Social capital drives SME growth: A study of family firms in Poland

Abstract

Poland’s successful political, economic, and social transformation since the 1990s has seen the dynamic development of family enterprises. Most of them are in the small- and medium-sized enterprises sector and have become an important part of the Polish economy. What drives these family firms is not necessarily physical or even financial capital, but continuous human or social capital. We analyze how family businesses are based on the interdependence of family ownership and business with the social capital of the family. This article reflects on how the government, in encouraging small- and medium-sized enterprise development in an economy with traditionally low social capital, can benefit from the example of high social capital found in family firms. The article contains the interpretation of the results of research conducted in 2009–2010 and 2014–2016.

Keywords

family business family social capital human resources management low social capital management sciences

Introduction

Social capital is one of the most important values maintaining the cohesion of society, and without trust, it is not possible to function well in the family, in the organization, or in the State. In an organization with a large amount of social capital, it is easier to obtain mutual benefits to achieve prosperity, recover entrepreneurship, and as a result, gain a sustainable competitive advantage (Burt, 2000).

A family company is based on the interdependence of business and family ownership. A few features peculiar to a family business (FB) can be differentiated, such as the interdependence of businesses and families, the use of family resources of the business, strategies and methods of succession, familist organizational culture, and social capital, which are an emanation of the family as a social structure (Sułkowski and Marjański, 2015). Social capital is one of the main sources of the success of FBs and is based on a network of strong, intersecting, personal relations established and fixed in time (Nahapiet and Ghoshal, 1998), based on the social structure of the family. Family relationships are stronger, more durable, and more stable than those that can be found in communities, groups, or organizations of non-family character. Social capital of an FB can therefore arise only in an environment of family relations characterized by a positive network relationship between family members and between the family and the customers of the company and the local community.

Social capital should be a bond of families, businesses, and the society, it should complete the social space between people and have its source in interactions that make links and networks based on sound foundations of cooperation. Social capital, like other forms of capital, aims to increase the efficiency of functioning and development of the organization primarily by facilitating interaction between its participants (Lin, 2017).

In Poland, as shown by several studies, the level of social capital is low especially as regards the level of trust and distrust in relationships with other people (Boni, 2009; CBOS, 2012; Czapiński and Panek, 2015). In their social life, Poles are mostly distrustful and respect the principle of far-reaching caution in dealing with strangers. Poles also show a low sense of trust in public institutions, especially legislative, executive, and judiciary authorities. The result is a low culture of social capital leading to the sense of alienation of the individual in society, lack of influence on events happening in the country, lack of a sense of community, and emergence of the so-called sociological vacuum. This issue is highlighted in the report Poland 2030 (Boni, 2009) and the Social Diagnosis survey conducted periodically every 2 years since 2000 (Czapiński and Panek, 2015), and in the results of the Public Opinion Research Center (CBOS, 2012). Also, in light of the results of research carried out every 2 years in 22 European countries by the European Social Survey (ESS, 2016), Poles are definitely less trusting than other European nations. As a result, only two actors function in Poland: the nation, which is of a virtual and moral character, and the primary community, that is, the family, and there is a void between them. Low-level culture of social capital in Poland in the practice of social life is reserved to strangers, the ones we do not know and do not know what to expect from them.

Such a situation in Poland was undoubtedly influenced by a number of factors including, for example, historical and cultural factors resulting in a lack of cooperation in the creation of social capital, which leads to a lack of understanding, and eventually lack of trust (Coleman, 1990). It is a result of the lack of sovereignty in the nineteenth and twentieth centuries and the two World Wars fought in Poland, which hindered the creation of Polish identity and elites. The period of socialism and the domination of the Soviet Union in 1945–1989, when most areas of social life were subject to the total control of the state, affected severely the attitudes and values of Poles.

According to many studies, including the representative CBOS research, conducted for many years, Poles show an overwhelmingly high level of trust in their closest (97%) and extended family (89%); however, it is the immediate family that is the true source of support (CBOS, 2012). It can be assumed that the formation of social capital in Poland, in which the confidence in one’s own family is much higher than the confidence in the State, stimulates the creation and development of small- and medium-sized FBs.

Poland is a country, which in the framework of social and economic transformations initiated in 1989, has made a successful economic and political transformation, resulting in a steady growth of entrepreneurship manifested, among others, in the high business activity of Poles. The phenomenon of entrepreneurship in Polish economic processes is unprecedented. At the beginning, entrepreneurship was associated with the spontaneity and the need for self-realization. As the businesses matured, these characteristics began to be complemented by features such as innovation, strategic thinking, responsibility for employees, and corporate social responsibility (Ministry of Economy, 2015). The vast majority of enterprises are small- and medium-sized FBs, which are estimated to constitute approximately 80% of all economic entities. Also, research problems of FBs refer mainly to the small- and medium-sized enterprises (SMEs), due to their significant share in the Polish economy as well as in the population of FBs (Sułkowski et al., 2018).

In this article, we focus on the analysis of the phenomenon of social capital and present the results of research carried out on small- and medium-sized FBs in Poland during 2014–2016. We were looking for the answer to the question of why low social capital in Poland correlates positively with the development of small- and medium-sized FBs in Poland and the reason why the high level of social capital of the family is the stimulation for the development of FBs belonging to the SME sector. Having conducted research to understand the specifics of FBs for several years, we participated in the first representative study of FBs in 2009–2010, which was conducted on a sample of 1280 small- and medium-sized FBs. During the research, we observed the phenomenon of high social capital in FB SMEs in contrast to the low level of social capital in Polish society in general. Looking for an explanation, we decided to continue the research with use of qualitative methods. In the years 2014–2016, we conducted a qualitative study of 10 FBs in order to make a case study analysis and a comparison of the results of both the studies. The research questions were as follows: what is the characteristic of the social capital in Polish Family Business SME and what is the impact of social capital in Polish Family Business SME on human resources management (HRM)?

The article starts with a review of the current literature on the issue of social capital in management. Considerations of the relation of low and negative social capital to familism are presented. Then we describe the characteristic of social capital in small- and medium-sized FBs in Poland. The next section discusses the role of human resources (HR) in family enterprises. To answer the research questions mentioned in the preceding paragraph, we conducted a research study, which is presented, and whose results are discussed. The article closes with the final concluding remarks.

Literature review

Social capital in management

Social capital during the past three decades has become one of the most influential concepts serving the explanation of social behavior on different levels (Lin, 2017). The term “social capital” is far from clear, and there are many ways to understand its relations with trust, cultural capital, and relationship capital. It is worth mentioning that the phrase “social capital” has more than 2 million references, close to “human capital” (2,180,000), compared to the less popular “cultural capital” at 467,000 and “relationship capital” at only 7050 (Scholar Google, 2018). There are also authors claiming that the concept of social capital is burnt. Among the different ways of defining social capital, the most popular is the close connection with “social trust,” “cultural capital,” “human capital,” or “relationship capital.” A brief look at the different classical definitions of social capital proves how differentiated the phenomenon is. Bourdieu (1983) defines social capital as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition.” Coleman (1988: 98) defined social capital functionally as “a variety of entities with two elements in common: they all consist of some aspect of social structure, and they facilitate certain actions of actors.” Putnam (2000: 19) perceives “social capital as ‘connections’ among individuals and social networks and the norms of reciprocity and trustworthiness that arise from them.” Fukuyama sees social capital as generally understood rules than enable people to cooperate, such as the norm of reciprocity. For the needs of this article, we can use the definitions that are dominant in the literature, treating social capital as social trust, connections, and social networks that facilitate cooperation and reciprocity (Sułkowski, 2017).

Thanks to the close relation to economy, organizational sciences, and managerial practices the concept of social capital became a part of the management science discourse (Chmielecki and Sułkowski, 2018; Cohen and Prusak, 2001) and the popularity of this notion in business and management has been growing over the last 20 years (Adler and Kwon, 2002; Ferragina and Arrigoni, 2017). Social capital deals with the actual resources, which are socially significant. Social capital can be characterized by a number of features, beginning with production, where social capital is created with the use of specific material resources, financial resources, work, and time. Transformation is another element of the characteristics; from this perspective, social capital means the ability to transform certain resources (material and financial, work, and time) into benefits that cannot be obtained by different means (for instance, the use of other people’s knowledge or skills, ensuring privileged treatment, receiving emotional support or support in a difficult situation, etc.) (Woolcock and Narayan, 2000). During the investment stages, work, time and financial resources are invested in the development of a climate that favours mutual trust. The nature of social capital is heterogeneous, likewise that of material resources (diversity) (Reagans and Zuckerman, 2001). Other characteristic features of social capital are predictability and, to differing degrees, stability. Social capital needs to be taken care of – it needs to be “applied” every now and then in order to maintain productivity. The development and maintenance of social capital are preceded by the calculation of cost and benefits, that is, the ‘alternative cost’. Transferability is the final feature of social capital. It is present only partially because it is not possible to resell or hire it. It can only be transferred or inherited in a certain way (e.g. parents’ friends become the children’s friends) (Inkpen and Tsang, 2005).

In management and business, the concept of ‘social capital’ is often mentioned in relation to notions such as organizational culture (Nahapiet and Sumantra, 2000), identity (Brickson, 2007; Whetten, 2006), corporate social responsibility (Jones et al., 2001), human resources management (Botelho, 2017), marketing and e-commerce (Mutz, 2005), social networks (Chen et al., 2017) and finance (Aggarwal et al., 2015). Social capital draws attention to the role of the family in building and supplying this component to the area of the economy and society, which is equally significant (Bubolz, 2001).

Low and negative social capital in relation to familism

Social capital is predominantly viewed as a positive phenomenon. Nevertheless, the concept of negative social capital is also present in literature (Foley and Edwards, 1999; Saperstein and Campbell, 2008). The literature mentions a number of cases of limitations to social capital development (Portes and Landolt, 2000). The most significant reasons for the weakness of social capital include: generalized deficiency of social trust (Herreros and Criado, 2008), weakness of the civil society (Dąbrowski, 2014), low level of transparency and inclusiveness in the society (Sułkowski, 2017), the ‘social void’ phenomenon described by Nowak using the example of Poland (2011; Silver, 1994) and the ‘amoral familism’ syndrome described by Banfield as a result of his research works (Banfield, 1967; Reis, 1998).

The reduction of social capital is a very characteristic phenomenon for the situation of Poland. During the period of partition (lasting over 120 years from the end of the 18^th century until Poland regained independence in 1918), and then under the control of the Soviet Union after World War II, Poland was a country completely lacking civic institutions. A collective defence mechanism, which developed in the form of lack of trust towards the oppressive state and its departments, and reliance solely on family, neighbourhood, and church communities, was a part of the culture. Public and commercial institutions also occupied this ‘social void’, becoming old-boy networks in opposition to the state authorities. The strengthening of family and neighbourhood ties in combination with the weakness of the civil society has led to a reduction in social capital (Sułkowski, 2013).

Social capital perspective is one of the paradigms of studying family enterprises (Pearson et al., 2008) and although positive connotations of social trust and network creation for the development of family enterprise and society are naturally dominating (Bika and Kalantaridis, 2017; Cano-Rubio, 2016; Chavdarova, 2015; Dowla, 2006; Vought et al., 2008), there is also some literature on negative social capital, rooted in Banfield’s 1953 studies and the notion of ‘amoral familism’. Banfield underlines negative aspects of family ties being too strong in comparison with social ties, using the term ‘amoral familism’ in his analysis. Studying the functioning of traditional peasant families in Montenegrano in southern Italy, Banfield (1953, 1979) pointed to the conservative and anti-modernist influence of strong family ties which were delaying economic development.

The features of ‘amoral familism’ denote basically the maximization of material benefits of a family at the cost of non-family members. ‘Amoral familists’ cultivate high-quality social contacts and follow moral rules at a family level, but people from outside the family are often approached distrustfully and cynically. Miller (1974) describes familists as people whose activities are focused on the prosperity of their family at the expense of non-family social ties. Silverman (1970) points out that Banfield’s analysis is limited to rural communities in southern Italy, where familism manifests itself in the domination of families within the social structure, lack of complex, institutionalized social relationships between a family and a broader community, lack of community leaders, and weak social ties. Putnam et al. (1993) enriched a thesis about the existence of ‘amoral familism’ with a thesis about the reduction of social capital. He observed, on the example of south Italy, that familism makes it difficult to establish broader social ties, reinforcing clientelism and corruption in politics along with conservative tendencies. Putnam’s diagnosis was subject to criticism from other scholars. According to Piselli (Bagnasco et al., 2001), Putnam adopted an ethnocentric American perspective of civil society to assess rural communities in the south of Italy. As a result, he failed to observe that family ties did not concentrate on a nuclear family, but on an extended family and, probably most importantly, he did not account for the extensive and complex ties of loyalty including groups of neighbors and friends (e.g. between fellow soldiers). Thus, these non-family social ties were also strong, even if completely different from the ties dominating in the industrialized American society. ‘Amoral familism’ that has developed as a result of distrust in local politicians and political life should also be indicated (Koufaris et al., 2014).

Banfield’s views about ‘amoral familism’ are disputable. There is the question of whether family ties must lead to the weakening of broader social ties. A family crisis related to the growth of individualism leads to the weakening of family bonds and, further on, to disintegration of other social ties. The power of family ties in a traditional agricultural community can correlate positively with the strength of ties with neighbours (Galt, 1992). As Miller (1974) notes, Banfield could have overestimated the significance of the cultural factor leading to ‘amoral familism’, as the desire to care for the family could have just been related to difficult living conditions of the studied community. At that time, it was elementary to maintain one’s family, placing other social relations into the background. Transferring the Banfield’s ideas from small pre-industrial rural communities directly to the post-industrial mass society should be viewed with skepticism. Theses about the harmful effect of the increasing strength of family ties on social capital must be based on research only, not speculation.

We believe that correlations between family ties and other social ties are a complex issue because they are exposed to the impact of many different variables of cultural, economic, legal and institutional nature. The cultural background imposes criteria for the assessment of the value of families and other social groups, and establishes normative rules of their coexistence. Economic factors are responsible for increasing or decreasing co-operation in social groups at a non-family level. Institutional and legal variables can strengthen or weaken family ties in comparison with other social ties. Therefore the familism syndrome should be studied in each society separately, and the characteristics of the given community needs to be taken into account. A high level of familism does not necessarily have to lead to a reduction in other social ties. It is worth considering, however, whether or not the factors constituting ‘amoral familism’ do now occur in the Polish society. The main ‘amoral familism’ factors include lack of trusted local social leaders, general weakness of social ties with the exception of the family, growing distrust of politicians and political institutions, increased significance of a family at the expense of other social groups, lack of strong social and civil structures located between a family and the state levels. If it is assumed that these factors are present in Poland, do they then contribute to the development of the ‘amoral familism’ syndrome in Poland? (Sułkowski 2013) In this work, we mostly aim to explore the specificity and effects of the Polish familism, especially in relation to organizations (Rozkwitalska et al., 2017). We believe that it is justified to say that the level of social capital in Poland is a source of familism supporting the development of small FBs.

Social capital in small and medium FBs in Poland

There is a large number of research concentrated on FB social capital. In early studies, the perspective of a relatively high level of social capital in family enterprises connected to existence of two types of social links, family and organizational bonds, dominates (Arregle et al., 2007; Sorenson and Bierman, 2009). A number of research studies show that interactions between family members working within and outside the organization are an important source of the value of FBs (Sorenson and Bierman, 2009). From the perspective of family social capital, there also arose the concept of “familiness,” being the strong characteristics of family enterprises (Carnes and Ireland, 2013; Habbershon and Williams, 1999; Pearson et al., 2008; Zellweger et al., 2010). Thus, the most common assumption about social capital in FB is that it is particularly high in this type of enterprise.

Small and medium enterprises have several characteristics making them closer to family orientation (De Massis et al., 2015, 2016). Small family firms may have family centered non-economic goals and these goals could influence firm behaviors (Chrisman et al., 2012). Undoubtedly, as research indicates, the characteristics of SMEs include the lower degree of formalization of organizational structures, cultures, and strategies, as well as less bureaucratic and more personalistic organizational ties compared to large organizations (Bogáth, 2017; Nam Nguyen and Mohamed, 2011; Zaridis and Mousiolis, 2014). These are the features that combine SMEs with FBs, which should reinforce the “familiness effect” (Carlson et al., 2006; López-Gracia and Sánchez-Andújar, 2007). In most of these studies, attention is also paid to the beneficial impact of “familiness” on the functioning of small- and medium-sized FBs (Brines et al., 2013; González-Cruz and Cruz-Ros, 2016; Rutherford et al., 2006).

There is less research on the impact of the low level of social capital in society on FBs, which is paradoxical, because the classical research of E. Banfield diagnosed the “amoral familism” syndrome in the published literature from 1967. Generally, there are not too many research studies on the negative impact of family on FBs (Ada and Akcaoglu, 2018) and the social capital approach is especially limited (Carney, 2007; Dyer et al., 2014; Verbeke and Kano, 2010). Therefore, the impact of low-level social capital on small- and medium-sized family enterprises has been identified as a research gap.

An FB, as an economic entity, includes the objectives of the common action, a vision of development, the prevailing principles and organizational system, as well as the interpersonal relationships, values, culture, relationships, atmosphere, roles, and relations between family members (Waldkirch et al., 2018). Building lasting and strong relationships between members, both family and business relations, needs from them a lot of patience and commitment. An important issue is also the time, because it takes years to build the ties. It is important to establish rules for family relationships in the enterprise and for transferring business cases to the family grounds.

The essence of an FB is decided by a set of key business resources that can be defined as “familism factors,” which are the essence of this type of entities. Among them, there is also a family social capital, which determines, among others, the system of norms and values. In the case of small- and medium-sized FBs, this system is a carbon copy of the family value system in which economic values coexist with family, moral, and often religious and other values (Fukuyama, 2000). The shape of social capital in small- and medium-sized FBs is affected by specific characteristic features of FBs such as (Marjański, 2012) the interdependence of ownership family with the family controlled company (Daspit et al., 2018), the participation of the family in the ownership of the business (Aragón-Amonarriz et al., 2017), and significant participation of family members in the management of the business (Matzler et al., 2015) as well as family participation in the employment and family system of HRM (Blanco-Mazagatos et al., 2018). The family should also possess the awareness of the family nature of the business (Astrachan Binz et al., 2017) and the authority and family ownership in the business entity should be transferred within the family (Daspit et al., 2016). The business should be characterized by familist organizational culture (Laforet, 2016) and the objectives of family and business should be interconnected in the company’s strategy (Hamilton et al., 2017).

Another important determinant is the limited size of the company and its resources. The features mentioned above inform about the different character of the built social capital compared with non-family companies.

In the case of an FB, it is the family that is the source of social capital for family members. Both structural and behavioral factors contribute to equip family members in cooperation and confidence—two key factors which confirm the existence of social capital in the realized socialization process. This is indicated by Fukuyama (2000a), who stated that families are undoubtedly an important source of social capital everywhere. A significant factor is the presence of a strong relation between how the family functions and what people become from children who were raised in the family. Social life within the family moves to the domain of the FB, this is particularly evident in small entities. Positive relationships between family members, naturally expressing respect, seep into the relationships within the company.

The level of interpersonal relations in the company’s activity significantly affects the high level of trust and cooperation. High levels of social capital in FB SMEs facilitate joint action and mobilization for important business objectives. Especially in small FBs, but often in the medium ones as well, there is a reluctance to create formalized forms of cooperation coordination. Cooperation in small FBs is based on a high level of trust, and social capital is significant for the functioning and development of the entity. The result is that small FBs understand social capital as property that was built from social networks and relations and that can be used to simplify the company’s operations. However, there are FBs manifesting “amoral familism” in the presence of only internal social capital, characterized solely by strong ties within the family structure in the absence of external capital to companies operating even in the immediate environment (Adler and Kwon, 2002).

One of the main objectives of the family is to create a high level of social capital based on shared values, favoring the development of its members and the company controlled by its members through maintaining compatibility between the family system and the system of the enterprise. The social capital of the FB is a special sort of social capital and is dependent on the stability and continuity of the family as a social structure, which needs time to form fully. Small- and medium-sized FBs are a special case of FBs, because it is in small entities that the strongest bonds are formed. The relationships in FBs always have their specifics. Inside the entity, they are established both between family members and between the owners and employees, and externally between the FB and partners from closer and more distant environments. Therefore, this type of capital is often called the family capital or a family social capital. The family capital is understood as bonds between family members, which serve as cooperation and at the same time are not in conflict with public interest. These bonds are expressed in the attitudes of respect, trust, love, interest, support, and care of family members (Sztaudynger, 2009).

On the level of social capital of FBs the impact of norms and values and the priority of the community values are reflected (Coleman, 1990), and studies conducted in many countries show that this is the source of the success of FBs. Advantages of activities of the FB in socio-managerial terms exhibit high commitment of employees, motivation of employees coming from the family, a high level of confidence, the possibility to develop paternalistic patterns of leadership, and a sense of stability for employees. Also, in the macroeconomic dimension, there occurs a promotion of SMEs due to their large share in the creation of economic indicators (Sułkowski and Marjański, 2015).

In the literature, one of the success factors of small FBs—alongside others such as human capital, long-term financial capital, viability, structure, and cost of ownership supervision—is social capital. Features such as awareness of the family nature, the desire to transfer the family ownership, the relationship between the family of the company and so on, realize a different nature built of the social capital in family companies compared with non-FBs. The nature of social capital in FBs plays a dual role in the development of FBs in the market: it is both a factor in determining its success and a specific intangible resource distinguishing FBs from other companies operating on the market (Sorenson et al., 2009).

Social capital in FBs includes several specific features. It is limited only to family members, which means that it cannot be purchased at the time of acquisition of the company by the new owner, and its transferability takes place only through the transition from generation to generation. Social capital is immediately available due to the strong social structure existing in families, it is also historically shaped by its generations. It is based on stronger and more durable human relationships than is the case of other relationships in the context of social capital, which makes it durable due to the long-term family relationships and the constant being together of family members both at work and during leisure. Social capital depreciates less because of the long-term and multigenerational family relations and is predictable due to the fact that members of the family know each other and are able to predict the behavior toward each other (Hoffman et al., 2006).

A special characteristic of small- and medium-sized FBs is the so-called nature of social capital of the family as well as the mechanism of its creation, because FBs, thanks to the strong, deep, and frequent personal interactions between family members, are able to generate a specific form of social capital (intangible asset), which is the source of their competitive advantage over non-family companies.

Specific components of the social capital of FBs are emotional trust and a strong moral and ethical infrastructure. These elements are a result of the distinctive ability to develop emotional and moral intelligence in the family and in business, which next to the rational and technical intelligence are the determinants of success of the modern enterprise, regardless of its nature. Moral and emotional intelligence are those types of competencies that are difficult to imitate by competitors (Salvato and Melin, 2008).

Family social capital is based on internal and external information channels and a system of norms and values. Internal communication channels include a network of personal relationships between members of the family network developed by family members with each other during the professional activities and beyond them. External communication channels include social networks connecting family and FB with the environment and include cooperation with other entities and relationships with the local social environment. The frequency of use of these channels and their patency has a significant impact on the effectiveness of capital construction of the family (Hoffman et al., 2006).

Trust is the basis for the creation of a system of values and norms of the FB. The value system should be treated as ordered by the hierarchy of importance accepted by the group—a set of values that facilitate daily functioning and decision-making in business management and functioning in the family. It can be interpreted as a standard procedure, which has been implemented on family members (Więcek-Janka et al., 2016). In contrast, family standards are creating a system of social control in the company. Their range is limited to family members and refers to the ethical and moral norms that determine the attitudes and behavior of its members toward each other, toward the FB, and to the environment (Hoffman et al., 2006). Empirical studies indicate that the presence of ethical and moral norms accepted by family members in the FB and the resulting dialogue have a positive impact on the level of social capital, and is positively correlated with the financial results achieved by the company (Sorenson et al., 2009).

HR in small family enterprises

The literature on HR in small family enterprises is limited. The characteristics of HRM in small- and medium-sized FBs that we could find in the literature indicate the complexity of this issue and the role of a high level of social capital being the foundation of family values that unite the enterprise. FBs face additional conditions in the field of HRM. In an FB, there are many overlapping dimensions and layers of complexity resulting from the integration of family, business, and ownership systems (King et al., 2001). Little is known about the practices of HRM in small- and medium-sized family enterprises. HR in small family enterprises proves to be informal and family oriented. There are a few studies that indicate that family enterprises use HRM in a different manner of management methods from their non-family counterparts, and ownership directly affects the practices of HRM in small- and medium-sized family enterprises. Reid and Adams (2001) indicate that small FBs are less likely to professionalize HRM methods, including the use of references, appraisal systems, training assessment, and peer appraisal process, or merit-based pay. Research evidence suggests that far from being homogeneous, small firms vary widely in the professional HRM practice in use (De Kok and Uhlaner, 2001). Employing family members can also be a source of nepotism. Of particular importance is why some FBs benefit from nepotism, while others do not (Jaskiewicz et al., 2013).

Research confirms that family relationships encourage practices in HRM that reflect the duality of a family enterprise. On the one hand, business issues such as people’s knowledge and experience, tangible results, and operational efficiency are important. On the other hand, there are family issues in which the duration of employment, personal needs, and employee relationships are valued as well as a relationship of trust with the enterprise (Basco and Pérez Rodríguez, 2009; Carlson et al., 2006).

In a study which focused on two theories, agency theory and the resource-based view, attempt was made to investigate and explain the differences in the practices of HRM between family and non-family companies. It was found that in family enterprises, familism has a direct and indirect influence on HRM. FBs are usually smaller and less complex than their non-family counterparts. It is manifested, for example, to a lesser degree of using professional HRM practices and is based on family ties and high social capital (De Kok et al., 2006). This observation is also confirmed in other studies, which indicate that the smaller the size of the company, the lower the inclination to formalize management methods. Informal HRM in small businesses not only enables them to manage resource constraints, but also provides the necessary flexibility to respond to the ever-changing business environment. On the other hand, as the companies grow, they are able to adopt more formal and sophisticated HRM practices that will enable them to obtain legitimacy and social acceptance as well as effective coordination and control over the growing workforce and complexity (Kim and Gao, 2010; Reid et al., 2002).

An important aspect is also the role of HR in the development strategy based on innovation. Where there are high HR capabilities developed, among others, through recruitment and training, there is a positive relationship with the implementation of the development strategy (Barbero et al., 2011). Issues related to the reasons why family members decide to remain in the FB and predictors of the involvement of family members of later generations in family enterprises (Dawson et al., 2015) are also addressed. There are also studies that focus on the issues of introducing a non-family external manager to the FB and his or her impact on the professionalization of management. They indicate that it does not always lead to professionalization of HRM. Effective involvement of the family is important and can lead to professionalization of HR control systems, decentralization of power, top-level activity and involvement of employees from outside the family in the management system, and creation of organizational identity (Dekker et al., 2015; Zellweger et al., 2010).

The issue of succession is an important area of HRM in family enterprises, which allows to gain better insight into long-lived FBs and to understand this complex and difficult process of how successors use family resources and social capital in business succession (Boyd et al., 2015; Cater et al., 2016; Dalpiaz et al., 2014).

In small- and medium-sized FBs, HRM is one of the key areas. There is a need to ensure equal treatment to family and non-family employees (Tabor et al., 2018). Undoubtedly, the dynamics of the family affect the functioning of the FB environment and social capital influences the HRM through the creation of cultures based on trust and cooperation. Issues related to family relationships and care for the good reputation of the family are also significant.

Methodology of research

Family entrepreneurship is a contact area between family relationships and objectives and the characteristic features of the company. Obtaining a deeper knowledge in the area of the relationship between family bonds and values and the functioning of the company is always difficult. In many cases, people managing an FB consciously or unconsciously limit the role of family factors, referring only to the economic aspects of the business. Therefore, standardized interviews or questionnaires are not able to provide a reliable picture of informal family relationships which have a crucial impact on the functioning of the FB. Therefore, while searching for answers to the influence of family ties on the operation of the FB, it is extremely important to use both quantitative and qualitative methods. In some cases, only through the use of qualitative methods are we able to get the interesting information, because they allow to obtain the justification to the question asked and knowledge of opinions and exploration themes that are unconscious or deeply emotional.

The research program “Family Businesses and the Polish Economy—Opportunities and Challenges” was implemented in the years 2009–2010 for the Polish Agency for Enterprise Development. The authors of this article participated in that research and used the qualitative stage as the pattern for research described in this article from 2014 to 2016. The study sample consisted of 1280 small- and medium-sized FBs. Due to the complexity and interdisciplinary character of the research issues and due to the fact that in Poland the problem of FBs had not been a subject of representative research, we concluded that it was necessary to take both quantitative and qualitative methods into account. The need for a quantitative study stemmed from the need to estimate the population of small- and medium-sized family enterprises in Poland. Information allowing to carry out comparative analysis and identify differences between FBs and non-FBs was also important. The data were weighted so that the structure of the sample reflected the Polish SME sector. Individual interview questionnaire was employed as a research technique. However, in order to understand the specifics of the management of FBs, individual in-depth interviews with entrepreneurs, key employees in 30 companies, were conducted and completed with 16 individual interviews with experts. In the research, we identify the problem of relatively high level of trust in FB SMEs in Poland in contrast to the low level of social capital in Polish society.

Continuing the study, we decided to use qualitative methods to find the answer to two research questions:

Q1. What is the characteristic of social capital in the Polish Family Business SME?

Q2. What is the impact of social capital in the Polish Family Business SME on HRM?

Taking into account the unstructured type of the problem, we decided to base the research on qualitative methods. The methodology of the research is based on case studies comparing 10 FB SMEs in Poland. The sample was targeted and selected from the companies cooperating with the association of FBs in Poland. The key method was in-depth interviews, in which the problem was to induce the respondent to reflect and establish communication with the researcher. The achievement of this goal enabled to understand important and complex issues involving the subject of this article, that is, the issues of social capital. The long duration of the study and its relatively small sample of 10 companies allowed to use methods of participant observation. The structure of sample, methods of research applied, and date of research with the acronym of responsible researcher are given in Table 1.

Table 1.

Sample and research methods used.

Code	Employment	Sector	Methods	TimeResearcher
FB 1	10	Wood production	Interviews (2) Participant observation	2014. 6, A.M. 2014. 5–6, A.M.
FB 2	5	Masonry	Interviews (2) Participant observation	2014. 7, J.M.-P. 2014. 7–8, J.M.-P.
FB 3	34	Butcher’s shop	Interviews (5) Participant observation	2014. 10, K.S. 2014. 10–11, K.S.
FB 4	6	Car repair shop	Interviews (3) Participant observation	2015. J.M.-P. 2015. J.M.-P.
FB 5	72	Medical Center	Interviews (5) Participant observation	2015. 3, A.M. 2015. 3–4, A.M.
FB 6	56	Weapon production	Interviews (4) Participant observation	2015. 5, K.S. 2015. 5–6, K.S.
FB 7	48	Production of commercial tents	Interviews (4) Participant observation	2015. 9, K.S. 2015. 9–10, K.S.
FB 8	12	Accounting office	Interviews (3) Participant observation	2016. 4, J.M.-P. 2016. 4–5, J.M.-P.
FB 9	85	Producer of office and advertising items	Interviews (5) Participant observation	2016. 6, A.M. 2016. 6–7, A.M.
FB 10	12	Digital techniques studio	Interviews (3) Participant observation	2016. 7, K.S. 2016. 7–8, K.S.

FB: family business.

The studies indicate that in small- and medium-sized FBs, there are a number of limitations related to examined entities based on primary sources. The result is that, for example, it is difficult to establish contact with the studied entity and encourage them to participate in the study; a large amount of information is regarded by respondents as an element of competitive advantage or know-how, and is reluctantly disclosed; the quality of the research material is diverse due to the different levels of involvement of the subject.

In a study of small- and medium-sized FBs, we had to take into consideration the specific problems arising from the limited size of companies and generally low degree of formalization, and account for the fact that the issue of social capital is a sensitive area of research as it covers the relationship between the company and the family. In addition, we had to take into account the special emotional relationship between the ownership family and the controlled company. However, we were aware that only by applying the in-depth methods we had a chance to reach key processes for the businesses surveyed, including the social capital. In the research process, at the stage of conceptualization, we did not propose our hypotheses, but had open general research questions, which were aggravated in the cognitive process. Another assumption was methodological triangulation associated with the use of several data-mining techniques complementing each other. The third assumption was reflectiveness, that is, subjecting the primary results to critical analysis and reflection by both researchers and subjects. The methodology of the research allowed to create the space to establish a good relationship between the researchers and the studied. The meetings were characterized by full authenticity and openness of communication, which required a low degree of formalization of interviews.

It seems that in studies of FBs, methodological pluralism is recommended as it gives the possibility of combining quantitative and qualitative methods. However, for the understanding of social management processes in small- and medium-sized FBs, qualitative methods allowing in-depth, specific understanding of the complexity of the studied phenomena such as in-depth interviews, participant observation in the organizational ethnography, and case studies are more appropriate. In-depth interview, which can take many forms, plays a key role in the conducted research. Another useful research method is participant observation, which allows researchers to participate in the work of the FB. On the other hand, the integration of multiple data from primary and secondary sources allows the creation of case studies of the examined small- and medium-sized FBs.

Results and discussion

High levels of social capital in the surveyed companies have a significant impact on the development and expansion of the surveyed companies. This is ensured by a dialogue between employees and good customer relations, openness of the owners to new contacts, and the ability to seek solutions to problematic situations without sacrificing earlier goals. The effectiveness of the surveyed companies was significantly influenced by their approach to employees, manifested, among other factors, in equal treatment of employees from outside the family and of those belonging to the family:

Thanks to family social capital, we have confidence in each other. The fact that the company is run by family means that key information does not flow outside. The most important positions are occupied by family members, which allows better exchange of information with employees.

In many cases, a good performance of the task always took precedence—regardless of who performs them. An important feature is the fact that entrepreneurs demand both from themselves and from their employees that they are also able to admit mistakes. Another issue is teamwork, allowing for constructive and common solving of emerging problems.

Research in the literature on this subject confirms the important role of the family in creating basic ethical values and norms affecting the functioning of a family enterprise and its long-term success (Duh et al., 2010; Sundaramurthy, 2008). Bubolz (2001: 130), also suggesting that “the family is a source, builder and user of social capital.” Researchers show the uniqueness of FB results, among others, from the existence of mechanisms combining two forms of social capital: that of the family and of the company, which ensures dialogue in the family, between employees and external stakeholders (Arregle et al., 2007). Social capital is specific to each family and depends on its size, number of generations, history, culture, and a number of other conditions (Mustakallio et al., 2002).

All studied entrepreneurs and members of their families involved in running the company were aware of the family nature of the business, and pointed to the influence of values and norms shared in the family on the functioning of the company. They commonly pointed to the importance of joint action, the importance of a common vision for the development of businesses, and the family and long-lasting relationships between family members. Hiring family members is considered to be natural. On the one hand, they stated that they formed their own company to be able to work together with members of the immediate family. On the other hand, it was pointed out that the employees of the family, by blood ties and working for the benefit of the family, are also obliged to work more efficiently, and they are also more willing to make sacrifices for the company than workers from outside the family. “I know that I have to take care of the development of our family business. It is a big responsibility for the fate of people who work with us, but also for our whole family.” It was also pointed out that in the case of businesses which exist in the form of legal activity of a natural person, it has a formal dimension for the administrative and tax purposes; what is more, it is the least complicated form of doing business in Poland. In many cases, it was pointed out that it is the common property of members of the immediate family.

Both studies confirm that the system of norms and values developed over the years and the system of communication have led to the emergence of a kind of language code, and continuous being together translates into speed and ease of decision-making:

In the family business, we do not have to create unnecessary procedures, we trust each other. Thanks to it, we save time, distribute tasks among each other and act. We are also aware that the company is associated with our name, and 45 years of tradition oblige to take care of our reputation.

Close family relationships also allow family members to express their opinions, especially those which are less positive, more easily.

As regards values and norms of a family enterprise, the view prevails that these processes are usually of an evolutionary and incremental nature (Basly, 2007). Research studies carried out by other researchers also confirm that the transfer of family norms and values to the company’s ground serves better business performance and maintains family cohesion (Basco and Pérez Rodríguez, 2009). Dyer (2006) points out that the family brings a set of attributes to the company that affects its business. These include, for example, HR, social capital, and the family brand as well as psychological and financial capital.

Also important is the transfer of domestic familial atmosphere to the ground of the company. Among the surveyed companies, there were those that had been created as a reaction to previous bad professional experiences in non-family firms. One’s own FB was an idea to create a friendly workplace, where one wants to come.

Interviews with workers not belonging to the family also showed a more personalized relationship than in a non-family company. Quite often, business owners knew the private lives of their employees and maintained contact with them outside of work.

The owner’s direct contact with an employee was of great importance for both parties and allowed optimum use of the competence of the worker. Good atmosphere and communication were also affected by the fact that people who are working in the company share the same values because they either come from the same family or have been accepted to work because they were “fitting”:

From the perspective of an employee, I see that the behavior of the boss and his family members influences my attachment to the company and respect for the work I do. I think that one of his children will take care of this company in the future, and it convinces me that they will continue to care for this company and for us as employees.

External communication channels for small- and medium-sized family enterprises in Poland have a high frequency of use, flexibility, and permeability. This allows the company to adapt to the needs of its customers.

A number of studies related to HRM in FBs, where professional HRM practices are less frequently applied and more personalized relations with employees are more often used, also emphasize these issues. This is one of the fundamental differences between family and non-family enterprises. The research results also indicate the need for FBs to implement good management practices that will allow the creation of open business and family relationships supporting their long-term operation (Astrachan and Kolenko, 1994; De Kok et al., 2006). The level of family involvement in the development of HRM and its possible professionalization is of much significance (Dekker et al., 2015; Miller et al., 2015).

The system of norms and values also facilitates the functioning of the surveyed companies in crisis situations. In the case of a crisis, in order to survive the recession, the ownership family could take actions to reduce costs to an absolute minimum and to limit or even stop remuneration payments to working family members for a certain period. One of the businessmen mentioned that when the family owned company that was in business for over 40 years and was run by the second generation was in crisis, he closed his life insurance policy to ensure its functioning.

Social capital of the surveyed small- and medium-sized family enterprises is also characterized by a high level of responsibility for the family, employees, and the local community. When making any type of decision, managers are aware of the responsibility not only for themselves but also for the workers and indirectly their families, and the local community, which they often support.

Unfortunately, the problem in some FBs was insufficient knowledge about the opportunities and risks of the family nature of the business. Faster and more sustainable growth of FBs would be possible through the implementation of effective measures to understand the importance of social capital in the process of FB management.

The studies have confirmed the thesis, present in the literature, that a high level of social capital based on interpersonal relationships of family members manifests with a high level of trust and cooperation, while a low degree of formalization translates into more efficient and more effective communication and personalization of the organizational ties (paternalism, family atmosphere). Low level of formalization also results from the limited size of a small or medium enterprise. During the interview in one of the small enterprises, it was pointed out that

in our company good relations and trust are the most important. We are a small company and there is no need to formalize our functioning. That would bother us, after all everyone knows what to do. Less formalization and less extensive management structure allow us to communicate effectively in the company. Trust, common pursuit of goals and greater commitment of family members are the main sources on which we build the competitive advantage.

The study results confirm that the smaller the entities, the smaller the formalization. Only in medium-sized enterprises, there begins to appear a detailed definition of the hierarchy of assigning responsibilities, job descriptions, patterns of action, or communication structure. This is often due to the need to introduce in the company standards that are required by large business partners.

Family social capital is also reflected in key decisions taken by the members of the family, where it is easier to communicate with each other. Business matters are often discussed at family meetings offsite. “Everything is here in one group and they (the family) will always get along. If they do not come to an agreement here, they will go somewhere for a family dinner and then it is rather agreed.” The owners of FBs consider the lack of formalization as the advantage of their businesses, because it allows to make decisions faster.

The family nature of the business is also related to long-term business objectives and ensuring stable long-term growth and greater adaptability of the entity to changing environmental conditions. Confidence, common pursuit of one goal, and greater involvement in the development of the family company were indicated as key sources of high family capital. Blood ties, sharing common values, shared responsibility for name, and brand of the companies lead to the fact that the founders of companies are confident that they can count on the staff of the family.

The obtained data indicate a high confidence upon the family. On the other hand, it confirms the thesis about the crisis of social capital among the Poles—it clearly indicates a deficit of public trust in relation to the representatives of other social groups. The information obtained during the surveys shows that the level of trust in the FB is directly proportional to the degree of intimacy of family. The owners declare their complete confidence in the people from the immediate circle of the family. They often undermine the saying, “it is a photo where you look best with your family.” Employees from the families are considered by the managers to be totally loyal and committed. They are entrusted with key positions of responsibility in the company with the conviction that they will take care of the family brand better. It should be recognized that the trust that family members show to each other forms the basis for the functioning of the FB and is often the main binder of social capital. For this reason, the family is often described as the “clan”—with all the positive and negative consequences: a very high level of confidence in each other, the lack of trust in people from outside the clan.

Shared values are conducive to the development of family members and the business they run, but the employees from the family are also obliged to work more efficiently and make more sacrifices for the company. The company owner knows all the strengths and weaknesses of the employee from the family and is able to manage him better and assign him such tasks that will take full advantage of his potential, as well as not to require from him activities that the person is not good at or ones they do not like doing. Employees from the families manifest greater will to work beyond the standard working hours and, if necessary, will take the responsibility of working on all positions, even the lowest, production ones. Full commitment to work in the company is also due to financial responsibility that the family members bear and concern for the common material being of the family. Increased motivation to work and responsibility of family members is noticed both by the owners and managers, but also by workers from outside the family.

The analysis of the results of a positive impact of low social capital upon the development of small- and medium-sized FBs in Poland allows to draw several conclusions. The deficit of social capital in relationships and confidence in state authorities encourages economic activity based on the original community, that is, the family. In the case of small- and medium-sized FBs, the family is a source of social capital, which takes the specific form of social capital of the family. Small- and medium-sized FBs relying on the interdependence of business and family ownership utilize a high level of trust to family members, and through strong and frequent personal interactions they generate a particular form of social capital, which can be a source of competitive advantage. Especially in small FBs, there exists a reluctance to formalize cooperation and coordination in the entity. The level of social capital of surveyed FBs reflects the impact of co-professed standards and values. The high level of social capital of the family has a significant impact on the development of small- and medium-sized FBs. The nature of social capital of small- and medium-sized family enterprises in Poland is motivating to achieve common family success while reducing showing family emotions in the company. Integration, a common system of values, trust, and knowledge sharing are the result of high levels of social capital in the surveyed companies.

HRM in small- and medium-sized FBs in Poland is characterized by features that combine the field of “familiness” with the specificity of SMEs. The high level of social capital in an FB has a direct impact on HRM practices. In the studied enterprises, social capital allowed HRM based on trust and cooperation. The will to ensure equal treatment of employees, regardless of whether they are family members or not, was of particular importance. Organizational structure that is formalized to a small degree is characterized by high flexibility in the scope of duties, job descriptions, and even in power relations. The dominant case in the surveyed companies was the radial structure, focused around the owner—the manager of the entity. The organizational structure is closely connected with the organizational culture, which is based on trust that is not accompanied by formalization. For example, the manager in one of the companies pointed out that “managing such a company allows for a greater sense of intuition, greater contact with employees, not through some directors or managers. Holding strategic functions in the company by family members allows for better exchange of information with employees.” Among the employees, among others, opinions that “due to the fact that it is a family company, it really can be felt that even an employee who does not belong to the family is treated as if he was another family member” were observed. The loyalty to the company, which is identified with loyalty to the company’s owners, is of great value to all subjects. One of the important areas of HRM is the issue of conducting the succession process and preservation of the family nature of business in the next generation.

Summing up, it can be interpreted that it is the relationship between personalistic culture and the orientation on relations between employees that is a kind of extension of the family relationship in small- and medium-sized FBs in Poland. This explains the high level of social capital in these types of entities. “Familism” is also a kind of organizational culture based on informal interaction, building relationships and bonds through cooperation and communication. In the conditions of low social capital in Poland, a high level of family social capital in the company enables the creation of management practices of the most valuable resource of a family enterprise, that is, the people who work to ensure the development of the enterprise and conduct the process of succession. It also allows integration of family values and business values as well as full use of HR in the process of development of small and medium family enterprises.

Conclusion

The free market economy is functioning on the social ground, where social indicators, such as the level of social capital, influence the economy of each country. The family is a social group in which the values and norms are internalized. Today, the Polish economy is largely based on the basic forms of relationships, despite the ongoing professionalization of relations and specialization. In Poland, where 30 years ago the basics of the market economic system developed, there developed also family entrepreneurship, and running a family company is a common form of doing business. Among the family enterprises, the entities included in the SME sector dominate.

In the research of FBs, the study of social capital seems to be a necessity in view of identifying determinants of competitiveness due to the dynamic changes taking place in the modern economy. Polish small- and medium-sized FBs, given their specificity resulting from their family nature and the limited size and resources, also have to adapt to more and more new market conditions as well as to the impact of a number of factors and risks of a political, systemic, economic, demographic, and social character. In Polish reality, with the deficit of social capital in the whole of social relations, a high level of family capital is a factor influencing the creation and development of small- and medium-sized FBs. Social capital becomes one of the key determinants of economic efficiency.

In Poland, the social capital of the family is a stable basis for the development of SMEs and can be understood as the potential of interaction embedded in the relationships between family members, which thanks to the synergy effect can be of benefit for the family and its members entering the interaction. Good social capital of the family running a business is an inspiration to entrepreneurial activities, which turn out to be one of the key driving forces of the FB.

Answering the research questions raised, it can be concluded that the high level of social capital in Polish small- and medium-sized FBs is associated with the foundation of family values that unite the enterprise. The characteristics of social capital in Polish small- and medium-sized FBs are based on the creation of strong ties, personalistic organizational cultures, and radial organizational structures characterized by a very small degree of formalization. The social capital of Polish small- and medium-sized FBs affects HRM by creating cultures based on trust and cooperation, in which the formalized controlling methods are difficult to adapt.

Footnotes

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Andrzej Marjański

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