A Socioemotional Wealth Approach to CEO Career Horizons in Family Firms

Abstract

This paper challenges the predominant view that as CEOs near retirement, they forgo risky long-term strategic choices and instead focus on decisions that enhance their own short-term self-interests. Drawing on the socioemotional wealth (SEW) literature, we argue that unlike near-retirement CEOs in widely held firms, near-retirement CEOs in family firms are more concerned about transgenerational control and the legacy that they pass on to future generations. We further contend that the priority of SEW dimensions can change within family firms depending on the CEO's time to retirement. Consequently, nearretirement CEOs in family firms differ from their counterparts in non-family firms in that they are willing to continue to engage in international acquisitions as they approach retirement, despite the potential short-term risks. We further hypothesize that this effect depends on whether the CEO is a family member, whether the CEO is succeeded by another family member, and whether the CEO is the founder. In analysing 3432 family and nonfamily firm-year observations from the S&P 500 for the period between 1997 and 2009, we find support for our hypotheses. Subsequent analyses indicate that near retirement, family CEOs acquire larger and culturally closer targets than their non-family counterparts. Our paper confirms the need to more fully consider the characteristics of owners and managers in analyses of the CEO career horizon problem.

A socioemotional wealth perspective on innovativeness and performance of family businesses.

“…Some of them relied on majority ownership (50% or more) as a threshold to determine a family business, arguing that the majority of ownership is indicative of majority in decision-making rights as well (Classen et al, 2014;Vandekerkhof et al, 2015). Others, however, have used a much lower ownership threshold, such as 25% (Kraiczy, Hack and Kellermanns, 2014;Leitterstorf and Rau, 2014), 20% (Bartholomeusz and Tanewski, 2006), 15% (Denison, Lief and Ward, 2004) or even as low as 5% (Strike et al, 2015).…”

“…In particular, Strike et al (2015) make the point that CEOs' age is negatively correlated with SEW and that the more CEOs approach retirement, the more they care about financial benefits as opposed to non-financial ones such as SEW. In other words, CEOs' age reveals the time until retirement, and as a result, the older CEOs are expected to have a higher interest for personal financial compensation than the younger ones.…”

“…As part 1 of Table 2 above shows, most scholars have relied on proxies instead, recognizing openly the need for direct measurement of the construct (Strike et al, 2015;Vandekerkhof et al, 2015).…”

“…First, it directly measures a family firm's SEW, avoiding the application of previously used unidimensional ownership proxies which have been widely criticized as oversimplifying and inadequate Nordqvist et al, 2015). The present study uses a three-dimensional measure of SEW which has already been developed and validated (Debicki, 2012;Debicki et al, 2016) and responds to the need for direct measurement of the construct (Strike, Berrone, Sapp, and Congiu, 2015;Vandekerkhof et al, 2015). Second, the study incorporates SEW as an antecedent of a family firm's innovativeness.…”

“…Researchers have responded to these calls and used SEW to try and explain family firm phenomena including proactive stakeholder commitment (Cennamo, Berrone, Cruz, and Gomez-Mejia, 2012), risk-taking behavior (Gomez-Mejia et al, 2007;Strike, Berrone, Sapp, and Congiu, 2015), IPO underpricing (Leitterstorf and Rua, 2014), and the likelihood of placing a non-family manager in the firm (Vandekerkhof et al, 2015).…”