Risky Decision Making in Family Businesses
University of Amsterdam Faculty Economics and Business
Business Studies
Bachelor of Science Thesis
Author: Robert Rietberg Student number: 10005455 Supervisor: Dhr. A.C.C. Gruijters Topic: Entrepreneurship and Innovation
Table of Contents
1 Introduction...3
2 Literature Review...5
2.1 Family Business...6
2.1.1 Defining Family Business...6
2.1.2 Characteristics of Family Businesses...8
2.1.3 Risky Entrepreneurial Activities...10
2.2 The F-PEC Scale...10
2.2.1 Power...11
2.2.2 Experience...12
2.2.2.1 CEO Age...12
2.2.2.2 CEO Tenure...13
2.2.2.3 Generations in the Firm...13
2.2.3 Organisational Culture...14
2.2.3.1 The Denison Organisational Culture Model...15
2.2.3.2 Dimensions of Culture...16
2.3 Family Business Lifecycle...17
2.3.1 Three-Stage Development Model...17
2.3.2 Three-Dimensional Development Model...18
2.4 Conclusion to the Literature Review...20
3 Knowledge Product...21
4 Research Design...22
4.1 Participant Selection...23
4.2 Data Collection...24
4.3 Data Analysis and Reporting...25
5 Results...25
5.1 Results from the First and Second Interview...26
5.2 Results from the Third Interview...33
5.3 Results from the Fourth Interview...37
5.4 Results from the Fifth Interview...41
5.5 Conclusion to the Results...45
6 Discussion...48
7 Limitations and Future Research...52
8 Conclusion...53
9 References...55
10 Appendixes...57
10.1 Original Interview Guide...57
10.2 Coded Interview Transcripts...59
10.3 Methodological Report of the Interviews...109
10.4 Validity Check by Eric Stok...112
Abstract
Family businesses are a distinct type of business, yet they are important players in the current economy. They need to take risks and participate in entrepreneurial activities just like non-family businesses, but they are known to be relatively risk-averse. In this research, this supposition is put to the test and the decision making process of the influential executives is analysed. The goal is to understand the reasoning, motivations and variables that regulate decisions within the family firm. The research method consists of interviews of five
executives from four different companies. A model is then established which contains the key concepts that affect the decision making process. Based on the companies’ objectives and perceptions, advice is given on how to succeed in achieving optimal decision making in their respective environment. Other family businesses can thus use these examples to extract vital knowledge and practices for decision making of risky activities.
1 Introduction
Recently, the Financial Times (2012) wrote an article on the importance of the family business; mentioning how the current dominant mind-set in the business world often ignores the family business in favour of conventional corporations. Even the academic world
conforms to this mind-set by esteeming the so called “developed” corporate world. However, the family business is gaining more prominence and influence; playing its own vital role in the business world. Yet our understanding of its significance is minimal.
The Netherlands is a country that often boasts of having the first stocks-issuing corporation in the world. Nevertheless, it is also a country which possesses some of the largest family-owned businesses; such as Heineken. Family businesses in the Netherlands can therefore be instrumental in understanding family businesses. Their successes and failures can teach potential family businesses how to endure unpredictable periods, especially in the
current business climate and continue development for their organisations. As with non-family businesses, non-family businesses have to make strategic decisions which have significant consequences for its competitive advantage in the future. Consequently, it is crucial to understand the formula of their successes or the causes of their downfalls in times of uncertain decision making.
Furthermore, the topic is evidently relevant due to the presence of inconsistencies in literature concerning risk taking behaviour and the success of family businesses. Zahra (2005) states that a family owned business’ success, whatever that may be, is significantly impacted by the firm’s willingness to take risks and innovate. However, Naldi et al. (2007) conclude that risk taking in family owned companies is negatively related to performance. This is contradictory; especially since many researchers take risk taking behaviour as a “given” in family firms.
Additionally, Donckels and Fröhlich (1991) argue that family businesses tend to make decisions which are risk averse and conservative, while Davis and Harvesto (2000) state that such decisions cause stagnation within a business, thereby negatively impacting its growth and development.
However, the explanations are as abundant as the views on the matter. For example, Zahra, Hayton and Salvato (2004) believe that family businesses make different decisions during different stages of their organisation’s life-cycle. Initially, it is important for a family organisation to foster entrepreneurship, enter new markets, and improve operations in order to establish market position for the family. Nevertheless, over time, family companies become conservative and risk averse.
What needs to be established is how risky decisions (or the absence of them) affect the firm, whether they are desirable and whether they contribute to the success of the firm (and when). Does it depend on the stage of the life-cycle of the company? Does the culture or
the state of the economy dominate the company’s risk taking behaviour? These are but a few aspects to be considered if a better understanding is to be gained of how family businesses make decisions when a certain degree of risk is involved.
Understanding the above-mentioned will not only connect and collate competing and complementary theories, but also gives an insight into the practicality of the formation of a family business. It is an opportunity to study the minds of people who have built an
organisation around their families; to acquire even a glimpse of that is nothing short of remarkable.
The structure of this paper will be as follows: The next section will be the literature review that will tackle existing literature, operationalize relevant factors and state the desired knowledge product, which is the desired outcome of the research. Subsequently, the research design, which will include data collection, analysis and reporting, will be carried out. Then the results will be given followed by a discussion. The limitations and future research
segment will analyse the validity, reliability and generalizability of this research and provide avenues for future studies. Finally, this paper will culminate with its conclusion.
2 Literature Review
The amount of research done on family businesses is vast and widespread, and the sum of all the variables affecting the family business is immense. Therefore, the desired outcome of this literature review is that the operationalized variables will contribute to the research by
exposing new variables and examining current relationships between variables. Eventually, these new variables and relationships, along with the operationalized variables, can be a source of novel insights into the workings of family businesses. They may provide clarifications and explanations of the decision making process of the relevant individuals within family businesses when significant risk is involved.
The literature review shall first define and discuss family businesses and the risky activities that they perform. Subsequently, the F-PEC scale shall be outlined. The F-PEC scale has three dimensions: power, experience and culture which shall play a vital role in assessing the motivations for entrepreneurial activities. Furthermore, the literature review shall argue the importance of taking into account the stage a firm is confined to during the snapshot of this research. Lastly, the literature review will summarize and conclude its findings.
2.1 Family Business
Firstly, it is important to establish the criteria a business has to meet in order to be considered a family business. It is vital to consider both theoretical as well as practical definitions of the family business. Secondly, in order to understand the inner workings of a family business, characteristics that are present in many family businesses will be mentioned and examined. Lastly, a brief indication of what constitutes as a risky activity will be given.
2.1.1 Defining Family Business
The views on how to define a family business are countless and widespread. However, Chua, Chrisman and Sharma (1999) have compiled a list of numerous definitions from previous research and added their own interpretation. According to the authors, the only aspect of a family business that all previous research agrees on is the aspect of the organisation being owned and managed by a principal family.
The authors continue by adding their perspective on the definition of the family business. They believe that the essence of a family business consists of a vision held by a family (or multiple families) for the business and the pursuit of the vision through a dominant coalition. Vision is defined as the idea of a better future, whereby the business is used as a
platform to achieve the desired state. The dominant coalition is defined as the influential and powerful members of the business who are in charge of the organisational agenda. Therefore, the necessity of controlling ownership stems from the desire to maintain and mould a specific vision. Their definition of a family business: “The family business is a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.” Furthermore, the authors state that the visions, intentions and behaviour should be the characteristics used to distinguish a family business from a non-family business.
Besides the theoretical definition of a family business, it is vital to consider a practical definition of the concept. The Dutch business magazine “Management Team” posts an annual Top 50 Biggest Dutch Family Businesses list (Management Team, 2013). To get on the list, companies have to exist for a minimum of 10 years and meet at least two of the following criteria:
• More than half of the property rests with the family.
• If a company is listed, the family must own at least 20 percent of the shares. • At least one relative of the founder holds a key position in the management or
supervisory board.
• The majority of voting rights at the general meeting of shareholders is held by the
founder or owner or his family. Voting rights may, but need not be direct.
• Family ties exist. This is possible by marriage or inheritance or family ties to the third
degree.
It will be evident how these criteria will eventually affect the choice of interviewees later in this paper.
2.1.2 Characteristics of Family Businesses
According to Donckels and Fröhlich (1991), family businesses commonly project certain characteristics and behaviour. They state that family businesses are often directed inward and consist of closed family-related systems. The goal is to keep the management in the hands of the family, maintain family traditions and build a business model for succeeding generations.
The authors continue by stating that family business managers are more likely to oppose risky and uncertain activities because they are all-rounders and organisers, not pioneers and trendsetters. The type of managers produced by family businesses stems from the industries in which many family businesses exist. These industries are often traditional and conservative instead of innovative and dynamic. This allows for stability, but can also be a hindrance for increased profitability and growth (Donckels and Fröhlich, 1991).
Naldi et al. (2007) add that family organisations generally have less monitoring (internally and externally); decisions tend to be based on intuition and experience instead of basing on systematic and calculated methods of risk analysis. Furthermore, there is often little room for the opinions and perspectives of unbiased third parties. Since, ownership and
management are in the same hands, there is less pressure to consider the full scope of every decision. Naldi et al. (2007) put it in the following words: “family firms have greater latitude to allocate resources on the basis of ‘animal spirits’ or ‘gut feel’ and to pursue opportunities that can only be rationalized by particularistic or intuitive criteria”. Understanding of risky activities might therefore not be grounded on a systematic procedure making it more difficult to predict the consequences of certain decisions.
Zahra, Hayton and Salvato (2004) state that families are generally interested in building lasting legacies and maintaining family wealth. This can lead to a conservative approach of management and the unwillingness to partake in entrepreneurial expansions. The authors explain that the family’s culture plays a large role in determining the management
style and approach to risk taking. The family’s firm is the embodiment of the family’s beliefs, aspirations and values. Failure may therefore reflect badly on the family itself.
On the other hand, Zahra, Hayton and Salvato (2004) describe that the autonomous nature of leaders of family businesses might be the cause of entrepreneurial activities. If the family acknowledges that new knowledge and skills need to be acquired from customers, suppliers and competitors and take action towards obtaining such capabilities, then the culture might be beneficial to the growth and development of the family business.
Zahra (2005) explains that families generally realise that entrepreneurial risk is vital for the organisation. The author uses the metaphor of a double-edged sword to explain entrepreneurial risk within family businesses. On the one hand, experience and values are preserved within the organisation, but on the other hand, the authority of the family can prevent entrepreneurial contributions from employees and non-family members.
Furthermore, the presence of several generations within the company can allow for new perspectives and insights. The consequence is that each generation brings refreshed energy into the organisation, thereby promoting innovation and entrepreneurial risk taking. Younger members of the family are often more encouraged to contribute to the success of the company and to update the firm’s processes and procedures according to more modern standards (Zahra, 2005).
Lastly, Jack, Dodd and Anderson (2008) describe how family businesses can deal with uncertainties, especially in the environment. Family businesses often possess a large and involved network. The authors distinguish four routes of action: expansion, churning,
strengthening and shrinking. These decisions come with risks as well, but are meant primarily to remove risks in the environment and strengthen the family’s position.
2.1.3 Risky Entrepreneurial Activities
Zahra (2005) has created a list of risky activities for any business and attributed to four categories: the use of alliances, entering new markets (domestic or foreign), investing in emerging radical technologies and radical product innovation and introduction. However, this list is not exhaustive. Other risks, which are more common in family businesses, are
“strategic simplicity” and poorly managed successions. Strategic simplicity involves using past routines and processes to face future strategic challenges. The result can be the hindrance of innovations or the inability to keep up with the dynamic business environment. Companies can avoid such consequences by acquiring new skills or improving their current capabilities. However, these in turn are risky undertakings for the firms. Zahra (2005) explains that such activities require immense changes from the part of the family business, while the financial success remains uncertain and unpredictable. Failure can have serious consequences for the organisation. Brockhaus (1994) complements by stating that succession within family businesses are often accompanied with significant risk. Being unprepared or mismanaging a succession are but a few examples. Succession has been and will always be an issue within family businesses.
2.2 F-PEC Scale
Astrachan, Klein and Smyrnios (2002) created the F-PEC scale to evaluate the extent of family influence on a business. They argue that the behaviour and decisions of a family business are significantly affected by the degree of family participation and influence on the business. A distinction is made between three dimensions; the power, experience and culture dimension. The F-PEC scale indicates the extent of family involvement and the consequences for the company’s decision making behaviour and subsequently its performance.
Figure 2: F-PEC Scale (Astrachan, Klein and Smyrnios; 2002)
2.2.1 Power
According to Astrachan, Klein and Smyrnios (2002), a family can exert power through three channels: its ownership, governance, and management involvement. Miller and Breton-Miller (2006) explain that a family is willing to exert power through whichever channel in order to strengthen the company’s standings. They use stewardship theory to support this, explaining that family members are motivated by more than just economic success. Continuity and longevity, amongst other factors, contribute to families wanting to change their inclination to their power position. Bubolz (2001) mentions the reason for such
behaviour, which is families having an emotional attachment to their respective companies. However, Miller and Breton-Miller (2006) stress that, although it is beneficial to a firm when the individual holding a power position is not hindered in his decision making activities, it is still wise to have a control mechanism, thereby avoiding irresponsible decisions and overly
extreme risk taking. It is worth addressing the power dimension because of power shifting actions family members might take in order to change the existing dynamic of decision making within the company.
2.2.2 Experience
Although Astrachan, Klein and Smyrnios’ (2002) experience dimension focuses primarily on succession, it is vital to consider other factors which may contribute to this dimension. Kellermans et al. (2008) augment the experience dimension by connecting personal characteristics into the mix; stating that the CEO’s age and tenure, and the number of generations active in the firm are factors which aid in forecasting entrepreneurial behaviour. This is supplemented by Brockhaus (1994) who demonstrates that personal characteristics are directly correlated with the growth, development and innovation of a firm.
2.2.2.1 CEO Age
Levesque and Minniti (2006) use the theory of time allocation to explain that a CEO’s age is negatively correlated with his/her entrepreneurial actions. Kellermans et al. (2008) argue that age limits the decision making capabilities and desires. Risky activities, such as expansion and investment, might be neglected or even avoided, due to complacency. International growth opportunities might be overlooked, since it is often considered riskier due to external factors, such as politics or macro-economic factors, affecting the business (Davis and
Harveston, 2000).
Despite aging family members generally being risk averse, a degree of risk involved in the succession cannot be avoided. Feltham, Feltham and Barnett (2005) assert that as powerful family members age and as they near their retirement, they often tend to shift their focus away from risky activities in order to deal with the succession. The authors also note
that when successors gradually acquire more and more responsibilities, the necessity for the predecessors to make risk-involving decisions diminishes accordingly.
2.2.2.2 CEO Tenure
Present in the existing literature are contradictions concerning CEO tenure and
entrepreneurial decision making. Levesque and Minniti (2006) argue that the understanding and experience built up over lengthy tenures give leaders the ability to moderate risk and pursue appropriate changes. Furthermore, valuable relationships and networks established during the tenure of the CEO may allow a level of comfort for the CEO to make
entrepreneurial decisions, even if significant risk is involved. Zahra, Hayton and Salvato (2004) add that long tenures create a long-term environment within the business, thereby giving the CEO a certain degree of freedom to invest in innovation, change and other entrepreneurial activities. Additionally, since the reputation of the firm is often associated with the CEO, due to his/her elongated tenure; the CEO may be keener to take actions to improve the company’s overall position (Miller and Breton-Miller, 2006).
However, Kellermans et al. (2008) proved that the length of the CEO tenure is negatively related to employment growth and investments, indicating a diminished
participation in entrepreneurial activities. Furthermore, Kellermanns and Eddleston (2004) indicate that long tenures may be the source of hindrance for creativity and innovation, because of the stifling environment it forges.
2.2.2.3 Generations in the Firm
Astrachan, Klein and Smyrnios (2002) demonstrate that there is significant support for their hypothesis which states that generational involvement is strongly correlated with
entrepreneurial behaviour. Further, Salvato (2004) proposes that participation by multiple generations will increase entrepreneurial behaviour and courage to seize opportunities.
Stewardship theory may also lend support to the correlation between
multigenerational participation and increased entrepreneurial activities. The theory claims that (potential) leaders in (family) organisations tend to be more selfless and are more likely to perform activities for the benefit of the company and its stakeholders. The perspective of stewardship theory assumes therefore that sustainability, growth and development amongst multiple generations are essential objectives within a family business (Miller and Breton-Miller, 2006). The cause lies in the emotional bond between family members and the organisation. This bond allows family leaders to commit to the collective “good” of the organisation, even at the expense of personal goals (Davis, Schoorman, Mayer, & Tan, 2000). Such attitudes on the part of its leaders, allow family businesses to focus on long-term
objectives and development, thereby obtaining capabilities which can stimulate the continual presence of entrepreneurial activities.
However, Millon and Breton-Miller (2006) rightfully point out that long-term objectives can be the nemesis of risk taking. Long-terms survival as the main objective of a family business can often transform entrepreneurial strategies into conservative financial strategies.
2.2.3 Organisational Culture
Astrachan, Klein and Smyrnios (2002) state that the owner’s values and motivations are key drivers in a family business’ organisational culture; which are often passed down through the family and can continue for generations. Furthermore, if the combination of ownership and control creates an environment where the family can define the organisational culture, then it allows room for the family to determine its own success factors. Besides the key success
factor of profitability, the family might define success as the continuity of the business and its legacy (Stafford et al.; 1999). According to Barney (1986), founders can be considered the “imperfect embodiment of company culture”. The highly personalized and unique cultures therefore reflect the values and motivations of the founder and family.
Denison, Lief and Ward (2004) argue that the behaviours and cultures of family business originate from a “deeply ingrained, learned at-the-dinner-table sense of history and morality”. However, they also identify factors such as environmental shifts and personal governance styles of successors which can alter a firm’s culture and behaviour; although core values remain key cultural influences.
2.2.3.1 The Denison Organisational Culture Model
The Denison Organisational Culture Model which was designed by Denison and Mishra (1995) describes a theory of organisational culture that is linked to company performance. Data on the organisation’s culture is positioned on a two-dimensional model which
emphasizes the trade-offs between internal and external focus, and flexibility and stability. This research focuses on the flexibility versus stability dimension. The two cultural
characteristics, which are adaptability and consistency, are relevant to this discussion. Adaptability is determined by three indicators: the creation of change, the focus on customers and the learning and development of the organisation. These indicators are
balanced by the conflict within an organisation to establish a continuous internal identity and to be flexible in the face of external pressures. The importance of consistency within a firm can be determined by its core values, completed agreements and the degree of coordination and integration within the firm. Consistency is defined by the combined effort within the firm, and between the firm and the family to achieve targets and resolve obstacles (Denison and Mishra, 1995).
Figure 2: Denison Organisational Culture Model (Denison and Mishra; 1995)
2.2.3.2 Dimensions of Culture
Zahra, Hayton, and Salvato (2004) argue the importance of comparing an organisation’s culture on various dimension scales, most notably: individual versus group, internal versus external, centralization versus decentralization, and short- versus long-term time.
The authors’ research concludes that moderate degrees of individualism are most beneficial for stimulating entrepreneurial activities. Independence and the lack of having multiple decision makers create space for families to undertake risky activities. Furthermore, the findings give support to an external focus being a source of entrepreneurship. An external orientation often indicates that a firm is more open to foreign knowledge acquirement (such as from customers, suppliers and competitors) and third-party advisers, allowing it to
recognize entrepreneurial opportunities. Family firms are prominent examples of being too inwardly focused due to long executive tenures of family members and should therefore not forget to interact with external forces for the benefit of motivating entrepreneurial activities. Although family organisations tend to be quite centralized, this can be a potential threat to their quest for entrepreneurship. The authors’ hypothesis of decentralization being positively correlated with entrepreneurship is supported. Letting loose of tight control of the operations will allow the family firm to respond more effectively to external changes and shifts. Lastly, the time orientation results expose a controversial association. According to the authors, entrepreneurial activities are correlated with long-term orientation. This is a noteworthy finding because short-term success is often associated with risky undertakings.
2.3 Family Business Lifecycle
The lifecycle of the family business can be a source of information concerning the behaviours and decisions made by family businesses. This section will tackle the three-stage
development model and the three-dimensional development model. These two models allow this research to classify family firms into categories, thereby providing explanations for the risky decisions of decision makers.
2.3.1 Three-Stage Development Model
Sharma, Chrisman and Chua (1997) advise using a three-stage development model to make sense of entrepreneurial decision making. The initial stage of a family business is often simple and consistent. The owner-manager is the primary decision maker and is uncontested. During this stage, the founder’s personal characteristics play an essential role in determining the goals, strategy and culture of the enterprise (Hollander and Elman, 1988)
The second stage is similar to the first stage whereby the owner-manager is still the primary decision maker and stays in a power position with maximum control. However, other family members are primed for succession. Strategy and goals are focused on the security and future stability of the firm.
The final stage involves clashes between the needs of the business and of the family. This may result in complacency, aloofness or just plain boredom amongst the active family members. Maintaining the peace becomes a goal in itself, thereby distracting the company from other issues at hand. This is often a make or break period for family businesses and the only way to improve the situation is to reinvigorate the company with freshness and change. The three-stage development model demonstrates that it is vital to understand what stage a family business is going through and which goals are associated with that stage. For example, goals of the family might be in direct opposition to the goals which are best for the business during a certain stage.
2.3.2 Three-Dimensional Development Model
The dimensional development model developed by Gersick et al. (1997) is a three-dimensional model which provides a classification of the family business lifecycle along the dimensions: family, ownership and business. The family dimension organises the family business based on the relational structures between members of the family. The four phases are young business family, entering the family business, working together, and passing the baton. Besides observing the formal bonds between family members, such as marriage, siblings, offspring, and in-laws, the relative age of the active family members can be a reliable indication of the specific stage a family business is settled in. The young family business phase involves heavy doses of networking and partnerships. These can be external business partners or personal partners, such as spouses or in-laws. Furthermore, this chapter
of a family business encompasses significant time spent on searching and developing an identifiable characteristic within the business. Consequently, the entering the business stage is when new members of a younger generation begin to participate in activities within the firm. Focus is shifted to career development and changes are made to allow a smooth transition of the new members. The following stage is the working together stage,
characterized by intricate working relationships between all the family members within the organisation. Lastly, the passing the baton period’s main concern is, as the name suggests, passing the governance of the firm onto the successors (Lissoni et al.; 2013).
The ownership dimension separates firms based on its stance concerning its culture, strategy and values. The three phases are controlling owner, sibling partnership and cousin consortium. The controlling owner stage consists of the establishment of the main cultures, strategies and values within the family business. The sibling partnership involves acquiring new knowledge and skills in order to tackle growth and expansion. As the company grows, it needs to take a new approach to its coordination and control as a whole. The cousin
consortium can be identified by the creation of formal policies to safeguard the established cultures, strategies and values. Examples are the formation of a Corporate Board or setting the firm up as a holding (Lissoni et al.; 2013).
The final dimension, the family system, distinguishes a firm by its development and growth rate. The three stages are start-up, expansion and maturity. The start-up stage is straightforward; the owner/entrepreneur is pivotal in every aspect of the organisation, the culture and structures within the firm are relatively informal, decisions and communication flow from the top to the bottom and the focus is on survival and establishment. The
expansion phase involves an increase in formality, decentralization and designation of work. The company has already been established and the focus has shifted to growth. The maturity phase occurs when the conventional and establish rules and regulations are no longer
competent. This stage often ends with revitalization or termination of the business. The focus is on stability; and occasionally survival (Lissoni et al.; 2013). It is also worth noting that each dimension affects the others and often happen in unison.
Figure 3: Three-Dimensional Development Model (Gersick et al.; 1997)
2.4 Conclusion to the Literature Review
The literature review has provided theories and concepts from previous research to guide the search for explanations for the undertaking of risky business activities within family
businesses. Firstly, the concepts family business and risky activities were defined. Secondly, the various dimensions of the F-PEC scale were explained. Lastly, the family business lifecycle was described as a source of enlightenment for this research.
However, it is important to realise that the concepts and theories from past research are not exhaustive. They will be used as guidelines and points of references during this study, but eventually the results will indicate which variables are relevant and can be
operationalized. These theories and concepts could also be the source of novel findings and 20
concept relevant to this research. Essentially, the results from previous studies are part of a library full of concepts and factors which may affect the behaviour of decision makers to make risky decisions (or not). Therefore they may be juxtaposed against newfound results from this study.
Certain variables seem to be correlated and this research will try to establish causal and correlational relationships, if and where relevant. It is also noteworthy to be reminded that this research is focused on the specific type of business, the family business. Therefore, the reach of its generalizability remains limited.
3 Knowledge Product
The desired knowledge product consists of in-depth descriptions and explanations of how individuals, who reside in the upper echelons of businesses and who come from families that have inherited power positions (within the business) across generations, manage the process of decision making when faced with significant risk. Insight into the minds of the people in such positions is needed to reach a satisfactory conclusion. Based on the literature review, there are two main models which can be used to provide guidance in establishing the
motivations for risky activities. These models are the F-PEC model and the Family Business Lifecycle models. The F-PEC model includes factors such as the personal characteristics of the CEO, the power achieved through ownership, governance and managerial involvement, and the organisational culture. These variables moderate the level of risk taking within the family firm and it shall be noteworthy if causal or correlational relationships can be observed. The Family Business Lifecycle models explain the importance of taking a bird’s eye view to observe decisions within the context of the firm. Understanding what stage an organisation is in will play a vital role in understanding the decision making process of family executives. Questions will be addressed, such as: Is it relevant that a business is ruled by a family? How
does such a business ensure success and continuity? To what extent do such businesses take risks and what kind of risks do they take (or not)? The goal is to discover additional factors which influence the powerful players in their decision making; which factors are present in each individual case and which factors differ on a case by case basis. The knowledge product relies on an integrative approach which allows this research to extract patterns in the thought processes of decision makers. During the interviews and research process the relevant factors are filtered, elaborated and critically analysed to give a wholesome perspective of risk taking within family businesses. Ultimately, the results of this research will contribute by adding insights to the existing literature and provide descriptions of how and which factors affect the decision making process of the influential individuals in family businesses.
4 Research Design
The literature review reveals that there are many factors which affect the decision making process of family businesses. Since the scope of the existing factors is vast and wide, the prospect of overlap between past studies and the research at hand is probable. Therefore, in order to specify which factors are relevant to this research and should be operationalized, the author has chosen to use a qualitative research method. A qualitative research method is appropriate because the conclusions of this paper will be based on four companies from different contexts. Golafshani (2003) states that qualitative methods are the suitable choice when specific contexts are important for explaining reoccurring phenomenon. Furthermore, since this research is highly inductive as well as deductive, qualitative research methods can be of better service to the research (Mortelmans, 2007). The participant selection, data collection and data reporting and analysis will be dealt with accordingly in the following sections.
4.1 Participant Selection
The Netherlands has a wide variety of family businesses ranging from multi-million dollar businesses to small and medium enterprises. Furthermore, the business environment is very suitable for family businesses, thereby stimulating family businesses of every shape and size. The author was able to gain access to family members, who are either currently running a family business or have run a family business in the past, through his personal network. It is important to consider the time period in which a family business was run, since many changes have taken place in business environments. The accessibility to family businesses allows the author to conduct qualitative research via interviews. Additionally, it is important to have diversity amongst the family companies in order to specify which factors have the greatest effect on family businesses decision making as a whole.
To reach a satisfying and expansive conclusion to the research, interviewees need to have been or be involved in the governance of the family organisation. These often consist of the heads of a family who are most involved within the company and have the most
experience with how their business operates. Furthermore, they have a bird’s eye-view of the company and can establish relationships between factors within the organisation. As
mentioned previously, diversity amongst interviewees is crucial. Therefore, the interviewees will consist of members from different generations within the same family business and interviewees who are involved in varying sizes of firms. Ideally, a large sample size would be necessary to acquire a comprehensive conclusion. However, due to the brevity of the duration of this research, the author will make do with a sample size of five interviewees who were specifically chosen from the author’s network to represent multiple contexts of family businesses.
4.2 Data Collection
The purpose of this thesis is to study the behaviour and decision making processes of multiple contexts in order to form general claims about family businesses. Interviews are therefore a useful method of collecting data by observing behaviours and decisions (Patton, 2002). These interviews will be semi-structured in order to leave room for expanding topics during the interview. Although the interviews will follow a predetermined structure, when the opportunity arises to focus on specific behaviours or decisions, there will be space available during the interview to allow for such deviations. Maxwell (2005) describes semi-structured interviews as a continuous process whereby the interviewer and interviewee work together to decide the direction of the interview. It is essential to refrain from putting words into the interviewee’s mouth and to give the interviewee the possibilities to talk about relevant
behaviours and decisions on their own accord. Furthermore, all questions will be open, unless confirmation is needed on a certain statement or opinion.
Firstly, general questions about the interviewee and his or her relationship with the organisation will be asked. Then, once the initial personal data has been obtained, questions on the topic of their organisation being a family business will be requested. If the
interviewee, at any point, mentions a relevant form of behaviour or decision, then specific questions will be asked to gain a deeper understanding of the motivations, causes and consequences of the matter.
Each interview will last approximately one hour. The setting will be of the interviewee’s choosing, which is often an office or meeting room. This allows the
interviewee to be in a familiar setting with few disturbances, thereby making them feel more comfortable during the interview. The interviews are recorded and transcribed to use as future references. The results are discussed in latter stages of this thesis and the transcript of the interviews, along with the methodological reports can be found in the appendix.
4.3 Data Analysis and Reporting
This thesis is both deductive and inductive simultaneously. Based on existing theories within previous literature, the author will deduce and operationalize variables relevant to the
research. Furthermore, the inductive aspect is visible at the end of the research since new found conclusions will be drawn from the data obtained from the interviews. This is in line with Mortelmans’ (2007) view on qualitative research: Sense is made out of the raw data, the interviews, by the use of codes, categories and themes. The result is that relationships can be established between constructs. Furthermore, since the whole process of qualitative research is a cyclical process, it is important to analyse each and every interview thoroughly before conducting the subsequent interview. Each consecutive interview can therefore focus on relevant phenomenon and links can be verified between variables.
Open-coding and (primarily) axial-coding will be used to categorize the data collected in order to find and establish potential relationships among given responses. The initial codes will consist of the codes extracted from the existing literature. These codes will be used as guidelines to extract codes from the interviews. Additionally, memos will be used to complement the coding process.
The findings will be reported in the following segment of the study and will take the form of a narrative report. This report will use quotes of the interviewees to accompany findings and conclusions. In turn, these findings will be analysed before the final conclusion is given.
5 Results
The research will continue by presenting the results from the interviews of the five executives. The names of the executives and the companies will remain concealed for the sake of confidentiality. The interview transcripts are located in the appendix of this paper.
The results are divided into four sections, each section representing one company; the companies will be given different names for the sake of confidentiality, but the names will refer to their respective industries. These sections will provide detailed descriptions,
explanations and motivations of the decision making process of the family executive within the firm. Furthermore, causal and correlational relationships will be established where applicable. Therefore, a cyclical analysis was used. The analysis of the interviews of the first company was used to improve the following company’s interviewing process. The same was done for the third, fourth and fifth interviews. The first section will exhibit the findings of the first and second interviews, while the second, third and fourth sections will present the findings of the respective second, third and fourth interviews. The final segment will comprise of the combined insights of each section. Each section will introduce the main concepts mentioned by the interviewees, which will then be followed by the established relationships between the concepts, the supporting concepts and the moderating variables involved. Quotes from the interviews will be used to give weight to the findings and eventually the decision making process of the interviewees shall take form.
5.1 Results from the First and Second Interview
The first two interviews included the second and third generation executives of the same company, Piping and Tubing Ltd. Interviewing two executives from the same company made it possible to compare, contrast and validate the opinions, decisions and motivations of the individual executives. For clarification purposes, interviewee #1 is the third generation executive and interviewee #2 is the second generation executive.
The first noteworthy finding is that interviewee #1 does not deny the stigma that family businesses are risk averse. On the contrary, he acknowledges the fact that family firms
are risk-averse, due to the involvement of a family in the governance of the company and the focus on continuity and the long-term.
“Ik denk dat in het algemeen familiebedrijven terughoudender en voorzichter zijn dan niet-familiebedrijven. Dat heeft denk ik voor een groot stuk te maken met de continuiteit en de langere termijn strategie van familiebedrijven. ... Niet investeren betekent besparen en wel investeren betekent risico nemen. ... Ik denk dat je zeker kunt zeggen dat het feit dat er familie in het management zit, dat het risicovermijdend gedrag daardoor bevordert wordt. Maar dat hoeft helemaal niet slecht te zijn, daardoor vlakt het de zaken wat uit.” - Interviewee #1
Furthermore, both interviewees confirm that less pressure to perform, long-term vision and continuity are distinct characteristics of family businesses.
“Ik denk dat één van de belangrijkste verschillen met andere bedrijven is dat bij een familiebedrijf de horizon vaak verder ligt dan bijvoorbeeld bij beursgenoteerde bedrijven. Dat ligt aan het feit dat er niet echt een noodzaak of dwang is om elk kwartaal goede cijfers te laten zien, waardoor je de
mogelijkheid hebt om ook langere termijn investeringen te doen. Dan kijk je meer naar je rendement op lange termijn en dat geeft meer continuiteit.” - Interviewee #1
“Verder, streef je, zeker als familiebedrijf, altijd naar continuiteit. We willen het ook graag doorgeven aan de volgende generatie en we willen het bedrijf ook in goede staat doorgeven.” - Interviewee #2 However, interviewee #1 states that these characteristics may result in an over-cautious approach in the decision making process. Such an approach leads to missed opportunities and discourages unnecessary (weird) risks. The pressure to perform is lower, so the pressure to undertake risky activities (mentioned as “crazy activities”) is lower. In a nutshell, these characteristics are not beneficial for stimulating risk taking within the organisation.
“We hoeven niet aan het eind van ieder kwartaal te zeggen, kijk hoe goed ik het heb gedaan. ... De noodzaak om gekke dingen te doen is minder groot en dus neem je geen vreemde risico's. Daardoor missen we misschien ook wel eens een kans. Je kunt ook te voorzichtig zijn.” - Interviewee #1
To continue, both interviewees aid this research by establishing concepts which have a significant influence on the decision making and governance of the firm. The initial concepts are culture and organisational structure. Based on the responses, it can be assumed that family
executives have an emotional bond with the firm. This emotional bond affects the culture of the company positively and negatively. The positive consequences are a loyal and cohesive culture within the firm. However, interviewee #1 does not mention whether these
consequences are eventually beneficial for entrepreneurial risk taking. The negative
consequences are a less alert organisational structure and out-dated working patterns. These consequences are the result of the culture encouraging long employment spans. Although not mentioned, it would seem that a negligent and out-dated organisational structure does not accommodate entrepreneurial efforts.
“Maar je zou ook kunnen zeggen dat alle medewerkers een soort familie van elkaar zijn. Dat beïnvloed de cultuur waardoor medewerkers vaak lange dienstverbanden hebben, elkaar goed kennen en loyaal zijn naar de onderneming. ...Dat heeft als gevolg dat er positieve en negatieve effecten op de cultuur zijn. De positieve effecten zijn saamhorigheid en loyaliteit. De negatieve effecten zijn een iets minder alerte structuur en medewerkers die te lang in een bepaald patroon blijven zitten.” - Interviewee #1 “Wij hebbent meer binding met de mensen binnen ons bedrijf, met onze klanten en onze leveranciers. ... Je hebt een emotionele band met jouw bedrijf. Als bedrijf ben je één grote familie.” - Interviewee #2 However, the culture can also be a source of motivation. A stimulating environment can motivate employees to bring in business and be proud of their efforts. Interviewee #2 mentions that the norms and values of the family are visible within the culture of the
company. The maintenance of the culture is essential to the extent that non-family executives were appointed based on their norms and values.
“De kracht is een combinatie van het enthousiasme wat er is bij onze medewerkers om gewoon lekker bezig te zijn en trots te zijn op het bedrijf, en die trots heeft als effect dat je de beste wil zijn, dat je gestimuleerd blijft. Dat motiveert een heleboel mensen toch om business binnen te halen, business te maken.” - Interviewee #1
“Als familie proberen we onze normen en waarden over te brengen in het bedrijf. Vooral bij de mensen die de normen en waarden handhaven binnen het bedrijf. ... Dat is ook logisch, want onze naam is er sterk mee verbonden.” - Interviewee #2
“Ze (de voorgaande bestuurders) hadden vaak overleg met mij. Mijn zoon( Interviewee #1) doet dat nu nog steeds. Het was belangrijk dat ze mensen waren met dezelfde normen en waardenvan de familie en die voortzetten binnen ons bedrijf.” - Interviewee #2
Interviewee #1 also explains that the type of industry moderates the extent to which the culture of the company affects entrepreneurial activities. He mentions that his industry is not a very innovative industry. Although this is not necessarily a characteristic of a family
business, it does regulate the degree of innovation. Furthermore, he states that the culture can stimulate innovative behaviour.
“Voor zover een handelsbedrijf innovatief is, en dat valt wel mee in het algemeen, lopen wij daarin voorop. En dat heeft niets mee te maken dat je een familiebedrijf bent of niet. Je zou wel kunnen redeneren dat het door de cultuur komt die je hebt, dat mensen het leuk vinden om innovatief te zijn. ... Maar onze markt is niet zo'n innoverende markt. Er wordt wel geïnoveerd, maar langzaam.” - Interveiwee #1
As mentioned earlier, the organisational structure hinders risk taking when the emotional bond of the family creates a less alert and out-dated structure. However, interviewee #1 gives an example where the organisational structure can be beneficial to risky activities. During the recession, the company was able to implement a strategy of expansion because of its debt structure and its prudent control of the supplies. These are merely a section of the overall organisational structure, yet they are still able to accommodate entrepreneurial risk taking in the form of expansion during a recession. This demonstrates that the organisational structure is capable of stimulating entrepreneurial efforts.
“Ten eerste, door kosten te besparen; dat kon met name omdat we een redelijk flexibele schuld hadden; die hebben we afgebouwd. Ten tweede, het snel terugdringen van onze voorraad. ... Het afgelopen jaar, 2012, hebben we een strategie uitgevoerd die we al jaren geleden hadden ingepland; verdere spreiding over de wereld en spreiding over producten. De afgelopen jaren was de
energiemarkt buiten Europa goed maar de energiemarkt in Europa niet. Dat heeft ons natuurlijk ook geraakt”. - Interviewee #1
The next concept which has significant impact on the decision making process with regards to risk is the context. The context comprises of the set of circumstances or facts that surround the company’s situation. The context may therefore allow for risky activities or hinder their embodiment. The following statements indicate how the context stimulated the decision to undertake an entrepreneurial activity.
“Het bedrijf in Belgie handelt in massief staafmateriaal en wij vonden dat een belangrijke toevoeging, er was synergie. Dat vonden we toen en nu nog steeds. Dat in combinatie met de gedachte dat we in België verder konden uitbreiden.” - Interviewee #1
“Ander grote klanten waren Nederlandse kassenbouwers die naar Frankrijk wilden gaan. In het begin was dat lastig, maar we wilden deze klanten niet kwijtraken. Die kassenbouwers wilden dat we onze buizen in Frankrijk kwamen afleveren. Toen zijn we daar zelf gaan zitten. Zo zijn wij in Frankrijk begonnen, vanwege de druk van de kassenbouwers die daar kassen gingen bouwen. ... Wij zijn toevallig in Australie gekomen omdat we daar een bedrijf konden overnemen. Er zijn altijd omstandigheden waardoor we konden blijven groeien. ... Iemand uit de buizenhandel in Singapore kwam bij me op bezoek in Zwijndrecht en vroeg: “Waarom begin je niet in Singapore?” Ik zei: “Ja dat overweeg ik, maar dan word ik jouw concurrent.” Hij zei: “Nee dat hoeft niet, want ik wil voor jou werken in Singapore. Fight against the Chinese with a Chinese.” Zo zie je, het komt weer door omstandigheden.” - Interviewee #2
The former statement signifies how an opportunity arose in the company’s situation which allowed it to invest and expand in Belgium. The latter gives two examples of how the context of the company enforced entrepreneurial risk taking. Firstly, external pressures from an important customer obligated the company to expand into foreign territory. Secondly, just like the former statement, opportunities allowed the company to take risks. However, the following statements invalidate the idea that the context is solely beneficial for
entrepreneurial risk taking. Both interviewees indicate that the economic circumstances can dampen entrepreneurial efforts. Caution is preferred is such contexts.
“Ik denk dat het belangrijkste is, en dat heeft zeker te maken met familiebedrijven, dat we in zulke tijden voorzichtiger moeten zijn. Dat komt omdat je maar beperkt kapitaal hebt dat je kunt uitgeven; je
kunt niet zo makkelijk de kapitaalmarkt op om geld op te halen om daarmee grote acquisities te doen. Het is zuur verdiend geld, dus je geeft het ook heel voorzichtig uit, en niet aan dingen waarvan je niet weet of je er rendement voor terugkrijgt.” - Interviewee #1
“Ik denk dat het(verkoop van de Amerikaanse tak) lag aan economische omstandigheden en slecht management, bij elkaar.” - Interviewee #2
Furthermore, interviewee #1 mentions that the context can negate the risk when the entrepreneurial activity is relatively small in size. Therefore, when the risk is realised, the damage to the company will also be relatively small; the potential threat to the company is insignificant.
“We zijn nog relatief klein in ontwikkelingslanden, dus we kunnen we altijd nog wel wat groeien. Als zo'n land echt in een recessie komt, dan hebben we pech. Als je net nog te klein bent om te kunnen overleven en het gaat moeilijk, dan moet je misschien stoppen.” - Interviewee #1
The subsequent concept, the executive’s personality, is conveyed to have substantial influence on the decision making process by interviewee #2. He observes the differences between his father-in-law, himself and his son in terms of governance.
“Mijn schoonvader was de oprichter van het bedrijf. Hij was iemand zonder enige opleiding, helemaal self-made. ... Mijn schoonvader was voornamelijk bezig met het dagelijks besturen van het bedrijf terwijl mijn zoon meer bezig is met de strategie. Er is ook een groot verschil tussen (mijn zoon) en mijzelf. Ik was veel meer persoonlijk met onze klanten bezig. Mijn zoons sterkte ligt bij de strategie.” - Interviewee #2
The interviewee continues by acknowledging that youth is accompanied by ambition. Ambition in turn is characterised by willingness to take risks in order achieve success.
“Mijn schoonvader liet de keuze voor het internationaliseren aan mij over. Als jonge man had ik de ambitie om groter te groeien, dus de beslissing werd snel gemaakt.” - Interviewee #2
Furthermore, the executive’s personality is affected by the company’s context. Interviewee #2 states that the style of governance, and by extension decision making, is determined by the time period and the economic conditions in which the executive finds him- / herself.
“Als een bedrijf alleen in Nederland en Belgie werkzaam is dan heeft de bestuurder andere eigenschappen nodig dan bij een internationale bedrijf. De tijd waarin je bestuurder bent heeft ook invloed op de stijl van besturen. Het hangt ook af van de economie. Het is allemaal tijdsgebonden.” - Interviewee #2
“Mijn schoonvader zei: “De klant is koning bij ons. Maar denk erom, hij moet zich koninklijk gedragen.” Dat heeft niet zoveel met een familiebedrijven te maken, maar meer met de man die mijn schoonvader was.” - Interviewee #2
The following concept is a stand-alone concept, meaning that it seems to be unaffected by other concepts. Since the older (second) generation functions as an advisor to the current (third) generation, it can be considered that the experience of multiple generations within the firm may be beneficial to consequential decisions. However, having multiple stakeholders, in this case family members, in the firm might seem to hinder swift decision making; even to the extent when conflicts of interests are present.
“Dus in het dagelijks bestuur heeft de familie als collectief weinig invloed, behalve als er hele grote ingrijpende zaken zijn, dan is er wel samenspraak. ... Bij mijn vader is het vaak goed dat we hem van te voren informeren, voordat we echt een besluit namen, en elkaar proberen te overtuigen en elkaar mee te krijgen in plaats van in een confrontatie terecht komen.” - Interviewee #1
“Ik ben nog steeds adviseur van de commissarissen en ik zit bij elke commissarissenvergadering.” - Interviewee #2
The final concepts are concepts which stimulate entrepreneurial activities by reducing the risk involved in such activities. Interviewee #1 clarifies that good control systems help curb risks by identifying them. The regulation of entrepreneurial activities may therefore be improved.
“Je moet veel betere controlesystemen in je organisatie hebben om risico's in kaart te brengen. ... We moeten controleren dat lokale administraties goed bezig zijn, dat ze van boven gecontroleerd worden en soortgelijke dingen.” - Interviewee #1
Both interviewees indicate that the experience of the organisation in the industry means that the organisation can execute entrepreneurial efforts more comfortably. The company is more
experienced with the efforts and the accompanied risks, thereby reducing the risk of ignorance.
“Dat wordt zeker geholpen door het feit dat we natuurlijk al jaren lang aanwezig waren in Azie, en vooral China. Dan moet je ervoor zorgen dat je een stuk van die stroom vanuit China zelf controleert en uitbreidt.” - Interviewee #1
“De Amerikanen ... waren helemaal niet internationaal ingesteld, terwijl wij al in Azië en Europa zaten. Toen wisten we, dat daar nog een markt voor ons lag.” - Interviewee #2
5.2 Results from the Third Interview
The interviewee, who is a third generation executive of the company Real Estate and Investment Inc., confirms the characteristics which were established by the first and second interview: less pressure, long-term vision and continuity. Furthermore, he agrees that family businesses are in general risk-averse. Risks will only be taken if it does not threaten the continuity of the company, even if the returns may be higher. This is all in accordance with the interviewees of the first company. The interviewee does state that his experience in the field has helped him become resilient, thereby reducing the risks involved.
“Ik denk dat dat de essentie is van een familiebedrijf; je hebt iets van je ouders of familie gekregen, maar het is niet jouw volledige eigendom. Je zorgt er goed voor, en vervolgens geef je het door. Om dat te kunnen doen, moet je natuurlijk zorgen dat de opbrengsten hoger zijn dan de kosten en je moet altijd blijven investeren in de continuiteit, tenzij dat onzinnig is vanwege de markt of omstandigheden. ... Beurgenoteerde bedrijven hebben aandeelhouders die daar zitten voor het rendement. Daardoor is de druk bij zo'n bedrijf vaak veel groter. ... Natuurlijk moet je ervoor zorgen dat het commercieel rendable is om de continuiteit van het bedrijf te waarborgen. Soms betekent dat dat je veel meer geld moet investeren om de continuiteit te waarborgen en dat zou wel eens ten koste kunnen gaan van het dividendsuitkering of rendement op dat moment. Dus je hebt dan een veel langere termijn visie.” - Interviewee #3
“In de afgelopen 30 / 40 jaar dat ik zaken doe, heb ik het bij dat soort dingen wel eens verkeerd ingeschat. Het voordeel daarvan is dat je uiteindelijk leert van de fouten die je gemaakt hebt. Het
betekent niet dat ik morgen niet weer fouten zou kunnen maken, maar je probeert wel om een stukje expertise op te bouwen, naast facts and figures ook een soort van gevoel, om te zorgen dat je dat soort risico’s and dat soort fouten niet nog een keer maakt. Ik ben er nog steeds van overtuigd dat
ondernemers in principe risicomijdend zijn.” - Interviewee #3
Since the interviewee is the sole owner and employee, the culture and organisational structure of the company are dictated by and consist exclusively of him (he has hired a partner since the start of 2013). The culture and structure can therefore be based on his personality and decisions. The interviewee highlights the importance of the executive’s entrepreneurial orientation through his decision to change the company’s focus from a retail company into an investment company.
Dat heb ik toen voor de familie uitgebouwd tot een beleggingsmaatschappij in onroerend goed. ... maar heb in feite het bedrijf van een detailhandelsbedrijf naar een beleggingsmaatschappij gemaakt in onroerend goed.” - Interviewee #3
“Ik heb een grote affiniteit met de detailhandel en ik denk dat ik daar gevoel voor heb. Dus ik doe dit omdat ik het vak versta en omdat ik het leuk vind.” - Interviewee #3
The interviewee mentions that his personality allows him to have a more flexible and
personal approach towards customers. This allows him to negate risks which would otherwise exist if he was trying to get better returns.
“We krijgen veel meer ondernemers die de huur niet kunnen betalen en dan regel ik persoonlijk een huurkorting. ... Ik houd meer mijn oog erop en ik probeer meer oplossingen te bedenken samen met degene die het huurt. Wij hebben de flexibiliteit omdat het ons bedrijf is. Omdat het mijn geld is, kan ik beslissen om genoegen te nemen met minder rendement; dan zorgen we ook voor minder leegstand.” - Interviewee #3
The interviewee also reveals that trust plays a vital role in moderating the relationship between the executive’s personality and entrepreneurial activities. The more trust the executive has, the more likely he will take on risky activities.
“Uiteindelijk gaat het om de connecties die je het. Het is ook heel belangrijk dat je die mensen kunt vertrouwen, want daaraan delegeer je bepaale dingen. Als dat niet klikt, als er geen vertrouwen is of als ik niet een band met hun opbouw, dan heeft dat geen zin.” - Interviewee #3
“Het begint met een bepaald vertrouwen, anders kun je geen overeenkomst met iemand maken, ook niet met mensen die meer winsten beloven.” - Interviewee #3
Furthermore, he indicates that similar norms and values between him and his business partners can improve the business relationships and reduce risks.
“Maar met name kijken we naar ondernemers, mensen waarvan ik denk, daar kan ik zaken mee doen; hebben we dezelfde waarden en normen. Daarmee verklein je het risico.” - Interviewee #3
Risks can be further reduced when contracts are made. Contracts are a type of a control mechanism which allows business partners to be held responsible and accountable for their actions.
“Vervolgens kun je daar ook nog een contract aan verbinden, maar een contract is alleen maar handig omdat er altijd iets kan gebeuren.” - Interviewee #3
The ownership structure also has its advantages and disadvantages towards entrepreneurial efforts. The interviewee mentions that during the period when he was not 100% owner, he was held responsible for his decisions by the other shareholders, his sisters. He decided to buy out his sisters to avoid conflicts of interests and conflicts about succession. This indicates that the involvement of multiple stakeholders, in this case multiple shareholders, may be the bane of swift and ambitious decisions. However, the downside is the loss of a control mechanism. As the interviewee mentions, this creates an arbitrage situation where decisions could go unchecked.
“Ik heb gezien dat daar vaak hele moeilijke situaties ontstaan binnen een familie over de opvolging. Dat is ook de reden waarom ik besloot, na het overlijden van mijn vader, om mijn zussen en hun kinderen uit te kopen. ... Ik heb het met name gedaan omdat ik gezien heb dat mijn zussen heel anders zijn dan dat ik ben, en onze kinderen zijn ook heel erg anders. Ik wilde problemen voorkomen in de toekomst.” - Interviewee #3
“Dat was voor mij een van de belangrijkste redenen om hun aandelen uit te kopen. Ik vond het lastig werken met aandeelhouders die niet actief in het bedrijf waren. Dan heb je andere belangen soms.” - Interviewee #3
“ ... de enige reden waarom we een raad van commissarissen hadden [was] zodat zij (de zussen) ook nog mijn beslutivorming konden toetsen; dus dat stelde een soort van padstelling. Nu heb ik een soort van arbitrage.” - Interviewee #3
The following significant concept is context. The interviewee gives examples of how the context will impact the decision to undertake an entrepreneurial activity. Firstly, if the situation bears significant risk, then significant returns need to be achieved. The context, in this case the country of the investment, will set the benchmark. Furthermore, he mentions that he started in Ghana by chance and only later realised the potential to exploit his knowledge and experience. The context presented him with an opportunity.
“Je moet je ook goed bezig zijn; je hebt benchmarks. ... Als ik dus risico wil nemen, dan moet daar ruimte voor zijn, je rendement moet dan misschien 10% zijn. Ik investeer ook in het buitenland, bijvoorbeeld in Ghana, en daar zit best een behoorlijke gedeelte van ons investering in. Daar heb ik andere risico’s en andere benchmarks. De benchmark daar is dat het rendement hoog moet zijn, misschien wel zo hoog als 20%. ... Een belangrijk onderdeel voor mij is hoeveel energie en tijd het me kost, en is dat in balans met wat ik daarvoor terug krijg.” - Interviewee #3
“Het is eigenlijk toeval. Ik heb met een paar mensen huizen gebouwd in Ghana voor een goed doel. Een van de mensen die daar bij was wilde toen graag een fonds oprichten. ... Toen ik daar was, zag ik kansen om mijn talenten en kennis te gebruiken.” - Interviewee #3
The discovery that the interviewee has invested more time, money and energy into
entrepreneurial activities during the recession is a noteworthy one. Normally, a more cautious approach would be expected, yet the opposite is the case. This divergence from the norm might be an anomaly, yet it may also be attributed to the style of governance and decision making of the interviewee.
“We hebben juist meer geinvesteerd. We doen juist het tegenovergestelde. We investeren juist meer en meer. Zowel qua geld als tijd en energie. Het gevolg is dat we zelfs ons rendement hebben verbeterd. We hebben geen leegstand. Dat komt ook omdat ik in Ghana een hoger rendement haal dan hier. Ik heb juiste mensen aangenomen.” - Interviewee #3
Furthermore, the interviewee mentions a few factors which moderate the relationship between the context and risk taking. Firstly, the relative size of an entrepreneurial activity reduces the threats of such activities. Secondly, the type of industry, the property industry, naturally negates a certain degree of risk since investments in property will always maintain a level of worth. Lastly, external pressures / influences can provide beneficial circumstances for entrepreneurial activities by challenging the executive and providing advice to reverse the inward focus of many family firms.
“Natuurlijk is dat altijd een beetje zoeken, misschien ga je een keer de verkeerde kant op, maar je investeert ook niet hele grote bedragen. ... Je investeert tijd, energie en geld, maar het zijn relatief kleine hoeveelheden. Dus het risico als het mis gaat is ook niet zo groot.” - Interviewee #3
“Je kijkt altijd naar de risico’s. De meeste beslissingen die ik neem, als ik het over onroerend goed heb, gaan over de locatie. ... Deze locatie (mijn eigen huis) is uniek en zal ook in de toekomst zijn waarde behouden. Ondanks de crisis en ondanks dat dit gebouw erop staat, heeft het altijd een bepaalde waarde.” - Interviewee #3
“Het advies wat ik zou geven is, zorg dat je een aantal mensen om je heen hebt die jou aanscherpen. Wat je wel eens ziet bij familiebedrijven is dat zij te veel naar binnen gekeerd zijn. Het is vaak een beetje een beschermde omgeving. Wat je dan ziet is dat ze dus niet aangescherpt worden door de buitenwereld. ... Dat heb ik altijd vanaf het begin gedaan, dat ik mensen om me heen heb gehad om mijn van advies te voorzien.” - Interviewee #3
5.3 Results from the Fourth Interview
There is a significant difference between interviewee #4, who is the executive of Print and Supplies Ltd. and the previous interviewees; interviewee #4 has been brought up in an
