Family Firms are Richer. In Terms of Socioemotional Wealth
Apart from constituting the great majority of businesses operating worldwide, family firms are often acknowledged to function under logics that are very different from those of large multinational corporations. Specifically, recent theoretical developments support the idea that family firms might differ from other forms of enterprise in that they pay more attention to their stakeholders, often anticipating their needs instead of simply responding to the issues they raise; in so doing, they may reap rewards that are not necessarily monetary in nature.
Carmelo Cennamo (Department of Management and Technology) does in fact put forward such arguments in an article coauthored with Pascual Berrone (IESE Business School), Cristina Cruz (IE) and Luis Gomez-Mejia (Texas A&M University), titled Socioemotional Wealth and Proactive Stakeholder Engagement: Why Family-Controlled Firms Care More About Their Shareholders (forthcoming in Entrepreneurship Theory and Practice).
Family firms have long been recognized as more attentive to noneconomic aspects of doing business; that is, apart from keeping an eye on profits, executives of family firms will also try to preserve and expand the firm's socioemotional wealth. The concept of socioemotional wealth-defined as the stock of affect-related value available to the firm-however, is based upon several dimensions, such as family control and influence, identification of family members with the firm, binding social ties, emotional attachment of family members and renewal of family bonds through dynastic succession. These diverse factors might not weigh equally in the eyes of managers running family firms, though. The authors' central thesis in the article is therefore that reasons behind the firm's behavior towards stakeholders will depend on the specific reference points managers take with respect to preserving and extending socioemotional wealth, but merely using socioemotional gains or losses as a frame of reference for decision-making will make them more proactive towards stakeholders.
The authors proceed to lay out specific proposition concerning the impact of specific decisional reference points on the behavior towards stakeholders. If managers place great emphasis on perpetuating family owners' direct and indirect control over the firm's affairs, for instance, they will be more likely to proactively engage internal stakeholders based on instrumental motives, as doing so might help them accomplish their goals of control. Instrumental motives also apply when dynastic succession is the main objective pursued by family members and when the identification of family members with the firm is key. Conversely, when the main emphasis is on the emotional attachment of family members to the company, the firm will be more likely to proactively engage internal and external stakeholders based on normative motives, since the boundaries between the family and the corporation become blurred and, as a result, actions having an adverse impact on stakeholders will be seen as harming the family. The same line of reasoning applies when binding social ties are the focus: caring for the stakeholders' well-being then simply becomes the right thing to do.
The authors show how there are situations in which the fundamental motives explaining the adoption of a stakeholder management approach are normative, while in others, instrumental motivations are more likely. These two logics often coexist in family firms. At the same time, while stakeholder engagement activities may have immediate benefits in terms of socioemotional wealth, they could also affect the firm's capacity to innovate and generate value in the long term; thus, this tradeoff should be carefully balanced.