DIVIDED LOYALTIES: GOVERNANCE, CONDUCT AND PERFORMANCE IN FAMILY AND ENTREPRENEUR BUSINESSES.
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The social embeddedness of major owners and managers has a profound effect on the conduct and performance of their businesses, even in this study's Fortune 1000 enterprises. For example, family owners' and managers' ties to one another can sometimes supersede their ties to the business and its non-family stakeholders, and thereby shape firm strategy and outcomes. To examine this thesis this paper distinguishes three basic governance regimes: family businesses (FBs) in which multiple owner- executives are related by blood, entrepreneur businesses (EBs) in which an individual entrepreneur or unrelated parties are major owners or owner-executives, and all other public firms. Family owners/executives are argued to be motivated to distribute wealth and position to other family members, keep the business in the family, and respect family interests and traditions. Thus we find family businesses to entrench their executives, pay higher dividends, avoid financial leverage, and exhibit many forms of strategic conservatism. Their total shareholder returns and growth are only average. Consistent with our thesis, these FB results are significantly conditioned by the degree of the family embeddedness of owners and managers, as reflected by their roles, status and generation. On the other hand, businesses in which unrelated entrepreneurs serve as major owners or owner-executives (EBs) are unencumbered by such family ties: they are freer to pursue business-building priorities. We find them to pay lower dividends, invest more heavily in capital projects, and accumulate resources. They outperform the market in total shareholder returns and growth, and show higher levels of market risk.
