Does Family Matter in Business?

Overview

In the current competitive landscape, it is essential for firms to effectively manage their relationships with nonmarket stakeholders such as politicians and communities. Firms pursue various nonmarket strategies, undertaking activities that shape the political and social aspects of the nonmarket environment in order to contribute to competitive advantage.

However, the majority of research has explored how institutional, industry and firm-level factors drive nonmarket strategy, focusing on economic or financial motives such as improved performance, access to critical resources and increased shareholder's value as the ultimate goals of nonmarket strategy. This focus offers less depth about the nuances in nonmarket antecedents across firm types, and until now little has been offered in relation to family firms - the most common organizational form around the world

New research considering the ubiquity of family ownership and its significant role in the business as well as the importance of nonmarket strategies for the competitive advantage of any organization, offers new insight into an important yet overlooked topic—the role of family motives in nonmarket strategy. Researchers examined the impact of family ownership on the likelihood of firms adopting the International Organization for Standardizations' ISO 14001 criteria – a recognised and respected framework used by organisations to measure their environmental impact.

According to Professor Tazeeb Rajwani, co-author of the study, the desire to preserve socioemotional wealth and the firm's own survival through generations drives family-owned firms to pursue legitimacy by conforming to institutional expectations, such as the ISO 14001 criteria.

Drawing on institutional perspective, the research suggests the desire to preserve socioemotional wealth and survival through generations drives family-owned firms to pursue family legitimacy through conforming to institutional expectations. Using data from 161 Chinese firms, it shows that family ownership exerts a positive impact on ISO 14001, and that this effect is stronger when firms are located close to large cities. Similarly, a more pronounced impact of family ownership on ISO 14001 occurs when family name is part of the firm's name. Given the prevalence of family firms and the underdevelopment of formal institutional channels in emerging markets, family ownership, location, and firm name can provide valuable cues regarding sustainability and could be added to other evaluation criteria or proxies for sustainability rankings or for making sustainable financing and purchase decisions

The research also has practical implications for investors, demonstrating the rising importance of nonmarket strategies and nonfinancial goals. This insight is crucial for investors in family-owned and family-managed firms. These investors, whose interest is profit maximization, must be aware of the influence of non-financial objectives on strategic decisions in family firms. Family members with controlling stakes in the firm may push strategic decisions that resonate with their socioemotional aspirations but are not directly associated with profitability.

To access the full paper, read “Does family matter? Ownership, motives and firms’ environmental strategy’, https://doi.org/10.1016/j.lrp.2022.102216

 

Team

Principal investigator

Tazeeb Rajwani profile image

Professor Tazeeb Rajwani

Professor of International Business and Strategy