to alter how family firms behave and perform.

In closing, family firms present unique organizational settings that may nurture or engender certain traits and behaviors. Family firms can be incubators of leadership or nursemaids to spoiled and overly dependent "trust fund" babies. As the study of psychology suggests, the behaviors of family firms are affected by both the imprinting of the family and firm and environmental pressures for conformity and change. Given the complexity of dealing with these forces, researchers need a basis to guide and inform their work in a direction that builds an integrated body of knowledge. Put differently, although the field of family business has advanced, it has a long way to go. We need, more than ever, a theory of the family firm (Chua et al., 1999; 2003).