Weathering the Storm: Family Ownership, Governance, and Performance Through the Financial and Economic Crisis

• Published date: 01 November 2016
• Author: Alessandro Minichilli,Andrea Calabrò,Marina Brogi
• DOI: http://doi.org/10.1111/corg.12125
• Date: 01 November 2016

Weathering the Storm: Family Ownership,

Governance, and Performance Through the

Financial and Economic Crisis

Alessandro Minichilli*, Marina Brogi and Andrea Calabrò

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: Considering the recent f‌inancial and economiccrisis as a unique exogenous shock, our study inves-

tigates the f‌inancial performance of family-controlled f‌irms in “steady-state”conditions as opposed to situations of severe eco-

nomic distress.In addition, we focus our attention withinfamily f‌irms in order to tease out the leadership (family or non-family

CEO) and family ownership (family ownership concentration or dispersion) conditions that allow some governance arrange-

ments to perform better than others during an economic downturn.

Research Findings/Insights: Examining the entire population of Italian industrial family and non-family publicly listed

companiesover the period 2002–2012, we observe a signif‌icantly and consistentlybetter performance of family-controlled f‌irms

during the f‌inancial and economic crisis, a f‌inding that proves to be robust to several analytical specif‌ications, as well as to

different performance measures (ROA, ROE). Then, focusing on family f‌irms only, we f‌ind that mixed conf‌igurations (family

CEOs with relatively lower family ownership concentration) produce better performance in the face of an external hazard.

Theoretical/Academic Implications: Our studyconf‌irms the pivotal assumptionof the socioemotional wealthperspective that

the advantagesof family f‌irms show up exactly whenownership is at stake. Our resultsalso add to the growingliterature on the

resilience of family f‌irms, showing that they are more able than others to absorb exogenous shocks.

Practitioner/Policy Implications: Our f‌indings suggest the importance of crafting governance structures well in advance of a

crisis. Our research speaks to policymakers, indicating the importance of family f‌irms for national economies, and the political

opportunity to sustain their growth and managerial development.

Keywords: Corporate Governance, Family Firms, Financial Crisis, Ownership, Leadership

INTRODUCTION

“Someofthereasonsforthedeclineofpubliccompaniesandthe

success of alternatives may prove temporary.…The next decade

may not be aseasy for the emerging-world’s family conglomerates

as the past decade. But there is also something more fundamental

going on: these various corporate forms have all learned how to

manage their problems better than public companies have, while

continuing to exploit their advantages.”

(The Big Engine That Couldn’t, The Economist, May 19, 2012)

It is now widely accepted that family-controlled f‌irms

represent the dominant economic and social force world-

wide (La Porta, Lopez-de-Silanes, & Shleifer, 1999; Morck &

Yeung, 2003), not only in countries where family ownership

is predominant (most of Continental Europe, Asia, and the

Middle East), butalso in the United States –where they make

up around 70 percent of all publicly traded f‌irms (Sirmon &

Hitt, 2003), and one third of the largest 500 companies in the

S&P index (Anderson, Mansi, & Reeb, 2003). This dominance

explains theincreasing attention that scholars have devoted to

understanding the advantages and disadvantages of family

involvement in ownership (Anderson & Reeb, 2003; Maury,

2006; Miller, Le Breton-Miller, Lester, & Cannella, 2007), or

management (Kowalewski, Talavera, & Stetsyuk, 2010; Lee,

2006; Villalonga & Amit, 2006), as well as its implications for

f‌irm f‌inancial performance. Nevertheless, despite extensive

empirical efforts, f‌indings on the effects of family ownership

and leadership on performance have proved inconclusive

(Carney, Gedajlovic, Heugens, van Essen, & van Oosterhout,

2011; Gómez-Mejía, Cruz, Berrone, & DeCastro, 2011;

Sacristan-Navarro, Gomez-Anson, & Cabeza-Garcia, 2011).

Considering the recent global f‌inancial and economic crisis

as an unparalleled natural exogenous shock, we build on

*Address for correspondence: Alessandro Minichilli, Department of Management and

Technology and CRIOS, Bocconi University, Via Roentgen 1, 20136 Milan, Italy. Tel:

+39-02-5836-2543; Fax: +39-02-5836-2530; E-mail: alessandro.minichilli@unibocconi.it

© 2015 JohnWiley & Sons Ltd

doi:10.1111/corg.12125

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Corporate Governance: An International Review, 2016, 24(6): 552–568

insights from prospect theory (Kahneman & Tversky, 1979;

Tversky & Kahneman, 1981, 1986), and the socioemotional

wealth (SEW) approach (Berrone, Cruz, & Gómez-Mejía,

2012; Berrone, Cruz, Gómez-Mejía, & Larraza-Kintana, 2010;

Gómez-Mejía et al., 2011; Gómez-Mejía, Haynes, Nuñez-

Nickel, Jacobson, & Moyano-Fuentes, 2007), to explain

whether and how benef‌its of family ownership are greater

during a shock. Specif‌ically, we build on the behavioral

models of decisionsaccording to which risk preferencesof de-

cision makers will change with the framing of problems and

their economic “prospects”. Among these models, the SEW

approach suggests that family owners will reduce emphasis

on exploiting family SEW’s advantages in favor of greater fo-

cus on short-term f‌inancial performance when external eco-

nomic conditions threaten f‌irm survival and thus long-term

(SEW) benef‌its for thefamily (Berrone et al., 2012). Unlike tra-

ditional agency or stewardship theories, behavioral models,

and particularly SEW, allow for a f‌iner-grained situational

analysisof family behaviors and their consequencesunder dif-

ferent circumstances. Moving from these assumptions, we

theoretically and empirically contrast and test the f‌inancial

performance differences of family versus non-family f‌irms in

“steady-state”conditions as opposed to situations of severe

economic downturn. In this way, we introduce an important

contextual inf‌luence to resolve the long-lasting dispute about

whether family f‌irms perform better than those with other

ownership forms (see, e.g., Miller et al., 2007).

After establishing the superior ability of family f‌irmsto per-

form better f‌inancially than their non-family peers, we focus

our attentionwithin family f‌irms, in orderto tease out the lead-

ership (family or non-family CEO) and family ownership

(concentration or dispersion) conditions that allow specif‌ic

governance conf‌igurations to perform better than others

during an economic downturn. Following increasing calls to

more deeply investigate the contingent quality of ownership

and governance designs and conf‌igurations (Aguilera,

Filatotchev, Gospel, & Jackson, 2008; Misangyi & Acharya,

2014), our resultscontrast with and contribute to recent litera-

ture comparing the effectiveness of different ownership and

leadership arrangements in family f‌irms (Miller, Le Breton-

Miller, Minichilli, Corbetta, & Pittino, 2014; Miller, Minichilli,

& Corbetta, 2013).Specif‌ically,while we establish the superior

performance of family CEOs during crisis –as opposed to

their inferior performance in large listed companies in

“steady-state”conditions (Miller et al., 2013) –we also f‌ind

that family CEOs take advantage during a crisis of the re-

source contribution of more distributed family ownership,

i.e. when multiplerelatively large owners from the same con-

trolling family share the control of the company. Contrary to

conventional wisdom and extant research investigating

family f‌irms in steady-state conditions –which has shown

up the superior performance implications of family CEOs

acting under more concentrated ownership structures (Miller

et al., 2014) –our results demonstrate howenvironmental tur-

bulence can be critical to assess the importance of having

greater variety in ownership resources instead of one domi-

nant family blockholder.

We address these questions and discuss the theoretical and

managerialimplications of our results by examiningthe entire

population of companies listed in the Italian stock market.

There are two reasons for this choice. First, the Italian stock

market includes family-controlled companies of all sizes, in-

cluding brands known worldwide such as Fiat (now FCA –

Fiat Chrysler Automobiles), Autogrill, Mediaset, Brembo,

Campari, Luxottica, and Tod’s, to name just a few. Second,

Italy has suffered more than other countries from a deep

f‌inancial and economic crisis, characterized by a signif‌icant

reduction in purchasing power and a drop in aggregate de-

mand with persistent consequences for the entire industrial

system.

Our study contributes to family business, corporate gover-

nance, and strategic leadership literatures, advancing at the

same time the ongoing debate and critique on the usefulness

of SEW as an emerging paradigm in the family business f‌ield

(e.g., Miller & Le Breton-Miller, 2014). First, our results

advance family business literature in its quest for the condi-

tions that allow the supremacy of family ownership and

management. Beyond asserting the advantages of family

ownership in adverse market situations, we focus on the

governance and leadership conditions that determine an in-

crease in performance within family f‌irms. By contrasting

and complementing evidence that family governance ar-

rangements highly depend on specif‌icf‌irm’s characteristics

(Miller et al., 2013, 2014), we establish the paramount impor-

tance of external contingencies, that even reverse the effect

found by previousresearch in steady-statesituations. In doing

so, our study alsofollows recent calls to strengthenthe design

of multi-level investigations considering different governance

levels within the same f‌irm (Miller et al., 2014; Yu, Lumpkin,

Sorenson, & Brigham, 2012). Second, and following recent

quests to investigate leadership also in entrepreneurial and

family contexts (Simsek, Jansen, Minichilli, & Escriba-Esteve,

2015), we contribute to expand the strategic leadership liter-

aturebyassertingtheimportanceofleaders’characteristics

under given ownership structures, as well as their differential

effect in turbulent vis-à-vis stable environments (Finkelstein,

Hambrick, & Cannella, 2009). Last and importantly, by ob-

serving that most of the advantages of family ownership

and leadership show up in adverse conditions, our study

supports prospect theory predictions that decision makers

will exhibit more risk-seeking preferences when faced with

negatively framed prospects (as in crisis situations). This im-

plication extends to SEW expectations concerning contingent

behaviors of family actors (Berrone et al., 2012), suggesting

how, in light of severe hazards, family owners will turn

their preferences from “aspirational”to “survival”, making

family f‌irms more resilient than others (Chrisman, Chua, &

Steier, 2011; Villalonga & Amit, 2010; Walsh, 2006). In this

way, we join the ongoing SEW debate by identifying one

potential important explanation of the rate of substitution

between economic and non-economic utilities of owners

(Leitterstorf & Rau, 2014), as well as to distinguish

“restricted”versus “extended”SEW priorities (Mi ller & Le

Breton-Miller, 2014).

THEORY AND HYPOTHESES

Family Ownership and Firm Performance

Although there is no unanimity on the relationship between

ownership and control of a f‌irm and its organizationalperfor-

mance, several scholars have devoted considerable effort to

553WEATHERING THE STORM

© 2015 JohnWiley & Sons Ltd Volume 24 Number 6 November 2016