Family business: institutional framework and entrepreneurial power

Int. J. Globalisation and Small Business, Vol. 3, No. 4, 2009 463

Copyright © 2009 Inderscience Enterprises Ltd.

Family business: institutional framework and entrepreneurial power

Piero Mastroberardino*, Claudio Nigro, Giuseppe Calabrese, Flora Cortese and Gemma Carolillo Faculty of Economics, Dipartimento di Scienze Economico-Aziendali, Giuridiche, Merceologiche e Geografiche, Foggia University, Via Caggese, n.1 – 71100 Foggia, Italy Fax: 0039 0881781715 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] *Corresponding author

Abstract: This paper refers to family business as a useful theme in order to explore some critical issues related to the firm seen as an organisational entity. It starts with a review of some consolidated defining approaches to family business, placing them within the widest currents of business management and social sciences branches, and then it adds some reflections in the light of the ‘political’ and new-institutionalist models. In the end, we here propose a research plan on family business that could be tested in the future in order to verify some research hypotheses based on the combination of the most significant political and new institutionalist assumptions.

Keywords: family business; power; new institutionalism; theories of the firm; entrepreneurialism.

Reference to this paper should be made as follows: Mastroberardino, P., Nigro, C., Calabrese, G., Cortese, F. and Carolillo, G. (2009) ‘Family business: institutional framework and entrepreneurial power’, Int. J. Globalisation and Small Business, Vol. 3, No. 4, pp.463–484.

Biographical notes: Piero Mastroberardino is a Full Professor of Business Management at Faculty of Economics in Foggia University. His main research interests are in business management, corporate and business strategy, organisation theory, institutional structures and processes, power dynamics and lobbying processes.

Claudio Nigro is an Associate Professor of Business Management at Faculty of Economics in Foggia University. His main research interests are in business management, business communication, organisation theory, institutional structures and processes, information systems and trade management.

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Giuseppe Calabrese is a Researcher in Business Management at Faculty of Economics in Foggia University. His main research interests are in business management, corporate finance, innovation management, organisation theory, power dynamics and trade management.

Flora Cortese received her PhD in Business Management Sciences at the Dipartimento di Scienze Economico-Aziendali, Giuridiche, Merceologiche e Geografiche, in Foggia University. Her main research interests are in business management, business communication, organisational studies, information systems and trade management.

Gemma Carolillo is a PhD student in Business Management Sciences at the Dipartimento di Scienze Economico-Aziendali,Giuridiche, Merceologiche e Geografiche, in Foggia University. Her main research interests are in business management, business communication, organisational studies, information systems and trade management.

1 Introduction

Family business is object of great attention of operators and business scholars because of the wideness of this phenomenon within the entrepreneurial paramount and the frequent crises and instabilities that empirical analysis have shown in the organisational and strategic structures, in relation to the power exercise and to the relationships with internal and external stakeholders (Corbetta, 1995a; Gallo, 1995; Klein, 2000; Bird et al., 2002; Heck and Stafford, 2001; Astrachan and Shanker, 2003; Morck and Yeung, 2003; Montanari, 2003; Chua et al., 2004; Sharma, 2004; Zahra and Sharma, 2004).

The effects of ‘family’ character over firm governance have been analysed in terms of institutional overlap: having regard to the specific characteristics of the institutions involved – family and business – and their own ethical frameworks, it is argued that the difficulties in combining them determine crises and instabilities (Lansberg, 1983; Schillaci, 1990; Mastroberardino, 1996; Sharma et al., 1997; Dyer and Sanchez, 1998).

The influence of family rules over the business decision-making would generate phenomena such as ‘familism’, acting on the rationality standards considered as typical of business conducts.

This view of the firm – as an entity following a model of economic rationality strongly pursuing efficiency – has been reviewed by the literature, extending the traditional entrepreneurial ethical framework, in order to include in it new themes and values, belonging to the social and political debate (employment, resources reallocation, solidarity, health and environment defence, etc.), in a perspective that widens the set of approvals pursued by the government body to create a favourable environment for its strategic plans (Sciarelli, 1993; Caselli, 1993; Rispoli, 1993).

Thus, having overcome the strict distinction among the various social organisations, the main aims of this contribution are:

1 To explore the possibility of reviewing the traditional approach to family business, which considers the family character as the key factor defining a certain class of firms, introducing rules and values stated as functional imperatives.

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2 To propose a perspective that tends to place family business within a conceptual frame deriving by the combination of the assumptions of the ‘politic’ and ‘new-institutionalist’ approaches to the study of the organisations. In particular, under the first perspective, family business is analysed through the variety of political games and schemes of behaviour people follow in the relationships they are involved in, in order to justify individual and organisational actions. This view integrates itself with the new institutionalist approaches, that have addressed the processes of construction, breach and reconstruction of the set of rules external to the organisation, as result of aggregations of individual tensions – directed to the statement and legitimation of their own view on the world – that over the time crystallise in routines or rules, constituting institutions that, on the other hand, transform themselves in several option of behaving to which subjects tend to conform. In this conceptual framework, social order does not derive automatically from accepted evaluation and social roles models, but it is a practical activity, constructed by the every-day interactions (Powell and DiMaggio, 1991; Sparti, 2002)

3 To examine research methodologies which are coherent with the epistemological framework where our research hypotheses are rooted.

In order to do so, this work first reviews some consolidated defining approaches to family business, seeking to collocate them in the broader currents of business management and social sciences branches, and then it proposes some research hypothesis based on the ‘political’ and new-institutionalist models. Bearing in mind the necessary coherence between the epistemological frame chosen and the research methodology adopted to verify hypothesis and assumptions, we propose a research plan on family business that could be tested in the future in order to verify our research hypotheses.

2 Defining framework of family business

The theories of the firm, following the two main functionalist and intentionalist currents (Mastroberardino, 2006), have proposed some solutions to the critics made to the neoclassical school; for example the entrepreneurialism as distinctive factor (Knight, 1921), the wide debate on the bounded rationality and the behavioural school (Simon, 1967; Cyert and March, 1963), the distinction of the interests among different subjective categories, in particular with the theories on ownership and management and their evolutions (Berle and Means, 1932; Penrose, 1959; Marris, 1964; Baumol, 1968), and the focus on inter-subjective rationality forms (political systems: Crozier and Friedberg, 1978; agency theory: Jensen and Meckling, 1976).

The reaction to atomistic views led to a set of studies oriented to a collective perspective; to organisations seen as structures or systems (Tagliagambe and Usai, 1994; Cafferata, 1995; Golinelli, 2000, 2005), that constrain the individuals’ behaviour reducing it to a mere functional adaptation to other components and the whole system; to the transactional models (Coase, 1937; Williamson, 1985); to deterministic views of organisations as dependent on external conditions (classic institutionalism: Selznick, 1957; contingency theories: Lawrence and Lorsch, 1967; population ecology: Hannan and Freeman, 1977; resource dependence: Pfeffer and Salancik, 1978); to inter-systemic rationality forms, that underline the existence of interacting sub-systems (stakeholders theory: Freeman, 1984).

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Table 1 The theories of the firm and the models of rationality

Individuals Structures

Strong (pure) forms

Subjective rationality (theory of the rational

choice, bounded optimisation)

Systemic rationality (inertial growth, theories of the systems)

Weak forms Bounded rationality (behavioural school, satisfactory models,,

expectations)

Adaptation to the environment (contingency theories, population ecology, resources dependence)

Inter-subjective rationality (agency theory, political

systems)

Inter-systemic rationality (institutionalism transactions theory,

stakeholders theory)

It is here worth to say that the various study paths try to mix in different ways the elements individual-structure, in order to produce conceptualisation less exposed to critics (Mastroberardino, 2006), this way often risking the exceeding of the limits of the orthodox incommensurability between the epistemological options (Maggi, 1990).

The brief excursus enables us to review some definitions of family business, in order to find some useful element that would permit to place it within the broader frame of the theories of the firm. Relevant contributions derive from the classic institutionalist, transactional, systemic approaches.

2.1 Family business within classic institutionalist approaches

Some of these contributions, having a functionalist matrix, focus on the institutional structures and the themes related to the organisations government, emphasising the distinction between the ownership and management roles, and assuming the system persistence depends on the existence of institutional sub-systems directed by functional imperatives (Davis, 1983; Gersick et al., 1997; Olson et al., 2003).

The prevalent literature, indeed, finds the fundamental distinctive characteristic of family business in the relationship existing between family and business institutes, expressed through the exercise of the ownership right and/or other forms of influence on the government and the management:

“family businesses are those whose policy and direction are subject to significant influence by one or more family units. This influence is exercised through ownership and sometimes through the participation of family members in management. It is the interaction of between two sets of organisation, family and business, that establishes the basic character of the family business and defines its uniqueness”. (Davis, 1983)

The institutional-normative current proposes an integrative key of reading, that, in order to explain the system persistence, refers to the peculiarities of the institutions normative structures as optimal solutions to the social needs; they are interiorised norms: “the actor is internally motivated to do what he has to do” (Parsons, 1937; Zucker, 1991), and it is thank to these functional imperatives that, through the institutional integration, the social order is generated and maintained.

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In relation to family business, Lansberg develops the themes of the institutional overlap between family and business, the difference of values, principles, finalities inspiring the two institutions, the difficulties in combining the rules, that is the ethical framework characterising their existence and functioning (Lansberg, 1983; Sharma, 2004; Poza, 2007; Sharma and Nordqvist, 2008). This overlap is evaluated as the main source of crisis.

According to Pencarelli (1992), this “integration between ownership and directional/entrepreneurial activities”, is characterised by the families influencing “strongly the firm strategic decisions, being, in turn, deeply affected in the family incomes creation by the dividends paid by the firm and directly involved in the management activities execution”: the cause of the systemic rationality weakening is here found in the overlap of two different ethical frameworks. Emblematically, in a holistic light, Schillaci (1990) expresses the need or the hope to “abandon a dualistic and conflictual approach, on whose basis one system takes advantage of the other one, in order to achieve a broader and systemic approach that includes and integrates both the social institutions”. The different currents have then interpreted this peculiarity of family businesses sometimes as an obstacle to the management (Miller and Rice, 1967), sometimes as a synergic factor of development (Habbershon et al., 2003; Moores, 2009), in any case according to an optimistic functionalist perspective, where the institution is to provide the optimal solution to the social needs of the system that includes it.

These approaches share a common view of the actor as adapting to the institutional prescriptions, his behaviour being strongly constrained by the social structure.

Taking these considerations as starting point, there is place for a different source of epistemological hybridisation that pays attention again to the different interests between ownership and management of the firm. Here it seems useful to refer to the explicative schemes proposed by the managerial capitalism theories, at first, and from the agency theory (Jensen and Meckling, 1976), then. On this basis it lays another operative approach of Anglo-Saxon school that defines family-controlled business; the one where the family is capable to control the succession to the chief executive officer (Raymond, 1994; McConaughy, 2000; Carney, 2005).

Similar arguments can be found in the Demattè’s work, according to which family business is distinguished by

“the fact that a family or a group of families, bound by family or close familiarity ties, bring to the firm, in addition to the equity capital, also other factors of production (such as loan capital, guarantees, entrepreneurialism, direction functions), so that they realize a close junction between the family institution and the firm institution”. (Demattè, 1994; cfr. Demattè and Corbetta, 1993; Sharma et al., 1997)

The concept of ‘factors of production’ has been further specified by the family business literature, that has pointed out a number of resources that would belong especially to family businesses (Distelberg and Sorenson, 2009), such as tacit embedded knowledge (Cabrera-Suárez et al., 2001), networks and social capital (Hoffman et al., 2006; Steier, 2001), passion (Andersson et al., 2002), innovative spirit (Litz and Kleysen, 2001), and integrity and commitment to the business (Chrisman et al., 1998; Ibrahim et al., 2004; Sharma and Rao, 2000; Sonfield and Lussier, 2005).

From this perspective two other significant views derive: on one hand, the systemic matrix is strengthened, underlying the firm dependence on the resources brought by the

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family (Pfeffer and Salancik, 1978); on the other, the importance of the owner family contribution to the firm with the fundamental element of entrepreneurialism is stressed.

Thus, a definition of family business in a broad sense emerges, that includes two categories: family-controlled business, when the risk capital is held by a family, or whenever the family is capable to determine the strategic direction, and family business in the strict sense, characterised by the presence of the members of the owner family (or the family that has the control) in the management activities (Mastroberardino, 1996).

2.2 Family business within transactional current

The transactional current (having an economic-institutionalist matrix) analyses family business through the categories of economic efficiency and transaction costs, describing different forms of regulation of the exchanges (Coase, 1937; Williamson, 1985). The institutions arise and persist as long as they are advantageous from an economic perspective, that is, they produce benefits superior to the costs needed to preserve them.

In addition to the traditional form ‘hierarchy’ and ‘market’, the clan is identified, as a structure that enables stable relationships, based on reciprocity, solidarity values, and ideological affinities. “Some family cultures generate the congruence of goals and shared assumptions and values that create the efficiency of organizational clans in a highly insecure environment” [Royer et al., (2008), p.16]. This way family business would appear as the result of economic and extra-economic values (Schillaci, 1990; Bjuggren and Sund, 2002; Schulze et al., 2003). The failure of the clan model is caused by the loss of efficiency, the overload of information, the entering of third parties, and the collapse of trust among its members (Mastroberardino, 1996).

2.3 Family business within systemic approaches

Among the contributions of the systemic approach we here especially refer to those referring to the population ecology theory (Hannan and Freeman, 1977), according to which family businesses are a class with existing conditions and expressions different from other classes of firms that, over the time, change their intensity without modifying their species (cfr. Corbetta, 1995b).

In addition, within the ‘class’ of family business, relevant scholars (Chrisman et al., 2007) felt the need for deeper classification between categories of family enterprises. Therefore, the categories to be identified should help to distinguish family businesses from one another and from non-family businesses, and they should permit to comprehend the nature of governance in family businesses (Basco and Perez Rodriguez, 2009).

In the effort of construct such a categorisation among family businesses, one may refer to classic typology of governance mechanisms that considers in some cases the family, in some others the firm, as prevailing system (Ward, 1987). However, most recent systems approaches focus on a collaborative relationship between the two systems that would enhance the possibility to satisfy the needs of the entire enterprise (Sorenson, 1999). This way, the choice of a collaborative approach would permit to integrate optimally the two systems (Basco and Perez Rodriguez, 2009). Poza (2007) argues about this point that “implicit in systems theory is the capacity to jointly optimise interrelated subsystems in such a way that the larger system can be most effective and successful in the pursuit of its goals” (p.11).

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The influences having a contingency matrix are also significant, tending to define the phenomena object of study with characteristic recurring structures, expressing different answers to the superior necessity of adaptation to the environment, on which family business survival depends (Craig et al., 2006). Thus, some ideal-typical evolutive stages are identified, where family entrepreneurialism combines with managerial activity, ownership structures totally family-controlled with openings to external investors, traditional legal forms of government with corporate architectures (Corbetta, 1995b; Mastroberardino, 1996).

Under the systemic approach, attempts also have been made to measure the influence of the family system over the business system, assuming the impact of the family on strategy, performance, and operations varying on a continuous scale (Astrachan et al., 2002; Klein et al., 2005). This model labelled F-PEC, identifies three main sources of influence: power, that measures the degree of family members’ involvement in ownership and management; experience, meant as the influence of successive generational transfers over the firm learning; culture, that measures the overlap among family and business values and family’s commitment to the firm.

Another contribution to the systemic perspective is the viable systemic approach (VSA; Golinelli, 2000, 2005) that describes family business as the effect of the interaction between the viable systems ‘firm’ and ‘family’. Here, the relations between the two systems are not read according to a stable or predetermined supremacy of one on the other, while they’re evaluated, under the relevance model, at any moment, according to the criticalness for each system of the resources held and brought from the other system and the influence that each of them has on the other (Barile et al., 2006; Mastroberardino, 2002).

3 A possible different reading of family business

The critics on the conceptualisations having a functionalist matrix lead to widen the theoretical frame of the research on family business in order to formulate research hypotheses that are not lying on deterministic assumptions.

In particular, granting that when an individual (the founder) begins an entrepreneurial activity, over the time he tends to project it in a family dimension as an employment opportunity for family members; we here propose the following research hypotheses:

Hypothesis 1 Family character cannot be seen as the key factor defining a certain class of firms, since it acts: 1a sometimes as a strategic option within the inter-subjective game 1b sometimes as rational institutional myth, to whose imperatives one

has to conform (isomorphism).

Hypothesis 2 Family business has no longer to be interpreted according to a model that considers a supremacy of family and business institutions over their individual members, while it has to be seen, like any organisation, as the result of the continuous comparison of two antagonist although co-existing forces or tendencies, both resulting from interactions among individuals: 2a ‘action’ (individual choices inter-subjectively taken)

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2b ‘institutionalisation’ (conventions and institutional powers).

These hypotheses lie on two conceptual paths whose shared epistemological matrix roots in the social phenomenology (Berger and Luckmann, 1969) and ethnomethodology (Garfinkel, 1967, 2002), currents of study that investigate the processes of cultural production underlying the inter-subjective experience. The institutional world is seen like a constructed reality, humanly produced, effect of an objectification process (Schutz, 1974), due to which this reality constrains the actors that contributed to construct it; however, they can act on it, restructuring it and generating new balances, stable for a certain period.

The sub a) of both the research hypotheses are related to the ‘political’ matrix, which qualifies the observable behaviours in any context of organised action (Friedberg, 1994) as the combination of results of cooperative and non-cooperative parallel games (Scharpf, 1993), based on power and cooperation, among strategic actors and/or coalitions they created (Pfeffer, 1981; Morgan, 2002), this way structuring concrete systems of action (Crozier and Friedberg, 1978) where it is possible to observe, for a certain period, a certain local order.

The sub b) of the research hypotheses derives from the assumptions of the new institutionalist approach (Meyer and Rowan, 1991; Powell and DiMaggio, 1991; Scott, 1991; Zucker, 1991), which focuses on the process of construction and deconstruction of an institutional frame that is temporary binding. Under this perspective, the actors (individual and organisations) tend to conform themselves to institutional prescriptions and postulates (‘rational myths’), even when they tend to generate value losses, in order to achieve legitimation from the institutions (Meyer and Rowan, 1991; Powell and DiMaggio, 1991).

However, at the same time, the actors participate to the ‘institutional work’ (Lawrence and Suddaby, 2006), the process of institutions’ construction, acting on the current institutional frame and reshaping it (Powell and DiMaggio, 1991; Zucker, 1991).

The integration of the two perspectives, enables to argue that any organisations is the product of two forces (Barley and Tolbert, 1997; Mastroberardino, 2006), ‘actions’ and ‘institutionalisation’, continuously facing the one with the another. From one side the actors are involved in processes of negotiation, conflict, cooperation and, in the attempt to pursue their interests, may try to destroy/preserve the temporary binding institutional order; from the other side, the institutions, although created by the actors, tie them through their rules.

In the following paragraphs the political and new-institutionalist approaches will be firstly described separately, applying them to the family business phenomenon, and then they will be combined in a unitary model.

4 Family business in the ‘political’ perspective

This perspective allows to overcome the criticism toward the collectivist approaches, about the reification of collective concepts, such as family or business, that leads to consider them as systems predetermined to the actors, that are just components of them and emerge in those analysis’ just because they are parts of broader structures, functional to them, in order to pay attention to a micro-social analysis, focused on individual actions and their aggregation effects.

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Thus, the vision of family as key defining element for a certain class of firms is rejected, in order to address the strategies pursued, within the systems of action, by the individuals, that may adopt the family ‘lever’ as one of the available options in the inter-subjective game, whenever this lever is considered by the subject useful to pursue his own power aims.

The political model is based on the theme of power. The variety of definitions proposed by the literature can be reduced to two interpretative matrixes.

The first one is qualifiable as ‘interest, conflict, power’ and it proposes a meaning of power as element capable to resolve the unavoidable conflicts deriving, within an organisation or in the broader social context, from the coexistence of diverging interests (Dahl, 1957; Pfeffer, 1981; Bachrach and Baratz, 1986; Collins, 1974). It is also expressed by the ability of creating, within a relationship, a dependence relation, due to a form of legitimacy (charismatic, traditional, legal), following the Weber’s view (Weber, 1961), or deriving by the fact some actors detain resources that are important to other individuals, groups, and organisations (Pfeffer and Salancik, 1978).

A different interpretation of the theme of power, which can be qualified as ‘freedom of action and control of uncertainty’, is based on the irreducibility of the individual power, being strictly related to the maintenance of a certain degree of freedom of action and control of uncertainty margins on the possibility that others come to know his own intentions and behaviours. The system deriving by the interaction among the actors is defined as a concrete field of action, result of a set of games, combination of conflicts and negotiations, values and rules that are, at the same time, result and tool of the game, and it is constructed and reconstructed by the actors while following their contingent strategic path (Crozier, 1963; Crozier and Friedberg, 1978; Friedberg, 1994).

According to us, the political lens enables the scholars to make some headways in comparison with the traditional currents of study.

Firstly, in comparison with the transactional approach (Barney and Ouchi, 1984), the attention is moved from the theme of the efficiency in the transaction to the actors’ interest and social interaction dynamics, where the social order is not the automatic result of commonly agreed evaluation and social role models, while it is constructed, since it is a practical activity, in the everyday interaction (Powell and DiMaggio, 1991). This way it is also possible to overcome some criticisms, having a deterministic matrix, related to the contingency approaches, to which some contributions are exposed when they assume the existence of ideal typical structures under certain context conditions.

The choice of models focused on the individual actor aims at avoiding some criticisms directed to the contributions having functionalist nature, that have involved the currents of study deriving from the classic institutionalist thought (Selznick, 1957). Within this context the organisational dynamic is the effect of influences and pressures exercised by family institution over the firm, through the power deriving from the ownership, the control on the government and managerial roles, and directed to align the behaviours with its own expectations.

If the qualification of family and business as institutions, on one hand, permits to catch the differences of their values sets, achieving the definition of distinctive ethical framework for each of them, on the other hand it takes the risk of reifying both of them. Firstly, the political perspective refers to non-interiorised rules, while it focuses on flexible rules, directed to justify the action, according to an ex-post inferred rationality.

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This view depicts also family, as well as business, as a concrete system of action, like an assembly of single actors aggregated rather than a social sub-system that binds their actions, thus recovering the strategies and actions of other actors, internal or external to the organisation, capable to favour or avoid alliances that often reveal to be fundamental within the internal family dynamics.

It is then possible to take a distance from the approaches we earlier defined ‘interest, conflict, power’, labelled ‘Machiavellism’ (Friedberg, 1994), whereas an individualist matrix prevails, giving the leader of the game a strong power, correlated to the asymmetric control of one or more strategic resources (risk capital, guarantees, entrepreneurialism, managerial competences, relational centrality, and so on).

At the same time, the political perspective does not come to the ingenuous or hypocrite denial of the existence of individual interests, potentially conflictual, nor it statues the power disappearance. This point draws a demarcation line from those contributions that base the qualification of family internal relationships on factors such as fairness and solidarity, implying by that a natural participation of all family members to the entrepreneurial effort and the unitary commitment to the collective welfare. In this conceptual frame the meaning of trust, rather than being related to the solidarity, typical for family institution, is ascribable to the broader concept of inter-subjective reliability, to the behaviour expectations founded on the reading that any actor has about the other’s intentions and strategies, instead of being based on defence mechanism having contractual nature.

The analysis of the relationships among family members, firm and stakeholders underlines the different strategies enabling the actor, who is the leader at the time, to acquire and exercise the power in order to orient family business’ conducts. However, the chosen point of view, according to the meaning of concrete system of action, does not exclude at the same time the existence of a partially structured and binding context where the actors play their negotiation games; vice versa it comes to the conclusion that the ties that anyway family organisation statues for the business members influence – although they do not necessarily determine – the direction and content of their strategies.

Seen through these lenses, power does not appear anymore as a finality in itself, either as a secret and obscure aspect of the social action, far away from the serenity that would characterise any family. On the contrary, the actors use the power they have, as an effect of the autonomy margins and the freedom of action they hold, whenever they interact with other actors, belonging to business and family, both concrete systems whose construction the actors contributed and, at the same time, contribute to preserve, although they can’t avoid acting to transform them.

The decisions about the separation of the ownership and management roles, the decisional centralisation or decentralisation, the capital opening to third parties, can be read as the result of the comparison among different government models, tending to the conflict or the cooperation among actors and/or groups. At the same time, it is clear that family values, generally related to the respect of traditions and the preservation of the helm for its members from generation to generation, do not constitute the unique inspiration element of family entrepreneur’s actions. He, as well as the other actors, will be in fact willing to favour the entry of third parties, to develop new alliances (with managers, consultants, financing bodies, employees, and so on), coming to set aside family element, whenever it is coherent with his own strategic design.

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5 Family business in the new-institutionalist view

The considerations we have so far stressed show the importance that here is attributed to the individual, his finalities, motivations, intentions, behaviours, in the analysis of the phenomena of the firm, with no regard to the fact the firm may belong to family business ‘category’. This specification is even more significant if one thinks of the shared belief on the firm as an emerging institution, independent of the aims of the individuals that make a part of it. In this perspective, the individual conducts are interpreted as a possible cause of inefficiency of the business, or as an effect of an ineffective process of interiorisation of a certain group or firm’s rules and values.

On the contrary, within the firms a synthesis of two complementary macro-processes takes place. On one hand, the actors, while trying to translate their aims in their actions, adopt mechanism of comparison, negotiation and, whereas it is necessary, conflict, directed to increase their influence and power, by obtaining wider margins of action in the broad context of exchanges and behaviours they belong to. On the other hand, the actors themselves statue rules and routines that give sense to their actions and the interactions with other actors.

The first aspect, the comparison and negotiation one, has been addressed above. What we want to stress now is that the individual tension to the definition of rules and to the control on them represents the beginning of the institutionalisation process (Berger and Luckmann, 1969), which is the basis of the sub b) of both the research hypotheses. This process can be described as the attempt to assume a subsystem of conducts – part of a wider set of behaviours, verbal communications, circumstances, everyday acts – as a set of rules stating the fundamental parameters, by whose observance the community that established them interpret, measure and evaluate its members’ behaviours and where, at the same time, its members find the sense of their belonging to that specific community. In brief, the institutionalisation process aims at constructing social orders that are stable for a certain period, and based on the observance of specific rules.

Firstly, it appears a process in continuous becoming, subjected to continuous revisions deriving from the comparison among different groups of individuals, whose interests contrast with the interests of the guarantors of a specific constituted order. Secondly, the ties and the rules deriving from this process do not make sense in themselves, since the very behaviours indicated as example of following a rule show the meaning of that rule for the actors respecting it (Giglioli and Dal Lago, 1983).

Thus, in order to achieve an effective implementation of this process, it wouldn’t be sufficient, as basic principle, a single individual’s acting, and the hypothesis according to which the generated result may be unalterable wouldn’t seem probable. It is possible to argue, instead, that the individual acting, subjected to continuous learning processes, over the time tends to crystallise itself in routines or rules, where the institutions represents both the guarantors of their application and the effect of their application. And, at the same time, it is impossible to comprehend the institutions independently by the actors that experience them, since it is here assumed that the process generating an institution, that is the individual acting, and the binding processes promoted by the institutions are closely interconnected. So much interconnected that the individuals tend to perceive and, then, to describe the reality they experience as exterior, objective and sometimes unalterable, and in this way they tend to transfer it to other individuals, synchronically and diachronically. This current of thought, in the organisational studies, is known as new-institutionalism.

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The majority of the authors expressing these positions postulate that the social structures are articulated on three foundations: individuals, organisations, institutions (Friedland and Alford, 1991). As for the present argumentation, the concept of institution can be defined as any form of belief, action and conduct that is stably shared, stated and practised and that regulates the actions of its members, whose acting depends on these values reproduction and statement (Jepperson, 1991; Spencer, 1891; Durkheim, 1893; Summer, 1983; MacIver, 1931; Hauriou, 1967; Parsons, 1937; Marx, 1970).

However, a set of rules does not necessarily become an institution; it is needed that the knowledge of those rules is shared by the members of a certain group, in addition to the fact that they are binding to them (Knight, 1992). Having regard to our object of study, those rules are produced by categories of actors such as family, business, financing bodies, market, and so on.

In this analytical frame, the contributions of the new-institutionalist current produce their greatest effects; we here refer especially to the work of Lynne Zucker (1991), who, although adopting the concepts of institutional isomorphism formulated by Powell and DiMaggio (1991), focuses on the theme of the tension between the subjective and objective approaches, finding a solution with the contribution of the ethnomethodology (Garfinkel, 1967) and the social phenomenology (Berger and Luckmann, 1969), and giving priority to the actors’ point of view in the study of the organisations, in order to comprehend how, in reality, the institutions tie their conducts.

The subjectively perceived degree of institutionalisation plays an important role in the transmission of a cultural content from some actors to others, from generation to generation. The strength or the weakness of a certain institutional frame is correlated to the effectiveness of the transfer of its rules among different actors, since anybody interprets the role of those rules by referring to a system of beliefs that is influenced by the intensity of the pressure of the institutional context from which they derive.

Family institutions weakening would then imply a reduction of the perception of its rules validity on the actors that are influenced by it and the possibility to take the distance from these rules to renegotiate and redefine them when they are received and transmitted to others. On the contrary, if the actor perceives that institutional framework is solid, he expects that the others also perceive the same thing and his conducts tend to align themselves with that frame.

In this work we especially share the research program of the second phase of the new-institutionalist thought, where the influence of the ‘micro’ component of the ethnomethodological and phenomenological matrixes is stronger (Zucker, 1991).

6 Combining the political and new-institutionalist views

The political perspective (supra, par. 4) considers family factor as a tool useful for the maintenance/achievement of leading positions, or a symbol of the group to be deprived of authority, in order to conquer wider margins of power (Hypothesis 1a).

The basic assumption is that the individuals participating to a firm’s life are acting out of the aim to acquire margin of action within the strategic decisional context. If we think of family buy-out processes, the relation between traditional and alternative forms of funding, like the private equity, or the several cases of alliances between family members and third parties, it is plausible to express doubts about those theses arguing that family business is based on a principle of family values predominance on other values. It is

Family business: institutional framework and entrepreneurial power 475

rather possible to argue that those institutionalisation and ties creation processes involve several actors, any of them aiming to construct, with cooperative or conflictual actions, concrete spaces of action characterised by an equilibrium that is stable for a certain period. Family businesses, thus, present themselves as relational frames where interactions among different individuals are produced and reproduced.

The integration of the political and new-institutionalist perspectives permits to widen the point of view from the organisation to the organisational field that is the set of organisations representing a shared area of institutional life (Powell and DiMaggio, 1991). By combining the two perspectives, it is then possible to depict two macro-processes in the organisations (Barley and Tolbert, 1997; Mastroberardino, 2006):

1 Action: the individuals are involved in a continuous comparison that is expression sometimes of conflictual interactions, sometimes of collusive relationships among groups; through their actions, they tend to construct a reality that is satisfactory to their expectations, outside the existing ties, or they try to redefine the frame of the existing ties (Hypothesis 2a).

2 Institutionalisation: moving the focus on the material and symbolic influences that are exercised by the institutional frames, the individuals define rules and routines in order to make their actions comprehensible. The individual behaviours are read as a sequence of roles of a script, to which the actors align their conducts in order to obtain legitimation (Hypothesis 2b).

Figure 1 Family business in the political and new-institutionalist perspectives

As we stressed above, ‘action’ and ‘institutionalisation’ operate like two antagonist although co-existing forces or tendencies in the organisations world, in a continuous comparison, representing a conjunction between the politic and micro-institutionalist matrixes. The first prevails when the institutionalised values transmission is weaker, less effective, thus when it leaves margins for strategies of power directed to redefine the

476 P. Mastroberardino et al.

rules of the institutional game. Thus, it is the trade-off between action and institutionalisation to design the organisational world (Figure 1).

Both inside and outside the organisations, there is a combination of political games based on interest and power with isomorphic conducts, in order to achieve agreement and legitimation, from less influential organisations toward more influential organisations (institutions). Both at intra-organisational and inter-organisational levels, the strategies having a political stamp are used as tools in order to formulate and reformulate systems of rules directing the action that is the basis for institutionalisations. Indeed, it is true that the actor constructs his reality, but he does it starting from a set of options of possible worlds, defined by an institutional frame (Scott, 1991).

The action is a reproduction form weaker than the institutionalisation: the relationships tend to lose their ‘political’ characteristics when they are institutionalised, because they become natural, like a stable characteristic of a binding environment (Jepperson, 1991). Therefore, when the subject perceives a weakening of the institutional framework, it may raise the ambition to act in order to change that normative frame, constructing alternative social structures through the political way. As for family business, it takes just to deny to follow family institution’s criteria and rules to do an action; on the contrary, whoever aligns his behaviour to them does not commit an action, since his conduct belongs to predefined schemes. The source of change, when it comes from the inside of the organisational field, origins from those units that are less subjected to the isomorphic pressures (Powell, 1991).

In comparison with the ‘optimistic functionalism’ above cited (par. 2), according to which the institutions are optimal answers to social needs, the new-institutionalist perspective argues that institutions can survive also when they are sub-optimal to the community, thank to some elements: the exercise of power (the coalitions that gain benefits from the dominant conventions will tend to support and disseminate them, in order to consolidate their own leading positions); the complex interdependences (elements that are inefficient singularly considered are maintained because they are capable, combined with others, to produce satisfactory results or limit negative effects); the taken for granted principles (consolidated schemes that are transmitted by force of habit); the path dependent processes (the present conditions are the effect of the past history) (Powell, 1991).

Indeed, some family structures that are not very efficient are often maintained because the environment evaluates them positively (in terms of reliability, credibility, continuity); this can determine a front-stage showing a family matrix and a back-stage internally characterised by the typical conflicts of the political game among the individuals. The family factor legitimates a system of rules able to guarantee a certain social order within the organisations (ways of: power transmission, family members elections, work division, training, wage attribution, etc.). It operates as rational institutional myth, that is a positive value according to the public opinion, and this way it is embedded, with its principles and rules, within the firm’s histories, being taken for granted since it is legitimated, with no regard to the evaluation of its impact on the organisational performances (Meyer and Rowan, 1991) (Hypothesis 1b).

As the organisations gain approvals by using the family lever, they tend to confirm and increase its positive nature under the value profile, thus they tend to put themselves in an always more obliged cage of cultural perceptions. At this point, some strategies based on the ‘family message’ do not produce competitive differentiation anymore, but isomorphism.

Family business: institutional framework and entrepreneurial power 477

One of the most critical themes for all the family business literature is related to the processes of succession to power in family businesses. Here, the most acknowledged thesis argues that the institutional overlap among family values-aims and third parties values-aims can lead to either family character elimination or the firms’ dying out. Family businesses would then present themselves as unstable structures, inadequate to deal with very long periods of time, and the empirical observation has supported this thesis, by stating the hypothesis – which has been so successful to become a slogan – that family businesses would not survive to the third generation.

Nevertheless, thank to the new-institutionalist assumptions and the phenomenological frame we earlier described, this hypothesis-slogan can have a different explanation. The most significant logical steps can be synthesised as follows:

1 the greater the institutionalisation level, the more effective the family values model between subjects operating within the firm; that is a successful intra-generational or inter-generational transition

2 the weaker the family institutional frame, because of internal conflicts, external pressures, etc., the quicker its disaggregation process, because of an ineffective transfer of values among the family members

3 the first transfers of family business values are an effect of stronger and more effective socialisation processes: the probability that those values may be confuted is low

4 the successive transfers may result less effective and the related values weaker, giving room to the actors (those less subjected to isomorphic pressures) for actions that are not aligned to those schemes and the exploration of different solutions.

The path we here summarised expresses isomorphic conducts that are hardly justified within the ecologic school’s perspective, which assumes non-voluntary results of an impersonal selection: we are rather dealing with aware imitative and intentional processes. It also overcomes the functionalist view that reads the cultural values as subjectively interiorised, in favour of an actor characterised by a weakened rationality and who acts following taken for granted conventions (Powell and DiMaggio, 1991). Also the view of the institutional environment as an independent variable is substituted by the view according to which it is constructed step by step, as a combined effect of different forces (Jepperson and Meyer, 1991; Friedland and Alford, 1991). Furthermore, the different relational strategies adopted by actors, within a range from external appearance respect and political debate, show many similarities with Goffmann’s front-stage and backstage model (1959), which inspired also Zucker’s new-institutionalist contributions. Family clan crisis, explained by the transactional model referring to the over information, the entering of third parties, the trust collapse (Mastroberardino, 1996), is here interpreted as the overcoming of the institutional values transmitted to the actors. The phases of breaching and reconstruction of alliances, different structures from the clan model, are not explained by the problem of efficiency of transactions regulation forms, typical of the Williamson’s model, while they are explained by the debate on different views of the organisation, or visions of the world, therefore as product of heterogeneous institutional frames, result of the weakening of the values transmitted during the institutionalisation processes.

478 P. Mastroberardino et al.

Having argued this, family element, seen as a strategic lever for the actor under the political perspective, here refers to the inter-subjective transmission of rules and values, affecting the processes of succession to the government in the organisation. Moreover, this last reflection draws a demarcation line from the traditional contributions that recommend the entrepreneur to plan the succession in advance. There is, in fact, a different characterisation of both the intra-generational coexistence theme and the inter-generational coexistence theme: the former sees some actors tending to create within the organisation common spaces where family members, belonging to different families, can experience a values sharing; the latter refers to overlaps of power transmissions among members of different generations, where it is not identifiable precisely the starting and the ending moment of the succession to the power.

7 Toward a research plan for verifying our hypotheses on family business

The theoretical model we have so far described, derived from the joint assumptions of the political and new-institutionalist conceptual frameworks, is intended as a possible different key of reading of the complex phenomenon of family business. We believe that the research hypotheses (see par. 3), that at the beginning inspired the analysis of family business through the lens provided by those organisational studies, in the end have proved to be significant and able to justify, from a theoretical point of view, the construction of an analytical frame different from those so far proposed by the literature on the theme.

However, in order to reach an empirical validation, we are working to a research plan directed to provide evidence of the basic assumptions on the rejection of the prejudice of family businesses diversity from other businesses and the co-existence within those firms, like any firm, of the two macro-processes we earlier labelled ‘action’ and ‘institutionalisation’.

Moreover, we would detail these general propositions with regard to their particular manifestations, related to phenomena to be investigated such as:

x the existence of individual and coalitional strategies, internal and external to the organisation, influencing the decision making processes

x the presence of sources of conflict internal and external to the organisation, influencing the decision making processes

x the existence (or the absence) of sources of inefficiency due to the family character

x the presence of relevant sources of pressure from external entities pursuing the conformation of the firm to some ‘standards’ of conducts and performances they evaluate positively.

In addition, the research plan aims at verifying if, according to the view of the firm processes and events as a continuous construction and reconstruction of scenarios in an institutional frame that is stable for a certain period, the succession to the government of family business prove to be itself a continuous process of construction and deconstruction of the firm’s internal balances at the two levels, sometimes overlapping, of ownership structure and government structure, with a low incidence of planning systems or with no plan at all.

Family business: institutional framework and entrepreneurial power 479

Given the peculiarities of the research objects, deriving from the investigation of phenomena that are not easily observable in a firm by referring merely to quantitative measures, the first step of the plan in our intention should be based on a qualitative research. Indeed, the characteristics of this kind of methodological analysis, such as the aim at studying and comprehending the individuals and their specific histories, the always open relation between the theoretical model and the operative research, with margins for an ongoing restructuring of the research plan, the active role played by the studied subjects, can be considered as especially coherent with our finalities (Corbetta, 1999).

At this stage, it could be useful to refer to a judgement sample of some important Italian family firms. In fact, given their internal structures and their ‘family and entrepreneurial’ histories, these firms are particularly interesting to be investigated with regard to such topics. In fact all of them should present some characteristics useful for the research aims:

x a long tradition in their productive sectors

x a relevant participation (or a 100% detention of) of the family to the risk capital

x a government structure evolved over the time from a ‘family business in a strict sense’ to a ‘family-controlled business’, that indicated the progressive introduction of a managerial board

x a history of particularly significant generational or managerial successions to the government.

In any of the cases to be chosen both owners (members of the family) and managers (members of the family or not) would be taken into account. The most consistent technique of investigation is the personal interview, conducted with a semi-structured questionnaire, and the critical incident technique (CIT), that would enable us to create an interview path that, with the transcription of both answers and linguistic/non-verbal communication scripts, would permit the collection of information about the judgment expressed by the interviewed on the following issues:

1 government

2 ownership

3 process of succession.

For each of these issues, some specific items would be identified, in order to verify the assumptions related to the hypotheses above stated.

The results of the qualitative analysis would then become the premises to construct a theoretical multidimensional model, basis of the plan of a quantitative analysis.

Here two techniques could be used:

x computer aided telephone interview (CATI).

x computer aided web interview (CAWI).

People will be asked to answer a structured questionnaire, composed by a certain number of questions referred to items measured with the Likert scale. On each question, in fact, the interviewees will be required to reply how much they agreed (on a scale from ‘strongly disagree’ to ‘strongly agree’) on predetermined statements.

480 P. Mastroberardino et al.

The items will be designed in order to analyse some latent variables that cannot be observed directly:

x peculiarities of family character

x family character as strategic lever in the inter-subjective game

x influence of isomorphic pressures

x processes of inter-subjective ‘action’ based on power

x institutionalisation perceived degree in order to take strategic decisions about family members.

The data collected could then be processed by referring to both descriptive measures, such as frequencies analysis, and a factor analysis, in order to compare the theoretical model and the concrete one with regard to the latent variables emerging from the predefined issues.

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A. Rugiadini (Eds.): Organizzazione & Mercato, Il Mulino, Bologna. Zahra, S.A. and Sharma, P. (2004) ‘Family business research: a strategic reflection’, Family

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P.J. DiMaggio (Eds.): The New Institutionalism in Organizational Analysis, The University of Chicago Press, Chicago.

DICHIARAZIONE SOSTITUTIVA DI CERTIFICAZIONE (Art. 46 del D.P.R. 28.12.2000, n. 445)

I sottoscritti:

• Piero Mastroberardino, nato ad Atripalda (AV) il 4 maggio 1966 e residente in Atripalda (AV) alla via Manfredi n. 49;

• Claudio Nigro, nato a Battipaglia (SA) il 2 ottobre 1971 e residente in Battipaglia (SA) alla via Olevano n. 53;

• Giuseppe Calabrese, nato a Battipaglia (SA) il 5 luglio 1975 e residente in Battipaglia (SA) alla via Etruria n. 8;

• Flora Cortese, nata a Nocera Inferiore (SA) il 16 novembre 1977 e residente in Nocera Inferiore (SA) alla via Sinisclachi n. 62;

• Gemma Carolillo, nata a Salerno (SA) il 5 maggio 1982 e residente in Salerno (SA) alla via Luigi Guercio n. 319.

In qualità di Autori dell’articolo scientifico dal titolo: “Family business: institutional framework and entrepreneurial power” pubblicato sulla rivista International Journal of Globalisation and Small Business, Vol. 3, No. 4, 2009, alle pagine dalla 463 alla 484,

D I C H I A R A N O

Pur essendo l’articolo in oggetto frutto della comune elaborazione di tutti gli autori, Piero Mastroberardino ha curato in particolare il paragrafo 6; Claudio Nigro ha curato in particolare i paragrafi 1 e 3; Giuseppe Calabrese ha curato in particolare il paragrafo 4; Flora Cortese ha curato in particolare il paragrafo 5; Gemma Carolillo ha curato in particolare i paragrafi 2 e 7. I sottoscritti dichiarano altresì di essere a conoscenza:

• delle sanzioni penali cui incorrono in caso di dichiarazione mendace o contenente dati non più rispondenti a verità, come previsto dall’art.76 del D.P.R. 28.12.2000, n. 445;

• dell’art.75 del D.P.R. 28.12.2000, n.445 relativo alla decadenza dai benefici eventualmente conseguenti al provvedimento emanato qualora l’Amministrazione, a seguito di controllo, riscontri la non veridicità del contenuto della suddetta dichiarazione;

• ai sensi del D. Lgs. 196/2003, che i propri dati saranno trattati dal Ministero dell’Università e della Ricerca per assolvere agli scopi previsti dalla procedura di Abilitazione Scientifica Nazionale ed al principio di pertinenza.

Atripalda (AV), 5 novembre 2012

I dichiaranti

Piero Mastroberardino

Claudio Nigro

Giuseppe Calabrese

Flora Cortese

Gemma Carolillo

!