Goal Tolerance, outside Investors, and Family Firm Governance

Abstract

Le Breton-Miller and Miller argue that as the family becomes more embedded in the firm, the firm's decision makers become more susceptible to influence by the family, and agency problems rise for outside investors. We contend that the family's embeddedness in the business does not, in itself, explain whether the assumptions of agency theory are warranted. Our commentary offers an alternative way in which outside investors might look at family firms' goals. Outsiders should assess the complementarity of the family firm's objectives with their own if they are to make rewarding investments in family firms.

Goal Setting in Family Firms: Goal Diversity, Social Interactions, and Collective Commitment to Family–Centered Goals

“…Overall, these initial observations on organizational member individual goals call into question the implicit assumptions in family business research that controlling families share common aspirations and values, and that family involvement can thus be considered a homogeneous dimension that consistently predicts the extent to which the dominant coalition in the firm is likely to pursue family-centered goals (e.g., Chrisman et al, 2005). A more nuanced portrait of family member goals emerged from our empirical evidence suggesting that family members embrace a much wider spectrum of individual goals than previously assumed, which provides some support to the contention that goal alignment among family members is not a realistic expectation (Villanueva & Sapienza, 2009). Based on this initial body of empirical evidence, we argue that the interactions between the family, ownership and business systems generate goal diversity within a family firm, and that such goal diversity increases as the number and membership assortment of organizational members involved in the upper echelons of a family firm increases.…”

Familiness and market orientation: A stakeholder approach

“…For example, new dimensions could be added to the results derived from market orientation that include other stakeholders such as the family itself and society in general. In turn, this could lead to the consideration of different dimensions of organizational performance as suggested by the literature on goals of family firms (Astrachan, 2010;Astrachan & Jaskiewicz, 2008;Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010;Villanueva & Sapienza, 2009). In this sense, it has been argued that family firms' owners may pursue both financial and nonfinancial goals (e.g., creating opportunities for future family generations, maintaining the reputation of the family, maintaining a business legacy with an emotional value, and societal benefit).…”

Embeddedness Perspectives of Economic Action within Family Firms

“…Their most important contributions are with respect to what and how the link between the embeddedness of the firm and the family is moderated. Villanueva and Sapienza's (2009) commentary extends Le Breton-Miller and Miller's perspective by suggesting that a family embeddedness perspective only partially explains whether the assumptions of agency and stewardship theory are valid in a family business setting. They remind us that the goals of different families and different types of nonfamily owners can vary substantially, a notion that is similar to the variants of agency contracts within family-backed investments discussed by Steier (2003).…”

“…Taken together, the work of Le Breton- Miller and Miller (2009) and Villanueva and Sapienza (2009) make several important contributions to knowledge and provide a number of directions for future research. First, they are among the first to suggest that similar to agency theory, stewardship theory can be used to explain relationships among different owners, as well as the relationship between owners and managers.…”