Are Family Firms Good Employers?

Abstract

Family firms employ about 60 percent of the global workforce. While it is widely assumed that they are good employers, data about their conduct is mixed. In this study, we extend stewardship and agency theories to test competing propositions about the impact of family on employment practices using data from 14,961 private Belgian firms over a 19-year period. Higher investments, lower dividend payout, and higher risk tolerance indicate that family firms are better financial stewards of their companies than nonfamily firms. However, family firms are worse organizational stewards than nonfamily firms: They offer lower compensation, invest less in employee training, and exhibit higher voluntary turnover and lower labor productivity. Further, and contrary to earlier research, we find that financial practices in private family firms do not change over time, and that the deleterious influence of family on employment practices rises with both firm age and with heightened family involvement. Together, our findings suggest that a more nuanced understanding of stewardship and agency theory is needed to understand the impact of family on the governance of private firms

Family ownership and environmental performance: The mediation effect of human resource practices

“…This result is consistent with the postulation that firms training their employees tend to adopt other strategic human resources management practices too, such as monitoring employee relations with specific tools. Second, in line with Neckebrouck et al (), the first column in Tables and reveals a negative correlation between Family (%) ( β = −.076, p < .01), Family ( β = −3.076, p < .001), and Training & Development practices. Therefore, by multiplying these coefficients with the direct impact of Training & Development on Environment (i.e., second column, β = .944 and β = .946 in Tables and , respectively), we obtain the effect of family blockholders on Environment , which is mediated by Training & Development (coefficients of Family [%] and Family reported in the third column).…”

“…In fact, our study shows that listed family firms are penalized (at least in their environmental performance) for being family‐owned, which is in line with other studies that showed family firms have limited access to resources (Sirmon & Hitt, ); experience self‐selection of particular human resources, such as more conservative employees (Hauswald et al, ); exhibit bifurcation bias (Daspit et al, ); and implement poor employment practices (Neckebrouck et al, ). Overall, the studies seem to indicate that regardless of firm size, family firms fail to manage human resources (e.g., Kotey & Folker, ; Neckebrouck et al, ), and based on our empirical evidence, the negative features of family business persist even when they are under market disciplinary measures, such as being listed. However, although the dominant logic approach in family business studies assumes that family firms have different sets of goals to nonfamily firms (Aparicio et al, )—which creates specific social, emotional, and economic endowments (Gómez‐Mejía et al, ) linking family and business and affecting corporate governance (Carney, ) and managerial practices (Sirmon & Hitt, )—hardly any evidence exists of the mechanisms determining the underdevelopment of human resource practices.…”

“…Overall, these specificities of family firms impact human capital and, consequently, firm performance. Neckebrouck et al () showed that family firms are better financial stewards and worse organizational stewards than nonfamily firms are. For this reason “they offer lower compensation, invest less in employee training, and exhibit higher voluntary turnover and lower labor productivity” (Neckebrouck et al, , p. 553).…”

“…Neckebrouck et al () showed that family firms are better financial stewards and worse organizational stewards than nonfamily firms are. For this reason “they offer lower compensation, invest less in employee training, and exhibit higher voluntary turnover and lower labor productivity” (Neckebrouck et al, , p. 553). Family blockholders have a detrimental effect on human resource practices (Liu, Van Jaarsveld, Batt, & Frost, ), specifically on training and development (Neckebrouck et al, ).…”

“…Second, we contribute to the debate on human resource practices within the family business literature by showing that listed family firms are penalized by their condition of being family owned while competing in the labor market. Previous studies have shown that family businesses have limited access to resources (Sirmon & Hitt, ); face a self‐selection problem of particular human resources, such as more conservative employees (Hauswald et al, ) and bifurcation bias (Daspit, Madison, Barnett, & Long, ); and develop poor employment practices (Neckebrouck et al, ). Extending this research, we provide empirical evidence of the negative effect of poor training and development practices on environmental performance in family firms when compared with nonfamily firms.…”