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Research Scholar's Abstracts 2010 - Torsten Pieper, rebecca Guidice, Neal Mero

Toward a Theory of Accountability in Family Businesses

Torsten M. Pieper, Rebecca M. Guidice, and Neal P. Mero
2010

Empirical evidence shows that formal control mechanisms are not frequently used in family business. For instance, a recent survey (N=1,031) of American family businesses (MassMutual, Kennesaw State University, & Family Firm Institute, 2007) found that 60% of the sample firms did not have a full-time employee responsible for human resource (HR) management (e.g., recruiting, performance appraisals, and benefits administration). Even more, over 70% of the sample firms did not have a board of directors. Given this evidence, the question arises how family businesses monitor and control individual behavior if not through formal mechanisms such as HR management or the board of directors?

Conventional agency theory would predict that monitoring is not a problem in family business, due to unification of ownership and control (Jensen & Meckling, 1976). However, this view neglects the potential negative consequences of family influence in terms of nepotism, hold-up, and adverse selection (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Schulze, Lubatkin, & Dino, 2002, 2003; Schulze, Lubatkin, Dino, & Buchholtz, 2001). Therefore, other control mechanisms likely have to exist that curb individual self-serving behavior. Trust (Steier, 2001), stewardship attitude (Zahra, Hayton, Neubaum, Dibrell, & Craig, 2008), and informal control mechanisms (Mustakallio, Autio, & Zahra, 2002) such as goal alignment (Pieper, Klein, & Jaskiewicz, 2008) and culture (Ainsworth & Cox, 2003) have been identified as alternative mechanisms of control in family business.

Despite the significance of these findings, these disparate streams of research have yet been integrated into a coherent framework. The purpose of this research proposal is to build a theoretical foundation for research on governance in family business. We propose that accountability theory is well suited for this purpose because it is allows the integration of alternative approaches to governance (formal and informal) and carries a more neutral connotation than agency or stewardship orientations to governance.