Interorganizational Familiness: How Family Firms Use Interlocking Directorates to Build CommunityLevel Social Capital Academic Article uri icon

abstract

  • We draw on the concept of communitylevel social capital and apply it to the situation of a familycontrolled public corporation. While traditional agency theory argues that agency costs are minimized in a familycontrolled business (FCB) due to an improved alignment of owner and manager interests, we argue instead that FCBs endure additional agency costs uniquely related to the family firm organizational structure. To mitigate these additional costs, we propose that FCBs use board interlocks to build and maintain communitylevel social capital. That is, the intercorporate network of FCBs generates shared understandings, values, problem solving techniques, and approaches to dealing with family issues. Further, the network generates a level of social support for family business owners and managers grappling with challenges endemic to family control of public corporations. We generate a number of propositions that can be used in future research to test the theory developed here. We conclude with the assertion that the communitylevel social capital generated by the network of FCBs is an important reason for the survival and persistence of individual family firms, despite the existence of additional familyrelated costs.

published proceedings

  • Entrepreneurship Theory and Practice

altmetric score

  • 3

author list (cited authors)

  • Lester, R. H., & Cannella, A. A.

citation count

  • 143

complete list of authors

  • Lester, Richard H||Cannella, Albert A

publication date

  • November 2006