Communicating the family firm nature; a balancing act of rationality and emotion

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Master thesis

Communicating the family firm nature; a balancing act of

rationality and emotion

An analysis on the economic and non-economic determinants of family branding

Thijs Wemerman

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Thesis supervisor: Dr. M.J. (Maryse) Brand

Co-assessor: Dr. E.P.M. (Evelien) Croonen

University of Groningen, Faculty of Economics & Business

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MSc Business Administration – Small Business & Entrepreneurship

Word count: 22.620

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February 2019

1_S2702010;_{t.wemerman@student.rug.nl}_;_{thijswemerman@gmail.com} 2_{Nettelbosje 2, 9747 AE Groningen}

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Abstract

This research examines why and how family firms come to communicate their family nature (family branding) to a certain extent. The general family firm reputation is currently positive, but significant differences in the level of family branding still persist between firms. Decision-making about family branding is determined by the emotional utility a manager derives from working at the firm, and a managers’ perceived financial utility of applying family branding. When his individual utility of family branding is converted to a collective utility of the top management team, the current level of family branding can be determined.

Through an exploratory multiple case study, it was found that family firms initially apply family branding based on emotion. Family branding is further integrated and expanded based on a positively perceived commercial value of doing so. The results improve understanding about how being a family firm influences decision-making within a firm, which is valuable for both theory and practise. Furthermore, it provides a framework for evaluation on how family firms could create a fit between their branding efforts and customer needs.

Keywords: Family firms, branding, decision-making, emotional reasoning, reputation, multiple case study

Acknowledgements

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Management summary

Family firms have long been a stable contributor to the Dutch economy. Most notably after the economic crisis the image of family firms being the cornerstone of the economy has gained foothold. Customers are generally willing to pay more for a family firms’ product, especially when they get to know the history behind the family firm. Additionally, family firm employees are found to have a higher job satisfaction compared to non-family firm employees. These findings suppose there is commercial value to actively communicating to be a family firm (family branding). Nevertheless, expecting family firms to make decisions based mainly on financial arguments would be naïve. Family firms incorporate a much higher level of emotion within their reasoning compared to non-family firms. The high presence of these non-economic factors is what makes family firm decision-making so complex. To understand the process and the causes of family firms applying a certain level of family branding, the following research question is set up: How and why do family firms come to apply a certain level of family branding?

Since strategic decision-making in small family firms mainly takes place within the top management team, members of this team are to be analysed to answer the research question. Central to answering this question is the theory of Socio-Emotional Wealth. This concept tries to illustrate the non-economic factors that play an important role in family firm decision-making. For example, how proud a manager is to be working at the firm, or how influential the family is within the firm. Next to these non-economic factors, economic factors of course still play a role. Managers need to believe family branding will improve the profitability of the firm. Combining the two factors, the attitude of an individual manager towards family branding can be determined. Still, decisions are made together with other managers which shows the need to combine these individual attitudes in a collective attitude. Since all managers have different backgrounds (expertise, family membership, education), each of them also has a different level of influence he or she can apply to the collective decision-making. Because of this, it is important to include the power of each manager when moving from the individual to the firm level. Taking all these factors into account, a collective management attitude towards family branding comes out. Because of the complex nature of family firm decision-making, the research question is answered by conducting an in-depth analysis of three firms. This is done through interviews with the complete management team of a family firm. The current level of family branding is established before the interviews, by analysing a firms’ website. Three metalworking firms with each three managers were interviewed during this process. All results are transcribed and analysed using software. The analysis consists of two steps. First, individual firms are analysed by connecting themes (codes) to interview text fragments, and relating these fragments to each other. The results of this analysis are summarized, and supported by managers’ quotes. To shed light on differences and similarities between firms, they are compared to each other. This is achieved by comparing the firms based on 4 important sub-themes of the research question.

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H1 Introduction

In mainstream business research and general public sentiment, family firms have historically been under valuated in terms of their socio-economic importance in both national and international contexts (Astrachan & Shanker, 2003; Flören, 1998; Lewandowska & Hadryś-Nowak, 2012). Despite their substantial economic impact, family firms were often portrayed as - in many regards – dysfunctional and of little societal importance. (Flören, 1998; Astrachan & Botero, 2018). The financial crisis of 2008 seems to have been a turning point in this negative family firms’ image. Although not on all fronts, the Edelman Trust Barometer (2017) found that family firms are increasingly attributed positive connotations, perceived to be linked with their family nature. For instance, respondents stated that if a family firm would communicate the firm history and background story it would improve their trust in this particular firm and they would be willing to pay more for their products.

Family firms as business entities can be defined as ‘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.’ (Chua, Chrisman & Sharma, 1999, p. 25).

Within the reality of the changed family firm perception there are opportunities for family firms to better align themselves with this positive family nature reputation. Especially in light of the finding that generally only 1 in 2 people know which firms they buy from, are actually a family firms (Edelman Trust Barometer, 2017). This opportunity argument is supported by many scholars that found positive causal relationships between a higher organizational reputation and financial performance (e.g. Shamsie, 2003; Roberts & Dowling, 2002). For instance, a high organizational reputation results in the organization attracting more and a higher quality of job applicants (Turban & Cable, 2003), this is especially true when a family image is highly emphasized (Hauswald et al., 2015). Communicating the family nature, dubbed ‘family branding’ by Micelotta & Raynard (2011), is found to be generally positive for a family firms’ reputation (Sageder et al., 2015).

Thus, from an economic perspective it would seem a good choice to communicate your family nature to exploit advantages of a positive organizational reputation. Still, it would be naïve to assume that firms act in a solely economically rational manner, especially regarding family firms. Romano et al. (2001) depict family firm decision-making as a complex interplay between economic, social and family factors. The latter two being defined as non-economic factors. The high presence of these factors provides a sound argument on the importance of differentiating between family- and non-family firms in research and practice. Provided that family firms highly base their decision-making on non-economic factors there might also be a lack of consciousness in making decisions (Berrone et al., 2012). Reasoning based on emotion is intangible and often lacks a clear logic to why the emotion exists in the first place. If so, it might be beneficial for family firms to evaluate determinants of their decision-making to approach a higher level of objectivity in this regard.

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& Jaskiewicz, 2013; Berrone et al. 2012; Gómez-Mejía et al., 2011a; Astrachan & Botero, 2018). In addition, Beck (2016) specifically advocates for future research in why firms do or do not communicate their family nature. Astrachan and Botero (2018) provide a recent insight, but advocate for doing similar research in different countries and cultures in addition to their German sample.

In terms of theoretical concepts, Socio-Emotional Wealth (SEW) seems to provide a promising way to explain characteristics that are unique to family firms (e.g. Berrone et al., 2010). According to SEW theory, the social and family factors which play a major role in family firms are based on affection a manager feels towards a family firm (Berrone et al., 2012; Gómez-Mejía et al., 2011a). This affection translates to a level of satisfaction which a manager extracts from working at the firm. For example, a manager can be proud on the norms and values his firm stands for. This is not unique to family firms, but due to a higher presence of social and family factors, the level of extracted satisfaction is often higher. Manager are thus more likely to frame decisions in the context of preserving or enlarging their level of extracted satisfaction, also known as Socio-Emotional Wealth.

In this view, family firms see non-economic gains as a reasonable compensation to potential financial benefits. At least more so, compared to non-family firms. Berrone et al. (2012) describe the interaction between these two types of arguments as a utility function. An economic- and non-economic utility jointly represent the perceived utility of a manager about a certain situation. Within this utility function, economic utility represents possible financial benefits, and non-economic utility represents the level of SEW. Berrone et al. (2012) and Gómez-Mejía et al. (2011a) recommend future research on family firm strategic decision making to distinguish between economic and non-economic utility.

Examining SEW in more detail, Berrone et al. (2012) also distinguish 5 dimensions of SEW. Measuring the relative importance of these 5 dimensions to the level of SEW is an important subject of future research according to Zellweger et al. (2012). Family firm decision-making has a very complex nature because of the high inclusion of emotion. Distinguishing between the two utilities, as well as the 5 dimensions of SEW can deliver important new insights.

In their research, Berrone et al. (2012) focus on the SEW of family managers. This focus is problematic when trying to uncover determinants of family firm decision-making because family members rarely constitute the complete top management team (TMT). Furthermore, family and non-family mostly don’t have the same level of decision-making power (Minichilli et al., 2010). Including both family- and non-family managers helps in getting a more complete picture of family firm decision-making.

This research aims to provide theoretical contributions to the understanding of Socio-Emotional Wealth and its dimensions within family firms. Specifically, how the non-economic utility of managers compares to the economic utility of managers when deciding about applying family branding. By making this distinction and clarifying the relative importance of the two utilities, this research creates awareness among family firms of how important the family nature is in decision-making, particularly in terms of family branding. Evaluation on decision-making is valuable to family firms because it can highlight the positive and negative characteristics of being a family firm. For example, family altruism in executive positions or a high customer relationship focus (Minichilli et al., 2010). These characteristics can in turn be Strengthened or reduced.

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explore. She provides the following research question: “How do organizational members believe external stakeholders think about them when communicating the “family firm status” and how does that fit with the real external perception?”. The results of this research question can be compared with results about the current family firm reputation (e.g. Edelman Trust Barometer, 2017; Sageder et al., 2015). When firms are aware of their general reputation, they can work towards aligning their level of family branding to their specific context. An analysis on the specific thoughts their stakeholders connect to their firm is the next subject of investigation

All in all, family firms experience a positive reputation regarding their family nature. From an economic perspective this creates opportunities to communicate the family nature to increase firm reputation, and improve firm performance. But because of distinctive family firm characteristics, decision-making is also very much influenced by non-economic factors rooted in the socio-emotional wealth of family firm managers. The relatively high importance of non-economic factors makes previous research about decision-making in the domain of non-family firms largely ungeneralizable to the reality of family firms. Especially the ‘why’ question about firms deciding to communicate their family nature in light of their reputation is an important topic of research recommendations regarding family firms. Based on these findings, the following research question is formulated:

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H2. Theoretical background

In this chapter the important theoretical topics are discussed. There are 5 main topics within this research which will first be presented individually. After all topics are discussed, the research model is presented, which connects all 5 topics and explains relationships between them.

H2.1 Non-Economic Utility

H2.1.1 The difference between family and non-family firms

Socio-emotional wealth (SEW) is a relatively new concept first used by Gomez-Mejia et al. (2007). SEW acknowledges that family firms are fundamentally different from non-family firms and their decision-making is based more on emotion compared to non-family firms. It is widely acknowledged that boundaries between family firms and the family controlling the firm itself are fuzzy and emotional interaction is inherently present between the two entities (Baron, 2008). Gomez-Mejia et al. (2011a) add that emotions also play a part in the rigid and path dependant nature of owning a family firm. In non-family firms, employees and owners are mostly free to leave the firm, while family owners oftentimes don’t see leaving the firm as a viable option due to a high emotional connectedness. Taking the aforementioned arguments into account, literature seems to agree that family firms differ significantly from non-family firms in terms of decision-making (e.g. Romano, 2001; Berrone et al., 2012). Building on this apparent consensus, Gomez-Mejia et al. (2011a) subsequently call for an integration of emotion as a factor in family firm decision-making.

H2.1.2 Familiness & SEW

To explain these decision-making inputs based on emotion, Gomez-Mejia et al. (2007) constructed Socio-Emotional Wealth in an effort to integrate emotion. By their reasoning, SEW can be utilised to explain family firm decisions that at first sight seem economically irrational, but gain validity when Socio-emotional Wealth dimensions are considered. In practice, SEW is an individually perceived concept determined by the characteristics of a family firm. The presence of family firm characteristics is described by Kellermans & Hoy (2012) as the level of familiness of a firm. Familiness draws on the resource-based view for its reasoning, stating that family firms develop a unique set of resources and capabilities because of their family nature (i.e. family altruism). The level of these resources and capabilities present in the family firm represents the level of familiness (Minichilli et al., 2010). Barros et al. (2017) explored the relationship between familiness and SEW. They state that that as SEW is derived from the firms’ characteristics, it is thus more present when a firm displays a high level of familiness.

SEW as a determinant of family firm decision-making

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The dimensions of SEW

The Socio-Emotional Wealth of a manager cannot be captured in a single dimension. Berrone et al. (2012) present a set of 5 dimensions derived from previous research on SEW. These dimensions together represent the non-economic utility and are of fundamental importance to understand emotion-based reasoning in family firms. Although SEW is a firm level concept based on firm characteristics, dimensions are formulated on the individual level. This is because managers will individually construct the level of SEW based on their individual perceptions of the dimensions. This leads to each manager perceiving a different level of SEW to be present on a firm level. This makes, constructing and measuring dimensions on the individual level to be necessary.

Firm level SEW dimensions

The dimensions on a firm level represent the manager’s perception of the relationship between the family and the firm. These dimensions are thus about a perception of the structure of the firm as a collective entity.

Family control and influence can be defined as the degree of formal and informal control family members possess within the family firm. Because upholding SEW is primarily beneficial to family members, being in a position of control and influence is important for family members to not to let SEW be overshadowed by economic utility (Berrone et al., 2010; Hauswald & Hack, 2013).

Renewal of family bonds to the firm through dynastic succession refers to the family firm being perceived by the family as more than a disposable generator of income. Instead it is a symbol of the family legacy and tradition, of which the continuation is seen as one of the most valued ambitions of the family firm. Hence, family firms tend to employ a long-term perspective on decision-making which might be perceived as irrational when the desire for continuation is not taken into account (Berrone et al., 2012). In addition, firms that have succession plans attribute a higher importance to reputational concerns (Van Gils et al., 2014).

Individual level SEW dimensions

The dimensions on an individual level represent the individual managers’ perception of the relationship between the manager and the firm and internal and external stakeholders to the firm. These dimensions are thus about a perception of relationships between the individual managers and other aspects of the firm.

Social Identification of managers with the firm can be defined as to what extent stakeholders see the family firm as an extension of themselves. High social identification leads to high intrinsic motivation to present a positive organizational reputation to the outside world, because of the risk of not only firm, but also private reputational decline (Deephouse & Jaskiewicz, 2013; Dyer & Whetten, 2006).

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Emotional attachment of managers is the affective component of SEW formed over time by a long history, knowledge and appreciation of shared experiences. These experiences shape the family firm as a cognitive construct where individual requirements for affect, belonging and intimacy get fulfilled (Berrone et al., 2012). This attachment creates a form of emotional ownership (EO) beyond formal ownership (Nicholson & Björnberg, 2012), which as a dimension of SEW can help explain altruistic actions of managers (Berrone et al., 2012).

H2.2 Economic utility

H2.2.1 Defining Economic utility

As mentioned in the introduction, economic utility is the perceived financial benefits a manager can derive from a family firm. According to Berrone et al. (2012) and Gomez-Mejia et al. (2007) SEW is part of a utility function of decision-making, together with financial outcomes. Whereas SEW is generally regarded as an established concept, these financial outcomes are not defined in a clear concept. Several papers use different terminology (e.g. economic logic & financial considerations). For the sake of simplicity, and to apply the same logic of wording as Berrone et al. (2012), these different terms will be defined as the perceived economic utility of managers.

H2.2.2 Measuring Economic utility

Since there is no distinct theoretical concept of economic utility, a clear measure is also lacking. in the latter two papers, as well as the paper of Gomez-Mejia et al. (2011b) the focus for measuring economic utility is mainly on the profitability of the firm (ROA). This main variable is divided into secondary variables that focus on the level of growth, the sustainability of firm performance and risk of strategic decisions. These variables have proven to be useful in measuring the perceived economic utility managers base their decisions on. To measure the perceived economic utility of managers, the perception of the profitability should be measured, as opposed to the actual profitability. By focussing on the perception, it is also possible to measure expectations on the future economic utility. Because this research focusses on family branding, the economic utility is defined as the perceived economic utility of family branding. In other words, how do managers think family branding affects the profitability of the firm.

H2.3 Individually perceived utility of family branding

H2.3.1 Determinants of the individually perceived utility of family branding

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H2.3.2 The interaction between economic- and non-economic utility of family branding

The context dependency of the individually perceived utility

Further research into the relative importance of utilities is needed because they are not static, but interact based on the context of the firm. Gomez-Meija et al. (2007) illustrate this interaction by looking into different orders of financial risks which are involved. According to their findings, family firms are not indefinitely more risk averse than non-family firms, but frame their decision based on the possibility of losing SEW endowment (Gomez-Meija et al., 2007). This means that family firms are more likely to settle for lower financial performance if this provides preservation of SEW. Yet, when performance declines, attention to the economic utility becomes more salient given the importance of survival. The importance of firm survival to preserve SEW in the long term, thus might lead to SEW becoming less salient compared to economic utility in the short term.

Attaching a financial valuation to SEW

Zellweger et al. (2012) go a step further and try to quantify SEW. This is done based on the assumption that managers will be reluctant to sell their firm only for its objective financial worth. They suppose, that a socio-emotional point of view will lead managers to seek an additional amount of financial assets on top of the objective financial worth of the family firm. The difference between the asking price of family and the objective financial worth would be the financial valuation of SEW. It is then argued that when SEW valuation is lower than the economic utility of a strategic decision the economic utility will be will have the upper hand in that specific decision. This particular paper is based on the risk of losing all or close to all SEW by selling the firm to a non-family party. When a strategic decision will only pose a risk for a portion of SEW, results might be different.

H2.4 Top management team decision-making

To transform the individually perceived utility of family branding to a collective utility of the management team, an intermediate step is needed. A TMT collectively decides to apply family branding to a certain extent. However, this is not as simple as making an unweighted sum of all the individual manager utilities. This chapter outlines why there is a need to make an intermediate step and how this can be done.

H2.4.1 Decision-making in family firms

The existence of power disparities in firm TMT’s

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Finnish family firms, they found significant proof for the power of family and in particular a family CEO within a family firm. On average, 3 out of 4 board members were family members, and the family owned 90% of the firm’s shares on average.

H2.4.2 Dimensions of power in decision-making

Objective measure of manager power

Given the apparent disparity of power within family firm TMTs, a reliable measure of power is needed to assess the decision-making process of family branding. The power dimensions defined by Finkelstein (1992) are used extensively throughout management literature to measure the distribution of power within top management teams. Finkelstein (1992) defines four dimensions of power which are important to top managers; structural-, ownership-, expert-, and prestige power. First, structural power is the formalised and legislative form of power. Thus, the CEO oftentimes has a high structural power since it is defined within the role of a CEO. Second, ownership power is defined by power derived from owning shares as well as having strong relationships with actors that own a relatively high number of shares. Therefore, ownership power can be derived from both a direct and an indirect source. Third, expert power is about a manager’s ability to cope with environmental contingencies which create uncertainties for the firm. Managers with high expert power are often consulted to give advice. This consultation gives them power, especially when a manager possesses rare expertise in activities that are crucial to the firm’s existence. Fourth, prestige power originates from a managers’ standing in the ‘managerial elite’ based on a membership of internal and/or external boards and having enjoyed education at elite schools. The prestige power of an individual is mainly determined by the people he or she knows, and thus which type of information can be accessed through these connections.

Subjective measure of manager power

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H2.5 Family branding

When the collective utility of family branding is established, this will lead to a certain level of applied family branding. Family branding can be seen as a tool to leverage and build organizational reputation. The salience towards these kinds of reputation building actions (e.g. branding) is dependent on the collective utility of family branding. This chapter will first outline organizational reputation in general, as well as in the context of a family firm. Second, it will define family branding and how this can be measured.

H2.5.1 Organizational reputation

Defining organizational reputation

Organizational reputation encompasses a very diverse spectrum of evaluation, communication and symbolism which can be defined as ‘a stakeholder's overall evaluation of a company over time. This evaluation is based on the stakeholder's direct experiences with the company, any other form of communication and symbolism that provides information about the firm's actions and/or a comparison with the actions of other leading rivals.’ (Gotsi & Wilson, 2001, p.29). Multiple scholars find a positive causal relationship between a higher organizational reputation and economic performance (e.g. Shamsie, 2003; Roberts & Dowling, 2002). Fombrun and Shanley (1990) argue that a positive reputation helps firms to improve their attractiveness to investors and job applicants. Furthermore, it enables a firm to charge higher prices to their customers.

Organizational reputation in a family firm context

From a financial point of view, it seems logical to build and exploit a positive reputation. Nevertheless, explaining family firm decision-making based mostly on economic utility can be problematic. In addition, Hoffman et al. (2006) note that the context of family firms is better suitable for building a reputation compared to non-family firms. This has mostly to do with the firm characteristics of an average family firm. For instance, family firms often prefer to have strong ties with other stakeholders, and operate in a relatively closed off network. This generally leads to stable and enduring relationships during which reputation can be built.

H2.5.2 Family branding

Defining branding

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The family as a distinctive brand

Family firms possess significantly different firm characteristics and resources compared to non-family firms (Minichilli et al., 2010). Because of this Krappe et al. (2011) argue that the family firm brand in general, can be regarded as a legitimate and distinct brand. A firm brand can be regarded as distinctive when the perception of a firm’s identity by the firm itself matches the perception of the firm by external stakeholders. The family firm brand is especially distinct in a context where personal interaction and craftmanship are important factors of differentiation between firms (Astrachan & Botero, 2018). But in order to consider a family firm as a brand on its own, this brand has to be built far beyond merely mentioning the family nature of a firm. Parmentier (2011) describes brand building to be based on brand distinctiveness and brand visibility. Brand distinctiveness is accomplished by recording and communicating important milestones and experiences for the family firm as well as utilizing individual family members as representatives of the family firm brand. Brand visibility is improved by creating, and capitalizing on opportunities to make the family firm brand familiar to the public.

Measuring the level of family branding

The level of family branding can be hard to measure, especially when it is based on behaviour or oral communication by members of the family firm. Especially in small firms, there is often a lack of formalization and consistency in communication. Analysing written communication provides a more stable and distinct measurement of the level of family branding. Micelotta & Raynard (2011) went beyond the conceptualisation of family branding by Parmentier (2011), by analysing family firm websites and use the contents as a proxy measure of overall family branding. Firm websites are an increasingly integral means of communicating a certain image to external stakeholders and have proven to function as an effective proxy of measuring branding (Micelotta & Raynard, 2011). Micelotta & Raynard (2011) construct a framework which distinguishes three family branding strategies for family firm websites. Based on visual and textual content, both the denotative and connotative meanings of this content are analysed and subsequently grouped into a strategy. These strategies represent the generalised method of how and to what extent family firms present their family nature through their website. As can be seen in figure 1, this level of family branding can range from being fragmented and minimal to being distinctive and integrated throughout the website.

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H2.6 Research model

H2.6.1 Determinants of individual family branding utility

The aforementioned five theoretical subjects represent the most important variables within this research. Based on these blocks, a research model is constructed that consists of variables on a collective firm level as well as on an individual level (See figure 2, and appendix 6.1 for full version of the model). This distinction is made because the applied level of family branding is on a firm level, but a managers’ utility of family branding is on an individual level. The individual utility consists of both an economic- and non-economic utility of family branding. As mentioned in chapter 2.1 and 2.2, economic utility is a singular concept, while non-economic utility is subdivided into a firm- and individual component. The dimensions of SEW by Berrone et al. (2012) will never be perceived the same by the managers. Because managers base their non-economic utility of decision-making on their own perception of SEW, this perception has to be measured instead of the objective presence of the dimensions. Essentially, each dimension describes a relationship between two or more aspects of the firm. The nature of these relationships is elaborated upon in table 1.

Utility

components

Component description

Visualisation

Economic utility of family branding Individually perceived economic consequences of applying family branding

The perception of general family firm reputation, as well as the perceived commercial value of family branding at the firm he or

she works at.

Non-economic utility of family branding Perceived familiness of the firm

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familiness of the individual

Describes the managers’ perception about the (emotional?) relationship between:

• 1: The manager and the family firm

• 2: The manager and his or her colleagues

• 3: Colleagues and the family firm

• 4: External stakeholders and the family firm

Table 1: Overview of individual determinants of family branding, including descriptions and visualisations.

H2.6.2 Conversion of utility from an individual- to a collective level

When the economic- and non-economic utilities are determined, they jointly represent the individually perceived utility of family branding of that particular manager. Within this individual utility there is a difference in the economic- and non-economic utility, based on their relative importance to the manager. For instance, if a manager is highly positive about family branding and its commercial value, the economic utility receives a high score. When this score is lower than the non-economic utility, this particular managers’ utility is mainly characterized by the economic utility of a situation. The next step is to translate the individually perceived utility of family branding to a collective utility of family branding. Since a TMT consists of multiple managers between which power disparities are highly likely, describing these disparities is important for this translation. The combination of each managers’ individual utilities and their respective levels of power within the TMT are combined in a collective utility of family branding.

H2.6.3 Family branding dynamics

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Figure 2 Simplified version of the research model (See appendix 6.1 for full version of the model)

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H3 Methodology

H3.1 Research approach

H3.1.1 Research design

Because of the apparent need to look into the ‘why’ of family firms applying family branding, case study research is an appropriate technique to uncover underlying causal mechanisms and complementary explanations (Rynes & Gephart, 2004). Combining the lack of theoretical grounding with the complex nature of family firm decision-making, an exploratory multiple case study is the most suitable case study design (Baskarada, 2014). This type of case studies is applied in a context which lacks theoretical understanding and has yet to reach a mature status. To help mature the research topic, hypotheses are presented in the results section to be tested by future research. A case study containing multiple cases is chosen because it delivers better grounded results compared to a one-case design (Gustafsson, 2017). The primary data is collected using semi-structured interviews. Block and Wagner (2014, p. 13) state that interviews ‘can and should’ be used in future research about reputational actions within the context of family firms. They believe that in-depth interviews help uncover the causal mechanisms of why family firms communicate their family nature. The collected data is analysed in a within case- and cross-case analysis.

H3.1.2 Preconditions of firm selection

In order for a firm to be applicable for this research, the following preconditions have to be fulfilled. Match family firm definition

• Why: This research focusses on family firms’ characteristics.

• Method of selection: Firms have to comply to the definition of family firms by Chua, Chrisman & Sharma (1999). This definition can be found in the introduction. Compliance is checked during initial communication with the firm and is based on contents of the firm website.

Be a metalworking firm

• Why: Selecting metalworking firms mitigates industry level differences between the selected firms which increases internal validity. Furthermore, due to the researchers’ background in this industry, his personal network is highly suitable to contact metalworking firms.

•

Method of selection: Metalworking firms which are likely to comply with the other preconditions are selected with the help of branch organisation representatives and a branch organisations member database. Three representatives of the ‘Metaalunie’, and one representative of the ‘Gelders Familiebedrijven Gilde’ are consulted.

Have a TMT of 2-4 managers

• Why: To get a complete overview of inputs on strategic level decision-making, an in-depth interview with each individual member of the TMT is required. To still be able to interview multiple firms in a limited time frame, a maximum TMT size of 4 managers is maintained. • Method of selection: Firms are initially selected on an employee count (SME’s, 20-50) which

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• Why: To be able to discuss the notion of family branding, it has to be present to some extent, be it based on a conscious decision or subconscious outcome.

• Method of selection: The initial level of family branding is established by analysing a family firm’s website based on the measures provided by Micelotta & Raynard (2011).

Cross-case variance in terms of history and level of family branding

• Why: In an effort to increase the possibility of finding significant differences in terms of family branding, a certain level of predetermined variance between cases is needed.

•

Method of selection: Based on the measures of Micelotta & Raynard (2011) and a general analysis of the website, initial variance in terms of history and level of family branding is found.

H3.1.3 Research question and sub-questions

With the presented research model as a starting point, this research aims to answer the following research question.

Research question

How and why do family firms come to apply a certain level of family branding?

Sub-questions

1. What is the relative importance of economic and non-economic determinants for the current level of family branding?

2. Is the current level of family branding a conscious decision or a latent outcome? 3. Do family firms expect their current level of family branding to change in the future? 4. Are there significant differences between family and non-family managers regarding

determinants and perceptions of family branding?

In this research, sub-question 1 is the most comprehensive sub question. Answering this question gives enough understanding to give a basic answer on the research question. The other sub-question thus function as to refine and detail certain aspects of sub question 1.

H3.2 Data collection

H3.2.1 Selected firms and interviewees

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interviewed firms, as well as which managers are interviewed can be found in appendix 6.4. To facilitate emergent themes and get an in depth understanding of the managers reasoning, a semi-structured interview approach is chosen. On average the interviews lasted 53 minutes without any significant differences in interview length between managers of different firms.

H3.2.2 Interview structure

To structure these interviews, make them comparable to each other and connect the primary data to theory later on, the interview questions and theory are systematically linked. First, a list of deductive codes (see appendix 6.7.1) is set up and defined, based on the theoretical topics presented in the theoretical background section. This selection of keywords provides a good frame of reference when formulating interview questions. Second, an overview table displaying the transformation of theoretical topics to interview topics is set up (Appendix 6.5). This table subdivides theoretical topics, and links interview questions to them. This is done to improve construct validity by making sure interview questions truly discuss a certain theoretical topic. Combining these two ways of linking theory and interview questions the final interview guide in Dutch is set up (Appendix 6.6). Next to this systematic approach, an opportunistic data collection method should be used to also capture relevant topics that emerge in the interviews but are not yet included in the interview guide. The interviews are always started with an introduction of the researcher, the research topic, the rights of the interviewee and the structure of the interview. The interview is split up into several topic groups containing interview questions which are introduced by the interviewer every time a new topic is started.

H3.2.3 Quality criteria

Validity

By staying as close as possible to theory and pre-existing measures during data collection, construct validity is maximized. Construct validity represents the extent to which a method truly measures what it implies to measure (Bagozzi, 1991). Additionally, to improve content validity, both subjective and objective measures are used to determine the level of family branding and the power distribution in the top management team. Content validity can help to establish construct validity. It depicts the extent to which a measure describes all elements of a particular construct. Content validity can be maximized by applying more than one measure to a construct which is done by means of triangulation in this research (Yaghmale, 2003). Triangulation is achieved by measuring both subjective and objective levels of the current level of family branding as well as the power disparities in TMT decision-making. During data collection at the first firm it was found that managers were reluctant to use the subjective power measure of Smith et al. (2006). To still get in-depth and reliable results, the researcher decided to apply the more indirect approach of Anderson et al. (2012) for the following firms.

Bias and secondary data quality

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H3.2.4 Used measures

Measure description

The four theoretical concepts mentioned in table 2 form the basis of this research. These concepts and their measures are elaborated upon in the theoretical background section based on a number of theoretical sources. These sources, and their method of application in this research are stated in the table. Apart from the a priori measure on the current level of family branding, all data collection is done through the interviews. An overview of all used measures and their connection to theory can be found in appendix 6.5.

Theoretical

concept Content & source

Method of application in this research

Non-economic utility

5 Dimensions of Berrone et al. (2012). The dimensions are subdivided in familiness of the firm, and familiness of an individual. Berrone et al. (2012) set up statements to test SEW.

The statements are converted into interview questions. *

Economic utility

Measures used by Gomez-Mejia et al. (2007) and Gomez-Mejia et al. (2011b) in similar research.

The economic variables of the two studies are integrated into interview questions. *

Top management team

decision-making

Objective measure: Dimension of

decision-making power proposed by Finkelstein (1992).

The components of the dimensions are converted into interview questions. *

Subjective measure (a): Perception of division

of power, based on scoring other managers on their level of power (Smith et al., 2006).

This measure is copied from Smith et al. (2006) (appendix 6.3.2).

Subjective measure (b): Perception of an

individual’s sense of individual power based on scoring of statements (Anderson et al., 2012).

The statements are slightly altered to emphasize the managers power as being the unit of analysis (appendix 6.3.3).

Current and future level of family branding

A priori measure (a): Scoring level of family

presence in web-based content based on Micelotta & Raynard (2011)

The content characteristics of the high and low family branding strategy are used to score the level of family branding (appendix 6.2).

Interview measure (b): The perceived current

level of family branding is questioned based on the paper of Micelotta & Raynard (2011)

Questions based on the paper are set up by the researcher. *

Interview measure: The perceived possibility

of a future change to the level of family branding.

Questions are set up by the researcher. *

Table 2: Core concepts and their method of application, see appendix 6.5 for a more elaborate explanation on the method of application.

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Time aspect of measuring

These measures are applied to the current perception of managers about each of the concepts. This is done based on the assumption that the TMT of a firm always has the ability to adjust the current level of family branding. The ‘decisions’ about family branding are thus perceived as a continuous process of deciding; iteratively adjusting family branding or keeping it on the current level. This implies that current individually perceived utility of family branding by managers coincides with the current level of family branding. To check this assumption, the interviews are started off by asking if family branding has been a distinct choice, decided in the past. If so, interviewees are asked to think about their perceptions of variables both in the past and currently.

H3.3 Data analysis

H3.3.1 Secondary data analysis

The first data analysis is conducted after a firm has agreed to participate in the research, because this analysis is based on the collection of secondary data. Using the a priori measure, the current level of family branding is established.

H3.3.2 Primary data analysis

Transcribing and coding

Due to time restraints and reasons of practicality, the researcher chose to create extensive summaries of the interviews instead of fully transcribing them. After summarizing the interviews Atlas.ti is used to systematically code and analyse the transcripts. This software is recommended by the University of Groningen and is used to make the data analysis process more efficient, mitigate researcher bias during the analysis and improve pattern recognition throughout the primary data. As mentioned, predetermined deductive codes are set up (Appendix 6.7.1) based on different theoretical topics. To capture emergent topics, open- and in vivo codes are used as a complementary inductive approach to the deductive codes. Open codes are formulated by the researcher, but based on emergent topics from the interview. In-vivo codes also emerge from data but are defined by a quotation of the interviewee (Saldaña, 2015). The approach of using predetermined deductive codes as well as emergent inductive codes can best be described as the directed content analysis approach proposed by Hsieh & Shannon (2005). The full codebook containing all codes can be found in appendix 6.7.2.

Within- and cross-case analysis

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H4 Analysis

The analysis consists of a within-case and cross case analysis. The analysis of interview summaries is based on inductive and deductive codes as mentioned in the method section. The full list of these codes can be found in appendix 6.7.2 To preserve privacy of the managers, they will be referred to by their job title.

H4.1 Within-case analysis

The within-case analysis consists of an introduction, content analysis and code analysis of each firm. The firm and the interviewed managers will be briefly introduced before the analysis of the interview is discussed. A brief background of each firm can be found in appendix 6.4 to supplement the introduction. In the code analysis the frequency of code use, and co-occurrence of codes will be looked into. The code frequency is illustrated by converting the tables of appendix 6.7.3 into word clouds for each firm. The co-occurring codes are selected to be analysed when their co-occurrence is ≥4.

H4.1.1 Firm A

Introduction and background

Firm A is a medium sized second-generation family firm. It is run and owned by two brothers each having more than 25 years of experience within the firm. In addition to the two brothers, the management team is complemented by the production manager, who has worked at the firm for the last 8 years. Firm A scores low on their current level of family branding, based on the scoring of their website (see appendix 6.2).

Content analysis

Family branding as a conscious decision or a latent outcome

The applied level of family branding is relatively low compared to the other analysed firms. This is partly due to the absence of a conscious decision about family branding. Especially the two brothers have never thought about applying family branding. This thought has never surfaced because they both don’t believe that the integration of the family nature within their branding has any commercial value for the firm.

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The managers’ social identification with the firm is mostly characterized by modesty. Especially the two brothers (SM & GM) rather feel thankful, as opposed to proud when talking about their firm. All three managers also have a strong feeling that what they achieve as a firm is only to be attributed to all employees as a team, not to them as individuals. This feeling of familiarity and collectivism provides all three managers with a non-economic utility in the form of satisfaction with their way of working together. This approach is reflected by the two brothers constantly trying to delegate tasks to other employees instead of trying to take on everything themselves. The general manager states: “As a CEO it is your daily job to free up your own time”. This approach might also result in a lower association between the family and the firm according to the strategic manager. All managers believe that the firm name as a brand reflects a level of quality towards their customers. They feel that their brand distinctiveness is based on their willingness to think with the customer, their efficient organization and their ability to deliver high quality products. Collectively the managers believe customers don’t come to their firm because it is a family firm. Still, their ability to think with the client is attributed by the strategic manager to them being a family firm.

In terms of binding ties, both brothers prefer strong, long term and trust-based relationships between them and their customers. The general manager beliefs trust is a prerequisite of doing business and feels their firm is regarded as a trustworthy partner by their customers. Emotional reasoning is therefore an important antecedent of their decision-making. Both brothers greatly value their initial gut feeling about a certain situation and won’t proceed with a business activity if one of the management team members doesn’t have a good feeling about it. This emotional reasoning extends to the way the managers feel about the other employees. The strategic manager mentions the ‘Ebbers culture’ as an all-inclusive term to describe their way of working. Apart from the earlier mentioned notions of familiarity, delegation and collectivism, feeling responsible for each other’s wellbeing is a fundamental part of this culture. The current and future fit between the firm and an employee, as well as strong emotional bonds between colleagues are seen are vital. Upholding these bonds is regarded by the production manager as his primary task within the firm. In addition, the strategic manager beliefs their internal emotional bonds and organizational culture is an important reason for customers to work together with Firm A. Still, the general manager adds that the

“I am thankful for how the firm functions as it

does now” (GM)

“We don’t have customers that come to

us only for the price” (SM)

“You have three kinds of loyalty; dog loyalty, cat loyalty and rat loyalty. We prefer to do

business with the first” (GM)

“Acting responsibly towards my colleagues

is my primary task within the firm” (PM) “Even if we are not all family, collectively we are still a family firm”

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notion of responsibility for employees is not of an indefinite nature. When the firm is in trouble, he also has the responsibility to ensure the firms’ survival. If this means that several people must be fired, then this still must be done without hesitation. He thus feels there is a balance within the responsibility he feels for his colleagues. Overall, the social identification of all managers is high. Still, the production manager scores slightly higher due to his more pronounced feeling of proudness and responsibility, and the modesty of the two brothers.

Firm level familiness

Regarding formal ownership and influence, the two brothers both score high. They fully own the firm, the shares being divided equally between them, and together form the board of directors. Still, the production manager has an important function within the management team, being able to break a deadlock between the two brothers. Furthermore, the opinion of each management member is valued equally, as long as the individual provides sound reasoning and arguments. The aforementioned importance of delegation also provides a less strong grip of the two brothers on the decision-making within the firm. Family altruism seems to be low, considering all managers agree that the fact that someone is family or not has nothing to do with the position that individual has in the firm. As the general manager puts it “We want to have the right person in the right place”. Still, the two brothers both feel that the presence of family within the firm is essential to the Ebbers culture, they dearly strive to preserve. Partly because of this, the management is already looking into the succession of the firm by the son of the general manager. Even though the two brothers are both at least 10 to 15 years from their retirement age, they feel a high need to address succession as soon as possible. This intrinsic motivation stems from a high sense of responsibility of passing on a healthy, profitable firm that complies with the latest standards in their business, just as their father did before them. The general manager and production manager also feel the successor doesn’t necessarily have to be a family member. The production manager doesn’t fear family nepotism in the succession process, stating that if a family member is capable and suitable, they would like him or her to take over, but being family is no prerequisite. The general manager is also very cautious to avoid altruism and mentions the importance of not bringing up your children with a golden spoon. He also mentions how important it is to make your children enthusiastic about the metalworking trade if you want them to take over. For your children to feel positive about taking over the firm, you should not bring the negatives of your work home and you should not be working around

“You are responsible for your employees, but

employees are responsible for their own job and their own

future” (GM)

“Every manager can decide their own course, as long as the

end goals are achieved” (GM)

“Succession needs to be done well, preferably with value

added since I took over” (SM)

“The ship needs to sail, briefly go into the docks to pass it on, and

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the clock. Concluding on firm level familiness, formal ownership and power is firmly in the hands of the two brothers. Nevertheless, informal ownership resides throughout different layers of the firm with family altruism being perceived as almost non-existent. Succession on the other hand is unanimously perceived as being very important, but the successor being a family member is not deemed a requirement for succession to be successful.

Economic utility

The perception of family firm reputation is rather divergent between the two brothers and the production manager. The strategic manager evaluates this reputation is neutral and has the potential to become negative in the future. He notes that when he thinks about family branding, he immediately gets the urge to remain cautious because he is afraid this proliferation as a family firm might also turn against the firm. This caution arises from the belief that customers might think family firms are outdated and neglect their commercial interest in favour of family interests. Furthermore, he doesn’t believe that customers regard the family component of the firm as a positive differentiating factor from non-family firms. The general manager is more positive about family firms himself but regards the external reputation of family firms as being generally neutral with some negative and positive associations that come with it. He feels that family firms are the driving force behind the Dutch economy and disagrees with the negative characteristics attached to them. On the one hand he thinks family firms are regarded as being more reliable than non-family firms. On the other hand, he thinks family firms are regarded as sometimes losing focus on commercial considerations because of family interests. These neutral views of the two brothers are contradicted by the production manager. He believes that the economic crisis of 2008 resulted in a higher organizational reputation of family firms. Especially the family firm independence and historical track record are two positive connotations attached to family firms. The production manager also thinks that their customers, and industry as a whole, have a favourable view of family firms and he thinks it might be a good option to commercialize on the fact that their firm is a family firm. In terms of applicability of family branding to their own firm, the general manager feels this applicability is low because their client base is not local like the bakery in town but very much nationally and internationally based. Furthermore, he also doesn’t act as a representative of the firm and thus thinks that their customers don’t associate their firm with the family. The economic utility of family branding is thus perceived as being largely neutral by the two brothers. Contradictory, the production manager perceives the economic utility as having improved

“They would never put a family member on the chair of the CEO if

they would doubt about him or her” (PM)

“I don’t think people will attach a certain positive value to family

firms, partly because I don’t do this as well.”

(SM)

“Family firms are the most successful type of

firms because people don’t argue about an extra hour worked or

some extra euro spent.” (PM)

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in the last 10 years and sees opportunity for commercialization of the organizational reputation.

Perceived level of family branding

All of the management agree that the level of family branding applied at Firm A is low to non-existent. The strategic manager however notes a recent example which does tap into the personality of the management of the firm. They made a brochure for their product line with a story of all three managers engaging in motocross. This was done because a lot of people in their industry like motorized race sports, thus it could create a personal connection. He thinks this personal connection apart from the business connection and seeing the management as a symbol of the firm as a whole will become increasingly important for doing business in the future. The production manager notes that Firm A could do more in terms of family branding but is unsure if this fits the personality of the two brothers.

Family branding dynamics

Building on the belief that personal connections will become increasingly important, the strategic manager remains open to the use of family branding in the future if it proves to be commercially attractive. The general manager on the other hand doesn’t really believe in the use of family branding in the future. This stems from the belief of the two brothers that customers don’t come to them because of them being a family firm but because of the quality they are able to deliver. The production manager thinks that apart from the possible commercial value of family branding, applying it at their firm has to do mostly with the culture and the fit with the personality of the two brothers. The Ebbers culture is not characterized by being proud but by a down to earth mentality, performing your job well and not making too much fuss around it. He likes this modest attitude but also mentions that as a firm they should be able to feel proud of what they do and who they are. Furthermore, he believes there are ways to engage in family branding without neglecting the personality and culture of the firm.

Top management decision-making – subjective and objective measures As mentioned earlier, most of the formal decision-making power lies with the two brothers. They form the board of directors, both have 50% of the shares and they have multiple other leading functions within the firm. Nevertheless, they are not essential to the daily operations of the firm because of the high level of delegation and their strategic management focus. They both feel that their expertise is broad and important to the firm, but that it is definitely replaceable over time. The

“People want to have a personal connection.

This personal connection might very

well be created with family branding, but we

never thought about this.” (SM)

“Someone could persuade me saying that family branding would get me more

customers.” (SM)

“I think the word ‘proud’ doesn’t really

fit our firm” (PM)

“In a production firm you only need to press

button A, B and C. At our firm employees do this as well but are also

encouraged to fix their own mistakes and come up with ideas”

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overall feeling of collectivism and high delegation make for highly involved and responsible employees who are free to share their thoughts about management decisions. The General manager tries to apply this in everyday practice by letting employees take on projects on their own and keep them indirectly in check from a distance. This gives employees the chance to develop themselves besides their day to day tasks as well as giving them an insight into what it takes to set up and complete a project. According to him, letting people in your firm learn and make mistakes is a good thing as long as you explain what you want from them, what went bad and what went well. This was something his father was missing according to him. The product manager displays a similar focus on employees and regards the employee’s welfare as his most important task within the firm. Although he is part of the management team, his tasks and expertise are mostly centred around being a production manager and directing his colleagues on the work floor. He thinks his job doesn’t really require expertise that is hard to come by, but it is more about a way of thinking. In terms of education the two brothers attended the biggest part of their education in a part time manner, extended over a long period of time. The general manager for instance, started working in 1982 and attended part time education up until 1996 with only a couple of years in-between where he didn’t attend any education. The Strategic manager recently completed his MBA (applied sciences level business master) and also attended numerous other part time education programs. They are both convinced that continuous schooling is vital for your skills and expertise and thus for the survival of the firm. The General manager proposes that continuous schooling is especially relevant nowadays because technological developments have drastically increased. Furthermore, he states that making the new generation aware of the importance of continuous development is a big responsibility for the current firm owner. When asked about how the managers evaluated the division of power within strategic decision-making, giving sound argumentation was mentioned as the guiding principle. The strategic manager mentioned that they don’t make compromises at their firm but trust on each other’s’ expertise. He states that the level of power within the TMT is equally distributed. This would imply that the production manager has equal power to the other managers based on the subjective measure even though the objective measure ascribes a significantly lower level of power to the production manager.

“Employees know how critical I am, so they also get to know how critical they need to be towards a new product

or process” (GM)

“If you get into the family firm and think; I got my degree and with

it I can lead this firm for the next 40 years. It

is the biggest mistake you can make (GM) “My father is a product

of his own generation, raised during the war.”

Communicating the family firm nature; a balancing act of rationality and emotion

Master thesis