1. Family Business Review
Why Can’t a Family Business Be 25(1) 58­–86
© The Author(s) 2012
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DOI: 10.1177/0894486511421665
Modes of Professionalization
http://fbr.sagepub.com
in Family Firms
Alex Stewart1 and Michael A. Hitt 2
Abstract
The authors survey arguments that family firms should behave more like nonfamily firms and “professionalize.”
Despite the apparent advantages of this transition, many family firms fail to do so or do so only partially. The
authors reflect on why this might be so, and the range of possible modes of professionalization. They derive six
ideal types: (a) minimally professional family firms; (b) wealth dispensing, private family firms; (c) entrepreneurially
operated family firms; (d) entrepreneurial family business groups; (e) pseudoprofessional, public family firms; and
(f) hybrid professional family firms. The authors conclude with suggestions for further research that is attentive to
such variation.
Keywords
professionalization, family firms, performance, entrepreneurship, hybrid organizations
Introduction Business historians Alfred Chandler (1990) and
David Landes (1949) viewed surviving family businesses1
They’re nothing but exasperating, irritating, vacillating, as the relics of an earlier era. Echoes of this view are not
calculating, agitating, maddening, and infuriating lags. hard to find. For example, the fifth edition of Sociology
by Giddens and Griffiths (2006, p. 657) claimed that “in
—Adapted (“hags” to “lags”) from “A Hymn to Him,” the large corporate sector, family capitalism was increas-
copyright Alan Jay Lerner and Frederick Lowe. ingly succeeded by managerial capitalism . . . [and] the
entrepreneurial families were displaced.” Similarly,
Professor Higgins’s rant (above) and his refrain, “Why Wharton professor Michael Useem saw in Vivendi’s
can’t a woman be more like a man?” conveyed his view purchase of the Seagram Company “one more nail in the
that the world would be better off if women would act demise of family capitalism” (Anonymous, 2000). The
more like men (My Fair Lady, adapted by Lerner and persistence of this attitude is not for lack of counter
Lowe from George Bernard Shaw’s play Pygmalion). claims by recent family business and business history
The play and the musical had fun with his stereotypes scholars. For example, Ingram and Lifschitz (2006, p. 351)
about the sexes. “Higgins . . . is a comical figure, . . . a
self-opinionated [and] clueless misogynist” (Izod, 2006, 1
Marquette University, Milwaukee, WI, USA
2
p. 46; McGovern, 2011, p. 270). We can laugh at his Texas A&M University, College Station, TX, USA
delusions, but there are echoes of his attitude in a
Corresponding Author:
respectable view about family businesses: Would the Alex Stewart, College of Business Administration, Marquette
world not be better off if they would act more like non- University, Milwaukee, WI, USA
family businesses? Email: alex.stewart@marquette.edu

2. Stewart and Hitt 59
opposed seeing “the residue of family capitalism as an Distinctions Between
unfortunate anachronism, a social indulgence that acted Family and Nonfamily Firms
as a brake on the progress to corporate capitalism.” Many
other such arguments can be found, and Landes came to Scholarly writings on family business offer a range
disavow Chandler’s (2006, pp. xii-xv) views (see also, of dichotomies between “family firms” and nonfamily
Carr & Bateman, 2010; Colli, Fernández Pérez, & Rose, firms.” Table 1 classifies some of the often-cited dichot-
2003; Gilding, 2005; Schulze & Gedajlovic, 2010). omies, with representative citations. Insofar as we
Some scholars who recognize the continuing vitality accept these broad stereotypes of family and nonfamily
of family businesses nonetheless believe that these firms businesses, it is hard not to conclude that family busi-
would be more effective if they would behave more like nesses compare poorly by the standards taught in busi-
nonfamily businesses. Their argument is typically ness schools (Johannisson, 2002; Khurana, 2007;
couched in the language of “professionalization.” As an Sarasvathy, 2001). Many scholars would endorse the
example, Martínez, Stöhr, and Quiroga (2007, p. 93) argument for a thoroughgoing transformation of family
proposed that “when family-controlled firms profes- firms if these dichotomies accurately reflect reality.
sionalize their management and governance bodies, and
have to be accountable to minority shareholders, they
can overcome most of their traditional weaknesses Meanings of “Professionalization”
and take advantage of their strengths and succeed.”
Contentions along these lines are common (e.g., Rondøy, We lack a singular term in our literature for such a trans-
Dibrell, & Craig, 2009; Schulze, Lubatkin, Dino, & formation. “Familiness,” for example, is a term with a
Buchholtz, 2001; Sciascia & Mazzola, 2008; Westhead more specific meaning (Habbershon, 2006; Habbershon,
& Howorth, 2006). Similar arguments also appear in the Williams, & MacMillan, 2003). The term that comes
practitioner press (from Canada, Robinson, 2007; from closest is professionalization. However, it is only a
India, Sukumar, 2011; from the Middle East, Anonymous, shorthand for all the distinctions in Table 1. It does not
2008; from South America, Anonymous, 2007; from the typically refer to ownership. It also lacks a singular
United States, Perry, 2008). In contrast, we argue that meaning in popular or scholarly discourse (Hwang &
we need a greater understanding of the modes of family Powell, 2009; von Nordenflycht, 2010). In its simplest
firms and of their contexts to know how they can oper- form, it refers to full-time salaried employees (Galambos,
ate more effectively. Our essay is designed to provide 2010). By a simple extension to family firms it means
more contingent answers to this important question. hiring full-time, nonfamily employees, particularly with
We proceed as follows. First, we survey the literature the delegation of managerial authority. In studies of fam-
and assemble a number of dichotomies associated with ily firms, this is often the core meaning (Chandler, 1990;
family versus nonfamily business. These dichotomies Chittoor & Das, 2007; Gedajlovic, Lubatkin, & Schulze,
suggest the range of possible ways in which family 2004). A closely related theme in Chandler’s (1990, p. 127)
firms might become more like nonfamily firms. We next account is “defining [the] organizational structure pre-
survey direct arguments in favor of transitioning to a cisely” so as to coordinate the work of the salaried
less familial form of organization. We also summarize managers (see also, Chua, Chrisman, & Bergiel, 2009;
the indirect arguments based on studies of performance Songini & Gnan, 2009). Thus, the term implicitly or
effects. A reasonable inference from these studies is that explicitly entails other dimensions, such as formal train-
professionalizing the family firm improves performance. ing, meritocratic values, formalized structures, or inde-
We are led to a conundrum: Despite direct and indirect pendent directors (e.g., Chua et al., 2009; Chua,
arguments in favor of professionalization, a great many Chrisman, & Sharma, 1999; Parada, Nordqvist, &
family firms fail to follow this prescription. As a result, Gimeno, 2010; Tsui-Auch, 2004). As a result, it is some-
we propose reasons why family firms might or might times used to refer to a holistic transformation (Hung &
not make the transition, leading to different modes of Whittington, 2011).
professionalization. We conclude with suggestions for Relationships among the dimensions. Professionalization
further research. is certainly not one-dimensional. For example, hiring

3. 60 Family Business Review 25(1)
Table 1. Stereotypical Dichotomies Regarding Nonfamily and Family Business
Nonfamily business Family business Representative citation
Ownership Dispersed, nonkinship based Concentrated, kinship based Achmad et al. (2009)
No wedge between cash flow and Wedge between cash flow and Morck et al. (2005)
ownership rights ownership rights
Well diversified Nondiversified Andres (2008)
Governance Ownership and control split Ownership and control united Sirmon et al. (2008)
External influences on board Internal dominance of board Parada et al. (2010)
Transparency, disclosure Opaqueness, secrecy Gedajlovic et al. (2004)
Returns Largely economically defined Noneconomic outcomes Chrisman et al. (2010)
important
No private benefits Private benefits for family Anderson and Reeb (2003a)
Minority shareholders protected Minority shareholders exploited Martínez et al. (2007)
Rewards Achievement, merit based Ascription, nepotism based Beehr et al. (1997)
Employees: Based on performance Family members: Indulged Ram (1994)
Universalistic criteria Particularistic criteria Chua et al. (2009)
Networks External ties based on business Embedded in kinship networks Ingram and Lifschitz (2006)
Distinct business, family spheres Role diffuseness Lomnitz and Pérez-Lizaur, (1987)
Impersonal social responsibility Personalized social responsibility Muntean (2009)
Leadership High turnover with market discipline Entrenched, long tenured Oswald et al. (2009)
Formally educated Trained on the job Jorissen et al. (2005)
Succession draws on large pool Succession draws on kinship pool Pérez-González (2006)
Careers Salaried managers Family members Galambos (2010)
Shorter term career horizons Longer term career horizons Benedict (1968)
Management Delegation to professionals Autocratic Greenhalgh (1994)
Rational, analytical Emotional, intuitive Zellweger and Astrachan, (2008)
Innovative Rent-seeking, stifling innovation Morck and Yeung (2003)
Formalized, command and control Organic, mutual accommodation Zhang and Ma (2009)
salaried managers absent other changes is a failing strat- Professionalization is multidimensional, but we can-
egy (Sukumar, 2011; Ward, 2004). Professionalizing not assume that the applicability of any one of these
therefore can involve a holistic change, albeit one that dichotomies, in a given firm, entails the applicability of
varies somewhat from firm to firm (Hung & Whitting- others. For example, informality need not coexist with
ton, 2011; Parada et al., 2010). Based on our review, if indulgence. To assume that it does so is to assume that
there is a core element to such a shift in the context of the construct is “reflective” of covarying indicators (the
family firms, it is the Parsonian distinction between dimensions). Many important constructs in business lit-
achievement and ascription (Parsons, 1951). In Ward’s eratures are “formative” or caused by indicators that
(2004) terms, this is “the principle of merit” (pp. 51-52). may have negative or zero correlations (Diamantopoulos,
In other words, people are placed in positions and Riefler, & Roth, 2008). To assume the former in the
rewarded based on merit. Implementing the principle of absence of evidence is a common error of “protoscien-
merit in firms where it had been lacking often requires a tific” thinking (Graham, 1989, p. 338).
shift across several managerial dimensions. Depending Moreover, the stereotypical dichotomies of Table 1
on the availability of talent it could entail the hiring of do not identify family and nonfamily businesses as dis-
salaried managers or even a nonfamily CEO. It could tinct configurations or “gestalts” (Miller, 1981). None
entail new systems and organizational designs to moni- of these dichotomies, with the possible exception of kin-
tor and reward managerial performance. or non-kin-based ownership, uniquely defines a family

4. Stewart and Hitt 61
versus a nonfamily firm, and even this distinction is not firm delegates responsibility to professionals the less
definitive. The qualities that are attributed to family bureaucracy is needed (R. H. Hall, 1968). We return to
firms and to nonfamily firms are not universally appli- this point in addressing why family firms may resist the
cable. Some family firms have highly educated manag- move to professionalize.
ers using analytical decision making and some nonfamily
firms have casually trained managers using intuitive
decision making. Furthermore, family firms are associ- Benefits of Professionalizing
ated with nepotism, but the principle of merit is
not the exclusive property of nonfamily business. Professionalizing the family firm by developing non-
Professionalizing the family firms often includes edu- personalized “evaluation and incentive compensation”
cating the succeeding generation in high-quality busi- (Chua et al., 2009, p. 355) can be appropriate in family
ness schools (Benedict, 1968; Douglass, 1992; Gilding, firms. Tsao, Chen, Lin, and Hyde (2009, p. 320) found
2005; Pérez-González, 2006; Tsui-Auch, 2004; Tsui- that family firms benefit from the use of “extensive
Auch & Lee, 2003). Moreover, merit does not presup- selection, performance-based pay, in-house training and
pose that the goals to be “achieved” must be purely development, job enrichment, and employee empower-
economic. ment.” Family firms adopting these practices (termed
high-performance work systems) outperformed nonfam-
ily firms, whereas those that did not do so underper-
An Alternative Meaning formed nonfamily firms. Similar practices may also
of Professionalization crack the glass ceiling for females in family firms
Table 1 includes (under “management”) a distinctive (Parada et al., 2010), because they provide means to
meaning of professionalization. This usage, found in certify that female managers gained their positions
both popular and scholarly language, has roots in occu- based on achievement (Songini & Gnan, 2009). Other
pational groups with jurisdictional rights to the use of benefits of professionalizing human resource practices
specialized knowledge, such as attorneys and physi- are methods for disciplining nonperforming kin (Ram,
cians (Abbott, 1988; Galambos, 2010). Managers do not 1994), and higher commitment from nonfamily employ-
enjoy these jurisdictional rights (Hodgson, 2005; Hwang ees (Barnett & Kellermanns, 2006; Dyer, 1989; Gilding,
& Powell, 2009). Nonetheless, the notion of “profes- 2005; Janjuha-Jivraj & Woods, 2002).
sional management” carries connotations from these Many other benefits have been proposed for profes-
older occupations (Khurana, 2007, pp 69-70). A true sionalization. These include comporting with institu-
professional is expected to develop not only generally tional forces, whether ideological or coercive. An
applicable knowledge but also to adopt a moral code example of institutional compatibility is that the value
and to view the career as a “calling” (Benveniste, 1987, placed on individual careers may be satisfied by the use
pp. 42-43). Professionals are expected to continue to of trust funds and their attendant “corporate, bureau-
“improve [their] capabilities” (R. H. Hall, 1968; Hwang cratic affairs” that free the next generations for alterna-
& Powell, 2009, p. 268; see also, Chittoor & Das, 2007) tive professions (Marcus & Hall, 1992, p. 8; see also
and also to display integrity to “protect the interests of Farrell, 1993). Similarly, the value placed on merit in
clients and/or society in general” (von Nordenflycht, the wider culture may be satisfied by elite education for
2010, p. 163). the successor generation (de Lima, 2000; A. Hall &
Ironically, this older meaning of “professionalization” Nordqvist, 2008). Cultural norms such as these are rein-
is at odds with other connotations of professionaliza- forced by governmental and quasi-governmental agen-
tion. According to the stereotypes, management in fam- cies and by family business associations (Hung &
ily firms is less formalized, rational, and standardized Whittington, 2011; Parada et al., 2010; Selekler-Goksen
than in nonfamily firms. Insofar as professionalism & Öktem, 2009).
means moving toward a nonfamily business in these The “functionalist” argument for professionalization
senses it entails bureaucratizing. Yet professionalism (Yildirim-Öktem & Üsdiken, 2010, p. 117) holds that it
with this older meaning was offered as an alternative to is needed to cope with complex and competitive business
bureaucracy (Benveniste, 1987) because the more the environments (Casson, 2000; Chandler, 1990; Walsh, 2010)

5. 62 Family Business Review 25(1)
and to pursue opportunities for business alliances size of the catch by fishing boats. Eight of the 15 private
with professionally managed companies (Benedict, sample studies found an insignificant or mixed effect
1968; Ravasi & Marchisio, 2003; Rondøy et al., 2009). (Arosa, Iturralde, & Maseda, 2010; Chrisman, Chua, &
One reason for this benefit is the increased diversity of Litz, 2004, who did find evidence of agency advan-
perspectives and experiences available when outsiders tages; Chrisman, Chua, & Kellermanns, 2009; Miller,
join the board or executive suites (Filatotchev, Lien, & Lee, Chang, & Le Breton-Miller, 2009; Molly, Laveren,
Piesse, 2005; Hatum, Pettigrew, & Michelini, 2010). & Deloof, 2010; Rutherford, Kuratko, & Holt, 2008;
The other main business argument for professional- M. S. Smith, 2008; Westhead & Cowling, 1997). Five
ization is financial: better terms with banks, greater like- of the studies found a negative effect (Cucculelli &
lihood of raising private equity, and opportunities to Micucci, 2008; Jorissen, Laveren, Martens, & Reheul,
obtain capital in public equity markets (Barden, 2005; Oswald, Muse, & Rutherford, 2009; Sciasci &
Copeland, Hermanson, & Wat, 1984; Dawson, 2011; Mazzola, 2008; and Westhead & Howorth, 2006).
Ravasi & Marchisio, 2003). Owners gain from cheaper Furthermore, the sophisticated mixed sample study by
capital, enhanced opportunities for growth and acquisi- Bennedsen, Nielsen, Pérez-González, and Wolfenzon
tions, and diversification of their assets, particularly if (2007), using the random sex of the firstborn as an
they take their firms public (Bancel & Mittoo, 2009; instrument for succession, found significant negative
Pástor, Taylor, & Veronesi, 2009). The process of prep- effects of family involvement in management.
aration for going public also reduces the taxes and con- Presumably most firms in their large sample were pri-
flicts as one generation retires and another succeeds in vate.3 Overall, the performance of privately held family
its place (Chrisman, Chua, Sharma, & Yoder, 2009; firms does not compare favorably with privately held
Janjuha-Jivraj & Woods, 2002). nonfamily firms.
Performance Effects Performance Effects for Public Firms
of Family Involvement Empirical results are more complex for the 35 studies
These financial advantages should be reflected in stud- of performance of public family firms. Several studies
ies comparing the performance of family and nonfam- report nonlinear effects and other studies report differ-
ily firms. Therefore, we analyzed 59 empirical studies ent results depending on the level of family involve-
regarding the effect of family involvement on perfor- ment. Despite this complexity, the public sample studies
mance.2 These are summarized in Table 2. Naturally, are less likely to show mixed or nonsignificant effects.
only accounting or operational measures and not market More than half of the private sample studies found such
(financial) measures can be used with privately held results but only 4 of 35 did so in the public samples
firms, and only 15 of the 59 studies contain such perfor- (Jiang & Peng, 2011; Le Breton-Miller, Miller, &
mance data. Because the great majority of family firms Lester, 2011; Silva, Majluf, & Paredes, 2006; Viviani,
are private, we distinguish studies with samples of pub- Giorgini, & Steri, 2008). Only four public sample stud-
lic firms from those with private firms, and those with ies found overall negative effects for family involve-
mixed samples. ment (Achmad, Rusmin, Neilson, & Tower, 2009;
Miller, Le Breton-Miller, & Lester, 2011; Sacristán
Navarro & Gómez Ansón, 2006; Sacristán Navarro,
Performance Effects for Private Firms Gómez Ansón, & Cabeza-Garcia, 2011), and four oth-
Distinguishing between public and private samples ers did so under certain circumstances (Bennedsen &
reveals that family involvement generally has a positive Nielsen, 2010; Chahine, 2007; Le Breton-Miller et al.,
effect for public firms and an insignificant or negative 2011; Chang et al., 2010). Nine of the public sample
effect for private firms. Only 2 of the 15 private sam- studies found overall positive effects, and 14 other
ple studies found a positive effect. Kotey (2005) found studies found positive effects under certain conditions.4
no significant growth effects but positive accounting Almost two thirds of these studies found positive effects
effects, at certain size ranges only. Herrero (2011) compared with less than one fifth of the private firm
found a positive effect for family involvement on the samples. Similarly, the meta-analysis of studies of

6. Stewart and Hitt 63
Table 2. Summary of Empirical Studies of the Effect of Family Involvement on Firm Performance
Study Country Significant effects of family involvement
Sample of private firms
Arosa et al. (2010) Spain Ownership concentration NS overall but generations differ; private but
with public-like requirements
Chrisman et al. (2004) United States NS direct effect; family firms may have agency cost advantages
Chrisman et al. (2009) United States NS direct effect; family influence has a mixed moderating effect on
resource stocks
Cucculelli and Micucci (2008) Italy Higher ROA in non-heir than heir-managed firms
Herrero (2011) Portugal Fishing boats with family members have significantly larger catches
Jorissen et al. (2005) Belgium Negative for ROA; CEOs older, less educated, longer tenured, more
female
Kotey (2005) Australia By some accounting measures, positive at modest firm sizes; growth NS
Miller et al. (2009) South Korea NS: apparently offsetting effects; sample: 170 of population of 271
Molly et al. (2010) Belgium (Flemish) NS: growth; first-generation succession less leverage with decline in
growth; later successions: more leverage
Oswald et al. (2009) United States Negative for FIM; presumably mainly private firms
Rutherford et al. (2008) United States “Overall, it hinders a bit but it depends” on the IVs and DVs
Sciascia and Mazzola (2008) Italy FIO NS, FIM negative quadratic relationship
M. S. Smith (2008) Australia NS overall; any significant difference is sector specific
Westhead and Cowling (1997) United Kingdom NS on various measures; FFs perhaps pulled up by outliers
Westhead and Howorth (2006) United Kingdom NS generally, negative for FIM and exporting
Mixed samples
Audretsch et al. (2010) Germany FIM, FIO NS. Decision control (supervisory board) significant positive
Sample firms all have two boards, required
E. Barth et al. (2005) Norway Negative for FIM; nonmonotonic
Bennedsen et al. (2007) Denmark Negative for FIM; (random) sex of firstborn an instrument for
succession; sample largely private
Bertrand et al. (2008) Thailand FIO negative accounting; FIM negative for governance
Carr and Bateman (2009) Largest in world Positive overall but varies by region; NS North America and Europe,
positive for Lower trust countries
Ehrhardt et al. (2005) Germany Financial: NS, operating mixed: positive IF private; declines with heirs
Fogel (2006) 41 countries Negative: oligarchic control of large firms correlates with significant
worse socioeconomic and political conditions
Menéndez-Requejo (2006) Spain FIM NS; FIO positive in some measures; performance lessens with age;
largely private sample
Minichilli et al. (2010) Italy Positive U-shaped effect, attributed to schisms in family
Sample of public firms
Achmad et al. (2009) Indonesia Negative
Allouche et al. (2008) Japan Several positive, FFs with both FIO and FIM outperform those with just one
Anderson, Mansi, and Reeb United States Positive for FIO at modest levels; negative for descendent CEOs
(2003)
Anderson and Reeb (2003a) United States Positive marketing and accounting, but nonmonotonic; founder CEOs
may drive positive results
Andres (2008) Germany Positive for accounting; only when founding family active, founding CEO
especially
Barontini and Caprio (2006) 11 European Positive marketing and accounting, but NS with descendent CEOs
countries
Bennedsen and Nielsen (2010) 14 European Valuation discount for concentrated ownership for family-controlled
countries firms
(continued)

7. 64 Family Business Review 25(1)
Table 2. (continued)
Study Country Significant effects of family involvement
Bocatto et al. (2010) Spain Performance prior to succession NS for choice of family or nonfamily
successor
Bonilla et al. (2010) Chile Positive for ROA, yet with lower variance
Boubakri et al. (2010) 8 Asian countries Positive prior to 1997-1998 crisis, negative thereafter
Chahine (2007) France Positive for mod FIO, negative for high FIO; cubic relationship
Chu (2009) Taiwan FIO positive for both accounting and market measures
Chu (2011) Taiwan Positive accounting for smaller family firms and those with active family
involvement
de Miguel et al. (2004) Spain nonlinear; positive at low, negative at middle, positive at high levels
Filatotchev et al. (2011) Hong Kong Direct positive effect but negative effect overall because of private
information abuse
Jiang and Peng (2011) 8 Asian countries NS overall; some countries positive, some NS, some negative; depends
on shareholder protection
Le Breton-Miller et al. (2011) United States Aspects of family involvement lower stewardship, which lowers
shareholder returns
J. Lee (2006) United States FIO, positive; FIM, positive for more measures
Martínez et al. (2007) Chile Positive accounting; positive financial (if controlling for liquidity)
Maury (2006) 13 in Western Positive except at high control levels, accounting positive given active
Europe family involvement, financial positive at lower levels
McConaughy et al. (2001) United States Positive for FIO for both accounting and financial results
Miller et al. (2011) United States FFs grew less; first-generation FFs performed better; lone founder firms
performed best
Morck et al. (2000) Canada; 41 Negative for heir-controlled large firms, and for countries with lower
countries “self-made” billionaire wealth
Pérez-González (2006) United States Accounting and financial negative for nepotism in CEO succession
Poutziouris (2006) United Kingdom Positive for share price; NS for growth
Rondøy et al. (2009) Sweden Positive in high margin (less competitive) industries; NS in low margin
industries
Sacristán Navarro and Gómez Spain Negative for successions, attributed to entrenchment; market and
Ansón (2006) governance NS; accounting negative
Sacristán Navarro, Gómez Spain Family as executives significant negative; second significant shareholder
Ansón, and Cabeza-Garcia significant positive.
(2011)
Saito (2008) Japan Positive founder-managed firms; negative FIM and FIO with successors;
positive for FIO or FIM by successors
Silva et al. (2006) Chile Effect of family ties in groups contingent on balance between
ownership and control rights
Trebucq (2002) France Positive effect on market value added; no effect of employee stock
ownership
Tsao et al. (2009) Taiwan Negative given lower high-performance work systems (HPWS); positive
given higher HPWS
Villalonga and Amit (2006) United States Positive for founder-managed; negative for successor-managed
Viviani et al. (2008) Italy Results NS
Wang et al. (2010) Taiwan Divergence cash flow and control rights significant negative;
institutional owners mitigated this effect
Note. NS = not significant; FF = family firm; IV = independent variable; DV = dependent variable; FIO = family involvement in ownership; FIM =
family involvement in management; ROA, return on assets.

8. Stewart and Hitt 65
public, U.S. family firms by van Essen, Carney, unsurprising given the sensitivity of the question. As a
Gedajlovic, Heugens, and van Oosterhout (2010) found result, researchers have had to resort to proxy measures
“modest but statistically significant” positive perfor- with “inconsistent” methodologies (Astrachan &
mance effects for family involvement. In contrast, the Jaskiewicz, 2008; Zellweger & Astrachan, 2008).
meta-analysis of studies of private firms by Carney, van Similarly, we find few observations of how executives
Essen, Gedajlovic, and Heugens (2010) found no sig- manage the interface between the familial and business
nificant performance effects of family involvement. domains, and in particular how they may find entrepre-
From these public sample studies we draw two provi- neurial opportunities by crossing these domains.
sional conclusions and hence an inference about impli-
cations for practitioners. First, the performance of public
family firms is better relative to comparable nonfamily Inadequate Data on Kinship
firms than is the performance of private family firms. A weakness of many studies of family business is lim-
Second, the public family firms that use more profes- ited attention to the familial domain. The performance
sional practices experience higher performance. Several studies above do not treat kinship as a major indepen-
of these practices relate to ownership concentration and dent variable except as a means to dichotomize the
governance. For example, negative effects are found samples into family and nonfamily firms. Kinship data
for abuse of private information (Filatotchev, Zhang, & are limited to a few questions, such as the leaders’ gen-
Piesse, 2011) and for wedges (i.e., discrepancies) eration and the representation of kin in ownership,
between cash flow and control rights (Barontini & management, or board positions. For example, the
Caprio, 2006; Claessens, Djankov, Fan, & Lang, 2002; recent study by Miller et al. (2011) measured kinship
Chang et al., 2010). In contrast, positive effects are ties among board members, managers, and officers. For
found for professional practices by independent boards a large sample study, this is exemplary and represents a
(Brenes, Madrigal, & Requena, 2011) and for sizable major effort. Yet even this study overlooks other busi-
ownership blocks outside the controlling family ness-relevant variables such as kinship networks beyond
(Bennedsen & Nielsen, 2010; Chahine, 2007; Sacristán the firm (A. R. Anderson, Jack, & Dodd, 2005), which
Navarro et al., 2011; Wang et al., 2010). One study historical studies have shown to be essential instru-
(Tsao et al., 2009) found direct effects of professional- ments of coordination throughout kin groups and across
izing management practices, in this case by means of corporations (Arrègle, Hitt, Sirmon, & Very, 2007;
high-performance work systems. Moreover, the con- Farrell, 1993; Ingram & Lifschitz, 2006).
texts within which public family firms performed best We need more research on “family-related differ-
were the less competitive or turbulent environments ences [such as] variations in inheritance structures or
that could call for sophisticated management (Boubakri, marriage norms” (Bertrand & Schoar, 2006, p. 94; also,
Guidhami, & Mishra, 2010; Rondøy et al., 2009). Bocatto, Gispert, & Rialp, 2010; Khanna & Yafeh,
Because a firm must professionalize to some extent in 2007). Little attention in performance research has been
order to go public, these two conclusions lead to the given to influences on family structures such as country
inference that professionalizing improves performance. histories (Church, 1993, Colli & Rose, 2003) or societal
factors that affect the family (Jones, 2005). Examples of
such factors are the socialization of reproduction
Limitations of the (Robertson, 1991) and the legal regimes affecting fam-
Performance Studies ily firms. For instance, the “distinction [that] is often
Many of the performance studies are carefully crafted made between ancestral and self-acquired property”
and cleverly designed. However, they have limitations, (Goody, 1997, p. 455) has implications for power rela-
many of them inevitable in large sample research. We tions and conflicts in Chinese family firms (Greenhalgh,
have noted that private and noneconomic benefits are 1994; Oxfeld, 1993). Culture and other institutional fac-
important in family firms, yet these remain largely unob- tors, formal and informal, affect the composition of
served. As Filatotchev et al. (2011) noted, “our under- family business and the social networks used by family
standing of specific mechanisms of rent extraction by members who are managers (Arrègle et al., 2007;
controlling shareholders is limited” (p. 88). This is Arrègle et al., 2010).

9. 66 Family Business Review 25(1)
With some exceptions (e.g., Jorissen et al., 2005), Dichotomizing the sample into “family” and “non-
this research pays little attention to individual variables family” firms ignores contingencies that may need to be
(e.g., human capital) or demographic variables (e.g., age, controlled and focuses attention on a potentially spuri-
gender), which are important for understanding family ous category. The “family firm,” as opposed to family
firms (Bertrand & Schoar, 2006; Danes, Stafford, & firms of various types, has not been shown to exist as a
Loy, 2007). Only 3 of the 59 performance studies taxonomic entity (McKelvey, 1982; Stewart & Miner,
(Bennedsen et al., 2007; Bertrand, Johnson, Samphantharak, 2011; Westhead & Howorth, 2007). Less strongly put,
& Schoar, 2008; Miller et al., 2011) have data on the family firm may be a formative rather than a reflec-
kinship. The family is treated as a “‘black box’” (Creed, tive construct (Diamantopoulos et al., 2008) because the
2000, p. 346). For example, the data are silent on ties by dimensions found in some cases (e.g., the dynastic
marriage or blood, or senior and junior lines in a kin motive) are not found in others (Casson, 2000; Croutsche
group. They are silent on properties of the kinship sys- & Ganidis, 2008; Gilding, 2005).
tem in question, such as norms of inheritance or succes- The consequence of dichotomizing is that whatever
sion, or the ways that choices are possible in the usage factor(s) is chosen for the distinction, the split is likely
or neglect of kinship ties (Stewart, 2010; Wallman, 1975). to be arbitrary (Klein, Astrachan, & Smyrnios, 2005;
Rutherford et al., 2008). As Allouche, Amann, Jaussaud,
and Kurashina (2008, p. 325) observed about perfor-
Dichotomized Samples mance research, “findings are highly sensitive to the
way we define family businesses” (see also, Sacristán
With the exception of the study by Le Breton-Miller et al. Navarro et al., 2011). For example, the percentage of
(2011), the studies also dichotomize their samples into family firms in one sample ranged from 15% to 81%
family and nonfamily firms in various ways, whereas the depending on the definition used (Westhead, Cowling,
“degree . . . and mode” of kinship involvement is not “an & Storey, 2002). Thus, the definition selected by the
either-or scenario” (Sharma, 2004, p. 4; also, Arrègle et al., researchers can skew the results.
2007; Jaskiewicz, González, Menéndez, & Schiereck,
2005). Dichotomization is coarse grained, yet it is virtu-
ally universally practiced. However, as noted, firms are Failure to Professionalize
affected by kinship to various extents and in various
ways. Thus, the family business category is far from Strong conceptual and empirical arguments favor the
homogeneous (Croutsche & Ganidis, 2008), with varia- professionalization of family firms. Nonetheless, as
tion across many attributes of the business and the family, Schulze et al. (2001) observed, not all family firms pro-
with a “highly skewed distribution” across certain mea- fessionalize. For example, some CEOs of successful
sures (Westhead & Cowling, 1997, p. 43). Family firms family firms have a low opinion of “professional
vary with respect to familial character and values, such as management” (Gilding, 2005; also, Anonymous, 2008;
the “dynastic motive” (Casson, 2000; also, Arrègle et al., Selekler-Goksen & Öktem, 2009). In another example,
2007; Bégin, Chabaud, & Richomme-Huet, 2010; Yildirim-Öktem and Üsdiken (2010) found that Turkish
Jaskiewicz et al., 2005; Westhead & Howorth, 2007). family business groups responded only to coercive pres-
They vary with respect to their size and firm resources sures to professionalize; functionalist and institutional
(Herrero, 2011; Kotey, 2005; Sirmon & Hitt, 2003). They pressures had little effect. Why might some family
vary with respect to their financial and competitive strate- firms be so recalcitrant?
gies (Sirmon, Arrègle, Hitt, & Webb, 2008; Tsao et al.,
2009; van Essen et al., 2010). They vary with respect to
their approach to involvement (Audretsch, Hülsbeck, & Modes of Professionalization
Lehmann, 2010; Maury, 2006). They vary across indus-
tries and sectors (Carr & Bateman, 2010; Casson, 2000). Part of the answer likely lies in family leaders’ mental
They also vary across a wide range of environmental model of the business. Without a consideration of the
contingencies, such as the type of capitalism and the legal family’s “vision”, Chua et al. (1999) found that the
context (Carney et al., 2010; Steier, 2009). behaviors of family and nonfamily firms could not

10. Stewart and Hitt 67
be distinguished. Similarly, in order to understand the organizational systems and external sources of exper-
mode of professionalization adopted by a family firm, tise. Presumably even small, closely held family firms
we need to consider its leaders’ intentions for their firm, will use practices that help their business. For example,
and their abilities to envision and to manage a particular they may prioritize family members for leadership posi-
mode. With this in mind, we have identified six modes tions but they cannot indefinitely disregard the principle
of professionalization by family firms. These modes are of merit as they assign management roles (for an exam-
ideal types in a typology derived from the literature; ple, see Ram, 1994) Therefore, some elements of profes-
they are not an empirical taxonomy (McKelvey, 1982). sional management can likely be found for all family
Ordered from the least to the most professionalized firms.
(at least in their appearance), the modes are Moreover, extensive professionalizing might not be
needed or appropriate. Introducing nonfamily managers
• firms that lack the capacity for extensive pro- creates the potential for conflicts of interest between the
fessionalization, limited in professionalization owners and their agents, the managers, that is, it creates
on multiple dimensions (minimally professional the potential for agency costs (Chua et al., 2009; K. S. Lee,
family firms) Lim, & Lim, 2003). For example, the exploratory study
• firms that seek the private benefits of control by Chrisman et al. (2004) found evidence of agency
with their own capital, desiring independence advantages for private family firms relative to nonfam-
from external governance (wealth-dispensing ily private firms. Specifically, strategic planning—a
private family firms) staple of professional management—was significantly
• firms that pursue the opportunities found in less beneficial for sales growth with family firms.
informal operations, limited in the use of for- Furthermore, the firm’s situation might not require a
malization and standardization (entrepreneur- transition. The competitive environment may not require
ially operated family firms) changes if the market niches served are small, markets
• firms that pursue the opportunities found in net- are fragmented, and environments dynamic (Casson,
works of affiliated firms, remaining embedded 2000; Dyer, 1989; Gedajlovic et al., 2004). In such cases,
in kinship and other normative orders (entrepre- the firm is also less likely to experience internal pres-
neurial family business groups) sures for professionalizing to deal with increasing scale,
• firms that seek the private benefits of control R&D intensity, or marketing sophistication (Lin & Hu,
with other people’s money, seeking the appear- 2007). Furthermore, “cultural and institutional factors”
ance while violating the spirit of public gover- such as the need to professionalize to appear legitimate
nance (pseudoprofessional public family firms) for outsiders might not be salient (Tsui-Auch, 2004,
• professionally managed, family-controlled p. 713). The managerial culture in the broader environ-
firms that seek the benefits of professionaliza- ment might actually be unsympathetic to the transition
tion while retaining family influence (hybrid (Whyte, 1996; Zhang & Ma, 2009).
professional family firms)5
Minimally Professional Family Firms
Avoiding Overly Broad Stereotypes Many family firms fail to professionalize because they
Family firms tend to make less use than nonfamily firms cannot do so. They lack the “skills or the will to success-
of “professional HRM practices,” according to de Kok, fully make the transition to professional management”
Uhlaner, and Thurik (2006, p. 442). These authors sug- (Sharma, Chrisman, & Chua, 1997, p. 16). Incapacity
gested two possible reasons: less capability, or less need may result from cognitive, cultural, emotional, or mana-
because of lower agency costs. This second possibility gerial barriers. One cognitive impediment is that family
cautions us against stereotyping family firms as inca- business managers may not recognize a need for
pable of professional management. Cromie, Stephenson, change. Poza, Hanlon, and Kishida (2004) found that
and Monteith (1995) found that most of the small family family firm CEOs and parents had a significantly higher
firms that they surveyed in Britain used elements of evaluation of their own management than did other
professionalization, including formalized, rational family members and nonfamily managers. Moreover,

11. 68 Family Business Review 25(1)
family member CEOs tend to be longer tenured and less indulgence of passive love; in Japanese, amayakasu for
well educated than nonfamily CEOs (Bennedsen et al., the giving of indulgence (amae is the noun; Kondo,
2007; Jorissen et al., 2005; Pérez-González, 2006). The 1990, p. 150; the classic account is given in Doi, 1973).
former may believe that they are doing all they can to This problem of indulging family members can extend
keep up with change and could not learn any faster to nonfamily employees as well as family members thanks
(Zahra & Filatotchev, 2004). Therefore, the champions to ideologies of the workplace as a “family” (Ram &
of professionalization may be the more educated family Holliday, 1993; J. M. Smith, 2009).
leaders. Curiously, Tsui-Auch (2004) in his study of Emotional and cultural entanglements such as these
professionalization among Chinese family firms in make it impossible to professionalize a family firm sim-
Singapore found no correlation with educational levels. ply by recruiting nonfamily managers (Dyer, 1989; for
Of course, these findings may be culturally specific. an example, see Helin, 2011). The family firm cannot
Cultural impediments to professionalization include operate just as if it were a nonfamily firm. Being a
norms of kinship systems at odds with economic ratio- “professional” manager in the family firm requires the
nality. A classic problem for entrepreneurs wishing to capacity to navigate through idiosyncratic family cul-
grow their ventures is the challenge of “disembedding” tures (A. Hall & Nordqvist, 2008; K. S. Lee et al., 2003;
(Stewart, 1989, p. 148). Their need to channel resources Sacristán Navarro & Gómez Ansón, 2009). For family
into their venture conflicts with obligations from the members to be accepted as professionals, they for their
webs of kinship within which they are embedded. In part may need the “social skills to be accepted among
many cultures, they are expected to display their wealth other employees” (Helin, 2011, p. 159; see also, p. 108).
and to redistribute it generously among their kin. Failure For many reasons, family firms can find it difficult to
to do so leads to intrapersonal and interpersonal con- attract, reward, and retain high-quality “professional”
flicts (Davidoff & Hall, 1987; Fletcher, Helienek, & managers (Barnett & Kellermanns, 2006; Beehr, Drexler,
Zafirova, 2009; Hart, 1975; Watson, 1985). Entrepreneurs & Faulkner, 1997; Stewart, 2003). Professionalizing
might also seek to exclude family members from respon- human resource management practices in the family firm
sible positions because of their limited capabilities. In requires consideration of factors that militate against
most kinship systems they enjoy some latitude, but if shorter term or stock-based incentives: the firm’s non-
they prioritize family membership less than is normative economic goals, longer time horizons, and the desire to
in their culture, emotionally painful conflict is liable to maintain control for the generations (Chua et al., 2009;
occur (Bertrand & Schoar, 2006; Hamabata, 1990). Gedajlovic et al., 2004). Meritocracy mixed with prefer-
Cultural impediments, therefore, are linked with ential access for kin leads to ambiguities for all con-
emotional impediments. Culture includes expectations cerned (Helin, 2011). Efforts to import human resource
about emotions, and as an element of culture, so too management practices without consideration of the fam-
does a kinship system. Individuals often experience ily context generate conflict (Bertrand & Schoar, 2006;
ambivalence about feelings that are normative about A. Hall & Nordqvist, 2008). Similarly, pay dispersion in
kin, an ambivalence that demonstrates that they have the top management team correlates with significantly
internalized the expectations (Peletz, 2001). A common higher growth in nonfamily firms but significantly lower
source of ambivalence for family business owners is growth in family firms (Ensley, Pearson, & Sardeshmukh,
parental recognition that children should develop inde- 2007; see also, Schulze et al., 2001). Of course, minimal
pendence, which conflicts with a desire to indulge them. professionalization may simply be because of an inability to
Similarly, siblings or cousins might recognize the need pay market wages (Carrasco-Hernandez & Sánchez-Marin,
to promote the most capable offspring but find it hard not 2007; Cater & Schwab, 2008; McConaughy, 2000).
to view their own children as more capable than their
nieces and nephews (Ward, 2004; Tsui-Auch, 2004).
The psychological concept for this conundrum is Wealth-Dispensing Private Family Firms
“parental altruism” (Lubatkin, Schulze, & Ling, 2005). Some family firms are able to recruit and reward nonfa-
In Japanese culture, a similar concept that is widely dis- mily executives, to go public and gain external equity,
cussed, and seen as endemic in family firms, is the or both of these options, and consequently seize growth

12. Stewart and Hitt 69
opportunities. However, their leaders might have little could be a threat to their unique access to familial
enthusiasm for independent boards and other gover- resources (Athanassiou, Crittenden, Kelly, & Márquez,
nance features of professional public firms. They might 2002; Colli et al., 2003). In Greenhalgh’s (1994, p. 751)
view these external responsibilities as a threat to their depiction of a Taiwanese “family head,” manipulation
benefits: privacy, valuation placed on noneconomic of kinship traditions enabled him to “build his firm out
benefits, and privileged access to resources found of the loyalties and talents of his family.” Therefore,
uniquely in the kinship domain (Lomnitz & Pérez- entrenched leaders of family firms may choose to retain
Lizaur, 1987). For example, they enjoy greater influ- their “traditional” methods, particularly in functions
ence than CEOs of widely held firms in the use of related to privileged control over resources such as cash
discretionary cash flows (Muntean, 2009). flows and executive positions. We could expect that the
Most of these perquisites also apply to other closely most likely areas of conflict in efforts to professionalize
held, private firms and do not explain the lower accounting are financial and human resources strategy, and gover-
and operating performances of family firms (Zellweger nance. However, for obvious reasons these conflict-
& Nason, 2008). The same desire to reduce taxes and laden topics are difficult to study.
hence reported income applies equally to their compari- Principal–principal conflicts in private family firms. Lead-
son firms. The private benefits available to owners ers of privately held family firms, certainly those that
may, however, be especially pervasive in family firms. are closely held, enjoy legitimate discretion over the dis-
Among all types of owners, family owners have more pensation of the wealth of their firms. However, minor-
“ways to divert benefits to themselves compared with ity shareholders, if they exist, may be disadvantaged by
managers at” “widely held corporations” (Claessens the lack of liquidity of the shares and hence a weak
et al., 2002, p. 2744). Furthermore, private perquisites, negotiating position at times of ownership consolida-
such as non-arm’s-length transactions and asset acquisi- tion. Therefore, “principal-principal” conflicts can arise
tions, serve the interests not only of the owner but also with the majority owners, a type of conflict that is more
those of his or her kinship group and their “lifestyle” widely recognized in public family firms (e.g., Luo, Wan,
(Westhead & Cowling, 1997, p. 46). Such transfer of & Cai, 2010; Morck & Yeung, 2003; Yoshikawa &
wealth from the firm to the owners’ coffers may be more Rasheed, 2010).
prevalent in family-controlled firms than in other closely Less recognized is the potential for another form of
held firms (Bennedsen & Nielsen, 2010; Bertrand & principal–principal conflict that arises in closely held,
Schoar, 2006). Therefore, the apparently lower perfor- private family firms.6 Provided that private family firms
mance of family firms might not be perceived as such by generate wealth, decisions must be made about which
these CEOs (Pérez-González, 2006; Poza et al., 2004). private benefits will be dispensed and to whom. Within
Family firm CEOs might also have more noneco- the family there can be cleavages between active and
nomic preferences than nonfamily firm CEOs (Astrachan passive owners, generating differing interests in rein-
& Jaskiewicz, 2008; Chrisman, Kellermanns, Chan, & vestments versus dividends. There can be differing
Liano, 2010). They might prefer, as Gómez-Mejía, treatments of males and females, in-laws compared with
Haynes, Núñez-Nickel, Jacobson, and Moyano-Fuentes agnates (“blood” relatives), or of different branches of
(2007) suggest, to preserve their “socioeconomic wealth” the family (Bertrand et al., 2008). The consequences
rather than to maximize their financial wealth. In the extend beyond negative affect to include the expropria-
CEO’s eyes, this nonfinancial wealth might include tion of resources for one family member at the expense
their capacity for providing employment for relatives or of other relatives and of the performance of the firm
for maintaining a long-standing company name that pro- (Bertrand et al.). From the perspective of insiders to the
vides prestige to the family (Berghoff, 2006; Ehrhardt, family group, any such cleavages and differentiations in
Nowak, & Weber, 2005; Lomnitz & Pérez-Lizaur, 1987; benefits will be highly visible. For example, the family
Thomas, 2009; Zellweger & Astrachan, 2008). cannot hide who gets to live in the ancestral villa (see,
From the viewpoint of entrenched family CEOs, pro- Helin, 2011).
fessionalizing management may be a threat to their Intrafamilial conflicts are notoriously common. For
power, especially if these CEOs are, as often, less well example, conflicts among siblings are noted in trade books
educated than their peers (Zahra & Filatotchev, 2004). It (e.g., Paisner, 1999), in textbooks (e.g., Poza, 2004), in

13. 70 Family Business Review 25(1)
biographies (e.g., Smit, 2008), and in scholarly mono- et al., 2007) and in private samples (Barontini & Caprio,
graphs (e.g., Watson, 1985). Although they are typically 2006; Ehrhardt et al., 2005; Saito, 2008) as well. The
hidden from outsiders, intrafamilial principal–principal meta-analysis by van Essen et al. (2010) attributed this
conflicts in private family firms may be more wide- generational effect to the fact that successive genera-
spread than ownership-based principal–principal con- tions are more risk averse. Perhaps they are trying to
flicts in public family firms. They can prove a threat to preserve wealth rather than to create new wealth as the
firm survival if, as Bertrand et al. (2008, p. 467) founders tried to do.
observed, they precipitate “a ‘race to the bottom’ where Several authors have therefore suggested that the
one brother [successor] tries to tunnel resources out of superior performance for public family firms is because
the firm before another brother does.” of entrepreneurial effects and not because of family
From the viewpoint of nonfamily employees and of effects (Arrègle & Mari, 2010; Casson, 2000). For exam-
family members who are younger, female, from lesser ple, Fogel (2006) and Saito (2008) argued that the posi-
branches of the family, or skeptical about the family ide- tive effects found may be driven by founders who are,
ology, professionalization could seem an opportunity, after all, unusually successful having taken their busi-
not a threat. These actors could approve of professional nesses public. In a complementary study of Fortune
management as a means to value openness and disclo- 1,000 firms, Miller et al. (2011) distinguished among
sure in contrast with reticence and secrecy (Gedajlovic family firms, family founders, and lone founders, con-
et al., 2004; Greenhalgh, 1994; Stewart, 2003). Their cluding that “lone founder firms” were most inclined to
enthusiasm could itself be threatening to entrenched growth strategies and were best at providing returns to the
leaders. As these examples suggest, noneconomic ben- owners. Another indication of an entrepreneurial, rather
efits may coexist with nonfinancial costs such as than family, effect is Chu’s (2011) finding of superior
“role conflicts and social constraints” (Zellweger & performance only for smaller public family firms.
Astrachan, 2008, p. 348). Hence, performance studies Professional versus entrepreneurial management. Some
that rely on “externally derived” dependent variables types of “professionalizing” may not be appropriate for
may fail to measure the costs and benefits to family entrepreneurial family firms. We refer to professional-
involvement that are important in the family’s decisions izing in the sense of “formalized, standardized, and . . .
to maintain or to give up control (Astrachan, 2010, p. 10; scientific” means of functioning (Zhang & Ma, 2009,
Astrachan & Jaskiewicz, 2008). p. 133; also, Hwang & Powell, 2009). Entrepreneurial
management can be superior, given certain contingen-
cies, and this superiority can be augmented by the
Entrepreneurially Operated Family Firms familial context. There are four reasons supporting this
Some family firms are better served by entrepreneurial argument. The first is that entrepreneurial management
rather than professional management. Performance may be superior because informal social ties enhance
studies provide support for this rationale. Market results the coordination and knowledge sharing internal to a
for founder-CEO led firms are significantly superior to company. When the members of a firm understand one
those for successor-CEO led firms, whether or not the another as members of a kin group commonly do, they
successors are scions of the family (Fahlenbrach, 2009; become adept at the “mutual accommodation” (Burns &
Nelson, 2003). Several studies find this effect with fam- Stalker, 1966) that facilitates adaptation to change. In
ily successors. Among the studies in Table 2, several contrast, salaried managers are inclined to replace these
distinguish between the founding generation and suc- informal understandings with formal systems of com-
ceeding heirs, with the former outperforming the latter. mand and control, referred to as “Generally Accepted
Lower performance for heirs than for nondescendents Management Principles (GAMP)” by the field researcher
or founders was found in several public sample studies Leonard Sayles (1993, pp. 25-26). Observational studies
(R. C. Anderson, Mansi, & Reeb, 2003; Andres, 2008; over several decades have shown that this abstract
Morck, Strangeland, & Yeung, 2000; Pérez-González, approach frequently fails the coordination challenges
2006; Saito, 2008; Villalonga & Amit, 2006). This gen- whereas, “work flow entrepreneurship” by lower-level
erational effect has been found in mixed samples as well employees often succeeds (Sayles & Stewart, 1995;
(E. Barth, Gulbrandsen, & Schønea, 2005; Bennedsen J. M. Smith, 2009, pp. 81-86).

14. Stewart and Hitt 71
Second, informal and idiosyncratic methods may be Haynes, Onochie, and Muske (2007) found a demon-
superior to formalization, standardization, and cosmo- stration of this distinction between domains. They
politan education, not only because of the need for observed that among members of U.S. family firms,
ongoing coordination but also because of the emergence “positive changes in the business financial indicators
of these methods from practice, not universal principles. create a positive perception of the business, however
As Sarasvathy (2001) argued, skilled entrepreneurs con- they have no influence on the family’s perception[s] of a
struct opportunities out of available resources, rather better quality of life” or “of the family’s success”
than plan for predetermined goals. Bricolage of this sort (pp. 408, 395). Another demonstration, from the ethno-
is best achieved with firm-specific knowledge and expe- graphic record, illustrates a common conundrum for fam-
rience and “training [that] is idiosyncratic to the particu- ilies with businesses (Ram & Holliday, 1993). Hamabata
lar work” (Dyer, 1989, p. 224). This knowledge is often (1990, p. 43) described a young man who was, in the
tacit and team-based, rather than explicit or individual domestic domain, a “pet” child, but who was recognized
(Lave & Wenger, 1991), and may be better developed to be an incompetent successor in the commercial
with the long-term relationships found both in kinship domain. This is an example in which the mixing of
and in family business (Bloch, 1973; Ellis, 2011; domains represents a cost born by the business. Managing
Habbershon, 2006). As a result, the informal methods of a family firm includes at its heart an effort to reconcile
entrepreneurial employees can outperform the more for- differences among the domains (Arrègle et al., 2007;
mal methods of approved professional practice (Ram, Colli, 2003; Jones, 2005; Sharma, 2004; Stewart, 2003).
1994; Stewart, 1989). The boundaries of family and business as entrepreneurial
The cognitive processes developed informally on the opportunity. Johannisson (2002) studied 24 family firms
job can also be better suited than formal processes for for more than 15 years and found that the most success-
coping with unexpected changes (Starbuck, 2009). As ful among them did not adopt “managerialism”; nor did
Gedajlovic, Carney, Chrisman, and Kellermanns (2011, they acquire external equity investments. Rather, they
p. 10) argued, family firm executives can operate with used the “friction energy” and the “interplay” among
the discretion derived from “greater scope for the use of “entrepreneurship as a passion for change, the family as
entrepreneurial cognitions, which rely on heuristics and a social institution, and management as a profession [to]
simplified decision rules that enable timely strategic energize the medium-sized family business” (Johannisson,
decisions.” This is a third reason that family firms may 2002, pp. 46, 48, 50). Scholes, Noke, Wright, and O’Neil.
benefit from using entrepreneurial rather than a profes- (2011) offered a complementary argument about the
sional approach to management. entrepreneurial potential of combining family and busi-
The domains of kinship and business. A fourth reason ness. Whereas Johannisson emphasized the creative
that entrepreneurial management can be superior is that potential raised by differences in ideologies, they empha-
family firms offer unique opportunities for entrepreneur- sized complementarity as a key to innovativeness: “This
ial behavior. Johannisson (2002) has proposed that entre- complementarity emerges through a process of negotiat-
preneurial potential is found at the interfaces of family ing shared values achieved, for example, by enabling a
and business. Following the terminology of the kinship nonfamily manager to act as a mentor/adviser to exist-
theorist Meyer Fortes (1969), kinship and commerce are ing family managers” (Scholes et al., 2011).
among the major social “domains” in society (for quali- Stewart and Hitt (2010) explained the entrepreneurial
fications of this language, see Jones, 2005, and Stewart potential of family and business in terms of the logic
& Hitt, 2010). These domains intersect in complex ways, of F. Barth’s (1967) thesis on the bridging of different
but one of Fortes’s arguments was that they are not spheres of exchange. Insofar as the domains of family
reducible one to the other (Stewart & Miner, 2011). and business are in practice distinct, a classic entrepre-
Rather, the domains of business and kinship are com- neurial opportunity arises because the same resources,
monly regarded as “very different in their essence” (de such as personal networks or potential employees, are
Lima, 2000). In many cultures, kinship is at the least a discrepantly valued based on different uses or functions
widely adopted idiom that reflects the deepest moral val- in one domain versus in the other. As F. Barth argued in
ues of the culture (Bloch, 1973; Peletz, 2001; Song, his seminal article, “entrepreneurs will direct their activ-
1999; Steadman, Palmer, & Tilley, 1996; Stewart, 1989). ity pre-eminently toward those points of an economic

15. 72 Family Business Review 25(1)
system where the discrepancies of evaluation are the creating or input completing function (Gilson, 2007;
greatest, and will attempt to create bridging transac- Silva et al., 2006; Young, Peng, Ahlstrom, Bruton, &
tions” (F. Barth, 1967, p. 171; Stewart, 1989, 2003). Jiang, 2008). This function has been construed as a form
Discrepancies in evaluation can arise because of con- of entrepreneurship (Leff, 1978; Leibenstein, 1968). We
straints on exchange—in an obvious example, familial can also construe it as a form of Barthian entrepreneur-
love is not widely regarded as saleable. They can also ship (F. Barth, 1967). As Leff (1978, p. 668) noted,
arise simply from differing perspectives. For example, “honesty and trustworthy competence” may be a rare
impecunious noble families may enter into marital input in less developed marketplaces, such that informa-
exchanges with the newly wealthy, trading prestige for tion about sources is more freely available in the kinship
commercial opportunities or capital, and vice versa arena than the commercial arena. As an example of the
(McDonogh, 1986). effectiveness of this mode, Hsieh, Yeh, and Chen
In family businesses, an entrepreneurial opportunity (2010) found that among Taiwanese electronics firms,
arises when something, such as a custom or set of rela- those that are affiliated with business groups outinno-
tionships, from the business domain has a use that ren- vate those that are not.7
ders it more valuable in the family domain. The reverse Family business groups are the dominant form of
also applies. An example of higher valuation in the kin- medium- to large-scale businesses worldwide (Bertrand
ship domain than in the business domain is a managerial et al., 2008; Morck, Wolfenzon, & Yeung, 2005; Young
position for an unemployed relative. Another example is et al., 2008). However, familial ties are not the only pos-
a modestly profitable venture that, although unappeal- sible basis for interfirm trust. Other types of informal
ing in financial terms, serves as a means of reuniting social ties can enhance the coordination, “knowledge
scattered kin by attracting them to its employment sharing and collusion” among firms in the same industry
(Bruun, 1993; Greenhalgh, 1994). (Ingram & Lifschitz, 2006, p. 335). Besides kinship ties,
Examples of higher valuations in the business domain other possibilities include ethnicity, religion, and caste. It
than in the kinship domain are secrecy and trust (Landes, seems possible that firms relatively highly embedded in
2006; Lomnitz & Pérez-Lizaur, 1987). In business, the kinship (Aldrich & Cliff, 2003) are also predisposed to
ability to maintain a confidence for many years can be these other forms of embeddedness (Colli & Rose, 2003;
invaluable (Benedict, 1968; Marcus & Hall, 1992). Such Janjuha-Jivraj & Woods, 2002; Peredo, 2003). All these
discretion is useful with clandestine familial arrange- can be the basis for what Cohen (1969) called “informal
ments but materially more useful with clandestine interest groups.” Examples of these where benefits to
boardroom agreements. It will therefore be particularly business have been substantial include the West
valuable in contexts in which trust is at a premium, such Highlands Asian clothing industry (Ram, 1994), fashion
as less developed countries. For example, Ram (1994) shoes (Blim, 1990), long-distance trade (Cohen, 1969),
noted the positive value in the business domain of their ship building (Ingram & Lifschitz, 2006), and textiles
owners’ familial reputation, spousal monitoring of (Farrell, 1993); for an example of early positive and later
labor, and frugality in disposition of corporate assets. negative effects, see Karra, Tracey, and Phillips (2006).
However, he emphasized the indulgence of incompetent Why kinship?. Other bases of embeddedness can sub-
kin who had an undue sense of entitlement. This exam- stitute for kinship, but kinship is ubiquitous whereas the
ple demonstrates that negative transfers can also occur. other bases are historically contingent. Why might this
be so? Marcus and Hall (1992) offered one possible
answer. They argued that kinship networks have a
Entrepreneurial Family Business Groups unique capacity to provide linkages, “to make secret
In contexts of poor securities law (such that owners risk deals, . . . to pull together resources from across various
expropriation by other owners) and poor commercial social and institutional spheres to pursue a single aim . . .
law (such that transactions between businesses are [because] they integrate functions and activities that
risky), many market arrangements are substituted by specialized institutional orders differentiate and frag-
networks of jointly owned and kinship-connected firms. ment” (Marcus & Hall, 1992, p. 131). For example, for
These family business groups gain “access to nonmar- families that own small businesses, kinship is the source
keted inputs” (Leff, 1978, p. 668) and perform a market of the “synthesis” needed to patch together “multiple

16. Stewart and Hitt 73
incomes, from multiple sources, with multiple fallback family members can occur within privately held family
positions” (Creed, 2000, p. 343). firms (Bertrand et al., 2008). When this behavior occurs
Gilson (2007) proposed another possible answer. in public family firms it compounds these intrafamilial
The basis of his argument is that outsiders need to evalu- principal–principal conflicts with majority–minority
ate not only the trustworthiness of a (theoretically) owner principal–principal conflicts (Jiang & Peng,
immortal firm but also the interests of (mortal) execu- 2011; Young et al., 2008). It thereby violates several
tives who could choose actions harmful to the long-run principles of professional governance, not to mention
reputation of the firm but lucrative for themselves in the the responsibility of professionals to act with integrity.
shorter run. He argued that “when the corporation is Scholars in economics and finance have studied these
owned by a family, the internal incentives become much governance failings, expropriation from minority own-
more transparent” (Gilson, 2007, p. 643). This argument ers, and the ensuing inefficiencies in resource allocation
is limited by the problem (which he notes) that the cross- (e.g., Faccio et al., 2001; Morck & Steier, 2007). For
generational unity of interests cannot be taken for example, Morck et al. (2005) noted that a divergence
granted and is difficult to evaluate from outside. Perhaps between cash flow and control rights, which is typically
a solution to this problem may be found in Leff’s foun- caused by pyramidal structures or dual-class shares,
dational article. Leff (1978) noted that family business
groups tend to be multifamily groups, with extensive ties can lead to inefficient investment. . . . This is
of intermarriage, ritual kinship, and apprenticeship because the controlling family earns only a small
exchanges among successors (Chung & Luo, 2008; part, corresponding to its small cash flow rights in
Grassby, 2001; Ingram & Lifschitz, 2006; Kuper, 2009). such a firm, of any investment’s monetary payoff
The tendency for family groups to link multiple families but can retain all of any private benefits the
is variable cross-culturally (for its absence in Pakistan, investment generates. (p. 676)
see Papanek, 1973), and might be a factor in relative
economic development. Similarly, the relative perfor- These sorts of inefficiencies have consequences for
mance of family groups varies across countries (Morck pseudoprofessional firms themselves, for other modes
et al., 2005). of family firms, and for entrepreneurial activity.
Poor governance as a response to poor legal protec-
tions becomes self-reinforcing. Given strong legal pro-
Pseudoprofessional Public Family Firms tections, as in Japan and the United States, minority
Family groups offer “particularly rich possibilities for owners appear not to be expropriated (R. C. Anderson
expropriation” of minority owners (Faccio, Lang, & & Reeb, 2003b; Chen, Chen, Cheng, & Shevlin, 2010;
Young, 2001, p. 55). As with other family firms, they Yoshikawa & Rasheed, 2010). Absent these protec-
can use mechanisms such as excess compensation of tions, the main defense of an owner against expropria-
family members (Barontini & Bozzi, 2011; Chourou, tion by another is holding a major ownership block.
2010). Their structure makes them amenable to “trans- This defense carries attendant costs in lower diversifi-
fer pricing [manipulation and] related-party transac- cation and liquidity and higher monitoring require-
tions” (Luo et al., 2010; see also, Jiang & Peng, 2011; ments, which in turn are compensated by expropriation,
Morck et al., 2005). This “tunneling” of value is espe- which further reinforces the systemic need to protect
cially a problem when there are wedges between cash against expropriation by means of holding a controlling
flow and control rights. For example, Silva et al. (2006) stake (Luo et al., 2010).
found that in family groups with balanced ownership Monitoring costs to protect against such behavior
and control, familial ties among affiliates increase stock are high, because those firms that seek the private ben-
market value (with value creation the dominant effect), efits of control with other people’s money—that is,
whereas with an excess of control over ownership, mar- with public equity (Morck et al., 2005; Yeung & Soh,
ket value is harmed (with value expropriation the domi- 2000)—take pains to appear to be professionally man-
nant effect). aged and governed: “In essence, these firms attempt to
We have observed that such expropriation of appear as having ‘crossed the threshold’ from founder
resources by controlling owners at the expense of other control to professional management . . . [their]

17. 74 Family Business Review 25(1)
corporate governance structures . . . often resemble very important animal” that scholars have not yet
those of [professional firms] in form but not in sub- trapped and depicted (Kilby, 1971, p. 1). Two questions
stance” (Young et al., 2008, pp. 198-199). Such a pre- are particularly vexing: (a) What is it, exactly, or other-
tense intensifies the vicious cycle of mistrust found in wise phrased, how can it be achieved? and, (b) How
low investor protection environments. Because of the well does it perform? Does it attain the twin advantages
difficulties investors face in seeing beyond pseudopro- of professionalism and family involvement, thereby out-
fessional facades, public family firms provide signals performing nonfamily professional firms? The last
of their good faith regarding minority owners. These question is the easier entry point to the Heffalump hunt-
signals have costs, both for the firms that make them er’s conundrum.
and for the economy as a whole. Referring to the performance studies (Table 2), the
Signaling good faith. Publicly traded family firms can answer would seem to be no: professional family firms
signal their good faith and gain legitimacy by hiring the perform the same as other professional firms. This infer-
major international accounting firms (Yeung & Soh, ence follows if we compare family and nonfamily pub-
2000). Another way, which has also been found in the lic firms that are no longer managed by founders. For
high investor protection environment of the United these firms there are no significant performance differ-
States, is restraining from tax aggressiveness (i.e., “the ences. All performance advantages for public family
downward management of taxable income . . . [and] tax firms can be attributed to first-generational, entrepre-
avoidance;” Chen et al., 2010, pp. 41-42). Chen et al. neurial effects (Arrègle & Mari, 2010; Chu, 2011; Fogel,
(2010) found that family-controlled firms are less tax 2006; Saito, 2008). This answer of average performance
aggressive than non–family-controlled firms. They has face validity. If a family firm thoroughly profession-
argued that this behavior signals good faith to minority alizes, it conforms to the normative modes of organiza-
shareholders because “tax aggressiveness activities are tion and management. Its performance can be expected
often bundled with rent extraction” (p. 60). to be average.
Two other signals have the effect of reducing the cash However, we also know that family firms are better
flows at the discretion of the owners: increased levels of than nonfamily firms at expropriating value and enjoy-
debt (Setia-Atmaja, Tanewski, & Skully, 2009) and ing the private benefits of control (Bennedsen &
higher dividend payments (Faccio et al., 2001; Setia- Nielsen, 2010; Bertrand & Schoar, 2006; Claessens et al.,
Atmaja et al., 2009; Young et al., 2008). In the low 2002; Westhead & Cowling, 1997). Therefore, if at
investor protection environment of China, families with least some public family firms share this tendency, the
excess control over ownership are less inclined to pay apparently equal performance, net of value expropria-
dividends, but high-growth family firms, which should tion, may not reflect equal performance in value cre-
be reinvesting cash flows, pay even higher dividends to ation. Furthermore, there are large sample and case
attract capital (Feng, 2011). In contrast, Japanese family research reasons to think that this may be so. These
firms pay higher dividends than nonfamily firms but do arguments will also lead us back to the first question,
not do so if they are quickly growing (Yoshikawa & what is a professional family firm?
Rasheed, 2010). In high-investor protection environ- Family control: Enough but not too much. There may
ments, low dividend payments can be interpreted as a be an optimal level of family involvement in ownership
signal of stewardship (Le Breton-Miller et al., 2011). In and involvement in management: not too little and not
environments where, instead, fast growing firms pay too much. For example, Sirmon et al. (2008) argued that
dividends as signals to investors who could invest simply family-influenced but not family-controlled firms, opti-
on the basis of growth expectations, damage is done to mally holding about 15% of the equity, tended to achieve
resource allocation and economic growth, and not just to more positive outcomes. For these firms, the positive
the firms compelled to dispense with scarce resources.8 attributes of a family are enabled while the potential
negative effects of family involvement are limited. They
further argued that maintaining the family influence was
Hybrid Professional Family Firms important but giving some voice to other stakeholders
The hunt for the Heffalump. The hybrid professional disallows the negative attributes of family control on
family firm is like the Heffalump: “a rather large and the business. They also found that firms having family

18. Stewart and Hitt 75
influence are more likely to respond with higher invest- still a great deal to learn (Schulze & Gedajlovic, 2010;
ments in R&D and with internationalization than nonfa- Steier, 2003).
mily firms or family-controlled firms.
In contrast, Le Breton-Miller et al. (2011) found that
most of their indicators of family involvement are sig- Conclusion: Looking Back and
nificantly associated with lower stewardship and, hence Looking Forward
lower stock market performance, whereas high levels of
family ownership lead to higher levels of stewardship:
“Family control bears a curvilinear U-shaped relation-
Research on Professionalization
ship with stewardship” with the relationship turning Although “professionalization” is often treated as a sin-
positive around “a 28% [ownership] inflection point” gular construct, it entails multiple dimensions (Table 1)
(Le Breton-Miller et al., 2011, p. 715). They attributed that combine in different ways in various modes among
this finding to an increasing identification between the family firms. A comprehensive understanding of these
family’s interests and those of the firm. These two stud- combinations would require attention to six distinct
ies differed in the outcomes they examined (strategic categories of variables. These categories are (a) the
actions versus stewardship) and are not fully compara- environment, such as national legal development and
ble. Therefore, we cannot say exactly where to find this intensity of competition (Tsui-Auch, 2004; Zhang &
golden mean of family influence, but both studies are Ma, 2009); (b) family characteristics, such as genera-
suggestive of a hybrid possibility. tion and family orientation (Bennedsen et al., 2007;
Hatum et al. (2010) reported a more detailed but Lumpkin, Martin, & Vaughan, 2008); (c) business char-
small-n study. They compared two Argentine family- acteristics, such as firm size and governance (Chrisman
owned food processors. One firm proved much more et al., 2009; Kotey, 2005); (d) managerial approach,
adaptive to environmental shifts. This firm was less such as the use of internally or externally developed
bureaucratic, centralized, and formalized than the other, knowledge and the principle of merit (Oxfeld, 1993;
especially in operations, although it incorporated ele- Ram, 1994); (e) performance outcomes, such as financial
ments of formalization and strategic analysis. Unlike the market measures and noneconomic benefits (Chrisman
less adaptive firm, it recruited senior managers with et al., 2010; Miller et al., 2011); and (f) effects for vari-
diverse experiences and perspectives as well as promot- ous stakeholders, such as minority shareholders and
ing from within. It celebrated its tradition of innovation nonfamily managers (Barnett & Kellermanns, 2006;
and appears to have succeeded in finding salaried man- Martínez et al., 2007).
agers who had a cultural fit with the family (A. Hall & Given such complexity, it is unsurprising that there
Nordqvist, 2008). This adaptive family firm exemplifies are gaps in our knowledge about the modes of profes-
some of the possible means by which such firms can sional management in family firms. This is borne out by
successfully professionalize. a review of the 12 studies we found that directly bear on
As Dyer (1989) observed, firms can professionalize this topic. None use fine-grained data on kinship (Parada
their managerial staff either by hiring established man- et al., 2010, and Tsui-Auch, 2004 are partial exceptions).
agers or by developing their current or potential manag- None depict managerial processes as they relate to the
ers. Further research is warranted to identify the contexts use of kinship. Most construe professionalization in
and approaches in which family and business interests terms of the employment of nonfamily managers, which
can jointly be served. However, we can find in the litera- is typically held to stand for broader changes. At most,
ture some suggestions. Large family-owned firms four dimensions are considered (Hung & Whittington,
that succeed over the generations appear to use both 2011; Songini & Gnan, 2009). The processes of profes-
approaches (Benedict, 1968; de Lima, 2000; Tsui-Auch, sionalization receive welcome attention in some of the
2004). Their founding families retain a sense of their articles, all of them qualitative, (Chittoor & Das, 2007;
tradition and purpose, but they may also display a “market Dyer, 1989; A. Hall & Nordqvist, 2008; Hung &
mentality” (Steier, 2003) that enables them to take an Whittington, 2011; Parada et al., 2010; Tsui-Auch, 2004).
“active” ownership role (Helin, 2011). Here, we must Salaried managers in a family firm must attend to the
recognize that our suggestions are speculative as there is needs of the families owning the firm (Colli et al., 2003;