A Piece of the Pie? The Effects of Familial Control Enhancements on the Use of Broad‐Based Employee Ownership Programs in Family Firms

Abstract

While family firms tend to be highly committed to their employees, scholars contend that founding family owners are likely hesitant when it comes to sharing ownership broadly with nonfamily employees. Taking a heterogeneous view of family firms, this study investigates the implications of different familial control‐enhancing mechanisms on the use of broad‐based employee ownership programs (BEOPs) among publicly‐traded family firms. Based on a five‐year panel data set of S&P 500 family firms, the findings indicate that certain control‐enhancing mechanisms can cause family owners to frame their decision to use BEOPs differently. Essentially, family firms with family CEOs, regardless of whether the CEO is a founder or descendant, have a decreased likelihood of using BEOPs in spite of the direct control that family owners have over the firm's operations. Conversely, when family owners hold dual‐class shares, which enhance shareholder voting power, family firms are more likely to use BEOPs. Furthermore, the likelihood of family firms with family CEOs using BEOPs increases when the family holds dual‐class shares. Moreover, there is no significant difference between founder and descendant CEOs, as both are less resistant to using BEOPs when a dual‐class share structure is in place. These findings have implications for HR practitioners working in family firms given the influence that family owners can have on the firm's HR activities, namely BEOPs.

All for one and one for all: A mechanism through which broad‐based employee stock ownership and employee‐perceived involvement practice create a productive workforce

“…Broad‐based employee stock ownership (BESO), in which equity shares are offered to employees (Frye, ), has been widely utilized by many organizations worldwide since the early 20th century (Carberry, ) and in particular has been applied to approximately 28 million U.S. workers according to 2015 statistics from the National Center for Employee Ownership. In accordance with its prevalence, researchers have examined the effects of BESO on diverse outcomes at the individual and organization levels, with compelling evidence for performance effects (Mullins, ) such as positive attitudes and behaviors of employees, improved labor productivity, greater financial performance, and higher survival rates (Kruse, ; Kruse, Freeman, & Blasi, ; Park, Kruse, & Sesil, ).…”

Research on the human resource practices of family businesses: A domain worthy of further study

“…The other two articles examine different compensation‐based practices in family firms, namely the use of broad‐based employee ownership programs (BEOPs) and incentive pay schemes. In his study entitled “ A piece of the pie: The effects of familial control enhancements on the use of broad‐based employee ownership programs in family firms ,” Mullins () examines family firms' use of BEOPs. Specifically, he argues that while family firms tend to be highly committed employers, which might foster the implementation of BEOPs, they also have a strong desire to maintain control over the operations and their equity interests of their firms.…”

“…First, each of them features rare aspects or unique glimpses into issues rarely addressed in the family business or human resource literatures. As noted by Mullins (), while there has been some research on the use of employee ownership in private firms, little is known about their use in family business settings, especially within the ranks of their employees. His study provides theoretical insights into the conditions where family firms increase and decrease the likelihood of their adoption, based on their effort to balance familial controls and socioemotional wealth concerns.…”

“…They show that the implementation of various human resource practices (i.e., employee ownership programs, incentive pay systems, and employee monitoring practices) can present unique challenges when applied in family business settings as the implications, costs, and benefits of them can vary across family and nonfamily firms, as well as family firms of different types (e.g., family CEO lead, family vs. nonfamily managed, size, economic condition, or climate of collaboration). Most prior research on the human resource practices of family businesses have taken a homogeneous view, ignoring their heterogeneity (Mullins, ) and the efficacy of different practices across family firms of different types. The results from these studies affirm the need for further research of human resource practices in family business, demonstrating how the complexity and multifaceted nature of the family business system can create a host of unexplored research questions (Payne, ).…”

“…First, each of them features rare aspects or unique glimpses into issues rarely addressed in the family business or human resource literatures. As noted by Mullins (2018), while there has been some research on the use of employee owner- Second, all three papers highlight the challenge of maintaining the balance between the "family" and "business" level elements as they relate to specific human resource practices. They show that the implementation of various human resource practices (i.e., employee ownership programs, incentive pay systems, and employee monitoring practices) can present unique challenges when applied in family business settings as the implications, costs, and benefits of them can vary across family and nonfamily firms, as well as family firms of different types (e.g., family CEO lead, family vs. nonfamily managed, size, economic condition, or climate of collaboration).…”