Reducing agency costs through recruitment: staffing referrals and family business success

Abstract

PurposeThe role of family business staffing practices in their ultimate success remains largely unknown. The purpose of this paper is to test the notion that firms with greater family essence manifest their commitment by leveraging referrals as a recruitment source, which in turn is associated with higher performance. The hypothesized model posits that reduced agency costs from hiring through owner referral utilization (ORU) provide high-family essence firms with stronger performance.Design/methodology/approachThe study draws upon a sample of 194 small and medium-sized family business owners.FindingsFindings from OLS regression and the PROCESS model in SPSS support the hypothesis that recruiting nonfamily employees from referrals helps lessen agency conflicts and serves as an intervening mechanism in the relationship between family firm essence and firm performance.Originality/valueThis study draws on agency theory to shed light on how family firms successfully bring nonfamily employees into the fold despite their human resource limitations. The results extend theory on family businesses by demonstrating that those with higher degrees of family essence are more likely to attract applicants via ORU. Leveraging this recruiting practice allows family businesses to hire nonfamily employees who share the values and goals of the family firm, thus lowering agency costs and fostering higher performance. More broadly, the findings offer insight into the role of staffing practices in family firm success.

Exploring the impact of family and organisational values on competence diversity reluctance in rural family SMEs

“…This scarcity of rural competencies has gained increased attention in recent years and also that more research in this area is needed (e.g., Nyström, 2021). Recent research shows that specific skills and personal characteristics have beneficial effects on family SME operations, behaviours and actions (Vardaman et al ., 2023). The results of this study confirm previous research that certain competencies are relatively easy to find in the local region, while others are scarcer.…”

“…This expands on prior research, which has found that maintaining competencies, such as skilled labour, is a key strategy for rural firms, as it is essential to successful business performance (Leick et al ., 2023). In contrast to prior research, which has found that non-family employees are attracted to family SMEs because of the long-term commitment (Azoury et al ., 2013; Hauswald et al ., 2016; Vardaman et al ., 2023), our study showed that due to informal recruitment (e.g. through personal networks), rural family SMEs tends to “exclude” competence diversity both willingly and unintentionally, which makes the jobs they offer unattractive.…”

“…Specific skills and personal characteristics have been observed to have beneficial effects on family SME operations, behaviours and actions (Vardaman et al ., 2023). The term familiness is defined as the unique set of resources, such as competencies, that the family firm possesses, as it involves the owner family’s values in a context that is characterised by a unique interaction between family members and non-family employees and competencies (Astrachan and Botero, 2017).…”

“…The organisational values that are involved in the structure of the family SME, such as mutual trust, commitment and reliability, are, therefore, seen as important aspects in terms of the continuity of the business and the local community (Astrachan et al ., 2020; Ben-Porath, 1980). Prior research has, for instance, found that non-family employees often perceive family SMEs to be attractive because of these specific traits (Azoury et al ., 2013; Hauswald et al ., 2016; Vardaman et al ., 2023).…”