Governing by managing identity boundaries: the case of family businesses.
Family businesses are unique in that two not necessarily compatible identities--the family and business--interact. The family system potentially provides the benefits of collaboration and stewardship in that it can foster strong identification among members and a long-term view of business (Corbetta & Salvato, 2004; Kets de Vries, 1993; Tagiuri & Davis, 1996)--major challenges confronting public corporations because of the separation of ownership and control. However, there is a dark side to strong identification and shared identity among members of a family firm (Levinson, 1971). It may foster a lack of business objectivity that can engender conflict and resentment, eventually negating the benefits of stewardship (Kets de Vries, 1993; Schulze, Lubatkin, Dino, & Buchholtz, 2001). The business system can provide the necessary controls, discipline, and objectivity but may dampen benefits of identification and shared identity (Chrisman, Chua, & Litz, 2004; Sundaramurthy & Lewis, 2003). Harnessing the benefits of the dual identities, therefore, is a critical governance dilemma for family businesses.
However, our understanding of this dilemma is surprisingly limited even though family businesses account for 40-60% of the U.S. gross national product (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001). Family businesses include a gamut of enterprises where an entrepreneur or later-generation Chief Executive Officer (CEO) and one or more family members influence the firm via their participation, their ownership control or strategic preference (Poza, 2004). Hence, the defining characteristic is the involvement of family members in some form in the business, given our interest in the levels of involvement (Chua, Chrisman, & Sharma, 1999). Systems theory is a dominant theoretical perspective given that multiple systems intersect in the case of family businesses. This perspective has been useful in underscoring the need for the coexistence of the family and business subsystems even though they may have conflicting expectations and norms. However, it has not steered research attention to the notion that varying degrees of overlap between systems exist across family firms; this variance evokes diverse governance challenges and calls for different approaches to managing the dual systems. Furthermore, the systems theory perspective has not adequately addressed the uniqueness of any given family identity or business identity, which simplifies the complexity of interaction between systems. A deeper understanding of the nature of this overlap and its underlying governance implications can therefore provide a richer insight into how dual systems with varying levels of overlap can coexist effectively. This understanding is a critical governance challenge since organizational identity can provide an important and nonimitable source of sustainable competitive advantage (Fiol, 2001). This is particularly true in the case of family firms since family identity is unique and therefore impossible to completely copy.
Using a boundary theory lens and building on the systems theory premise that the multiple subsystems within a family business need to coexist, we explore in detail the varying degrees of overlap between the family and business systems and the consequent challenges. This perspective offers an excellent lens for describing the degree of overlap because it provides insights on the processes used by individuals and groups to create, maintain, and cross the various "mental fences" (Zerubavel, 1991) or boundaries used to simplify and categorize the environment. The theory provides a mechanism for studying the boundaries people use to negotiate the various domains (e.g., business and family) and roles (e.g., parent, coworker) of their lives (Ashforth, Kreiner, & Fugate, 2000; Nippert-Eng, 1996).
Specifically, in this paper, we integrate literature on boundaries and family businesses to illustrate how family firms can be arrayed on a continuum anchored by very high or very low levels of integration between family and business identities. We also develop the notion of "differential permeability"--a state between the two ends. Second, we describe individual and contextual factors that influence a firm's tendency to integrate or segment. Third, we discuss the costs and benefits to integration/segmentation and to differential permeability. Finally, we invoke the notion of "boundary work" from boundary theory as a means to strategically manage identity integration and propose avenues for future research from a boundary theory lens.
Boundary Theory and the Family Business
Boundaries can refer to the physical, temporal, and/or cognitive limits or perimeters that define entities as separate from one another and that define components within entities. Boundary theory explains the mechanisms through which individuals and collectives create and maintain these separations. Boundary theory has been employed in numerous disciplines across the arts and sciences. This includes political science (to explore the dynamics of geopolitical areas and "borderlands"; Martinez, 1994; Schofield, 1994), anthropology (to explain how individuals and cultures use space and time to make sense of and organize their surroundings) (Goddard, Llobera, & Shore, 1994; Hall, 1969), organization theory (to explain the dynamics of open systems) (Bertrand, 1972), and psychology (to delineate where an individual's self-concept begins and ends in order to diagnose the healthiness of interpersonal relationships) (Hartmann, 1991; Katherine, 1991). Boundary theory is premised on the notion that individuals and collectives have a natural tendency to simplify and order their environment by classifying everyday activities, events, people, and places into categories (Hartmann, 1991; Nippert-Eng, 1996; Rau & Hyland, 2002; Zerubavel, 1991). For example, individuals create meaning around their various domains of existence such as "home," "work," or "church." Based on these underlying assumptions, boundary theory is often used to predict the nature of interactions between social entities, including the benefits and liabilities of varying degrees of interaction. Hence, we propose that boundary theory offers a rich lens for studying family businesses dynamics.
The Nature of Boundaries
Within any given domain (and often across domains as well), individuals can construct a given role--a unique set of requirements, responsibilities, and even identities associated with one or more domains (Ashforth, 2001). For example, within the home domain an individual might carve out a role of "parent" that also spills over into the church or school domains. These role identities comprise the "goals, values, beliefs, norms, interaction styles, and time horizons that are typically associated with a role" (Ashforth, 2001, p. 6). Cognitive boundaries tend to be drawn around the roles within these domains. Although these boundaries are cognitive, they also result in physical manifestations (such as walls, doors, or other borders) that reinforce these mental distinctions. Individuals engage in the process of negotiating, placing, maintaining, and transforming boundaries to allow them to focus on whatever role or domain is salient (Nippert-Eng, 1996). For instance, an individual's policy of not taking personal calls at work may provide the necessary boundary to enable the individual to concentrate on the "work" domain.
The flexibility and permeability of boundaries, along with the degree of contrast in identities, determine the extent to which a given pair of roles or domains are segmented or integrated (Ashforth et al., 2000; Rau & Hyland, 2002). Flexibility refers to the "when" of a boundary--the degree to which an individual is adaptable to when a particular role or domain is invoked. For example, a family business owner is typically able to perform some tasks for the company business even during what are traditionally nonbusiness hours (weekends, late at night, etc.), thereby having role flexibility. Permeability refers to the "what" of a boundary--the degree to which a role allows elements of another role to integrate and assimilate with it. For example, an individual bringing his or her child to work, a person working in the same office as his or her spouse, or someone working at home are all signs of permeable work-home boundaries. Inflexible and impermeable role boundaries tend to be associated with high contrast in identities between roles because there are very few avenues for the values and beliefs of one role to influence the other, thereby promoting "thick" boundaries or highly segmented roles (Ashforth et al., 2000). Conversely, highly flexible, permeable boundaries enable low contrast between sets of roles and thereby foster "thin boundaries" or more integration.
Integration of domains and of role boundaries varies among individuals, ranging from fully integrated to highly segmented, with each state posing unique boundary management challenges. Some individuals tend to have fluid boundaries between "home" and "work" with no distinction between what belongs at home and what belongs at work, and no differentiation of when and where home and work tasks are completed (Nippert-Eng, 1996). In this case, there is a substantial overlap of the cognitive domains representing objects, people, thoughts, activities, and emotions. The reverse is true for an extreme segmenter, whereby she or he has different objects, activities, and "selves" or "ways of being" within each context (Nippert-Eng, 1996, p. 6). From a boundary theory perspective, a segmenter has more role clarity but has to exert more psychological effort transitioning between roles; conversely, an extreme integrator faces role blurting and has the challenge of creating and maintaining boundaries (Ashforth et al., 2000).
Just as individuals can vary in the degree to which they segment or integrate domains and roles, evidence exists that social groups (such as organizations) also collectively create and maintain various types of boundaries. Research in the work-family literature, for example, demonstrates that workplaces vary in the degree to which they create a boundary between home and work (Clark, 2000; Kirchmeyer, 1995; Kossek & Ozeki, 1998). Similarly, organization identity researchers have documented that organizations can vary in the degree to which they segment or integrate their various identities (Foreman & Whetten, 2002). Hence, we may speak of identity boundaries as the socially shared distinctions between aspects of an organization's identity (e.g., "family" aspects and "business" aspects).
Identity Segmentation--Integration Continuum: The Family Business Context
Within the family business context, the two relevant identities (the family and the business) can be segmented or integrated to different degrees. Building on the preceding discussion that demonstrates the ability of individuals and collectives to engage in boundary work, we posit that family businesses can be arrayed on a continuum anchored by high segmentation of family and business identities, a state that resembles a nonfamily business, to high integration (Figure 1). Later in the paper we explore cases of partial integration and partial segmentation. We discuss later how the level of integration between domains is manifest in several observable means: association between the family and business image, culture, personnel, ownership/governance, contractual relations with family, and the relationship between family and business finances. In addition to these factors being manifestations of a current state of integration, we also argue later in the paper that these factors can be consciously manipulated in order to create and maintain the desired level of integration. While these dimensions are not exhaustive, based on the integration of the work--family boundary literature (Nippert-Eng, 1996, pp. 149-55) and the family business literature (e.g., Lansberg, 1983; Tagiuri & Davis, 1996) they are representative of the characteristics that denote the degree of integration between the family and business identities.
Image. The name a family business uses can be a telling indicator of where it falls in the segmentation--integration continuum because a firm's name is an important "identity marker" (Ashforth, 1998, p. 220). Similarly, Tagiuri and Davis (1996, p. 202) indicate that a family name is "an identity for family members and has a meaning to people inside and outside the firm." Carrying the family name over to the business reinforces the mingling of the two identities, as is the case in firms such as S.C. Johnson Company and Ford.
Similarly, family businesses may choose to either disclose or conceal their family-owned status in their marketing and advertising. Considering the earlier companies again, we note that S.C. Johnson ends its products' television commercials with the tagline "S.C. Johnson--a family company," suggesting a conscious effort to link the family image with its products. Yet companies such as Ford (which use a family name) do not highlight the family aspect in the imagery of the company to such a degree, if at all.
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Culture. The degree to which the core values and beliefs of the business and the family overlap is an important barometer of the overlap between the business and family systems. Astrachan, Klein, and Smyrnios (2002) gauge the integration of cultures not only through an overlap between family values and business values but also by the family's commitment to the business; this is because the family's core values are the basis for developing a commitment to the business. Herman Millar Inc. exemplifies a family firm where the family and business cultures are tightly integrated. The company hires individuals who are "strongly committed to the beliefs and ideas of the senior family members. Employees of this firm share the family's outlook toward customer service, quality, and productivity" (Kets de Vries, 1993, p. 63).
How individuals use language can be a manifestation of cultural values. Cross-realm talk, for example, occurs when an individual engages in conversations about aspects of a particular domain of their life, such as work, with individuals from another domain such as family. The more we integrate, the more frequently we are likely to discuss aspects of each world while physically located in another, thereby promoting cross-fertilization between realms (Nippert-Eng, 1996). Members of highly integrating family businesses may discuss business in family gatherings, and family dynamics in business decisions, fostering blurring of boundaries between the two domains. On the other hand, members of highly segmenting businesses restrict cross-realm talk and engage in it during predictable times, maintaining clear boundaries.
Personnel. The employment practices of family business can be another strong indicator of the mingling of family and business roles and identity because the individuals we surround ourselves with "calls forth aspects of our selves more instantaneously and more thoroughly than anything else" (Nippert-Eng, 1996, p. 68). The selection, compensation, appraisal, and training practices of family firms reveal the level of overlap between the family and the business identities (Lansberg, 1983). The number of family members employed by the business, the levels at which they work, how they are hired, and how they are compensated, evaluated, and trained are critical indicators of location on the segmentation--integration continuum. Some family businesses may not allow family members; some may employ family according to certain rules; and others may freely employ them (Whiteside & Brown, 1996). The weight given to family membership, particularly for higher level managerial positions, provides insight on permeability of the family--business boundary. Having people common to both realms provides for cross-fertilization, and the presence of family members in key positions allows control over decision making, enabling uniformity between family and business values and systems (Astrachan et al., 2002). Using Shanker and Astrachan's (1996) classification of family involvement, the level of integration will be high in firms with considerable family involvement, medium in firms with some family involvement, and very low in firms with little direct family involvement.
Ownership and Governance. Ownership is central in determining the influence of a family on a business (Astrachan et al., 2002). Firms that restrict the level of outside ownership have a substantial overlap between the family and business systems. On the other hand, when stock is offered to nonfamily employees, their influence is likely to pierce the boundary as these members have a formal mechanism through which to affect the business.
Key decision-making groups can also be examined in determining the integration or segmentation of the family and business systems. The makeup of a firm's board of directors and top management team gives initial evidence of one tendency or another. In some firms, key decision making is controlled exclusively by family members (suggesting a tendency toward integration), whereas in others, a mixture of family and nonfamily individuals share responsibilities (suggesting a greater ability for segmentation). Furthermore, in some companies, the top management team consists of only family members, while the board comprises a number of outsiders brought in for various areas of expertise and with varying levels of power (suggesting a mixture of integration and segmentation).
Financial and Contractual Relations. As Nippert-Eng (1996, p. 63) argues, money is a "direct extension of one's self" and, therefore, its handling reveals an individual preference for integration between home and work. A highly integrating monetary policy stems from the notion that one's personal interests and work interests overlap. Within the family business context, family funds may be used to the benefit of the firm or business funds may be diverted to the benefit of the family. Family business in general may be more integrating because of institutional factors such as tax laws. Nonetheless, family firms differ in the degree to which they comingle family and business funds (Haynes, Walker, Rowe, & Hong, 1999), indicating differences in the permeability of boundaries between realms.
Thus, the level of integration is high when family businesses have a strong association to the family name, image, and culture, where the family controls almost all the shares and employs family members in key decision-making positions. We now briefly consider the middle ground between extreme integration and segmentation.
Differential Permeability as Middle Ground on the Continuum
In addition to examining overall trends toward segmentation or integration, boundary theory can be used to examine the relative tendencies of multiple dimensions of an entity (Paulsen & Hernes, 2003). Identity scholars acknowledge, for example, that identity typically comprises multiple aspects and is rarely simply one monolithic representation (Cheney, 1991). Hence, the degree of family and business integration can be manifested to varying degrees along the different dimensions outlined earlier. So while we have generally spoken of the two extremes along the segmentation--integration continuum, clearly family businesses can exist toward the middle of this continuum, in a state we call "differential permeability." We define the state of differential permeability as the firm containing some elements of integration and some elements of segmentation. Our assertion of this phenomenon existing at the organizational level is consistent with previous research on identity and boundaries at the individual level, which has demonstrated how multiple identities can be both integrated and segmented within the same person (Kreiner, Hollensbe, & Sheep, 2006; Nippert-Eng, 1996).
Differential permeability can occur both within and between aspects of family business identity (image, culture, personnel, ownership/governance, and financial/contractual relations with family). As an example of differential permeability within an aspect (in this case, culture), a family firm might not manifest physical artifacts of the founding family in the business location (segmenting) yet have a clear family-like work atmosphere (integrating). As an example of differential permeability between aspects, a family firm might be highly integrated with their image as a family firm yet be highly segmented in their personnel policies. These ideas are illustrated in Figure 2 and the implications of this state will be addressed later in the paper.
Contingencies That Influence Segmentation--Integration
Within the family business context, two interrelated sets of factors may drive a family firm's position on the integration--segmentation continuum: individual factors and situational context. We discuss each of these sets of factors and outline their impact on firm governance.
As noted, previous research (e.g., Kreiner, 2006; Nippert-Eng, 1996) has found that individuals vary widely in their preference for segmenting or integrating their work and home lives. We focus on three individual factors that are likely to influence intermingling business and family systems: founder's beliefs, age, and gender of the owner-managers. Each of these has been shown to cue identity salience and influence role integration (Ashforth, 2001; Hartmann, 1991).
Founder's Belief. Founders can have lasting effects on the cultures of their firms (Schein, 1983). It follows, therefore, that the beliefs of the founder regarding the interconnection between family and the business can be central in determining the level of identity integration manifested in a family firm. So if the founder strongly identifies with the roles in the family domain and sees the business as a means to fulfill these role obligations, the more likely it becomes for the founder to seek and find opportunities to express that role identity, leading to more integration of that role with others (Ashforth et al., 2000). Within the family business literature there are several examples of founders shaping the degree of integration between family and business (Ket de Vries, 1996; Ward, 2004). Adolph Ochs of The New York Times provides a good case in point. He believed that he owed his success to the entire family and often hired family members just because they were family; this sense of family involvement was carded on by his successor and son-in-law Arthur Sulzberger (Ward, 2004).
[FIGURE 2 OMITTED]
Age. Personality research has demonstrated that individuals tend to segment their roles and domains more as they grow older (Hartmann, 1991). In the family business context, younger managers are more likely to intermingle family and business; they are more likely to need financial and other resources from family to support their business endeavors because external lenders may be less willing to lend to younger, less experienced business managers. Indeed, Haynes et al. (1999) found that younger business managers engage in more intermingling of business and family resources, including financial and nonfinancial resources such as family member employment without pay.
Gender. Past research has demonstrated that women tend to integrate roles and domains more than men do (Hartmann, 1991) and that women typically identify more strongly with their family roles than men do (Eby, Casper, Lockwood, Bordeaux, & Brinley, 2005). Both of these factors would therefore encourage integration of their family identity with that of the business. Furthermore, evidence from several studies indicates that women starting businesses rely more on personal savings and contributions from family and friends because they have difficulty accessing external financing, fostering more family-to-business resource flow (Aronson, 1991; Buttner & Rosen, 1989; Changanti, DeCarolis, & Deeds, 1996; Fay & Williams, 1993; Haynes et al., 1999). Women also assign a greater strategic role in the firm for family investors and family employees (Gundry & Welsch, 1994).
While individuals may have a proclivity to integrate or segment different aspects of their life, situational contexts impose constraints and shape boundaries (Nippert-Eng, 1996). Cultural backgrounds have a significant influence on work behavior, the interrelationship between work and family, and role dynamics (Ashforth et al., 2000; Erez & Earley, 1993; Hofstede, 2001). Cultures at the national, regional, family, and firm level can shape how family businesses create, maintain, and negotiate role identities. In this section, we discuss the influence of the business family's national ethnic roots, its local urban/rural heritage, its family culture, and stage of development on the level of integration.
National Cultures. Building on Hofstede's (2001) ideas, Ashforth et al. (2000, p. 484) argue that individuals in collectivist cultures emphasize group needs over individual ones. Collectivist cultures such as Japan, Korea, and China focus considerably on the family, and therefore, individuals derive their self-definition from their family identity (Hwang, 1990). Confucian ethics underlie values of these cultures where the most important ties for an individual are those between family members and the family is a primary social unit (Hwang, 1990). Family businesses founded by members from such cultures are highly likely to integrate the family and business identities and roles with the family dominating. For instance, Hwang notes that the need rule dominates in Chinese family businesses where every member does their best in their work and takes resources to meet their needs. Formal rules of management are not valued and family members are appointed to key posts even as the business grows, and the firm "turns out to be a relation-oriented social unity" (Hwang, 1990, p. 607).
Rural/Urban Cultures. Marked differences in rural and urban cultures can also drive a family enterprise's location on the integration--segmentation continuum. Urban cultures typically promote individualism, self-seeking behaviors, and short-term orientation (Astrachan, 1988). Time and space are rigidly defined and compartmentalized, and family firms rooted in such cultures are more likely to segment the business and family domains. Conversely, rural cultures emphasize community and a diffuse sense of time and space. Vanek's (1980) studies of rural families indeed indicate that work, family, and leisure time and roles were not segregated, suggesting that family firms rooted in such cultures will tend to integrate the domains.
Family Culture. Families vary in their cultures too, encouraging differing levels of integration. Two aspects of family culture based on the Circumplex Model of Marital and Family Systems are particularly salient in this regard: family cohesion and flexibility (Olson & Gorall, 2003). Family cohesion pertains to the emotional bonding among family members ranging from enmeshed/overly connected, to very connected, to connected, to somewhat connected to disengaged/disconnected. In addition to emotional bonding, other dimensions of cohesion involve boundaries, coalitions, time, space, friends, decision making, interests, and recreation. Because integration enables additional connectedness, business families that tend to be overly connected will likely integrate family and business more than those that are on the other end of the cohesion anchor. Family flexibility, another cultural dimension, refers to the degree of change allowed in its leadership, role relationships, and relationship rules. Families can range from overly flexible/chaotic, to very flexible, to flexible, to somewhat flexible, to rigid/inflexible. Arguably, rigid family cultures are more likely to segment, whereas more flexible families are likely to have highly permeable boundaries and integration between family and business.
Organizational Life Cycle. Several organizational life cycle theorists have long argued that the culture of an organization evolves as a firm develops and thereby shapes its behavior (Cameron & Whetten, 1981; Gersick, Davis, Hampton, & Lansberg, 1997). These theorists posit that the firm's challenges and opportunities vary across its life cycle, driving the internal context and choices that firms make. Ward (1986) similarly outlines three stages of family business evolution: early, middle, and late stage. The early stage is marked by an entrepreneurial culture fueling a desire for the firm to survive. In this stage, resource needs are high and the founder engages in less planning and more spontaneous decision making with a vision and passion for the business. While early stage founders will vary to the extent they merge their business and family identities, they are more likely to draw on their family social networks and financial resources and values. Moreover, the family and business needs are likely to be consistent and the family business most likely represents a substantial portion of the owner's assets. Furthermore, in most family businesses the owner serves as the president for over 20-30 years, a sufficient time in which to influence the business culture and identity (Ward, 1986). These institutional conditions are likely to steer the firm toward integration of family and business identities. In the middle stage, the enterprise grows and flourishes, and more intermingling of finances is likely, particularly in the direction of business to family as a way to reward members for years of sacrifice. Debt is also likely to be paid off, reducing external influence. Additional family members are likely to join a flourishing enterprise during this period, fueling the integration of family and business domains. As the organization matures, relying exclusively on family members for managing the business is less feasible, promoting nonfamily influence and more separation of family and business. At the same time, business capital needs to fund new strategies increasingly pushing the firm to seek debt. Thus, increased professionalization and external equity nudge the firm toward more segmentation.
Governance Implications of Integrated Identities
When there are children in the business, there is tremendous loyalty and trust and dependability and feeling of ownership and caring. The disadvantage is that it is very hard to wear two hats as a boss and as a parent.
--Stew Leonard, Sr. in Mancuso and Shulman (1991, p. 93)
In this section, we advance the argument that integrated family and business identities can potentially contribute to a culture of identification and shared identity that have functional consequences; however, integration also evokes blurting between roles that can foster dysfunctional conflicts. High segmentation evokes the reverse effects in that it can dilute the level of identification but reduce role blurting. This approach of conceptualizing integration-segmentation as two ends of the same concept surfacing the opposite effects is similar to that taken by those doing boundary research (Ashforth et al., 2000; Nippert-Eng, 1996). Also, the degree to which a firm experiences the pros and cons of integration will depend on the level of integration/segmentation, which in turn depends on the contingencies discussed. Thus, in the following sections we present the pros and cons of high levels of integration but note that the reverse is true for high levels of segmentation.
Identification and Shared Identity: A Key Advantage of Integrated Identities Comingling of family and business identity can potentially promote an "idiosyncratic pool of resources and capabilities" or "familiness" that can be the basis for competitive advantage (Habbershon, Williams, & MacMillan, 2003, p. 460). These resources are path dependent and based fundamentally on social phenomenon such as strong identification of stakeholders with the family business. Organizational identification, "the degree to which a member defines himself or herself by the same attributes that he or she believes define the organization," is a cognitive state that influences behavior (Dutton, Durkerich, & Harquail, 1994, p. 39).
First, a shared identity and strong identification can more easily form in an integrated context based on kinship, familiarity, commonality of personal characteristics, history, and extended period of experience (Tagiuri & Davis, 1996). Family ties and shared experiences build an "emotional bond [that] ... enables a person to 'feel' as well as to 'think' like the other" (Lewicki & Bunker, 1996, p. 122), helping to identify with a common set of goals and norms. Furthermore, since the reputation of the family and the business are intertwined and the family name carries with it a particular identity that has meaning for those within and outside the firm, family members are likely to police one another's behavior. Furthermore, fulfilling family obligations can be a source of pride, serve as an important nonmonetary incentive, and provide a common rallying ground for members of the family firm (James, 1999).
Shared identity and common ground can enhance the quality of decision making (Mustakallio, Autio, & Zahra, 2002). The history of interaction among individuals allows one to know each other's strengths and weaknesses, enhancing predictability of behavior. This deep knowledge can serve as a lubricant for smooth ongoing communications within the organization that are essential for high-quality decisions (Steier, 2001). Based on a study of Inc. 500 firms, Ensley and Pearson (2005) found that family involvement, particularly parental involvement in the top management team, leads to more effective behavioral dynamics. Teams with parental involvement had a stronger belief in their abilities, a greater sense of belonging to the team, greater consensus on the strategic direction of the firm, and less detrimental relationship conflict. Thus, integration of the family and business identities provides a basis for firms to develop a unique set of behavioral dynamics such as higher cohesion, potency, and shared strategic consensus that can be particularly valuable in dynamic markets.
Integration of the family and business identity can be pivotal for encouraging entrepreneurial activity. The start-up stage of a business is marked with considerable uncertainty and therefore access to capital and labor markets is limited. During this entrepreneurial stage, the firm can benefit when the horizons of decision makers are lengthened. Families play an important role in filling this void and represent a critical and often used resource for start-up businesses (Chrisman, Chua, & Steier, 2005; Steward, 2003). Research across a number of cultures indicates that during the early stages of a start-up, families play an important role in the mobilization of financial resources and the provision of human and physical resources (Aldrich & Cliff, 2003: James, 1999; Sanders & Nee, 1996). Furthermore, family employees may accept lower salaries so that revenues can be reinvested in the company, extending the time horizon that is critical for the success of entrepreneurial firms. These investments can be an important source of patient capital (Gundry & Welsch, 1994).
Integration of family and business identities can foster the entrepreneurial spirit in more mature firms as well. (1) The concentration of ownership and control in a family can enhance the speed of communication between owners who are embedded in common social networks (Carney, 2005); these connections can reduce constraints to decision making and enable a firm to quickly change its course of action, which can be particularly valuable in dynamic environments where first-mover advantages are significant. As noted earlier, the family can also serve as a source of patient capital for new ventures that involve entrepreneurial risk taking. High family ownership and multigenerational family involvement can promote venturing into new markets and investing in new technologies and radical innovations (Zahra, 2005).
The intermingling of the family and business identity and the resulting identification can have a beneficial influence on stakeholder relations (Donnelley, 1988). Not only does close association with a prominent family enable a family firm to raise money, but it can also be valuable for attracting and retaining customers (Donnelley, 1988; Steier, 2001). This close association is also used as a marketing tool, as in the case of companies such as Johnson & Johnson and Longaberger, implying quality, care, and special attention to customers. By projecting themselves as a family company they are leveraging the assumption that family companies have a long-term horizon (Brokow, 1996).
Employee loyalty and identification with the firm can be fostered, particularly if there is a succession of competent family managers (Donnelley, 1988). The presence of family employees is particularly helpful in employee relations because their loyalty typically spills over to the next generation. For example, in his research, Donnelley found that in a small metal treatment company the employees and unrelated executives were actively concerned about training the owner-manager' s son because they did not want "outsiders" owning and managing the organization. Thus, nonfamily employees identified with the company and were engaged in perpetuating integration of the family and business systems. Yet such integration of domains poses significant costs, which we discuss in the next section.
Blurring between Roles: A Key Disadvantage of Integrated Identities
Considerable integration between the family and business identity entails a significant overlap of roles, promotes role ambiguity--the lack of clear and consistent information regarding the actions required in a particular role--and role conflict--which occurs due to incongruent expectations from two or more roles (Kahn, Wolfe, Quinn, Snoek, & Rosenthal, 1964), and evokes defenses that challenge an individual' s ability to psychologically separate roles (Ashforth et al., 2000; Valcour, 2002). These psychological challenges encourage conflicts from one domain to spill over into the other (e.g., business to family and family to business), making the family firm and the family particularly vulnerable to the negative effects of conflict. In addition, integration creates an atmosphere in which the family firm is more liable to pursue conflicting goals, as the role conflicts among individuals and the special interests of subgroups become aggregated at the firm level.
A family member working in the family business can occupy several roles simultaneously: as a father, a son, a brother, an employee, or an owner. In an integrated environment, the expectations from members within these role sets can be particularly ambiguous and/or conflicting. Relatives may be concerned with family harmony, owners with return on their investment, and managers with improving the operational efficiency. Managers may be unclear about nonemployee family owners' expectations for the business--whether profits should be distributed to them as shareholders or reinvested in the growth of the company. Alternately, stock-owning family members may want higher dividends, whereas family-management team members may favor growth, resulting in conflicting expectations. Similarly, as the family business grows and the second generation enters the arena, uncertainty increases about which of the family members (if any) need to be included in the decision-making process. Thus, the issue as to whether the family exists for the businesses or the business exists for the family is a particularly salient dilemma faced by integrated family firms and evokes considerable ambiguity and conflict (Eys & Carron, 2001).
Tensions arising from role blurring can evoke defenses such as splitting and repression or denial (Smith & Berg, 1987). Splitting entails polarizing contradictions and encouraging the formation of subgroups, whereas denial involves ignoring the tension and pretending that it does not exist. While these defenses can give temporary relief from tensions, in the long run they have dysfunctional effects such as conflict, distrust, and resistance to change. Splitting coupled with projection can also be an important source of affective conflict among members within a family firm (Rizzo, House, & Lirtzman, 1970). These defenses at the individual level can encourage subgroups such as family and nonfamily, or "core family" and others. Conflict between groups can center on emotions, resulting in competing groups viewing the other as the "enemy." Tight cohesion within groups can reduce healthy debate essential for the emergence of entrepreneurial ideas. Difficult emotionally charged decisions such as succession, evaluation, and compensation of family employees may get polarized, stifling communication, further pulling the groups apart. Several family businesses such as the Steinbergs and the Guccis, among several others, have experienced such dysfunctional conflict among its members, adversely affecting the business and the family well-being.
Denial of tensions between the family and business needs can reduce interactions and communications with cross-realm participants and cause participants to psychologically withdraw from the decision-making process (Sell, Brief, & Schuler, 1981). Consequently, status quo may be maintained and the need for continuous change may be denied even when change is essential for survival, as in the case of firms competing in fast-paced environments. The use of such defensive mechanisms can result in key decisions such as succession or divestiture not being confronted. In fact, research indicates that only 30% of the family firms in the United States move to the second generation and only 10% make it to the third generation, in part due to the failure to plan for succession (Handler & Kram, 1988). Not addressing head-on such key decisions allows conflict and distrust to fester.
Defenses evoked by tensions within integrated family firms can have significant implications for nonfamily employees. It creates incentives for a family firm CEO to allow family employees to free ride or to lavish them with perquisites that are not given to nonfamily employees. Such actions can lead to perception of unfairness. For instance, Poza, Alfred, and Maheshawi (1997) provide evidence that nonfamily employees are typically less satisfied than family members with the equity of compensation despite the fact that nonfamily managers in their sample were paid a premium, varying from 15.4 to 29.5%. They also find that nonfamily employees believe that they are likely to be excluded from senior positions. Consequently, real and perceived unfairness to nonfamily employees can erode trust within the family business.
Advantages and Disadvantages of Differential Permeability
As discussed earlier, in the state of differential permeability as opposed to full integration or full segmentation, each aspect of the continuum (e.g., image culture, personnel policies) as well as manifestations within each aspect might be at a varied level of integrating the family and business identities. Clearly, this state allows for leveraging the best of both worlds (family and the business) and mitigating the disadvantages of extreme integration or segmentation. But boundary theory and identity research would suggest that there are costs as well to having dimensions vary along the segmentation-integration continuum (Ashforth et al., 2000; Nippert-Eng, 1996). We discuss in succeeding sections both aspects of differential permeability.
Advantages to Differential Permeability. One key advantage to the state of differential permeability is that the firm is able to keep negative aspects of one domain from spilling into the other while also being able to integrate positive or strategically advantageous aspects of one domain into the other. Leaders and managers are able to somewhat "cherry pick" those elements they want to keep in versus keep out of the family or business. Another important benefit of differential permeability is that the dimensions can compensate for one another to balance out any extremes. That is, the strengths of one aspect make up for the weaknesses of another. Indeed, we might see that a firm's strict hiring policies (segmentation) could compensate for having a work climate that is too informal/familial (integration). Another advantage of differential permeability is that it avoids excessive homogeneity that can leave the firm vulnerable by putting "all of its eggs in one basket," constraining its ability to respond to diverse demands (cf. Linville, 1983). Hence, the diversity of approaches inherent in differential permeability can be used as a strategic leverage for the firm.
Disadvantages of Differential Permeability. One key disadvantage of differential permeability is that this "cherry picking" approach requires work--boundary work--and therefore will incur costs to the organization in terms of cognitive attention, behavioral effort, and potential emotional toll. That is, differential permeability does not come free to the organization and will require effort both to arrive at the point of desired balance between integration and segmentation as well as to maintain that desired level. This work involves at least four steps: (1) deciding upon a general level of integration/segmentation desired by the firm; (2) acknowledging the need for boundary work to achieve differential permeability; (3) diagnosing which aspects of the family and the business to integrate and which to segment; and (4) implementing these decisions via boundary work.
As another disadvantage to differential permeability, the dimensions can come into unintended conflict with one another, creating inconsistencies in the firm's work climate, policies, etc. For example, sizeable nonfamily stock ownership (segmentation on the ownership/governance dimension) could severely conflict if there is a substantial increase in family employment with the next generation (integration in the personnel dimension). These incongruities can result in a work climate of ambivalence, wherein individuals experience intensely mixed emotions toward the organization, which lowers morale and productivity (Pratt, 2000). A third cost of differential permeability is that the inconsistency of integration--segmentation is more difficult to manage and be lived by employees on a day-to-day basis. The dissimilarity across aspects translates into more deciphering and decision making, which takes up cognitive, affective, and behavioral resources. Evidence for this has been found at the individual level of analysis in regard to multiple identities and roles (e.g., Ashforth et al., 2000; Nippert-Eng, 1996), and we argue that a similar logic would apply at the organizational level. Therefore, while differential permeability offers a promising route to leveraging the best of the family and business domains, the firm has to consciously invest emotional, cognitive, and structural investments to actively manage the multiple dimensions of its identity.
Boundary Work as a Means of Managing Identity Integration
In short, the inherent tensions in family business suggests that rather than simply advocating or discouraging the family or the business identity, in order to leverage the positive potential while curtailing the negative, it is important to manage this tension. We posit that "boundary work" is the ideal mechanism by which to manage this tension.
The term "boundary work" was invoked by Nippert-Eng (1996) in her groundbreaking research on work-family relations and refers to the actions taken by individuals to create, maintain, reduce, or change a boundary between two entities. Other research from a variety of disciplines such as anthropology, work-family relations, and social psychology (e.g., Ashforth et al., 2000; Clark, 2000) have used the principles of boundary work to demonstrate how individuals or collectives can actively manage the interface of two cultures or identities. Hence, boundary work can move a family business toward more or less integration. And it can do this either universally (for all aspects of the identity) or particularly (for specific dimensions).
Several specific strategies for doing boundary work have been documented in previous research, and many of these strategies are directly applicable to boundary work in the family firm. To illustrate, we discuss several tactics and how they might apply to the family business context. One tactic, called "sorting and owning," involves deciding to which domain (e.g., family or business) any given behavior, idea, policy, or attitude belongs and categorizing it accordingly (Whitfield, 1993). By consciously sorting and owning, leaders in family businesses can more easily decide which facets of life should belong in each domain and endeavor to reinforce these decisions both individually and collectively. Another tactic addresses the monitoring of boundary violations, which involves either (1) keeping track and fixing intrusions of one domain into the other or (2) addressing the neglect of one domain at the expense of the other (Katherine, 1991). Research in work-family balance has advocated using "border-crossers," a tactic in which the people who coexist in both domains are utilized to interpret the boundary for others and to bring elements of one domain into the other (Clark, 2000). In the family business context, these border-crossers are typically family members who are also employees or managers of the business. Management can consciously leverage such cross-realm knowledge to educate members of each domain, which can potentially reduce conflict and increase collaboration. Also from the work-family research area, qualitative research has shown how manipulating physical space and boundaries can be a useful boundary work technique (Kreiner et al., 2006). This tactic involves erecting or dismantling physical borders (e.g., walls) or creating or reducing physical space (e.g., commutes) between domains. These tactics may be particularly valuable to young family businesses, where it is more common to share home and work space. Controlling time in each domain is another tactic, which involves behaviors that manipulate temporal aspects of life such as keeping separate or same calendars, blocking off time for each domain, etc. (Nippert-Eng, 1996). Finally, using "markers" involves manipulating cultural manifestations to be the same or different in each domain (Nippert-Eng, 1996). For example, management can chose whether or not to display clear symbols of the family (e.g., photos) as part of the workplace decor.
In addition, any aspect on the segmentation--integration continuum (Figure 1) can be used as a boundary work tactic by consciously managing it. For example, aspects of culture, image, personnel, governance or contractual relations with the family (see Figure 1) can be consciously altered to increase or reduce the level of integration. Or creating and reinforcing mechanisms for clarifying roles may be useful to nudge a certain dimension of the integrated identity toward segmentation. For example, clear guidelines and policies regarding family entry into the business, compensation, and promotion within the business can reduce role ambiguity.
Furthermore, reconceptualizing traditional family business structures, processes, and practices from a boundary management perspective can be useful. For instance, traditional structures such as family meetings, councils, and assemblies can play varying roles based on the level of family-business integration (Dyer, 1986; Habbershon & Astrachan, 1997). When there is minimum overlap between the family and business identities, these structures can be vital in nudging the firm toward more integration. Family forums can help nourish nonemployee stakeholders' financial and emotional stake in the family firm and at the same time enable family employees intimately involved in the business to connect with the business family. These structures can serve as additional bridges between the two identities, offering means of fostering identification and tapping the "familiness" of the firm. When there is significant family--business integration, family councils can serve a boundary-clarifying role or can serve as "border keepers" (Clark, 2000, p. 761) by drafting family mission statements and family constitutions. Such formal documents can serve to clarify the rights and responsibilities of family members and develop a shared set of norms and expectations for the entire family, particularly with respect to potential conflict areas, thereby minimizing the potential for conflict. The topics covered and the level of detail may consequently depend on the nature and degree of overlap between the two systems.
The family firm's board of directors can also play a significant role in managing the boundary between the family and the business. When there is a significant overlap between the family and the business, the inclusion of outsiders on the board can be significant. While the family business literature recommends the recruitment of outsiders on the board in order to access critical external resources, from a boundary theory perspective, outsiders' ability to help with boundary work can be an important additional criterion for inclusion on the board. In this regard, a member who is known and trusted by several family members can be significant in lessening the potential for family conflict (Ward & Aronoff, 1991). On the other hand, where there is minimum overlap, the inclusion of family members, particularly those not employed within the firm, can serve to nudge a firm toward integration. The primary consideration in moving toward more or less integration is for the boundary work to be selective, not arbitrary. That is, the most successful mechanisms would be those that strategically capitalize on the strengths of the identity without compromising important distinctions between family and business roles. The contingencies discussed earlier will also influence the mechanisms used and their effectiveness.
In this paper we demonstrate how boundary theory can be a powerful theoretical lens through which to view family business dynamics and make four major contributions. First, we build on family business systems theory and draw on the identity and work--family literatures to provide a boundary framework within the family business context. The boundary framework we present illustrates how family firms can be arrayed on a continuum anchored by high or low levels of integration between family and business identities. Whereas traditional family business systems theories treat the issue of integration/segmentation as binary--an "either/or" approach that principally focuses on the need to acknowledge family and business systems as coexisting--our framework goes beyond a binary approach to examine the degree of integration or segmentation. It highlights several dimensions in addition to ownership and personnel for understanding the overlap between family and business identities. Second, we discussed the individual and contextual factors that determine this overlap. Third, we outlined the specific advantages and disadvantages of various states. Finally, we have demonstrated practical implications of this approach by examining the mechanisms that enable firms to strategically choose and negotiate the level of integration between business and family identities. This perspective raises additional avenues for research on family business dynamics.
Directions for Future Research
Three avenues for future research are particularly noteworthy: qualitative research on family businesses to understand unique boundary work within family firms, differential permeability and performance, and how multiple family identities may evolve and interact with the business identity. We discuss each of these avenues in the succeeding sections.
Qualitative Research to Uncover Unique Boundary Work within Family Firms. We have drawn from work/family boundary theory and the family business literature to describe varying boundaries between family and business domains across family firms and individual-level and organizational-level strategies of managing work-family domains. However, qualitative research can be powerful in understanding how boundaries evolve within family firms and for uncovering additional cognitive and behavioral processes used specifically by family business participants to manage the boundaries between the family and the business. For instance, what are the specific individual-level strategies used by family business employees to negotiate between the two worlds? Do these strategies vary based on their relationship to the business family (e.g., related by birth or marriage, level in the organization)? Similarly, what are the organizational boundary management strategies? For instance, do family firms have specific rituals or routines in place to help individuals negotiate boundaries? Qualitative studies of family businesses of varying sizes can be helpful in discovering additional means through which family firms create, change, and manage boundaries between domains. Future research examining the effectiveness of these boundary mechanisms and those outlined in this paper will be fruitful.
Differential Permeability and Performance. Given that extreme integration or segmentation can disadvantage a family firm, differential permeability offers a way to leverage the benefits of both worlds; a central issue is, what combination of dimensions add most value? In other words, if a firm is highly integrated with regard to personnel but segmented in terms of image or ownership, what are the consequences for performance? In addition to the individual and situational contingency factors discussed earlier, the nature of the family business needs to be considered. For example, in a dynamic fast-paced market, a firm may have to seek financial integration (source of patient capital) but may need to balance this integration with more segmenting policy with respect to personnel hires from outside. In service sectors, the integration of personnel may be central, underscoring the need for segmenting policies. Clearly, individual family circumstances (e.g., number of individuals interested in participating in the family business, the family heritage, etc.) will moderate this relationship.
Multiple Family Identities and Managing Boundaries. While we have discussed the case of dual identities the family and business--as firms grow and as multiple generations enter the family firm, the issue of multiple family identities intersecting with the business identity may occur. Considerable theorizing is needed to understand how multiple family identities may form and the implications of such plurality. The identity boundary perspective can provide a significant insight on these issues (Pratt & Foreman, 2000). For instance, in addition to the individual and contextual boundary determinants discussed in this paper, the plurality of family identities may depend on the social, political, and economic strength of the families that get involved with a family business. Key events within the organizations (such loss of the founder or succession of the firm to a family member through marriage) can trigger the birth of multiple family identities (Albert & Whetten, 1985). The existence of multiple identities may help the family firm respond more effectively to a broad range of stakeholders and enhance its capacity for creativity and learning. On the other hand, the presence of multiple identities may exacerbate conflict, causing the family firm to expend valuable resources resolving these conflicts, or cause ambivalence, leading to paralysis (Pratt & Foreman, 2000). Managing the boundaries among these identities can have a wide-ranging impact on the survival of the family firm. Over time, a family firm may choose to delete certain identities, compartmentalize these multiple identities through physical, special, and symbolic boundaries or integrate them into a distinct new family identity. Yet others may choose to aggregate some family identities by forging links between them. The potential for the presence of these responses and their implications is an additional avenue of research from a boundary perspective.
In sum, our boundary framework enriches extant understanding of family firms by highlighting the degree of overlap between the family and the business identity. We also provide an understanding of the determinants and consequences of the various levels of overlap and offer ways of managing this overlap. In addition, the boundary perspective we use opens several avenues of research that can provide additional insight on managing the complex dynamics of family businesses as they evolve.
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(1.) Entrepreneurial ideas may also be stifled, and we note this possibility in the next section on costs of integration.
Chamu Sundaramurthy is Professor of Management at the College of Business, San Diego State University.
Glen E. Kreiner is Assistant Professor of Management and Organization at the Smeal College of Business at Pennsylvania State University.
We are indebted to Blake Ashforth and Elaine Hollensbe for their insights on earlier versions of the manuscript. Research for this paper was sponsored in part by funding from San Diego State University, College of Business and the Entrepreneurial Management Center; the University of Cincinnati Research Council; and the Family Owned Business Institute at Grand Valley State University. An earlier version of this manuscript was presented at the annual meeting of the Academy of Management, Honolulu, 2005.
Please send correspondence to: Chamu Sundaramurthy, tel.: (619) 594-4845; fax: (619) 594-3272; e-mail: firstname.lastname@example.org
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|Author:||Sundaramurthy, Chamu; Kreiner, Glen E.|
|Publication:||Entrepreneurship: Theory and Practice|
|Date:||May 1, 2008|
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